INSPIRING
CONFIDENCE
IN THE FUTURE
PHOENIX GROUP HOLDINGS PLC
ANNUAL REPORT & ACCOUNTS 2019
In this Report
Key Performance
Indicators
Other Performance
Indicators
STRATEGIC REPORT
What we do ������������������������������������������������� 2
The Phoenix Group timeline ������������������������ 4
Chairman’s Statement ��������������������������������� 6
Group Chief Executive
Officer’s Report ������������������������������������������� 8
Cash ����������������������������������������������������������� 12
Resilience ��������������������������������������������������� 14
Growth ������������������������������������������������������� 16
Our Markets ����������������������������������������������� 18
Our Operating Structure ���������������������������� 22
Our Key Products �������������������������������������� 23
Our Business Segments ��������������������������� 24
Our Business Model ���������������������������������� 26
Our Strategy and KPIs ������������������������������� 30
Business Review ��������������������������������������� 38
Risk Management ������������������������������������� 48
Reporting Statements ������������������������������� 58
Stakeholder Engagement �������������������������� 60
CORPORATE GOVERNANCE
Chairman’s Introduction ���������������������������� 74
Board Structure ������������������������������������������ 77
Board of Directors �������������������������������������� 78
Executive Management Team ����������������� 80
Corporate Governance Report ������������������ 81
Board Leadership and
Company Purpose ��������������������������������� 82
Division of Responsibilities ������������������� 88
Composition, Succession
and Evaluation���������������������������������������� 90
Audit, Risk and Internal Control ������������ 92
Directors’ Remuneration report ���������������� 99
Directors’ Report ������������������������������������� 131
Statement of Directors’
Responsibilities ���������������������������������������� 135
FINANCIALS
Independent Auditor’s Report ����������������� 137
IFRS Consolidated
Financial Statements ������������������������������� 147
Notes to the Consolidated
Financial Statements ������������������������������� 154
Parent Company Financial Statements ��� 244
Notes to the Parent Company
Financial Statements ������������������������������� 247
Additional Life Company Asset
Disclosures ���������������������������������������������� 255
Additional Capital Disclosures ����������������� 262
Alternative Performance
Measures �������������������������������������������������264
ADDITIONAL INFORMATION
Shareholder Information ��������������������������266
Glossary ���������������������������������������������������268
Forward-looking Statements������������������� 272
www.
thephoenixgroup.com
£116m
IFRS PROFIT
AFTER TAX
£475m
INCREMENTAL LONG-TERM
CASH GENERATION
APM
£158m
UK OPEN AND EUROPE NEW
BUSINESS CONTRIBUTION
APM
£248bn
ASSETS UNDER
ADMINISTRATION
APM
22%
FINANCIAL
LEVERAGE RATIO
APM
All amounts throughout the report
marked with REM are KPIs linked to
Executive remuneration� See Directors’
Remuneration Report on page 99�
All amounts throughout the report
marked with APM are Alternative
Performance Measures� Read more
on page 264�
£707m
OPERATING COMPANIES’
CASH GENERATION
APM REM
£3.1bn
GROUP SOLVENCY II
SURPLUS (ESTIMATED)
161%
GROUP SHAREHOLDER
CAPITAL COVERAGE
RATIO (ESTIMATED)
APM
23.4p
FINAL DIVIDEND
PER SHARE
£810m
OPERATING PROFIT
APM
94%
CUSTOMER
SATISFACTION SCORE
REM
Phoenix Life only
71%
NET EASY CUSTOMER
EFFORT SCORE
REM
Standard Life only
The acquisition of ReAssure Group plc referenced throughout this report is subject
to regulatory approvals�
INSPIRING
CONFIDENCE
IN THE FUTURE
Phoenix Group is Europe’s largest life
and pensions consolidator.
We are committed to our purpose: To inspire
confidence in the future.
We inspire confidence through our history
and growth, through our track record of
value creation, strategic and financial delivery
and through continued positive engagement
and outcomes for all our stakeholders.
Our culture is founded on a clear set of values:
Passion, Responsibility, Growth, Courage
and Difference.
Delivery of Cash, Resilience and Growth
helps achieve our mission to improve outcomes
for customers and deliver value for shareholders.
Read more on pages 12 to 17.
We are driven by our vision to be Europe’s
Leading Life Consolidator.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
1
STRATEGIC REPORT What we do
PHOENIX
AT A GLANCE
OUR VISION
Become Europe’s
Leading Life
Consolidator
OUR PURPOSE
Inspire confidence
in the future
OUR MISSION
Improve outcomes for
customers and deliver
value for shareholders
GLASGOW
LOCATIONS
EDINBURGH
BIRMINGHAM
LONDON
DUBLIN
BRISTOL
BASINGSTOKE
FRANKFURT
GRAZ
GROUP ASSETS UNDER ADMINISTRATION
£248bn
UK Heritage
UK Open
Europe
£126bn
£97bn
£25bn
As the largest life and pensions
consolidator in Europe, Phoenix is
focused on the acquisition and
management of closed life insurance
and pension funds� This is our
Heritage business�
Transactions in the bulk purchase
annuity market offer a complementary
source of growth for the Group and the
management actions we deliver help
increase and accelerate cash flows�
Alongside this, we have an Open
business which manufactures and
underwrites new products and policies
to support people saving for their
future in areas such as workplace
pensions and self-invested personal
pensions� This Open business is
supported by the Strategic Partnership
with Standard Life Aberdeen plc�
We also have a market leading
brand – SunLife – which sells a range
of financial products specifically for
the over 50s market�
2
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
OUR THREE BUSINESS SEGMENTS
UK Heritage
Our UK Heritage business comprises
products that are no longer actively
marketed to customers� Phoenix is
a leader in the safe and efficient
management of its UK Heritage business�
ASSETS UNDER ADMINISTRATION
5
4
1
2
£126bn
3
1� With-profits
2� With-profit (supported)
3� Unit linked
4� Non-profit (annuities)
5� Non-profit (protection, shareholder
32%
3%
45%
16%
4%
funds and other non-profit))
UK Open
Our UK Open business comprises capital-
light products that are actively marketed
to customers� Phoenix is committed
to growing its UK Open business�
Europe
Our European business provides a platform
for potential future consolidation� It contains
both Open and Heritage products split
across Germany and Ireland�
3
£97bn
1
2
1� Workplace
2� Retail pensions
3� Wrap
3
2
£25bn
1
43%
29%
28%
1� Germany
2� Ireland
3� International Bond
49%
23%
28%
Read more on page 24
Read more on page 25
Read more on page 25
STRATEGIC PRIORITIES
01
IMPROVE
CUSTOMER
OUTCOMES
Improving customer
outcomes is central to our
vision of being Europe’s
Leading Life Consolidator�
02
DRIVE
VALUE
03
MANAGE
CAPITAL
04
ENGAGE
COLLEAGUES
In order to drive value, the
Group looks to identify and
undertake management
actions which increase and
accelerate cash flow�
We continue to focus on
the effective management
of our risks and the efficient
allocation of capital against
those risks�
Our people are at the heart
of our business and key
to the successful growth
of Phoenix Group�
Read more on page 30
Read more on page 32
Read more on page 34
Read more on page 36
OUR VALUES
Passion
Making a positive
impact by caring about
customers, colleagues
and communities�
STAKEHOLDERS
Responsibility
Doing the right thing
by taking personal
ownership�
Growth
Succeeding through
learning, experimenting
and adapting�
Courage
Innovating by challenging
ourselves and others
to do better�
Difference
Collaborating and finding
strength through
respecting and embracing
new perspectives�
Customers
Colleagues
Environment
Suppliers
Community
Investors
Government,
Trade Bodies and
Regulators
MAIN BRANDS
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
3
STRATEGIC REPORT
The Phoenix Group timeline
OUR HISTORY
AT A GLANCE
We inspire confidence through our history
and growth. Phoenix has been a recognised
name in the insurance world since 1782.
It has grown to become Europe’s largest
life and pensions consolidator.
Phoenix
Assurance
established
Standard Life
Assurance
established
Edinburgh
& Glasgow
Assurance
established
Britannic
acquires
Alba Life
Resolution Life Group
acquires UK life operations
of Royal & Sun Alliance
Britannic acquires
life operations of
Allianz Cornhill
Resolution plc
acquires Abbey
National’s life
business
1782
1806
1825 1835
1836
1857
1999
2001
2004
2005
2006
2008
NPI
established
Abbey National
acquires Scottish
Provident
Pearl Group
acquires
Resolution plc
London Life
established
Pearl Loan
Company
established
Pearl Group created
Resolution Life Group
merges with Britannic
Group plc and becomes
Resolution plc
4
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Transferred approximately
£5bn of annuity liabilities
to Guardian Assurance
Liberty
Acquisition
Holdings
(International)
acquires
Pearl Group
Divestment
of Ignis Asset
Management
Successful
completion
of two
acquisitions –
AXA Wealth’s
pension and
protection
businesses
and Abbey
Life Assurance
Company Limited
10m
POLICIES
£248bn
ASSETS UNDER ADMINISTRATION
c.4,400
EMPLOYEES
2009
2010
2012
2013
2014
2015
2016
2018
2019
Phoenix announces the
acquisition of ReAssure
Group plc for a total
consideration of £3.2bn
Successful debt
re-terming and
equity raising
of £250m
Phoenix acquires Standard
Life Assurance businesses
and enhances strategic
partnership with Standard
Life Aberdeen PLC
Pearl Group renamed
Phoenix Group Holdings
and achieves Premium
Listing on the London
Stock Exchange
Investment grade
credit rating
achieved from
Fitch Ratings
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
5
STRATEGIC REPORT Following completion of the acquisition
of ReAssure Group plc (‘ReAssure’),
we will be entrusted with the long-term
savings of over 14 million customers�
It is the Group’s duty to be a good
custodian of these savings and to help
people enjoy a secure and sustainable
retirement� We see our role in helping
customers to save for the long-term as
the very essence of our social purpose
as a business�
During 2019 we have been increasingly
focused on ensuring Phoenix integrates
Environmental, Social, and Governance
(‘ESG’) into our everyday operations�
As a business we are uniting behind a
new sustainability vision “Committing
to a Sustainable Future” and have
identified four areas of commitment
for our sustainability strategy – deliver
for our customers, foster responsible
investment, reduce our environmental
impact and be a good corporate citizen�
These four commitments will be
underpinned by our active approach
to supply chain management and our
strong governance framework�
Chairman’s Statement
BUILDING A
SUSTAINABLE
PHOENIX
Nicholas Lyons
Chairman
2019 was a year of
significant achievement
for Phoenix in which the
Group met all of its
strategic objectives and
took another major step
forward in its growth
journey by announcing the
acquisition of ReAssure
Group plc.
The acquisition confirms Phoenix’s
position as the largest life and pensions
consolidator in Europe� The additional
cash flows, skills and scale the
acquisition brings will enhance
Phoenix’s ability to benefit from a
range of available growth opportunities
and provide increased sustainability
to the Group� The Group’s enhanced
cashflow profile post the acquisition
underpins the Board’s proposal to
increase the final 2020 dividend per
share by 3%� In line with the Group’s
stable and sustainable dividend policy,
the Board has recommended a 2019
final dividend per share of 23�4p�
6
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
We see significant potential for further
value creation in the Bulk Purchase
Annuities (‘BPA’) market� I remain
convinced that the drivers for
consolidation are inevitably increasing
and will tip the balance toward more
institutions seeking to divest their
capital-heavy legacy businesses to
leaders in the Heritage space such
as Phoenix� The Group has the track
record and platform to remain at the
forefront of life consolidation in
the future�
Phoenix is committed to its values
and driven by its long-term vision
of becoming Europe’s Leading Life
Consolidator� We are building an
enduring organisation, underpinned
by mutually beneficial relationships
with key stakeholders, and we will
continue to take a long-term view
to building a sustainable future�
Thank you
All the successes of the past year
are testament to a great team effort
and I would like to thank the Board,
my colleagues, our partners and
stakeholders for their continued
support�
Nicholas Lyons
Chairman
It is our colleagues who will deliver
these commitments and Phoenix’s
shared values of Passion, Responsibility,
Growth, Courage and Difference act
as the guiding principles in everything
we do� Our focus on creating a rich
and diverse working environment is
reflected in our continued status as
one of the UK’s Top Employers�
To foster a deeper connection between
the Board and colleagues across the
Group, Karen Green has been appointed
as Work Place Director for the business
as part of Phoenix’s ‘Employee Voice’
programme� Our Non-Executive
Directors and I feel strongly about
Phoenix’s purpose, values and strategy
and are acutely aware of the increased
engagement and insights that this
programme brings�
However, the interaction of the Board
with colleagues is not limited to this
relationship, and in October the entire
Board took part in engagement
sessions with Phoenix colleagues
across the business�
In 2020, Phoenix bids farewell to two
great industry leaders, Clive Bannister,
Group Chief Executive Officer, and Jim
McConville, Group Finance Director,
and Group Director, Scotland�
In November 2019, Clive announced
that he will retire on 10 March 2020
after nine years with the business�
Clive has led Phoenix in a period of
sustained growth to its current position
as the largest life and pensions
consolidator in Europe�
Clive will be succeeded by Andy Briggs
who joined the business as CEO-
designate on 1 January 2020 and was
appointed to the Board on 10 February
2020 following regulatory approval�
Andy has over 30 years of insurance
industry leadership experience�
Phoenix, its customers, colleagues and
investors will benefit from a smooth
succession and, with Andy as the
Group’s CEO, we will be in the best
position to leverage the broad, strategic
platform that Clive has created�
Jim will be standing down on 16 May
2020 after eight years with the business�
His experience and authority have
been a cornerstone of Phoenix’s
success and the Group is fortunate
to have had the benefit of his financial
and strategic expertise�
Succession planning is a key focus
for the Board and to that end we are
delighted to appoint Rakesh Thakrar,
the Group’s Deputy Finance Director
since 2014, as Jim’s successor�
The Board believes that Rakesh is a
remarkable talent, with a deep and
broad understanding of Phoenix and
its potential�
On behalf of the Board I would like
to thank both Clive and Jim for their
outstanding contributions to the Group�
Furthermore, in September 2019, we
were pleased to welcome Mike Tumilty
as one of the Standard Life Aberdeen
nominees to our Board as a replacement
for Barry O’Dwyer� I also look forward
to welcoming to our Board a nominee
from each of our new strategic partners,
Swiss Re and MS&AD, on completion
of the ReAssure acquisition�
Looking ahead
At a Group level, we start 2020 as we
ended 2019, focused on the acquisition
of ReAssure which, subject to
regulatory approvals, we hope to
complete in the middle of the year�
Our strategic priorities are the safe
transition of both the Standard Life
Assurance and ReAssure businesses�
Phase 3 of the Standard Life Assurance
transition is the most complex� Our
enlarged partnership with the leading
technology provider Tata Consulting
Services (‘TCS’), announced in 2019,
will support our long-term growth plans
for our Open business and enhance
our customers’ and advisers’ digital
experience across both our Open
and Heritage businesses�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
7
STRATEGIC REPORT (‘ReAssure’), a strategically compelling
transaction which meets all of our
acquisition criteria and confirms
Phoenix as Europe’s largest life and
pensions consolidator� The acquisition
was approved by shareholders on 13
February 2020 with 99�99% of votes
cast in favour�
We also made significant progress
across our ESG agenda with the
appointment of the Group’s first Head
of Sustainability� I encourage you to
read Phoenix’s inaugural Sustainability
Report which sets out our new
sustainability vision “Committing to
a Sustainable Future”� This report
outlines our progress to date and future
aspirations across the sustainability
issues that are most material to
Phoenix and its stakeholders�
The successes of the year were made
possible by the engagement and
commitment of my colleagues, the
strong governance framework
embedded within the Group and
leadership by the Group Board�
Group Chief Executive Officer’s Report
CASH
RESILIENCE
GROWTH
Clive Bannister
Group Chief Executive Officer
2019 was a successful year
for Phoenix. We delivered
Cash, Resilience and
Growth whilst meeting all
of our strategic priorities.
Phoenix achieved its financial targets,
exceeded the 2019 cash generation
target range and maintained a resilient
capital position throughout a year of
macro-economic volatility�
We continued to make strong progress
across all phases of the Standard Life
Assurance transition programme and
announced an enlarged partnership
with leading technology and service
provider TCS� This strategic partnership
will enable us to deliver a hybrid end
state Customer Services and IT
operating model built on strong
innovation and designed to deliver
excellence in customer service�
Growth through BPA and new Open
business in the UK and Europe was
strong in 2019, collectively delivering
circa £0�5 billion of incremental
long-term cash generation and bringing
increased sustainability to our dividend�
On 6 December 2019 we announced
the acquisition of ReAssure Group plc
8
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL TARGETS
For the tenth consecutive year Phoenix
delivered on all its publicly stated
financial targets� With £707 million
of cash generation in 2019, net of
a £250 million capital injection into
our Irish subsidiary to conclude our
preparations for Brexit, we exceeded
the upper end of our full year cash
generation target range�
Today, we have announced a new
one-year cash generation target range
for 2020 of £800 to 900 million and we
remain on track to deliver our five-year
target for 2019 to 2023 which has been
“upgraded” for the impact of 2019 new
business to £3�9 billion�
We also delivered resilience
to our Solvency II balance sheet
with a surplus of £3�1 billion and a
Shareholder Capital Coverage Ratio
of 161%�
The Group’s financial strength was
recognised by Fitch’s affirmation of
Phoenix’s Insurer Financial Strength
Rating of A+ as part of their annual
review in June 2019 �
STANDARD LIFE ASSURANCE
TRANSITION PROGRAMME
The Group continued to make strong
progress across the Standard Life
Assurance transition programme which
remains on track to meet its £1�2 billion
total synergy target�
To date we have achieved £645 million
of capital synergies, 90% of our
£720 million target� We have also
delivered £33 million of cost savings
against a target of £75 million per
annum and realised £28 million of
one-off cost synergies against a
target of £30 million�
The transition programme comprises
three phases:
• Phase 1 is substantially complete and
delivered the end state operating
model for the Head Office functions�
• Phase 2 is on track to deliver an
integrated multi-site Finance and
Actuarial function by end 2020 and
obtain regulatory approval for our
harmonised internal model�
• Phase 3 will deliver a hybrid
Customer Services and IT operating
model that brings enhanced
capabilities along with operational
flexibility and is due to complete by
the end of 2022� In November 2019,
we announced an enlarged strategic
partnership with our technology
and service provider TCS to support
the delivery of this model� The
partnership will bring together
the strengths of Standard Life
Assurance, Phoenix and TCS and will
build on the strong innovation and
customer service excellence to
which the partners are committed�
NEW BUSINESS
In 2019, new business written across
our three business segments – UK
Heritage, UK Open and Europe –
generated £475 million of incremental
cash generation�
This has offset the run-off of our
in-force book, bringing sustainability
to our long-term cash generation�
We therefore estimate that the
long-term cash generation from the
business in-force as at 31 December
2019 will be £12 billion�
COMMITTING TO A
SUSTAINABLE
FUTURE
Phoenix is uniting behind
its new sustainability vision of
“Committing to a Sustainable
Future” and has identified four
areas of commitment for its
sustainability strategy which are
critical to delivering Phoenix’s
purpose of inspiring confidence
in the future�
www.thephoenixgroup.com/
sustainability2019
SUPPLY CHAIN MANAGEMENT
COMMITTING TO A SUSTAINABLE FUTURE
01. DELIVER FOR
OUR CUSTOMERS
We aim to provide the right
products, solutions and services
to our customers to help them
enjoy a secure financial future.
03. REDUCE OUR
ENVIRONMENTAL IMPACT
We aim to minimise our impact
on the environment and promote
good environmental practices.
02. FOSTER RESPONSIBLE
INVESTMENT
We aim to make responsible investment
decisions and consider the sustainability
of our investments in safeguarding the
interests of our customers, shareholders
and other stakeholders.
04. BE A GOOD
CORPORATE CITIZEN
We aim to be a diverse, engaged and
enabled workforce and good corporate
citizen in the communities in which
we are based.
SUPPLY CHAIN MANAGEMENT
WORK ETHICALLY WITH OUR SUPPLY CHAIN
SUPPLY CHAIN MANAGEMENT
GOVERNANCE AND GOOD BUSINESS PRACTICE
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
9
STRATEGIC REPORT
Group Chief Executive Officer’s Report continued
I
N
O
T
A
R
E
N
E
G
H
S
A
C
Growth brings sustainability
to cash generation
M&A
Future M&A will increase long-term cash generation
MANAGEMENT ACTIONS
Incremental cash generation through
management actions
OPEN
BPA
Growth of Open business brings
sustainability to cash generation
BPA brings dependable growth
HERITAGE
Heritage business generates predictable long-term
cash generation to pay dividend and fund growth
TIME
We have used an illustration called
“The Wedge” (above) to show that
growth through new business has the
potential to bring sustainability to
long-term cash generation and are
encouraged that the experience of 2019
brings credibility to this hypothesis�
Europe
The Irish and German markets continue
to be difficult; naturally disturbed by
recent Brexit uncertainty� Despite this
backdrop, new business in Europe
delivered £26 million of incremental
long-term cash generation in 2019�
We have focused on improving
customer communication so that
customers have a clear understanding
of what they can do with the policy
or plan they hold with us and make
an informed decision should they want
to take any action�
UK Heritage
The majority of our Heritage business
is in run-off; however, our annuity book
is growing through both vesting
annuities and BPA� We take a selective
and proportionate approach to BPA and
invested £98 million of capital in the
year to secure over £1�1 billion of BPA
liabilities� This new business will
generate £235 million of incremental
long-term cash generation and has an
average payback period of 6–7 years�
UK Open
The Open products we write are
“capital-light” and therefore incur
a de minimis capital strain� Growth
across our Open business has been
encouraging, delivering gross new
business inflows of £6�0 billion, a new
business contribution of £153 million
and long-term cash generation of
£214 million�
UK Workplace is our most valuable
Open business product line,
contributing nearly 65% of long-term
cash generation� It is the primary
channel of customer acquisition; it
is our “engine for growth”�
IMPROVING CUSTOMER
OUTCOMES
Improving outcomes for our 10 million
customers continues to be central to
our mission� Therefore, I am delighted
to report that we exceeded all of our
target metrics for customer service
during 2019�
In addition, we distributed circa
£250 million of with-profits estate to
our customers in 2019, totalling circa
£845 million over the past five years�
We grow our customer base through
strong distribution and proposition
offerings in our chosen markets, with
the Workplace channel bringing circa
280,000 new scheme members
each year�
We engage our customers through
continuous review and enhancement
of our customer proposition so that
we are relevant, easy to deal with
and are seen as a trusted guide�
Our customer initiatives this year
centred around listening more and
better understanding our customers,
improving communications and
enhancing our digital proposition�
We are also ensuring that we connect
effectively with our customers�
In partnership with Cowry Consulting,
a Behavioural Economics consultancy,
we have taken actions which are
helping to transform customer and
employee experiences� This has
included redesigning experiences and
processes, making the complex simple
and removing barriers to create
improved outcomes for customers�
In 2019 the Digital proposition has
continued to evolve to support our
customers in managing their pensions
when and how they want� We have
grown the rate of engagement
amongst our customers and surpassed
our target, seeing over 12 million logins
in 2019 across Phoenix Life and
Standard Life Assurance sites� We
have also seen a huge increase in the
usage of our Standard Life mobile app
which saw over 5�5 million sessions
in 2019�
Online top-ups and consolidation of
customer pensions also increased to
over £560 million in 2019 using our
online guidance journey which helps
customers consider the key factors
when transferring pensions�
10
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
GROWTH THROUGH M&A
On 6 December 2019, Phoenix
announced the acquisition of
ReAssure� This transaction represents
another significant milestone, bringing
considerable additional scale and skills
to Phoenix’s Heritage business�
The deal adheres to Phoenix’s strict
acquisition criteria of being value
accretive, supportive of the dividend
and maintaining the Group’s Fitch
investment grade rating�
Phoenix’s cash generation profile
will be significantly strengthened
with an incremental £7�0 billion of
cashflows which will bring the enlarged
Group’s long-term cash generation
to £19�0 billion�
In addition, we expect to deliver cost
and capital synergies of £800 million by
leveraging Phoenix’s industry-leading
operating model and efficiency-focused
approach to capital management�
The consideration payable of
£3�2 billion represented 91% of
ReAssure’s pro-forma Solvency II
Own Funds of £3�5 billion as at 30
September 2019, a ratio that is broadly
in line with previous acquisitions� The
financing structure for the transaction
is efficient and utilises existing debt
capacity, ensuring that Phoenix
remains within its target leverage
range of 25 to 30%�
We have already raised part of the
debt financing through the issue of a
$750 million Subordinated Restricted
Tier 1 bond in January 2020�
The Group’s financial discipline and the
compelling strategic rationale for the
transaction were recognised by Fitch
Ratings who revised the Group’s rating
outlook from “Stable” to “Positive”
upon announcement�
OUTLOOK
In 2020, following completion of the
acquisition of ReAssure, Phoenix will
be the UK’s largest life and pensions
provider with over 14 million customers
and circa £330 billion of assets under
administration� Whilst our size will
have changed, our strategy remains
consistent�
We will continue to deliver dependable
cash generation from a strong and
resilient in-force business whilst
pursuing growth opportunities that
will build an enduring organisation�
Integral to this will be a focus on our
key sustainability themes of delivering
for our customers, fostering
responsible investment, reducing our
environmental impact and being a
good corporate citizen�
At an operational level, we will
continue to progress the Standard Life
Assurance transition programme
alongside completion of the ReAssure
transaction targeted for mid-2020� We
are cognisant of the high degree of
integration work underway at both
Phoenix and ReAssure� We expect the
phased integration of ReAssure to take
three years and will take a coordinated
approach to ensure enterprise stability�
Both Phoenix and ReAssure are highly
experienced in delivering complex
integrations and we are confident in our
collective abilities to deliver both
programmes safely� We look forward
to welcoming our future ReAssure
colleagues into the Phoenix family�
We are excited at the range of growth
opportunities available to us including
BPA, new Open Business in the UK
and Europe and further M&A in the
UK, Germany and Ireland�
We will continue to participate on a
selective and proportionate basis in
what we expect to be a buoyant BPA
market and explore the opportunity to
put additional surplus capital to work
in this market�
The key focus for our Open business
will be staying attuned to our
customers’ expectations and building
relevance as we aim to be our
customers’ first choice for their life
savings� We will achieve this by
investing in our proposition, continuing
to listen to our customers, being a
trusted guide and investing in the
transformation of our platforms�
We are confident that with additional
opportunities in excess of £600 billion
there remains a wealth of additional
acquisition opportunities in the UK,
Germany and Ireland� Macro-economic
factors such as a ‘lower
for longer’ interest rate environment
combined with capital inefficiencies
and increasing costs of regulatory
change will result in institutions looking
to off-load their legacy businesses�
Phoenix is a safe harbour for this
business and a trusted vendor with
a proven track record�
Phoenix’s values underpin everything
that we do and my colleagues have
their sights set on the future, fulfilling
our mission and working hard toward
our vision of becoming Europe’s
Leading Life Consolidator�
Lastly, both Jim and I will take leave
of Phoenix in 2020� I wish to take this
opportunity to pay tribute to Jim for his
extensive contribution during his eight
years with the Group�
During his tenure he significantly
strengthened Phoenix’s balance sheet,
obtained an Investment Grade Rating
for the Group, established an unbroken
record of delivering on financial targets,
and helped deliver transformative
acquisitions�
It is testament to Phoenix’s bench
strength that we are fortunate enough
to have the opportunity to appoint
Rakesh Thakrar, current Group Deputy
Finance Director, as Jim’s successor
(subject to regulatory approval)�
Rakesh has been Jim’s deputy since
2014 and, alongside proven skills in
managing the Group’s finances, has a
longstanding knowledge of the Group
and the long-term savings industry
as a whole�
In November 2019, I informed the
Board of my intention to retire� It has
been a privilege and pleasure to serve
as Phoenix’s Group Chief Executive
Officer on what has been an
extraordinary nine-year journey� I would
like to express my deep gratitude to all
of my colleagues for their hard work
and determination to drive forward
Phoenix’s strategy during this time
and extend a warm welcome to Andy
Briggs as my successor�
Clive Bannister
Group Chief Executive Officer
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
11
STRATEGIC REPORT DEPENDABLE
LONG-TERM
CASH
GENERATION
Phoenix has a long track record of
delivering cash generation, meeting or
exceeding all cash generation targets
since 2010. Predictable long-term cash
generation supports Phoenix’s stable
and sustainable dividend policy.
12
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
£707m
2019 CASH GENERATION
£3.9bn
5 YEAR CASH GENERATION
TARGET (2019 TO 2023)
£12bn
EXPECTED LONG-TERM
CASH GENERATION FROM
IN-FORCE BUSINESS
(2020 ONWARDS)
AT PHOENIX
CASH IS KING
Cash generated by our Life companies
and remitted to Group is Phoenix’s key
performance metric�
The majority of our cash generation
comes from the emergence of surplus
as our in-force business runs off over
time and capital unwinds� We call this
‘organic’ cash generation� However, at
Phoenix we deliver management actions
which increase free surplus and therefore
enhance this organic cash generation�
We have a strong track record of
delivering management actions, which
have contributed £2�5 billion of cash
generation in the last decade�
The dependable nature of cash
generation from our in-force business
allows us to set both short term (1 year)
and medium term (5 year) cash generation
targets� We also provide guidance on the
cash that will come from the business
over its life-time�
Read more on page 39
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
13
STRATEGIC REPORT BRINGING
RESILIENCE
TO MARKET RISK
Phoenix operates a risk management
framework aimed at bringing resilience
to our Solvency II surplus and certainty
to cash generation.
14
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
DYNAMIC
RISK MANAGEMENT
Cash is remitted from Solvency II free
surplus� By bringing resilience to our
solvency balance sheet, we increase
the certainty of meeting our cash
generation targets�
Phoenix operates a dynamic risk
management framework which seeks
to manage our exposure to each of the
risks that the Group faces within its risk
appetite� This is achieved through a
combination of asset liability management
and risk reduction actions like hedging
and reinsurance�
This approach to risk management results
in Phoenix being less sensitive to risk
events than the majority of its peers�
We articulate our risk appetite through
a target Shareholder Capital Coverage
Ratio range of 140% to 180%� The ratio
of 161% at 31 December 2019 is in
the middle of this range�
Read more on page 42
£3.1bn
GROUP SOLVENCY II SURPLUS
161%
GROUP SHAREHOLDER CAPITAL
COVERAGE RATIO (ESTIMATED)
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
15
STRATEGIC REPORT GROWTH
BRINGS
SUSTAINABILITY
Phoenix has a range of growth
options across both Heritage
and Open businesses that
bring sustainability to long-term
cash generation.
16
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
GROWING
THROUGH NEW
BUSINESS AND M&A
Growth from new business brings
incremental cash generation to Phoenix
which offsets the run-off of our in-force
business and brings long-term
sustainability to cash generation�
BPA brings growth to our Heritage
business� Funded from surplus capital,
we take a selective and proportionate
approach to BPA and are an established
participant in this market place� With
an average pay-back of 6–7 years, BPA
offers attractive returns�
In our capital-light Open business,
workplace is the engine for
growth and our primary method of
customer acquisition� Growth comes
organically by retaining existing schemes
and is accelerated by new members
joining schemes as well as by increases
in contributions, both of which are
incremental to long-term cash generation�
We also deliver growth through
acquisitions� The £7 billion of cash
generation from the proposed acquisition
of ReAssure Group will support a 3%
increase in our dividend and fund future
growth of our BPA and Open businesses�
Read more on page 41
£475m
INCREMENTAL LONG-TERM CASH
GENERATION
£7bn
LONG-TERM CASH
GENERATION FROM
REASSURE ACQUISITION
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
17
STRATEGIC REPORT Our Markets
SHIFTING
LANDSCAPES
Phoenix Group has continued to
grow in 2019 and has reaffirmed
its position as Europe’s largest life
and pensions consolidator. In 2019
Phoenix completed four bulk
purchase annuity transactions,
strengthening its foothold in the
market. The Open business,
delivered under the Standard Life
and SunLife brands, continues to
grow, providing a diverse range
of products for our customers and
increasing cash generation for
our shareholders.
In 2019 the dynamics of the life
and pensions market continued
to evolve, creating new challenges
and opportunities for the Group.
“Changes to the industry in which
we operate create opportunities
which we at Phoenix are well
placed to take advantage of ”
Clive Bannister
Group Chief Executive Officer
18
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
KEY MARKET
THEMES
AND PHOENIX
RESPONSES
A CONTINUED DEMAND
FOR CONSOLIDATION
Market dynamics
Changes in customer behaviour, market
dynamics and the regulatory environment
have resulted in many insurers closing their
old style, capital-heavy insurance product
lines to new business and replacing them
with capital-light investment style products�
Phoenix estimates there are additional
opportunities in closed life funds of
approximately £440 billion in the UK,
increasing to over £600 billion including
Germany and Ireland�
Phoenix response
We continue to seek opportunities
to acquire and manage closed life funds�
The Group can generate capital efficiencies
through the diversification of risks, and the
wide range of product types that we
currently manage provides a scalable
platform for integrating further closed funds�
In addition, the Group benefits from a
variable cost model and an approved
Solvency II Internal Model which provides
greater clarity over capital requirements�
On 6 December 2019 we announced the
acquisition of ReAssure Group plc� On
completion of the acquisition, Phoenix
will be reaffirmed as Europe’s largest life
and pensions consolidator�
THE UK
SAVINGS GAP
Market dynamics
According to research from the
World Economic Forum, retired
people in the UK will on average
outlive their savings by more than
10 years� The strain on the State
Pension created by the UK’s ageing
population has resulted in an ever-
increasing need for individuals to
save more throughout their working
lives to fund their lifestyle and
well-being in retirement�
Phoenix response
Our goal at Phoenix is to support
our customers at every stage of
their savings lifecycle by providing
a diverse range of products to
meet their needs�
We remain committed to developing
the Standard Life Assurance
proposition, through which we
offer pension savings solutions
in the workplace and individual
pensions markets, as well the
SIPP offering provided to customers
through Standard Life Aberdeen’s
Wrap Platform�
The Standard Life brand currently holds
a 23% market share for workplace
pensions (Source: Broadridge Defined
Contribution and Retirement Income
Report 2018 – Q4 2017 figures), and
is a leading brand in this market� We
continue to invest in our workplace
proposition, enhancing our product
range and expanding our digital service
offering to meet the changing needs
of our customers�
10 YEARS
RETIRED PEOPLE IN THE
UK WILL ON AVERAGE
OUTLIVE THEIR SAVINGS
BY MORE THAN 10 YEARS
Throughout their working life the
average person in the UK may work
for 11 different firms, potentially
accumulating 11 different workplace
pension pots along the way (Source:
Pensions Policy Institute)� Members
who leave a Standard Life workplace
pension are given the option to
contribute to one of our individual
pension products, allowing their
investments to be kept in one place�
Customers can also consolidate other
pension pots into their Standard Life
pension, making it easier to keep track
of their savings�
Our Active Money Personal Pension
has been designed to help people
save for their future – and give them
the flexibility to control their own
investments and change their plan
as their own needs change�
Individuals can easily upgrade to our
Active Money SIPP if and when it is
required, which provides access to a
greater range of investment options
as well as offering access to a suite
of flexible drawdown options in
retirement�
In addition to the Standard Life
Assurance proposition we have our
SunLife brand, which provides
customers with a range of specialist
Over 50s products, including life
cover, equity release and funeral
plans� These products provide our
customers with choices for funding
healthcare needs in retirement and
protecting loved ones financially
after death� The SunLife brand is a
leader in the over 50s market with a
61% market share of all whole of life
guaranteed acceptance plans bought
directly (Source: ABI statistics
issued in October 2019 for 12-month
period to 30 June 2019 based on
new Phoenix Life policy sales
trading as SunLife)�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
19
STRATEGIC REPORT Our Markets continued
“It has never been more important
for individuals to take control
of their pension savings and
we are here to help people on
their journey to a secure and
sustainable retirement.”
Clive Bannister
Group Chief Executive Officer
AGEING
DEMOGRAPHICS
Market dynamics
Ageing demographics in the UK have
created retirement savings challenges for
individuals and companies alike� Individuals
will continue to require products that allow
them to manage their finances for longer in
retirement� For many companies the rising
cost of providing Defined Benefit pension
scheme benefits to employees is an
increasing burden� The Bulk Purchase
Annuity (‘BPA’) market offers employers the
ability to mitigate the risk of their Defined
Benefit pension liabilities whilst allowing the
pension scheme trustees the ability to
secure and protect their members’ benefits�
The size of the BPA market is significant,
and 2019 saw continued growth in volumes
and transaction sizes� The total value of
transactions completed in 2019 was in
excess of £40 billion, almost doubling
the 2018 record (Source: Hymans Risk
Transfer Report 2020)�
Phoenix response
We continue to offer products such as
pensions drawdown and annuities to our
policyholders, offering individuals a range of
flexible options for their retirement� We also
continue to provide a safe and secure home
for our individual annuitants, and look for
opportunities to grow our annuity book
through back-book transactions� Having
successfully completed seven external BPA
transactions since entering the market
in 2018, we have secured our place in
this market and we will continue to grow
our presence�
20
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
ENVIRONMENTAL
SUSTAINABILITY
Market dynamics
In 2019 the global focus on climate change has
increased substantially, and the future impacts
on our business and customers are being made
clear� Insurers and other financial market
participants have a responsibility to help
address climate change and many are taking
steps to reduce the overall carbon footprint
of their organisations� Insurers must also
understand the financial impacts of climate
change risks on their business models, not
only physical risks associated with climate
change but also transition risks from moving
to a low carbon economy�
Phoenix response
At Phoenix we are committed to minimising
our impact on the environment�
We have created a responsible investment
philosophy and we will foster the alignment
of our investment portfolio with our customers’
evolving beliefs on environmental and
social considerations�
We recognise that our customers’ needs are
changing in a world facing ESG challenges,
and we are developing our proposition to
remain relevant to customers by understanding
their needs�
Within our organisation we have delivered
a number of initiatives to reduce, re-use and
recycle, and we are creating a Group-wide
environmental policy to deliver cohesive
action across our Group�
As a business we are uniting behind our
sustainability vision ‘Committing to a
sustainable future’, which is underpinned by
four key commitments including fostering
responsible investment and reducing our
environmental impact� You can read about this
further in the Group’s Sustainability Report�
REGULATORY
CHANGE
Market dynamics
Regulatory change has the potential to generate
both challenges and opportunities for insurers
in the Life and Pensions market� Regulatory
change has historically been a driver for Life
and Pensions consolidation, and we expect
that pattern to continue in the future�
Phoenix response
Changes to the regulatory capital regime bring
opportunities to maximise capital efficiency
across our business� So whilst some
companies may see regulatory change as
a threat to their business model, we view
change as a driver to deliver additional value
from our in-force business� Regulatory change
also has the ability to generate new back-book
consolidation opportunities as companies’
strategic objectives evolve�
DIGITALISATION
Market dynamics
Across the Life and Pensions industry there
is an increasing demand from customers for
digital solutions for financial management�
The right digital solutions can improve
customer journeys and encourage individuals
to actively engage in the management
of their personal finances�
Phoenix response
We continue to invest in the digital journey of
our Heritage and Open customers through the
online dashboard and mobile app� Not only
does digitalisation help reduce administration
costs, it supports customer engagement
and keeps Phoenix relevant in our customers’
lives day to day� We now record over 1 million
mobile app and secure site sessions per
month, with monthly online logins now
typically outnumbering phone calls 8 to 1�
We will continue to grow our digital offering,
encouraging as many of our customers as
possible to start to ‘think Digital First’� Our
digital journey is supported by our enlarged
partnership with TCS, and the development
of our technology and operating services Hub
in Edinburgh will build on strong innovation
and deliver excellence in customer service�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
21
STRATEGIC REPORT Our Operating Structure
OUR OPERATING
STRUCTURE
The Group’s operating structure has evolved to work across
our business segments and the combined Group.
GROUP FUNCTIONS
LIFE COMPANIES
MANAGEMENT
SERVICES COMPANIES
Manage corporate and strategic activity
and include the following:
Manage the financial assets for policyholders
across our three business segments
Provide life companies with
management services
PHOENIX GROUP
Group Finance including Tax,
Treasury and Investor Relations
Corporate Communications
Group Risk
Group HR
Group Customer
Group Internal Audit
Group Legal
Strategy, Corporate Development
and Group Actuarial
Company Secretariat
GROUP FUNCTIONS
The Group operates centralised
functions that provide Group-wide and
corporate-level services and manage
corporate and strategic activity�
LIFE COMPANIES
We have three major life companies
located in the UK and one in Ireland
that are responsible for the
management of the Group’s life funds
in the UK and Europe (Germany and
Ireland) across both Heritage and
Open product lines�
Read more about the business
segments on pages 24 to 25�
The life companies are regulated
entities that hold the Group’s
policyholder assets� The Group
simplifies its business model by
bringing together separate life
companies and funds, making more
efficient use of the capital and liquidity
in its life companies� This results in
administrative expense savings and
increased consistency of management
practices and principles across
the Group�
UK
HERITAGE
UK
OPEN
EUROPE
INVESTMENT MANAGEMENT AND DISTRIBUTION
OUTSOURCE PARTNERS
Investment management
Investment management services are
provided to the life companies by a
number of external asset management
companies, with the main partner
being Aberdeen Standard Investments�
Distribution
Distribution of non-workplace Standard
Life branded products is provided by
Standard Life Aberdeen under the Client
Service and Proposition Agreement�
Distribution of the workplace product is
managed in-house under the Standard
Life brand� We have also retained the
SunLife distribution business within the
Open business segment of the Group
with a management team based in
Bristol focused on their key skills of
marketing and sales�
MANAGEMENT SERVICES
COMPANIES
The Group’s management services
companies are charged with the
efficient provision of financial and
risk management services, sourcing
strategies and delivering all
administrative services required by the
Group’s life companies� This benefits
the life companies by providing price
certainty and transferring some
operational risks�
Outsource partners
The management services companies
manage relationships with the outsource
partners for our Life business� Without
further acquisitions, the number of
policies in our Heritage business declines
over time and the cost of our Heritage
operations as a proportion of policies will
increase� This risk is managed by paying
a fixed price per policy to our outsource
partners for policy administration
services, which reduces this fixed cost
element of our operations and converts
it to a variable cost structure�
Outsource partners have scale and
common processes to benefit the
Group, including reducing investment
requirements, improving technology and
reducing our operational risk� Finance,
actuarial, information technology, risk
and compliance and oversight of the
outsource partners are retained in-
house, ensuring that we retain full
control over the core capabilities
necessary to manage and integrate
closed life funds�
In 2019, we announced an enlarged
strategic partnership with TCS, which
will extend the use of certain outsourced
services to Standard Life Assurance and
our Open business segment�
22
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Our Key Products
A WIDE RANGE
OF PRODUCTS
We have a wide range of products which
are written across different funds.
The features of each policy influence whether it is the policyholders and/or
the shareholders who are exposed to the risks and rewards of a policy�
Type of business
Typical characteristics
WITH-PROFIT
£61bn
Assets under
administration
at 31 Dec 20191
UNIT LINKED
£162bn
Assets under
administration
at 31 Dec 20191
NON-PROFIT
(ANNUITIES)
£21bn
Assets under
administration
at 31 Dec 20191
NON-PROFIT
(PROTECTION)
£3bn
Assets under
administration
at 31 Dec 20191
25%
66%
8%
1%
These are typically savings and
investment products�
They comprise endowments, whole
of life and pensions products and
(some) guaranteed annuity options
which guarantee the annuity that
a pension pot will be able to buy�
The policyholders and shareholders
share in the risks and rewards of the
policy, depending on the structure
of the fund�
Excess assets created over time
(‘estate’) provide a buffer to absorb
cost of guarantees and capital
requirements�
In the ‘supported’ with-profit funds,
the shareholders provide capital
support to the fund�
These are insurance or investment
contracts (savings and pensions)
without guarantees�
The policyholders bear all of
the investment risk�
Policyholders buy units with their
premiums which are invested
in funds�
Units are sold when a claim is made�
Policyholders make fixed or variable
payments in lieu of a future lump sum
or a future income stream until death�
Term assurance policies which pay
a lump sum on death if death occurs
within a specified period�
Whole of life policies which cover
the entire life and pay a lump sum
on death, whenever it occurs�
Policyholder
benefits
Policyholders benefit
from discretionary
annual and/or final
bonuses�
The bonuses
are designed
to distribute to
policyholders a fair
share of the return
on the assets in the
fund, together with
other elements
of experience
in the fund�
Policyholders’
benefits are in the
form of unit price
growth (based on
the investment
income and gains,
but subject to
management
charges and
investment
transaction costs)�
Policyholders
receive regular
payments which
start immediately
(immediate annuity)
or at some time
in the future
(deferred annuity)�
Policyholders have
certainty of the
benefits they
will receive�
Shareholder benefits
In the ‘supported’
with-profit funds, the
shareholders’ capital is
exposed to all economic
and non-economic
movements until the
estate is rebuilt to cover
the required capital, at
which point the fund
becomes ‘unsupported’�
In the ‘unsupported’
with-profit funds, typically
shareholders receive
10% of declared bonuses
(90:10 structure) or nil
(100:0 structure), including
any estate distributed�
Shareholders benefit
from fees earned through
management charges,
bid/offer spreads and/or
policy fees�
Shareholders earn
a spread on the
assets supporting the
annuity payments�
The shareholders
are directly exposed
to all market and
demographic risks�
Profits are generated from
investment returns and
underwriting margins�
Shareholders are exposed
to the majority of the
risks and benefit from
100% of the profits
or losses arising�
1 Total assets under administration for the Group is £248 billion� The product type analysis above excludes £1 billion held in shareholder funds�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
23
STRATEGIC REPORT Our Business Segments
THREE BUSINESS
SEGMENTS
IN FORCE
UK HERITAGE
With-profits
Unit linked
Annuities
Protection
UK OPEN
Unit linked:
Workplace
Retail pension
Wrap
NEW BUSINESS
VESTING ANNUITIES
BULK PURCHASE ANNUITIES
UNIT
LINKED
EUROPE
Germany and Ireland:
Unit linked
With-profits
Annuities
UNIT
LINKED
UK HERITAGE
Our UK Heritage business
comprises products that are
no longer actively marketed to
customers. Phoenix is a leader in
the safe and efficient management
of UK Heritage business and has
a strong track record of delivery.
Assets Under Administration*
£126bn
5
4
3
1
2
1� With-profit (unsupported)
2� With-profit (supported)
3� Unit linked
4� Non-profit (annuities)
5� Non-profit (protection,
shareholder funds and
other non-profit)
32%
3%
45%
16%
4%
* Based on assets under administration
at 31 December 2019
IN FORCE
The UK Heritage business has been built
from two decades of consolidation and
comprises over 100 legacy brands
including Britannic, Pearl,Scottish Mutual,
AXA and Abbey Life� It also includes the
heritage customers of Standard Life
Assurance Limited� It has a broad range of
life and pensions products which provide
Phoenix with natural diversification�
The Group’s strategy for our UK Heritage
Business is simple – to deliver value to
shareholders and customers and to
improve customer outcomes�
Organic cash emerges naturally from our
UK Heritage business as it runs off over
time and we enhance this organic cash
generation through the delivery of
management actions which either
increase the overall cash flows from
the business or accelerate the timing
of these cash flows�
Heritage business cash generation runs
off at 5–7% per annum depending on the
particular features of each legacy book�
Integral to our efficient management of
the UK Heritage business is ensuring that
our cost base reduces more quickly than
our policy count runs off�
NEW BUSINESS
The Group generates new business in
the Heritage business segment through
vesting annuities and bulk purchase
annuities, or from incremental
contributions from existing pensions�
Vesting annuities
We offer annuities to existing
policyholders when their pension policies
vest across both the Phoenix Life and
Standard Life product ranges� The
majority of our vesting annuities are
from pension policies which include
guaranteed annuity options on maturity�
Bulk purchase annuities
Phoenix is now an established player in
the buy-in market with over £4 billion of
new annuity business delivered in the past
few years across a combination of internal
and external buy-ins� The bulk purchase
annuity market is a source of value
accretive annuity liabilities and we will
continue to participate in this market
in a proportionate and selective manner�
24
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
UK OPEN
Our UK Open business comprises
products that are actively marketed
to customers. Phoenix is committed
to growing its capital-light UK
Open business.
Assets Under Administration*
£97bn
3
2
1
1� Workplace
2� Retail pensions
3� Wrap
43%
29%
28%
* Based on assets under administration
at 31 December 2019
EUROPE
Our European business provides
a platform for potential future
consolidation. It contains both
Open and Heritage products split
across Germany and Ireland.
Assets Under Administration*
£25bn
3
2
1
1� Germany
2� Ireland
3� International Bond
49%
23%
28%
* Based on assets under administration
at 31 December 2019
IN FORCE
Our Open business mainly relates to our
pension and long-term savings products
being sold under the Standard Life brand,
but also includes insurance products
aimed at the over 50s market distributed
by SunLife� Assets under administration
in our Open business are held in three
product lines: Workplace, Retail pensions
and Wrap� These are predominantly
unitised products which have no
guarantees and where investment risk sits
with the customer� Our Open business
therefore comprises capital-light products�
We aim to be our customers’ first choice
for their life savings and to help them
achieve a good outcome�
NEW BUSINESS
Workplace is the primary method of
customer acquisition for the UK Open
business and acts as the engine
for growth�
Growth in workplace comes organically
by retaining existing schemes and is
accelerated by new members joining
schemes and by increases to
contributions� With auto-enrolment
increases in 2019, the potential for
workplace growth is very powerful and
our scheme retention continues to be
high� We also compete to win new
schemes which bring further opportunities
for growth� Our proposition includes a
well-established Master Trust offering
which is an important growth area of
the workplace pension market�
Our retail pensions business comprises
a range of products across both the
accumulation and decumulation stages
of the life savings cycle� Within retail, new
business is driven by customers opting
for draw down products and consolidating
their pension pots in one place�
A number of our insured products sit on
the successful Wrap platform owned by
Standard Life Aberdeen� Under our
strategic partnership, Standard Life
Aberdeen manages the adviser
relationship and is responsible for sales�
Phoenix provides the insurance wrapper
for the product and is responsible
for administration�
Our strategic partnerships with leading
technology and service provider TCS
announced in 2019 will also enable us
to drive future growth� This will create a
single digital operating platform with open
architecture for the workplace pensions
and savings business, bringing greater
agility and speed to market�
SunLife continues to hold a strong
position in the over 50s market,
generating new business across its life
cover, equity release and funeral plans�
IN FORCE
Germany
Germany closed its with-profits business
to new business in 2015 and is
predominately Heritage� The Heritage
segment comprises a variety of pension,
endowment and annuity products� Since
the closure of with-profits, new business
has focused on unit-linked life assurance
products with no material guarantees�
These are distributed through financial
advisers and are administered from
operations in Frankfurt and Graz, Austria�
International bond
The international bond is completely open
business� It is a unit-linked, tax efficient
savings product with open architecture
investment choice including Discretionary
Fund Managers� The target market is
high-net worth UK customers and it is
administered from our Dublin office�
Distribution is via financial advisers,
banks and wealth managers and it is also
available on Standard Life Aberdeen’s
Wrap and Elevate platforms�
In 2019 we launched a new variant of
the Offshore Bond, featuring Capital
Redemption to enhance the International
Bond offering�
Ireland
Ireland is a predominately Open business
and distributes capital-light unit-linked
products through financial advisers� The
open proposition includes investment
bonds, pensions and drawdown products
targeting both the pre and post retirement
markets� The closed Irish business
includes legacy pensions, bonds, life
assurance, protection and annuity
products no longer open to new business�
NEW BUSINESS
New business is written across all open
product lines of our European business�
The international bond is sold by Standard
Life Aberdeen through the retail market
and its Wrap and Elevate platforms�
All other Open products are sold by
the European units themselves�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
25
STRATEGIC REPORT Our Business Model
INSPIRING
CONFIDENCE
THROUGH
CREATING
AND DELIVERING
VALUE
Our strategic priorities help enhance the
value we create through our business model.
IMPROVE CUSTOMER OUTCOMES
Improving customer outcomes is central to our vision
of being Europe’s Leading Life Consolidator�
Read more on page 30
DRIVE VALUE
In order to drive value, the Group looks to identify and undertake
management actions, which increase and accelerate cash flow�
Read more on page 32
MANAGE CAPITAL
We continue to focus on the effective management of our
risks and the efficient allocation of capital against those risks�
Read more on page 34
ENGAGE COLLEAGUES
Our people are at the heart of our business and key
to the successful growth of Phoenix Group�
Read more on page 36
26
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
We are set apart by our
strengths which underpin
our business model
SCALE OF OUR
PLATFORM
Largest life and pensions consolidator
in Europe
SECURITY
Strong balance sheet which generates
long-term cash flows and provides
security for all stakeholders
SPECIALIST
OPERATING MODEL
Specialist operating model enabling
us to efficiently manage and integrate
Heritage books
Read more on page 22
SERVICE
Quality service to our customers
and their intermediaries is critical
to our strategy
Read more on page 62
SKILLS
Talented and experienced team� We
will continue to invest in this expertise
Read more on page 64
SIGNIFICANT
GROWTH
A wealth of acquisitions opportunities
across the UK and Europe and organic
growth through new business is
available to us
Read more on page 18
Our cash generation helps
us realise opportunities
for growth
Resulting outcomes delivered
are positive for stakeholders
IN-FORCE BOOK
CASH EMERGENCE
Capital requirements of operating life
companies decline as policies mature,
releasing capital in the form of cash
MANAGEMENT
ACTIONS
Management track record of delivering
incremental value
NEW BUSINESS
Capital-light new business under
the Strategic Partnership with Standard
Life Aberdeen, vesting annuities offered
to existing policyholders, our in-house
distribution of workplace products
and SunLife over 50s offering
MERGERS AND
ACQUISITIONS
Value accretive acquisitions generate
increased cash flows and synergy
opportunities through scale advantages
BULK PURCHASE
ANNUITY
TRANSACTIONS
The bulk purchase annuity market
offers a complementary source
of assets and growth
Read more about our cash
generation on page 28
CUSTOMERS
Optimised customer outcomes
Read more on page 30
SHAREHOLDERS
Shareholder value created and stable
and sustainable dividends delivered
Read more on page 32
COLLEAGUES
Challenged, motivated and
rewarded colleagues
Read more on page 36
COMMUNITY
Support for local communities
and charity partners
Read more on page 66
ENVIRONMENT
Reduced environmental impact
Read more on page 68
94%
71%
Phoenix Life
Only
Standard Life
Only
CUSTOMER
SATISFACTION
REM
£707m
CASH GENERATION
APM
23.4p
2019 FINAL DIVIDEND
8th
YEAR UK TOP
EMPLOYER
INCLUSION
+£370k
DONATED TO
CHARITIES ACROSS
THE GROUP
100%
OF ELECTRICITY
AT CORE SITES IS
FROM RENEWABLE
SOURCES
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
27
STRATEGIC REPORT Our Business Model continued
HOW WE
GENERATE
CASH
ANY ASSETS
WHICH THE LIFE
COMPANIES
HOLD IN EXCESS
OF OVERALL
CAPITAL BUFFERS
REQUIRED ARE
KNOWN AS
FREE SURPLUS
Reduction
in capital
requirements
Surplus
generated
in life
companies
Management
actions
Cash
remitted
to holding
companies
Cash
remitted
from the life
companies
Head office
costs
Pensions
Debt
interest and
repayments
Dividends
Remaining
cash at
holding
company level
Opening
free
surplus
Closing
free
surplus
Opening
cash at
holding
company
level
OPENING FREE SURPLUS
What is the opening
free surplus?
Life Company Own Funds
Life companies hold capital
in accordance with Solvency
II regulations, providing
appropriate security for
policyholders� This capital
is known as Solvency II
Own Funds�
SOURCES OF LIFE COMPANY
CASH GENERATION
Less Solvency Capital
Requirement
The level of regulatory
capital required is known
as the Solvency Capital
Requirement�
Less Capital Policy
The life companies hold
additional internal capital
buffers above the regulatory
capital requirement
for prudence�
How is free surplus
generated?
Margins earned
Life companies earn margins
on different types of life
and pensions products
increasing Own Funds�
Reduced capital requirements
As our in-force business runs
off, the Solvency Capital
Requirements reduce�
Management actions
These can either increase
Own Funds or reduce
capital requirements�
Impact of new business
New business written
across our Open product
range is capital-light�
28
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Management
actions
Cash
remitted
to holding
companies
Cash
remitted
from the life
companies
Head office
costs
Reduction
in capital
requirements
Surplus
generated
in life
companies
Opening
free
surplus
Closing
free
surplus
Opening
cash at
holding
company
level
CASH AT
THE HOLDING
COMPANY
LEVEL PROVIDES
RESOURCES AND
RESILIENCE FOR
THE GROUP
Pensions
Debt
interest and
repayments
Dividends
Remaining
cash at
holding
company level
USES OF HOLDING COMPANY
CASH GENERATION
USES OF REMAINING CASH –
GROWTH OPPORTUNITIES
What is the cash remitted
from the life companies
used for?
Debt interest and repayments
On outstanding Group
shareholder debt�
What is the remaining
cash used for?
Head office costs
Including salaries and
other administration costs�
Dividends
The Group maintains a stable
and sustainable dividend�
Pensions contributions
To Group’s employee
Defined Benefit schemes�
Mergers and acquisitions
Transactions must be value
accretive and cash flow
generative, as well as
support the dividend level
and maintain the Group’s
target leverage ratio�
Bulk purchase annuity
transactions
Generate increased cash
flows over the longer term
and are value accretive�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
29
STRATEGIC REPORT
Our Strategy and KPIs
ENHANCING
THE VALUE WE CREATE
We have four areas of strategic focus. Our initiatives and key performance
indicators demonstrate how we have delivered against these strategic areas.
01 IMPROVE CUSTOMER OUTCOMES
We are entrusted with the long-term
savings, investment and protection of
10 million policyholders�
We are committed to improving
customer outcomes by consistently
delivering fair treatment through clear
and open communication, and offering
options that meet customer needs�
We focus on embedding a strong risk
management approach, ensuring that
our people are appropriately skilled,
motivated and engaged�
We demonstrate our commitment to
our customers and continue to add
value by ensuring our customer
proposition remains relevant,
engaging and easy to deal with�
KEY INITIATIVES AND
PROGRESS IN 2019
• In line with the Group’s appetite on
value for money, we reduced the
ongoing charges for c�200,000 of our
Phoenix Life pension customers and
removed exit charges for c�160,000
pension customers�
• We continued our work towards
raising awareness of vulnerability,
recognising the potential
vulnerabilities our customers can
face and creating an environment
where people feel safe to disclose
issues which affect their wellbeing�
• Online enhancements were made to
meet AA website standards allowing
improved accessibility and usability
for users with cognitive, visual,
hearing or dexterity impairments�
• We created new opportunities for
customers to interact online� Eligible
customers can now use web chat to
assist their registration, view their
policy details, change their personal
details, send and receive secure
messages and transact online if they
wish to surrender their policy�
PRIORITIES FOR 2020
• Continue to improve digital
engagement through the Mobile
App and the Customer Dashboard,
giving our customers further choice�
• We focused on addressing adviser
• Harmonise our customer facing
feedback� The launch of a new variant
of the Offshore bond – featuring
Capital Redemption has been well
received due to the additional features
it offers customers�
• Confirmation from the Pensions
Regulator was received that both
of our Master Trusts had received
authorisation� This is significant given
the importance of our Master Trust
in participating in the growth in the
Workplace market�
• A new default offering to the
Workplace market was launched�
This addressed specific feedback for
a more passively managed offering,
with a range of solutions reflecting
different levels of sophistication and
price points�
• We harmonised our annuity solution
across the Group, working with
our partner HUBFS, and aligned
timescales with requirements for
the Retirement Outcomes Review�
• A number of improvements have
been made to the ex-Abbey Life
products, bringing greater flexibility
for customers, reducing the
turnaround times for a number of
processes and reminding customers
of valuable benefits� We began
offering customers with qualifying
small ex-Abbey Life annuities the
option to encash their annuities,
which will be rolled out to the
remainder of the qualifying
ex-Abbey Life customers in 2020�
standards and frameworks to ensure
consistent experiences and good
outcomes for all customers� We will
support those customers accessing
their pension savings through
drawdown by offering the option to
select from four investment solutions
linked to the customer’s needs and
plans for their retirement�
• Extend our Customer Community
to ensure it is representative of our
expanded customer base, giving
customers the opportunity to have
their say about what is important to
them to inform the evolution of the
customer proposition�
• Continue to explore innovative
solutions for our customers by
collaborating on the development of
enhanced client analytics� This will
inform actions by analysing trends,
enabling improved member
outcomes and supporting more
effective governance and oversight�
• Extend our drawdown capability
across the Group so more customers
can access their pension benefits
in a flexible way, such as offering
Standard Life’s non-advised
drawdown to Phoenix Life
customers, and allowing Workplace
members to access their pension
benefits within their scheme�
30
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Measuring our progress – Phoenix Life and Standard Life
Phoenix Life only
Standard Life only
KPI
Financial Ombudsman
Service (‘FOS’)
overturn rate (%)
Speed of pension
transfer payouts –
Origo (days)
Customer satisfaction
score (%)
Net Easy customer
effort score (%)
1
17%
2018: 17%
9.69
2018: 10.73 (Phoenix
Life), 11 (Standard Life)
2
94%
2018: 93%
71%
2018: 72%
%
8
1
%
7
1
%
7
1
%
7
1
1
3
1.
1
3
0
1.
1
3
7
.
0
1
9
6
.
9
2
1.
9
4
.
2
9
0
.
3
9
0
.
4
9
%
2
7
%
1
7
2016 2017 2018 2019
2016 2017 2018 2019
2016 2017 2018 2019
2018 2019
Why is it
important?
This is an independent
view of how firms are
handling complaints.
It provides us with an
opportunity to review
and adjust our complaint
handling proposition in line
with best industry practice.
Analysis
The FOS overturn rate of
17% is significantly below
the industry average of 34%
and the ‘Decumulation, Life
and Pensions’ category
average of 27%.
This is a recognised industry
measure for the speed
of processing Pension
Transfers, Open Market
Options and Immediate
Vesting Personal Pensions.
It measures the end-to-end
time from the date of receipt
of a request to transfer to
the date the monies arrive
with the new pension
provider. It allows us to
benchmark performance
and our overall servicing and
claims proposition against
our peers.
The Group’s pension transfer
times are better than the
industry target.
This is an externally
calculated measure of
how satisfied customers
are with Phoenix’s
servicing proposition.
This is an internally
calculated measure of how
easy our customers find it to
interact with our business.
It asks one question ‘Please
tell us how easy it was to
get what you needed today
between 0 and 10, with 0
being very difficult and 10
being very easy?’.
The Group achieved a
satisfaction score of 94%
reflecting our commitment
to ensuring customers are
satisfied with our products
and services.
The Net Easy customer
effort score of 71% reflects
that overall customers are
finding us easy to deal
with when they contact us.
The method for capturing
and assessing customer
feedback has evolved
through 2019 and the
transition to a new approach
is now complete.
Target
To maintain a FOS overturn
target of less than the
industry average of 30%.
12 days in line with the
industry stated target for
Origo Pension Transfers
To maintain a customer
satisfaction score which is
consistently above 91%.
To maintain Net Easy
target of ≥70%
Linked
REM
REM
REM
REM
1 FOS overturn rate shown as H2 2018 and H1 2019 as FY 2019 information is unavailable at time of production.
2 This measures the satisfaction of a sample of Phoenix Life customers surveyed who contacted the call centre. It is calculated as the % of all questions
responded in the survey that customers scored 4 or 5.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
31
STRATEGIC REPORT
Our Strategy and KPIs continued
In order to drive value, the Group looks to identify organic and inorganic growth
opportunities and deliver management actions which increase and accelerate cash flows.
02 DRIVE VALUE
The closed life funds within our
Heritage business provide predictable
fund maturity and liability profiles,
creating stable long-term cash flows
for distribution to shareholders and
repayment of outstanding debt�
Our Open business provides the
opportunity to grow organically through
the matching of products to new and
existing customers as part of our
Strategic Partnership with Standard
Life Aberdeen and under the Group’s
SunLife brand� Such growth brings
additional scale to our business
and dampens the run-off of our
Heritage books�
Additional value can be generated from
acquisitions of life and pension books
of business and further investment in
the bulk purchase annuity market�
Furthermore, there are significant
opportunities to increase and
accelerate cash flows through
the delivery of management
actions across four key areas:
operational management, risk
management, restructuring and
effective partnerships�
Read more about cash
generation on page 39
Read more about operating
profit on page 45
Read more about the link to
our executive remuneration
on page 99
KEY INITIATIVES AND
PROGRESS IN 2019
• The Group delivered £707 million
in cash generation in the year,
exceeding the upper end of its £600
to £700 million target range� The
cash generation is stated net
of a £250 million capital injection
into the Group’s Irish domiciled
subsidiary, Standard Life International,
as part of Brexit preparations�
• Phase 1 of the Standard Life
acquisition transition programme
is substantially complete, delivering
the end state operating model for
the HR, Legal and Risk functions�
• The remaining phases of the
transition programme are proceeding
to timetable� Phase 2 related to the
delivery of integrated Finance and
Actuarial functions is on track to
deliver by the end of 2020� Phase 3
is scheduled to deliver the end state
operating model for Customer
Service and IT by the end of 2022�
The Group announced an enlarged
strategic partnership with the
technology and service provider TCS
in November to support the delivery
of this model�
• £460 million of management actions
were delivered in the year that
increased Solvency II Own Funds�
This includes the impact of strategic
asset allocation actions such as
investment in illiquid assets which
offer improved matching adjustment
benefits in the annuity portfolios,
together with methodology
harmonisation and matching
adjustment fund optimisation
actions� £1�3 billion was invested in
illiquid assets during the year,
including equity release mortgage
portfolios and private placements�
• New business written within the
Open and Europe business
segments during 2019 delivered
expected incremental long-term
cash generation of £240 million,
and benefited from statutory
auto-enrolment increases in the
Workplace product�
• Four bulk purchase annuity market
transactions were successfully
completed with total contracted
liabilities of £1�1 billion� The Group
invested £98 million of capital to
facilitate these transactions, reflecting
the day 1 capital strain arising� The
bulk purchase annuity investments
are expected to increase the Group’s
longer term cash generation by £235
million, to be delivered over the
lifetime of the policies�
• The acquisition of ReAssure Group
was announced in December, adding
significant scale and supporting
future cash generation� The Group
expects to deliver £800 million of
cost and capital synergies by
integrating the two businesses�
The transaction is expected to add
£7 billion of future cash generation
which supports a proposed 3%
increase in the dividend and
additional investment in future
growth opportunities�
PRIORITIES FOR 2020
• Deliver Phase 2 and continue
progressing Phase 3 of the Standard
Life acquisition transition programme�
• Complete the ReAssure Group
acquisition by mid-2020, subject
to regulatory approval�
• Implement further management
actions�
• Grow the UK Open and Europe
businesses�
• Seek further investment
opportunities in the bulk purchase
annuity market�
• Seek further acquisition opportunities
32
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
How we measure delivery
KPI
Operating companies’
cash generation (£m)
Operating profit
(£m)
Final dividend
per share (pence)1
£707m
2018: £664m
£810m
2018: £708m
23.4p
2018: 23.4p
45.2
.
6
2
2
46
.
4
3
2
46.8
.
4
3
2
6
.
2
2
6
.
2
2
4
.
3
2
41.9
5
1.
2
4
.
0
2
2017
2016
Final dividend
per share
2019
2018
Interim dividend
per share
The Group’s dividend per share helps
measure how the Group delivers value
to shareholders in accordance with its
stable and sustainable dividend policy�
The Board has proposed a final
dividend per share of 23�4 pence�
3
5
6
4
6
6
7
0
7
6
8
4
0
1
8
8
0
7
1
5
3
8
6
3
2016
2017
2018
2019
2016
2017
2018
2019
Why is it
important?
Operating companies’ cash generation
represents cash remitted by the
Group’s operating companies to the
holding companies� Maintaining strong
cash flow delivery underpins debt
servicing and repayment as well as
financing shareholder dividends and
future growth opportunities�
Operating profit is a non-GAAP
measure used by management and
is considered a more representative
measure of performance than
IFRS profit or loss after tax as it
provides long-term performance
information unaffected by short-term
economic volatility�
Analysis
Cash remitted reflects the
generation of Free Surplus within
the life companies and the benefit of
management actions implemented in
the period� Cash generation in 2019
was £707 million, net of a £250 million
capital injection into Standard Life
International in preparation for Brexit�
A reconciliation of operating profit of
£810 million to the IFRS profit after
tax of £116 million (2018: £410 million)
is included in the Business
Review section�
Operating profit has increased by
£102 million compared to prior year,
principally reflecting the impact of
the inclusion of the Standard Life
Assurance businesses for a full 12
month period, partly offset by the
lower positive impact of management
actions and demographic actuarial
assumption changes compared to
the prior period�
Target
To generate £3�9 billion of cash
between 2019 and 2023�
Linked
APM REM
APM
1 Historic dividends per share rebased to take into account the bonus element of the rights issue completed in November 2016 and the rights issue
completed in July 2018�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
33
STRATEGIC REPORT
Our Strategy and KPIs continued
We continue to focus on the effective management of our
risks and the efficient allocation of capital against those risks.
03 MANAGE CAPITAL
The Group aims to optimise its capital
structure while addressing the diverse
needs of various stakeholders, including
policyholders, shareholders, lending
banks, bondholders and regulators�
To ensure that unrewarded exposure
to market volatility is minimised or
the risks from market movements
are managed, we execute our
hedging strategy�
In addition, regular re-balancing of
asset and liability positions is required
to ensure that only those assets which
deliver appropriate risk-adjusted returns
are held within life funds, taking into
account any policyholder guarantees�
KEY INITIATIVES AND
PROGRESS IN 2019
• Capital synergies associated with
the acquisition of the Standard Life
Assurance businesses benefited
the Group Solvency II surplus by
£145 million primarily as a result
of intra-group restructuring which
improved the capital efficiency
of the Group�
• The Group delivered an additional
£45 million of management actions
that decreased SCR in the year,
excluding the impacts of the
Standard Life Assurance capital
synergies noted above� This included
activities such as ERM securitisation
and asset de-risking�
• In June 2019, Phoenix Group
Holdings plc replaced its £900 million
unsecured revolving credit facility
with a new £1�25 billion facility,
providing additional financial flexibility
to the Group�
• The Group continued to work closely
with the PRA during 2019 and made
progress towards the implementation
of a harmonised internal model�
The Group is targeting completion of
the pre-application submission to the
regulator in April 2020, with the aim
of receiving final approval in Q1 2021�
• In December, following the
announcement of the acquisition of
ReAssure Group, Fitch revised its
rating outlooks of the Group and its
main operating life companies to
‘Positive’ from ‘Stable’ and at the
same time affirmed all the ratings
of these entities�
PRIORITIES FOR 2020
• Implement further management
actions to enhance the Group’s
capital position�
• Continue progress towards the
approval of a harmonised internal
model for the Group, including
completion of the pre-application
submission in April 2020�
• Complete delivery of the funding for
the acquisition of ReAssure Group,
the first step of which was the
issuance of the capital qualifying
$750 million Restricted Tier 1 bond
in January 2020�
Read more about the Solvency II
surplus and Shareholder Capital
Coverage Ratio on page 42.
34
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
How we measure delivery
KPI
Solvency II surplus
(£bn)
Shareholder capital
coverage ratio (%)
£3.1bn
2018: £3.2bn
161%
2018: 167%
2
3
.
1
.
3
5
.
2
7
6
1
1
6
1
7
4
1
2017
proforma1
2018
2019
2017
proforma1
2018
2019
The Shareholder Capital Coverage
Ratio demonstrates the extent to
which shareholders’ Eligible Own
Funds cover the Solvency Capital
Requirements�
It is defined as the ratio of the Group
Own Funds to Group SCR, after
adjusting to exclude amounts relating
to unsupported with-profit funds and
unsupported Group Pension Schemes�
A coverage ratio of 161% remains
in the middle of our target range
of 140% to 180%�
Why is it
important?
The Solvency II surplus is the
regulatory assessment of capital
adequacy at PGH plc level�
It is the excess of Eligible Own
Funds over the Solvency Capital
Requirement�
Analysis
The Group’s Solvency II surplus of
£3�1 billion has decreased (2018:
£3�2 billion) as a result of the adverse
impacts of economic variances,
the Part VII transfer of the Standard
Life Assurance Limited European
business to the Group’s Irish domiciled
subsidiary and the capital strain of
writing new business� This was largely
offset by surplus generation and the
delivery of management actions�
Linked
APM
1 Pro forma assuming the acquisition of the Standard Life Assurance businesses took place
on 31 December 2019�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
35
STRATEGIC REPORT
Our Strategy and KPIs continued
Our focus on engagement and colleague empowerment creates a rich and diverse
working environment, reflected in our continued status as one of the UK’s top employers.
04 ENGAGE COLLEAGUES
At Phoenix, we have built a hugely
successful, well respected business
by putting our colleagues first�
Phoenix Group’s ability to attract, retain
and motivate colleagues was for the
eighth year in succession, recognised
by the Top Employers Institute as a Top
Employer in the UK�
KEY INITIATIVES AND
PROGRESS IN 2019
Talent and organisational development
The Talent and Development team
has continued to design and deliver
a varied programme of learning and
development including leadership
development, talent programmes,
skills training, online learning, coaching
and mentoring�
• 78% of colleagues Group-wide
(excluding SunLife) completed the
survey and overall engagement was
recorded at 65%� The make-up of
this engagement index was revised
from previous years and moved to a
4-point index that measures the
most valid indicators of engagement�
• Employees were engaged through
the colleague insight survey and
networks to help develop and shape
the introduction of new values for
the Group: Passion, Responsibility,
Growth, Courage and Difference�
The values provide a common
platform to further connect the
business areas, and improve our
understanding of what is required to
be a high-performing organisation�
• As part of the Group’s HR processes,
there is an established succession
plan which identifies, assesses and
develops internal talent for material
roles� In 2019 work has been done
to independently assess and
benchmark future leaders�
Volunteering and charity
Colleagues within the UK came
together in 2019 to support a common
cause across the year, helping to fund
valuable life-saving missions in the
communities in which our offices
are based�
• Growing talent continues to
• The Group continues to recognise
deliver the Group’s most senior
appointments and a new combined
Group talent programme, Changing
the Game, was launched in
June 2019 to accelerate the next
generation leadership development
with 36 delegates participating�
• The Group has fully utilised the
English Apprenticeship levy funding
and has seen over 100 delegates
studying to gain qualifications in
Project Management, Leadership
and Management, Data Analytics
and Accountancy� The success of
these programmes continues to
build internal capability and skills�
Colleague insight survey
Building on the cultural survey from
2018, the Group introduced a new
six-monthly colleague insight survey�
the importance of corporate charity
partnerships� Since 2014, in excess
of £876,000 has been donated
between Midlands Air Ambulance
Charity and London’s Air Ambulance
Charity� In addition, across the year,
colleagues in Scotland have
supported Scotland’s Charity Air
Ambulance and colleagues in
Basingstoke have supported
Hampshire and Isle of Wight
Air Ambulance�
• All colleagues within the UK and
Ireland are given the opportunity
to make a difference in their
local community through
volunteering activity�
• Collectively Phoenix Group
colleagues donated over 6,000 hours
across the year, supporting a variety
of beneficiaries ranging from a
hospital, schools, hospices, local
parks, environmental-focused
projects to groups supporting the
homeless and vulnerably-housed�
Wellbeing
A programme of wellbeing activity took
place during the year, including onsite
healthchecks, flu immunisation, mental
health awareness training, private
medical insurance cover, counselling
and workshops supporting financial
wellbeing matters�
• The Employee Assistance
Programme was relaunched for all
Phoenix Group colleagues during the
year, offering free, independent and
confidential advice on all matters
affecting an individual’s wellbeing�
Diversity and Inclusion
The Group is committed to creating
an inclusive, attractive and safe work
environment free of discrimination and
where everyone is treated with dignity
and respect� Colleagues are not to be
disadvantaged in any way as a result
of their age, race, gender, disability,
religion or belief, sexual orientation,
gender re-assignment, marriage and
civil partnership or pregnancy and
maternity� The Group is committed
to achieving equality of opportunity
and the equal treatment of existing
colleagues and future recruits�
• Phoenix is a signatory to the Women
in Finance Charter (‘WIFC’) and
continues to strive for an inclusive
culture which enables all colleagues
to reach their full potential�
• The Group currently has women in
19% of the top 100 roles (target
30%), 42% of the Group’s green/
amber successors are female (target
40%) and the Group-wide mean
gender pay gap is 23�8% (target
22%)� The WIFC targets are based
on an internal calculation looking at
base salary only, rather than statutory
gender pay gap calculations�
36
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Company� Over half of the colleague
population are voluntarily participating
in one or more of the sharesave or
share incentive plans�
PRIORITIES FOR 2020
• Remain an employer of choice,
offering rewarding careers and
opportunities, promoting physical,
financial and mental wellbeing in the
workplace and empowering a wholly
inclusive workforce�
• Provide a common grading structure
and benefit proposition for all
colleagues within the Group�
• Launch a revised Diversity and
Inclusion strategy focusing on
four pillars: Gender, Ethnicity,
Disability and Mental Health,
and Social Mobility�
• Shape the Diversity and Inclusion
strategy to accelerate the rate of
progress in areas where less tangible
impact has been made, supporting
our aspiration to reach our set
targets, build a diverse talent pipeline
and create a culture of fairness
and inclusion across the Group�
• Maintain support of our communities
across the Group through employee
volunteering, fundraising and
engagement�
• Statutory gender pay statistics are
Total workforce
calculated based on data gathered on
‘Full Pay Relevant Employees’ in the
payroll period covering 5 April 2019�
Of the employing entities within the
Group, Pearl Group Management
Services Limited (‘PGMS’) and
Standard Life Assets and Employee
Services Limited (‘SLAESL’) have the
required 250+ so are included in the
regulatory reporting� This covers
90�5% of the total workforce�
Gender Pay and Bonus Gap (PGMS)
Quartile
Lower Quartile
Lower Middle
Quartile
Upper Middle
Quartile
Upper Quartile
Pay Gap
Bonus Gap
Proportion
of employees
receiving a bonus
Female
61%
Male
39%
44%
56%
34%
27%
Mean
26%
68%
66%
73%
Median
28%
55%
Female
Male
95%
87%
Gender Pay and Bonus Gap (SLAESL)
Quartile
Lower Quartile
Lower Middle
Quartile
Upper Middle
Quartile
Upper Quartile
Pay Gap
Bonus Gap
Female
61%
59%
45%
37%
Mean
22%
35%
Male
39%
41%
55%
63%
Median
26%
28%
Proportion
of employees
receiving a bonus
Female
Male
90%
90%
Male
Female
Directors
(includes Non-
Executive Directors)
Male
Female
Executive
Committee
Male
Female
Executive
Committee
Direct Reports
Male
Female
Workforce that
is of Black, Asian
or Minority
Ethnic (‘BAME’)
background
2019
4,417
2,270
2,147
2018
4,0881
2,0971
1,9911
12
8
4
9
8
1
33
23
10
12
8
4
9
8
1
36
25
11
2072
1413
1 Figures do not include workforce based in
Germany/Austria�
2 Figures do not include workforce based in
SunLife or Germany/Austria� BAME data is not
currently recorded for 55% (1,735 colleagues)�
3 Figures do not include workforce from Standard
Life Assurance Limited or SunLife� Data relates
only to Phoenix Corporate and Phoenix Life
companies�
Reward
• The Group continues to attract and
retain talent by offering a competitive
range of benefits and development
opportunities�
• The Group has been paying at least
the Real Living Wage since 2014 to
colleagues and will continue to do so
in the future as part of its long-term
ethical investment in its people�
• Private medical insurance cover is
available to all colleagues across the
Group regardless of their status
within the organisation�
• All Group employees participate in
an Annual Incentive Plan and are able
to become shareholders in the
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
37
STRATEGIC REPORT
Business Review
INSPIRING
CONFIDENCE
THROUGH
FINANCIAL
DELIVERY
“The Group performed strongly in 2019,
meeting or exceeding all of its financial
targets set for the year. These results
demonstrate the continued management
of our in-force book to deliver cash
generation and resilience together
with a focus on growth through
new business.”
James McConville
Group Finance Director and Group Director, Scotland
Note: Presentation of financial information
IFRS results for the year ended 31 December
2018 include the Standard Life Assurance
businesses for the four month period from 1
September, post completion of the acquisition�
38
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
IFRS
The Group generated an increased
operating profit of £810 million for the
year (2018: £708 million), reflecting the
contribution of the Standard Life
Assurance businesses for a full 12 month
period post completion of the acquisition�
This has been partly offset by the lower
positive impact of management actions
and demographic actuarial assumption
changes within operating profit compared
to the prior period�
The IFRS profit after tax for the year is
£116 million (2018: £410 million)� As
expected the IFRS results continue to be
impacted by investment variances arising
from the Group’s hedging programme,
which is calibrated to protect the Group’s
Solvency II surplus� Improving equity
markets during 2019 generated losses on
these hedging instruments, which
together with the provision of costs
associated with the delivery of transition
activity and the recognition of a full year’s
amortisation charge on intangible assets
recognised on acquisition of Standard
Life Assurance, has more than offset the
increased operating profit�
CASH
Cash generation remains our key
reporting metric�
The Group’s cash generation of £707
million in the year allowed it to exceed
the upper end of its £600 to £700 million
target range for that period, and is stated
net of a £250 million injection of capital
into our European business to prepare it
for Brexit�
CAPITAL POSITION
The Group’s Solvency II capital surplus
position of £3�1 billion (2018: £3�2 billion)
remains resilient with the adverse
impacts of economic variances, the Part
VII transfer of the Standard Life
Assurance Limited European business to
the Group’s Irish domiciled subsidiary,
and the capital strain of writing new
business being largely offset by the
delivery of management actions�
Our solvency ratio of 161% (2018: 167%)
remains comfortably in the middle of our
target range of 140 to 180%�
The Group’s strong financial position has
been recognised by Fitch Ratings who
revised its Insurer Financial Strength
rating of A+ for Phoenix from a ‘stable’ to
‘positive’ outlook in December 2019,
following announcement of the
acquisition of ReAssure Group�
Long-term cash generation is expected
to increase by £475 million as a result
of new business transacted in the year
(2018: £530 million)� This includes the
impact of four BPA transactions
executed in the period, together with
new business from our UK Open and
Europe segments�
LOOKING AHEAD
Phoenix continues to be on track
to achieve its long-term cash generation
target for the five-year period 2019
to 2023 which has been updated by
£0�1 billion to £3�9 billion, reflecting
new business written in 2019� The
Group looks forward to the future from
a position of financial strength�
GROWTH
Group Assets under Administration
(‘AUA’) increased to £248�3 billion in
the year (2018: £226�5 billion) benefiting
from positive market movements,
notably strong performance in global
equity markets and net inflows from the
Group’s UK Open business� This was
partly offset by net outflows from the
Group’s Heritage businesses� Gross
in-flows for the UK Open business are
down on the prior year, principally
reflecting challenging market conditions
for the Wrap product�
CASH GENERATION
Operating companies’ cash generation
represents cash remitted by the Group’s
operating companies to the holding
companies�
Please see the APM section on page 264
for further details of this measure�
Maintaining strong cash flow delivery
underpins debt servicing and repayments
as well as shareholder dividends�
The cash flow analysis that follows
reflects the cash paid by the operating
companies to the Group’s holding
companies, as well as the uses of those
cash receipts�
Cash receipts
Cash generated by the operating
companies during 2019 was £707 million
(2018: £664 million)� Cash generation is
reported net of a £250 million cash
remittance into the Group’s Irish
domiciled subsidiary, Standard Life
International� This capital injection
preceded a Part VII transfer of the Irish,
German and Austrian policies of Standard
Life Assurance Limited to Standard Life
International, completed in March 2019
as part of preparations to ready the
business for Brexit�
Alternative performance measures
The Group assesses its financial performance based on a number of measures, some of which are
not defined or specified in accordance with Generally Accepted Accounting Principles (‘GAAP’) or
statutory reporting framework� These metrics are known as Alternative Performance Measures (‘APMs’)�
The Group’s strategic focus prioritises the generation of sustainable cash flows from its operating
companies through the margins earned on different life and pension products and the release of capital
requirements� Performance metrics are monitored where they support this strategic purpose, which
includes ensuring the capital strength of the Group is maintained�
As a result, GAAP measures typically used to assess financial performance, such as IFRS profit after
tax, are considered by the Board to be of lower importance when assessing Phoenix’s performance
against its strategy� IFRS results exclude any changes to the capital requirements and therefore do
not fully reflect the performance of the Group�
As such, the key performance indicators for the Group mainly focus on cash generation and capital
strength� Further information on the Group’s APMs can be found on page 264, including definitions, why
the measure is used and if applicable, how the APM can be reconciled to the nearest GAAP measure�
Cash and cash equivalents at 1 January
Operating companies’ cash generation:
Cash receipts from Phoenix Life
Cash receipts from Standard Life Assurance
Cash receipts from Management
Services companies
Cash remittances to Standard Life International
Total cash receipts1
Uses of cash:
Operating expenses
Pension scheme contributions
Debt interest
Non-operating cash outflows
Uses of cash before debt repayments
and shareholder dividend
Shareholder dividend
Total uses of cash
Equity raise (net of fees)
Debt issuance (net of fees)
Cost of acquisitions
Support of BPA activity
Cash and cash equivalents at 31 December
Year ended
31 December 2019
£m
346
Year ended
31 December 2018
£m
535
367
565
25
(250)
707
(43)
(50)
(112)
(137)
(342)
(338)
(680)
–
–
–
(98)
275
664
–
–
–
664
(32)
(49)
(88)
(216)
(385)
(262)
(647)
934
932
(1,971)
(101)
346
1 Includes £58 million and £54 million received by the holding companies in respect of tax losses
surrendered to Phoenix Life and Standard Life Assurance respectively (2018: £39 million – Phoenix Life)�
All amounts in the Business Review section marked with an ’APM’ are alternative performance
measures� See ’Alternative Performance Measures’ section on page 264 for further details of
these measures�
All amounts in the Business Review section marked with a ’REM’ are KPIs linked to executive
remuneration� See ’Directors’ Remuneration Report’ on page 99 for further details of executive
remuneration including the financial and non-financial performance measures on which it is based�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
39
STRATEGIC REPORT Business Review continued
CASH GENERATION CONTINUED
Cash outflows
The operating expenses of £43 million
(2018: £32 million) principally comprise
corporate office costs, net of income
earned on holding company cash and
investment balances�
paid to close out derivative instruments
entered into by the holding companies
to hedge the Group’s exposure to
currency risk as well as equity risk arising
from the Group’s acquisition of the
ReAssure Group�
Cost of acquisitions
Cost of acquisitions of £1,971 million in
2018 relates to the cash consideration
settlement to finance the acquisition of
the Standard Life Assurance businesses�
Support of BPA activity
£98 million (2018: £101 million) of funding
has been provided to the life companies
to support BPA new business�
Target cash flows
The Group set a short-term cash
generation target of £600 to £700 million
for 2019 (net of the £250 million cash
remittance into Standard Life
International as part of Brexit
preparations) and with £707 million
of cash generation achieved, the
Group has exceeded the upper end
of its target range�
The Group’s cash generation target for
the five year period 2019 to 2023 has
been upgraded by £0�1 billion to £3�9
billion, to reflect new business written
in the year� The resilience of the target
is demonstrated by the illustrative stress
testing in the table to the left�
Expected cash flows after 2024
There is an expected £8�8 billion of cash
to emerge from 2024� This does not
include any management actions from
2024 onwards or any additional value
from future new business from the
Group’s Open business and BPA
transactions� It also does not reflect
the impact of any future M&A including
the ReAssure Group acquisition�
Annual pension scheme contributions
of £50 million (2018: £49 million) are
made on a monthly basis and include
total contributions of £40 million into the
Pearl Group Scheme and £10 million into
the Abbey Life Scheme, including
£4 million paid into Charged Accounts
and held in escrow�
Debt interest of £112 million (2018:
£88 million) increased principally as a
result of the annual coupon payment
on the £445 million (€500 million) Tier 2
bond issued in September 2018�
Non-operating net cash outflows
Non-operating net cash outflows
of £137 million (2018: £216 million)
principally comprises £69 million
of recharged staff costs and Group
expenses associated with corporate
related projects, including £54 million
of costs related to the transition of the
acquired Standard Life Assurance
businesses and £9 million of costs
related to the acquisition of the ReAssure
Group� It also includes £45 million of
premium, collateral pledged and cash
The remainder of the balance includes
£4 million of costs related to the
separation of businesses from Standard
Life Aberdeen plc and £19 million of net
other items�
Shareholder dividend
The shareholder dividend of £338 million
represents the payment of £169 million in
May for the 2018 final dividend and the
payment of the 2019 interim dividend
of £169 million in September� The final
2019 dividend per share proposed is
23�4 pence�
Equity raise (net of fees)
The £934 million equity issuance in 2018
relates to proceeds, net of fees, from the
rights issue associated with the financing
of the acquisition of the Standard Life
Assurance businesses�
Debt issuance (net of fees)
The £932 million debt issuance in 2018
comprises the net proceeds of the Tier 1
Notes of £500 million completed in April
2018 and the £445 million (€500 million)
Tier 2 bond issuance in September 2018�
Illustrative stress testing1
Base case five-year target
Following a 20% fall in equity markets
Following a 15% fall in property values
Following a 73bps interest rates rise2
Following a 88bps interest rates fall2
Following credit spread widening3
Following 6% decrease in annuitant mortality rates4
Following a 10% increase in assurance mortality rates
Following a 10% change in lapse rates5
1 Jan 2019 to
31 Dec 2023
£bn
3.9
4.0
3.6
4.0
3.7
3.6
3.3
3.8
3.5
1 Assumes stress occurs on 1 January 2020�
2 Assumes recalculation of transitionals (subject to PRA approval)�
3 Credit stress equivalent to an average 120bps spread widening across ratings, and includes an
allowance for defaults/downgrades�
4 Equivalent of six months increase in longevity applied to the annuity portfolio�
5 Assumes most onerous impact of a 10% increase/decrease in lapse rates across different
product groups�
£707m
OPERATING COMPANIES’
CASH GENERATION
APM REM
40
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
ASSETS UNDER ADMINISTRATION AND NEW BUSINESS
The Group’s AUA represent assets
administered by or on behalf of the
Group, covering both policyholder funds
and shareholder assets� This includes
assets recognised in the Group’s IFRS
consolidated statement of financial
position together with certain assets
administered by the Group but for
which beneficial ownership resides
with customers�
AUA provides an indication of the
potential earnings capability of the Group
arising from its insurance and investment
business, whilst AUA flows provide a
measure of the Group’s ability to deliver
new business growth�
A reconciliation from the Group’s IFRS
consolidated statement of financial
position to the Group’s AUA is provided
on page 256� Please see the Alternative
Performance Measure (‘APM’) section
on page 264 for further details of
this measure�
Group AUA
Group AUA increased to £248�3 billion in
the year (2018: £226�3 billion) benefiting
from positive market movements, notably
strong performance in global equity
markets, and net inflows from the
Group’s UK Open business; partly offset
by net outflows from the Group’s
Heritage businesses�
UK Heritage net flows
UK Heritage net outflows of £(6�0) billion
(2018 pro forma1: £(7�1) billion) reflect
policyholder outflows on claims such as
maturities, surrenders and annuities in
payment, net of total premiums received
in the period from in-force contracts�
It includes £1�1 billion (2018: nil) of
inflows arising from the Group’s buy-in of
the remaining pensioner liabilities of the
PGL Pension Scheme and £1�1 billion
(2018: £1�5 billion) of new business
inflows arising from BPA transactions
completed in the year�
UK Open flows
The UK Open segment experienced
gross inflows of £9�8 billion (2018 pro
forma1: £10�7 billion) during the year, of
which £6�0 billion (2018 pro forma1: £7�4
billion) was received in respect of new
contracts transacted in the period�
Strong gross inflows in the Workplace
product of £4�9 billion (2018 pro forma1:
£4�4 billion) benefited from statutory
pensions auto-enrolment increases�
Gross inflows in the Wrap product of
£3�0 billion (2018 pro forma1 : £4�1 billion)
were adversely impacted by challenging
market conditions, notably market
uncertainty arising from Brexit combined
with a decline in transfers from defined
benefit to defined contribution
pension schemes�
Retail products experienced gross
inflows of £1�9 billion (2018 pro forma1:
£2�1 billion)�
Outflows for the UK Open business were
£8�1 billion (2018 pro forma: £7�0 billion)
mainly due to run-off, resulting in net
inflows of £1�7 billion (2018 pro forma1 :
£3�7 billion)�
Europe net flows
The European business contributed a
small net outflow of £0�1 billion to the
Group’s AUA�
Other movements including markets
AUA increased by £26�4 billion as a result
of other movements, largely driven by the
impact of strong global equity market
performance in the year, together with
the positive impact of falling yields on the
fair value of fixed interest rate securities�
New business contribution
In respect of our Open and Europe
business segments, we monitor new
business contribution as the Group’s
measure of the future value delivered
through the writing
of new business�
New business contribution represents
the increase in Solvency II shareholder
Own Funds (net of tax) arising from new
business written in the year, adjusted to
exclude the associated risk margin and
any restrictions recognised in respect
of contract boundaries� It is stated net
£475m
INCREMENTAL LONG-TERM
CASH GENERATION APM
£248bn
ASSETS UNDER
ADMINISTRATION APM
£158m
UK OPEN AND EUROPE
NEW BUSINESS
CONTRIBUTION APM
Movement In AUA
(£bn)
226.3
9.8
(6.0)
(8.1)
(0.1)
26.4
248.3
AUA
as at
1 Jan
2019
UK
Heritage
net flows
UK
Open
inflows
UK
Open
outflows
Europe
net
flows
Other
movement
including
markets
AUA
as
31 Dec
2019
1 The pro forma position assumes the acquisition of the Standard life Assurance businesses took place on 1 January 2018�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
41
STRATEGIC REPORT Business Review continued
ASSETS UNDER ADMINISTRATION AND NEW BUSINESS
CONTINUED
benefited by circa £50 million as a result
of auto-enrolment increases in the year�
Four BPA transactions were completed in
the year, reflecting the Group’s selective
and proportionate approach to its
participation in this market�
of ’Day 1’ acquisition costs and is
calculated as the value of expected
cash flows from new business sold,
discounted at the risk-free rate�
New business contribution for 2019 was
£158 million (2018 pro forma*: £154
million)� This includes £153 million (FY18
pro forma*: £137 million) from the
Group’s UK Open business which
benefited from the statutory pensions
auto-enrolment increases; and £5 million
(2018 pro forma*: £17 million) from the
Europe business which was adversely
impacted by lower gross flows and the
impact of assumption changes�
Long-term cash generation
As a result of new business transacted in
the year, long-term cash generation is
expected to increase by £475 million
(2018 pro forma*: £530 million),
comprising £240 million from the UK
Open and European business segments
(2018 pro forma*: £280 million) and
£235 million from BPA transactions
(2018 pro forma*: £250million)�
The UK Open long-term cash generation
is down on the prior year, reflecting the
overall decline in gross in-flows, primarily
from Wrap inflows� Long-term cash
generation from the Workplace product
CAPITAL MANAGEMENT
Group Solvency II Surplus
A Solvency II capital assessment involves
a valuation in line with Solvency II
principles of the Group’s Own Funds and
a risk-based assessment of the Group’s
Solvency Capital Requirement (‘SCR’)�
The Group’s Own Funds differ materially
from the Group’s IFRS equity for a
number of reasons, including the
recognition of future shareholder
transfers from the with-profit funds and
future management charges on
investment contracts, the treatment of
certain subordinated debt instruments as
capital items, and a number of valuation
differences, most notably in respect of
insurance contract liabilities, taxation
and intangible assets�
The SCR is calibrated so that the likelihood
of a loss exceeding the SCR is less than
0�5% over one year� This ensures that
capital is sufficient to withstand a broadly
‘1-in-200 year event’�
The Group has approval from the PRA for
the use of its Internal Model (‘Phoenix
Internal Model’) to assess capital
requirements, the scope of which was
extended to include the acquired AXA
Wealth and Abbey Life businesses in
March 2017 and March 2018 respectively�
The Standard Life Assurance businesses
determine their capital requirements in
accordance with an approved Internal
Model (‘Standard Life Internal Model’),
which was in place prior to the acquisition
of the Standard Life Assurance
businesses� The one exception to this is
Standard Life International, the Group’s
Irish subsidiary, which remains on
Standard Formula� As a result, the Group
currently uses a Partial Internal Model to
calculate Group SCR, aggregating
outputs from the existing Phoenix
Internal Model, the Standard Life Internal
Model and Standard Life International’s
Standard Formula, without further
diversification� A harmonisation
programme to combine the two Internal
Models into a single Internal Model
is ongoing�
The Group Solvency II surplus position at 31 December is set out in the table below:
£3.1bn
GROUP SOLVENCY II SURPLUS
(ESTIMATED)
161%
GROUP SHAREHOLDER CAPITAL
COVERAGE RATIO (ESTIMATED)
APM
Own Funds1
SCR2
Surplus3
Estimated
position as at
31 December
2019
£bn
10.8
(7.7)
3.1
Estimated
position as at
31 December
2018
£bn
10�3
(7�1)
3�2
1 Own Funds includes the net assets of the life and holding companies calculated under
Solvency II rules, pension scheme surpluses calculated on an IAS19 basis not exceeding the
holding companies’ contribution to the Group SCR and qualifying subordinated liabilities� It is
stated net of restrictions for assets which are non-transferable and fungible between Group
companies within a period of nine months�
2 The SCR reflects the risks and obligations to which Phoenix Group Holdings plc is exposed�
3 The surplus equates to a regulatory coverage ratio of 140% as at 31 December 2019
(2018: 146%)�
* The pro forma position assumes the acquisition of the Standard life Assurance businesses took place on 1 January 2018�
42
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Change In Group Solvency II Surplus
(£bn)
0.6
(0.2)
(0.2)
(0.5)
0.4
3.2
(0.2)
3.1
Surplus
as at
FY18
Management
actions
Surplus
emerging
and release
of capital
requirements
Part VII
transfer
New
Business
including
BPA
Economic
and
other
variances
Surplus
as at
FY19
(estimated)
Financing
costs,
pension
contributions
and payment
of 2019
final dividend
Group Shareholder Capital
Coverage Ratio (£bn)
161%
167%
8.3
3.1
5.2
8.0
3.2
4.8
FY19 (estimated)
FY18
Surplus
SCR
Own Funds
Change in Group Solvency
II Surplus (estimated)
The Group Solvency II surplus has
decreased to £3�1 billion (2018:
£3�2 billion)�
Surplus generation and the impact of the
reduction in capital requirements for the
Group added £0�4 billion to the surplus
during the year�
Management actions undertaken
increased the surplus by £0�6 billion�
This includes £0�1 billion in respect of
capital synergies associated with the
acquisition of the Standard Life
Assurance businesses, primarily as a
result of internal group restructuring
activities� Other management actions of
£0�5 billion include further investment in
illiquid assets within annuity portfolios,
the optimisation of matching adjustment
portfolios and asset de-risking initiatives�
The impact of new business written
during the year reduced the surplus by
£0�2 billion� This primarily reflects the
capital strain associated with BPA
transactions executed in the period
and vesting annuities in the Heritage
business segment� The Open business
continues to be capital light�
The Part VII transfer of Standard Life
Assurance Limited’s Irish, German and
Austrian policies to Standard Life
International resulted in a £0�2 billion
reduction in the surplus reflecting
increases in the SCR and risk margin
as a result of the more onerous
capital requirements and a loss of
diversification under Standard Formula
compared to the Standard Life Internal
Model, together with the recognition
of counterparty default risk�
Financing costs, pension contributions
and dividend payments (including accrual
for the 2019 final dividend) amount to
£0�5 billion and reduced the surplus
in the period�
The adverse impact of economic and
other variances reduced the surplus
by £0�2 billion� The positive impact of
changes to longevity assumptions of
circa £0�1 billion, including updates to the
latest Continuous Mortality Investigation
2018 projection tables, has been more
than offset by the strengthening of
assumptions used to determine the SCR
held in respect of the Group’s £2�8 billion
Equity Release Mortgages portfolio,
and the adverse impact of updates
to other demographic assumptions
including mortality�
Other variances also include the net
adverse impact of economic and market
movements in the period, notably falling
yields and foreign exchange, together
with the costs of corporate related
projects�
Group Own Funds have benefitted
by circa £0�3 billion as a result of
recognising the benefits (net of
associated costs) that will be delivered
by our Standard Life transition activities
including the end state Customer Service
and IT operating model� This is largely
offset in Solvency II surplus by an
increase in SCR associated with the
risk of this transition�
Standard Life Assurance Limited and
the Phoenix Life entities undertook a
mandatory recalculation of Transitional
Measures on Technical Provisions
(‘TMTP’) as at 31 December 2019�
Group Shareholder Capital Coverage
Ratio (estimated)
The Solvency II surplus excludes the
surpluses arising in the Group’s
unsupported with-profit funds and
unsupported Group pension schemes of
£2�1 billion (2018: £2�1 billion)� Surpluses
within the with-profit funds and the
Group Pension Schemes, whilst not
included in the Solvency II surplus, are
available to absorb economic shocks�
This means that the headline surplus
is resilient to economic stresses�
In the calculation of the Solvency II
surplus, the SCR of the unsupported
with-profit funds and the unsupported
Group Pension Schemes is included, but
the related Own Funds are recognised
only to a maximum of the SCR amount�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
43
STRATEGIC REPORT
Business Review continued
CAPITAL MANAGEMENT CONTINUED
This approach suppresses the regulatory
capital coverage ratio calculated as
eligible own funds as a percentage
of SCR�
As a result, the Group focuses on a
shareholder view of the capital coverage
ratio which it considers to give a more
accurate reflection of the capital strength
of the Group� The Shareholder Capital
Coverage Ratio is calculated as the ratio
of Eligible Own Funds to SCR adjusted to
exclude Own Funds and the associated
SCR relating to the unsupported
with-profit funds and the unsupported
Group Pension Schemes�
The Group targets a shareholder capital
coverage ratio in the range of 140%
to 180%�
Please see the Alternative Performance
Measures section on page 264 for further
details of this measure�
The Group Shareholder Capital Coverage
ratio is 161% as at 31 December 2019
(2018: 167%)�
Sensitivity and scenario analysis
As part of the Group’s internal risk
management processes, the regulatory
capital requirements are tested against a
number of financial scenarios� The results
of that stress testing are provided
opposite and demonstrate the resilience
of the Group Solvency II surplus�
The sensitivities reflect the impact of any
strong with-profit funds or pension
schemes that may become weak after
application of the stress�
Life Company Free Surplus (estimated)
Life Company Free Surplus represents
the Solvency II surplus of the Life
Companies that is in excess of their
Board approved capital management
policies�
As at 31 December 2019, the Life
Company Free Surplus is £1�2 billion
(2018: £1�0 billion)� The table below
analyses the movement during
the period�
As the analysis is presented on a net of tax
basis, cash remittances to the holding
companies excludes £112 million of
amounts received by the holding companies
in respect of tax losses surrendered to the
Life companies that is included in the
Group’s Cash Generation metric�
Cash remittances from holding
companies relate to the £250 million
capital injection into Standard Life
International as part of the Group’s
Brexit planning activities�
Illustrative stress testing1
Base: 1 January 2020
Following a 20% fall in equity markets
Following a 15% fall in property values
Following a 73bps interest rates rise2
Following a 88bps interest rates fall2
Following credit spread widening3
Following 6% decrease in annuitant mortality rates4
Following 10% increase in assurance mortality rates
Following a 10% change in lapse rates5
Estimated PGH
Solvency II
surplus
£bn
3.1
3.2
2.9
3.1
3.0
2.8
2.5
3.0
2.7
1 Assumes stress occurs on 1 January 2020�
2 Assumes recalculation of transitionals (subject to PRA approval)�
3 Credit stress equivalent to an average 120bps spread widening across ratings and includes
allowance for defaults/downgrades�
4 Equivalent of six months increase in longevity applied to the annuity portfolio�
5 Assumes most onerous impact of a 10% increase/decrease in lapse rates across different
product groups�
Opening Free Surplus
Surplus generation and run-off of capital requirements
Management actions
Part VII transfer
New business
Economic, financing and other
Free Surplus before cash remittances
Cash remittances to holding companies
Cash remittances from holding companies
Closing Free Surplus
Estimated
position as at
31 December 2019
£bn
1.0
0.5
0.6
(0.3)
(0.1)
0.1
1.8
(0.9)
0.3
1.2
44
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
IFRS RESULTS
Operating profit
Operating profit is a non-GAAP financial
performance measure based on expected
long-term investment returns� It is stated
before amortisation and impairment of
intangibles, other non-operating items,
finance costs and tax�
Please see the APM section on page 264
for further details of this measure�
The Group has generated an operating
profit of £810 million (2018: £708 million)�
The increase compared to the prior year
is primarily driven by the inclusion of the
Standard Life Assurance businesses for
a full 12 month period post completion of
the acquisition in August 2018� This has
been partly offset by the lower positive
impact of management actions and
demographic actuarial assumption
changes within operating profit compared
to the prior period�
IFRS profit after tax
The IFRS profit after tax attributable
to owners is £116 million (2018: £410
million)� The decrease primarily reflects
net negative economic variances arising
on hedging positions held by the life
companies to protect the Group’s
Solvency II surplus position, compared to
net positive variances in the prior year
together with a full year’s amortisation
charge on intangibles arising on
acquisition of the Standard Life
Assurance businesses� The 2018 result
also included a £141 million gain
recognised on the acquisition of the
Standard Life Assurance businesses�
These negative factors have been partly
offset by the improved operating profit
detailed above�
£810m
OPERATING PROFIT
APM
£116m
IFRS PROFIT AFTER TAX
Basis of operating profit
Operating profit generated by the UK
Heritage, UK Open and Europe business
segments is based on expected
investment returns on financial
investments backing shareholder and
policyholder funds over the reporting
period, with consistent allowance for the
corresponding expected movements in
liabilities (being the release of prudential
margins and the interest cost of unwinding
the discount on the liabilities)�
The principal assumptions underlying the
calculation of the long-term investment
return are set out in note B2 to the IFRS
consolidated financial statements�
Operating profit includes the effect
of variances in experience for non-
economic items, such as mortality and
persistency, and the effect of changes in
non-economic assumptions� Changes
due to economic items,
for example market value movements
and interest rate changes, which give rise
to variances between actual and
expected investment returns, and
the impact of changes in economic
assumptions on liabilities, are accounted
for outside of operating profit� Operating
profit is net of policyholder finance
charges and policyholder tax�
UK Heritage operating profit
The Group’s UK Heritage business
segment does not actively sell new
life or pension policies and runs-off
gradually over time�
The with-profit operating profit of £126
million (2018: £101 million) represents the
shareholders’ one-ninth share of the
policyholder bonuses� The increase on
prior year primarily reflects the full 12
months contribution from the Standard
Life Assurance businesses�
The with-profit funds where internal
capital support has been provided
generated an operating profit of £18
million (2018: £20 million)� The profit is
principally driven by the net positive
impact of updating actuarial assumptions,
including longevity�
The non-profit and unit-linked funds
operating profit increased to £577 million
Profit/(loss) after tax
UK Heritage
UK Open
Europe
Management Services companies
Group costs
Operating profit
Investment return variances and economic
assumption changes on long term business
Variance on owners’ funds
Amortisation of acquired in-force business,
customer relationships and other intangibles
Other non-operating items
Profit before finance costs and tax
attributable to owners
Finance costs attributable to owners
(Loss)/Profit before the tax attributable
to owners of the parent
Profit before tax attributable to non-controlling interests
(Loss)/profit before tax attributable to owners
Tax credit/(charge) attributable to owners
Profit after tax attributable to owners
Year ended
31 December
2019
£m
694
73
52
26
(35)
810
Year ended
31 December
2018
£m
640
41
22
25
(20)
708
(177)
13
(395)
(169)
82
(127)
(45)
31
(14)
130
116
283
(193)
(207)
(38)
553
(114)
439
31
470
(60)
410
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
45
STRATEGIC REPORT Business Review continued
IFRS RESULTS CONTINUED
(2018: £524 million), reflecting the full 12
months contribution from the Standard
Life Assurance businesses and the
impact of BPA transactions entered into
in the period� This has been partly offset
by the lower positive impact of
management actions and the delivery of
actuarial modelling enhancements in the
prior period� Updating actuarial
assumptions had a net positive impact of
£183 million on the result for the year
(2018: £205 million) and included the
impact of updating longevity base and
improvement assumptions to reflect
latest experience analyses and the most
recent Continuous Mortality Investigation
2018 core projection tables�
The long-term return on owners’ funds of
£(27) million (2018: £(5) million) reflects
the return on owners’ assets, primarily
cash-based assets and fixed interest
securities, and the impact of expenses
borne by the shareholder� The loss in the
period principally reflects certain one-off
project costs and the settlement of VAT
on certain investment expenses that
were borne on behalf of policyholders�
UK Open operating profit
The Group’s UK Open business segment
delivered an operating profit of £73
million (2018: £41 million)� This includes
operating profits generated across the
Workplace, Retail and Wrap product
lines, including new business distributed
through our Strategic Partnership with
Standard Life Aberdeen plc and under the
Group’s SunLife brand� The increase in
operating profit compared to the prior
year reflects the full 12 months
contribution from the Standard Life
Assurance businesses, partly offset by
the adverse impact of updating mortality
assumptions on the SunLife business to
reflect latest experience�
Europe operating profit
The Europe business segment which
comprises business written in Ireland,
Germany and Austria and a mix
of Heritage and Open products,
generated an operating profit of
£52 million during the year (2018:
£22 million)� Again, the increase
principally reflects the inclusion of the
12 months contribution of the Standard
Life Assurance businesses�
Management services
companies operating profit
The operating profit for management
services of £26 million (2018: £25 million)
comprises income from the life and
holding companies in accordance with
the respective management services
agreements less fees related to the
outsourcing of services and other
operating costs� The increase compared
to the prior period is principally driven
by a revised management services
agreement that was in place for the full
period in respect of the acquired Abbey
Life business, partly offset by the
impacts of run-off� A management
services agreement has been signed in
respect of the Standard Life Assurance
businesses and will be effective from 1
January 2020� See other non-operating
items below for further detail�
Group costs
Group costs in the period were
£35 million (2018: £20 million)� They
mainly comprise project recharges from
the service companies and the returns
on the scheme surpluses/deficits of
the Group staff pension schemes�
The increase in costs compared to the
prior period principally reflects a lower
return on the scheme surplus of the
PGL Pension Scheme, following the
UK Heritage operating profit
With-profit
With-profit where internal capital support provided
Non-profit and unit linked
Long-term return on owners’ funds
UK Heritage operating profit before tax
Year ended
31 December
2019
£m
126
18
577
(27)
694
Year ended
31 December
2018
£m
101
20
524
(5)
640
buy-in transaction that took place in
March 2019 (see note G1 to the IFRS
financial statements)�
Investment return variances and economic
assumption changes on long-term business
The net adverse investment return
variances and economic assumption
changes on long-term business of
£177 million (2018: £283 million positive)
primarily arise as a result of losses on
hedging positions held by the life funds
and reflect improving equity markets in
the year� The Group’s exposure to equity
movements arising from future profits in
relation to with-profit bonuses and
unit-linked charges is hedged to benefit
the regulatory capital position� The
impact of equity market movements
on the value of the hedging instruments
is reflected in the IFRS results, but the
corresponding change in the value of
future profits is not� These adverse
impacts have been partly offset by the
positive impacts of strategic asset
allocation activities, including investment
in higher yielding illiquid assets, and
lower swap curve yields experienced
during the period�
Variance on owners’ funds
The positive variance on owners’ funds
of £13 million (2018: £193 million
negative) is principally driven by gains
on foreign currency swaps held by the
holding companies to hedge exposure of
future life company profits to movements
in exchange rates� The prior year result
included realised losses on derivative
instruments entered into by the holding
companies to hedge exposure to equity
risk arising from the Group’s acquisition
of the Standard Life Assurance
businesses� Losses of £143 million were
incurred on these instruments, together
with option premiums of £22 million�
Amortisation of acquired in-force
business and other intangibles
The acquired in-force business is being
amortised in line with the expected
run-off profile of the profits to which
it relates� Amortisation of acquired
in-force business during the year totalled
£375 million (2018: £189 million) with the
increase from the prior year driven by a
full 12 months amortisation charge in
respect of the acquired-in-force business
46
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
The Group tax credit for the period
attributable to owners is £130 million
(2018: £60 million tax charge) based
on a loss (after policyholder tax) of
£14 million (2018: £470 million profit)�
The significant tax adjustments to the
Owners’ loss before tax are primarily
due to the impact of a deferred tax rate
reduction relating primarily to AVIF
of £(50) million, a prior year credit for
shareholders of £(51) million, the impact
of non-tax deductible costs of £22 million
and profits taxed at a rate other than the
statutory rate of £(13) million� See note
C6 to the IFRS consolidated financial
statements for further analysis�
Financial leverage
The Group seeks to manage the level of
debt on its balance sheet by monitoring
its financial leverage ratio� This is to
ensure the Group maintains its
investment grade credit rating as issued
by Fitch Ratings and optimises its funding
costs and financial flexibility for future
acquisitions� The financial leverage ratio
as at 31 December 2019 (as calculated
by the Group in accordance with Fitch
Ratings’ stated methodology) is 22%
(2018: 22%)� This is below the target
range management considers to be
associated with maintaining an investment
grade rating of 25% to 30%�
Financial leverage is calculated as debt
as a percentage of the sum of debt and
equity� Debt is defined as the IFRS
carrying value of shareholder borrowings�
Equity is defined as the sum of equity
attributable to the owners of the parent,
the unallocated surplus, the Tier 1 Notes
and non-controlling interests�
relating to the Standard Life Assurance
businesses� Amortisation of other
intangible assets totalled £20 million
in the year (2018: £18 million)�
transition programme� It also included net
other one-off items totalling £47 million,
including other corporate project costs�
Other non-operating items
Other non-operating items of £169
million negative (2018: £38 million
negative) includes an £80 million benefit
arising from updated expense
assumptions for insurance contracts,
reflecting reduced future servicing costs
as a result of transition activity� Such
benefits on the Group’s investment
contract business will typically be
recognised as incurred� This benefit has
been more than offset by staff and
external costs incurred or provided for in
the period with regard to transition activity
and the transformation of the Group’s
operating model and extended
relationship with Tata Consultancy
Services, totalling £190 million, of which
£175 million relates to external costs�
Also included in the net other non-
operating items are £5 million of costs
associated with preparations to ready the
business for Brexit, costs associated with
other corporate related projects of £41
million, including the Group’s Internal
Model harmonisation project and the
acquisition of ReAssure Group and net
other items totalling an expense of
£13 million�
The prior period result included a gain on
acquisition of £141 million reflecting the
excess of the fair value of the net assets
acquired over the consideration paid for
the acquisition of the Standard Life
Assurance businesses and a net benefit
of £45 million reflecting anticipated cost
savings associated with the move to a
single, digitally enhanced outsourcer
platform� These amounts were more than
offset by a provision for £68 million in
respect of a commitment to reduce
ongoing and exit charges for non-
workplace pension products, costs of
£59 million associated with the
equalisation of accrued Guaranteed
Minimum Pension benefits within the
Group’s pension schemes, costs of £43
million associated with the acquisition of
the Standard Life Assurance businesses
and £7 million incurred under the ongoing
Finance costs
Finance costs of £127 million (2018:
£114 million) have increased by £13
million, reflecting the interest charges
on the €500 million Tier 2 debt issuance
in September 2018�
Tax credit attributable to owners
The Group’s approach to the
management of its tax affairs is set out
in its Tax Strategy document which is
available in the corporate responsibility
section of the Group’s website� The
Group’s tax affairs and tax controls are
managed by an in-house tax team who
report on them to the Board and the
Audit Committee on a regular basis
throughout the year� The Board believes
that its Tax Strategy accords with the
Group’s approach to its wider Corporate
Social Responsibility� The tax strategy
was refreshed in August 2019 and
published in accordance with the
relevant statutory requirements�
Implicit in the Group’s Tax Strategy
and the management of its tax affairs
is a desire for greater transparency
and openness that will help the Group’s
stakeholders better understand the
published tax numbers� In this way the
Group aims to participate in a substantive
manner with HMRC and other insurance
industry stakeholders on consultative
documents and tax law changes that
potentially impact on the insurance sector�
The Group’s insurance operations are
primarily based in the UK and are liable to
tax in accordance with applicable UK
legislation� Following the acquisition of
the Standard Life Assurance businesses,
the Group’s overseas operations have
increased, in Ireland and Germany in
particular� The Group complies with the
local tax obligations in the jurisdictions in
which it operates� Phoenix Group
Holdings was a Jersey resident holding
company until 31 January 2018 when
it became tax resident in the UK�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
47
STRATEGIC REPORT
Risk Management
RISK
MANAGEMENT
THE GROUP’S RISK
MANAGEMENT FRAMEWORK
The Group’s Risk Management
Framework (‘RMF’) embeds proactive
and effective risk management across
the Group� It seeks to ensure that risks
are identified and managed effectively
and that the Group is appropriately
rewarded for the risks it takes�
Over 2019 the Group completed the
design and implementation of a
harmonised framework following the
acquisition of Standard Life Assurance
businesses; this takes the best of
legacy-Phoenix and legacy-SLAL
frameworks and is designed to be
appropriate for the risk profile of the
enlarged Group�
The nine components of the
harmonised RMF are outlined in
the diagram below, with further
information given in the sections
that follow�
RISK ENVIRONMENT
The Group continues to manage a
significant level of change activity�
Operational capacity across the Group,
and within our outsourcing partners,
is being actively monitored by
management and Boards to ensure
it continues to meet business demands
and to prevent any adverse impact
to customer outcomes and
business performance�
In November the Group announced an
enlarged partnership with TCS to drive
growth in our UK Open workplace
business and meet the future needs
of our workplace clients, customers
and their advisers� The Group’s
Supplier Management Model will
continue to provide the foundation for
effective oversight of the increasing
role that strategic partners play in the
delivery of the Group’s strategy�
Externally, whilst the UK general
election result in December provided
greater political certainty, market risk
remains heightened due to the possible
outcomes of ongoing Brexit trade
negotiations and wider geopolitical
uncertainty� The Group remains well
prepared for operational impacts as
a result of potential Brexit outcomes�
The Group continues to actively
monitor and take action against
potential financial and operational
impacts due to the spread
of COVID-19�
In December the Group announced
the acquisition of ReAssure Group plc,
a leading life insurance closed book
consolidator in the UK� This acquisition
is highly attractive for the Group� The
acquisition is subject to a number of
pre-completion conditions including
regulatory approval� On completion
the acquisition would be expected
to heighten existing risks that the
Group is exposed to, particularly
those related to transition activity for
acquired businesses�
Risk Management
Framework
RISK
STRATEGY
& CULTURE
RISK APPETITE
RISK UNIVERSE
RISK
POLICIES
GOVERNANCE &
ORGANISATION
EMERGING
RISK
STRATEGIC RISK
MANAGEMENT
RISK &
CAPITAL
MODELS
RISK & CONTROL PROCESSES & REPORTING
48
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
“Work to harmonise
our Risk Management
Framework is now complete.
This framework is designed
to be appropriate for
the risk profile of the
enlarged Group.”
Jonathan Pears
Group Chief Risk Officer
OWN RISK AND SOLVENCY
ASSESSMENT (ORSA)
The Group’s ORSA cycle brings
together inter-linked risk management,
capital and strategic processes�
The ORSA provides:
RISK STRATEGY AND CULTURE
Risk Strategy
Our risk strategy is to take rewarded risks
that are understood, managed effectively
and are consistent with our overall Group
Vision, Purpose and Mission�
RISK APPETITE
Risk appetite is used to define the
amount of risk that the Group is willing
to accept in the pursuit of enhancing
customer and shareholder value, and
attaining our strategic objectives�
• processes to identify, assess, control
and monitor risks the Group faces;
• an understanding of current and
potential risks to the business;
including financial and non-financial
risks under base and stressed
scenarios;
• our appetite to accept these risks
and how the Group manages
them; and
• a forward looking, internal
assessment of the Group’s solvency
position in respect of its risk profile
and how it is likely to change given
business plans and strategy�
The ORSA plays an important role in
supporting strategic decision-making
and strategy development at our
Boards and risk committees�
We achieve our risk strategy not by
risk avoidance, but through the
identification and management of an
acceptable level of risk (our ‘risk
appetite’) which ensures that the
Group is appropriately rewarded for
the risks that are taken�
Risk Culture
Risk culture is the sum of our shared
values, behaviours and attitudes
towards risks faced by the Group and
our customers� Our risk culture reflects
the way we think and act, both
individually and collectively�
We seek to grow an environment that
supports informed decision-making
and controlled risk taking� The creation
of this environment is enabled through
the Group’s Values of Passion,
Responsibility, Growth, Courage and
Difference� Underpinning each of
these are the individual and collective
attitudes and behaviours that allow
this environment to be realised�
Indicators of risk culture include focus
on customers, encouragement of
challenge, willingness to talk about and
learn from mistakes, effectiveness of
governance, and rewarding good risk
management�
ORSA process cycle
ANNUAL
ORSA REPORT
STRATEGY AND
BUSINESS PLAN
STRESS AND
SCENARIO TESTING
RISK EXPOSURE
AND APPETITE
RISK MANAGEMENT
AND MONITORING
RISK CAPITAL
ASSESSMENT
The risk appetite statements establish
the risk boundaries within which we
are prepared to operate and set the
tolerance for delivery against our
objectives� They also encapsulate our
risk appetite for policyholder security
and conduct, earnings volatility, liquidity
and our control environment� The
following Risk Appetite statements are
adopted by the Group:
Capital – The Group and each Life
Company will hold sufficient capital to
meet business requirements including
those of key stakeholders in a number
of Board-approved asset and liability
stress scenarios�
Cash flow – The Group and each Life
Company will seek to ensure that it
has sufficient cash flow to meet its
financial obligations under a range
of Board-approved scenarios�
Shareholder value – The Group only
has appetite for risks that are rewarded,
understood and controlled, and
consistent with the Group’s strategy�
The Group will take action to grow and
protect shareholder value�
Control – The Group and each Life
Company will, at all times, operate a
strong control environment to ensure
compliance with all internal policies,
applicable laws and regulations, in a
commercially effective manner�
Conduct – The Group has no appetite
for deliberate or negligent actions
leading to unfair customer outcomes,
poor market conduct or reputational
damage� Where unfair outcomes arise,
the Group has a low appetite for delays
in rectification�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
49
STRATEGIC REPORT Risk Management continued
RISK UNIVERSE
A key element of effective risk
management is ensuring that the
business has a complete understanding
of the risks it faces� These risks are
defined in the Group’s Risk Universe�
The Risk Universe allows the Group
to deploy a common risk language,
allowing for meaningful comparisons
to be made across the business�
There are three levels of Risk Universe
categories� The highest Risk Universe
category is Level 1 and includes:
• Strategic Risk
• Customer Risk
• Financial Soundness Risk
• Market Risk
• Credit Risk
• Insurance Risk
• Operational Risk
RISK POLICIES
The Group Risk Policy Framework
comprises a set of policies that
supports the delivery of the Group’s
strategy by establishing operating
principles and expectations for
managing the key risks to the Group�
The policies contain the minimum
control standards to which each
business unit must adhere�
The policies define:
• the individual risks the policy is
intended to manage;
• the degree of risk the Group is willing
to accept, which is set out in the
policy risk appetite statements;
• the minimum controls standards
required in order to manage the risk
to an acceptable level; and
• the frequency of controls in
operation�
The Group Risk Policies are mapped
to risks across the Risk Universe to
ensure complete coverage of all
material risks�
As part of the Risk Policy harmonisation
process between legacy-Phoenix and
legacy-Standard Life Assurance
businesses in 2019, a Group Conduct
Risk Framework has been developed�
This provides a consistent and
comprehensive approach to the
management of conduct risk and risks
to the achievement of customer
outcomes across the Group� The
Conduct Risk Framework overarches
all risk policies to provide a holistic view
of conduct risk�
GOVERNANCE AND
ORGANISATION
Governance
The RMF sets out a three lines of
defence model with clearly defined
roles and responsibilities for
all components� Risk accountability
and ownership are embedded in Line 1�
Overall responsibility for approving the
RMF rests with the Board, with
maintenance and review of the
effective operation of the RMF
delegated to the Group Board Risk
Committee� This delegation also
includes approval of the overall risk
management strategy and the review
and recommendation to the Board of
the relevant risk policies, risk appetite
statements, risk profile and any
relevant emerging risks�
First line: Management
Management of risk is delegated from
the Board to the Group Chief Executive
Officer, Executive Committee
members and through to business
managers� Line 1 is responsible for
implementation of the RMF, ensuring
that risks to the Group and its
customers are identified, assessed,
controlled, monitored, managed
and reported�
Second line: Risk Oversight
Risk oversight is provided by the Group
Risk Function compromising risk and
compliance functions and the Board Risk
Committee� Group Risk provides a Risk
Management Toolkit to support Line 1 in
their management of risks� The purpose
and responsibilities of the Group Risk
function are set out in its annual Risk
Function Mission & Mandate�
Governance Framework
BOARD
PGH Board
PGH Board Nomination Committee
PGH Board Remuneration Committee
PGH Board Risk Committee
PGH Board Audit Committee
FIRST LINE OF DEFENCE
SECOND LINE OF DEFENCE
THIRD LINE OF DEFENCE
EXECUTIVES
Group Chief Executive Officer
PGH Board Nomination Committee
MANAGEMENT
Group Functions
Life Companies
Chief Risk Officer
Group Risk and Compliance
Group Internal Audit
50
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Third line: Independent Assurance
Independent verification of the
adequacy and effectiveness of the
internal controls and risk management
is produced by the Board Audit
Committee, supported by the
Group Internal Audit function�
The governance framework in
operation throughout the Group
can be found in the chart on page 50�
EMERGING RISK
The Group defines an emerging risk
(or opportunity) as an event that is
perceived to be potentially significant
but is not yet fully understood�
Mitigating action may not be necessary
until further information is known about
the possible impact�
The distinction between a risk and an
emerging risk predominantly relates to
the time horizon, with emerging risks
generally being medium to longer term
in nature� In many cases the potential
impact for the Group is not yet clear
and may change over time�
The Group captures emerging risks,
and emerging opportunities, in a
dashboard covering potential
likelihoods, timeframes and impacts�
Senior management and the Board
regularly review and challenge the
validity of the dashboard and also
discuss items which should be added�
These conversations help drive out
potential new risks and opportunities,
pulling on the collective expertise and
experiences of senior individuals�
Examples of emerging risks the Group
considers are outlined in the table
on page 56�
STRATEGIC RISK MANAGEMENT
Strategic risks threaten the
achievement of the Group strategy
through poor strategic decision-
making, implementation or response to
changing circumstances� The Group
recognises that core strategic activity
brings with it exposure to strategic risk�
The identification and assessment of
strategic risks is an integrated part of
the RMF; strategic risk is a Level 1 Risk
Category in the Group’s Risk Universe�
A strategic risk policy is also maintained
and reported against regularly, with a
particular focus on risk management,
stakeholder management, corporate
activity and overall reporting against
the Life Companies’ and Group’s
strategic ambitions�
RISK AND CAPITAL MODELS
A continuous process is followed for
the identification and assessment of
risks and the corresponding resilience
of the Group’s capital position� The
Group continually strives to enhance
its internal risk and capital models
to ensure appropriate management
of risks�
Under Solvency II, the development
and production of any Internal Model
output contributing to regulatory capital
requirements must comply with
validation standards� This is supported
by a Model Governance Policy, which
sets out the standards that must be
satisfied to demonstrate meeting
Solvency II requirements� The output
of the Internal Model is used within
the Group’s ORSA process to provide
insight into risks associated with
Group objectives�
Our Stress and Scenario Testing
Programme uses the Internal Model
to assess the capital impact of a range
of plausible and extreme stresses�
RISK CONTROL PROCESSES
AND REPORTING
Identification, assessment,
management and reporting of risks
is undertaken across the three lines
of defence, and reported through
business and management
governance to the relevant Boards
and Committees�
RISK MANAGEMENT
EFFECTIVENESS
Group Risk conducts an annual
assessment of the Group’s adherence
to the RMF that provides assurance
to management and the Boards that
the RMF has been implemented
consistently and is operating effectively
across the Group�
“Our risk culture promotes an environment that supports
informed decision-making and controlled risk taking.”
Jonathan Pears
Group Chief Risk Officer
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
51
STRATEGIC REPORT Risk Management continued
PRINCIPAL RISKS
AND UNCERTAINTIES
FACING THE GROUP
Strategic Risk
Customer Risk
Operational Risk
Market Risk
Insurance Risk
Credit Risk
Change from last year
Principal risks
t
c
a
p
m
I
h
g
H
i
w
o
L
KEY
F
D D
C C
A
A
E
B
Likelihood
Unlikely
Almost certain
Change in risk
Strategic priorities
Risk Improved
No Change
1
Improve Customer Outcomes
2 Drive Value
Risk Heightened
3 Manage Capital
New Principal Risk
4 Engage Colleagues
The Group’s principal risks and
uncertainties are detailed in
this section, together with their
potential impact, mitigating
actions in place, links to the
Group’s strategic priorities
and changes in the risk from
the Group’s 2018 Annual
Report and Accounts, published
in March 2019.
Following a review of principal risks,
the number of principal risks has
increased from ten to eleven with
‘Climate Change and wider
Environmental, Social and Governance
(ESG) risk’ moving from an emerging
risk to a principal risk� This is due to
the increasing understanding of the
potential risks associated with the
transition to a low carbon economy
and longer-term financial risks�
Potential impacts for the Group are
wide ranging including material
changes in asset valuations, reduced
proposition attractiveness and
reputational risk if the Group does
not respond appropriately�
The current assessment of the residual
risk in respect of each of the Group’s
Level 1 Risk Universe categories is
illustrated in the chart opposite� The
residual risk is the remaining risk after
controls and mitigating actions have
been taken into account�
Further details of the Group’s exposure
to financial and insurance risks and
how these are managed are provided
in note E6 and F4 (to the IFRS
consolidated financial statements)�
52
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Risk
Impact
Mitigation
Strategic
priorities
Change from last year
Strategic risk
The Group fails
to make further
value adding
acquisitions
or effectively
transition
acquired
businesses
The Group is exposed to the risk of
failing to drive value through inorganic
growth opportunities� This includes
acquisitions of life and pensions books
of business and further investment
in the Bulk Purchase Annuity (‘BPA’)
market�
The transition of acquired businesses
into the Group could introduce
structural or operational challenges that
result in Phoenix failing to deliver the
expected outcomes for customers
or value for shareholders�
The Group’s
Strategic
Partnerships fail
to deliver the
expected benefits
Our Strategic Partnerships are a core
enabler for delivery of the Group’s
strategy; they allow us to meet the
needs of our customers and clients,
and deliver value for our shareholders�
Phoenix’s end state operating model
will leverage the strengths of our
strategic partners whilst retaining
in-house key skills which differentiate
us� There is a risk that the Group’s
strategic partnerships do not deliver the
expected benefits�
The Strategic Partnership with
Standard Life Aberdeen plc (‘SLA
plc’) is expected to provide additional
growth opportunities through our Open
business� In addition, SLA plc provides
investment-management services to
around two thirds of our assets under
administration�
Our recently enlarged partnership with
TCS is also expected to support growth
plans for our Workplace Open business,
enabling further digital and technology
capabilities to be developed to support
enhanced customer outcomes�
The Group fails
to ensure that
its propositions
continue to meet
the evolving needs
of customers
and clients
The Group’s ability to deliver growth
assumed in business plans could be
adversely impacted if our propositions
fail to meet the needs of customers
and clients�
The risk could materialise through
increased outflows or reduced new
business levels�
1
2
3
1
2
1
2
The Group applies a clear set of criteria
to assess inorganic opportunities�
Our acquisition strategy is supported
by the Group’s financial strength
and flexibility, its strong regulatory
relationships and its track record of
managing customer outcomes and
generating value�
The financial and operational risks of
target businesses are assessed in
the acquisition phase and potential
mitigants are identified�
Integration plans are developed and
resourced with appropriately skilled
staff to ensure target operating models
are delivered in line with expectations�
Our Corporate Development team
continues to assess new Merger &
Acquisition and BPA opportunities�
The Group continues to actively
manage operational capacity required
to deliver its strategy; this includes
transition activity� A Life Company
operational capacity dashboard is
regularly reviewed by both Life and
Group Boards�
The Joint Operating Forum (‘JOF’)
between SLA plc and Phoenix
continues to develop the partnership
with SLA plc in existing areas, and
to identify areas for future growth
and partnership, for the benefit of
customers and shareholders of
each Group�
The JOF also oversees the operation
of the Client Service and Proposition
Agreement (‘CSPA’), ensuring that each
of the parties to the CSPA is performing
against their CSPA obligations�
The Transitional Services Agreement
(‘TSA’) Oversight Committee between
SLA plc and Phoenix oversees TSA
performance and activity to exit the
TSAs in future�
The Group’s engagement with
Diligenta, and its parent TCS, adheres to
a rigorous governance structure, in line
with the Group’s Supplier Management
Model� As a result, productive and
consistent relationships have been
developed with TCS, which will
continue to develop throughout future
phases of our enlarged partnership�
Our propositions are designed and
developed with our customers and
clients at the heart�
We actively review and invest in our
propositions to ensure they remain
competitive and meet expectations�
We also regularly seek customer
feedback on our propositions, using
this to inform future developments�
No Change
Execution of the Standard Life Assurance
Limited transition into the Group is
progressing well and remains on track to
deliver our synergy targets�
In December, Phoenix announced its
acquisition of ReAssure Group plc; this
brings additional scale to Phoenix’s
Heritage business and enhances our key
attributes of cash generation, resilience
and growth� This transaction meets
all of our acquisition criteria: it is value
accretive; it supports our dividend; and
it is consistent with maintenance of our
investment grade rating� On completion,
the acquisition would be expected to
heighten existing risks that the Group is
exposed to, in particular this principal risk�
Risk Heightened
The Group is currently engaged in
ongoing discussions with members
of the Standard Life Aberdeen group
in respect of disagreements over the
operation of certain aspects of the
share purchase agreement with SLA
plc relating to services and expenses,
and the scope and cost of services
provided pursuant to the TSA, the
CSPA and certain other agreements
between the Group and members of
the Standard Life Aberdeen group�
The Group and SLA plc are currently
seeking a commercial resolution
to this�
While the Group’s pre-existing,
functional relationship with Diligenta
and its parent TCS remains strong
and both parties have significant
experience working together,
the heightened risk reflects the
increased dependency that we now
place on our partnerships, particularly
TCS, to enable successful delivery
of the Group’s strategy�
No Change
The Group continues to progress
propositional enhancements, in
particular across our Workplace
business� In October 2019 we
launched a new passive investment
solution for our Workplace business�
We continue to invest in our
digital propositions in line with
their importance in delivering our
strategy; most recently through
the announcement of an enhanced
strategic partnership with TCS to
increase the Group’s digital and
technology capabilities� This aims to
build on the strong innovation
and customer service excellence
to which we are committed�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
53
STRATEGIC REPORT Risk Management continued
Risk
Impact
Mitigation
Strategic
priorities
Change from last year
New Principal Risk
In March 2020, the Group became
a signatory to the Task Force on
Climate-related Financial Disclosures
(‘TCFD’)� The disclosure included on
page 58 outlines the Group’s progress
to date in incorporating climate-related
risks and opportunities within our
governance, strategy, risk
management and metrics and
targets frameworks�
1
2
3
Strategic risk
The Group fails
to appropriately
prepare for and
manage the
effects of climate
change and wider
ESG risks
Customer risk
The Group fails
to deliver fair
outcomes for
its customers
The Group is exposed to market risks
related to climate change as a result of
the potential implications of a transition
to a low carbon economy�
In addition there are long-term market,
insurance, reputational, propositional
and operational implications of physical
risks resulting from climate change
(e�g� the impact of physical risks on
the prospects of current and future
investment holdings, along with
potential impacts on future actuarial
assumptions)�
The Group is also exposed to the risk of
failing to respond to wider ESG risks;
for example failing to meet our
corporate and social responsibility
commitments� This can result in
reputational damage and lead to
a reduction in earnings or value�
The Group is exposed to the risk that
it fails to deliver fair outcomes for
its customers, leading to adverse
customer experience and/or potential
detriment�
This could also lead to reputational
damage for the Group and/or
financial losses�
Our Conduct Risk Appetite sets the
boundaries within which the Group
expects customer outcomes to be
managed� This consists of a set of
principles and standards for all Group
colleagues to follow to meet the
changing needs of our customers and
our business�
The Group Conduct Risk Framework,
which overarches our Risk Universe and
all risk policies, is designed to detect
where our customers are at risk of poor
outcomes, minimise conduct risks, and
respond with timely and appropriate
mitigating actions�
The Group also has a suite of customer
policies which set out key customer
risks and minimum control standards in
place to mitigate them�
We maintain a strong and open
relationship with the FCA and other
regulators, particularly on matters
involving customer outcomes�
1
No Change
As part of RMF harmonisation, an
enhanced Conduct Risk Framework
is being rolled out across the Group�
The Conduct Risk Framework
provides a mechanism for enhanced
oversight of customer outcomes
across the Group�
Our remediation programme for
customers affected by the outcome
of the FCA’s industry-wide annuity
review is now substantially complete�
Over the year, two external asset
managers (Woodford and M&G)
suspended funds that some of the
Group’s customers invest in through
our products� The Group has a small
exposure to these funds in terms of
both assets and customer numbers�
As part of the suspensions we
have followed our standard fund
deferral process�
Risk Improved
There remains uncertainty around
the final outcome of Brexit; however,
the ‘Improved’ rating was noted
in our Interim Report and reflects
actions the Group implemented
in March 2019, through a Part VII
transfer, to protect the interests of
our non-UK European customers in
the event of a ‘No Deal’ Brexit�
The Group is well prepared for
operational impacts as a result
of potential Brexit outcomes and
political changes�
While the industry is susceptible
to new regulatory deliverables, the
Group continually reviews the PRA
and FCA 2019/2020 business plan
and there are currently no large,
unexpected changes that the Group
has to manage�
Operational risk
The Group is
impacted by
significant
changes in the
regulatory,
legislative
or political
environment
Changes in regulation could increase
the Group’s costs, impact profitability
or reduce demand for our propositions�
Changes in legislation, such as the
implications of Brexit, can also impact
the Group’s operations or financial
position�
Political uncertainty or changes in the
government could see changes in
policy that could impact the industry
in which we operate�
The Group actively engages with
regulators and governments in order
to understand potential changes in the
regulatory and legislative landscape�
1
3
The Group assesses the risks and
benefits of regulatory and legislative
changes to our customers and to
the Group and actively engages
with regulators and governments
as appropriate�
The Group has contingency plans in
place to ensure we can continue to
service our non-UK policyholders after
the UK leaves the EU�
54
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Risk
Impact
Mitigation
Strategic
priorities
Change from last year
Operational risk
The Group or its
outsourcers are
not sufficiently
operationally
resilient
The Group is exposed to the risk of
being unable to maintain provision
of services in the event of major
operational disruption, either within
our own organisation or those of
our outsourcers�
The Group now relies on a wide range of
IT systems, including those we provide
to SLA plc through the terms of the
Standard Life Assurance businesses
acquisition� In addition, the Group is
increasing its use of online functionality
to meet customer preferences� This
exposes us to the risk of failure of key
systems and cyber-attacks�
Regulators’ expectations of the speed
and effectiveness of firms’ responses
to business resilience incidents
are increasing�
The Group fails
to retain or
attract a diverse
and engaged
workforce with
the skills needed
to deliver
its strategy
Market risk
Adverse market
movements
can impact the
Group’s ability
to meet its cash
flow targets, along
with the potential
to negatively
impact customer
sentiment
Delivery of the Group’s strategy
is dependent on a talented and
engaged workforce�
Periods of uncertainty can result in a
loss of critical corporate knowledge,
unplanned departures of key individuals
or the failure to attract individuals with
the appropriate skills to help deliver
our strategy�
This risk is inherent in our business
model given the nature of our
acquisition activity� Potential areas of
uncertainty include the transition of
the Standard Life Assurance business
into the Group; the recently expanded
strategic partnership with TCS; and the
acquisition of ReAssure Group plc�
The Group and its customers are
exposed to the implications of adverse
market movements� This can impact
the Group’s capital, solvency and
liquidity position, fees earned on assets
held, the certainty and timing of future
cash flows and long-term investment
performance for shareholders
and customers�
There are a number of drivers for market
movements including government
and central bank policies, geopolitical
events, market sentiment, sector-
specific sentiment and financial risks of
climate change including risks from the
transition to a low carbon economy�
1
2
3
1
2
3
4
1
2
3
The Group has a business continuity
management framework that is subject
to annual refresh and regular testing�
Following the FCA and PRA December
2019 update on Operational Resilience,
the Group is working to ensure that
we will be inside disruption tolerances
within three years of the publication of
final guidelines�
The Group operates an oversight
framework to ensure that our outsource
partners and critical suppliers adhere
to the same business continuity
principles�
The Group continues to utilise cyber
security tools and capabilities in order to
mitigate Information Security and Cyber
risk� Our specialist Line 2 Information
Security & Cyber Risk Assurance
team also provides independent
oversight and challenge of Line 1 IT
and information security controls;
identifying trends, internal and external
threats and advising on appropriate
mitigation solutions�
Timely communications to our people
aim to provide clarity around corporate
activities� Communications include
details of key milestones to deliver
against our plans�
We regularly benchmark terms and
conditions against the market�
We maintain and review succession
plans for key individuals�
The Group continues to actively
manage operational capacity required to
deliver our strategy� This is particularly
pertinent across the Life Companies
given the increasing demands on our
workforce in this part of the business�
A Life Company operational capacity
dashboard is regularly reviewed by both
Life and Group Boards�
The Group undertakes regular
monitoring activities in relation to
market risk exposure, including
limits in each asset class, cash flow
forecasting and stress and scenario
testing� The Group continues to
implement de-risking strategies to
mitigate against unwanted customer
and shareholder outcomes from certain
market movements such as equities
and interest rates� The Group also
maintains cash buffers in its holding
companies and has access to a credit
facility to reduce reliance on emerging
cash flows�
The Group’s excess capital position
continues to be closely monitored and
managed, particularly given the low
interest rate environment, and potential
for adverse market impacts arising from
prospective Brexit outcomes�
No Change
Outsourcer service delivery levels
remain good against a backdrop of
heightened change activity across
the Group�
Our Reverse Stress Testing and
Recovery Planning Processes
demonstrate the Group is resilient to
specific Board-approved scenarios�
Whilst cyber-attacks show no
sign of decreasing in volume and
sophistication, the Group continues
to adapt its approach in order to keep
up to date with the latest threats�
No Change
Organisational changes from across
the Group as a result of the Standard
Life Assurance Limited transition
continue to progress as planned�
Activity is underway to monitor
colleague engagement and protect
customer service and IT operations
following the announcement of the
extended partnership with TCS�
Risk Heightened
The UK general election result in
December 2019 has provided greater
political certainty; the potential for
adverse market risk remains due to
ongoing uncertainty regarding Brexit,
geopolitical tensions and the impacts
of COVID-19�
Markets have recently stabilised;
whilst yields have recovered, they
remain at low levels� We continue to
take management actions to provide
resilience against unanticipated
market movements�
Our business planning process
stresses our balance sheet to
ensure it remains resilient to market
movements; contingency actions are
available to help us manage markets
risks, e�g� as a result of Brexit or
global economic downturn�
Our exposure to residential property
remains within appetite; however,
as noted in our Interim Report
this continues to increase in line
with investment in Equity
Release Mortgages�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
55
STRATEGIC REPORT Risk Management continued
Risk
Impact
Mitigation
Strategic
priorities
Change from last year
Insurance risk
The Group may
be exposed
to adverse
demographic
experience which
is out of line with
expectations
The Group has guaranteed liabilities,
annuities and other policies that
are sensitive to future longevity,
persistency and mortality rates�
For example, if our annuity
policyholders live for longer than
expected, then the Group will need
to pay their benefits for longer�
The amount of additional capital
required to meet additional liabilities
could have a material adverse impact
on the Group’s ability to meet its cash
flow targets�
Credit risk
The Group is
exposed to
the failure of
a significant
counterparty
The Life Companies are exposed to
deterioration in the actual or perceived
creditworthiness or default of
investment, reinsurance or banking
counterparties� This could cause
immediate financial loss or a reduction
in future profits�
An increase in credit spreads
(particularly if accompanied by a higher
level of actual or expected issuer
defaults) could adversely impact the
value of the Group’s assets�
The Group is also exposed to trading
counterparties, such as reinsurers or
service providers failing to meet all or
part of their obligations�
2
3
2
3
The Group undertakes regular reviews
of experience and annuitant survival
checks to identify any trends or
variances in assumptions�
The Group regularly reviews
assumptions to reflect the continued
trend of reductions in future mortality
improvements�
The Group continues to actively
manage its longevity risk exposures
which includes the use of reinsurance
contracts to maintain this risk
within appetite�
The Group actively monitors
persistency risk metrics and exposures
against appetite across the Open and
Heritage businesses�
The Group regularly monitors its
counterparty exposures and has
specific limits relating to individual
exposures, counterparty credit rating,
sector and geography�
Where possible, exposures are
diversified through the use of a range
of counterparty providers� All material
reinsurance and derivative positions are
appropriately collateralised�
For mitigation of risks associated with
stocklending, additional protection is
provided through indemnity insurance�
No Change
The Group secured over £1�1 billion of
BPA liabilities in the year� Consistent
with previous transactions, we
continue to reinsure the vast majority
of the longevity risk�
Whilst the low yield environment and
market volatility continue to
impact longevity and persistency
risk exposures, we are comfortable
with current exposures when
considered against our Board-
approved risk appetites�
No Change
As part of BPA deals, the Group
continues to increase investment
in illiquid credit assets� This is in line
with our strategic asset allocation
plan and within our risk appetite�
Investment counterparty exposures
continue to be managed and
monitored across the Group
and remain within risk appetite�
EMERGING RISKS
The Group’s senior management and
Board also take emerging risks into
account when considering potentially
adverse outcomes and appropriate
management actions prior to the
risk crystallising�
Examples of some emerging risks
the Group currently considers are
listed in the table opposite�
Risk Title
Description
Risk Universe
Category
Market Disruptors
The impact of alternative providers in the
market or those with more comprehensive
digital propositions�
Strategic
Solvency II Changes
Changes to the solvency regime as a result
of EIOPA review and evolution of the UK’s
regulatory regime following its exit from the EU�
Financial soundness
Retail Price Index
(RPI) Reform
The potential financial impacts from anticipated
reform of RPI towards a variant of the
Consumer Price Index (CPI)�
Financial soundness/
Operational
COVID-19
COVID-19 may have operational, financial and
demographic impacts for the Group�
Market/Operational/
Insurance
For more information on the Group’s
emerging risk process, see page 51.
56
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
VIABILITY STATEMENT
In accordance with provision 31
of the 2018 UK Corporate Governance
Code, the Board has completed an
assessment of the prospects and
viability of the Group over a five-year
period to December 2024�
ASSESSMENT PROCESS
& KEY ASSUMPTIONS
The Group’s prospects are assessed
primarily through its strategic and
financial planning process� This
strategy is outlined within the Strategic
Report of the Annual Report and
Accounts� The Board fully participates
in the annual strategic planning process
by means of a Board meeting to review
and approve the Annual Operating
Plan (‘AOP’)�
The output of the AOP is a set of Group
objectives, detailed financial forecasts,
and risks and contingent actions to be
considered when agreeing the plan�
The latest AOP was approved by the
Board in November 2019� This
considered the Group’s current position
and its prospects over a medium
term horizon, reflecting the Group’s
stated strategy�
Progress against the financial plan is
reviewed monthly by both the Group’s
Executive Committee and the Board�
The Board has determined that the
five-year period to December 2024
is an appropriate period for the
assessment, being the period over
which the Directors set internal and
external targets, and the period
covered by the Group’s Board-
approved AOP�
The Board has also made certain
assumptions when making the
assessment and these include
the following:
• no change in stated dividend policy
until completion of the acquisition
of ReAssure Group;
• that corporate acquisitions are not
relevant, as any acquisition would only
be progressed on the basis it meets
the Group’s stated criteria; and
• the stresses calculated occur on 1
January 2020 with no allowance for
any recovery or contingent actions
available, but do take into account
the impact of any appropriate
Solvency II transitionals recalculation�
ASSESSMENT OF VIABILITY
In making the viability assessment,
the Board has undertaken the
following process:
• It considered Group prospects,
taking into account current position
and the principal risks and
uncertainties that it is facing as
outlined above;
• It defined that viability is maintaining
the capability to satisfy mandatory
liabilities and meet external targets;
• It reviewed the AOP which considers
profits, liquidity, solvency and
strategic objectives and the impacts
of management actions on the
Group� The AOP was finalised in
November 2019 and reaffirmed
the Group’s strategy;
• It completed stress testing to assess
viability under severe but plausible
scenarios, including two adverse
stresses, with no recovery or
contingent actions, which are deemed
to be representative of the key
financial risks to the Group as follows:
1� Market stress – a combined
market stress broadly equivalent
to a 1-in-10-year event, calibrated
to the Phoenix internal model,
incorporating a fall in equity,
property values and yields, with
a widening of credit spreads�
2� Longevity stress – longevity and
yield stress broadly equivalent to a
1-in-10-year event, which implies a
1�2 year increase in life expectancy
for a 65 year old male and 1�0 year
increase for a 65 year old female,
alongside a fall in yields�
• It completed reverse stress testing
for the Group to understand how
severe the above scenarios would
need to be given the Group’s current
and expected levels of solvency
and liquidity;
• It considered the principal medium
to long-term risks facing the Group
which have the potential to impact
on viability as discussed in the Risk
Management section;
• It completed a qualitative
assessment of all strategic risks to
the Group and contingent actions
available that could be implemented
should any risk materialise that
threatens the Group’s resilience; and
• It reviewed the financials, synergies
and risks associated with the
acquisition of ReAssure Group,
taking into account the current
position and under a combined
market and longevity stress�
The results of the stress testing,
including a combination of individual
scenarios, as disclosed in the Business
Review Section, demonstrated that
due to the significant excess capital in
the Life Companies, the Group’s high
cash generation and access to
additional funding, the Group is able to
withstand the impact in each case with
regards to meeting all mandatory
liabilities as they fall due, and continue
to track towards meeting external
targets assuming a partial recovery
from the stress
STATEMENT OF VIABILITY
Based on the results of the procedures
outlined above, the Board has a
reasonable expectation that the Group
will be able to continue in operation
and meet its liabilities as they fall due
over the five-year period of assessment�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
57
STRATEGIC REPORT Reporting Statements
REPORTING STATEMENTS
TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (‘TCFD’)
In March 2020, the Group became a signatory to the Task Force on Climate-related Financial Disclosures (‘TCFD’)�
The disclosure included below outlines the Group’s progress to date in incorporating climate-related risks and
opportunities within our governance, strategy, risk management and metrics and targets frameworks�
It is expected that these disclosures will continue to evolve as the Group moves towards full alignment by 2022
in line with the recommendation of the UK Government’s Green Finance Strategy�
Governance
The Phoenix Group Holdings plc Board is committed to high standards of corporate governance and the Group’s corporate governance policy
is aligned to compliance with the UK Corporate Governance Code which sets standards of good practice for UK listed companies� Details of the
Group’s compliance with the Code can be found in the Corporate Governance section of this report from page 73 onwards�
Management responsibilities
Overall responsibility for climate-related issues is
held by the Group’s Chief Executive Officer, Clive
Bannister, as part of his ownership of Phoenix’s
sustainability strategy�
The responsibility for ensuring the appropriate
identification, assessment, management and
reporting of climate-related financial risks that
could impact the Group sits with the Group
Finance Director, James McConville�
The Group’s overall risk management framework
(which includes climate-related financial risks) is
the responsibility of the Group’s Chief
Strategy
Risk Officer, Jonathan Pears� This forms part
of his role in ensuring that the Group’s Risk
Management Framework appropriately supports
the identification, assessment, management
and reporting of financial risks that could impact
the Group�
This committee meets at least every two
weeks and is responsible for the oversight,
delivery, management and reporting of the
overall sustainability strategy and its underlying
environmental commitment including initiatives
which are climate-related�
Further details are included in the Risk
Management section below�
Sustainability Committee
In 2019, the Group established a Sustainability
Committee, which comprises key functional
representatives from across the business and is
led by a newly appointed Head of Sustainability�
As our response to the TCFD guidelines evolves,
we will be reviewing our internal governance
structures and position to ensure risks are
managed and opportunities are seized�
The Group is currently developing its new sustainability strategic framework, led by its sustainability vision ‘Committing to a Sustainable Future’
and underpinned by four key commitments: deliver for our customers, foster responsible investment, reduce our environmental impact and be
a good corporate citizen�
The ‘reduce our environmental impact’
commitment and the underlying ambitions being
developed within, will consider the following
climate-related risks of most material impact to
our business:
Material climate-related risks
• Transition Risks – we believe that the primary
impact for our business will be the transition
to a low carbon economy�
• Physical Risks – we are exposed to the long-term
market, insurance and operational implications of
physical risks resulting from climate change (e�g�
the impact of physical risks on the prospects of
current and future investment holdings,
along with potential impacts on future
actuarial assumptions)�
• Liability Risks – related to both transition and
physical risks� There are also legal risks associated
with the actions we take or fail to take now (such
as failing to mitigate the financial risks of climate
change for our customers) and how these are
viewed in the future�
Group Responsible Investment Philosophy
The Group has developed a Group Responsible
Investment Philosophy� This is seen as the first
step towards embedding ESG considerations
within the Investment Management process
and serves as a framework that sets out a high
level commitment and focus to both internal and
external stakeholders�
Risk Management
The Group has made a number of enhancements to its Risk Management Framework (‘RMF’) to support the identification, assessment, management,
monitoring and reporting of financial risks from climate change�
Risk Universe:
Climate-related risks can manifest across the level
1 categories and the primary focus is to ensure
that these (and sustainability risks more generally),
are considered in all aspects of our strategy�
Where there are material climate-related risks
under management in other risk categories, these
are highlighted through the relevant risk reporting�
Risk Policies:
The existing set of Group Risk Policies is being
enhanced through the addition of a Group
Sustainability Risk Policy which incorporates
all material ESG risks for Phoenix, including
climate change�
Consideration is being given in the 2020
refreshes to ensure that climate change
risks are appropriately covered in all policies
where material�
Risk Appetite:
The Group is ensuring that its risk appetite
statements appropriately reflect its appetite
for climate change risks, and sustainability risks
more broadly developed as part of its vision�
Scenario Testing:
The Group participated in the PRA’s 2019
insurance stress test exercise and is
supplementing this with additional quantitative
analysis to consider the impacts across our risk
universe�
Later in 2020, the Group expects to participate
in the Bank of England’s Biennial Exploratory
Scenario exercise�
Metrics and Targets
As part of Phoenix’s overall sustainability strategy and implementation plan, we are currently developing our approach to reporting targets and metrics
for each of the Group’s sustainability commitments� This will include specific climate-related targets within our ‘reduce our environmental impact’
commitment� Further details are provided within the Group’s 2019 Sustainability Report�
58
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
SECTION 172 STATEMENT
The Directors are mindful of their duty to promote the success of the Company� They believe they have acted in the way
they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members
as a whole� The table opposite shows where more information can be found on the matters referred to in the Companies
Act Section 172 (1)�
Reporting requirement
CULTURE, VALUES AND THEIR LINK TO COMPANIES ACT SECTION 172
STAKEHOLDER ENGAGEMENT AND HOW THE BOARD
HAS DISCHARGED ITS SECTION 172 DUTIES
BRINGING THE EMPLOYEE VOICE TO THE BOARDROOM
Page
81
82 to 83
84 to 87
NON-FINANCIAL INFORMATION STATEMENT
Phoenix welcomes the increased focus from all stakeholders on its non-financial performance� As required by the
Companies Act 2016 sections 414CA and 414CB, the table below outlines where key content requirements of the
non-financial statement can be found within this Report�
Section within Annual Report
Page
Reporting requirement
ENVIRONMENTAL
MATTERS
EMPLOYEES
SOCIAL AND
COMMUNITY MATTERS
HUMAN RIGHTS
ANTI-BRIBERY
AND CORRUPTION
BUSINESS MODEL
PRINCIPAL RISKS AND
UNCERTAINTIES
NON-FINANCIAL
KEY PERFORMANCE INDICATORS
Phoenix policies which
govern our approach
• Code of Business Ethics
• Corporate Responsibility
Group Policy
• Code of Business Ethics
• HR Group Policy
• Code of Business Ethics
• Corporate Responsibility
Group Policy
• Our Environment –
stakeholder engagement
• Engage colleagues
• Our Colleagues –
stakeholder engagement
• Our Community – stakeholder
engagement
• Our Customers –
stakeholder engagement
• Improve customer outcomes
• Code of Business Ethics
• Sourcing and Procurement
Group Policy
• Modern Slavery statement
• Health and Safety Group Policy
• Our Suppliers –
stakeholder engagement
• Our Colleagues –
stakeholder engagement
• Code of Business Ethics
• Financial Crime and Anti-Bribery
• Our Colleagues –
stakeholder engagement
Group Policy
• Whistleblowing Group Policy
• Financial Control and
Reporting Group Policy
• Share Trading Group Policy
68
36
64
66
62
30
63
64
64
• Our Business model
• Cash generation process
• Our strategy and KPIs
26 to 27
28 to 29
30 to 37
• Principal risks and uncertainties
52 to 56
• Inside Front Cover
• Our strategy and KPIs
IFC
30
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
59
STRATEGIC REPORT Stakeholder Engagement
IMPROVING
STAKEHOLDER
OUTCOMES
The Group’s mission is to
improve outcomes for customers,
whilst delivering value for
shareholders. However we have
responsibilities and engage
with a much wider group of
stakeholders and positive
engagement and outcomes for
these stakeholders is key to the
Group’s long-term success.
All of our interactions are
governed by the Group’s Code
of Business Ethics and Ethical
Conduct which sets out how we
can maintain a high standard of
integrity across all engagement.
Read how we are integrating
responsible Environmental, Social and
Governance (‘ESG’) business practices
into our everyday operations:
www.thephoenixgroup.com/
sustainability2019
60
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Key Stakeholders
How we engage
CUSTOMERS
10 million policies with £248 billion
of assets under administration. Key
products and services include with-profit,
unit-linked, annuities, protection and
workplace pensions.
Page 62
• Through a variety of channels, utilising
phone, e-mail, digital platforms, surveys,
written communications as well
as individual research projects and
direct interaction.
SUPPLIERS
The Group has c.1,000 suppliers of which
c.19 are considered strategic or critical
to the business.
Page 63
• The Group has contract and relationship
management teams which, using our
Governance Framework, defines the
engagement with our strategic and critical
suppliers to build and develop mutually
beneficial partnerships.
• By using surveys, site-specific colleague
presentations, intranet content, trade
union representation, inclusion networks,
works councils, feedback channels,
networking, events and a
range of continual professional
development opportunities.
• Through dedicated face-to-face quarterly
meetings with ‘charity partners’ and
partnership schools, and on a less
regular basis with other community
partners. Surveys and feedback is
routinely captured.
• By working with a range of brokers to
actively monitor the energy market and
help procure in line with risk appetite,
exploring green technology whenever
possible. The Group benefits from
a range of in-house specialists and
external expertise to help manage the
Group’s carbon reduction programme.
Colleagues regularly support a range of
environmental-based community groups
to volunteer their time to help protect
the wider environment.
• We have a comprehensive
communications and engagement
programme, which includes investor
roadshows in several geographies,
conferences, Capital Markets Days
and sales team presentations.
• Through meetings, research and
attendance at industry groups and
relationship managers.
COLLEAGUES
Over 4,400 colleagues based across
Europe supporting Phoenix Group, Phoenix
Life, Standard Life Assurance and SunLife.
In operational sites: Wythall, London,
Basingstoke, Bristol, Edinburgh, Glasgow,
Dublin and Frankfurt.
Page 64
COMMUNITY
A range of community partners including
charities, schools, hospices and local
community groups benefit from the
Group’s support across the year.
Page 66
ENVIRONMENT
The Group is committed to managing and
reducing its environmental impact and
considers the ongoing effects of climate
change on its operations.
Page 68
INVESTORS
The Group maintains an active dialogue
with its investors throughout the year.
Page 71
GOVERNMENT, TRADE
BODIES AND REGULATORS
Actively contributing to policy
developments impacting long-term
savings. Collaboration with a range of trade
associations relevant to sector. Ongoing
regulatory engagement.
Page 72
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
61
STRATEGIC REPORT Stakeholder Engagement continued
OUR
CUSTOMERS
The Group recognises the
responsibility it has to all
of its customers.
IMPROVED COMMUNICATIONS
AND CONNECTIONS
The Group’s Customer Treatment Risk
policy covers risks arising from the
design or management of products,
or from the failure to meet or exceed
reasonable customer expectations,
taking account of regulatory
requirements� Customer treatment
risks are aligned to the areas of focus
in Phoenix Group’s Customer strategy�
One aspect of the Group’s Customer
strategy involves improving
communications so that customers
understand what they can do with their
policy or plan and go on to make an
informed decision should they wish
to take any action�
During 2019, key communication
initiatives included signposting services
and organisations to help customers
take a proactive role in managing their
financial affairs�
A number of activities were focused
on enhancing customer experience,
for example vulnerable customer
support and retirement event invites�
LISTENING TO CUSTOMERS
Feedback from customers is obtained
through automated surveys, individual
research projects and most recently
through talking with the wider
‘customer community’ about their
experiences and how they like
to engage with the Group�
CUSTOMERS IN VULNERABLE
CIRCUMSTANCES
Phoenix has a vulnerable customer
strategy which aims to address
vulnerability to the extent that the right
outcomes for customers are achieved
regardless of whether they are living
in vulnerable circumstances�
A number of initiatives were
progressed during the year including
providing opportunities to support
people living with dementia, the launch
of a unique initiative in conjunction with
Living Streets charity to help tackle
social isolation amongst the over
65s, through the delivery of regular
community walks and work with
Money Advice Trust, a charitable
trust providing free debt advice�
The Group continues to engage with
regulatory authorities and industry
working groups on pension scams
and looks at ways to better protect
customers from becoming victims
through raised awareness�
PUTTING THINGS RIGHT FOR
OUR CUSTOMERS
Complaint activity including those
referred to the Financial Ombudsman
Service or the Pensions Ombudsman
Service is monitored and a significant
proportion of complaints are resolved
across the Group, in less than three
days� This is a key performance
indicator for the complaints team
and results in a better experience
for customers�
DIGITALISATION
In 2019 the digital proposition
continued to evolve across the Group,
with further investment in online
capabilities and connecting digitally
with customers to increase
engagement� This has enabled website
access 24/7, whilst also reducing
the volume of paperwork issued�
Customers wishing to consolidate their
pension pots using the online guidance
journey have also continued to
increase� Technology has also been
implemented to capture customer
feedback in real-time�
DATA PRIVACY AND CYBER
SECURITY
Phoenix Group has an appointed
Data Protection Officer to monitor
compliance with the GDPR and DPA
2018, providing advice on Phoenix
Group’s data privacy obligations and
acting as the point of contact for data
subjects and regulatory authorities�
The Phoenix Group Data Protection
Officer owns the Group Privacy policy
and Data Protection Risk policy and
maintains oversight of ongoing privacy
compliance� This is done through policy
assurance testing, privacy reviews and
ongoing training�
Phoenix has continued to strengthen
and improve its security position
around customer data through the
deployment of market leading tools,
controls and policy harmonisation�
Security controls to protect the
Company from cyber-related incidents
have also been deployed and a
dedicated security operations team
is in place to effectively respond to
emerging cyber threats� The Group
has had no significant cyber-related
incidents over the year�
Read more about key
customer engagement
activities undertaken during
the year on page 30.
62
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
OUR
SUPPLIERS
We rely on our service
providers and partners to
support the delivery of our
strategic objectives.
SUPPLY CHAIN MANAGEMENT
Sourcing and procurement at Phoenix
goes beyond the initial evaluation and
selection processes and includes
implementing and managing a good
working relationship with all suppliers�
The Group’s Sourcing and Procurement
policy sets the minimum operating
standards relating to the management
of sourcing and procurement risk
throughout the Group and forms part
of the sourcing and procurement
control framework� The framework
provides support through the sourcing
lifecycle at all stages including supplier
evaluation, risk-based due diligence
and contract management�
The Commercial Partnerships team
manages a decentralised procurement
model for low value/low volume spend,
enabling the business to operate
flexibly but within the controls of the
Sourcing and Procurement policy�
This has a robust oversight and
governance model�
The Group has c�1,000 suppliers of
which c�19 are considered strategic
or critical to business1�
For strategic or critical providers,
Phoenix has a dedicated professional
relationship manager assigned� Their
role is to govern the relationship,
measure and monitor performance and
work to continually improve outcomes
for all stakeholders�
In 2019 a single procurement function
was implemented to operate across
the enlarged business under a
harmonised Sourcing and Procurement
policy and framework� All Standard Life
Assurance Limited suppliers are being
segmented and will now operate within
the Phoenix Supplier Management
Model� This model is well established
and allows experts from the business
to engage with experts from their
suppliers to manage their subject
matter area, with support from
relationship managers ensuring that
services are overseen and delivered
effectively�
PROMPT PAYMENT CODE
The Group voluntarily signed the
Government’s Prompt Payment Code
in 2012 and from January 2018 has
been submitting relevant statements
under the Small Business, Enterprise
and Employment Act 2015 for the
duty to report payment practices�
The Group is committed to supporting
the culture of prompt payment in
the business community�
MODERN SLAVERY
Phoenix Group takes active steps to
ensure its supply chain is not engaging
in any form of modern slavery or
human trafficking� In February 2019 a
statement was published on the Group
website pursuant to Section 54, Part 6
of the Modern Slavery and Human
Trafficking Act 2015� The statement
details the policies Phoenix has in place
and the ongoing actions that will be
taken to continue to support the
combating of modern slavery and
human trafficking in supply chains�
As a part of the Group’s Sourcing and
Procurement policy, Phoenix will
identify any supplier that supports the
delivery of core services and will
review their adherence to the Modern
Slavery Act on an annual basis� To date
there have been no issues raised with
reviews conducted�
1 A Strategic Relationship is financially important
to the Group and provides a critical service� A
disruption in supply would create significant
issues for Phoenix� A Critical Supplier is where
the provision of goods or services is limited to
few suppliers and that the goods or services
provided would significantly damage Phoenix
should these services fail�
The Group’s Modern Slavery and
Human Trafficking Statement is
available at www.thephoenix
group.com/mss
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
63
STRATEGIC REPORT Stakeholder Engagement continued
OUR
COLLEAGUES
We are an employer of choice offering rewarding
careers and opportunities, promoting physical, financial
and mental wellbeing in the workplace and
empowering a wholly inclusive workforce.
leading, and now will reflect all entities
within the Group. Progress on the
Group’s targets is available on page 36.
COLLEAGUE INSIGHT SURVEY
Building on the cultural survey from
2018, the Group introduced a new
six-monthly insight survey to
understand colleagues’ experiences
with regard to direction and change,
leadership and the ability to speak up.
COLLEAGUE ADVISORY FORUM
In April, Group Board Member Karen
Green was appointed as Director for
Workforce Engagement, facilitating
communication between colleagues
and the Board. Read more on page 84.
INCLUSION NETWORKS
Various inclusion networks are
in operation across the Group which
are sponsored by members of the
Executive Committee, portraying
the importance placed on colleague
collaboration and employee voice.
VALUES AND PERFORMANCE
MANAGEMENT
The Company’s new values form
the foundation for a revised Group-
wide approach to performance
management and to measuring
engagement and colleague insights.
This single approach to performance
management measures both ‘what’
and ‘how’ and differentiates individual
contribution through a clear six-
point rating scale.
The Group’s Human Resources (‘HR’)
policy defines people risk, which, if
unmanaged, could result in a reduction
in earnings or value, through financial
or reputational loss.
The minimum control standards in
place enable effective management
around the attraction, recruitment,
development and engagement of
colleagues, whilst ensuring compliance
with any legislation and external
regulatory requirements.
Adherence to this policy is managed
by the Group’s HR department via
quarterly assessment of the minimum
control standards. There were no
material issues raised during the year.
The Group has been recognised for the
eighth consecutive year as being listed
as one of the UK’s Top Employers, and
became a signatory to the Scottish
Business Pledge in 2019, which portrays
the Group’s commitment to being a
responsible employer.
DIVERSITY AND INCLUSION
The Group’s Diversity and Inclusion
strategy was refreshed during the
year and commitment towards the
published targets remains key.
The targets are ambitious and sector
Read more about our colleague
engagement activities in the
Group’s Sustainability Report
www.thephoenixgroup.com/
sustainability2019
Read more about diversity
and inclusion at www.the
phoenixgroup.com/diversity
64
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
INSPIRING CONFIDENCE
THROUGH LIVING OUR VALUES
Last year’s cultural survey helped shape
the new values for the Group.
Passion
We make a positive impact by caring about
customers, colleagues and communities
Responsibility
We do the right thing by taking personal
ownership
Growth
We succeed through learning, experimenting
and adapting
Courage
We innovate by challenging ourselves and
others to do better
Difference
We collaborate and find strength through
respecting and embracing new perspectives
REWARD
The Group continues to attract, develop
and retain talented individuals by offering
a competitive range of benefits and
development opportunities� The Group is
in discussions with the Living Wage
Foundation to understand in more detail
the requirements to gain full
accreditation as a Living Wage Employer�
The Group has been paying at least the
Real Living Wage to colleagues since
2014�
The Group also provides the opportunity
for employees to participate in the
Company’s all-employee share
schemes, which include Sharesave and
the Share Incentive Plan, to encourage
broader share ownership in the
Company�
FINANCIAL CRIME PREVENTION
In order to ensure that any financial crime
matters or occurrences are effectively
managed, the Group has a number of
policies and practices in operation� The
Group’s Anti-Bribery policy addresses
bribery and corruption risks alongside
the Financial Crime policy which
addresses risks such as anti-money
laundering and fraud� Both policies detail
the minimum control standards and risks
that are to be managed to mitigate any
potential issues�
Adherence to the Anti-Bribery and
Financial Crime policies is managed
by the Financial Crime team via
assessments of the minimum control
standards that make up the policies,
as well as themed Financial Crime
Reviews and Assurance testing�
Colleagues are required to complete
annual computer-based training around
both financial crime prevention and
adherence with the Code of Business
Ethics and Ethical Conduct� Colleagues
are also required to complete a Gifts and
Hospitality Register which is overseen and
managed by the Financial Crime team�
The Group has a zero tolerance towards
bribery and corruption in all its forms and
adheres to the 2010 Bribery Act� Service
providers are advised of and engaged in
the zero tolerance approach to bribery
and corruption and are expected to
comply with Phoenix’s minimum
control standards�
No instances or breaches were recorded
during the year�
WHISTLEBLOWING
The Group operates a Whistleblowing
policy, prompting colleagues to
disclose information where they
believe wrongdoing, malpractice or
risk exists across any of Phoenix’s
operations� Colleagues are encouraged
to speak up about matters that concern
them, with the understanding that
confidentiality will be maintained�
HUMAN RIGHTS
The Group is committed to ensuring
that human rights are respected and
processes are in place to remove any
human rights issues both internally and
externally via outsourced relationships�
In line with the Equality Act 2010 and
in order to ensure that the Group is
aligned to relevant Articles of the
United Nations Universal Declaration of
Human Rights, the Group has a Dignity
at Work policy in place� The policy
covers bullying and harassment of and
by managers, employers, contractors,
suppliers, agency staff and other
individuals engaged with the Group�
All colleagues are required to comply
with the policy and take appropriate
measures to ensure harassment and
bullying do not occur�
Adherence to the policy is managed
by the Group’s HR department via
assessment of the minimum control
standards� During the year the Group
effectively resolved all employee
disputes and as a result was involved
in no employment tribunals�
HEALTH AND SAFETY
The Group operates a Health and
Safety policy which helps manage risks
and adverse effects�
The Group has reported four reportable
accidents during 2019 which were
reported to the Health and Safety
Executive under the Reporting of
Incidents, Disease and Dangerous
Occurrence Regulations (‘RIDDOR’)�
The Group aims to reduce this figure by
50% across 2020 through a proactive
safety approach to communicate with
colleagues and make them aware of
workplace risks�
All colleagues are required to complete
annual computer-based health and
safety training� Arrangements are in
place to manage onsite facilities across
all sites, ensuring the working
environment is compliant and fit for
purpose�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
65
STRATEGIC REPORT COMMUNITY INVESTMENT
The Group has worked closely with various
community partners over the year, offering
support in both financial and non-financial
ways� Phoenix was premier sponsor of the
‘Wythall and Hollywood Fun Run’ which
for this 10-year anniversary included a
10km, 5km and 1�5km run through the
heart of Wythall’s community and entered
the site’s grounds as part of the
official distance�
The 5th Annual Jobs Fair in Bromsgrove,
hosted by Rt Hon Sajid Javid MP, was
co-sponsored by the Group, attracting
over 90 local, national and international
employers and promoting local job
opportunities in the Midlands area�
In Ireland, support continued for Junior
Achievement Ireland, a programme
designed to give pupils an appreciation
of the value of work and enterprise�
Colleagues got involved with offering
Science Foundation Ireland FutureWize
Workshop events across Dublin� The
workshops emphasised the importance
of STEM and promoted a career
planning module�
Stakeholder Engagement continued
OUR
COMMUNITY
We strive to improve
educational opportunities
and life chances for
individuals within our local
community. We contribute
to our local communities
– providing donations,
skills, time and resources
to the cause.
PHOENIX GROUP’S CHARITY
PARTNERS OF THE YEAR
The Group continues to recognise
the importance of corporate
charity partnerships�
The Group’s partnership with Midlands
Air Ambulance Charity and London’s
Air Ambulance Charity is coming to
the end of its six-year collaboration in
March 2020� Across this partnership
the air ambulances have benefited
from in excess of £876,000 since 2014
(c� £97,000 for 2019)� In addition,
colleagues in Scotland have supported
Scotland’s Charity Air Ambulance
donating over £105,000 in 2019�
Colleagues in Basingstoke have
supported Hampshire and Isle of
Wight Air Ambulance, with a donation
of £10,000�
The largest fundraiser of 2019 was the
festive run in London which involved 46
teams of colleagues, air ambulance staff
and suppliers� This event raised in excess
of £24,000 after Company matching�
SunLife colleagues have supported
Alive Activities Limited across the year,
enriching the lives of older people in
care and supporting training materials
Read more about our
community initiatives in the
Group’s Sustainability Report
www.thephoenixgroup.com/
sustainability2019
for carers� One fundraiser involved
57 colleagues participating in the
SunLife Big Charity Challenge, walking
the Brecon Beacons�
Further afield colleagues continued
to support a local children’s cancer
foundation Hilfe für krebskranke Kinder
e�V� Frankfurt in Germany, with a
donation in excess of €20,000, and the
Austrian Cancer Foundation in Vienna,
Österreichische Krebshilfe Wien, with
a donation of €6,000� Colleagues in
Ireland commenced an 18 month
partnership with ALONE, benefiting
older members of the community�
Donations for this cause totalled in
excess of €71,000 across the year�
OTHER CHARITABLE DONATIONS
Outside of the formal charity
partnerships colleagues may also apply
for matched funding providing the
cause meets the Group’s charity
criteria, and is not deemed political
or religious� Across the year a range
of causes were supported, including:
City’s Lord Mayor’s Appeal,
St Michael’s Hospice in Basingstoke,
Macmillan Cancer Support, Action
for Children, Irish Cancer Society
and Alzheimer Scotland�
Onsite fundraising across all sites
benefited charities by in excess of
£32,000 and individual offsite
fundraising including an element of
staff-matching by the Group benefited
local charities by a further £200,000�
COMMUNITY WELLBEING
Following its successful pilot in 2018,
the Group in conjunction with Living
Streets charity re-launched Wythall
Walking Friends� A unique colleague-
led walking project, aimed at
individuals aged over 65 living in
the local community�
The Group’s dementia champions
continued to provide awareness
sessions to colleagues in England,
supporting Alzheimer’s Society�
66
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
In the Edinburgh office, 15 young people
are also engaged with the Career Ready
programme, receiving regular mentoring
sessions with colleagues�
VOLUNTEERING
Colleagues throughout the UK and
Ireland regularly donate their time and
skills to community causes�
London colleagues participated in City
Giving Day 2019 in aid of Lord Mayor’s
Appeal, supporting the Chairman in his
role of Alderman� The Group’s CEO
holds the position of Chairman at
the Museum of London, providing
pro-bono support�
Collectively Phoenix Group colleagues
donated over 6,000 hours across
the year, supporting a variety of
beneficiaries ranging from schools,
hospices, local parks, environmental-
focused projects to groups supporting
the vulnerable�
INSPIRING CONFIDENCE
THROUGH OUR COMMUNITY
PARTNERSHIPS
The Group’s partnership with Midlands Air
Ambulance Charity is all about providing mutually
beneficial opportunities for our colleagues, the
wider charity and those living within our local
community�
This year colleagues were offered Cardiopulmonary
Resuscitation (‘CPR’) training, equipping them with
skills that could save a life� It is estimated that over
30,000 cardiac arrests take place outside of the
hospital setting every year in the UK, but the
survival rate is less than 1 in 10�
CPR sessions were held onsite across a three-
month period, promoting the ‘Restart a Heart
Campaign’� The purpose was to raise awareness
and impart valuable life-saving skills, which
could help keep someone alive until medical
attention arrives�
The Group was shortlisted at the Better Society
Awards 2019 for the National Charity Partnership
Award in conjunction with Midlands Air
Ambulance Charity�
Emma Gray, Fundraising and Marketing Director
for Midlands Air Ambulance Charity said:
“We are very proud to have offered this vital
training to 150 staff at Phoenix Group as part
of our long-standing partnership�”
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
67
STRATEGIC REPORT Stakeholder Engagement continued
OUR
ENVIRONMENT
We aim to minimise
our impact on the
environment.
Read more about our
Environmental initiatives in the
Group’s Sustainability Report.
www.thephoenixgroup.com/
sustainability2019
WASTE MANAGEMENT
AND CONSUMABLES
Operationally, the Group considers
its internal practices and is focused
on minimising waste and
increasing recycling�
All core sites continue to divert 100%
of their waste from landfill and new
waste streams for compostable items
and food waste have been introduced�
In 2019 at the Edinburgh and Wythall
offices, various single-use plastic and
non-recyclable items in use within the
restaurant and coffee shop facilities
were removed� The London office,
which is shared tenancy, achieved an
accolade for its achievements in waste
management, waste minimisation and
re-use in the form of the Clean City
Awards Scheme�
ENERGY AND WATER SAVING
The energy contract for the Group’s
main UK offices is managed centrally
and from January 2019 all electricity
at these sites was provided from 100%
renewable sources, which is backed
up by Renewable Energy Guarantees
of Origin (‘REGO’)�
Other initiatives in 2019 have included
upgrading lighting systems, making
use of LED technology to make site
operations less energy intensive and
having electric vehicle charging stations
retro-fitted at the Wythall and
Edinburgh sites�
CONSERVATION
Colleagues have continued to
support environmental-focused
charities and community groups
such as Warwickshire Wildlife Trust,
National Trust, Bromsgrove District
and Redditch Borough Councils, Canal
& River Trust, Hampshire and Isle
of Wight Wildlife Trust and the Heart
of England Forest which is home to
the Phoenix Way Wood� The SunLife
operation continues its membership
of the Woodland Trust�
INSPIRING
CONFIDENCE
THROUGH
RESPONSIBLE
INVESTING
In 2019, we continued to diversify
our investment portfolio by
completing another green deal�
Over £43 million was funded in
long-term debt to help finance an
operational wind farm in south-
west Scotland, providing a long-term
reliable income stream from a clean
energy investment�
68
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
GREENHOUSE GAS EMISSIONS
AND ENERGY CONSUMPTION
DISCLOSURE
This section includes an update on the
Group’s annual energy consumption
and greenhouse gas emissions for the
calendar year 2019 and the prior year,
2018� Emissions disclosed relate
to facilities, activities and property
investment portfolios where the
Group has operational control�
The emissions reported are based
on the main requirements of the
ISO14064 Part 1 and the GHG Protocol
Corporate Standard (revised edition)�
Data was gathered at site level
to compile the carbon footprint�
International Energy Agency and
UK Government Conversion Factors
for GHG Company Reporting have
been used to convert activity data
into carbon dioxide equivalent
(‘CO2e’) emissions�
The scope and depth of reporting has
been expanded in recognition of the
growing importance of tackling the
climate emergency and in preparation
for Streamlined Energy and Carbon
Reporting (‘SECR’) which will apply
to next year’s disclosure�
For the first time, fugitive emissions
(based on refrigerant top-ups) in
Scope 1 and emissions from employee
car travel for business purposes in
Scope 3 have been disclosed�
Following the purchase in 2018 of
much of the Standard Life business
property investment portfolios as
well as occupied premises in Ireland,
Germany, Austria and the UK are
included� Further, in property
investment portfolios, where energy
consumption is sub-metered to
tenants, this also falls into Scope 3
reporting, whereas all other landlord-
obtained consumption remains as
Scope 1 or 2 emissions� Also included
for the first time is a comparison of
performance for occupied premises
and appropriate investment properties
against the BBP REEB benchmarks�
The Group reports Scope 2 emissions
using the GHG Protocol dual-reporting
methodology, stating two figures
to reflect the GHG emissions from
purchased electricity, using both:
• a location-based method that reflects
the average emissions intensity of
the national electricity grids from
which consumption is drawn; and
• a market-based method that reflects
emissions from electricity specific
to each supply / contract� Where
electricity supplies are known to be
from a certified renewable source,
a zero emissions factor is used,
otherwise residual mix factors
are used�
In 2019 absolute emissions (location-
based Scope 1 and 2) have increased
by 8% due to the inclusion of Standard
Life premises for all of 2019 but only
a third of 2018� This increase has
outweighed the reduction in the
emission factor for consumption of
purchased electricity (Scope 2) and
the reduced consumption of energy
on a like-for-like basis� For the like-for-
like set of occupied premises and
investment portfolios, there has
been a significant reduction of 15%
in Scope 1 and 2 emissions�
91% of electricity consumption is from
certified renewable sources – which
explains why the market-based
emissions for Scope 2 are significantly
less than the location-based emissions�
GREENHOUSE GAS EMISSIONS1
Absolute GHG emissions in tonnes of CO2e
Emissions, tonnes of CO2e, from:
Scope 1 – Combustion of fuels, business
travel in company cars, and fugitive emissions
of refrigerant gases
Scope 2 – Electricity purchased for landlord
shared services and own use (purchase of
heat, steam and cooling not applicable)
Scopes 1 and 2 – Mandatory carbon
footprint disclosure
Scope 3 – Energy sub-metered to tenants,
business travel in employees’ cars, and
transmissions and distribution losses
from electricity
Scopes 1 and 2 and 3 – Voluntary 3 scopes
carbon footprint
2019
market-
based
location-
based
2018
location-
based
4,203
4,203
3,463
3,702
13,052
12,533
7,905
17,255
15,997
760
4,267
5,728
8,665
21,523
21,725
1 Emissions factors – IEA (for location-based Scope 2 and Scope 3 T&D losses), AIB (for
market-based residual mix factors for non-renewable electricity), and DEFRA (fuels, refrigerants
and car travel)� There is a significant time-lag in the availability of IEA factors – the 2019 factors will
not be published until late 2021� Therefore all 2019 consumption data are converted using the
factors actually arising in 2015 (except car travel which uses DEFRA factors as published in 2019)�
Whilst imperfect, we can consistently and readily report emissions internally from the first day of
a year (for monthly/quarterly reporting)� Emissions are thus somewhat overstated rather than
understated; though this encourages energy reduction and sourcing of renewable energy�
Refrigerants – Refrigerants data have only been collected, and shown, from 2019 (390
tonnes CO2e)�
Phoenix Group’s chosen intensity measurement2
2019
2018
location-based
location-based
Scope 1 and 2 Emissions from occupied premises
per floor area intensity
62 kg
CO2e/m2
73 kg
CO2e/m2
Scope 1 and 2 Emissions from occupied premises
per full-time equivalent employee (FTE) intensity
3�2 tonnes
CO2e/FTE
3�8 tonnes
CO2e/FTE
2 Our intensity measurement calculations currently only include our Wythall estate and leased
floor of Juxon House�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
69
STRATEGIC REPORT Stakeholder Engagement continued
Approximately 1�3% of 2019 building
energy consumption has been
estimated as full year data was
not available for all sites�
In 2019 there was 67GWh of Group
energy consumption (building energy
and business travel in either
employees’ cars or company cars) –
97% of which was from UK operations�
In greenhouse gas emissions terms
(Scopes 1, 2 and 3), UK sites account
for 96% of Group emissions�
The Group’s chosen intensity metrics
detail carbon emissions per floor area
and per full-time equivalent employees
(‘FTE’) in occupied premises� The
intensity by both floor area and FTE
has decreased from 2018 to 2019 –
largely driven by 15% reduction at
the Wythall site�
Several operational premises have
been excluded from intensity metrics
to avoid skewing the intensity results�
These premises were either not owned
for the whole two-year period that is
used to compare intensity or the
metering arrangement between
landlord and tenant does not currently
allow precise allocation of consumption
between parties�
ENERGY BENCHMARKING
COMPARISON
The chart below compares the 2019
energy intensity performance of
some of the Group’s occupied offices
and appropriate investment property
offices against the most recent BBP
REEB benchmarks�
REDUCING OUR ENERGY
CONSUMPTION AND EMISSIONS
The actions the Group is considering in
order to reduce its carbon footprint are
in line with the need to use energy
efficiently, thus reducing consumption,
and also drawing on decarbonised
supplies of energy� These include:
• taking forward energy consumption
reduction measures – in particular
from recent ESOS audits;
• installing energy monitoring and
sub-meters;
• enhancing building management
controls;
• installing LED lighting; and
• installing variable speed drives
on fans, motors and pumpsets�
Office energy intensity in 2019, occupied premises and investment properties
r
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y
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C
REEB typical practice
benchmark
REEB good
practice benchmark
The chart shows that there is a significant range of performance, from better than ‘good’ to poorer than ‘typical’�
70
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
OUR
INVESTORS
Phoenix operates a
comprehensive investor
relations programme and
values an active dialogue
with the Group’s financial
audiences including
institutional investors, private
investors, rating agencies
and research analysts.
INSTITUTIONAL EQUITY
INVESTORS
Throughout the year members of the
Executive Committee and the Investor
Relations team held meetings with
investors to provide updates on the
Group’s strategy and operations� This
involved 17 shareholder roadshows
and a total of 204 meetings with 310
existing and prospective equity
investors across the UK, North America
and France�
The Chairman and Non-Executive
Directors are available for investor
meetings to discuss various subjects�
The Board also receives feedback on
shareholder views through a biennial
anonymous shareholder consultation
and is kept regularly updated through
the distribution of equity research
notes, broker briefings and
meeting summaries�
RESULTS PRESENTATIONS
AND CAPITAL MARKETS DAYS
As part of its reporting cycle, the Group
holds full year and interim results
presentations which are webcast live
on Phoenix’s website� In addition,
Phoenix held a Capital Markets Day on
28 November 2019 in London which
was attended by 133 external
attendees and provided detailed
insights into the Group’s operating
model and strategy� The event also
provided attendees with the
opportunity to meet with senior
management and Phoenix’s subject
matter experts�
Investor presentations are generally
filmed and the videos, as well as the
presentation materials and transcripts,
are made available on the Phoenix
Group website�
CONFERENCES
Conferences enable the Group to meet
with a significant number of investors
and are important platforms for
presenting Phoenix’s investment
proposition� This year, Phoenix
attended six conferences in the UK and
two in Paris organised by a number of
investment banks, including Bank of
America, J�P� Morgan Cazenove,
Investec, KBW, Morgan Stanley
and Natixis�
RESEARCH ANALYSTS
AND SALES TEAMS
Phoenix maintains an active dialogue
with its equity and debt research
analysts, who are invited to attend
investor events such as results
presentations and the Capital
Markets Day�
Senior management and Investor
Relations held a total of 25
presentations to equity and debt
sales teams to promote the Phoenix
investment case� In addition,
they participated in seven
reverse roadshows�
DEBT INVESTORS
The Debt Investor Relations
programme is managed by the Group
Treasury department and supported by
the Investor Relations department� The
Board is kept informed of the current
credit views of debt investors through
regular debt capital markets updates
and summaries of meeting feedback�
Senior management conducted three
non-deal debt investor roadshows in
the UK, Continental Europe and Asia,
meeting 96 debt investors overall�
In addition, the Group Treasury team
also organised a Group lunch aimed
at debt investors�
CREDIT RATINGS AGENCIES
AND BANKS
Phoenix’s life companies and bonds
in issue have credit ratings by Fitch
Ratings� The Group meets with the
rating agency at least once per year for
the annual ratings review� The Group
Treasury Team and management last
provided Fitch with an update in
December 2019 in relation to the
announcement of the acquisition
of ReAssure Group plc�
Prior to that the team had given a
comprehensive presentation in June
as part of the annual review process�
The Group Treasury department and
senior management also keep a
constant dialogue with the Group’s
relationship banks�
ENVIRONMENTAL, SOCIAL
AND GOVERNANCE (‘ESG’)
RATING AGENCIES
Phoenix responds to certain
questionnaires from non-financial rating
agencies and is a constituent of the
FTSE4Good index which is designed to
measure the performance of companies
demonstrating strong ESG practices�
PRIVATE SHAREHOLDERS
Private shareholders are encouraged
to engage with the Group through the
Investor Relations team and Company
Secretariat� Contact details for the
Investor Relations team can be found
on Phoenix Group’s website�
ANNUAL GENERAL
MEETING (‘AGM’)
The Group’s AGM is an opportunity to
communicate with shareholders who
are invited to ask questions during the
meeting and then are able to meet with
members of the management team
and Directors� Business to be
discussed at the meeting is notified to
shareholders in advance through the
Notice of Meeting� The Group will hold
Extraordinary General Meetings
(‘EGMs’) to address matters that arise
in between AGMs such as for example
asking shareholders for approval of
certain corporate transactions that
require a shareholder vote�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
71
STRATEGIC REPORT Stakeholder Engagement continued
GOVERNMENT,
TRADE BODIES
AND REGULATORS
We communicate the views
and concerns of customers
to government and wider
policymakers.
The Group regularly engages with
political stakeholders at Westminster
and Holyrood, along with key trade
bodies representing the industry, to
communicate the views and concerns
of its customers to government and
wider policymakers�
GENERATION X
The Group sponsored the Pensions
Policy Institute (‘PPI’) to undertake
research into the long-term savings
position of ‘Generation X’,
encompassing those aged 39–53,
totalling around 13 million people�
The report considers the challenges
facing this generation, who are less
likely to have the levels of Defined
Benefit provision enjoyed by those
before them� The report continues to
serve as a useful tool for conversations
with policymakers, clients and
customers, helping individuals achieve
better retirement outcomes�
COLLABORATIONS WITH
TRADE ASSOCIATIONS
The Group collaborates with a range
of trade associations representing the
sector� Susan McInnes, Group Director
of Open Business, continues as chair
of the Association of British Insurers’
(‘ABI’) Long-Term Savings Committee,
which informs the ABI’s work on key
initiatives including the pensions
dashboard, which over time will enable
customers to see all of their pension
pots across different providers in one
place online�
Colleagues also lend their expertise
to a variety of expert working groups –
Phoenix has, for example, taken a
leading role in supporting the Pensions
Scams Industry Group, which has been
successful in helping to prevent some
instances of pension fraud�
As a major employer in Scotland, the
Group became a signatory to the
Scottish Business Pledges during the
year, a voluntary initiative between the
Scottish Government and business to
help build a fairer Scotland� Key
elements include paying the Living
Wage and a commitment to investing
in a skilled and diverse workforce�
Group Finance Director and Group
Director, Scotland, James McConville,
is a member of the Scottish
Government’s Financial Services
Advisory Board (‘FiSAB’), chaired by
the First Minister, which advises
Ministers on matters relating to the
financial services industry�
A record of our face-to-face meetings
with MSPs, members of the Scottish
Government and Junior Scottish
Ministers is publicly available on the
Scottish Lobbying Register� The Group
actively supports Scottish Financial
Enterprise (‘SFE’), the representative
body for Scotland’s financial services
industry, on their initiatives and working
groups, along with the Edinburgh
Chamber of Commerce�
REGULATORY RELATIONSHIPS
The Group maintains a strong and
open relationship with the Prudential
Regulation Authority (‘PRA’), Financial
Conduct Authority (‘FCA’) and other
regulators� The Regulatory Relationship
team, which reports to the Group Chief
Risk Officer, manages interactions
with the PRA, FCA and other
primary regulators and liaises with
them regularly�
The Board Risk Committee also
receives monthly updates on the
Group’s regulatory interaction�
Read more on the Group’s website:
www.thephoenixgroup.com/
media/generation-vexed.aspx
72
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
CORPORATE
GOVERNANCE
IN THIS SECTION
Chairman’s Introduction �������������������74
Board Structure ��������������������������������77
Board of Directors ����������������������������78
Executive Management Team �������� 80
Corporate Governance Report ��������81
Board Leadership and
Company Purpose ������������������������82
Division of Responsibilities ��������� 88
Composition, Succession
and Evaluation ����������������������������� 90
Audit, Risk and Internal Control ���92
Directors’ Remuneration Report ���� 99
Directors’ Report ���������������������������131
Statement of Directors’
Responsibilities ������������������������������135
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
73
Chairman’s Introduction
PROTECTING
OUR CUSTOMERS
AND SHAREHOLDERS
“Strong governance must remain a bedrock
for the Group as we continue to grow as a
FTSE 100 company, with the aims of both
protecting our customers and shareholders
and enhancing our performance.”
Nicholas Lyons
Chairman
UK CORPORATE GOVERNANCE CODE
As detailed in the Corporate Governance Report on pages 81 to 130, we
complied in 2019 with all the provisions of the UK Corporate Governance
Code (‘the Code’)� This followed our taking steps to comply with the new
Code provisions which applied to Phoenix from the accounting year 2019�
We have complied with all the provisions of the Code in its appropriate
version in each of the last five years�
SECTION 172
Details of how the Board engaged with Phoenix’s various stakeholders in
accordance with section 172 of the Companies Act 2006 are shown in the
Corporate Governance Report on pages 81 to 130�
FAIR, BALANCED AND UNDERSTANDABLE
In accordance with the UK Corporate Governance Code, the Directors
confirm that they have reviewed the Annual Report and consider that it is
fair, balanced and understandable and provides the information necessary
for shareholders to assess the Group’s position, performance, business
model and strategy�
74
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
SHAREHOLDERS
I am grateful to our shareholders for
their continual strong support, both for
ongoing matters at our AGM and for
our strategic propositions� Following
the tremendous support for two large
rights issues in 2016 (Abbey Life
acquisition) and 2018 (Standard Life
Assurance acquisition), we are not
calling on our existing shareholders
to provide equity for the acquisition of
ReAssure Group� However, I do wish
to thank them for their strong support
at our May 2019 AGM when
all 24 resolutions were passed with
a majority of at least 92% of all votes
cast and at our General Meeting in
February 2020 for the acquisition of
ReAssure when both resolutions
were passed by at least 99% of all
votes cast�
Many of our shareholders have been
with us on our upwards trajectory into
the FTSE 100 index which we joined
in March 2019� Our Board Evaluation
Review was undertaken in the fourth
quarter of 2019� This followed our
two-day Board strategy offsite session
in July 2019 and focused on how the
Board could best drive the Group’s
corporate strategy forward,
underpinned by strong governance;
to the continued benefit of customers
and shareholders�
I am particularly grateful for the support
we receive from our biggest shareholder
and strategic partner, Standard Life
Aberdeen and look forward to
welcoming two new strong strategic
partners, Swiss Re and MS&AD who
are each expected to hold approximately
13% to 15% of our total shares in issue
on completion of the ReAssure
acquisition later this year�
BOARD OF DIRECTORS
AND SUCCESSION
A major role for the Board, the
Nomination Committee and me, as
Chairman, was the orderly succession
for our Group Chief Executive Officer�
We focused on this in 2019 and I am
pleased that we secured Andy Briggs
as the successor to Clive Bannister
after Clive’s superb nine years at the
Phoenix helm� Andy was appointed
as our top choice for the role after a
robust process, considering both
internal and external candidates�
Our Group Finance Director Jim
McConville retires at our May 2020
AGM after eight very successful years
as Group Finance Director� The
succession for Jim has been carefully
planned and I am confident that Rakesh
Thakrar, our Deputy Group Finance
Director since July 2014, will be a
worthy successor to Jim�
In September 2019, we were pleased
to welcome Mike Tumilty to our Board
as one of the Standard Life Aberdeen
nominees (in accordance with their
shareholder rights)� Mike is a
replacement to Barry O’Dwyer who
left the Standard Life Aberdeen Group
(‘SLA’) to become Chief Executive of
Royal London� I wish to thank Barry for
his insightful contribution during his
short time on our Board� I look forward
to welcoming to our Board a nominee
from each of our new strategic partners,
Swiss Re and MS&AD, on completion
of the ReAssure acquisition later this
year� As well as bringing a new
geographical element, I am confident
that the directors nominated to our
Board by Swiss Re and MS&AD (who
will each have rights attached to their
shareholdings to nominate one director
to the Phoenix Board) will bring strong
additional skills to our Board�
At that point, SLA’s shareholding
is expected to reduce to the level
(between 10% and 15% of issued
share capital) where they will have one
nominee instead of two on our Board�
GROWTH
WITH ROBUST
GOVERNANCE
During the five years from 1
January 2015 to 31 December
2019, Phoenix’s market cap
trebled from £1�8bn to £5�4bn�
Its FTSE position rose from 167th
to 91st� During that time, Phoenix
remained fully compliant with the
provisions of the UK Corporate
Governance Code�
KEY STATISTICS
Market Cap
FTSE position
AGM votes in favour of all resolutions
UK Corporate Governance Code
December
2019
£5.40bn
91
May 2019
92%
Fully
compliant
in 2019
December
2018
£4�06bn
97
May2018
93%
Fully
compliant
in 2018
EVOLUTION OF BOARD FOCUS
As well as the continual focus of the
Board on strategy and performance,
the Board has increased its activity
in 2019 on the important topic of
Environmental, Social and Governance
(‘ESG’) matters and the Group
appointed its first Head of
Sustainability� The Board will continue
to increase its activity in this sphere�
The Board also reviewed the Group’s
culture and values in 2019 appropriately
focusing on these matters as central to
how the Group operates to the benefit
of customers, shareholders and our
colleagues� Details of how the Board
engaged with Phoenix’s various
stakeholders in accordance with
section 172 of the Companies Act
2006 are included in the Corporate
Governance Report on pages 82 to 83�
The following sections provide more
detail on our Board of Directors,
Executive Management team,
operation of governance and
remuneration practices:
• Board and Committee structure
• Board of Directors
• Executive Management Team
• Corporate Governance Report
• Directors’ Remuneration Report
• Directors’ Report�
Nicholas Lyons
Chairman
Given the Executive Directorship
changes and continual rotation of
non-executive Directors over the
last few years (including my own
appointment as Chairman in October
2018), the Board Evaluation Review
concluded in 2019 that a period of
Board stability would be preferable
going forward� This excludes
the changes from our strategic
partnerships� This conclusion
was reached after the review had
considered the balance of skills and
experience on the Board and that these
were strong and appropriately diverse�
During the year, Karen Green
commenced her role as Director for
Workforce Engagement� This has
commenced encouragingly and further
information is provided in our Corporate
Governance Report on page 84� I see
this as part of a wider programme of
enhancing the Board’s engagement
with our Phoenix colleagues� We held
one particularly successful interactive
day when the Board met in October
2019 in our Edinburgh office, and
we took the opportunity to hold
engagement sessions for colleagues
from across the business with all
Board members and also each of our
Audit, Remuneration and Risk
Committee Chairs�
I am pleased that our Board complies
(as at 10 March 2020) with the target
of the Hampton-Alexander Review for
the Board to be at least 33% female�
With the proposed appointment to the
Board of Rakesh Thakrar at our May
2020 AGM, we will comply with the
target of the Parker Review for the
Boards of FTSE 100 companies to
contain at least one ethnic minority
director by 2021�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
75
CORPORATE GOVERNANCE Corporate Governance
IN THIS SECTION
The Corporate Governance Report has been restructured to align with the five pillars
of the UK Corporate Governance Code 2018�
BOARD STRUCTURE
• Board and Committees and overview of their responsibilities
BOARD OF DIRECTORS
• Biographical details and experience of the Directors
EXECUTIVE MANAGEMENT TEAM
• Roles and responsibilities of the Executive Management team
CORPORATE GOVERNANCE REPORT
BOARD LEADERSHIP AND
COMPANY PURPOSE
• Board allocation of agenda time
• Operation of the Board
• Culture, values and their link to Companies Act Section 172
• How the Board has discharged its Section 172 duties
• Bringing the Employee Voice to the boardroom
DIVISION OF RESPONSIBILITIES
• Board roles and responsibilities
• Board Independence and Appointment Terms
• Board and Committee attendance
COMPOSITION, SUCCESSION
AND EVALUATION
AUDIT, RISK AND
INTERNAL CONTROL
• Nomination Committee Report
– Role of the Committee
– Board Succession
– Board recruitment process and recruitment of the new CEO
– Board diversity policy
– Board evaluation review
• Audit Committee Report
– Role of the Committee
– Principal Activities during 2019
– Auditor’s Appointment
– Assessment of the Effectiveness of the External Audit Process
– Auditor’s Independence and External Auditor Policy
– Significant Matters considered in relation to the Financial Statements
• Risk Committee Report
– Role of the Committee
– Significant Matters discussed in 2019
– Principal Activities during 2019
– Review of System of Internal Controls
DIRECTORS’ REMUNERATION REPORT
REMUNERATION
• Role of the Committee
• Remuneration Committee Chair’s letter
• Director’s Remuneration Report
– Remuneration at a glance
– Directors’ remuneration policy
– Annual report on remuneration
Page
77
78
80
81
88
90
92
99
76
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Board Structure
PHOENIX GROUP HOLDINGS
BOARD AND COMMITTEES
The main focus of the Phoenix Group Holdings Board is on Group strategy and performance, with input from Board
committees� The chart below sets out the main activities of the Phoenix Group Holdings Board and its Committees�
More detailed operational and customer-focused matters are addressed at the subsidiary board and committee level�
The Board has delegated specific responsibilities to four standing committees of the Board� The terms of reference
of the committees can be found on the Company’s website�
The role of the Board and its committees
PHOENIX GROUP HOLDINGS
PLC BOARD
• Group Strategy
• Major Transactions
• Group Budget
• Group Risk Appetite
• Performance Monitoring
• External/Shareholder Reporting
• External Debt
page 78
BOARD COMMITTEES
Audit
Committee
Risk
Committee
Nomination
Committee
• Financial Reporting
• Internal Controls
• External Audit
• Internal Audit
• Risk Appetite and
high-level Risk
Matters
• The Group’s Risk
Management
Framework
• Board and
Senior Executive
Appointments
• Diversity and
Inclusion
• Board and Senior
Executive
Succession Planning
Remuneration
Committee
• Group
Remuneration
Framework
• Executive Director
Remuneration
• Employee Share
Schemes
page 92
page 97
page 90
page 99
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
77
CORPORATE GOVERNANCE
Board of Directors
THE GROUP IS GOVERNED BY OUR
BOARD OF DIRECTORS
The Board comprises the Non-Executive Chairman, the Group Chief Executive
Officer, the Group CEO Designate (until 10 March 2020 when he assumes
the role of Group CEO), the Group Finance Director, two SLA nominated
Directors and seven independent Non-Executive Directors.
1
2
3
4
5
1. NICHOLAS LYONS
Chairman
Appointed to the Board: 31 October 2018
Experience: Nicholas Lyons was appointed Chairman
of the Board of Directors of Phoenix Group Holdings
and Chairman of the Nomination Committee of
Phoenix Group Holdings with effect from 31 October
2018� Nicholas Lyons joined JP Morgan in 1982, where
he worked for 12 years in debt and equity capital
markets and mergers and acquisitions� He spent eight
years at Lehman Brothers, as a Managing Director
in their European financial institutions group, ending
his executive career in 2003 as Global Co-Head of
Recruitment� Mr Lyons has held a number of positions
on the boards of other financial institutions including
the Pension Insurance Corporation, where he was
the Senior Independent Director from 2016 until July
2018� He also held positions on the boards of the
Catlin Group Limited, Miller Insurance Services Ltd
where he was Chairman from 2008 until 2016, Friends
Life Group Limited and Friends Life Holdings plc� Mr
Lyons is on the Board of the British United Provident
Association Limited (BUPA) and Convex Group Limited
and is also Chairman of Clipstone Industrial REIT plc�
He is an Alderman in the City of London Corporation�
2. CLIVE BANNISTER
Group Chief Executive Officer
(Until 10 March 2020)
Appointed to the Board: 28 March 2011
Experience: Clive Bannister joined the Group in
February 2011 as Group Chief Executive Officer�
Prior to this, Mr Bannister was Group Managing
Director of Insurance and Asset Management at
HSBC Holdings plc� He joined HSBC in 1994 and held
various leadership roles in planning and strategy in
the Investment Bank (USA) and was Group General
Manager and CEO of HSBC Group Private Banking�
He started his career at First National Bank of Boston
and prior to working at HSBC was a partner in Booz
Allen Hamilton in the Financial Services Practice
providing strategic support to financial institutions
including leading insurance companies, banks and
investment banks� Mr Bannister is also Chairman
of the Museum of London�
3. ANDY BRIGGS
Group Chief Executive Officer
(From 10 March 2020)
Andy Briggs was appointed Group Chief Executive
Officer (designate) of the Company on 1 January 2020�
Mr Briggs has over 30 years of insurance industry
leadership experience and is a qualified actuary� He
was Group Chief Executive of Friends Life, the listed
insurer, Managing Director of Scottish Widows,
Chief Executive of the Retirement Income division at
Prudential and Chairman of the ABI� Most recently he
was CEO UK Insurance of Aviva plc until April 2019�
He is a Trustee and Chair of the Income Generation
Committee of the NSPCC and also serves as the
UK Government’s Business Champion for the
Ageing Society�
4. JAMES MCCONVILLE
Group Finance Director
and Group Director, Scotland
Appointed to the Board: 28 June 2012
Experience: Between April 2010 and December 2011,
Mr McConville was Chief Finance Officer of Northern
Rock plc� Prior to that, between 1988 and 2010, he
worked for Lloyds Banking Group plc (formerly Lloyds
TSB Group plc) in a number of senior finance and
strategy related roles, latterly as Finance Director of
Scottish Widows Group and Director of Finance for the
Insurance and Investments Division� During 2011 and
2012, Mr McConville was a Non-Executive Director
of the life businesses of Aegon UK� In 2014, Mr
McConville joined the board of Tesco Personal Finance
plc as a Non-Executive Director� Mr McConville
qualified as a Chartered Accountant whilst at Coopers
and Lybrand�
5. ALASTAIR BARBOUR
Senior Independent Director
Appointed to the Board: 1 October 2013
Experience: Alastair Barbour has over 30 years’ audit
experience with KPMG where he worked across the
full spectrum of financial services clients from large
general insurers and reinsurers to the life insurance and
investment management sector, working on a range
of operational and strategic issues� Mr Barbour is the
former Head of Financial Services, Scotland for KPMG�
He retired from KPMG in 2011 to build a non-executive
career� He is a Director and Audit Committee Chairman
of RSA Insurance Group plc and Chairman of Liontrust
Asset Management plc (both London Stock Exchange
listed companies)� He is also a Director of The Bank of
N� T� Butterfield & Son Limited, a group listed on the
New York Stock Exchange and in Bermuda� Mr Barbour
was appointed Senior Non-Executive Independent
Director on 2 May 2018�
78
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
6. CAMPBELL FLEMING
Non-Executive Director
10. BELINDA RICHARDS
Independent Non-Executive Director
Appointed to the Board: 31 August 2018
Appointed to the Board: 1 October 2017
Experience: Campbell Fleming is the Global Head
of Distribution at Aberdeen Standard Investments,
the asset management business of Standard Life
Aberdeen� He joined Aberdeen Asset Management
in August 2016 from Columbia Threadneedle
Investments where he was the Chief Executive –
EMEA and Global COO for four years� Mr Fleming
recently stepped down as Chair of the Investment
Association Trade Committee and has previously held
senior positions at JP Morgan Asset Management
Experience: Belinda Richards has held senior
executive positions at KPMG, EY, and latterly Deloitte
from 2000 to 2010 where she was a senior corporate
finance Partner and the Global Head of Merger
Integration and Separation Advisory Services� She is an
experienced Non-Executive Director, currently on the
Boards of WM Morrison Supermarkets plc, Avast plc,
The Monks Investment Trust plc and Schroder Japan
Growth Fund plc� Previously, she has also been on
the Boards of Aviva UK Life & Pensions, Grainger plc,
Balfour Beatty plc and Friends Life Group Plc�
11. NICHOLAS SHOTT
Independent Non-Executive Director
Appointed to the Board: 1 September 2016
Experience: Nicholas Shott is an investment banker,
who has been European Vice Chairman of Lazard
since 2007 and Head of UK Investment Banking at
Lazard since 2009� Mr Shott joined Lazard in 1991 and
became a partner in 1997� He is also a Non-Executive
Director on the Board of the Home Office�
12. KORY SORENSON
Independent Non-Executive Director
Appointed to the Board: 1 July 2014
Experience: Kory Sorenson is currently a Non-
Executive Director and Chairman of the Audit
Committee of SCOR SE, a Non-Executive Director and
Chairman of the Remuneration Committee of Pernod
Ricard SA, a Non-Executive Director and member of
the Audit Committee of SGS SA and a member of
the Supervisory Board of the privately-owned Bank
Gutmann AG� Ms Sorenson has over 27 years of
experience in the financial services sector, most of
which has been focused on insurance and banking�
She was a Member of the Supervisory Board of Uniqa
Group (Austria), Non-Executive Director of Aviva
Insurance Limited (UK), Member of the Supervisory
Board of the Institut Pasteur (France), Managing
Director, Head of Insurance Capital Markets of Barclays
Capital and also held senior positions in the financial
institutions divisions of Credit Suisse, Lehman Brothers
and Morgan Stanley� She began her career in the
finance department of Total SA�
13. MIKE TUMILTY
Non-Executive Director
Appointed to the Board: 1 September 2019
Experience: Michael Tumilty is the Global Chief
Operating Officer of Standard Life Aberdeen� He has
worked in the financial services industry for 24 years,
holding various senior positions, including Director of
Operations at Aberdeen Standard Investments and
Head of Investment Operations at Standard Life�
7. KAREN GREEN
Independent Non-Executive Director
Appointed to the Board: 1 July 2017
Experience: Karen Green is the former Chief Executive
of Aspen UK, which comprised the UK insurance
companies’ of Aspen Insurance Holdings, and was a
member of the Aspen Group Executive Committee
for 12 years� She also held a number of other
senior positions including Group Head of Corporate
Development, Strategy, and Office of the Group CEO�
Prior to that, she held various senior private equity
and corporate finance roles from 1997 to 2005 at GE
Capital and then MMC Capital, gaining substantial
M&A experience, having worked previously at Baring
Brothers and Schroders� Ms Green is a non-executive
director at Admiral Group plc and is a Council Member
of Lloyd’s of London� She is also a Vice President of the
Insurance Institute of London�
8. WENDY MAYALL
Independent Non-Executive Director
Appointed to the Board: 1 September 2016
Experience: Wendy Mayall has over 30 years of asset
management experience, including as Group Chief
Investment Officer and later consultant at Liverpool
Victoria from 2012 to 2015, having previously been
Chief Investment Officer for Unilever’s UK pension
fund from 1996 to 2011 and holding management
responsibility for Unilever’s pension funds globally�
From 2006 to 2009, Ms Mayall was the Chair of the
Investment Committee of the Mineworkers Pension
Scheme, a British government appointment to one
of the largest government backed pension schemes
in the UK� Ms Mayall is a Non-Executive Director of
Old Mutual Wealth Oversight Council� She is also the
Senior Independent Director and Audit Committee
Chair of Fidelity Investments Life Insurance Company
and Chair of the Funding Committee for TPT
Retirement Solutions�
9. JOHN POLLOCK
Independent Non-Executive Director
Appointed to the Board: 1 September 2016
Experience: John Pollock had a career in life
assurance at the Legal & General Group from 1980
to 2015, including as an Executive Director of Legal
& General Group plc from 2003 to 2015� Mr Pollock
held numerous senior roles, gaining wide strategic and
technical experience, finally as Chief Executive Officer
of LGAS (L&G Assurance Society), one of Legal and
General’s three primary business units� Prior to Mr
Pollock’s retirement from Legal and General in 2015, he
held positions as Deputy Chair of the FCA Practitioner
Panel, Chairman of investment platform Cofunds, and
as a Non-Executive Director of the Cala Homes Group�
Committee membership
Audit Committee
Remuneration Committee
Denotes chairman
Nomination Committee
Risk Committee
6
7
8
9
10
11
12
13
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
79
CORPORATE GOVERNANCE
Executive Management Team
THE BUSINESS IS LED BY THE
EXECUTIVE COMMITTEE
Executive Management of the Group is led by the Group Chief Executive Officer,
Clive Bannister (Andy Briggs, from 10 March 2020), who is supported
by the Executive Committee (‘ExCo’).
CLIVE BANNISTER
(ANDY BRIGGS, FROM 10 MARCH 2020)
Group Chief Executive Officer
Roles and responsibilities
• Leads the development of the Group’s strategy
for agreement by the Board;
JOHN MCGUIGAN
Group Head Of Customer
RAKESH THAKRAR
Deputy Group Finance Director
Roles and responsibilities
• Leads the Group’s Customer Function to drive
Roles and responsibilities
• Leads on the Group’s Annual Report and Accounts,
operational and experience delivery for the Group’s
customer base;
ORSA and Pillar 3 reporting;
• Manages the Group’s financial plans and
management information in line with strategy;
• Contributes to the effective management of the
Group’s balance sheet and financial plan (including
M&A); and
• Leads on all financial aspects of any M&A�
SIMON TRUE
Group Corporate Development Director
and Group Chief Actuary
Roles and responsibilities
• Supports the Group Chief Executive Officer in
the formulation of the strategy for the Group;
• Leads implementation of the Group’s strategy
as regards any potential acquisition or disposal;
• Ensures capital is managed efficiently across
the Group;
• Manages the Group’s solvency position;
• Leads the development of the Group’s investment
strategy; and
• Identifies and delivers opportunities to enhance
shareholder value across the Group�
QUENTIN ZENTNER
General Counsel
Roles and responsibilities
• Leads provision of legal advice to the Group
Board, other Group company boards, ExCo
and senior management;
• Oversees and co-ordinates maintenance of, and
adherence to, appropriate corporate governance
procedures across the Group;
• Designs and implements a framework to manage
legal risk within the Group, including compliance
by Group companies and staff with relevant legal
obligations; and
• Designs and implements a whistleblowing
framework within the Group�
• Leads and directs the Group’s businesses in delivery
• Sets standards and policies for customer
of the Group’s strategy and business plan;
• Leads the Group to safeguard returns for
policyholders and grow shareholder value;
• Embeds a risk-conscious Group culture which
recognises policyholder obligations in terms of
service and security; and
• Manages the Group’s key external stakeholders�
STEPHEN JEFFORD
Group Human Resources Director
Roles and responsibilities
• Leads the implementation of the Group’s employee
strategy in order to recruit, retain, motivate and
develop high quality employees;
• Provides guidance and support on all HR matters
to the Group Chief Executive Officer, ExCo and the
Group Board and Remuneration Committee; and
• Delivers HR services to the Group�
TONY KASSIMIOTIS
Group Chief Operating Officer
Roles and responsibilities
• Leads development and delivery of the Group’s
operating platforms in line with regulatory
requirements, the Risk Universe and strategy;
• Ensures the delivery of the Group’s information
technology strategy;
• Leads the management of the Group’s long-term
outsourcing arrangements; and
• Ensures that the Group’s procurement activities
and shared services are efficient and effective�
management and interaction; and
• Provides customer oversight, complaint handling
and remediation activity�
SUSAN MCINNES
Chief Executive, Standard Life Assurance Limited,
and Group Director, Open Business
Roles and responsibilities
• Leads development and delivery of the Standard Life
business strategy;
• Ensures that the customer proposition is evolved and
that it continues to meet the market need;
• Focuses on a business model which ensures good
outcomes for customers, shareholders and all other
stakeholders; and
• Ensures that Standard Life deploys capital efficiently
and effectively, with due regard to regulatory
requirements, the Risk Universe and strategy�
ANDY MOSS
Chief Executive, Phoenix Life and Group Director,
Heritage Business
Roles and responsibilities
• Leads the development and delivery of the Phoenix
Life business strategy, including the continued
integration of life businesses;
• Leads the Phoenix Life business to optimise
outcomes for customers in terms of both value
and security; and
• Ensures Phoenix Life deploys capital efficiently
and effectively, with due regard to regulatory
requirements, the Risk Universe and strategy�
JAMES MCCONVILLE
Group Finance Director and Group Director, Scotland
Roles and responsibilities
• Develops and delivers the Group’s financial business
plan in line with strategy;
• Ensures the Group’s finances and capital are
managed and controlled;
• Develops and delivers the Group’s debt capital
strategy and other treasury matters;
JONATHAN PEARS
Chief Risk Officer
Roles and responsibilities
• Leads the Group’s risk management function,
embracing changes in best practice and regulation
including Solvency II;
• Oversees and manages the Group’s relationship
with the FCA and PRA; and
• Ensures the Group has effective processes in place
• Supports the Group Board Risk Committee in the
to enable all reporting obligations to be met;
• Supports the Group Chief Executive Officer in
managing the Group’s key external stakeholders; and
• Enhances shareholder value through clear, rigorous
assessment of business opportunities�
oversight of the Group’s risk framework, in line with
risk strategy and appetite�
80
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Corporate Governance Report
COMMITTED TO THE HIGHEST
STANDARDS OF GOVERNANCE
The Board is committed to high standards of corporate governance and the Group’s corporate
governance policy is aligned to compliance with the UK Corporate Governance Code (‘the Code’)
which sets standards of good practice for UK listed companies.
The following report demonstrates how Phoenix Group Holdings plc has applied the principles of the Code and complied
with the provisions of the Code in 2019� It is the Board’s view that the Company has been fully compliant during 2019
with the principles and provisions set down in the Code�
1. BOARD LEADERSHIP AND COMPANY PURPOSE
Board allocation
of agenda time (%)
7
6
5
1
4
3
OPERATION OF THE BOARD
The Board is responsible to the shareholders
for the overall performance of the Group�
The Board’s role is to provide entrepreneurial
leadership within a framework of prudent
and effective controls, which enables risk
to be assessed and managed� The Board
has a schedule of matters reserved for its
consideration and approval supported by
a set of operating principles�
2
These matters include:
1� CEO report
Strategy, performance, governance
and regulatory review
2� Strategy and planning
Strategic and operational planning,
consideration of corporate transactions
3� CFO/MI report
Monitoring performance
against objectives
4� Financial reporting
External reporting
5� Reports from Chairs of Committees
Audit, Nomination, Remuneration
and Risk Committee activity
6� Board changes and performance
Appointments, succession and
performance
7� Other matters
30%
30%
15%
10%
5%
5%
5%
VISION
Become Europe’s Leading
Life Consolidator
PURPOSE
Inspire confidence in the future
MISSION
Improve outcomes for customers and
deliver value for shareholders�
• Group strategy and business plans;
• Major acquisitions, investments and
capital expenditure;
• Financial reporting and controls;
• Dividend policy;
• Capital structure;
• The constitution of Board committees;
• Appointments to the Board and Board
committees;
• Senior executive appointments; and
• Key Group policies�
The schedule of matters reserved for the
Board is available from the Company
Secretary� Matters which are not reserved
for the Board and also its committees under
their terms of reference (which are available
on the Group website), or for shareholders
in general meetings, are delegated to the
executive management under a schedule of
delegated authorities approved by the Board�
Culture, Values and their link
to Companies Act Section 172
During the year, the Board focused on
deepening its understanding of and refining
the Group’s culture The Group Culture
Insight Survey undertaken in December
2018 helped inform a new set of Group
values adopted across the business:
Passion, Responsibility, Growth, Courage
and Difference� During 2019, these values
were further evolved through direct
interaction with colleagues and subsequent
feedback from Senior Management resulting
in approval of the refined values by the
Group’s Executive Committee in April 2019�
At a dedicated session in 2019, the Board
then considered the Group’s Culture and
Values and later in 2019 reviewed the
outcomes of the Group’s Colleague Insight
Survey�
This has influenced the Board’s application
of Section 172 of the Companies Act (see
below), which has been applied in a manner
consistent with the Group’s purpose of
inspiring confidence in the future for its
stakeholders, in particular customers,
shareholders, employees and considering
the environment more generally; and at all
times having regard to the Group’s
regulatory responsibilities as a financial
services operation�
Section 172 of the Companies Act 2006
requires a director of a company to act in
the way he or she considers, in good faith,
would most likely promote the success of
the company for the benefit of its members
as a whole� In doing this section 172 requires
a director to have regard, amongst other
matters, to the:
• likely consequences of any decisions
in the long term;
• interests of the company’s employees;
• need to foster the company’s business
relationships with suppliers, customers
and others;
• impact of the company’s operations on
the community and environment;
• desirability of the company maintaining a
reputation for high standards of business
conduct, and
• need to act fairly as between members
of the company�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
81
CORPORATE GOVERNANCE Corporate Governance Report continued
1. BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED
The Board Discharging Section 172 duties
In discharging its section 172 duties, the Board has regard to the section 172 factors set out above which are listed as focus points on the
agenda for each set of Board papers�
The Board received various information during 2019 which helped it understand the interests and views of the Company’s key stakeholders
when making decisions�
Likely consequences of decisions in the long term
The Board is continually focused on long-term preservation of value and the decisions to invest in Bulk Purchase Annuity purchases over the
last two years and continuing as a core part of the Group’s strategy have resulted in immediate capital retention for benefits emerging over
the longer term� The Board’s decision to acquire the Standard Life Assurance businesses in 2018 provided a substantial open business
franchise to offset the Heritage business run-off� And the Board’s consideration of its strategy (July 2019) followed by approval
of the Annual Operating Plan (November 2019) focused strongly on preserving value and sustaining the dividend over the next ten years�
Communication with investors
The Company places considerable importance on communication with investors and regularly engages with them on a wide range of topics�
The Company’s Investor Relations department is dedicated to facilitating communication with investors and analysts and maintains an active
investor relations programme� Please see page 71 for further details regarding the Company’s engagement with investors�
In addition, continued engagement is undertaken with shareholders and proxy advisers on evolving governance issues�
The Company’s AGM provides another opportunity to communicate with its shareholders� At the 2019 meeting, the Code provisions were
complied with� Shareholders were invited to ask questions during the meeting� It is intended that the same processes will be followed at
the 2020 AGM�
The following are examples of how the Board has acted and taken decisions in a manner which has regard to its various stakeholders�
Board information
Board decision
Shareholders
The Directors consider it important to understand
the views of the market� Board members regularly
receive copies of the latest analyst reports on
the Company and the insurance sector, as well
as market feedback to further develop their
knowledge and understanding of external views
about the Company� The Chairman and the Non-
Executive Directors provide feedback to the Board
on topics raised with them by major shareholders�
The Company also undertakes perception
studies, designed to determine the investment
community’s view of the core business�
An investor perception survey on Phoenix
undertaken by HSBC (Phoenix corporate broker)
was discussed by the Board in July 2019�
Customers
Following two education sessions in the latter
part of 2018 on the customer proposition and
customer ethos and experience for Standard Life
Assurance (acquired in August 2018), the Board
received external and internal briefings in early
2019 on their responsibilities under the Senior
Managers & Certification Regime� In addition, the
subsidiary Life Company Board (and its specifically
customer-focused With-Profits and Independent
Governance Committees) spends considerable
time to understand customers’ views including
visits to Outsource Service Providers who service
much of the customer base�
The Board is continually focused on delivering value for shareholders and enhancing
sustainability of the dividend, including through its decisions in 2018 to purchase
the Standard Life Assurance businesses and in 2019 to purchase ReAssure Group�
During 2019 the Board authorised the payment of dividends of 46�8p per share
in accordance with its stable and sustainable dividend policy� The market cap of
Phoenix Group has grown from c£1�8bn (1 January 2015) to £5�4bn (31 December
2019) and its position in the FTSE index over that time has risen from 167th to 91st�
Over 2019, the Phoenix share price rose by 32%�
All Board papers follow a template which requires consideration of proposals on
Treating Customers Fairly� The Capital Management Policy, approved by the Life
Company Board, ensures that the regulated life companies in the Group retain a
robust level of capital� In addition the Life Company Board consists of a majority
of independent non-executive directors who are not on the Group Board� The
Life Company Board is focused strongly on preserving value for customers and is
supported by several Board committees including the With-Profits Committee and
Independent Governance Committee, which have duties to particular classes of
customers and include non-executive Chairs and other non-executive members who
are not directors of any Phoenix Group companies�
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Board information
Board decision
Regulators
The Board is updated at every Board meeting
on regulatory matters as a key part of the Group
CEO’s Report enhanced by further reporting
between Board meetings and as part of various
other Board papers as the regulatory relationship
is central to all Phoenix does as a major financial
services operation� More detailed reporting
on regulatory matters and the interaction with
Phoenix’s regulators occurs at the Board Risk
Committee and at the Board and Risk Committee
meetings of the Phoenix Life subsidiaries� Senior
executives of the PRA and FCA attended the
Board meeting on 2 July 2019 for an interactive
session with the Board during which the regulators
presented the key themes of their recent Periodic
Summary Meeting Report (‘PSM’) and Firm
Evaluation Report (‘FEM’)on Phoenix�
Environmental, Social and Governance (‘ESG’)
As well as various briefings from management,
the Board received an external presentation in
October 2019 on topical ESG matters and their
increasing relevance�
Employees
The Board received presentations on the Group’s
Colleague Insight Survey undertaken in the
second half of 2019 as well as a presentation on
the Group’s Values which had been developed
through substantial input from colleagues across
the business�
The Board’s understanding of the views of
colleagues is being increased significantly through
the direct interface of Karen Green, the designated
Director for workforce engagement appointed to
engage with the workforce�
Suppliers
The Board is updated at every Board meeting on
the relationship with Phoenix’s main Outsource
Service Providers who are a vital part of the
customer service proposition� This relationship
was a key theme of the Board’s offsite strategy
session in July 2019� The operational risk aspect of
the relationship with Outsource Service Providers
is monitored at the Board Risk Committee and
more detailed reporting occurs at the Board
meetings of the Phoenix Life subsidiaries�
The Board’s decisions have regard to the highly-regulated environment in which
Phoenix operates� The Board’s decision in December 2019 to acquire ReAssure
Group plc is specifically subject to the change in control receiving regulatory approval�
The Boards of the regulated Phoenix Life subsidiaries have approved a Capital
Management Policy, agreed with the PRA, which governs distributions up the Group
from the Phoenix Life subsidiaries to provide protection to customers� The decision-
making structure of the Group includes the regulated Phoenix Life subsidiaries’
Boards and also their With-Profits and Independent Governance Committees,
all including independent members and established to provide further protection
to customers’ funds in accordance with regulation�
Following significant Board focus on ESG matters in 2019, a Head of Sustainability,
Yvonne Gray, was appointed in November 2019, following which the Board approved
a new ESG strategy in March 2020 after discussing it in January 2020�
In addition, the Phoenix Group and Life Company Boards have approved investing in
assets with a positive social impact as follows, as disclosed at the Phoenix Capital
Markets day on 28 November 2019:
• City growth and regeneration – c£100 million funding to progress investment
in public services, transport and urban infrastructure
• Social housing – c£100 million investment to help fund the development of more
social and affordable homes
• Equity release – c£1�1 billion Equity Release Mortgage origination, helping over
12,000 households unlock equity in their homes
• Clean energy – c£135 million investment across solar, wind, hydro-electric and
smart meters technologies
• Infrastructure – c£150 million investment in new rail rolling stock to improve the
journeys of both commuters and leisure travellers�
The Board appointed Karen Green in March 2019 to undertake the role of the
designated NED to engage with the workforce in support of the following provision
in the Code:
The board should understand the views of the company’s other key stakeholders and
describe in the annual report how their interests and the matters set out in section 172
of the Companies Act 2006 have been considered in board discussions and decision-
making. The board should keep engagement mechanisms under review so that they
remain effective. For engagement with the workforce, one or a combination of the
following methods should be used:
• A director appointed from the workforce
• A formal workforce advisory panel
• A designated non-executive director
Please see page 84 for further information on how Karen Green has engaged with
the Phoenix workforce in 2019�
Contracts material to the Group require the approval of the Phoenix Group Holdings
Board� During 2019, the Board considered the relationship with Phoenix’s main
Outsource Service Providers at its strategy offsite in July 2019 and over several
meetings considered and then approved the material expansion of the outsource
arrangement with TCS / Diligenta to provide support to Open as well as Heritage
business and enhance the digital proposition for customers�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
83
CORPORATE GOVERNANCE Corporate Governance Report continued
INSPIRING
CONFIDENCE
BY BRIDGING THE
GAP BETWEEN
THE BOARDROOM
AND COLLEAGUES
At Phoenix, the Board
is committed to ensuring
effective two-way
communication between
themselves and colleagues.
The Board regards culture
as being integral to the
effective execution of our
strategy and achieving
strong corporate
performance. An informed
Employee Voice is a key
element of this.
“My main objective in
this role is to provide a
direct unfiltered line of
communication between
our colleagues and the
Board. We hope that our
colleagues’ feel that this
will be a further helpful
channel for their views
to be conveyed.”
Following consideration by the Board as
to the ways in which it engages with our
colleagues, in conjunction with compliance
with section 172 of the Companies
Act, I was appointed as the Designated
Non-Executive Director for Workforce
engagement in April to help develop a
closer connection between the Board and
our colleagues�
How we engaged with
colleagues in 2019
During the course of 2019, I undertook a
number of visits across the business in
Edinburgh, Wythall, London, Bristol,
Frankfurt and Dublin� I also met with Senior
HR business partners in each location to
review key themes that related to our
corporate culture� These visits were
informative and provided the Board with
timely additional perspective on the level
of organisational engagement generally;
progress in creating a unified set of values
and key considerations for our colleagues, as
the next phases of the planned integration of
the Standard Life and Phoenix organisations
took place during the year�
During my visits, I gained further insight into
the diverse range of cultural ‘ecosystems’
we have across our various office locations�
SunLife with its emphasis on digital
innovation is a good example of this�
Our Networks
We have a strong group of colleague-led
networks within Phoenix covering a wide
range of different interest groups� I met with
representatives from these networks and
was able to obtain a good feel for the level
of commitment and engagement across
these groups, as we seek to create a more
inclusive and diverse culture�
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Above and Right
Interactive sessions
with colleagues at
Forum meeting
Left Karen Green,
Stephen Jefford
(Group HR Director)
and colleagues at
Forum meeting
In addition, I spent time with colleagues who
are engaged specifically in a number of
initiatives launched by the Group during
2019, focusing on Mental Health and
Employee Wellbeing�
Key themes discussed with the Board
Key themes from my visits and the
Colleague Engagement Forum which
I discussed with my Board colleagues
included:
Unions and Staff Associations
Meetings also took place with colleagues
from our staff association and union
representatives, Vivo, Unite and the German
Works Council to hear their views on
creating a fair and engaging place to work�
• feedback on how the organisation
communicates across the Group (given
the volume of organisational change
and various transformation projects);
• how Phoenix’s strategic purpose is
understood by our colleagues;
The inaugural Colleague Advisory Forum
The above visits were followed by the
inaugural meeting of our newly established
Group wide Colleague Advisory Forum (‘the
Forum’) in October� The Forum currently
comprises 16 colleagues from different
locations, grades and functions as
representatives from across the business�
Topics covered included:
• strategic updates;
• progress on the Group’s Diversity
and Inclusion initiatives;
• the output of the Group’s bi-annual
Colleague Insight Survey;
• embedding our harmonised values
across our enlarged Group;
• steps towards aligning our People
Proposition; and
• the role of the Phoenix Group Board and
its Committees and a flavour of the
themes and issues the Board discusses�
The output of our Colleague Insight Survey
was a key discussion point at the Forum�
We met soon after the survey results were
available and this provided a further
opportunity for review and to ensure
feedback could be provided by all members�
This survey will now take place
on a bi-annual basis to provide colleagues
with an additional opportunity to voice
their opinions�
• the progress in embedding a common set
of values across different locations and
• colleagues aspirations for more
development and wishes to make a
broader contribution�
Broader Board engagement
The Board also hosted additional
engagement activities with colleagues in
2019 such as lunches with the Non-
Executive Directors and additional
interactive sessions hosted by the
Committee Chairs in October� In addition
the Board reviews regular reporting from the
Group Human Resources Director and also
had a ‘deep dive’ on work place culture�
I would like to thank the colleagues that
I have met in 2019 and the Forum members
for their engagement to date and honest
feedback� I look forward to continued
discussions with colleagues from around the
business in 2020 and anticipate that the
Group’s sustainability strategy, ‘committing
to a sustainable future’ will be a key focus
area�
Karen Green
Designated Non-Executive Director
for Workforce Engagement
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
85
CORPORATE GOVERNANCE Corporate Governance Report continued
INSPIRING
CONFIDENCE
THROUGH BOARD
ENGAGEMENT
As part of our programme of enhancing the
Board’s engagement with colleagues, the
Board held a series of interaction sessions with
colleagues at our Edinburgh office. This was
held over two days in October 2019 to coincide
with the Board meeting programme.
The sessions included an informal lunch
when the Board engaged with various
colleagues over topics raised, and separate
sessions for colleagues from various parts of
the business with each of the Chairs of the
Audit, Risk and Remuneration Committees�
The Board believes these are good ways to
hold two-way informal conversations with
colleagues and intends to do more in 2020�
Top Alastair Barbour
(Board Audit
Committee Chair)
Middle Edinburgh
colleagues at Board
Committee
Interaction Session
Left John Pollock
(Board Risk
Committee Chair)
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Right Nicholas
Lyons, Group
Chairman with
Edinburgh
Colleagues
Middle Edinburgh
colleagues at Board
Committee
Interaction Session
Bottom Kory
Sorenson (Board
Remuneration
Committee Chair)
“Our Edinburgh risk function colleagues found it
invaluable to hear from John Pollock, the Chair of the
Risk Committee, on the type of assurance the Board
looks for from a Risk function. It was also extremely
useful to hear first-hand on the wealth of experience that
John brings to the Group to help navigate the various
challenges that lie ahead, and in particular his thoughts
on the key risks facing the Group in the near future.”
Roshan Lachman
Financial Risk Director
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
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CORPORATE GOVERNANCE Corporate Governance Report continued
2. DIVISION OF RESPONSIBILITIES
THE CHAIRMAN, GROUP CHIEF
EXECUTIVE OFFICER AND SENIOR
INDEPENDENT DIRECTOR
Nicholas Lyons is Chairman of the Board
of Directors of the Company� There is a
division of responsibility, approved by the
Board, between the Chairman, who is
responsible for the leadership and effective
operation of the Board and the Group Chief
Executive Officer, Clive Bannister, who is
responsible to the Board for the overall
management and operation of the Group�
The Chairman’s other commitments are set
out in his biographical details on page 78�
The Chairman was appointed on the basis of
committing two days per week to Phoenix�
The Senior Independent Director, appointed
by the Board, is Alastair Barbour� His role is
to be available to shareholders whose
concerns are not resolved through the
normal channels or when such channels
are inappropriate� He is also responsible
for leading the annual appraisal of the
Chairman’s performance by the Non-
Executive Directors�
BOARD INDEPENDENCE AND
APPOINTMENT TERMS
The Board considers that the following
Directors are independent: Alastair Barbour,
Karen Green, Wendy Mayall, John Pollock,
Belinda Richards, Nicholas Shott and Kory
Sorenson� The Board has considered the
criteria proposed by the Code in assessing
the independence of the Directors�
The Board met nine times during 2019 and
is scheduled to meet seven times in 2020
including for a two-day strategy setting
meeting� Additional meetings will be held
as required, and the Non-Executive Directors
will hold meetings with the Chairman,
without the Executive Directors being
present, as they did on several occasions
in 2019�
The terms and conditions of appointment of
Non-Executive Directors are on the Group’s
website� The remuneration of the Directors
is shown in the Directors’ Remuneration
Report on pages 99 to 130�
The terms of appointment for the Directors
state that they are expected to attend in
person regular (at least six per year) and
additional Board meetings and to devote
appropriate preparation time ahead of each
meeting� In January 2020, the Nomination
Committee reviewed the time spent by
Directors and concluded that the time
required of (and given by) the Directors is
considered to exceed the level expected in
their appointment terms�
BOARD COMPOSITION AS AT 31 DECEMBER 2019
Board excluding SLA nominees
Board including SLA nominees
Total Board composition
2
1
2
1
4
1
2
3
1� Male
2� Female
6
4
1� Male
2� Female
8
4
1� Chairman
2� Executive Directors
3� Independent Non-Executive
Directors
4� Non Independent Non-Executive
Directors
1
2
7
2
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
BOARD AND COMMITTEE ATTENDANCE 2019
Board meetings
Audit
Risk
Nomination
Remuneration
Actual/Max
Actual/Max
Actual/Max
Actual/Max
Actual/Max
Chairman
Nicholas Lyons
Executive Directors
Clive Bannister (Group CEO)
James McConville (Group FD)
Non-Executive Directors
Alastair Barbour
Campbell Fleming
Karen Green
Wendy Mayall
Barry O’Dwyer1
John Pollock
Belinda Richards
Nicholas Shott
Kory Sorenson
Mike Tumilty2
9/9
9/9
9/9
9/9
7/9
9/9
9/9
2/3
9/9
9/9
8/9
9/9
3/4
3/3
3/3
2/3
3/3
7/7
4/4
6/7
7/7
6/6
6/6
6/6
4/4
1/2
7/7
7/7
7/7
5/7
3/3
1 Barry O’Dwyer resigned from the Board on 28 June 2019�
2 Mike Tumilty was appointed to the Board on 1 September 2019�
The Nomination Committee has confirmed its absolute satisfaction with the time and commitment given to Phoenix by all Directors� The Board, Audit,
Nomination and Remuneration Committee attendance records for Nicholas Shott were impacted by his missing one meeting of each on the same date due to
ill health� His attendance record was otherwise at 100%� Mike Tumilty missed the first Board meeting following his Board appointment due to a pre-existing
commitment� Belinda Richards missed two of seven Risk Committee meetings, one for a family bereavement and one for a transactional meeting called at
short notice� Her commitment is demonstrated by her attendance record being at 100% for Board, Audit and Remuneration Committee meetings�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
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CORPORATE GOVERNANCE Corporate Governance Report continued
03. COMPOSITION, SUCCESSION AND EVALUATION
NOMINATION
COMMITTEE REPORT
Members
Nicholas Lyons (Chair)
Alastair Barbour
Nicholas Shott
Kory Sorenson
KEY NOMINATION COMMITTEE
ACTIVITIES IN 2019
• Group Chief Executive Officer
Succession
• Group Finance Director Succession
• Review of Board skills, experience
and diversity
• Proposal for Board Committee
changes
• Review of Directors’ time
commitment to Phoenix
• Diversity and Inclusion Oversight
The composition of the Nomination
Committee is in accordance with the
requirements of the Code that a majority
of its members should be independent
Non-Executive Directors� The Nomination
Committee is responsible for considering
the size, composition and balance of the
Board; the retirement and appointment of
Directors; succession planning for the Board
and senior management, focused on the
development of a diverse succession
pipeline; and making recommendations
to the Board on these matters�
The Nomination Committee met three times
in 2019� This was less than in prior years as
there was no non-executive recruitment in
2019� This was driven by the outcome of the
November 2018 Board Evaluation Review
which concluded that given the overall
relatively short tenure of the non-executive
directors on the Board, there should be no
non-executive recruitment in 2019� The
focus was instead on the succession
planning for the Executive Directors� This
was undertaken first at the Nomination
Committee and then at the Board and led to
the announcement on 8 November 2019 of
Andy Briggs as successor to Clive Bannister
as Group CEO�
The Nomination Committee has been very
active in non-executive recruitment over the
last few years� Recruitment since 2016 has
included the role of Group Chair in 2018, with
new Non-Executive Directors as follows:
• September 2016 – Wendy Mayall,
John Pollock, Nicholas Shott
• July 2017 – Karen Green
• October 2017 – Belinda Richards
• August 2018 – SLA nominees,
Campbell Fleming and Barry O’Dwyer
• October 2018 – Nicholas Lyons
• September 2019 – SLA nominee,
Mike Tumilty
The standard process used by the
Committee for Board appointments involves
the use of an external search consultancy to
source candidates external to the Group and,
in the case of executive appointments, also
considers internal candidates� Detailed
assessments of short-listed candidates are
undertaken by the search consultancy,
followed by interviews with Committee
members and other Directors and the
sourcing of references before the
Committee recommends the appointments
to the Board�
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
The Board supports, and complies with
(effective 10 March 2020), the Hampton-
Alexander guidance for FTSE 350
companies that the Board should be
comprised of at least 33% female directors�
The Board also intends to comply with the
guidance of the Parker Review for FTSE 100
companies that there should be at least one
ethnic minority director on the Board by
2021, and will do so through the proposed
appointment to the Board of Rakesh Thakrar
from the May 2020 AGM�
The Board’s policy on diversity is as follows:
• The Board promotes the enhancement
of diversity, including gender, as
a consideration when recruiting
new Directors�
• The Board’s overriding aim is to appoint
the right Directors to the Board to drive
forward the Group’s strategy within a
robustly compliant framework�
• The Board will undertake regular skills
audits to ensure the Board’s skills remain
appropriate for its strategy and providing
diversity where possible�
The Nomination Committee has been
instrumental in increasing gender diversity
on the Board and in 2019 took an active role
in oversight and guidance of the executive
diversity and inclusion process including
a focus on the development of a diverse
succession pipeline� Details of the policy
of diversity and inclusion for executives
is contained in the colleagues section on
page 36 to 37 of this Annual Report
including the gender balance of those in
senior management�
BOARD EVALUATION REVIEW
In accordance with the Code, an evaluation
of the performance of the Board and that of
its Committees and individual Directors was
undertaken in the latter part of 2019� The
process was led by the Chairman and
internally facilitated by the Company
Secretary� The process involved completion
by Directors of a questionnaire covering
various aspects of Board, Committee and
Director effectiveness followed by individual
meetings between the Chairman and each
Director, concluding in a Board report which
was discussed by the Board in November
2019� The focus of the review was to
consider ways for the Board to manage its
time most effectively to drive strategy and
monitor performance in a robustly compliant
manner� The actions arising from the review
were consistent with this theme, underlining
the Board’s desire to continue to focus on
strategy and the Group’s future as a growing
heritage and open business� These
process- centred actions are being taken
forward in 2020�
The report from the Board Evaluation
Review was discussed at a Board meeting in
November 2019 before the Board had
approved the proposal to acquire ReAssure�
The review concluded that the Board
operates well with strong and diverse skills
and experience, adding that more open
business skills and experience would be an
incremental benefit� That has since been
achieved with the appointment of Andy
Briggs as Group CEO� The report also
concluded that stability in Board
membership in the near-term would be
preferred� It is the intention of the Board and
Nomination Committee that the skills and
experience on the Board will be re-assessed
once the new Board appointees nominated
by Swiss Re and MS&AD are known,
following the intended completion of the
ReAssure acquisition�
In addition to the matters referenced above,
a further activity for the Nomination
Committee was to review the time spent
by Directors in fulfilling their duties� This
concluded that the time given by Directors in
2019 exceeded the level expected in their
appointment terms, particularly given the
time devoted by the Board to lead to the
approval of the acquisition of ReAssure in
December 2019� This followed significant
demands on the Board’s time in early 2018
to approve the acquisition of Standard
Life Assurance�
To ensure that the Directors maintain
up-to-date skills and knowledge of the
Group, all Directors receive regular
presentations on different aspects of the
Group’s business and on financial, legal
and regulatory issues� All Directors receive
a tailored induction on joining the Board
in accordance with a process approved
by the Board� In 2019 the new SLA-
nominated Director, Mike Tumilty, undertook
a comprehensive induction, including
detailed strategic and operational briefings
and information, before and following
his appointment�
In accordance with the provisions of the
Articles and the Code, all Directors will
submit themselves for election or re-election
at the Company’s AGM on 15 May 2020�
“I am pleased with the very successful outcome from
the Nomination Committee’s work on the succession
planning for the Group CEO, resulting in the appointment
of Andy Briggs to succeed Clive Bannister.”
Nicholas Lyons
Chairman
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
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CORPORATE GOVERNANCE Corporate Governance Report continued
04. AUDIT, RISK AND INTERNAL CONTROL
AUDIT COMMITTEE
REPORT
Members
Alastair Barbour (Chair)
Karen Green
John Pollock
Belinda Richards (until 2 July 2019)
Nicholas Shott (from 2 July 2019)
KEY AUDIT COMMITTEE ACTIVITIES
IN 2019
• Reviewed the Company’s 2018 Annual
Report and 2019 Interim Financial
Statements
• Review of the actuarial processes,
methodologies and assumptions
• Considered regular updates on the
2019 Internal Audit Plan
• Reviewed and monitored the
effectiveness and independence
of the Company’s External Auditors
• Considered the financial aspects
of the proposed ReAssure acquisition
The composition of the Audit Committee is
detailed within the table shown above and is
in accordance with the requirements of the
UK Corporate Governance Code 2018
(‘Code’) and also with DTR 7�1�1AR� As part
of the 2019 Effectiveness review, it was
confirmed that all four members of the Audit
Committee are considered as independent
Non-Executive Directors� In accordance with
the Code, it is confirmed that at least one
member has recent and relevant financial
experience and the members of the
Committee as a whole have competence
relevant to the insurance industry�
The Audit Committee met six times during
2019� Its meetings are attended by the Chair
of the Risk Committee (who is also a
member of the Audit Committee), the Group
Finance Director, the Deputy Group Finance
Director, the Group Head of Internal Audit,
the external auditors and usually also by the
Group Board Chair and the Group Chief
Executive Officer� The Audit Committee
holds private meetings at least annually with
each of the Group Finance Director, the
Group Head of Internal Audit and the
external auditors� The Audit Committee acts
independently of management, and engages
closely with both the Group Risk Committee
and the Life Company Audit Committee to
ensure there is a good understanding of the
work undertaken by each and enable
efficient communication between the
Committees�
AUDIT COMMITTEE’S ROLE
AND FOCUS
2019 has been a year of continued change
for the Group with the ongoing transition
activities that have followed the acquisition
of Standard Life� The political landscape
remained turbulent during the year with
sustained uncertainty around the UK’s
decision to leave the European Union and
other macroeconomic factors leading to
continuing volatility in financial markets�
Against this backdrop, the main focus for the
Audit Committee continues to be the
oversight of the integrity of the Company’s
financial statements and the soundness and
effectiveness of the Group’s systems and
controls, together with monitoring the
effectiveness of both the Internal and
External auditors� This encompasses the
following key functions:
• Receiving and reviewing the Annual
Report and Accounts, the Solvency and
Financial Condition Report and other
financial results, statements and
disclosures, and recommending their
approval to the Board�
• Monitoring the overall integrity of the
financial reporting by the Company and its
subsidiaries and the effectiveness of the
Group’s internal controls�
• Provision of advice to the Board to enable
the Board to report on whether the Annual
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Report and Accounts, taken as a whole,
are fair, balanced and understandable and
provide the information necessary for
shareholders to assess the Group’s
position, performance, business model
and strategy�
• Responsible for making recommendations
to the Board on the appointment of the
external auditors and their terms of
engagement including approval of external
auditor fees and non-audit services and
for reviewing the performance, objectivity
and independence of the external
auditors�
• Considering and approving the remit of
the Internal Audit function and reviewing
its effectiveness�
• Oversight of activities of subsidiary audit
committees through receipt and review of
minutes, discussions between the Chairs
of the Audit Committee and subsidiary
audit committees, and the Audit
Committee Chair’s attendance at the
Phoenix Life Audit Committee on an
occasional basis, as well as his receipt of
all papers going to the Phoenix Life Audit
Committee� This oversight has been
enhanced further through the attendance
at the Audit Committee, on at least an
annual basis, by the Chair of the Phoenix
Life Audit Committee�
AUDIT COMMITTEE’S PRINCIPAL
ACTIVITIES DURING 2019
External reporting and controls
The Audit Committee in 2019 carried out the
following activities in relation to the Group’s
external reporting and the effectiveness of
its internal controls:
• Reviewed the Company’s 2018 Annual
Report and Accounts, and the 2019
Interim Financial Statements,
recommending their approval to the
Board, as well as related disclosures and
the financial reporting process, supported
by reports from management and the
external auditors� Reviewed the Group’s
annual Solvency II results and the
Solvency and Financial Condition Report,
recommending their approval to
the Board�
• Reviewed a number of significant matters
in relation to the Group’s IFRS and
Solvency II reporting as summarised in
the table on page 96� These matters were
considered by the Audit Committee to be
areas subject to the most significant levels
of judgement or estimation, and identified
with regard to the key audit matters
assessed by the Group’s external auditors
as set out in their audit opinion on pages
137 to 146;�
• Reviewed the financial forecasts and
target setting prepared by management,
supported by the sensitivity analysis on
the key assumptions underpinning the
forecasts, in support of the assumption
that the Group will continue as a going
concern, the Group’s ongoing viability and
in support of dividend payments�
• Reviewed the Line 1 risk and controls
report from management, the Line 2
internal control assessment from Group
Risk, and the annual Line 3 internal control
environment opinion report (and the half
year update) from Internal Audit prior to its
consideration by the Board and received
reports regarding consequential actions;
and received a dedicated briefing on 21
January 2020�
• Considered financial disclosures
pertaining to the announcement of the
proposed acquisition of ReAssure Group
plc, supported by reports from
management and the Group’s
external auditors�
• Reviewed reports from Internal Audit on
the control environment in the Group’s
outsource service providers and on the
effectiveness of the internal audit work
undertaken within the outsource service
providers, noting that this was addressed
in more detail at the Phoenix Life Audit
Committee�
• Received dedicated briefings on matters
including Finance and Actuarial Transition
activity and the Group’s implementation of
the new insurance accounting standard,
IFRS 17�
• Reviewed the final accounting adopted in
the 2018 consolidated financial
statements for the acquisition of the
Standard Life Assurance businesses,
including the valuation of tangible net
assets, the valuation of intangibles and the
gain on bargain purchase, supported by
reports from management and the
external auditor�
“The Committee has delivered on it's key responsibilties
against the changing political and economic environment.
The Committee will continue to focus on ensuring that
there is a robust internal control environment further to
the acquistion of ReAssure Group plc."
Alastair Barbour
Chair of Audit Committee
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
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CORPORATE GOVERNANCE Corporate Governance Report continued
04. AUDIT, RISK AND INTERNAL CONTROL CONTINUED
External audit
A key part of the role of the Audit Committee
is the review and oversight of the work of the
Group’s External Auditor� The Audit
Committee reviewed various reports from
the External Auditor, including the 2019
Audit Plan, progress reports against that
plan, and results report for their audit
procedures on the 2019 annual IFRS and
Solvency II results, and their interim review
of the half year IFRS results�
The Audit Committee considered
throughout 2019 the effectiveness,
engagement and remuneration of the
current external auditors� These activities
supported the recommendation of the
re-appointment of Ernst & Young (‘EY’),
which was approved by the Board and
subsequently approved by shareholders at
the May 2019 AGM – see ‘Assessment of
the effectiveness of the external audit
process’ and ‘Auditor’s Appointment’
on page 95�
The external auditors' independence was
reviewed and monitored against the Group’s
External Auditor policy, including their
provision of non-audit services and fees –
see Auditor’s Independence and External
Auditor Policy on page 95�
The Audit Committee has also considered
matters pertaining to the mandatory rotation
of the External Audit firm – see Auditor’s
Appointment on page 95�
Internal audit
During 2019, the Audit Committee
continued to receive regular updates from
the Head of Internal Audit on various internal
audit related matters� This included the
annual update of the Group Internal Audit
Charter and the Group Internal Audit Plan
which were approved and received regular
reports to monitor progress against the plan�
The Audit Committee also reviewed the
internal audit control environment opinion
which included Internal Audit’s view of the
risk management framework across
the Group�
In line with the requirements of the Internal
Audit Charter, and to maintain compliance
with the Chartered Institute of Internal
Auditors (CII) standards and the Financial
Services CIIA Code to undertake an
independent external assurance review over
the effectiveness of the Internal Audit
function at least once every five years, an
external effectiveness assessment was
undertaken by PwC� From the review PwC
concluded that Internal Audit was ‘An
evolving function with a culture of
development, which, in a period of challenge
and rapid change, has set good foundations
on which to build�’ It had also been
recognised the work being undertaken in
bringing the two legacy teams together and
establishing the enlarged function in a
challenging year� Positive steps taken by the
team in 2019 included; the definition of the
Internal Audit function’s target operating
model, a new combined methodology, and
the implementation of a new audit system
(Teammate+)�
Audit Committee’s performance
The Committee’s performance was
reviewed by the Board in November 2019 as
part of its overall Board Evaluation Review�
The conclusions from the Evaluation Review
showed that the Committee continues to
operate effectively�
General
The other areas that the Audit Committee
covered throughout 2019 included
the following:
• Whistleblowing arrangements within the
Group as well as any whistleblowing
activity where an employee raised
concerns, in confidence, about any
possible improprieties� An update to the
whistleblowing policy was approved
which took into account the wider
geographical presence of the Group which
complied with the FCA and PRA’s
whistleblowing rules�
• Reviewed and approved updates to the
Group Tax Policy, Group Tax Strategy,
Group External Auditor Policy and the
Group Liquidity & Funding Policy�
Alastair Barbour
Chair of Audit Committee
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
AUDITOR’S APPOINTMENT
In accordance with the requirements of
The Statutory Audit Services for Large
Companies Market Investigation (Mandatory
Use of Competitive Tender Processes and
Audit Committee Responsibilities) Order
2014, the Audit Committee undertook a
competitive audit tender in 2016 to take
effect for the 2017 statutory audit, which it
considered to be in the best interests of its
shareholders in light of the length of
association with the current auditors�
During 2019, the Audit Committee continued
to review the requirements for tendering
of Audit Services for the Group and its
subsidiary companies� It is the Audit
Committee’s current intention that the Group
will tender its audit services prior to 2024
reflecting the mandatory rotation timing for
EY as auditor of one of the Group's major
life companies�
EY has been auditor to the Company since
December 2018� EY has indicated its
willingness to continue in office and
shareholders’ approval will be sought
at the AGM on 15 May 2020�
The current lead audit engagement partner is
Stuart Wilson, who has held the role from the
2019 statutory audit�
ASSESSMENT OF THE EFFECTIVENESS
OF THE EXTERNAL AUDIT PROCESS
The effectiveness of the external audit
process is reviewed throughout the year by
the Committee and included the following
activities:
• The Committee reviewed the detailed audit
plan and considered its coverage and
approach to identified risks;
• The Committee considered the basis and
calculation of Group materiality and how
this was applied to individual business
units;
• The quality of interactions between the
Audit team and the Committee, including
the provision of technical and industry
knowledge, was assessed;
• The Committee considered the level of
insight provided by the audit findings in the
key areas of judgment, including quality of
benchmarking and analysis, and the ability
of the audit team to demonstrate that they
had applied professional scepticism in their
dealings with management;
• The results of an internal evaluation of the
performance of the auditor, including
respondents from the Committee,
subsidiary Committees and key members
of management, were reviewed; and
• The Committee considered the findings of
external evaluations of EY, notably the
Financial Reporting Council’s Annual
Quality Review�
After consideration of the findings of the 2018
effectiveness review, EY proposed
enhancements to their audit approach as part
of their 2019 audit plan, which have been
monitored by the Committee�
AUDITOR’S INDEPENDENCE AND
EXTERNAL AUDITOR POLICY
The Company has an external auditor policy
which requires the Company and the external
auditors to take measures to safeguard the
objectivity and independence of the external
auditors� These measures incluices in respect
of specific areas, such as secondments to
management positions, or those which could
create a conflict or perceived conflict� It also
includes details of the procedures for the
rotation of the external engagement partner�
The engagement of EY to perform any
non-audit service is subject to a process of
pre-approval by the Audit Committee�
Furthermore, the Group’s external auditor
policy prescribes a limit for fees associated
with non-audit services of 70% of the average
statutory audit fee for the three preceding
years� This aligns with requirements
introduced by the EU Audit Directive and
Regulations in 2016�
In 2019, total fees of £10�7 million were paid to
EY� Of this amount £6�0 million related to
statutory audit fees of the parent and its
subsidiaries, with a further £1�4 million
incurred in relation to services provided
pursuant to legal or regulatory requirements�
The remaining fees of £3�3 million are
classified as non-audit services under the EU
Directive and Regulations, and give rise to a
non-audit to audit fee ratio of 64% within the
limits prescribed in the Group’s policy�
The engagement of EY to perform any
non-audit service is subject to a process of
pre-approval by the Audit Committee� Of the
£3�3 million of non-audit fees, £1�6million
related to actuarial and finance due diligence
procedures conducted in relation to the
proposed acquisition of ReAssure� Consistent
with previous transactions, the Audit
Committee concluded that the engagement
of the external auditors in the performance of
such diligence procedures would facilitate
audit work post-completion of the transaction,
and provide enhanced insight as to the quality
of the control environment operated in the
target company by comparison to Group
standards� The remaining balance of £1�7
million relates to the provision of assurance
services to the Board and the sponsoring
banks in support of disclosures made in the
public transaction documents relating to the
acquisition� The engagement of the Group’s
independent external auditor for the provision
of such services is consistent with market
practice in transactions of this nature�
The Audit Committee noted the release in
December 2019 of the Financial Reporting
Council ('FRC') Revised Ethical Standard,
which will become effective on 15 March
2020� In particular the Committee has noted
the changes the new Standard implements
with regard to permissible non-audit services�
Following issuance of the Revised Standard,
potential new non-audit services
engagements are being monitored by
reference to the revised requirements and the
Group’s External Auditor Policy will be
updated in this regard in early 2020�
During 2019, EY reported a breach of the rules
of the FRC Ethical Standards to the Audit
Committee� The breach occurred as a result of
the provision of prohibited tax services by EY
to Aberdeen Standard Investments (‘ASI’)
legal entities, where the benefit of those
services arose in ASI managed funds that,
following the acquisition of the Standard Life
Assurance business, are now controlled by
the Phoenix Group� In considering these
matters, the Audit Committee concluded that
the independence of EY was not impaired,
reflecting the trivial nature of the impact of the
services on the Group’s financial statements,
the fact that the work was undertaken by
personnel who were wholly separate to the
audit team, and that no reliance was placed by
the audit team on the output of the services�
In light of the above, the Audit Committee
is satisfied that the non-audit services
performed during 2019 have not impaired
the independence of EY in its role as external
auditor� Further information on non-audit
fees is provided in the Notes to the IFRS
Consolidated Financial Statements
on page 167�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
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CORPORATE GOVERNANCE Corporate Governance Report continued
04. AUDIT, RISK AND INTERNAL CONTROL CONTINUED
SIGNIFICANT MATTERS CONSIDERED BY THE AUDIT COMMITTEE IN RELATION TO THE FINANCIAL STATEMENTS
Significant matters
in relation to the
2019 IFRS financial
statements
Review of the IFRS and
Solvency II actuarial
valuation process, to
include the setting of
actuarial assumptions and
methodologies, and the
robustness of actuarial
data
How these issues
were addressed
Management presented papers to the Life Company Audit Committees detailing recommendations for the actuarial
assumptions and methodologies to be used for the interim and year-end reporting periods with justification and
benchmarking as appropriate� These assumptions and methodologies were debated and challenged by the Life
Company Audit Committees, with focus on longevity, persistency and expenses, prior to their approval�
A summary of these papers was presented for oversight review by the Audit Committee, and the Life Company Audit
Committees’ conclusions were reported to the Audit Committee through minutes of its meeting and a discussion
between the Chairmen of the committees� The Audit Committee discussed, and questioned management and EY
on, the content of the summary papers and the Life Company Audit Committee’s conclusions�
Pension assumptions for use in the IAS 19 Employee Benefits valuations were reviewed and approved by the Audit
Committee prior to the finalisation of the valuation reports�
The Audit Committee received and considered detailed written and verbal reporting from the external auditors setting
out their observations and conclusions in respect of the assumptions, methodologies and actuarial models�
Valuation of complex and
illiquid financial assets
Management presented papers setting out the basis of valuation of financial assets, including changes in methodology
and assumptions, for the interim and year-end reporting periods to the Life Company Audit Committees� The
assumptions, valuations and processes, particularly for financial assets determined by valuation techniques using
significant non-observable inputs (Level 3), were debated and challenged by the Life Company Audit Committee prior to
being approved�
The valuation information was then presented for oversight review by the Audit Committee who considered and
confirmed the appropriateness of the basis of valuation�
Recoverability of intangible
assets
Management presented papers detailing the results of annual impairment testing carried out in respect of goodwill
balances and reviews for indicators of impairment performed in respect of finite life intangibles�
The Audit Committee considered the results of the work performed and confirmed the appropriateness of the
conclusions reached�
Provisions
Management presented papers detailing the basis of recognition and measurement of accounting provisions recognised
by the Group� The Audit Committee considered the results of the analysis performed, the uncertainties surrounding
measurement adopted and confirmed the appropriateness of the conclusions reached�
Operating Profit
The Audit Committee reviewed the allocation of key items to operating profit to ensure the allocations were in line with
the Group’s operating profit framework and consistent with previous practice�
Assessment of whether
the Annual Report and
Accounts are fair, balanced
and understandable
The Audit Committee considered an analysis of the processes and conclusions in support of management’s conclusions
that the Annual Report and Accounts are fair, balanced and understandable� As part of the year-end procedures, the
Audit Committee discussed with management and EY the review processes that operated over the production of the
Annual report and Accounts�
Going concern analysis
A comprehensive going concern assessment was undertaken by the Audit Committee for the 2019 year-end and 2019
interim reporting periods, based on an assessment by management of the Group’s liquidity for the going concern review
period together with forecasts and a stress and sensitivity analysis� The analysis also confirmed that all regulatory and
working capital requirements would be met under the base case and adverse stress scenarios throughout the going
concern review period�
Viability Statement
The Audit Committee reviewed the process to support, and the contents of, the Viability Statement� The Committee
concluded that the period covered by the Viability Statement should continue to be five years to align it to the Group’s
strategic plan�
96
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
RISK COMMITTEE
REPORT
Members
John Pollock (Chair)
Alastair Barbour
Wendy Mayall
Belinda Richards
Kory Sorenson (from 2 July 2019)
KEY RISK COMMITTEE ACTIVITIES
IN 2019
• Considered regular updates on the
Risk Management Framework
• Evaluated and considered the proposed
acquisition of ReAssure Group plc
• Review of the Operational Resilience
framework
• Monitored Group’s Risk Appetite
• Continued to review the Group’s Risk
Profile and principle Risk Policies�
• - Reviewed the Group's Annual Own Risk
and Solvency Assessment Report
The role of the Risk Committee is to advise
the Board on risk appetite and tolerance in
setting the future strategy, taking account
of the Board’s overall degree of risk aversion,
the current financial situation of the Group
and the Group’s capacity to manage and
control risks within the agreed strategy�
It advises the Board on all high-level risk
matters�
The performance of the Committee during
2019 was assessed as part of both an overall
internal annual Board effectiveness review
and a Committee-specific effectiveness
review� The conclusions demonstrate that the
Committee continues to operate effectively�
Details of the Risk Management Framework
('RMF'), for which the Risk Committee has
oversight, are provided in the Risk
Management section on pages 48 to 57�
RISK COMMITTEE’S ROLE
• The Committee is comprised of five
Independent Non-Executive Directors�
• A set of ‘Operating Principles’ are in place
to define the responsibilities and
accountabilities of the Risk Committees of
Phoenix Group and its subsidiary company
boards to avoid any overlap of focus or
assurance activity�
• The Committee’s meetings are attended
by the Chair of the Audit Committee,
Alastair Barbour, which allows the review
of internal control effectiveness to be
managed through collaborative working
and oversight�
• The Chairman of the Phoenix Life and
Standard Life Risk Committees and Model
Governance Committee, John Lister, is a
regular attendee to the Committee and
provides members with a regular update
on the risk matters pertinent to these key
subsidiaries and the matters being dealt
with at the Model Governance Committee
(which is a Board Committee of the
Group’s Life Companies)�
• The Chairman of the Phoenix Life and
Standard Life Investment Committees,
Nick Poyntz-Wright, also periodically
attends the Committee meetings to
provide key updates which helps to
facilitate discussions relating to
investment risk�
• Other regular attendees to the Committee
include the Group Chief Actuary, Deputy
Group Finance Director, the Chief
Executives of the subsidiary Life Company
boards, the Group General Counsel and
the Group Head of Internal Audit�
• The Committee met a total of seven times
in 2019 including one out of cycle meeting
by telephone�
• A briefing session was held to review
Brexit Impact planning and interest rate
risk management�
• The Chief Risk Officer, Jonathan Pears,
has full access to the Chair and the
Committee and attends all meetings�
• The Committee receives frequent
reporting from the Chief Risk Officer and
the Group Risk function on consolidated
risk matters affecting the Group including
risk profile assessments and emerging
risks�
SIGNIFICANT MATTERS
DISCUSSED IN 2019
ReAssure Group plc Acquisition
• The Committee considered and evaluated
the proposed acquisition of ReAssure
Group plc and provided a recommendation
to the Board� The recommendation was
based on the assessment of the strategic
risk and financial resilience of the enlarged
Group; the impact on the risk appetite and
risk profile of the Group; and operational
resilience including the proposed
operating model�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
97
CORPORATE GOVERNANCE Corporate Governance Report continued
04. AUDIT, RISK AND INTERNAL CONTROL CONTINUED
Brexit Planning
• During the year the Committee monitored
the ongoing Brexit negotations between
the United Kingdom and the European
Union and reviewed the Group’s
operational readiness ahead of the
UK departure on 31 January 2020�
Transformation of the Heritage and Open
business platforms and operating model
• The Committee reviewed the key risks
and actions associated with the material
expansion of the Phoenix outsource
arrangement and delivery of the proposed
Transformation Programme�
Risk Management Framework Harmonisation
• The Committee continued to review the
progress of the implementation of the
harmonised RMF approach across
the Group�
RISK COMMITTEE’S PRINCIPAL
ACTIVITIES DURING 2019
In addition to the significant matters
discussed in 2019, the Committee also:
• Reviewed adherence to the Group Risk
Management Framework and considered
the appropriateness of the Group’s overall
Risk Appetite Statements�
Operational Resilience
• The Committee's key focus during the
year has been to enhance the existing
operational resilience framework to
strengthen the control environment�
Financial Risks of Climate Change
• Following the PRA's publications in April
2019 regarding "insurers' approach in
managing the financial risks from Climate
Change", the Committee has considered
the impact and taken a number of actions
to implement the Regulator's
requirements� In addition the Committee
reviewed the results of the Climate
Change Scenario Stress Tests which were
required as part of the PRA's Insurance
Stress Test Exercise�
• Consideration of the annual ORSA Report
for the Group and its regulated
subsidiaries� The committee
rocommended the ORSA Report for
approval by the Board�
• Monitored progress against the 2019
Group Risk function plan�
• Approved the Group Market Risk
Appetite Targets�
• Considered the Group’s capital risk
appetite framework�
• Monitored compliance with the Group’s
principal risk policies, satisfying itself
that action plans to address significant
breaches of those policies were sufficient�
• Reviewed the Group’s risk profile,
monitoring it against the risk categories
of Market, Insurance, Credit, Financial
Soundness, Customer and Operational
with particular attention to risk appetite,
risk trends, risk concentrations, provisions,
experience against budget and key
performance indicators for risk as well
as contingency planning�
• Reviewed the operation of the Risk
Management Framework�
• Considered risks, issues and matters that
are escalated from the Phoenix Life
Risk Committee�
“During the year the Committee considered a range of
risks facing the Group which included the impact of Brexit
and the acquisition of ReAssure Group plc. The Committee
will continue to review and enhance key areas such as
operational resilience and climate change risk.”
John Pollock
Chair of Risk Committee
98
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
• Received regular updates on
Cyber Security�
• Reviewed Reverse Stress Testing
analysis, completed and provided
oversight of, and challenge to, the design
and execution of the Group’s stress and
scenario testing, including any changes
of assumptions�
• Informed the Remuneration Committee
regarding the management of the
Group’s material risks to support their
consideration of executives' Annual
Incentive Plan rewards�
REVIEW OF SYSTEM OF
INTERNAL CONTROLS
The Board has overall responsibility for the
Group’s risk management and internal
control systems and for reviewing their
effectiveness in accordance with the Code�
The Group’s systems of internal controls are
designed to manage rather than eliminate
the risk of failure to achieve business
objectives and can provide only reasonable
and not absolute assurance against material
misstatement or loss�
The Board (and its subsidiary company
boards) monitor internal controls on a
continual basis, in particular through the
Audit and Risk Committees, which draw
upon input from all three lines of defence�
There is an ongoing process for identifying,
evaluating and managing the significant risks
faced by the Group, which has been in place
throughout the period covered by this report
and up to the date of approval of the Annual
Report and Accounts for 2019, in accordance
with the ‘Guidance on Risk Management,
Internal Control and Related Financial and
Business Reporting’ published by the
Financial Reporting Council� The
assessment for 2019 was presented to the
Board, following review by both Audit and
Risk Committees, on 6 March 2020� Where
any significant weaknesses were identified,
corrective actions have been taken, or are
being taken and monitored by both the
business and the Committees accordingly�
DIRECTORS’
REMUNERATION REPORT
REMUNERATION COMMITTEE
CHAIR’S LETTER
Members
Kory Sorenson (Chair)
Karen Green
Belinda Richards (from 2 July 2019)
Nicholas Shott
DEAR SHAREHOLDER
On behalf of the Board and its
Remuneration Committee (‘Committee’),
I am pleased to present the Directors’
Remuneration Report ('DRR') for the year
ended 31 December 2019� This report is
subject to two shareholder votes at the
2020 Annual General Meeting ‘AGM’:
• An advisory vote on the implementation
in 2019 of the existing Directors’
Remuneration Policy
• A binding vote on the proposed Directors’
Remuneration Policy which, if approved,
will apply from the date of the AGM for
up to three years�
SUMMARY OF THE YEAR
2019 was a momentous year for Phoenix,
with entry into the FTSE 100 in March,
strong progress made in the Standard Life
Assurance ('SLA') transition programme
and the anticipated synergies throughout
the year, and the announcement of our
acquisition of ReAssure Group plc in
December� These highlights were achieved
while exceeding all 2019 financial targets,
integrating 3,500 new colleagues and
continuing to focus on our mission to
inspire confidence in the future, improve
outcomes for customers and deliver value
for shareholders�
The Remuneration Committee’s principal
activities in the year were:
• The triennial remuneration policy
review reflecting the 2018 Corporate
Governance Code and developments in
best practice�
Andy will be remunerated in line with
our current and proposed Remuneration
Policies� He will receive:
• an annual base salary of £800,000;
• a maximum bonus of 150% of
base salary;
• A review of wider workforce policies
in light of the integration of the
SLA business�
• Regular monitoring of financial and
non-financial outcomes against 2019
targets in the context of business
strategy and risk appetite�
• Approving remuneration packages
associated with the two Executive
Director changes�
BOARD CHANGES (FURTHER
INFORMATION ON PAGES 122 TO 124)
As we enter 2020, the Board is delighted
to welcome Andy Briggs as Group Chief
Executive Officer ('CEO') designate from
January 2020, and as CEO from 10 March
2020� His wealth of experience will be
invaluable to the Group as it continues the
integration of the SLA business and
progresses its long-term growth strategy�
Andy has over 30 years of insurance
industry leadership experience including as
the CEO of a public limited company, former
Chairman of the ABI, and the Government
Business Champion for Older Workers�
• a face value Long-Term Incentive Plan
('LTIP') grant of 275% of base salary;
• a cash payment in lieu of pension
contribution of 12% of base salary (10�5%
when taken as a cash payment in lieu),
in line with the Directors’ Remuneration
Policy approved at the 2019 AGM to
align Executive Director pensions with
the wider workforce; and
• benefits in accordance with our
Directors’ Remuneration Policy which
will be reported in the single figure
table each year�
In addition, the Company will award
Phoenix shares to the equivalent value to
the forfeited in-flight awards granted by his
former employer in March 2017 and May
2018, pro-rated to the end of his former
employment� The buy-out award will vest
subject to the achievement of the former
employer’s original published performance
targets� The vesting date will be as soon as
practicable following verification of the level
of vesting achieved�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
99
CORPORATE GOVERNANCE REMUNERATION CONTINUED
The Committee approved a remuneration
package for Andy in line with the highly
competitive market for talent in our
specialist area of financial services and
quality of the candidate� Given there has
been no change to any element of the
remuneration package for the outgoing CEO
since his arrival in 2011, the higher package
offered reflects the increased size and
complexity of Phoenix Group and
is commensurate with the deep
experience and expertise that Andy will
bring to Phoenix in both the Open and
Heritage businesses�
As per the announcement on 9 March
2020, the Committee also warmly
welcomes Rakesh Thakrar to the Board
as Group Chief Financial Officer ('CFO'),
subject to regulatory approval� The
Committee is delighted with this
appointment as a reflection of succession
planning within the Group, enabling this
promotion from within the organisation�
The new CFO will be appointed on a
remuneration package consisting of:
• an annual base salary of £420,000;
• a maximum bonus of 150% of
base salary;
• a face value LTIP grant of 200% of
base salary;
• a pension contribution of 12% of base
salary (10�5% if taken as a cash
payment in lieu);
• benefits in accordance with our
Directors’ Remuneration Policy which
will be reported in the single figure
table each year�
In November, we announced that Clive
Bannister would step down as CEO
following the publication of our 2019 full
year results, after nine very successful
years with the business� His departure
arrangements will be in line with the
remuneration policy�
Clive will leave Phoenix on 9 March 2020�
He will receive pay in lieu of notice for the
period starting on this date and ending on
7 November 2020, comprising salary,
pension allowance and insurance benefits�
He will receive no compensation for loss of
car allowance� Clive’s 2019 AIP will be paid
in the normal way and subject to 40%
deferral in line with the current policy� Clive
will be eligible for a 2020 AIP award for the
portion of the year in which he remains
employed by the Group, which will be
payable in March 2021 and subject to
50% deferral in line with the proposed
policy� Clive’s in-flight LTIP awards will
be pro-rated to his end date�
• entry into the FTSE100; and
• the addition of a significant
Open business�
As part of the acquisition of the SLA
businesses, Phoenix gained:
Jim McConville will leave Phoenix on
15 May 2020� His departure arrangements
will be in line with the remuneration policy�
He will receive pay in lieu of notice for the
period starting on this date and ending on
9 March 2021, comprising salary, pension
allowance and insurance benefits� He will
receive no compensation for loss of car
allowance� Jim's 2019 AIP will be paid in the
normal way and subject to 40% deferral in
line with the current policy� Jim will be
eligible for a 2020 AIP award for the portion
of the year in which he remains employed
by the Group, which will be payable in
March 2021 and subject to 50% deferral in
line with the proposed policy� Jim’s in-flight
LTIP awards will be pro-rated to his end
date�
Phoenix has advanced greatly during the
mandates of Clive and Jim in terms of
performance for shareholders, customers
and employees alike� We are grateful to
both Clive and Jim for their contributions�
TRIENNIAL REMUNERATION POLICY
FOR APPROVAL IN 2020 (FURTHER
INFORMATION ON PAGES 108 TO 113)
The Remuneration Policy was submitted
to shareholders in 2019 due to the
establishment of a new parent company�
This was largely a roll forward of the
previously approved Policy, with the
exception of two changes in recognition of
the 2018 UK Corporate Governance Code:
alignment of pension contributions for new
Executive Directors with those provided to
the wider workforce, and the introduction of
post-cessation shareholding requirement for
both new and current Executive Directors�
In 2019, the Committee conducted the full
triennial review of our remuneration policy
in respect of its alignment to the Company’s
strategy, the provisions of the 2018 UK
Corporate Governance Code and emerging
best practice� Since the Committee’s last
full review of the Remuneration Policy in
2017, the business has fundamentally
changed, including:
• Additional assets under management
of £166 billion, an increase of 225%�
• 4�8 million additional policyholders,
increasing our policyholder total by 86%�
• 3,350 additional employees, increasing
our employee base by 375%�
• Additional cash generation of £5�5 billion,
an increase of 87% on pre-acquisition
expectations�
After thorough review, the Committee
determined that the base structure of the
policy remains appropriate in motivating
and encouraging positive behaviours in line
with our mission to improve outcomes
for customers and deliver value for
shareholders� However, the change to the
overall business merited certain changes to
the variable pay plans to ensure it is relevant
to all employees across the business�
ANNUAL INCENTIVE PLAN (‘AIP’)
The first change is to add a new metric to
the AIP, Net Flows (Workplace), to reflect
the increased significance of the Open
business following the acquisition of the
SLA businesses� Net Flows (Workplace)
replaces the previous Management Actions
metric, and will function in a transparent
and robust manner� See page 123 for
further details�
The second change is in relation to the
Personal element of the AIP� Previously
20% of AIP for Executive Directors
was linked to their personal objectives�
To provide greater transparency and better
linkage with the Group’s strategic priorities
and wider workforce, a new Strategic
Scorecard reflecting core strategic priorities
will replace the Personal element� These
targets will be clearly articulated and
measured, whilst avoiding duplication
with any outcomes under the Corporate
element� The targets for this Strategic
Scorecard, which will include Environmental
Social Governance ('ESG') metrics, will be
disclosed retrospectively in the 2020 DRR
consistent with current practice for the
personal element�
100
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Directors’ Remuneration Report continued Annual incentive plan
2019
2020
Operating Companies’
Cash Generation
24%
Adjusted Shareholder
Solvency II Own funds
24%
Solvency II
Management
Actions 12%
Cash Generation*
24%
Shareholder Value*
24%
Net Flows
(Workplace)
12%
Customer
Experience
20%
Customer
Experience
20%
Personal
20%
Strategic Scorecard
20%
Deferral 40%
for a period
of 3 years
Deferral 50%
for a period
of 3 years
Long term incentive plan
Corporate Component – 80% of AIP metrics
2019
2020
Cumulative Cash
Generation
40%
Return on Adjusted Shareholder
Solvency II Own Funds
35%
TSR
25%
Net Operating Cash Receipts*
35%
Return on Shareholder value*
25%
TSR
20%
Persistency
20%
*These metrics have been renamed simply to provide clarity� The calculations for these remain unchanged from last year�
The third change is an increase in deferral
from 40% to 50% in order to further
increase the level of alignment between
the Executive Directors and shareholders,
reflecting best practice within the
FTSE 100 index�
The metrics and weighting for the 2020 AIP
are shown below, with the 2019 metrics
included for clarity�
LONG-TERM INCENTIVE PLAN (‘LTIP’)
The key change to the LTIP is the addition
of a Persistency metric to reflect the Open
business, similar to our approach with the
AIP� Persistency is a key metric for the
Group’s long term strategy as it measures
long term customer retention� Persistency
will have a weighting of 20% of the award�
The existing measures which have been
renamed for clarity (Net Operating Cash
Receipts, Return on Shareholder Value,
Total Shareholder Return ('TSR') remain
in place, with a slight reduction in their
weighting to accommodate the new metric,
as set out in the chart above�
OTHER CHANGES
Share Ownership Guidelines (‘SOG’)
– The requirement for the Executive
Directors’ SOG is increased from 200% of
salary to 300% of salary for the CEO and
to 250% of salary for the CFO� Unvested
deferred bonus shares (net of tax) that are
no longer subject to performance conditions
will be included within shares counting
towards the SOG� The Post Cessation
Shareholding Requirement will align with
in-employment SOG for a period of two
years after departure�
The resulting single total figure
of remuneration for Clive Bannister
was £2,976k and for Jim McConville
was £1,843k�
Pension – Following the departure of Clive
Bannister and Jim McConville, pension
contributions have been aligned to the
wider workforce (currently 12% of base
salary) in line with our new Policy� This
applies to both Executive Directors being
proposed for election at the Company’s
AGM on 15 May 2020�
LOOKING FORWARD
Many of our shareholders provided valuable
feedback during the consultation on our
triennial remuneration policy review and I
thank them for their contribution� I look
forward to continuing our dialogue in 2020�
Yours sincerely,
Benefits – The maximum level of
reimbursed expenses under the Relocation
Policy is reduced to £50,000�
Kory Sorenson
Remuneration Committee Chair
6 March 2020
INCENTIVE OUTCOMES FOR 2019
(FURTHER INFORMATION ON PAGES
115 TO 118)
For the 2019 AIP, the Committee determined
that Clive Bannister and Jim McConville
should receive 92�3% and 87�3% of their
maximum bonus opportunity, respectively�
The 2017 LTIP award covering the years
2017–2019 will vest at 68�5% of the
maximum opportunity for both Clive
Bannister and Jim McConville�
These outcomes reflect the strategic
achievements of the year in terms
of financial, non-financial, and
personal contributions�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
101
CORPORATE GOVERNANCE
Directors’ Remuneration Report continued
DIRECTORS’ REMUNERATION
REPORT AT A GLANCE
ALIGNMENT TO STRATEGY
This diagram demonstrates how each of our
performance measures for AIP and LTIP
align with the Company’s strategy�
As detailed in the strategy section of the
2018 Annual Report and Accounts under the
'Engage Colleagues' section, a common
incentive plan was launched for all
colleagues within the enlarged Group,
ensuring consistency of corporate goals
and individual performance management�
AIP
LTIP
Phoenix’s Strategic KPIs
Improve
Customer
Outcomes
Drive
Value
Manage
Capital
Engage
Colleagues
Cash Generation
Shareholder Value
Net Flows (Workplace Pensions)
Customer Experience
Strategic Scorecard
Net Operating Cash Receipts
Return on Shareholder Value
Persistency
TSR
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔ – AIP scorecard engages employees across the Group to achieve common targets
2019 SINGLE FIGURE
The outcomes under the AIP and LTIP
resulted in a single figure outcome for
Clive Bannister of £2,976k and for James
McConville of £1,843k�
Read more on page 114
CEO
2019
2018
re-stated
700
700
CFO
2019
2018
re-stated
440
440
£'000
16
77
77
16
16
123
123
16
576
581
969
898
1,168
2,976
830
2,567
734
1,843
522
1,636
Salary
Benefits
Pension
AIP
LTIP
HOW WE PERFORMED IN 2019
Cumulative Cash Generation (£bn)
Total Shareholder Return (percentile)
Threshold
1.372
Threshold
50
Target
Outturn
1.572
Target
80
1.726
Outturn
55
Group performance measures
Long Term Incentive Plan (‘LTIP’):
Below we show outturn against the
measures which applied for the 2017 LTIP
awards which are reflected in the Single
Figure Table on page 114� Cumulative cash
generation and TSR performance are shown
over the three-year performance period
(financial years 2017, 2018 and 2019)� TSR
is measured against the constituents of the
FTSE 250 (excluding Investment Trusts),
with median being the 50th percentile and
upper quintile being the 80th percentile�
Cash generation continues to be one of
our key corporate strategic objectives,
while TSR provides a direct linkage to
shareholder interests�
102
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Directors’ Remuneration Report continued HOW WE PERFORMED IN 2019
Group performance measures
Annual Incentive Plan (‘AIP’):
Below we show the target ranges and outturn against the metrics within the 2019 AIP� More details of the 2019 AIP can be found on page
115� AIP metrics that are stated Group KPIs are flagged below and evidences the direct link between Group strategy and remuneration
outcomes� Those metrics that are not stated KPIs were felt by the Committee to be appropriate metrics which are reflective of the
shareholder experience�
Operating Companies
Cash Generation (£m)
Origo Timescales (days)
KPI
KPI
Customer Service and
Accessibility (Standard
Life Assurance Limited) (%)
KPI
Threshold
Target
Maximum
Outturn
600
Threshold
≤12
Threshold
650
Target
≤11
Target
700
Maximum
£707m
Outturn
≤9.5
9.7
Maximum
Outturn
≥70
≥72.5
≥75
71
Adjusted Shareholder
Solvency II Own Funds (£m)
Servicing Complaints (%)
Solvency II Management
Actions (£m)
Threshold
Target
Maximum
Outturn
5,180
5,280
Threshold
Target
50
55
Threshold
120
Target
170
5,380
Maximum
60
Maximum
250
£5,939m
Outturn
56
Outturn
£512m
Cat. B Incident Closures
(Phoenix Life) (%)
Customer Satisfaction
(Phoenix Life) (%)
FOS Overturn Rate (%)1
KPI
Threshold
≥70
Threshold
Target
Maximum
Outturn
≥72.5
Target
≥75
Maximum
83
Outturn
90
91
93
94
Threshold
Target
Maximum
Outturn
≤20
≤19
≤18
17
1 See note 6 on page 115 for detail of the FOS Overturn Rate used in the AIP�
Group Chief Executive Officer
Clive Bannister
Shareholding guidelines
Shares held at 31 December 2019
Group Finance Director
James McConville
Shareholding guidelines
Shares held at 31 December 2019
200%
1,081%
200%
597%
SHAREHOLDING
GUIDELINES (‘SOGS’)
A significant proportion of executive
remuneration is delivered in shares which
are released over a period of five years�
In combination with our shareholding
guidelines, this aligns Executive Directors
with shareholders over the long-term� As
at 31 December 2019, both Clive Bannister
and James McConville had exceeded their
shareholding requirements, as set out in the
chart below� Further details on shareholding
guidelines are included in the Remuneration
Policy in Section A under the Shareholding
Guidelines section on page 110 and in
Section B on page 125�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
103
CORPORATE GOVERNANCECORPORATE GOVERNANCE
COMPARISON OF CURRENT AND PROPOSED REMUNERATION POLICY
Element of policy
Current Policy
Proposed Policy
Fixed
Remuneration
Base Salary
Base salaries reviewed against comparator
groups, including the FTSE31-100 and FTSE250,
with changes taking effect from 1 January�
Executive Director salaries may not exceed
£780,000 adjusted for inflation since 2017
(currently £834,000)�
Base salaries are reviewed against comparator
groups which the Remuneration Committee
deems suitable with changes taking effect
from 1 April�
The salary of an Executive Director may not
exceed the average median positioning within
these groups adjusted for inflation�
Pension
Benefits
New Executive Directors aligned with wider
workforce� Contribution rate to be disclosed
following review of company pension provision�
New Executive Directors aligned with wider
workforce (12% of salary – or 10�5% of salary
when taken as a cash payment)�
Relocation expenses subject to a maximum limit
of £150,000�
Relocation expenses subject to a maximum
limit of £50,000�
Variable
Remuneration
Annual Incentive
Plan (‘AIP’)
Deferral of 40% for a period of three years�
Deferral of 50% for a period of three years�
Financial performance measures will not be
reduced below 50% of potential�
Financial performance measures will not be
reduced below 60% of potential�
2019 performance measures:
2020 performance measures:
• Operating Companies’ Cash Generation
• Cash Generation1 (24% of overall AIP);
(24% of overall AIP);
• Adjusted Shareholder Solvency II Own
• Shareholder Value1 (24%);
Funds (24%);
• Solvency II Management Actions (12%);
• Net Flows (Workplace) (12%);
• Customer Experience (20%); and
• Customer Experience (20%); and
• Personal (20%)�
• Strategic Scorecard (20%)�
2019 performance measures:
2020 performance measures:
• Cumulative Cash Generation (40%);
• Net Operating Cash Receipts1 (35%);
• Return on Adjusted Shareholder Solvency II
• Return on Shareholder Value1 (25%);
Own Funds (35%); and
• Total Shareholder Return (35%)�
• Total Shareholder Return (20%); and
• Persistency (20%)�
Long Term Incentive
Plan (‘LTIP’)
Other
elements
Shareholding
guidelines
Executive Directors are expected to retain all
shares which vest under the DBSS and the LTIP
until a minimum holding of 200% of base salary
is accumulated�
Executive Directors are expected to retain all
shares which vest under the DBSS and the LTIP
until a minimum holding of 300%/250% of base
salary for CEO/CFO is accumulated�
Share awards do not count prior to vesting
(including DBSS awards)�
Post cessation of employment, Executive
Directors retain the full requirement in the first
year and half in the second year�
Unvested share awards no longer subject
to performance conditions (discounted for
anticipated tax liabilities), may be counted for
the purposes of the guidelines�
Post cessation of employment, Executive
Directors are expected to retain this minimum
level, or the level held at termination, for a
period of two years�
1 These metrics have been renamed simply to provide clarity� The calculations for these remain unchanged from last year� Shareholder Value represents
shareholder Solvency II own funds adjusted to remove the Group's capital qualifying sub-debt�
104
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Directors’ Remuneration Report continued ALIGNMENT TO SHAREHOLDERS
Our Executive remuneration is designed to align with shareholder interests to deliver long-term sustainable value� The diagram below
shows how a significant portion of Executive remuneration under the proposed remuneration policy is delivered in shares and deferred
for up to five years� At face value, 65% of the CEO’s maximum remuneration is delivered in shares�
65% of total maximum remuneration for CEO is paid in shares
LTIP
CEO: 275%
CFO: 200%
3 year
performance period
2 year
holding period
Shares
vested
Shares
released
50%
awarded in
shares
50%
awarded in
cash
Shares
vested
3 year
deferral period
AIP
CEO: 150%
CFO: 150%
1 year
performance
period
Pension
CEO: 12%
CFO: 12%
Benefits
Salary
CEO: 800k
CFO: 420k
Pension
CEO: 12%
CFO: 12%
Benefits
Salary
CEO: 800k
CFO: 420k
Maximum
2020
2021
2022
2023
2024
2025
Performance period
Deferral
Holding period
INTRODUCTION
This report contains the material required to be set out as the Directors’ Remuneration Report (‘Remuneration Report’) for the purposes
of Part 4 of The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, which amended
The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (‘the DRR regulations’)�
DIRECTORS’ REMUNERATION POLICY
The Company is seeking approval from its shareholders at its 2020 AGM for its updated Directors’ Remuneration Policy
(‘Remuneration Policy’)�
The Remuneration Policy which is being put forward for approval by shareholders of Phoenix Group Holdings plc at the 2020 AGM has
been updated as described in the Chairman’s covering letter� The Remuneration Policy is set out in section A of this report overleaf�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
105
CORPORATE GOVERNANCE SECTION A
THIS SECTION CONTAINS THE DIRECTORS’ REMUNERATION POLICY AS PROPOSED FOR APPROVAL
BY THE COMPANY’S SHAREHOLDERS AT THE COMPANY’S 2020 AGM ON 15 MAY 2020.
GENERAL POLICY
The Remuneration Policy for Executive Directors is summarised in the table below along with the policy on the Chairman’s and the
Non-Executive Directors’ fees�
Overall positioning*
The Company’s overall positioning on remuneration for Executive Directors has been updated to reflect the provisions of the new
UK Corporate Governance Code, best practice and feedback received from shareholders during consultation�
An appropriate balance is maintained between fixed and variable components of remuneration�
Our updated Remuneration Policy benchmarks the total target remuneration for the Executive Directors using appropriate market data sets�
* This section does not form part of the Remuneration Policy and is for information only�
HOW OUR POLICY ADDRESSES THE FOLLOWING FACTORS SET OUT IN THE UK CORPORATE GOVERNANCE CODE 2018
Factor
How this has been addressed
Clarity & Simplicity
Risk
Predictability
Proportionality
• The reward framework seeks to embed simplicity and transparency in the design and delivery
of remuneration� We have proposed changes to our AIP performance measures (to replace the
Personal Performance assessment with a Strategic Scorecard with transparent, measurable
metrics, and to replace Management Actions with Net Flows (Workplace)) in order to simplify
the AIP assessment process while enhancing alignment to Group strategy�
• We have included additional diagrams and charts in this year’s Remuneration Report to improve
clarity for readers regarding the alignment of Executive remuneration with shareholders
and our strategy�
• The Committee undertakes an annual review of risk before confirming the outcomes
for the AIP to ensure that there are no risk-related concerns that require the moderation
of AIP outcomes�
• Malus and clawback operate in respect of the AIP and LTIPs (see page 111 for details
on trigger events)�
• The Committee may apply discretion to override formulaic outcomes if they are considered
inconsistent with the underlying performance of the Group�
• The range of potential award levels to individual Executive Directors are set out in the scenario
chart on page 107 which also demonstrates the impact of potential share price growth by 50%
over the three-year performance period until LTIP vesting�
• A high percentage of rewards are delivered in the form of shares, meaning Executive Directors
are strongly aligned with shareholders� We have increased the share ownership guidelines to
300% for the CEO and 250% for the CFO and introduced a post-employment shareholding
requirement for our Executive Directors to ensure that they are aligned to the long-term
performance of the Group�
• Executive Directors are required to hold shares from LTIP awards for two years following
vesting which provides focus on sustainable share price growth� We have also extended
deferral levels under the AIP to further align to shareholders�
Alignment to culture
• We have engaged with our employees through our Colleague Insight Survey and Employee
Networks (see further details on pages 36 and 84) to develop our values and to improve our
understanding of what is required to become a high-performing organisation� Our remuneration
philosophy supports our purpose and core values�
106
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Directors’ Remuneration Report continued POTENTIAL REWARDS UNDER VARIOUS SCENARIOS (£000)
The charts below compare the maximum levels of Total Remuneration payable under the Directors’ Remuneration Policy (see page 108)�
Total remuneration opportunity (£000)
CEO – Andy Briggs
£’000
CFO – Rakesh Thakrar
£’000
5,400
20%
4,298
51%
41%
28%
22%
2,370
18%
1,948
43%
35%
32%
27%
1,003
21%
31%
475
21%
17%
100%
48%
25%
20%
£2,048
27%
29%
44%
£895
100%
Minimum On-target Maximum Maximum
with growth
Minimum On-target Maximum Maximum
with growth
Total fixed pay
AIP
LTIP
Share price growth
and divideds
Minimum, on-target and maximum represent the scenario charts required under the Directors’ Remuneration Policy – see the data
assumptions below�
‘Maximum with growth’ is the maximum scenario, but with the LTIP element increased to reflect a 50% share price growth assumption
over the three-year period until LTIP vesting� The element of the total representing the value from these assumptions on share price
growth and dividends is shown separately�
Name
Andy Briggs
Rakesh Thakrar (proposed director)
Base salary
£000
800
420
Benefits
£000
11
11
Pension
£000
84
44
Total fixed
£000
895
475
Minimum
Consists of base salary, benefits and pension:
• Base salary is the salary to be paid in 2020�
• Benefits measured as benefits to be paid in 2020�
• Pension measured as the full entitlement of approximately 10�5% of base salary receivable (after the reduction to
payments made in cash for employers’ National Insurance Contributions)�
On-target
Based on what the Executive Director would receive if performance was on-target:
• AIP: consists of the on-target annual incentive (75% of base salary)�
• LTIP: consists of the threshold level of vesting (50% of base salary, 68�75% for Andy Briggs)� In addition, the potential
value of Sharesave and Share Incentive Plan (‘SIP’) participation is also recognised�
Maximum
Based on the maximum remuneration receivable:
• AIP: consists of the maximum annual incentive (150% of base salary)�
• LTIP: assumes maximum vesting of awards and valued as on the date of grant (award of 200% of base salary for
CFO and 275% of base salary for CEO� Sharesave and SIP valued on the same basis as in the on-target row�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
107
CORPORATE GOVERNANCECORPORATE GOVERNANCE REMUNERATION POLICY TABLE
Element and purpose in supporting strategic objectives
Base Salary
This is the core element of pay which supports the recruitment and retention of Executive Directors and reflects the individual’s role
and position within the Group as well as their capability and contribution
Policy and operation
• Base salaries are reviewed each year against companies of similar size and complexity� Both salary levels and overall remuneration are set by reference
to the median data of comparators which the Remuneration Committee considers to be suitable based on index, size and sector�
• The Remuneration Committee uses this data as a key reference point in considering the appropriate level of salary� Other relevant factors including
corporate and individual performance and any changes in an individual’s role and responsibilities, and the level of salary increases awarded to other
employees of the Group are also considered�
• Base salary is paid monthly in cash�
• Changes to base salaries normally take effect from 1 April�
Maximum
• Salary levels are specific to the role and individual�
• Maximum salary will be the median level of salaries for CEO's in the FTSE31-100 (currently £800,000), provided that this figure may be increased in
line with UK RPI inflation for the duration of this policy�
• However, when reviewing salaries for Executive Directors, the Remuneration Committee will also review the salaries, and salary increases, for senior
management and employees in relevant countries to maintain consistency� Percentage increases for Executive Directors will not exceed that of
the broader employee population, other than in specific circumstances identified by the Remuneration Committee (e�g� in response to a substantial
change in responsibilities)�
Performance measures
• N/A
Element and purpose in supporting strategic objectives
Benefits
To provide other benefits valued by recipient
Policy and operation
• The Group provides market competitive benefits in kind� Details of the benefits provided in each year will be set out in the Implementation Report�
The Remuneration Committee reserves discretion to introduce new benefits where it concludes that it is in the interests of the Group to do so,
having regard to the particular circumstances and to market practice�
• Where appropriate, the Group will meet certain costs relating to Executive Director relocations and other exceptional expenses�
Maximum
• It is not possible to prescribe the likely change in the cost of insured benefits or the cost of some of the other reported benefits year-to-year,
but the provision of benefits will normally operate within an annual limit of 10% of an Executive Director’s base salary�
• The Remuneration Committee will monitor the costs in practice and ensure that the overall costs do not increase by more than the
Remuneration Committee considers to be appropriate in all the circumstances�
• Relocation expenses are subject to a maximum limit of £50,000�
Performance measures
• N/A
Element and purpose in supporting strategic objectives
Pension
To provide retirement benefits which keep Phoenix Group competitive within the marketplace and provide for the future of our employees
Policy and operation
• The Group provides a competitive employer sponsored defined contribution pension plan�
• All Executive Directors are eligible to participate in the Defined Pension Contribution plan available to all new joiners or they may opt to receive the
contribution in cash if they are impacted by the relevant lifetime or annual limits� Any such cash payments are reduced for the effect of employers’
National Insurance Contributions�
• Phoenix will honour the pensions obligations entered into under all previous policies in accordance with the terms of such obligations�
Maximum
• Pension contributions for Executive Directors are aligned with the wider workforce rate which is currently 12% of salary (reduced to 10�5% when
taken as cash in lieu of contribution)�
Performance measures
• N/A
108
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Directors’ Remuneration Report continued
Element and purpose in supporting strategic objectives
Annual Incentive Plan (‘AIP’) and Deferred Bonus Share Scheme (‘DBSS’)
To motivate employees and incentivise delivery of annual performance targets aligned to strategy
Policy and operation
• AIP levels and the appropriateness of measures are reviewed annually to ensure they continue to support the Group’s strategy�
• AIP outcomes are paid in cash in one tranche (less the deferred share award)�
• At least 50% of any annual AIP award is to be deferred into shares for a period of three years although the Remuneration Committee reserves
discretion to alter the current practice of deferral (whether by altering the portion deferred, the period of deferral or whether amounts are deferred
into cash or shares)� Such alterations may be required to ensure compliance with regulatory guidelines for pay within the insurance sector, but
will not otherwise reduce the current deferral level or the period of deferral�
• Deferral of AIP outcomes into shares is currently made under the DBSS�
• Awards under DBSS will be in the form of awards to receive shares for nil-cost (with the shares either being delivered automatically at vesting
or being delivered at a time following vesting at the individual’s choice)�
• DBSS awards are made automatically each year on the fourth dealing day following the announcement of annual results, using the average
of the preceding three dealing days’ share prices to calculate the number of shares in awards�
• The three-year period of deferral will run to the third anniversary of the award date�
• Dividend entitlements will accrue over the three-year deferral period and be delivered as additional vesting shares�
• Malus/clawback provisions apply to the AIP and to amounts deferred under DBSS as explained in the notes to this table�
Maximum
• The maximum annual incentive level for an Executive Director is 150% of base salary per annum�
Performance measures
• The performance measures applied to AIP will be set by the Remuneration Committee and may be financial or non-financial and corporate, divisional
or individual and in such proportions as it considers appropriate� However, the weighting of financial performance measures will not be reduced below
60% of total AIP potential in any year for the duration of this policy�
• In respect of the financial and non-financial performance measures, attaining the threshold performance level produces a £nil annual incentive payment�
• On-target performance on all measures produces an outcome of 50% of maximum annual incentive opportunity� However, the Remuneration
Committee reserves the right to adjust the threshold and target levels for future financial years in light of competitive practice�
• The AIP operates subject to three levels of moderation:
i� The Committee seeks to set suitable ranges for each measure in the context both of the Group's own internal budgets and of external projections
(whether through management guidance or consensus forecasts)� Recognising that the business of the Group is to engage in corporate activity, the
Remuneration Committee may adjust targets during the year to take account of such activity and ensure the targets continue to reflect performance
as originally intended�
ii� There is a specific adjustment factor of 80%–120% of the provisional outturn whereby the Remuneration Committee may adjust the provisional
figure (but subject to any over-riding cap) to take account of its broad assessment of performance both against pre-set targets, risk considerations,
and more generally, of the wider universe of stakeholders� With respect to financial performance measures, this assessment will include
consideration of the quality of how particular outcomes were achieved�
The AIP remains a discretionary arrangement and the Remuneration Committee reserves discretion to adjust the outturn (from zero
to any cap) should it consider that to be appropriate� In particular, the Remuneration Committee may operate this discretion in respect
of any risk concern�
Element and purpose in supporting strategic objectives
Long-Term Incentive Plan (‘LTIP’)
To motivate and incentivise delivery of sustained performance over the long-term in line with our strategy and purpose, and to promote
alignment with shareholders’ interests, the Group operates the Phoenix Group Holdings plc LTIP�
Policy and operation
• Awards under the LTIP may be in any of the forms of awards to receive shares for nil-cost (as described for DBSS above)�
• LTIP awards are made automatically each year on the fourth dealing day following the announcement of annual results, using the average of the
preceding three dealing days’ share prices to calculate the number of shares in awards�
• The vesting period will be at least three years and run until the third anniversary of the award date (unless a longer vesting period is introduced)�
• A holding period will apply so that Executive Directors may not normally exercise vested LTIP awards until the fifth anniversary of the award date�
• Dividend entitlements will accrue until the end of the holding period in respect of performance vested shares and be delivered as additional vesting
shares�
• Malus/clawback provisions apply on a basis consistent with the equivalent provisions in the AIP and DBSS and as explained in the notes to this table�
• The Group will honour the vesting of all awards granted under previous policies in accordance with the terms of such awards�
Maximum
• The formal limit under the LTIP is 300% of base salary per annum (and 400% per annum in exceptional cases)�
• The Remuneration Committee’s practice is to make LTIP awards to Executive Directors each year over shares with a value (as at the award date)
of up to 275% of the CEO’s annual base salary and 200% of the CFO’s annual base salary although discretion is reserved to make awards up to the
maximum levels for the policy as stated above�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
109
CORPORATE GOVERNANCECORPORATE GOVERNANCE Performance measures
• The Remuneration Committee may set such performance measures for LTIP awards as it considers appropriate (whether financial or non-financial and
whether corporate, divisional or individual)� The measures for the 2020 LTIP are as set out below:
Measure
Net Operating Cash Receipts
Return on Shareholder Value
Total Shareholder Return
Persistency
Weighting
35%
25%
20%
20%
• The Remuneration Committee retains discretion to adjust the weightings or substitute metrics but would expect to consult with its major shareholders
regarding any material changes of the current performance measures applied for LTIP awards made to Executive Directors or the relative weightings
between these performance measures�
• For every LTIP award, appropriate disclosures regarding the proposed performance conditions will be made in the annual Implementation Report�
• Once set, performance measures and targets will generally remain unaltered unless events occur which, in the Remuneration Committee’s opinion,
make it appropriate to make adjustments to the performance measures to ensure alignment with strategic objectives, provided that any adjusted
performance measure is, in its opinion, neither materially more nor less difficult to satisfy than the original measure�
• For each part of an LTIP award subject to a specific performance condition, the threshold level of vesting will be no more than 25% of that part
of the LTIP award�
• The performance period for LTIP awards will be at least three years, but the Remuneration Committee reserves discretion to lengthen the applicable
performance periods for LTIP awards�
Element and purpose
All-employee share plans
To encourage share ownership by employees, thereby allowing them to participate in the long-term success of the Group and align their
interests with those of the shareholders
Policy and operation
• Executive Directors are able to participate in all-employee share plans on the same terms as other Group employees as required by HMRC legislation�
Maximum
• Sharesave – the Remuneration Committee has the facility to allow individuals to save up to a maximum of £500 each month (or such other level as
permitted by HMRC legislation) for a fixed period of three or five years� At the end of the savings period, individuals may use their savings to buy
ordinary shares in the Company at a discount of up to 20% of the market price set at the launch of each scheme�
• Share Incentive Plan (‘SIP’) – the Remuneration Committee has the facility to allow individuals to have the opportunity to purchase, out of their pre-tax
salary, shares in the Company and receive up to two matching shares for every purchased share� Maximum saving is £150 each month (or up to such
level as permitted by the Company in line with HMRC legislation)� SIP also has the facility to allow for reinvestment of dividends in further shares,
or the award of additional free shares (up to the limits as permitted by HMRC legislation)�
Performance measures
• Consistent with normal practice, such awards are not subject to performance conditions�
Element and purpose
Shareholding guidelines
To encourage share ownership by the Executive Directors over the long-term, including post cessation of employment, and ensure
interests are aligned
Policy and operation
• Executive Directors are expected to retain all shares (net of tax) which vest under the DBSS and under the LTIP (or any other discretionary long-term
incentive arrangement introduced in the future) until such time as they hold a minimum of 300%of base salary in shares for the CEO and 250% of
base salary in shares for the CFO�
• Only beneficially owned shares, vested share awards, and unvested share awards not subject to performance conditions (discounted for anticipated
tax liabilities), may be counted for the purposes of the guidelines� Share awards subject to performance conditions do not count prior to vesting�
• Once shareholding guidelines have been met, individuals are expected to retain these levels as a minimum� The Remuneration Committee will review
shareholdings annually in the context of this policy�
• Post cessation of employment, Executive Directors are expected to retain the lower of their full level of employment shareholding guideline or their
actual shareholding at termination for a period of two years�
Maximum
• N/A
Performance measures
• N/A
110
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Directors’ Remuneration Report continued Element and purpose
Chairman and Non-Executive Director fees
Policy and operation
• The fees paid to the Chairman and the fees of the other Non-Executive Directors are set to be competitive with other listed companies of equivalent
size and complexity�
• The Group does not adopt a quantitative approach to pay positioning and exercises judgement as to what it considers to be reasonable in all the
circumstances as regards quantum�
• Additional fees are paid to Non-Executive Directors who chair a Board committee, or sit on the board of a subsidiary company or on the Solvency II
Model Governance Committee, and to the Senior Independent Director (‘SID’) and dedicated Workforce Director of Engagement� No separate Board
committee membership fees are currently paid�
• Fees are paid monthly in cash�
• Fee levels for Non-Executive Directors are reviewed annually with any changes normally taking effect from 1 January� Additional reviews may take
place in exceptional circumstances, such as following major corporate events, to ensure that fees remain appropriate in the context of the Group's size
and complexity�
Maximum
• The aggregate fees of the Chairman and Non-Executive Directors will not exceed the limit from time to time prescribed within the Company’s Articles
of Association for such fees (currently £2 million per annum in aggregate)�
• The Company reserves the right to vary the structure of fees within this limit including, for example, introducing time-based fees or reflecting the
establishment of new Board committees�
Performance measures
• N/A
NOTES TO THE REMUNERATION POLICY TABLE
1. Differences between the Policy on Remuneration for Directors and
the Policy on Remuneration of other employees
When determining Executive Directors’ remuneration, the
Committee takes into account pay throughout the Group to ensure
that the arrangements in place remain appropriate�
The Group has (as required by Solvency II regulations) one
consistent reward policy for all levels of employees and this policy
is made available to all staff� Therefore, the same reward principles
guide reward decisions for all Phoenix employees, including
Executive Directors, although remuneration packages differ to
take into account appropriate factors in different areas of the
business as follows:
• AIP – all Phoenix employees participate in the AIP, although the
quantum and balance of corporate to individual objectives varies
by level� The most senior staff are subject to the regulatory
requirements of Solvency II, and these individuals also receive
part of their bonus in Company shares deferred for a period of
three years� A different scorecard of AIP performance measures
applies for Solvency II Identified staff in ‘control functions’ (risk,
compliance, internal audit and actuarial) to exclude financial
performance measures�
• LTIP – our most senior employees participate in the LTIP
currently based on the same performance conditions as those
for Executive Directors, although the Committee reserves the
discretion to vary the performance conditions for awards made
to employees below the Board for future awards�
• All-employee share plans – the Committee considers it is
important for all employees to have the opportunity to become
shareholders in the Company� The Company offers two HMRC
tax advantaged arrangements in which all UK employees can
participate and acquire shares on a discounted and tax advantaged
basis (Sharesave and SIP), and equivalent arrangements in foreign
jurisdictions (including on a tax advantaged basis permitted under
local laws)� In addition, selected individuals may receive ad-hoc
share awards under the Chairman’s Award programme in
recognition of exceptional commercial outcomes and is
contingent on continued employment�
2. Stating maximum amounts for the Remuneration Policy
The DRR regulations and related investor guidance encourages
companies to disclose a cap within which each element of
remuneration policy will operate� Where maximum amounts for
elements of remuneration have been set within the Remuneration
Policy, these will operate simply as caps and are not indicative
of any aspiration�
3. Malus and clawback
Malus (being the forfeiture of unvested awards) and clawback
(being the ability of the Company to claim repayment of paid
amounts as a debt) provisions apply to the AIP, DBSS and LTIP�
These provisions may be applied where the Remuneration
Committee considers it appropriate to do so following:
• a review of the conduct, capability or performance of
an individual;
• a review of the performance of the Company or a
Group member;
• any material misstatement of the Company’s or a Group
member’s financial results for any period;
• any material failure of Risk Management by an individual,
a Group member or the Company; or
• any other circumstances that have a sufficiently significant
impact on the reputation of the Company or Group�
4. Travel and hospitality
While the Remuneration Committee does not consider this to form
part of benefits in the normal usage of that term, it has been
advised that corporate hospitality (whether paid for by the Company
or another) and certain instances of business travel (including any
related tax liabilities settled by the Company or another Group
company) for Directors may technically be considered as benefits
and so the Remuneration Committee expressly reserves the right
to authorise such activities and reimbursement of associated
expenses within its agreed policies�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
111
CORPORATE GOVERNANCECORPORATE GOVERNANCE 5. Discretions reserved in operating incentive plans
The Remuneration Committee will operate the AIP, DBSS and LTIP
according to their respective rules and the above Remuneration
Policy table� The Remuneration Committee retains certain
discretions, consistent with market practice, in relation to the
operation and administration of these plans including:
• (as described in the Remuneration Policy table) the determination
of performance measures and targets and resulting vesting and
pay-out levels;
• (as described in the Remuneration Policy table) the ability to
adjust performance measures and targets to reflect events and/
or to ensure the performance measures and targets operate as
originally intended;
• (as described in the Termination Policy) determination of the
treatment of individuals who leave employment, based on the
rules of the incentive plans, and the treatment of the incentive
plans on exceptional events, such as a change of control of
the Company; and
• the ability to make adjustments to existing awards made under
the incentive plans in certain circumstances (e�g� rights issues,
corporate restructurings or special dividends)� Any exercise
of discretion will be disclosed in the Implementation Report
for the year�
• consistent with the latest Corporate Governance Code, the
Remuneration Committee may apply discretion to override
formulaic outcomes if they are considered inconsistent with
the underlying performance of the group (see pages 106
and 101)�
RECRUITMENT REMUNERATION POLICY
The Group’s recruitment remuneration policy aims to give the
Remuneration Committee sufficient flexibility to secure the
appointment and promotion of high calibre executives to strengthen
the management team and secure the skill sets to deliver our
strategic aims�
All such buy-out awards, whether under the AIP, LTIP or otherwise
(for example, specific arrangements made under Listing Rule 9�4�2),
will take account of the service obligations and performance
requirements for any remuneration relinquished by the individual
when leaving a previous employer� The Remuneration Committee
will seek to make buy-out awards subject to what are, in its opinion,
comparable requirements in respect of service and performance�
However, the Remuneration Committee may choose to relax this
requirement in certain cases (such as where the service and/or
performance requirements are materially completed), and where
the Remuneration Committee considers it to be in the interests
of shareholders and where such factors are, in the view of the
Remuneration Committee, reflected in some other way, such as
a significant discount to the face value of the awards forfeited�
Exceptionally, where necessary, this may include a guaranteed
or non pro-rated annual incentive in the year of joining�
• For the avoidance of doubt, such buy-out awards are not subject
to a formal cap�
• A new Non-Executive Director would be recruited on the terms
explained in the Remuneration Policy for such Directors�
DIRECTORS’ SERVICE CONTRACTS
Executive Directors
Executive Director service contracts, which do not contain expiry
dates, provide that compensation provisions for termination without
notice will only extend to 12 months of salary, certain fixed benefits
and pension (which may be payable in instalments and subject to
mitigation)� By excluding any entitlement to compensation for loss
of the opportunity to earn variable pay, the Remuneration
Committee believes the contracts to be consistent with best
practice� The Remuneration Committee also has discretion to
mitigate further by paying on a phased basis with unpaid
instalments ceasing after the initial period of six months if the
Executive Director finds alternative employment� Contracts do
not contain change of control provisions� The template contract
is reviewed from time to time and may be amended provided it
is not overall more generous than the terms described above�
In terms of the principles for setting a package for a new Executive
Director, the starting point for the Remuneration Committee will be
to apply the general policy for Executive Directors as set out above
and structure a package in accordance with that policy�
Subject to Board approval, Executive Directors are permitted to
accept outside appointments on external boards as long as these
are not deemed to interfere with the business of the Group�
Non-Executive Directors
The Non-Executive Directors, including the Chairman, have letters
of appointment which set out their duties and responsibilities�
Appointment is for an initial fixed term of three years (which may
be renewed), terminable by one month’s notice from either side
(six months in the case of the Chairman)� Non-Executive Directors
are not eligible to participate in incentive arrangements or receive
pension provision or other benefits such as private medical
insurance and life insurance�
Copies of Executive Director service contracts and Non-Executive
Director letters of appointment are available for inspection at the
Company’s registered office�
The AIP and LTIP will operate (including the maximum award levels)
as detailed in the general policy in relation to any newly appointed
Executive Director�
For an internal appointment, any variable pay element awarded in
respect of the prior role may either continue on its original terms
or be adjusted to reflect the new appointment as appropriate�
For external and internal appointments, the Remuneration
Committee may agree that the Company will meet certain
relocation expenses as it considers appropriate�
For external candidates, it may be necessary to make awards in
connection with the recruitment to buy out awards forfeited by the
individual on leaving a previous employer� For such buy-out awards,
Phoenix Group will not pay more than is, in the view of the
Remuneration Committee, necessary and will in all cases seek, in
the first instance, to deliver any such awards under the terms of the
existing incentive pay structure� It may, however, be necessary in
some cases to make such awards on terms that are more bespoke
than the existing annual and equity-based pay structures in Phoenix
Group in order to secure a candidate� Details of any buy-out awards
will be appropriately disclosed�
112
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Directors’ Remuneration Report continued TERMINATION POLICY SUMMARY
In practice, the facts surrounding any termination do not always fit neatly into defined categories for good or bad leavers� Therefore, it is
appropriate for the Remuneration Committee to consider the suitable treatment on a termination having regard to all of the relevant facts
and circumstances available at that time� This policy applies both to any negotiations linked to notice periods on a termination and any
treatment which the Remuneration Committee may choose to apply under the discretions available to it under the terms of the AIP, DBSS
and LTIP plans� The potential treatments on termination under these plans are summarised below�
Incentives
Good Leaver1
Bad Leaver
Exceptional Events
AIP
DBSS
LTIP
A participant is considered a
Good Leaver if leaving through
redundancy, serious ill health or
death or otherwise at the discretion
of the Remuneration Committee
Pro-rated annual incentive�
Pro-rating to reflect only the period
worked� Performance metrics
determined by the Remuneration
Committee
Deferred awards vest at the end of
the original vesting period
Will receive a pro-rated award
subject to the application of the
performance conditions at the
normal measurement date and,
generally, any holding period
will continue to apply
Remuneration Committee
discretion to disapply pro-rating or
to accelerate vesting to the date of
leaving (subject to pro-rating and
performance conditions) and/or
the release of any holding period
A participant would typically be
considered a Bad Leaver following
a voluntary resignation or leaving
for disciplinary reasons
For example change in control or
winding-up of the Company
No awards made
Either the AIP will continue for the
year or there will be a pro-rated
annual incentive� Performance
metrics determined by the
Remuneration Committee
Deferred awards normally lapse
Deferred awards vest
All awards will normally lapse
Will receive a pro-rated award
subject to the application of the
performance conditions at the
date of the event� Remuneration
Committee discretion to
disapply pro-rating
1 Where the reason for leaving is retirement, the individual will be required to provide confirmation of their continued retirement before any payments are
released to them after the end of the vesting period�
The Group has power to enter into settlement agreements with
executives and to pay compensation to settle potential legal claims�
In addition, and consistent with market practice, in the event
of termination of an Executive Director, the Group may pay a
contribution towards the individual’s legal fees and fees for
outplacement services as part of a negotiated settlement� Any
such fees would be disclosed as part of the detail of termination
arrangements� For the avoidance of doubt, the policy does not
include an explicit cap on the cost of termination payments�
In the event of cessation of a Non-Executive Director’s appointment
(excluding the Chairman) they would be entitled to a one month’s
notice period� The Chairman, as detailed in his letter of
appointment, would be entitled to a six months’ notice period�
CONSIDERATION OF EMPLOYMENT CONDITIONS
ELSEWHERE IN THE GROUP
As explained in the notes to the Remuneration Policy table, the
Remuneration Committee takes into account Group-wide pay and
employment conditions� The Remuneration Committee reviews
the average Group-wide base salary increase and annual incentive
costs and is responsible for all discretionary and all-employee
share arrangements�
Consistent with previous practice, the Remuneration Committee
did not consult with employees in preparing the 2020 Remuneration
Policy although has established further employee engagement in
2019 in accordance with the requirement under the Corporate
Governance Code� Further details are shown on page 84�
CONSIDERATION OF SHAREHOLDERS’ VIEWS
Each year the Remuneration Committee takes into account the
approval levels of remuneration-related matters at our AGM in
determining that the current Remuneration Policy remains
appropriate for the Company�
The Remuneration Committee also seeks to build an active
and productive dialogue with investors on developments in the
remuneration aspects of corporate governance generally and
any changes to the Company’s executive pay arrangements in
particular� The Remuneration Committee consulted with
shareholders prior to submission of this policy� The previous
Remuneration Policy was submitted to shareholders at the
2019 AGM due to the completion of a Scheme of Arrangement
in 2018 and this was approved with 99�7% support�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
113
CORPORATE GOVERNANCECORPORATE GOVERNANCE SECTION B:
THIS SECTION CONTAINS THE ANNUAL REPORT ON REMUNERATION WHICH FORMS PART OF
THE DIRECTORS’ REMUNERATION REPORT TO BE PROPOSED FOR APPROVAL BY THE COMPANY’S
SHAREHOLDERS AT THE COMPANY’S 2020 AGM ON 15 MAY 2020
IMPLEMENTATION REPORT – AUDITED INFORMATION SINGLE FIGURE TABLE
Salary/fees1
Benefits2
Annual Incentive3
£000
Clive Bannister
James McConville
2019
700
440
2018
700
440
2019
16
16
2018
16
16
2019
969
576
2018
898
581
Long-term
incentives
20194
1,168
734
20185
(restated)
830
522
Pension6
Total
2019
123
77
2018
123
77
2019
2,976
1,843
20185
(restated)
2,567
1,636
1 The Executive Directors are entitled to adjust their salary/benefit combination under flexible benefits arrangements and the figures shown are before
individual elections�
2 Benefits for Clive Bannister comprise car allowance and private medical insurance totalling £16,346� Benefits for James McConville comprise car allowance
and private medical insurance totalling £16,076�
3 Annual incentive amounts are presented inclusive of any amounts which must be deferred into shares for three years (ie 40% of the AIP award for 2019)�
In 2019 and 2018, £387,660 and £359,100 respectively of Clive Bannister’s incentive payment is subject to three-year deferral delivered in shares, and
£230,472 and £232,320 of James McConville’s incentive payment is subject to a similar deferral� Deferred amounts are subject to continued employment
or good leaver status�
4 In accordance with the requirements of the DRR regulations, the 2019 value for long-term incentives is an estimate of the vesting outcomes for LTIP
awards granted in 2017 and which are due to vest on 24 March 2020 for Clive Bannister and James McConville� These vesting levels are at 68�5% reflecting
outcomes against the Cumulative cash generation and TSR performance measures to 31 December 2019 (see page 118) and assumptions regarding
dividends for the period until vesting� This vesting outcome is then applied to the average share price between 1 October 2019 and 31 December 2019
(717�09p) to produce the estimated long-term incentives figures shown for 2019 in the above table� These assumptions will be trued up for actual share
prices and dividends on vesting in the report for 2020� The disclosed LTIP figure of £1,168k for Clive Bannister reflects the proportion of the original award
which ultimately vested (£971k) plus the value of dividend roll-up on those shares (£197k)� For James McConville the equivalent values are £734k as the
disclosed LTIP figure, comprising £610k for the value of the proportion of the original LTIP award which ultimately vested plus the value of dividend roll-up
on those shares (£124k)� All values are calculated using the three month average share price to 31 December 2019 (717�09p)�
5 For 2016’s LTIP awards which are reflected in the 2018 long-term incentives column above, the performance conditions were met as to 49�5% of
maximum� The 2018 long-term incentives values in the above table reflect the value of the Company’s shares on the date of vesting which was 2 June 2019
(671�1p per share) multiplied by the number of shares vesting whereas the equivalent figure within the published 2018 Single Figure Table was an estimate
which reflected the average share price between 1 October 2018 and 31 December 2018 (600�04p per share) and certain assumptions regarding the
cumulative value of dividends on the number of shares vesting�
6 Clive Bannister and James McConville are entitled to each receive a Company pension contribution of 17�6% which is paid in cash� Pension contributions
paid as cash supplements are reduced for the effect of employers’ National Insurance contributions� Both Clive Bannister and James McConville received
the pension contributions as cash supplements� No Director participated in a defined benefit pension arrangement in the year and none have any
prospective entitlement to a defined benefit pension arrangement�
PAYMENTS FOR LOSS OF OFFICE AND PAYMENTS TO PAST DIRECTORS
There were no payments made to former Directors and no payments for loss of office in the year�
114
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Directors’ Remuneration Report continued AIP OUTCOMES FOR 2019
Against the specific Corporate measures, outturns were as follows:
Performance measure
Operating Companies' Cash generation
Solvency II Management Actions
Adjusted Shareholder Solvency II
Own Funds
Customer experience
Customer satisfaction (Phoenix Life)1
CAT B incident closures (Phoenix Life)2
Customer Service and Accessibility
(SLAL)3
Origo timescales (all)4
Servicing complaint closure5
FOS overturn rate6
Total
Threshold
performance
level for
2019 AIP
£600m
£120m
£5,180m
Target
performance
level for
2019 AIP
£650m
£170m
£5,280m
Maximum
performance
level for
2019 AIP
£700m
£250m
£5,380m
Performance
level
attained for
2019 AIP
£707m
£512m
£5,939m
% of incentive
potential based
on Performance
Measure
30�00%
15�00%
30�00%
90%
≥70%
≥70%
≤12 days
50%
≤20%
91%
≥72�5%
≥72�5%
≤11 days
55%
≤19%
93%
≥75%
≥75%
≤9�5 days
60%
≤18%
94�0%
83�0%
71�0%
9�7 days
56�0%
17�0%
3�75%
2�50%
6�25%
7�50%
2�50%
2�50%
100�00%
% achieved
30�00%
15�00%
30�00%
3�75%
2�50%
1�25%
7�00%
1�50%
2�50%
93�50%
1 The rating is a customer satisfaction score based on the results of a satisfaction survey managed by Ipsos MORI (an external research firm)� Customers
surveyed were asked to give a satisfaction rating of between 1 and 5 to a number of questions (with a rating of 4 or 5 regarded as satisfied)� 94% of all
questions asked scored a rating of 4 or above�
2 This measure looks at the resolution of incidents for which there could be customer detriment (financial or non-financial)� It measures the timeliness of
actions when things go wrong� The metrics in the table represent the percentage of cases closed within nine months�
3 This measure assesses how easy customers have found Phoenix Group to deal with using a scale of 0 – 10� The NetEasy score is the difference between
the number of promotors (those scoring 9 or 10) and the number of detractors (those scoring 0)�
4 The Origo Options service is a recognised industry-wide initiative for processing Pension Transfers to ensure payments are made in a timely fashion�
The service has set a benchmark standard of a 12 calendar day average elapsed time for processing transfers�
5 This measure looks at servicing (i�e� not product or advice) complaints which are closed within three days�
6 This measure looks at the proportion of cases where the Financial Ombudsman Service disagrees with our decision-making in dealings with customers or
an aspect of it� For the AIP the FOS overturn rate is calculated based on an average of the H1 current year and H2 prior year rates� This is due to the timing
of when the FOS rates are published�
All customer target ranges were set at the same level as the previous year with the exception of Servicing Complaints which was set
at a lower level than in 2018� This measure was introduced into the AIP in 2018 and focused on the swift but appropriate resolution
of complaints acknowledging the FCA requirement to close complaints within an 8 week period� In setting the 2019 target range,
the Committee considered the historic outturns for Servicing Complaints at the SLA businesses and determined that the lower range
was appropriate to incentivise improved performance across the combined business�
As described in the Group Chairman's and Group CEO's reports (pages 6 to 11), 2019 has been a year of significant achievement for the
Phoenix Group in which all strategic and financial targets were met, and cash, resilience and growth were delivered�
Prior to confirming the outcomes for the 2019 AIP, the Committee reviewed in detail the extent to which the Group had operated within
its stated risk appetite during the year and determined that no moderation of the 2019 formulaic outcome was necessary�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
115
CORPORATE GOVERNANCECORPORATE GOVERNANCE Personal objectives were agreed by the Group Board and shared with the Remuneration Committee at the start of the year� A number
of the personal objectives are considered commercially sensitive and, accordingly, are not disclosed below� However a number of
achievements for the Executive Directors are shown below:
Clive Bannister, Group Chief Executive Officer (‘Group CEO’)
Objectives
Achievements
Identify acquisition opportunities capable
of individually and collectively, materially
enhancing shareholder value, and
execute as appropriate
The acquisition of ReAssure Group plc, subject to regulatory approval, continues Phoenix
Group’s strategy of aligned acquisitions that are accretive in value and focused on our
competencies� The Group CEO was critical to this transaction and reflects sustained
strategic interest in this outcome�
Transition Standard Life Assurance
businesses safely into the Phoenix Group
Ensured the Group remained on track to deliver total cost and capital synergy target
of £1�2 billion�
Deliver financial targets
Ensured the Group remained on target to deliver 2019–2023 cash generation ≥ £3�9 billion�
Oversaw the resilience of the Group shareholder capital coverage ratio at 31 December
2019 to 161%, in the middle of our target range of 140–180%�
Ensured our current investment grade rating was maintained with a 'positive' outlook,
upgraded from 'stable' following the announcement of the proposed acquisition of
ReAssure Group plc�
Ensured all internal targets were met in relation to persistency within our Workplace
Pensions business for 2019�
Enhance BPA operation and deliver on
the strategic asset allocation strategy
Oversaw delivery of a consecutive year of BPA growth and appropriate management
of Illiquid Investments (£1�1 billion and £1�3 billion respectively)�
Improve retention in both Open and
Heritage businesses
Accelerate digital adoption across the
Group
Drove the customer engagement agenda including advancing its proposition for pot
consolidation with almost £1 billion new cash invested (up c�30% from 2018)�
Across the Heritage books the level of retention has been broadly in line with or favourable
to plan� There has been a sharpened focus on the workplace proposition with developments
agreed to retain and grow the business going forward, underpinned by the announcement of
an expanded strategic partnership with Tata Consultancy Services ('TCS')�
Oversaw continued development of on-line capabilities� Within Phoenix Life, the phoenixlife�
co�uk website continues to accept c�50,000 visits per month, and MyPhoenix has digitally
enabled over 80% of customers� Within Standard Life Assurance Limited ('SLAL'), logins to
the mobile app and dashboard increased to over 1 million per month, 21% ahead of target�
The expanded partnership with TCS announced in 2019 will enable further innovation and
digital capability to build on the Group’s customer service excellence�
Maintain strong effective relationships
with regulators
Championed another solid year of maintaining a wholly effective and transparent relationship
with our regulators�
Define and progressively deliver IT/
Operations TOM
Integration of the Standard Life Assurance businesses continues on plan and we have
shared appropriately with all stakeholders our intended engagement with strategic partners
and associated outsourcing of technology and operations�
Deliver actions to distinguish Phoenix
Group as a High Performing Organisation
including salary/bonus conformity by end
of 2019
Deliver on Diversity targets
Oversaw delivery of a common bonus scheme with higher exposure to corporate outcomes
and a unified approach to performance management, with greater differentiation�
Diversity targets are set for year end 2021 and while progress has been made in respect of
succession and talent development, acquisitions often challenge progress and our published
targets for both our gender pay gap and senior female representation have not progressed
satisfactorily for the year 2019� However a solid framework is in place for diversity in relation
to hiring and development of our colleagues�
116
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Directors’ Remuneration Report continued James McConville, Group Finance Director (‘Group FD’)
Objectives
Achievements
Complete at least one acquisition
enhancing shareholder value
The Group FD played a critical role in supporting the Group’s significant acquisition of
ReAssure Group plc leading the Finance support to the transaction, the associated funding
plan and presentation to the Fitch rating agency and equity and debt investors�
Deliver the financial results at or
ahead of plan
Ensured the Group remained on target to deliver 2019–2023 cash generation ≥ £3�9 billion�
All financial targets have been exceeded with reference to our Corporate targets and
delivered an operating profit of £810 million�
Lead the Transition Programme for the
Standard Life Assurance acquisition
The Group FD has led the Transition Programme post the acquisition of the Standard Life
Assurance businesses with increased financial targets issued during the year and 2019
delivery being in line or ahead of expectations�
Take forward the Group’s medium-term
funding strategy
Oversaw the renogotiation of the Group’s Revolving Credit facility at lower cost and
improved terms� During the year Fitch reaffirmed their rating for the business and amended
the rating to ‘positive outlook’ following the announcement of the proposed ReAssure
Group plcacquisition�
Promote the Group’s interests in Scotland The Group FD successfully led the engagement with the Scottish Government and political
parties and trade bodies in Scotland to widen knowledge of Phoenix Group and our plans for
our business operated in Scotland�
Deliver on Diversity targets
Diversity targets are set for year end 2021 and while progress has been made in respect of
succession and talent development, acquisitions often challenge progress and our published
targets for both our gender pay gap and senior female representation have not progressed
satisfactorily for the year 2019� However a solid framework is in place for diversity in relation
to hiring and development of our colleagues�
Manage investor relations and the
external communications function
The Group FD ran a comprehensive investor engagement programme across debt and
equity which comprised 20 investor roadshows, meetings with 406 debt and equity
investors, and a capital markets event attended by 133 external attendees including
investors and analysts� The number of analysts increased by a net 3 to 14�
Taking account of the attainment of personal objectives, the Group Chief Executive Officer received an 87�5% payout (£183,750) for this
element and the Group Finance Director received a 62�5%payout (£82,500) for this element, consistent with their ratings for 2019� These
Personal (individual objectives) measures applied to 20% of incentive opportunity and Corporate (financial and strategic) measures applied
to 80% of incentive opportunity� Overall outturns as a percentage of maximum opportunity are 92�3% for the Group Chief Executive
Officer and 87�3% for the Group Finance Director�
The table below shows the actual outturn against the annual incentive maximum�
Corporate
Personal
Total
Maximum
Total
As a %
of maximum
Corporate element
93�50
93�50
As a %
of salary
112�20
112�20
As a %
of maximum
Personal element
87�50
62�50
As a %
of salary
26�25
18�75
As a %
of salary
138�45
130�95
As a %
of salary
150�00
150�00
As a %
of maximum
opportunity
92�30
87�30
Clive Bannister
James McConville
As described in the Remuneration Policy, 40% of 2019 AIP outcomes will be delivered as an award of deferred shares under the DBSS
which will vest after a three-year deferral period� This deferral level rises to 50% from the 2020 performance year�
In addition, whilst the performance measures for the AIP for 2020 have been disclosed (see Implementation of Remuneration Policy for
2020 on page 123), the actual performance targets for these measures are regarded as commercially sensitive at the current time and
accordingly are not disclosed� However, as in previous years, the Company intends to disclose the performance targets for 2020’s AIP
retrospectively in next year’s Remuneration Report on a similar basis to the disclosures made above in respect of 2019’s AIP�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
117
CORPORATE GOVERNANCECORPORATE GOVERNANCE LTIP OUTCOMES FOR 2017 AWARDS
Performance measure
and weighting
Cumulative cash
generation (50%)
TSR (50%)
Target range
Target range between Cumulative cash generation
of £1�372 billion and Cumulative cash generation of
£1�572 billion�
Target range between median performance against the
constituents of the FTSE 250 (excluding Investment Trusts)
rising on a pro rata basis until full vesting for upper quintile
performance� In addition, the Committee must consider
whether the TSR performance is reflective of the underlying
financial performance of the Company�
Performance
achieved
£1�726bn
Vesting
outcome
100%
%
achieved
50�0%
55th
37%
18�5%
Total
68�5%
The above targets were all measured over the period of three financial years 1 January 2017 to 31 December 2019�
In addition to the above targets, the Committee confirmed that the underpin performance condition relating to debt levels and associated
interest costs, and management of debt, capital restructuring and Risk Management within the Group, customer satisfaction and, in
exceptional cases, personal performance (as described more fully on page 119, had been achieved in the performance period�
NON-EXECUTIVE FEES – AUDITED INFORMATION
The emoluments of the Non-Executive Directors for 2019 based on the current disclosure requirements were as follows:
Name
Non-Executive Chairman
Henry Staunton2
Nicholas Lyons3
Non-Executive Directors
Alastair Barbour
Ian Cormack4
Campbell Fleming5
Karen Green
Wendy Mayall
Barry O’Dwyer5,6
John Pollock
Belinda Richards
Nicholas Shott
Kory Sorenson
Mike Tumilty6
Total
Directors’
salaries/fees
2019
£000
Directors’
salaries/fees
2018
£000
Benefits1
2019
£000
Benefits1
2018
£000
–
325
145
–
–
117
105
–
134
105
105
125
–
1,161
271
55
143
39
–
105
107
–
127
105
105
125
–
1,182
–
7
15
–
–
5
1
–
3
5
5
–
–
41
–
2
12
–
–
3
2
–
–
1
2
–
–
22
Total
2019
£000
–
332
160
–
–
122
106
–
137
110
110
125
–
1,202
Total
2018
£000
271
57
155
39
–
108
109
–
127
106
107
125
–
1,204
1 The amounts within the benefits columns reflect the fact that the reimbursement of expenses to Non-Executive Directors for travel and accommodation
costs incurred in attending Phoenix Group Holdings and Phoenix Group Holdings plc Board and associated meetings represent a taxable benefit� This
position has been clarified with HMRC and the amounts shown are for reimbursed travel and accommodation expenses (and the related tax liability which is
settled by the Group)�
2 Henry Staunton retired from the Board of Phoenix Group Holdings on 31 October 2018�
3 Nicholas Lyons became Chairman designate of Phoenix Group Holdings from 1 September 2018 and was confirmed in this appointment on 31 October 2018�
4 Ian Cormack retired from the Board of Phoenix Group Holdings on 2 May 2018�
5 Campbell Fleming and Barry O’Dwyer joined the Board of Phoenix Group Holdings on 31 August 2018 and waived all current and future emoluments with
regard to their Directors’ fees�
6 On 1 September 2019 Mike Tumilty joined the Board of Phoenix Group Holdings plc, replacing Barry O’Dwyer following his resignation from the Board on
28 June 2019� Mike Tumilty has waived all current and future emoluments with regard to his Directors fees�
The aggregate remuneration of all Executive and Non-Executive Directors under salary, fees, benefits, cash supplements in lieu of
pensions and annual incentive was £4�120 million (2018: £4�055million)�
118
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Directors’ Remuneration Report continued
SHARE-BASED AWARDS – AUDITED INFORMATION
As at 31 December 2019, Directors’ interests under long-term share-based arrangements were as follows:
LTIP
Name
Clive Bannister
LTIP
LTIP
LTIP
LTIP
LTIP
28 Sept 2015
2 Jun 2016
24 Mar 2017
21 Mar 2018
11 Mar 2019
James McConville
LTIP
LTIP
LTIP
LTIP
LTIP
28 Sept 2015
2 Jun 2016
24 Mar 2017
21 Mar 2018
11 Mar 2019
Date of
grant
Share price
on grant
No. of shares
as at 1 Jan
2019
No. of
shares
granted
in 2019
No. of
dividend
shares
accumulating
at vesting1
No. of
shares
exercised2
No. of
shares
not
vested3
No. of
shares
as at
31 Dec
2019
632�8p
670�9p
708�7p
703�6p
700�4p
632�8p
670�9p
708�7p
703�6p
700�4p
169,669
208,654
197,526
198,956
–
774,805
106,646
131,152
124,159
125,058
–
487,015
–
–
–
–
199,865
199,865
–
–
–
–
125,629
125,629
–
41,326
–
–
–
41,326
–
25,974
–
–
–
25,974
–
–
–
–
–
–
–
–
–
–
–
–
–
(126,240)
–
–
–
(126,240)
–
(79,349)
–
–
(79,349)
169,669
123,740
197,526
198,956
199,865
889,756
106,646
77,777
124,159
125,058
125,629
559,269
Vesting
date4
28 Sept 2018
2 Jun 2019
24 Mar 2020
21 Mar 2021
11 Mar 2022
28 Sept 2018
2 Jun 2019
24 Mar 2020
21 Mar 2021
11 Mar 2022
1 In addition to the shares awarded under the LTIP presented above, participants receive an additional number of shares (based on the number of LTIP
awards which actually vest) to reflect the dividends paid during the vesting period (and which for awards made from 2015, will include dividends paid during
any applicable holding period)�
2 Gains of Directors from share options exercised and vesting shares under the LTIP in 2019 were £nil (2018: £nil)�
3 The 2016 LTIP award vested at 49�5% of maximum� The 2017 LTIP award vested at 68�5% of maximum�
4 All LTIP awards are now subject to a holding period so that any LTIP awards for which the performance vesting requirements are satisfied will not be
released for a further two years from the third anniversary of the original award date�
LTIP TARGETS
The performance conditions for the 2017, 2018 and 2019 awards are set out below and include the adjustments made to the 2018 targets
as described on page 94 in the 2018 DRR� For clarity no changes were made to the 2017 targets as the plan only consisted of two
performance measures, Cumulative cash generation and TSR� No cash generation was expected to be released in 2018 or 2019 from
Standard Life Assurance Limited following completion in August 2018�
2017 award
(50% Cumulative cash
generation and 50% TSR)
Not applicable�
2018 award
(40% Cumulative cash
generation, 35% Return on
Adjusted Shareholder Solvency II
Own Funds and 25% TSR)
Between 4% CAGR and
6% CAGR�
2019 award
(40% Cumulative cash
generation, 35% Return on
Adjusted Shareholder Solvency II
Own Funds and 25% TSR)
Between 4�5% CAGR and
6�5% CAGR�
Target range of £1�372bn
to £1�572bn�
Target range of £1�824bn
to £2�024bn�
Performance measure
Return on Adjusted Shareholder
Solvency II Own Funds
25% of this part vests at threshold
performance rising on a pro rata basis
until 100% vests�
Measured over three financial years
commencing with the year of award�
Cumulative cash generation
25% of this part vests at threshold
performance rising on a pro rata basis
until 100% vests�
Measured over three financial years
commencing with the year of award�
TSR
25% of this part vests at threshold
performance rising on a pro rata basis until
100% vests� In addition, the Committee
must consider whether the TSR
performance is reflective of the underlying
financial performance of the Company,
measured over three financial years
commencing with the year of award�
Underpin: Notwithstanding the Return on Adjusted Shareholder Solvency II Own Funds, Cumulative cash generation and TSR performance
targets, if the Committee determines that the Group’s debt levels and associated interest costs have not remained within parameters
acceptable to the Committee over the performance period, and that the Group has not made progress considered to be reasonable by it in
executing any strategy agreed by the Board on debt management, capital structuring and Risk Management, the level of awards vesting will
either be reduced or lapse in full� The underpin also includes consideration of customer satisfaction and, to meet Solvency II requirements,
in exceptional cases, personal performance�
Target range between median
performance against the
constituents of the FTSE 250
(excluding Investment Trusts)
rising on a pro rata basis until
full vesting for upper quintile
performance�
Target range of £2�097bn
to £2�397bn�
Target range as for 2017�
Target range as for 2017�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
119
CORPORATE GOVERNANCECORPORATE GOVERNANCE DBSS
Date of
grant
Share price
on grant
No. of
shares
granted
as at
1 Jan 2019
No. of
shares
granted in
2019
No. of
dividend
shares
accumulating
at vesting1
No. of
shares
exercised2
No. of
shares
lapsed/
waived
No. of
shares
as at
31 Dec 2019
Clive Bannister
DBSS
DBSS
DBSS
DBSS
2 Jun 2016
24 Mar 2017
21 Mar 2018
11 Mar 2019
James McConville
DBSS
DBSS
DBSS
DBSS
2 Jun 2016
24 Mar 2017
21 Mar 2018
11 Mar 2019
670�9p
708�7p
703�6p
700�4p
670�9p
708�7p
703�6p
700�4p
42,773
41,548
51,277
–
135,598
28,115
26,116
32,232
–
86,463
–
–
–
51,265
51,265
–
–
–
33,166
33,166
9,737
–
–
–
9,737
6,399
–
–
–
6,399
(52,510)
–
–
–
(52,510)
(34,514)
–
–
–
(34,514)
–
–
–
–
–
–
–
–
–
–
41,548
51,277
51,265
144,090
–
26,116
32,232
33,166
91,514
Vesting
date
24 Mar 2019
20 Mar 2020
15 Mar 2021
11 Mar 2022
24 Mar 2019
20 Mar 2020
15 Mar 2021
15 Mar 2021
1 In addition to the shares awarded under the DBSS presented above, participants receive an additional number of shares (based on the number of DBSS
awards which actually vest) to reflect the dividends paid during the vesting period�
2 Gains of Directors from share options exercised and vesting shares under the DBSS in 2019 were £590,721 (2018: £525,707)� Clive Bannister’s gain was
£350,504 arising from an award exercised on 4 June 2019 at a share price of £6�675 James McConville’s gain was £240,217 arising from an award
exercised on 26 June 2019 at a share price of £6�96�
The DBSS is the share scheme used for the deferral of AIP� No performance conditions apply therefore, other than being subject to
continued employment�
SCHEME INTERESTS AWARDED IN THE YEAR – AUDITED INFORMATION
Recipient
Clive Bannister
Clive Bannister
James McConville
James McConville
Type of award
LTIP
Date of award
11 March 2019
11 March 2019 DBSS1
11 March 2019
11 March 2019 DBSS1
LTIP
Face value
of award
Basis on
which award
made
Nil cost option £1,399,854
Nil cost option £359,060
Nil cost option £879,905
Nil cost option £232,294
Percentage
vesting at
threshold
performance1
25%
–
25%
–
Performance
measures
Vesting date
11 March 2022 See page 119
11 March 2022 None
11 March 2022 See page 119
11 March 2022 None
1 The DBSS awards have no threshold performance level�
The face value represents the maximum vesting of awards granted (but before any credit for dividends over the period to vesting) and
is calculated using a share price of the average of the closing middle market prices of Phoenix shares for the three dealing days preceding
the award date�
SHARESAVE – AUDITED INFORMATION
Clive Bannister
James McConville
As at
1 Jan 2019
–
3,171
Shares
exercised
–
–
Shares
lapsed
–
–
As at
31 Dec
2019
–
3,171
Exercise
price
–
£5�674
Exercisable
from
–
1 Jun 2020
Date of
expiry
–
1 Dec 2020
Gains of Directors from share options exercised under Sharesave during 2019 were nil (2018: nil)� Sharesave options are granted with an
option price that is a 20% discount to the three-day average share price when invitations are made� This is permitted by HMRC regulations
for such options�
Aggregate gains of Directors from share options exercised and vesting shares under all share plans in 2019 were £590,721� (2018:
£525,707)�
During the year ended 31 December 2019, the highest mid-market price of the Company’s shares was 758�7p and the lowest mid-market
price was 558p� At 31 December 2019, the Company’s share price was 749p�
120
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Directors’ Remuneration Report continued DIRECTORS’ INTERESTS – AUDITED INFORMATION
The number of shares and share plan interests held by each Director and their connected persons are shown below:
Clive Bannister
James McConville
Alastair Barbour
Campbell Fleming
Karen Green
Nicholas Lyons
Wendy Mayall
Barry O’Dwyer
John Pollock
Belinda Richards
Nicholas Shott
Kory Sorenson
Michael Tumilty
As at
1 January 2019
or date of
appointment
if later
827,128
253,227
9,716
–
–
20,000
30,000
–
14,666
–
7,333
15,704
–
As at
31 December
2019 or
retirement
if earlier
854,810
253,227
9,716
–
–
20,000
30,000
–
14,666
–
7,333
20,704
–
Total share plan
interests as at
31 December
2019 – Subject
to performance
measures
596,347
374,846
–
–
–
–
–
–
–
–
–
–
–
Total share plan
interests as at
31 December 2019
– Not subject
to performance
measures
144,090
91,514
–
–
–
–
–
–
–
–
–
–
–
Total share plan
interests as at
31 December
2019 – Vested
but unexercised
scheme interest
293,409
184,423
–
–
–
–
–
–
–
–
–
–
–
There have been no changes in the Directors’ share interests between 31 December 2019 and 3 March 2020 (being one month prior
to the date of the notice of the AGM)�
SHAREHOLDING REQUIREMENTS – AUDITED INFORMATION
As explained in the Remuneration Policy under the Shareholding Guidelines section, the Executive Directors are subject to
shareholding requirements�
The extent to which Executive Directors have achieved the requirements by 31 December 2019 (using the share price of 749p as
at 31 December 2019) can be summarised as follows:
Position
Clive Bannister
James McConville
Shareholding
Guideline
(minimum
% of salary)
200%
200%
Value of
shares held at
31 December
2019
(% of salary)
1,081%
597%
The Executive Directors are required to sign a declaration that they have not and will not at any time during their employment with Phoenix,
enter into any hedging contract in respect of their participation in the AIP, LTIP, Sharesave, SIP or any other incentive plan of the Company,
or pledge awards in such plans as collateral, and additionally that they will neither enter into a hedging contract in respect of, nor pledge
as collateral, any shares which are required to be held for the purposes of the Company’s Shareholding requirements or any vested LTIP
award shares subject to a LTIP holding period�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
121
CORPORATE GOVERNANCECORPORATE GOVERNANCE IMPLEMENTATION OF REMUNERATION POLICY IN 2020 – NON-AUDITABLE
Board Changes
A summary of the packages of the new Executive Directors is set out in the table below�
In order to secure the best candidate, the Committee agreed to offer a remuneration package reflective of the highly competitive market
for talent in our specialist area of financial services� Given there has been no change to any element of the remuneration package for the
outgoing CEO (Clive Bannister) since his arrival in 2011, the package offered to Andy Briggs is higher reflecting the size and complexity of
Phoenix Group over the last few years and is commensurate with the deep experience and expertise that Andy will bring to the Group in
both the Open and Heritage business� Andy has over 30 years of insurance industry leadership experience including as the CEO of a public
limited company and former Chairman of the ABI as well as being the Government Business Champion for Older Workers� The Committee
is confident that the new package is appropriately positioned relative to our peers and reflective of Andy’s experience and expertise� The
Committee believes it represents excellent value for shareholders and is therefore delighted that Andy accepted the offer� The table below
details the remuneration package for the new CEO�
Element of remuneration
Salary
Benefits
Pension
Annual bonus
LTIP
Buyout awards
Shareholding requirement
Post cessation shareholding
requirement
Andy Briggs
£800,000
Benefits in line with our new Unified People Proposition (see page 126 for further details) including
car allowance of £10,000 (previous policy £15,000) and Private Medical Insurance cover for self
only� Executive Directors are also entitled to receive benefits in accordance with our Directors’
Remuneration Policy which will be reported in the Single Figure Table each year�
Contribution rate of 12% of base salary (10�5% when taken as a cash payment), aligned to our
workforce under our Unified People Proposition (see page 126 for further details)
150% of base salary at maximum� Details of the 2020 AIP are set out below�
275% of base salary� Details of the 2020 LTIP awards are set out below�
The Company will buy out the in-flight awards granted by his former employer in March 2017 and
May 2018, pro-rated to the end of his former employment� The buy-out award will vest subject to the
achievement of the former employer’s original published performance targets� The vesting date will
be as soon as possible following verification of the level of vesting achieved� Details will be disclosed
in the relevant Remuneration Report�
300% of base salary�
Where any performance vested LTIP awards are subject to a holding period requirement, the relevant
LTIP award shares (discounted for anticipated tax liabilities) will count towards the shareholding
requirements� Unvested awards under the DBSS which are not subject to performance conditions
are included in this assessment on a net of tax basis� Unvested awards under the LTIP are not
included in this assessment�
Executive Directors are expected to retain the lower of their shareholding on termination or their full
in-employment shareholding requirement for two years�
As per the announcement on 9 March 2020, the Committee also warmly welcomes Rakesh Thakrar to the Board as Group Chief Financial
Officer ('CFO') subject to regulatory approval� The Committee is delighted with this appointment as an attestation to the succession plans
within Phoenix Group, enabling this promotion from within the organisation� The table below details the remuneration package for the
new CFO�
Element of remuneration
Salary
Benefits
Pension
Annual bonus
LTIP
Shareholding requirement
Post cessation shareholding
requirement
Rakesh Thakrar
£420,000
Benefits in line with our new Unified People Proposition (see page 126 for further details) including
car allowance of £10,000 (previous policy £15,000) and Private Medical Insurance cover for self
only� Executive Directors are also entitled to receive benefits in accordance with our Directors’
Remuneration Policy which will be reported in the Single Figure Table each year�
Contribution rate of 12% of base salary (10�5% when taken as a cash payment), aligned to our
workforce under our Unified People Proposition (see page 126 for further details)
150% of base salary at maximum� Details of the 2020 AIP are set out below�
200% of base salary� Details of the 2020 LTIP awards are set out below�
250% of base salary�
Where any performance vested LTIP awards are subject to a holding period requirement, the relevant
LTIP award shares (discounted for anticipated tax liabilities) will count towards the shareholding
requirements� Unvested awards under the DBSS which are not subject to performance conditions are
included in this assessment on a net of tax basis� Unvested awards under the LTIP are not included
in this assessment�
Executive Directors are expected to retain the lower of their shareholding on termination or their full
in-employment shareholding requirement for two years�
122
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Directors’ Remuneration Report continued Element of Remuneration Policy
Annual Incentive Plan (‘AIP’)
Detail of Implementation of Policy for 2020
Following the acquisition of the Standard Life Assurance businesses in 2018, metrics have been
revised to reflect the performance of the Open business� The largest component of our Open
business proposition is Workplace Pensions and an annual target for Net Workplace Flows is a
transparent and robust measure of performance in the Open business� Drivers include new business
sales performance, attractiveness of propositions, maintaining and servicing client relationships and
market forces�
The Management Actions metric will be removed in recognition of the challenges faced in setting
appropriately stretching targets and following feedback from shareholders on this metric� This also
allows space for the inclusion of Net Flows metric, which aligns with the strategic focus on the
Open business�
The Cash Generation and Shareholder Value metrics remain as they represent both the Open and
the Heritage business�
Additionally, a Strategic Scorecard will replace the Personal element of the AIP to provide greater
transparency and will include a number of the strategic priorities for the year (but avoiding duplication
with any outcomes under the Corporate element) and which can be clearly articulated and measured�
This will include appropriate ESG metrics�
The overall weightings between Corporate measures and the new Strategic Scorecard for AIP
in 2020 are:
• Corporate (financial and customer) performance measures – 80% (2019: 80%)�
• Strategic Scorecard (strategic company priorities 20% (2019: Personal – individual objectives 20%)�
The weightings of the AIP performance measures for 2020 are summarised below:
% of incentive potential
(30% of Corporate component) 24%
(30% of Corporate component) 24%
(15% of Corporate component) 12%
(25% of Corporate component) 20%
20%
100%
Performance measure
Corporate measure
Cash Generation1
Shareholder Value1
Net Flows (Workplace)
Customer Experience
Strategic Scorecard
Total
Outcomes from performance measures for 2020’s AIP may be moderated by the Remuneration
Committee in line with the approved Remuneration Policy� This will include a review by the
Remuneration Committee on the extent to which the Group has operated within its stated risk
appetite and that there are no other risk-related concerns that would necessitate moderation before
any 2020 AIP outcomes are confirmed�
The targets for the specific performance measures for AIP in 2020 are regarded as commercially
sensitive by the Group but will be disclosed retrospectively in the Remuneration Report for 2020�
Bonus deferral under the AIP for 2020 will increase from 40% to 50% for both Executive Directors�
50% of AIP outcomes for 2020 will therefore be delivered as an award of deferred shares under the
DBSS which will vest after a three-year deferral period�
DBSS awards made in 2020 (in respect of 2019’s AIP outcome) will be made automatically on the
fourth dealing day following the announcement of the Group’s 2019 annual results in accordance
with the Remuneration Policy�
The number of shares for DBSS awards will be calculated using the average share price for the three
dealing days before the grant of the DBSS awards�
The three-year deferral period will run to the three-year anniversary of the making of the DBSS
awards� Dividend entitlements for the shares subject to DBSS awards will accrue over the three-year
deferral period�
Deferred Bonus Share Scheme
(‘DBSS’)
1 These metrics have been renamed simply to provide clarity� The calculations for these remain unchanged from last year�
The Cash Generation and Shareholder Value metrics remain as they represent both the Open and the Heritage business�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
123
CORPORATE GOVERNANCECORPORATE GOVERNANCE Long-Term Incentive Plan
(‘LTIP’)
All-Employee Share Plans
Chairman and Non-Executive
Directors’ fees
Awards under the LTIP will be made automatically on the fourth dealing day following the
announcement of the Group's 2019 annual results under a procedure similar to that described above
for awards under the DBSS�
The number of shares for LTIP awards will be calculated using the average share price for the three
dealing days before the grant of the LTIP awards�
The initial three-year vesting period will run to the three-year anniversary of the making of the LTIP
awards� At this time, the performance conditions will be determined�
All annual LTIP awards made to Executive Directors are subject to a holding period so that any LTIP
awards for which the performance conditions are satisfied will not be released for a further two years
from the third anniversary of the original award date� Dividend accrual for LTIP awards will continue
until the end of the holding period�
The weightings of the LTIP performance measures for 2020 have been revised to reflect the Open
Business following the acquisition of the Standard Life Assurance businesses in 2018�
A Persistency metric will be added as a fourth element of long-term value assessment� Persistency
is a key metric for the Group’s long-term strategy, as it measures long-term customer retention� This
is consistent with the New Workplace Flows metric in the AIP, which is focused on the shorter term�
Performance measure
Net Operating Cash Receipts
Return on Shareholder Value
Persistency
Total Shareholder Return
Total
Weighting of performance measure
35%
25%
20%
20%
100%
The performance measures are measured over a period of three financial years, commencing with
financial year 2020�
All 2020 LTIP awards are subject to a further underpin measure relating to debt and risk management
within the Group, consideration of customer satisfaction and, to meet Solvency II requirements, in
exceptional cases, personal performance� These measures and the relative weightings are considered
to be appropriate for 2020’s LTIP awards�
The performance targets for the Net Operating Cash Receipts measure are £2,375 million (where
25% of this part of the award vests) and £2,725 million (full vesting of this part of the award)�
The performance targets for the Return on Shareholder Value measure (return above risk free on
Shareholder value (pre shareholder dividends) over a 3 year period) are 2% in excess of the risk-free
rate (where 25% of this part of the award vests) and 4% in excess of the risk-free rate (full vesting of
this part of the award)�
The performance targets for the Persistency measure are 6�5% (where 25% of this part of the award
vests) and 8�0% (full vesting of this part of the award)�
In recognition of our move to the FTSE 100 index, for 2020 awards the relative TSR measure is
calculated against the constituents of the FTSE 350 (excluding Investment Trusts), with vesting
commencing at median (where 25% of this part of the award vests) and full vesting at upper quintile
levels, subject to an underpin regarding underlying financial performance�
The rules of the Company’s LTIP reserves discretion for the Committee to adjust the outturn for
any LTIP performance measures (from zero to any cap) should it consider that to be appropriate�
The Committee may operate this discretion having regard to such factors as it considers relevant,
including the performance of the Group, any individual or business�
Executive Directors have the opportunity to participate in HMRC tax advantaged Sharesave and Share
Incentive Plans on the same basis as all other UK employees�
The fee levels as at 1 January 2020 are the same as for 2019: £325,000 for the Chairman, £105,000
for the role of Non-Executive Director with additional fees of: (i) £10,000 payable for the role of
SID; and/or (ii) £20,000 payable where an individual also chairs the Audit, Remuneration or Risk
Committee; and/or (iii) £20,000 payable where a Non-Executive Director also serves on the
board of a subsidiary company or is the dedicated Workforce Director of Engagement; and/or (iv)
£10,000 payable for service on the Solvency II Model Governance Committee� In line with the
directors' remuneration policy, fee levels will be reviewed during the year to ensure that they remain
competitive with other listed companies of equivalent size and complexity�
Note: All incentive plans are subject to malus/clawback� See page 111 ‘Notes to the Remuneration Policy’ for details�
124
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Directors’ Remuneration Report continued
EXECUTIVE DIRECTOR DEPARTURES
In November we announced that Clive Bannister would step down as CEO following the publication of our 2019 full year results and after
nine very successful years with the business� His departure arrangements will be in line with the Remuneration Policy�
Clive Bannister will leave the Company on 9 March 2020� He will receive pay in lieu of notice for the period starting on this date and ending
on 7 November 2020, comprising salary, pension allowance and insurance benefits� He will receive no compensation for loss of car
allowance� Clive’s 2019 AIP will be paid in the normal way and subject to 40% deferral in line with the current policy� Clive will be eligible
for a 2020 AIP award for the portion of the year in which he remains employed by the Group, which will be payable in March 2021 and
subject to 50% deferral in line with the proposed policy� Clive’s in-flight LTIP awards will be time pro-rated to his end date� A summary
of the arrangements is set out in the table below� Actual figures will be disclosed in the 2020 Remuneration Report
Element of Pay
Salary and benefits to
9 March 2020
Termination payment
2019 AIP
2020 AIP
DBSS
LTIP
Share ownership guidelines
Decision
• Paid in the normal way
• Balance of 12 months from date of departure to one-year anniversary of announcement
of departure (7 November 2020)�
• Payment comprises salary plus certain benefits plus pension�
• Paid monthly and subject to reduction in relation to payments for the periods from 8 November
2019 onwards if a new role found�
• Paid in the normal way including 40% deferral in line with the current policy�
• Eligible for payment to termination date�
• Paid in March 2021 with 50% deferral in line with new policy�
• Deferred awards, including the deferred elements of the above 2019 and 2020 AIP awards, will
be maintained until the third anniversary of grant�
• Good leaver status�
• In-flight awards pro-rated for period employed of the three-year period commencing on the date
of grant�
• Awards only exercisable on fifth anniversary of grant�
• No grant in 2020 for the 2020–22 performance years' LTIP�
• Requirement to hold shares worth 2x base salary continues to apply until one-year anniversary of
departure and 1x base salary until two-year anniversary� See page 121 for current shareholding�
• DBSS shares subject to deferral or LTIP shares subject to holding period count towards the
requirement on a net of tax basis�
James McConville will leave the Company on 15 May 2020� His departure arrangements will be in line with the Remuneration Policy�
He will receive pay in lieu of notice for the period starting on this date and ending on 9 March 2021, comprising salary, pension allowance
and insurance benefits� He will receive no compensation for loss of car allowance� James' 2019 AIP will be paid in the normal way and
subject to 40% deferral in line with the current policy� He will be eligible for a 2020 AIP award for the portion of the year in which he
remains employed by the Group, which will be payable in March 2021 and subject to 50% deferral in line with the proposed policy� James'
in-flight LTIP awards will be time pro-rated to his end date� A summary of the arrangements is set out in the table below� Actual figures
will be disclosed in the 2020 Remuneration Report�
Element of Pay
Salary and benefits to
15 May 2020
Termination payment
2019 AIP
2020 AIP
DBSS
LTIP
Share ownership guidelines
Decision
• Paid in the normal way�
• Balance of 12 months from date of departure to one-year anniversary of announcement of
departure (9 March 2021)�
• Payment comprises salary plus certain benefits plus pension�
• Paid monthly and subject to reduction in relation to payments for the periods from 10 March 2019
onwards if a new role found�
• Paid in the normal way including 40% deferral in line with the current policy�
• Eligible for payment to termination date�
• Paid in March 2021 with 50% deferral in line with new policy�
• Deferred awards, including the deferred elements of the above 2019 and 2020 AIP awards,
will be maintained until the third anniversary of grant�
• Good leaver status�
• In-flight awards pro-rated for period employed of the three-year period commencing on the
date of grant�
• Awards only exercisable on fifth anniversary of grant�
• No grant in 2020 for the 2020–22 performance years' LTIP�
• Requirement to hold shares worth 2x base salary continues to apply until one-year anniversary of
departure and 1x base salary until two-year anniversary� See page 121 for current shareholding�
• DBSS shares subject to deferral or LTIP shares subject to holding period count towards the
requirement on a net of tax basis�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
125
CORPORATE GOVERNANCECORPORATE GOVERNANCE DISTRIBUTION STATEMENT
The DRR regulations require each quoted company to provide a
comparison between profits distributed by way of dividend and
overall expenditure on pay�
Relative Importance (£m)
Profits ditributed by way of
dividend (% change +2%)
332
338
Overall expenditure on
pay (% change +78%)
334
188
Profit distributed by way of dividend has been taken as the dividend
paid and proposed in respect of the relevant financial year� For 2019
this is the interim dividend paid (£169 million) and the recommended
final dividend of 23�4p per share multiplied by the total share capital
issued at the date of the Annual Report and Accounts as set out
in note D1 in the notes to the consolidated financial statements�
No share buy-backs were made in either year�
Overall expenditure on pay has been taken as the employee costs
as set out in note C2 ‘Administrative expenses’ in the notes to
the consolidated financial statements� Expenditure on pay has
increased by 78% in the period which is mostly as a result of the
inclusion of a full year's expenditure in relation to the Standard Life
Assurance businesses which were acquired in the prior year (2018:
4 months' expenditure)� An increase in BAU expenditure accounts
for c�5% of the increase and is largely as a result of the increased
bonus and share-based payment costs during the year�
2018
2019
2018
2019
VOTING OUTCOMES ON REMUNERATION MATTERS
The table below shows the votes cast to approve the Directors’ Remuneration Report for the year ended 31 December 2018 and the
Directors’ Remuneration Policy at the 2019 AGM held on 2 May 2019�
To approve the Directors’ Remuneration Report
for the year ended 31 December 2018 (2019 AGM)
To approve the Directors’ Remuneration Policy
(2019 AGM)
544,206,471
99�78
1,187,255
543,758,443
99�70
1,637,633
0�22
0�30
Number
% of
votes cast
Number
% of
votes cast
Number
36,734
34,384
For
Against
Abstentions
DILUTION
The Company monitors the number of shares issued under the Phoenix Group employee share plans and their impact on dilution limits�
The Company’s practice is for all the executive share plans to use market purchase shares on exercise of any awards� For the Company’s
all-employee Sharesave scheme only, new shares are issued� Therefore the usage of shares compared to the 10% dilution limits (in any
rolling 10-year period) set by the Investment Association in respect of all share plans as at 31 December 2019 is 0�63%, and no shares
count towards the dilution limit for executive plans only (5% in any rolling ten-year period)�
CONSIDERATION OF EMPLOYEE PAY
During 2019, proposals were shared with the Committee on a new Unified People Proposition for transitioning heritage Phoenix Group and
heritage SLAL colleagues onto a common grading structure and benefit offering, balancing competitiveness and cost while mindful of the
impact to colleagues� The remuneration packages for the new Executive Directors are aligned to this new Unified People Proposition�
As explained in the Notes to the Remuneration Policy table:
• when determining Executive Directors’ remuneration, the Committee takes into account pay throughout the Group to ensure that
the arrangements in place remain appropriate;
• the Group has one consistent reward policy for all levels of employees, and therefore the same reward principles guide reward decisions
for all Group employees, including Executive Directors� Remuneration packages do however differ to take into account appropriate
factors in different areas of the business� The Group offers all employees a choice of share schemes (Sharesave and Share Incentive
Plan) on the same basis as those offered to Executive Directors�
Additionally in 2019 Karen Green was appointed the designated Non-Executive Director for workforce engagement� Details of Karen’s
activities during the year are given on page 84 under the Corporate Governance Report�
126
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Directors’ Remuneration Report continued GENDER PAY GAP
The two reporting entities for Gender Pay Gap reporting are Pearl Group Management Services Limited and Standard Life Assets and
Employee Services Limited; details of the 2019 Gender Pay Gap are shown on page 37 of the Annual Report and Accounts�
CEO PAY RATIO
This reporting year new legislation has come into force which requires quoted companies with 250 or more UK employees to publish
information on the ratio of CEO pay to UK employee pay� In accordance with these requirements we have provided in the table below
the ratio of the CEO single total figure of remuneration for 2019 (as detailed on page 114 as a ratio of the equivalent single figure for
the lower quartile, median and upper quartile employee (calculated on a full-time equivalent basis)�
The Group reviewed the pay of the three identified employees at LQ, M and UQ and concluded that they were a fair representation of pay
at the relevant quartiles of the UK employee base� Each individual was a full time employee during 2019 and received remuneration in line
with Group wide remuneration policies� None received exceptional pay�
The table below sets out the salary and total single figure remuneration for the CEO and percentile employees included in the above ratios�
Salary
Total remuneration (single figure)
Ratio
Year
2019
2019
Methodology
Option A
Option A
CEO
700,000
2,975,837
25th
percentile
24,760
31,605
94:1
50th percentile
(median)
37,655
47,899
62:1
75th
percentile
57,106
74,469
40:1
Phoenix Group has calculated the CEO pay ratio using Option A which is the most statistically robust of the methodologies permitted by
the regulation� Under this option, the full-time equivalent pay and benefits of all Group employees as at 31 December 2019 has been
calculated using the same methodology as for the CEO and includes:
• The full-time equivalent annualised salary data�
• The full-time equivalent value of taxable benefits and pension contributions�
• Amounts due from incentive plans�
Phoenix Group’s principles for pay setting and progression in our wider workforce are the same as for our executives – total reward being
sufficiently competitive to attract and retain high calibre individuals without over-paying and providing the opportunity for individual
development and career progression� The pay ratios reflect how remuneration arrangements differ as accountability increases for more
senior roles within the organisation and in particular the ratios reflect the weighting towards long-term value creation and alignment with
shareholder interests for the Group CEO� We are satisfied that the median pay ratio reported this year is consistent with our wider pay,
reward and progression policies for employees� All employees have the opportunity for annual pay increases, annual performance
payments and career progression and development opportunities�
PERFORMANCE GRAPH AND TABLE
We have previously shown the value to 31 December 2019 on a TSR basis, of £100 invested in Phoenix Group Holdings plc on 5 July 2010
(the date of the Group's Premium Listing) compared with the value of £100 invested in the FTSE 250 Index (excluding Investment Trusts)�
To reflect Phoenix’s entry to the FTSE 100 index in 2019 the graph below shows the value to 31 December 2019 on a TSR basis,
of £100 invested in Phoenix Group Holdings plc on 5 July 2010 compared with the value of £100 invested in the FTSE 100 Index
(excluding Investment Trusts)�
The FTSE 100 Index (excluding Investment Trusts) is considered to be an appropriate comparator for this purpose as it is a broad equity
index of which the Company is a constituent�
TOTAL SHAREHOLDER RETURN
Value of a 100 unit investment made on 5 July 2010
300
250
200
150
100
50
Jul
2010
Dec
2010
Dec
2011
Dec
2012
Dec
2013
Dec
2014
Dec
2015
Dec
2016
Dec
2017
Dec
2018
Dec
2019
Phoenix Group Holdings
FTSE 100 Index
Source: Thomson Reuters Datastream
The DRR regulations also require that a performance graph is supported by a table summarising aspects of the Group CEO's remuneration
for the period covered by the above graph (which will in due course be for a period of ten years)�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
127
CORPORATE GOVERNANCECORPORATE GOVERNANCE GROUP CHIEF EXECUTIVE OFFICER REMUNERATION
2019
2018
2017
2016
2015
2014
2013
2012
2011
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister4
Jonathan Moss4,5
Single figure
of total
\remuneration
(£000)
2,976
2,5671
2,888
2,878
2,867
3,104
2,737
1,583
1,333
704
Annual variable
element award
rates against
maximum
opportunity
(‘AIP’)
92%
86%
86%
84%
82%
68%
69%
69%
73%
n/a
Long-term
incentive vesting
rates against
maximum
opportunity
(‘LTIP’)
68�5%
49�5%
64%
55%
57%
57%2
67%2
n/a3
n/a3
n/a
1 The single figure of total remuneration for 2018 has been restated and now reflects the actual price of shares on the day the 2016 LTIP vested (2 June 2019,
671�1p per share) rather than the three-month average share price to 31 December 2018 (600�04p per share) which was required to be used last year for the
single figure of total remuneration�
2 The long-term incentive vesting rate for 2013 is shown at 67% and for 2014 is shown as 57%� In both years the Group Chief Executive Officer decided
to waive voluntarily any entitlement in excess of two-thirds of the shares which would otherwise have vested�
3 Long-term incentive vesting rates against maximum opportunity values are not applicable for 2011 and 2012 due to no awards vesting in those financial years�
4 Jonathan Moss left the role of Group Chief Executive Officer on 7 February 2011 and left Phoenix Group on 29 March 2011� Clive Bannister joined Phoenix
Group on 7 February 2011 and was appointed to the Board as a Director on 28 March 2011�
5 Jonathan Moss’ 2011 single figure of total remuneration does not include compensation for loss of office�
PERCENTAGE CHANGE IN PAY OF THE GROUP CHIEF EXECUTIVE OFFICER 2018 TO 2019
In accordance with the DRR regulations, the table below provides a comparison of the percentage change in the prescribed pay elements
of the Group Chief Executive Officer (salary, taxable benefits and annual incentive outcomes) between financial years 2018 and 2019 and
the equivalent percentage changes in the average of all staff (representing all permanent staff during 2018 and 2019 on a matched basis)�
This group was selected as being representative of the wider workforce using the same process as was used for this comparison in last
year’s annual report and accounts although these figures now include both heritage Phoenix and heritage SLAL entities�
Year-on-year % change
Group Chief Executive Officer
Staff
Salary
0�00%
3�51%
Taxable
Benefits
0�82%
3�60%
Annual
incentive
7�95
1�70%
Total
4�43%
3�21%
There has been minimal movement overall in the level of salary and benefits for the Group Chief Executive Officer; the small increase in
taxable benefits is due to a rise in the cost of funding for Private Medical Insurance� There has been an increase in the annual Incentive
figure as a result of the higher outcome under the Corporate element of the 2019 AIP resulting in a small increase in overall remuneration�
Staff more generally have seen a slight overall increase due to a number of factors:
• The inclusion of the Standard Life Assurance businesses increased the population significantly and currently our two groups of
colleagues have separate benefit provisions�
• The Standard Life Assurance businesses continued operating a performance related pay structure for 2019 and therefore annual salary
increases varied, however the median salary increase across the overall Phoenix Group remained static at 2�5%�
• The increase in benefit value is largely due to Standard Life’s increase in the cost of funding for Private Medical Insurance�
• There has been a small increase in average annual incentive for employees due to the higher outcome under the Corporate element of
the 2019 AIP, however this overall increase has also been moderated by a wider distribution of performance ratings following a change
from a 5-scale to a 6-scale performance management system�
128
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Directors’ Remuneration Report continued DIRECTORS’ SERVICE CONTRACTS
The dates of contracts and letters of appointment and the respective notice periods for Directors are as follows:
Executive Directors’ contracts
Name
Clive Bannister
James McConville
Andy Briggs
Rakesh Thakrar (proposed director)
Date of appointment
28 March 2011
28 June 2012
1 January 2020
15 May 2020
Date of contract
7 February 2011
28 May 2012
7 November 2019
6 March 2020
Notice period
from either party
(months)
12
12
12
12
Subject to Board approval, Executive Directors are permitted to accept outside appointments on external boards as long as these are
not deemed to interfere with the business of the Group� The Executive Directors are entitled to retain any external fees� During 2019,
Clive Bannister received £45,000 from Punter Southall Group in respect of an external directorship� He is also Chairman of the Museum
of London for which he receives no payment� James McConville received £112,000 from Tesco Personal Finance plc�
Non-Executive Directors’ contracts
Name
Alastair Barbour
Campbell Fleming
Karen Green
Nicholas Lyons
Wendy Mayall
John Pollock
Nicholas Shott
Belinda Richards
Kory Sorenson
Mike Tumilty
Date of letter of appointment
1 November 2018
1 November 2018
1 November 2018
1 November 2018
1 November 2018
1 November 2018
1 November 2018
1 November 2018
1 November 2018
14 August 2019
Date of
joining the
Phoenix Group
Holdings Plc Board1
1 October 2013
31 August 2018
1 July 2017
31 October 2018
1 September 2016
1 September 2016
1 September 2016
1 October 2017
1 July 2014
1 September 2019
Appointment
end date
15 May 2020
31 August 2021
1 July 2020
31 October 2021
15 May 2020
15 May 2020
15 May 2020
1 October 2020
15 May 2020
1 September 2022
Unexpired term
(months)
2
17
3
19
2
2
2
6
2
29
1 All Directors above, other than Mike Tumilty who joined the Board on 1 September 2019, joined the Phoenix Group Holdings plc Board on 15 October 2018
and services are considered to have commenced with effect from 13 December 2018�
The above tables have been included to comply with UKLA Listing Rule 9�8�8� In the event of cessation of a Non-Executive Director’s
appointment (excluding the Chairman) they would be entitled to a one-month notice period� The Chairman, as detailed in his letter of
appointment, would be entitled to a six-month notice period�
REMUNERATION COMMITTEE GOVERNANCE
The terms of reference of the Committee are available at www�thephoenixgroup�com� The main determinations of the Committee
in 2019 in respect of the application of the Remuneration Policy are summarised in the Committee Chairman’s letter to shareholders
at the start of the Remuneration Report�
The table below shows the independent Non-Executive Directors who served on the Committee during 2019 and their date
of appointment:
Member
Kory Sorenson (Committee Chair from 11 May 2017)
Karen Green
Belinda Richards
Nicholas Shott
From
3 July 2014
1 July 2017
2 July 2019
20 October 2016
To
To date
To date
To date
To date
Under the Committee’s Terms of Reference, the Committee meets at least twice a year but more frequently if required� During 2019,
seven Committee meetings were held and details of attendance at meetings are set out in the Corporate Governance Report on page 89�
Consistent with the requirements of Solvency II, the Committee is responsible for establishing, implementing, overseeing and reviewing
the Company-wide remuneration policy in the context of business strategy and changing risk conditions� The Company-wide remuneration
policy focuses on ensuring sound and effective risk management so as not to encourage risk-taking outside of the Company’s risk appetite�
None of the Committee members has any personal financial interest (other than as shareholders), conflicts of interests arising from
cross-directorships or day-to-day involvement in running the business�
The Committee makes recommendations to the Board� No Director plays a part in any discussion about his or her own remuneration�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
129
CORPORATE GOVERNANCECORPORATE GOVERNANCE REMUNERATION COMMITTEE ACTIVITIES IN 2019
Committee activities
Consideration of risk, control and conduct matters
Summary of engagement with shareholders and consideration of
feedback
Executive Directors’ remuneration
Review of fixed and variable remuneration
Annual and long-term incentive performance measures, targets
and outcomes
Directors’ remuneration policy triennial review
Senior management remuneration
Review remuneration proposals on recruitment and on termination
of senior employees
Review of fixed and variable remuneration
Annual and long-term incentive performance measures, targets
and outcomes
All employee remuneration
All employee discretionary incentive schemes including sales
incentives
Organisation reward design following acquisition
Workforce engagement mechanisms, gender pay and pay ratio
6
February
27
February
1
May
5
August
16
October
26
November
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
ADVICE
During the year, the Committee received independent remuneration advice from its appointed adviser, PwC, who is a member of
the Remuneration Consultants Group (the professional body for remuneration consultants) and adheres to its code of conduct�
The Remuneration Committee was satisfied that the advice provided by PwC was objective and independent�
PwC also provided general consultancy services to management during the year including support on other Board and Risk matters and
technical advice regarding share schemes� Separate teams within PwC provided unrelated services in respect of tax, assurance, risk
consulting and transaction support during the year� The Committee is satisfied that these activities did not compromise the independence
or objectivity of the advice it has received from PwC as remuneration committee advisers�
PwC’s fees for work relating to the Committee for 2019, including support regarding the triennial policy review, Executive Director
succession, and business as usual as described in the table above, were £246,528� These were charged on the basis of the firm’s standard
terms of business for advice provided�
The Committee assesses the performance of its advisers annually, the associated level of fees and reviews the quality of advice provided
to ensure that it is independent of any support provided to management�
The Group Chief Executive Officer, Group HR Director and Group Finance Director and delegates, attend, by invitation, various Committee
meetings during the year� No executive is ever permitted to participate in discussions or decisions regarding his or her own remuneration�
The Committee consults with the Chief Risk Officer (without management present) on a regular basis� The Chief Risk Officer is asked to
detail the extent to which the company has operated within its stated risk appetite during the year and to keep the Committee informed
of any risk-related concerns that required the Committee to consider using its judgement to moderate incentive plan outcomes�
APPROVAL
This report in its entirety has been approved by the Remuneration Committee and the Board of Directors and signed on its behalf by:
Kory Sorenson
Remuneration Committee Chair
6 March 2020
130
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Directors’ Remuneration Report continued Directors' Report
DIRECTORS’
REPORT
The Directors present their report for the year ended
31 December 2019�
Phoenix Group Holdings plc is incorporated in the United
Kingdom (registered no� 11606773) and has a Premium
Listing on the London Stock Exchange�
SHAREHOLDERS
Dividends
Dividends for the year are as follows:
Ordinary shares
Paid interim dividend
Recommended final dividend
Total ordinary dividend
23�4p per share
(2018: 22�6p per share)
23�4p per share
(2018: 23�4p per share)
46�8p per share
(2018: 46p per share)
As a result of regulatory changes applicable to the Group
under Solvency II, dividends declared in respect of the
Company’s ordinary shares must be capable of being
cancelled and withheld or deferred at any time prior to
payment� This is in order that the Company’s ordinary shares
can be counted towards Group capital� Accordingly, the final
dividend will be declared on a conditional basis and the
Directors reserve the right to cancel or defer the
recommended dividend� The Directors do not expect
to exercise this right other than where they believe that
it may be necessary to do so as a result of legal or
regulatory requirements�
SHARE CAPITAL
The issued share capital of the Company was increased by
315,730 during 2019 which related to shares issued under
the Company’s Sharesave Scheme�
At 31 December 2019, the issued ordinary share capital
totalled 721,514,944� Subsequently, 5,985 ordinary shares
have been issued in 2020 in connection with the Group’s
Sharesave Scheme to bring the total in issue to 721,520,929
at the date of this report�
Full details of the issued and fully paid share capital as at 31
December 2019 and movements in share capital during the
period are presented in note D1 to the IFRS consolidated
financial statements�
Subject to obtaining shareholder approval for the renewal of
this authority at the forthcoming AGM on 15 May 2020, the
Company is authorised to make purchases of its own shares
and make payment for the redemption or purchase of its
own shares in any manner permitted by the Companies Act
2006 including without limitation, out of capital, profits,
share premium or the proceeds of a new issue of shares�
The Company held no treasury shares during the year
or up to the date of this report�
The rights and obligations attaching to the Company’s
ordinary shares are set out in the Company’s Articles of
Association (the ‘Company’s Articles’) which are available
on the Company’s website at www�thephoenixgroup�com/
about-us/corporate-governance/articles-of-association�aspx�
Where the Phoenix Group Employee Benefit Trust (‘EBT’)
holds shares for unvested awards, the voting rights for these
shares are exercisable by the trustees of the EBT at their
discretion, taking into account the recommendations
of the Group�
Restrictions on transfer of shares
Under the Company’s Articles, the Directors may in certain
circumstances refuse to register transfers of shares� Certain
restrictions on the transfer of shares may be imposed from
time to time by applicable laws and regulations (for example,
insider trading laws), and pursuant to the Listing Rules of
the Financial Conduct Authority (‘FCA’) and the Group’s
own share dealing rules whereby Directors and certain
employees of the Group require individual authorisation
to deal in the Company’s ordinary shares�
Substantial shareholdings
Information provided to the Company pursuant to the FCA’s
Disclosure and Transparency Rules is published on a
Regulatory Information Service and on the Company’s
website� As at 4 March 2020, the Company had been
notified of the following significant holdings of voting
rights in its shares�
Standard Life Aberdeen plc
Ameriprise Financial Inc�
and its group
BlackRock Inc�
Aviva plc and its subsidiaries
Artermis Investment
Management LLP
Number of
voting rights
in shares
Percentage of
shares
in issue
179,249,478
24�84%
42,847,290
38,875,162
36,512,061
5�93%
5�38%
5�06%
36,250,486
5�06%
Annual General Meeting (‘AGM’)
The AGM of the Company will be held at Saddlers Hall,
40 Gutter Lane, London, EC2V 6BR on Friday
15 May 2020 at 10�00am�
A separate notice convening this meeting will be distributed
to shareholders in due course and will include an explanation
of the items of business to be considered at the meeting�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
131
CORPORATE GOVERNANCE Directors Report continued
Investor Communications
The Company’s Annual Report and Accounts, together
with the Company’s Interim Report and other public
announcements and presentations, are designed to present
a fair, balanced and understandable view of the Group’s
activities and prospects� These are available on the
Company’s website at www�thephoenixgroup�com,
along with a wide range of relevant information for private
and institutional investors, including the Company’s
financial calendar�
BOARD
Board of Directors
The membership of the Board of Directors during 2019 is
given within the Corporate Governance section on pages 78
and 79, which is incorporated by reference into this report�
During 2019 and up to the date of this report, the following
changes to the Board took place:
Directors’ remuneration and interests
A report on Directors’ remuneration is presented within
the Directors’ Remuneration Report including details of
their interests in shares and share options or any rights
to subscribe for shares in the Company�
Directors’ indemnities
The Company has entered into deeds of indemnity with
each of its Directors whereby the Company has agreed to
indemnify each Director against all losses incurred by them
in the exercise, execution or discharge of their powers or
duties as a Director of the Company, provided that the
indemnity shall not apply when prohibited by any
applicable law�
The deeds of indemnity remain in-force as at the date
of signature of this Directors’ Report�
One of SLA's Nominated Directors, Barry O’Dwyer resigned
from the Board on 28 June 2019 and was replaced by Mike
Tumility on 1 September 2019�
Directors’ conflicts of interest
The Board has established procedures for handling conflicts
of interest in accordance with the Companies Act 2006 and
the Company’s Articles�
On an ongoing basis, Directors are responsible for informing
the Company Secretary of any new, actual or potential
conflicts that may arise�
Directors’ and Officers’ liability insurance
The Company maintains Directors’ and Officers’ liability
insurance cover which is renewed annually�
Details of related party transactions which took place during
the year with Directors of the Company and consolidated
entities where Directors are deemed to have significant
influence, are provided in the Directors’ Remuneration
Report and in note I4 to the IFRS consolidated
financial statements�
The rules about the appointment and replacement of
Directors are contained in the Company’s Articles� These
state that a Director may be appointed by an ordinary
resolution of the shareholders or by a resolution of the
Directors� If appointed by a resolution of the Directors,
the Director concerned holds office only until the conclusion
of the next AGM following the appointment�
In accordance with the UK Corporate Governance Code,
Directors must stand for election/re-election annually�
The Board of Directors will be unanimously recommending
that all of the Directors (apart from James McConville, who
is not standing for re-election) should be put forward for
election/re-election at the forthcoming AGM to be held
on 15 May 2020�
The Articles give details of the circumstances in which
Directors will be treated as having automatically vacated
their office and also state that the Company’s shareholders
may remove a Director from office by passing an
ordinary resolution�
The powers of the Directors are determined by the
Companies Act 2006, the provisions of the Company’s
Articles and by any valid directions given by shareholders
by way of special resolution�
The Directors have been authorised to allot and issue
securities and grant options over or otherwise dispose
of shares under the Company’s Articles�
132
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
GOVERNANCE
Going concern
The Group’s business activities, together with the factors
likely to affect its future development, performance and
position are set out in the Strategic Report� The Strategic
Report also provides details of any key events affecting the
Company (and its consolidated subsidiaries) since the end
of the financial year� The Strategic Report includes details
of the Group’s cash flow and solvency position, including
sensitivities for both� Principal risks and their mitigation
are detailed on pages 52 to 56� In addition, the IFRS
consolidated financial statements include, amongst other
things, notes on the Group’s borrowings (note E5),
management of its financial risk including market, credit
and liquidity risk (note E6), its commitments and contingent
liabilities (notes I5 and I6) and its capital management (note
I3)� The Strategic Report (on pages 2 to 72) sets out the
business model and how the Group creates value for
shareholders and policyholders�
The Board has followed the requirements of the UK Financial
Reporting Council’s ‘Guidance on Risk Management,
Internal Control and Related Financial and Business
Reporting (September 2014) when performing its going
concern assessment� As part of its comprehensive
assessment of whether the Group and the Company are a
going concern, the Board has undertaken a review of the
liquidity and solvency of the Group under both normal and
stressed conditions as at the date of preparation of the
statement of consolidated financial position�
Having thoroughly considered the going concern
assessment, including a detailed review of the regulatory
capital and cash flow positions of each principal subsidiary
company and the availability across the Group of a range
of management actions, the Board has concluded that there
are no material uncertainties that may cast significant doubt
about the Group and the Company’s ability to continue
as a going concern�
The Directors have a reasonable expectation that the Group
and the Company have adequate resources to continue in
operational existence for the foreseeable future� Thus, they
continue to adopt the going concern basis of accounting in
preparing the annual financial statements�
The Directors have acknowledged their responsibilities
in the Statement of Directors’ Responsibilities in relation
to the IFRS financial statements for the year ended
31 December 2019�
Viability statement
The Viability Statement, as required by the UK Corporate
Governance Code, has been undertaken for a period of
five years to align to the Group’s business planning and
is contained in the Risk Management section on page 57�
Corporate governance statement
The disclosures required by section 7�2 of the FCA’s
Disclosure Guidance and Transparency Rules can be found
in the Corporate Governance Report on pages 81 to 98
which is incorporated by reference into this Directors’
Report and comprises the Company’s Corporate
Governance Statement�
The disclosures required in respect of the Company’s
diversity policy are addressed in the Strategy and KPIs
section of the Strategic Report on page 30� The UK
Corporate Governance Code (the ‘Code’) applies to the
Company and full details on the Company’s compliance with
the Code are included in the Corporate Governance Report�
The Code is available on the website of the Financial
Reporting Council – www�frc�org�uk�
Greenhouse gas emissions
All disclosures concerning the Group’s greenhouse
emissions are contained in the Environmental Report
forming part of the Strategic Report on pages 69 and 70�
Articles of Association
Changes to the Company’s Articles require prior
shareholder approval�
The Articles are available on the Company’s website at
www�thephoenixgroup�com/about-us/corporate-
governance/articles-of-association�aspx�
Re-Appointment of the Auditors
Ernst & Young LLP (‘EY’) has indicated its willingness to
continue in office and shareholders’ approval will be sought
at the AGM on 15 May 2020�
There is no cap on auditor liability in place in relation to
audit work carried out on the IFRS consolidated financial
statements and the Group’s UK subsidiaries’ individual
financial statements�
Details of fees paid to EY during 2019 for audit and non-audit
work are disclosed in note C4 to the IFRS consolidated
financial statements�
Disclosure of information to Auditors
The Directors who held office at the date of approval
of this Directors’ Report confirm that, so far as they are
aware, there is no relevant audit information of which the
Company’s auditor is unaware and that each Director has
taken all the steps that they ought to have taken as a
Director to make themselves aware of any relevant audit
information and to establish that the Company’s auditor
is aware of that information�
Group Company Secretary
The Group Company Secretary throughout the 2019
financial period was Gerald Watson�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
133
CORPORATE GOVERNANCE Directors Report continued
CONTRACTUAL/OTHER
Significant agreements impacted by a change
of control of the Company
There are change of control clauses contained in certain
of the Group’s financing agreements� The £1�25 billion
revolving credit facility and £500 million acquisition facility
have provisions which would enable the lending banks
to require repayment of all amounts borrowed following
a change of control�
All of the Company’s employee share and incentive
plans contain provisions relating to a change of control�
Outstanding awards and options would normally vest and
become exercisable on a change of control, subject to the
satisfaction of any performance conditions and pro rata
reduction as may be applicable under the rules of the
employee share incentive plans�
Apart from the aforementioned, there are a number of
agreements that take effect, alter or terminate upon a
change of control of the Company, such as commercial
contracts� None is considered to be significant in terms
of their potential impact on the business of the Group�
Disclosures under listing rule 9.8.4R
For the purposes of Listing Rule 9�8�4C, the information
required to be disclosed under Listing Rule 9�8�4R can
be found within the following sections of the Report
and Accounts:
Section Requirement
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Statement of interest
capitalised
Publication of unaudited
financial information
Deleted
Details of long-term
incentive schemes
Waiver of emoluments
by a Director
Waiver of any future
emoluments by a Director
Non pre-emptive issue
of equity for cash
As per 7, but for major
subsidiary undertakings
Parent participation in any
placing of a subsidiary
Contracts of significance
Controlling shareholder
provision of services
Shareholder
dividend waiver
Shareholder dividend
waiver – future periods
Controlling shareholder
agreements
Location
Note E5 to the Consolidated
Financial Statements
Not applicable
Not applicable
Directors' Remuneration
Report
Directors’
Remuneration Report
Directors’
Remuneration Report
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
134
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Directors Report
STATEMENT OF DIRECTORS’
RESPONSIBILITIES
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
IN RESPECT OF THE ANNUAL REPORT AND
ACCOUNTS OF PHOENIX GROUP HOLDINGS PLC
The Directors are responsible for the preparation of
the Annual Report and Accounts, the Strategic Report,
the Directors’ Report, the Directors’ Remuneration Report,
the consolidated financial statements and the Company
financial statements in accordance with applicable law
and regulations�
The Board has prepared a Strategic Report which provides
an overview of the development and performance of the
Group’s business for the year ended 31 December 2019,
covers the future developments in the business of Phoenix
Group Holdings plc and its consolidated subsidiaries and
provides details of any important events affecting the
Company and its subsidiaries after the year-end� For the
purposes of compliance with DTR 4�1�5R(2) and DTR 4�1�8R,
the required content of the ‘Management Report’ can be
found in the Strategic Report and this Directors’ Report,
including the sections of the Annual Report and Accounts
incorporated by reference�
The Directors have prepared the consolidated financial
statements and the Company financial statements in
accordance with International Financial Reporting Standards
(‘IFRS’) as adopted by the European Union (‘EU’)� The
Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the
state of affairs of the Group and the Company and of the
profit or loss of the Group and the Company for that period�
The Directors are responsible for making, and continuing
to make, the Company’s Annual Report and Accounts
available on the Company’s website� Legislation in
the United Kingdom governing the preparation and
dissemination of financial statements may differ from
legislation in other jurisdictions�
The Directors as at the date of this report, whose names
and functions are listed in the Board of Directors section
on pages 78 and 79, confirm that, to the best of
their knowledge:
• The Group’s consolidated financial statements and the
Company financial statements, which have been prepared
in accordance with IFRS as adopted by the EU, give a true
and fair view of the assets, liabilities, financial position and
profit and loss of the Group and the Company�
• The Strategic Report and the Corporate Governance and
Directors’ Report include a fair review of the development
and the performance of the business and the position of
the Company and its consolidated subsidiaries taken as
a whole, together with a description of the principal risks
and uncertainties that they face�
In addition, the Directors as at the date of this report
consider that the Annual Report and Accounts, taken as a
whole, provides users (who have a reasonable knowledge
of business and economic activities) with the information
necessary for shareholders to assess the Group’s
position,performance, business model and strategy,
and is fair, balanced and understandable�
In preparing these financial statements the Directors are
required to:
The Strategic Report and the Directors’ Report were
approved by the Board of Directors on 6 March 2020�
By order of the Board
Clive Bannister
Group Chief
Executive Officer
6 March 2020
James McConville
Group Finance Director
And Group Director,
Scotland
• select suitable accounting policies and then apply
them consistently�
• make judgements and accounting estimates that
are reasonable and prudent�
• state whether IFRS, as adopted by the EU, have
been followed, subject to any material departures
disclosed and explained in the Group and the Company
financial statements�
• repare the financial statements on the going concern
basis unless it is inappropriate to presume that the Group
and the Company will continue in business�
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Group’s and the Company’s transactions and disclose,
with reasonable accuracy at any time, the financial position
of the Group and the Company and enable them to ensure
that the financial statements and the Directors’ Remuneration
Report comply with the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the IAS
Regulations� They are also responsible for safeguarding the
assets of the Group and hence for taking reasonable
steps for the prevention and detection of fraud and
other irregularities�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
135
CORPORATE GOVERNANCE
FINANCIALS
IN THIS SECTION
Independent Auditor’s Report ��������� 139
IFRS Consolidated
Financial Statements ����������������������� 149
Notes to the Consolidated
Financial Statements ����������������������� 154
Parent Company Accounts ��������������244
Notes to the Parent Financial
Statements ��������������������������������������� 247
Additional Life Company Asset
Disclosures ��������������������������������������� 255
Additional Capital Disclosures ���������262
Alternative Performance
Measures �����������������������������������������264
136
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
INDEPENDENT
AUDITOR’S REPORT
OPINION
In our opinion:
• Phoenix Group Holdings plc’s consolidated financial
statements and parent company financial statements
(the ‘Financial Statements’) give a true and fair view of the
state of the Group’s and of the parent company’s affairs
as at 31 December 2019 and of the Group’s profit for the
year then ended;
• the consolidated financial statements have been properly
prepared in accordance with International Financial
Reporting Standards (‘IFRSs’) as adopted by the
European Union (‘EU’);
• the parent company financial statements have been
properly prepared in accordance with IFRSs as adopted
by the EU as applied in accordance with
the provisions of the Companies Act 2006; and
• the financial statements have been prepared in
accordance with the requirements of the Companies
Act 2006, and, as regards the consolidated financial
statements, Article 4 of the IAS Regulation�
We have audited the consolidated financial statements of
Phoenix Group Holdings plc and its subsidiaries (collectively
‘the Group’) and the parent company financial statements
which comprise:
Parent Company
The statement of financial
position as at 31 December 2019
The statement of cash flows for
the year then ended
The statement of changes in
equity for the year then ended
Related notes 1 to 20 to the
financial statements
Group
The statement of consolidated
financial position as at 31
December 2019
The consolidated income
statement for the year then
ended
The consolidated statement of
comprehensive income for the
year then ended
The statement of consolidated
cash flows for the year then
ended
The statement of consolidated
changes in equity for the year
then ended
Related notes A1 to I7 to the
consolidated financial statements
(except for note I3 which is
marked as unaudited), including
a summary of significant
accounting policies
The financial reporting framework that has been applied in
their preparation is applicable law and IFRSs as adopted by
the EU and, as regards the parent company financial
statements, as applied in accordance with the provisions
of the Companies Act 2006�
BASIS FOR OPINION
We conducted our audit in accordance with International
Standards on Auditing (UK) (‘ISAs’) and applicable law� Our
responsibilities under those standards are further described
in the Auditor’s responsibilities for the audit of the financial
statements section of our report below� We are independent
of the Group and parent company in accordance with the
ethical requirements that are relevant to our audit of the
financial statements in the UK, including the FRC’s Ethical
Standard as applied to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance
with these requirements�
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion�
Conclusions relating to principal risks, going concern
and viability statement
We have nothing to report in respect of the following
information in the annual report, in relation to which the
ISAs(UK) require us to report to you whether we have
anything material to add or draw attention to:
• the disclosures in the Annual Report set out on page 52
that describe the principal risks and explain how they are
being managed or mitigated;
• the Directors’ confirmation set out on page 135 in
the Annual Report that they have carried out a robust
assessment of the principal risks facing the entity,
including those that would threaten its business model,
future performance, solvency or liquidity;
• the Directors’ statement set out on page 133 in the Annual
Report about whether they considered it appropriate to
adopt the going concern basis of accounting in preparing
them, and their identification of any material uncertainties
to the entity’s ability to continue to do so over a period of
at least twelve months from the date of approval of the
financial statements;
• whether the Directors’ statement in relation to going
concern required under the Listing Rules in accordance
with Listing Rule 9�8�6R(3) is materially inconsistent with
our knowledge obtained in the audit; or
• the Directors’ explanation set out on page 57 in the Annual
Report as to how they have assessed the prospects of the
entity, over what period they have done so and why they
consider that period to be appropriate, and their statement
as to whether they have a reasonable expectation that the
entity will be able to continue in operation and meet its
liabilities as they fall due over the period of their
assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
137
FINANCIALS Independent Auditor’s Report continued
Overview of our audit approach
Key audit matters
• Valuation of insurance contract liabilities, comprising the following risk areas:
– actuarial assumptions;
– actuarial modelling; and
– data�
• Valuation of certain complex and illiquid financial investments
• Recoverability of intangible assets arising from the acquisition of Standard Life Assurance Limited and other
associated entities
Audit scope
• We performed an audit of the complete financial information of the Group Function, Phoenix Life Division and
Standard Life Assurance Limited and audit procedures on specific balances for Other Companies� Our scope is
explained further on pages 143 to 144�
• The components where we performed full or specific audit procedures accounted for more than 99% of the
equity and profit before tax of the Group�
Materiality
• Overall Group materiality of £100 million (2018: £100 million) which represents 2�1% (2018: 1�9%) of total equity
attributable to owners of the parent (‘Group equity’)�
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not
due to fraud) that we identified� These matters included those which had the greatest effect on: the overall audit strategy,
the allocation of resources in the audit; and directing the efforts of the engagement team� These matters were addressed in
the context of our audit of the financial statements as a whole and in our opinion thereon, and we do not provide a separate
opinion on these matters�
Risk
Valuation of insurance contract liabilities (£97.0bn; 2018: £92.6bn)
Refer to the Audit Committee Report (page 96); Critical accounting estimates (page 155); Accounting policies and note F1
of the consolidated financial statements (pages 194 to 196)
We considered the valuation of insurance contract liabilities to be a significant risk for the Group� Specifically, we considered
the actuarial assumptions and modelling that are applied, as these involve complex and significant judgments about future
events, both internal and external to the business for which small changes can result in a material impact to the resultant
valuation� Additionally, the valuation process is conditional upon the accuracy and completeness of the data�
We have split the risks relating to the valuation of insurance contract liabilities into the following component parts:
• actuarial assumptions;
• actuarial modelling; and
• data�
138
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
The specific audit procedures performed to address the significant risk are set out below� In addition, we assessed
management’s analysis of movements in insurance contract liabilities and obtained evidence to support large or
unexpected movements as this provided important audit evidence over the valuation of insurance contract liabilities�
Key observations
communicated to the
Audit Committee
We determined
that the actuarial
assumptions used
by management are
reasonable based on
the analysis of the
experience to date,
industry practice
and the financial
and regulatory
requirements�
Risk area
Our response to the risk
Actuarial assumptions
There has been no change in our
assessment of this risk from the prior year.
To obtain sufficient audit evidence to conclude on the appropriateness of
actuarial assumptions, using EY actuaries as part of our audit team, we
performed the following procedures:
Economic assumptions are set by
management taking into account market
conditions as at the valuation date� Non-
economic assumptions such as future
expenses, longevity and mortality are set
based on the Group’s past experience,
market experience, market practice,
regulations and expectations about
future trends�
The assumptions that we consider
to have the most significant impact are
the base and trend longevity, persistency
and expenses�
• obtained an understanding and tested the design and operating
effectiveness of key controls over management’s process for setting
and updating key actuarial assumptions;
• challenged and assessed whether the methodology and assumptions
applied were appropriate based on our knowledge of the Group, industry
standards and regulatory and financial reporting requirements;
• reviewed and challenged the results of management’s experience
analysis, including the base longevity and persistency, to assess whether
these justified the adopted assumptions;
• in respect of longevity improvements we have evaluated the use of the
chosen industry standard Continuous Mortality Investigation (‘CMI’) model
and the parameters used to validate that it was appropriate relative to the
industry;
• assessed the expense assumptions adopted by management with
reference to the management service agreement (‘MSA’) between
the Phoenix Life and Service companies;
• Performed procedures to test that the assumptions used in the year end
valuation were consistent with the approved basis; and
• benchmarked the demographic and economic assumptions against those
of other comparable industry participants�
We performed full scope audit procedures over this risk area in two
components and specific scope audit procedures in one component,
which covered 100% of the risk amount�
Actuarial modelling
There has been no change in our
assessment of this risk from the prior year.
To obtain sufficient audit evidence to conclude on core actuarial modelling
systems and balances calculated outside these systems, using EY actuaries
we performed the following procedures:
We consider the integrity and
appropriateness of models to be critical
to the overall valuation of insurance
contract liabilities�
• obtained an understanding of management’s process for model
developments to the core actuarial system and tested the design,
implementation and operating effectiveness of key controls over
that process;
Over £92�0bn of the £97�0bn insurance
contract liabilities are modelled using the
core actuarial modelling systems, with the
residual balance modelled outside these
systems to cater for any additional required
liabilities not reflected in the model�
We consider the key risks to relate to i)
model developments applied to the core
actuarial models and ii) the appropriateness
of the calculations that are applied outside
of the core actuarial model�
• challenged and evaluated the methodology, inputs and assumptions
applied to model changes made in the core actuarial modelling systems
during the year;
• reviewed the governance process around model changes by review of the
relevant committee minutes;
• assessed the results of management’s analysis of movements in
insurance contract liabilities to corroborate that the actual impact of
changes to models was consistent with that expected when the model
change was implemented; and
• stratified the components of the balance modelled outside the core
actuarial system and focused our testing on those that, in our professional
judgment, present a higher risk of material misstatement� As part of
the testing, we gained an understanding of the rationale for balances
calculated outside of the core actuarial system and assessed the
appropriateness of the applied calculation methodology�
We performed full scope audit procedures over this risk area in two
components and specific scope audit procedures in one component,
which covered 100% of the risk amount�
We determined that
the models used
are appropriate, that
changes to the models
were implemented
as intended and
that controls over
management’s
processes for
modelling insurance
contract liabilities
outside of the actuarial
modelling system were
operating effectively�
We also determined
that liabilities
modelled outside
these core actuarial
modelling systems
are reasonable�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
139
FINANCIALS Key observations
communicated to the
Audit Committee
We determined
based on our audit
work that the data
used for the actuarial
model inputs is
materially complete
and accurate�
Independent Auditor’s Report continued
Risk area
Our response to the risk
Data
There has been no change in our
assessment of this risk from the
prior year.
The insurance contract data held on policy
administration systems (‘the policyholder
data’) is a key input into the valuation
process� The valuation of insurance
contract liabilities is therefore conditional
upon the accuracy and completeness
of the data used�
To obtain sufficient audit evidence to assess the integrity of policyholder
data we performed the following procedures:
• obtained an understanding of and tested the design and operating
effectiveness of the key controls, including information technology
general controls, over management’s data collection, extraction and
validation process;
• for Outsourced Service Providers (‘OSP’) where we have placed reliance
on the Service Organisation Controls (‘SOC1’) report, we have reviewed
the SOC1 report and determined the impact of any identified control
exceptions;
• for OSPs where we do not receive a SOC1 report we have obtained
an understanding of the process over data extraction and input into
the actuarial models and performed direct testing of the design and
operating effectiveness of the key controls;
• performed substantive procedures including agreeing policyholder
documentation to the policyholder data used in the actuarial model
based on a sample of policies;
• assessed the integrity of policy level data, performing corroborative
testing on i) changes to static data during the period; ii) unexpected
policy count movements between reporting periods; and iii) unusual
trends and anomalies in the data, based upon our knowledge of the
Group’s products, industry standards and through using data analytics;
• confirmed that the actuarial model data extracts provided by the OSPs
were those used as an input to the actuarial model;
• assessed the appropriateness of management’s grouping of data for
input into the actuarial model; and
• tested the reconciliations of premiums and claims information extracted
from the policy administration systems to the actuarial data used in the
actuarial models�
We performed full scope audit procedures over this risk area in two
components and specific scope audit procedures in one component,
which covered 100% of the risk amount�
140
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Key observations
communicated to the
Audit Committee
Based on our
procedures
performed on the
ERM financial
investments and
the modelled debt
securities, we are
satisfied that the
valuation of these
complex and illiquid
assets is reasonable�
Risk area
Our response to the risk
Valuation of certain complex
and illiquid financial investments
(£4.9bn; 2018: £3.6bn)
Whilst we consider the risk to be similar
in nature, due to the combination of
increased size of the modelled debt
securities and level of judgment involved
in valuation as well as the potential
impact on the shareholders arising from
any misstatements, we believe the
identified risk to have a higher magnitude
of potential misstatement than in the
previous year.
Refer to the Audit Committee Report
(page 96); Critical accounting estimates
(page 155); Accounting policies and notes
E1 and E2 of the consolidated financial
statements (pages 171 to 180).
• The extent of judgment applied by
management in valuing the Group’s
financial investments varies with the
nature of securities held, the markets in
which they are traded and the valuation
methodology applied�
Using EY valuation specialists and actuaries we tested valuation of ERMs
and modelled debt securities�
To obtain sufficient audit evidence to conclude on the valuation of ERMs,
we:
• tested the design and operating effectiveness of key controls over
management’s process in respect of the valuation of ERMs;
• tested the completeness of the ERM financial investments and
underlying data at the period end through independent confirmation from
the OSPs;
• tested the accuracy of mortgage data used in the valuation model by
agreeing a sample of new loans to supporting evidence and validating
any movements on static data over the period;
• evaluated the methodology, inputs and assumptions used to value the
ERM financial investments including the No Negative Equity Guarantee
(‘NNEG’) (such as house price inflation, residential house price volatility,
longevity improvement and base mortality, as well as economic
assumptions such as discount rate);
• validated the key assumptions by comparing them to published market
benchmarks and demographic and economic assumptions used by
other industry participants, to confirm that key valuation inputs were
consistent with industry norms and our understanding of the instrument
type; and
• Observable inputs are not readily
• developed our own independent model to value the ERM loans and
available for the valuation of equity
release mortgages (‘ERM’) financial
investments and the modelled debt
securities, such as private placements,
local authority loans, infrastructure
loans and commercial real estate
loans� Consequently, management use
models and other inputs to estimate
their value�
• We consider that the key risks on the
valuation of ERM financial investments
relates to: i) assumptions as these are
largely based on non-observable inputs
and are highly judgmental, and ii) the
completeness and accuracy of data
feeding the valuation model�
• We consider that the key risks
related to valuation of modelled debt
securities to be the (i) use of complex
valuation methodologies as opposed
to observable prices; ii) significant
judgments involved in setting the
spread above risk-free rate; and iii) most
notably, the subjectivity surrounding the
selection of the comparable bonds to
derive that spread�
compared the output to the results produced by the Group�
To obtain sufficient audit evidence to conclude on the valuation of
modelled debt securities, we:
• reviewed the SOC1 report of the OSP covering period to 30 September
2019 and determined the impact of any identified control exceptions;
• obtained the bridging letter for the period 1 October 2019 to 31
December 2019 to confirm that the controls over the valuation of
modelled debt securities were operating during the period� In addition,
we tested a sample of these controls in the bridging period to confirm
they were operating effectively; and
• engaged EY valuation specialists to calculate an independent range of
reasonable values for a sample of investments using an independent
valuation model and considering reasonable alternate assumptions�
We performed full scope audit procedures over this risk area in two
components, which covered 100% of the risk amount�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
141
FINANCIALS Key observations
communicated to the
Audit Committee
• Based on our
procedures
performed on the
recoverability of
intangible assets
arising from the
acquisition of
Standard Life,
we are satisfied
that there are
no impairment
indicators present
as at 31 December
2019�
Independent Auditor’s Report continued
Risk area
Our response to the risk
To obtain sufficient audit evidence to assess recoverability of intangible
assets arising from the acquisition of Standard Life, using EY actuaries
we performed the following procedures:
• understood and evaluated management’s process, model and
assumptions supporting the recoverability assessment;
• tested the controls over the completeness and accuracy of the data
used in the recoverability assessment;
• challenged management’s assessment of impairment indicators
by considering current market factors and assumption changes not
modelled in the fair value exercise at the acquisition date and assessed
their impact on the Standard Life AVIF and CSPA values as at 31
December 2019; and
• obtained management’s expectations of future profitability
of the acquired entities and challenged the assumptions applied
by management by comparing key assumptions and judgments
with experience of the wider market and that of Phoenix�
Recoverability of intangible
assets arising from the
acquisition of Standard Life
Assurance Limited and other
associated entities (£2.57bn;
2018: £2.87bn)
This is a new key audit matter for 31
December 2019.
Refer to the Audit Committee Report
(page 96); Critical accounting estimates
(page 156); Accounting policies and
note G2 of the consolidated financial
statements (pages 214 to 216)
On 31 August 2018, the Group acquired
Standard Life Assurance Limited,
Standard Life International Designated
Activity Company, Standard Life Assets
and Employee Services Limited and other
related entities (collectively ‘Standard
Life’) from Standard Life Aberdeen plc
(‘SLA plc’) for total consideration of
£2,994 million� This gave rise to the
recognition of intangible assets relating to
acquired in force business (‘AVIF’) and the
Client Service and Proposition Agreement
(‘CSPA’) entered into between the Group
and SLA plc�
The 2019 financial year is the first full
year following the acquisition of Standard
Life and as required management
performed a recoverability assessment
on the acquired intangible assets to
satisfy themselves that the carrying value
remains appropriate�
Recoverability assessment of these
intangible assets involves consideration
of a number of judgmental and sensitive
assumptions such as:
• market movements and their impact
on economic assumptions such as cost
of capital;
• significant changes to core valuation
assumptions, being: lapses, longevity,
late retirements;
• any change in experience on earnings
relating to the CSPA�
This subjects value of these assets to
a higher risk of material misstatement�
In the prior year, our auditor’s report included a key audit matter in relation to accounting for the acquisition of Standard Life
Assurance Limited and other associated entities as the acquisition transaction was completed in the 2018 financial year�
142
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality
and our allocation of performance materiality determine our
audit scope for each reporting unit (‘reporting component’)
within the Group� Taken together, this enables us to form an
opinion on the consolidated financial statements� We take
into account size, risk profile, the organisation of the group
and effectiveness of group-wide controls, changes in the
business environment and other factors when assessing the
level of work to be performed at each reporting component�
In assessing the risk of material misstatement to the
consolidated financial statements, and to ensure we had
adequate quantitative coverage of significant accounts in the
financial statements, we identified four reporting
components of the Group� The Group reporting components
consist of Phoenix Life Division, Standard Life Assurance
Limited (‘SLAL’), the Group Function and Other Companies�
In the Phoenix Life Division component, the most significant
insurance companies are Phoenix Life Assurance Limited
and Phoenix Life Limited� Standard Life Assurance Limited is
the most significant company of the respective component�
The Group Function consists of Group entities that primarily
hold external debt, PA (GI) Limited and the pension schemes
of the Group� The Other Companies include the Phoenix Life
service companies and Standard Life International
Designated Activity Company (‘SLINTL’)�
Details of the four reporting components which were
audited by component teams are set out below:
Component
Phoenix Life Division
Standard Life Assurance Limited (‘SLAL’)
Group Function
Other Companies
Scope
Full
Full
Full
Specific
Auditor
EY
EY
EY
EY
Of the four components selected, we performed an audit
of the complete financial information of three components
(‘full scope components’) which were selected based on
their size or risk characteristics� For the remaining Other
Companies (‘specific scope components’), we performed
audit procedures on specific accounts of Phoenix Life and
SLAL service companies (provisions, accruals and deferred
income, external revenue, wages and salaries and
administrative expenses) and of SLINTL (cash and
cash equivalents and insurance contract liabilities)�
The reporting components where we performed audit
procedures accounted for more than 99% (2018: 99%) of
the Group’s equity and the Group’s profit before tax� For
the current year, the full scope components contributed
87% (2018: 93%) of the Group’s equity and 90% (2018:
97%) of the Group’s profit before tax� The specific scope
components contributed 12% (2018: 6%) of the Group’s
equity and 9% (2018: 2%) of the Group’s profit before tax�
The audit scope of these components may not have
included testing of all significant accounts of the component
but will have contributed to the coverage of significant
accounts tested for the Group�
The charts below illustrate the coverage obtained from
the work performed by our audit teams�
Equity
44% Phoenix Life
Division (full scope)
23% SLAL (full scope)
20%Group Function
(full scope)
12%Other Companies
(specific scope)
Less than 1%
Out of scope
90% Full scope
9% Specific scope
Less than 1%
Out of scope
Profit before tax
Changes from the prior year
Management completed the Part VII transfer of the European
business of SLAL into SLINTL� In response to the increased
size of SLINTL, additional accounts were brought in scope
for the purposes of Group reporting�
Involvement with component teams
In establishing our overall approach to the Group audit, we
determined the type of work that needed to be undertaken
at each of the components by us, as the primary audit
engagement team, or by component auditors from other
EY global network firms operating under our instruction�
The primary audit team provided detailed audit instructions
to the component teams which included guidance on
areas of focus, including the relevant risks of material
misstatement detailed above, and set out the information
required to be reported to the primary audit team�
Of the three full scope components, audit procedures were
performed on one of these directly by the primary audit
team whilst the remaining two components were audited
by the component audit teams� For Other Companies,
where the work was performed by component auditors,
we determined the appropriate level of involvement to enable
us to determine that sufficient audit evidence had been
obtained as a basis for our opinion on the Group as a whole�
The primary audit team followed a programme of planned
visits that has been designed to ensure that the Senior
Statutory Auditor visited each of the components where the
Group audit scope was focused at least once a year and the
most significant of them more than once a year� For all full
scope components, in addition to the component visits,
the primary audit team reviewed key working papers and
participated in the component teams’ planning, including
the component teams’ discussion of fraud and error� The
primary audit team attended the closing meetings with the
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
143
FINANCIALS Independent Auditor’s Report continued
management of the Phoenix Life Division and SLAL and
attended key Audit Committee meetings at the components�
For the specific scope component, the primary audit team
have reviewed the audit procedures performed by the
component team on the specific accounts�
The work performed on the components, together with
the additional procedures performed at Group level, gave
us appropriate evidence for our opinion on the consolidated
financial statements as a whole�
Our application of materiality
We apply the concept of materiality in planning and
performing the audit, in evaluating the effect of identified
misstatements on the audit and in forming our audit opinion�
Materiality
The magnitude of an omission or misstatement that,
individually or in the aggregate, could reasonably be
expected to influence the economic decisions of the users
of the financial statements� Materiality provides a basis for
determining the nature and extent of our audit procedures�
We determined materiality for the Group to be £100 million
(2018: £100 million), which is 2�1% (2018: 1�9%) of Group
equity� Whilst profit before tax or operating profit are
common bases used across the life insurance industry and
might be an appropriate measure for an open business,
we believe that the use of equity as the basis for assessing
materiality remains more appropriate given that the Group is
primarily a closed life assurance consolidator and as such
equity provides a more stable, long-term measure of value�
We note also that equity more closely correlates with key
Group performance metrics such as Solvency II capital
requirements and Own Funds� However, as these
measures are non-GAAP measures, we consider equity
to be more appropriate�
We determined materiality for the parent company to be
£109 million (2018: £82 million), which is 2% of the parent
company equity attributable to owners� We have used a
capital based measure for determining materiality for
consistency with the approach taken for the Group where
we consider equity to be the most appropriate basis when
considering against other measures such as IFRS profit
before tax with its inherent volatility considering the nature
of the parent company as a holding company�
During the course of our audit, we reassessed initial
materiality and concluded that materiality assessed at
planning stages of our audit remained appropriate�
Performance materiality
The application of materiality at the individual account
or balance level� It is set at an amount to reduce to an
appropriately low level the probability that the aggregate
of uncorrected and undetected misstatements
exceeds materiality�
144
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
On the basis of our risk assessments, together with our
assessment of the Group’s overall control environment,
our judgment was that performance materiality was 50%
(2018: 50%) of our planning materiality, namely £50 million
(2018: £50 million)�
Audit work at component locations for the purpose of
obtaining audit coverage over significant financial statement
accounts is undertaken based on a percentage of total
performance materiality� The performance materiality set
for each component is based on the relative scale and risk of
the component to the Group as a whole and our assessment
of the risk of misstatement at that component� In the current
year, the range of performance materiality allocated to
components was £13 million to £30 million (2018: £10
million to £28 million)�
Reporting threshold
An amount below which identified misstatements are
considered as being clearly trivial�
We agreed with the Audit Committee that we would report
to them all uncorrected audit differences in excess of £5
million (2018: £5 million), which is set at 5% of planning
materiality, as well as differences below that threshold that,
in our view, warranted reporting on qualitative grounds�
We evaluate any uncorrected misstatements against both
the quantitative measures of materiality discussed above
and in light of other relevant qualitative considerations in
forming our opinion�
Other information
The other information comprises the information included
in the Annual Report set out on pages 1 to 135 and 255 to
272, other than the financial statements and our auditor’s
report thereon� The Directors are responsible for the
other information�
Our opinion on the financial statements does not cover
the other information and, except to the extent otherwise
explicitly stated in this report, we do not express any form
of assurance conclusion thereon�
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing
so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially
misstated� If we identify such material inconsistencies
or apparent material misstatements, we are required to
determine whether there is a material misstatement in the
financial statements or a material misstatement of the other
information� If, based on the work we have performed, we
conclude that there is a material misstatement of the other
information, we are required to report that fact�
We have nothing to report in this regard�
In this context, we also have nothing to report in regard
to our responsibility to specifically address the following
items in the other information and to report as uncorrected
material misstatements of the other information where we
conclude that those items meet the following conditions:
• Fair, balanced and understandable set out on page 135
– the statement given by the Directors that they consider
the Annual Report and financial statements taken as a
whole is fair, balanced and understandable and provides
the information necessary for shareholders to assess
the Group’s performance, business model and strategy,
is materially inconsistent with our knowledge obtained
in the audit; or
• Audit committee reporting set out on pages 92 to 96 – the
section describing the work of the Audit Committee does
not appropriately address matters communicated
by us to the Audit Committee; or
• Directors’ statement of compliance with the UK Corporate
Governance Code set out on page 133 – the parts of the
Directors’ statement required under the Listing Rules
relating to the Company’s compliance with the UK
Corporate Governance Code containing provisions specified
for review by the auditor in accordance with Listing Rule
9�8�10R(2) do not properly disclose a departure from a
relevant provision of the UK Corporate Governance Code�
Opinions on other matters prescribed by the
Companies Act 2006
In our opinion, the part of the Directors’ Remuneration
Report to be audited has been properly prepared in
accordance with the Companies Act 2006�
In our opinion, based on the work undertaken in the course
of the audit:
• the information given in the Strategic Report and the
Directors’ Report for the financial year for which the
financial statements are prepared is consistent with
the financial statements; and
• the Strategic Report and the Directors’ Report have been
prepared in accordance with applicable legal requirements�
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the
Group and the parent company and its environment
obtained in the course of the audit, we have not identified
material misstatements in the Strategic Report or the
Directors’ Report�
We have nothing to report in respect of the following
matters in relation to which the Companies Act 2006
requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
• the parent company financial statements and the part of
the Directors’ Remuneration Report to be audited are not
in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified
by law are not made; or
• we have not received all the information and explanations
we require for our audit�
Responsibilities of Directors
As explained more fully in the Directors’ Responsibilities
Statement set out on page 135, the Directors are
responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view,
and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements
that are free from material misstatement, whether due
to fraud or error�
In preparing the financial statements, the Directors are
responsible for assessing the Group and parent company’s
ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using
the going concern basis of accounting unless the Directors
either intend to liquidate the Group or the parent company
or to cease operations, or have no realistic alternative but
to do so�
Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and
to issue an auditor’s report that includes our opinion�
Reasonable assurance is a high level of assurance, but is not
a guarantee that an audit conducted in accordance with ISAs
(UK) will always detect a material misstatement when it
exists� Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the
economic decisions of users taken on the basis of these
financial statements�
Explanation as to what extent the audit was considered
capable of detecting irregularities, including fraud
The objectives of our audit:
• in respect to fraud, are; to identify and assess the risks of
material misstatement of the financial statements due
to fraud; to obtain sufficient appropriate audit evidence
regarding the assessed risks of material misstatement due
to fraud, through designing and implementing appropriate
responses; and to respond appropriately to fraud or
suspected fraud identified during the audit� However,
the primary responsibility for the prevention and detection
of fraud rests with both those charged with governance
of the entity and management; and
• in respect of irregularities, considered to be non-
compliance with laws and regulations, are to obtain
sufficient appropriate audit evidence regarding compliance
with the provisions of those laws and regulations generally
recognised to have a direct effect on the determination
of material amounts and disclosures in the financial
statements (‘direct laws and regulations’), and perform
other audit procedures to help identify instances of
non-compliance with other laws and regulations that may
have a material effect on the financial statements� We
are not responsible for preventing non-compliance with
laws and regulations and our audit procedures cannot
be expected to detect noncompliance with all laws
and regulations�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
145
FINANCIALS Independent Auditor’s Report continued
Our approach was as follows:
• We obtained an understanding of the legal and regulatory
frameworks that are applicable to the company and its
subsidiaries and determined that the relevant laws and
regulations related to elements of company law and tax
legislation, and the financial reporting framework� Our
considerations of other laws and regulations that may
have a material effect on the financial statements included
permissions and supervisory requirements of the
Prudential Regulation Authority (‘PRA’) and the Financial
Conduct Authority (‘FCA’) and UK Listing Authority
(‘UKLA)� We obtained a general understanding of how
Phoenix Group Holdings is complying with those
frameworks by making enquiries of management and
those responsible for legal and compliance matters� We
also reviewed correspondence between the Company and
UK regulatory bodies; reviewed minutes of the Board and
Executive Committee; and gained an understanding of the
Company’s approach to governance, demonstrated by the
Board’s approval of the Company’s governance framework�
• For direct laws and regulations, we considered the extent
of compliance with those laws and regulations as part of
our procedures on the related financial statement items�
• For both direct and other laws and regulations, our
procedures involved: making enquiry of those charged
with governance and senior management for their
awareness of any non-compliance of laws or regulations,
inquiring about the policies that have been established
to prevent non-compliance with laws and regulations by
officers and employees, inquiring about the company’s
methods of enforcing and monitoring compliance with
such policies, inspecting significant correspondence
with the FCA and PRA�
• The Company operates in the insurance industry which
is a highly regulated environment� As such the Senior
Statutory Auditor considered the experience and expertise
of the engagement team to ensure that the team had the
appropriate competence and capabilities, which included
the use of specialists where appropriate�
• We assessed the susceptibility of the consolidated
financial statements to material misstatement, including
how fraud might occur by considering the controls that the
Company has established to address risks identified by
the entity, or that otherwise seek to prevent, deter or
detect fraud� We also considered areas of significant
judgment, including complex transactions, performance
targets, external pressures and the impact these have on
the control environment� Where this risk was considered
to be higher, we performed audit procedures to address
each identified fraud risk� These procedures included
testing manual journals and were designed to provide
reasonable assurance that the financial statements
were free from fraud or error�
A further description of our responsibilities for the audit
of the financial statements is located on the Financial
Reporting Council’s website at https://www�frc�org�uk/
auditorsresponsibilities� This description forms part
of our auditor’s report�
146
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Other matters we are required to address
• We were appointed by the Company Directors on
13 December 2018 and signed an engagement letter on
20 February 2019 to audit the financial statements for the
period ending 31 December 2018 and subsequent financial
periods� This is our second year as auditors to the Group�
• In November 2019 we identified that non-audit services
which are prohibited under the FRC’s Ethical Standard,
had been undertaken outside of the UK during the period
December 2018 to March 2019� These related to assisting
4 non-UK investment funds with their EU withholding tax
claims – these funds are consolidated by the Phoenix
Group� Currently no withholding tax has been recovered
by the funds as the claims are pending� Therefore, there
is no impact on the consolidated financial statements
of Phoenix Group Holdings plc for the year ended 31
December 2019� We therefore consider this to be a minor
breach of the Ethical Standard and we do not consider
our independence to be impaired� We notified the Audit
Committee of this breach in November 2019� The Audit
Committee agreed with our conclusion that the breach
is minor and that our independence is not impaired� The
Audit Committee’s discussion of this breach is set out on
page 95� The evaluation of whether our independence
was impaired included consideration of the safeguards to
independence in connection with the services� We
considered an appropriate safeguard is that the year-end
tax balances were audited by a separate UK tax team
to the tax team that provided the non-audit services�
• The audit opinion is consistent with the additional report
to the Audit Committee�
Use of our report
This report is made solely to the Company’s members, as
a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006� Our audit work has been undertaken
so that we might state to the Company’s members those
matters we are required to state to them in an Auditor’s
Report and for no other purpose� To the fullest extent
permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company’s
members as a body, for our audit work, for this report,
or for the opinions we have formed�
Stuart Wilson (Senior statutory auditor)
for and on behalf of Ernst & Young LLP,
Statutory Auditor
London
6 March 2020
Notes:
1 The maintenance and integrity of the Phoenix Group Holdings plc web
site is the responsibility of the directors; the work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes that
may have occurred to the financial statements since they were initially
presented on the web site�
2 Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions�
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2019
Gross premiums written
Less: premiums ceded to reinsurers
Net premiums written
Fees and commissions
Total revenue, net of reinsurance payable
Net investment income
Other operating income
Gain on acquisition
Net income
Policyholder claims
Less: reinsurance recoveries
Change in insurance contract liabilities
Change in reinsurers’ share of insurance contract liabilities
Transfer from unallocated surplus
Net policyholder claims and benefits incurred
Change in investment contract liabilities
Change in present value of future profits
Amortisation of acquired in-force business
Amortisation of other intangibles
Administrative expenses
Net (expense)/income under arrangements with reinsurers
Net (income)/expense attributable to unitholders
Total operating expenses
Profit before finance costs and tax
Finance costs
Profit for the year before tax
Tax (charge)/credit attributable to policyholders’ returns
(Loss)/profit before the tax attributable to owners
Tax (charge)/credit
Add: tax attributable to policyholders’ returns
Tax credit/(charge) attributable to owners
Profit for the year attributable to owners
Attributable to:
Owners of the parent
Non-controlling interests
Earnings per ordinary share
Basic (pence per share)
Diluted (pence per share)
Notes
F3
C1
C2
H2
F2
G2
G2
G2
C3
F3.3
C5
C6
C6
C6
C6
D4
2019
£m
4,038
(556)
3,482
700
4,182
24,876
106
–
29,164
(7,792)
1,177
(5,229)
(320)
84
(12,080)
(14,080)
70
(382)
(20)
(1,549)
(274)
(336)
(28,651)
2018
restated
(note A1)
£m
2,645
(481)
2,164
385
2,549
(9,457)
37
141
(6,730)
(5,295)
866
4,768
(20)
88
407
7,832
1
(196)
(18)
(1,056)
2
159
7,131
513
401
(162)
351
(365)
(14)
(235)
365
130
116
85
31
116
(142)
259
211
470
151
(211)
(60)
410
379
31
410
B3.1
B3.2
8.7p
8.6p
66.8p
66.7p
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
147
147
FINANCIALS
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2019
Profit for the year
Other comprehensive (expense)/income:
Items that are or may be reclassified to profit or loss:
Cash flow hedges:
Fair value (losses)/gains arising during the year
Reclassification adjustments for amounts recognised in profit or loss
Exchange differences on translating foreign operations
Items that will not be reclassified to profit or loss:
Remeasurements of net defined benefit asset/liability
Tax charge relating to other comprehensive income items
Total other comprehensive expense for the year
Total comprehensive income for the year
Attributable to:
Owners of the parent
Non-controlling interests
Notes
2019
£m
116
2018
£m
410
(40)
41
(29)
(24)
(57)
(109)
31
(28)
2
(54)
(10)
(59)
7
351
(24)
31
7
320
31
351
G1
C6
D4
148
148
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2019
ASSETS
Pension scheme asset
Intangible assets
Goodwill
Acquired in-force business
Other intangibles
Property, plant and equipment
Investment property
Financial assets
Loans and deposits
Derivatives
Equities
Investment in associate
Debt securities
Collective investment schemes
Reinsurers' share of investment contract liabilities
Insurance assets
Notes
2019
£m
2018
restated
(note A1)
£m
G1
314
255
G2
G3
G4
E3
57
3,651
271
3,979
57
4,033
221
4,311
109
48
5,943
6,520
516
4,454
423
3,798
58,979
52,716
513
76,113
69,415
8,881
496
71,365
67,692
8,331
E1
218,871
204,821
Reinsurers’ share of insurance contract liabilities
F1
7,324
7,564
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
50
54
42
67
7,428
7,673
75
259
1,233
4,466
145
234
1,047
4,926
242,677
229,980
G8
G5
G6
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
149
149
FINANCIALS
Statement of Consolidated Financial Position continued
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital
Share premium
Shares held by employee benefit trust
Foreign currency translation reserve
Owner-occupied property revaluation reserve
Cash flow hedging reserve
Retained earnings
Total equity attributable to owners of the parent
Tier 1 Notes
Non-controlling interests
Total equity
Liabilities
Pension scheme liability
Insurance contract liabilities
Liabilities under insurance contracts
Unallocated surplus
Financial liabilities
Investment contracts
Borrowings
Deposits received from reinsurers
Derivatives
Net asset value attributable to unitholders
Obligations for repayment of collateral received
Provisions
Deferred tax
Reinsurance payables
Payables related to direct insurance contracts
Current tax
Lease liabilities
Accruals and deferred income
Other payables
Total liabilities
Total equity and liabilities
150
150
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Notes
2019
£m
2018
£m
D1
D2
D3
D4
72
2
(7)
69
5
(7)
4,651
4,785
494
314
5,593
72
3,077
(6)
98
5
(8)
1,923
5,161
494
294
5,949
G1
1,712
596
F1
F2
E5
E3
E1
G7
G8
G9
G8
G10
G11
G12
95,643
1,367
97,010
91,211
1,358
92,569
120,773
114,463
2,119
4,213
734
3,149
2,186
4,438
1,093
2,659
3,671
134,659
2,645
127,484
328
873
101
890
–
84
384
1,043
237,084
377
843
30
902
20
–
337
873
224,031
242,677
229,980
STATEMENT OF CONSOLIDATED
CHANGES IN EQUITY
For the year ended 31 December 2019
Share
capital
(note D1)
£m
Share
premium
(note D1)
£m
Shares
held by the
employee
benefit
trust
(note D2)
£m
Foreign
currency
translation
reserve
£m
Owner-
occupied
property
revaluation
reserve
£m
At 1 January 2019
72
3,077
(6)
98
Profit for the year
Other comprehensive
(expense)/income for
the year
Total comprehensive
income for the year
Issue of ordinary share
capital, net of
associated
commissions and
expenses (note D1)
Dividends paid on
ordinary shares
Credit to equity for
equity-settled share-
based payments
Shares distributed by
the employee benefit
trust
Shares acquired by the
employee benefit trust
Dividends paid to non-
controlling interests
Transfer of reserve
(note A1)
Coupon paid on Tier 1
Notes, net of tax relief
At 31 December 2019
–
–
–
–
–
–
–
–
–
–
–
–
–
2
–
–
–
–
–
(3,077)
–
72
–
2
–
–
–
–
–
–
3
(4)
–
–
–
(7)
–
(29)
(29)
–
–
–
–
–
–
–
–
69
5
–
–
–
–
–
–
–
–
–
–
–
5
Cash flow
hedging
reserve
£m
Retained
earnings
£m
Tier 1
Notes
(note D3)
£m
Non-
controlling
interests
(note D4)
£m
Total
£m
Total
equity
£m
(8)
1,923
5,161
494
294
5,949
–
1
1
–
–
–
–
–
–
–
–
85
85
(81)
(109)
4
(24)
–
2
(338)
(338)
11
11
(3)
–
–
3,077
–
(4)
–
–
(23)
(23)
–
–
–
–
–
–
–
–
–
–
–
31
116
–
(109)
31
7
–
–
–
–
–
2
(338)
11
–
(4)
(11)
(11)
–
–
–
(23)
(7)
4,651
4,785
494
314
5,593
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
151
151
FINANCIALS
STATEMENT OF CONSOLIDATED
CHANGES IN EQUITY
For the year ended 31 December 2018
Share
capital
(note D1)
£m
Share
premium
(note D1)
£m
Shares
held by
employee
benefit trust
(note D2)
£m
Foreign
currency
translation
reserve
£m
Owner-
occupied
property
revaluation
reserve
£m
Cash flow
hedging
reserve
£m
Retained
earnings
£m
Tier 1
Notes
(note D3)
£m
Non-
controlling
interests
(note D4)
£m
Total
£m
Total
equity
£m
At 1 January 2018
39
1,413
(2)
96
Profit for the year
Other comprehensive
income/(expense) for
the year
Total comprehensive
income for the year
Issue of ordinary share
capital, net of
associated
commissions and
expenses (note D1)
Dividends paid on
ordinary shares
Credit to equity for
equity-settled share
based payments
Shares distributed by
employee benefit trust
Shares acquired by
employee benefit trust
Non-controlling
interests recognised on
acquisition
Dividends paid to non-
controlling interests
Issue of Tier 1 Notes
Coupon paid on Tier 1
Notes, net of tax relief
At 31 December 2018
–
–
–
–
–
–
33
1,926
–
–
–
–
–
–
–
–
72
(262)
–
–
–
–
–
–
–
3,077
–
–
–
–
–
–
4
(8)
–
–
–
–
(6)
–
2
2
–
–
–
–
–
–
–
–
–
98
5
–
–
–
–
–
–
–
–
–
–
–
–
5
(11)
1,615
3,155
–
3
3
–
–
–
–
–
–
–
–
379
379
(64)
(59)
315
320
–
–
9
(4)
–
–
–
–
1,959
(262)
9
–
(8)
–
–
–
–
(8)
(12)
(12)
1,923
5,161
–
–
–
–
–
–
–
–
–
–
–
494
–
494
–
3,155
31
410
–
(59)
31
351
–
–
–
–
–
1,959
(262)
9
–
(8)
265
265
(2)
–
(2)
494
–
(12)
294
5,949
152
152
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
STATEMENT OF CONSOLIDATED
CASH FLOWS
For the year ended 31 December 2019
Cash flows from operating activities
Cash generated/(utilised) by operations
Taxation paid
Net cash flows from operating activities
Cash flows from investing activities
Acquisition of Standard Life Assurance subsidiaries, net of cash acquired
Net cash flows from investing activities
Cash flows from financing activities
Proceeds from issuing ordinary shares, net of associated commission and expenses
Ordinary share dividends paid
Dividends paid to non-controlling interests
Repayment of policyholder borrowings
Repayment of shareholder borrowings
Repayment of lease liabilities
Proceeds from new shareholder borrowings, net of associated expenses
Proceeds from issuance of Tier 1 Notes, net of associated expenses
Coupon paid on Tier 1 Notes
Interest paid on policyholder borrowings
Interest paid on shareholder borrowings
Net cash flows from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Notes
I2
B4
D4
E5.2
E5.2
G10
E5.2
2019
£m
273
(205)
68
–
–
2
(338)
(11)
(34)
(100)
(15)
100
–
(29)
(4)
(99)
2018
£m
(324)
(29)
(353)
1,607
1,607
936
(262)
(2)
(69)
(295)
–
733
494
(14)
(5)
(89)
(528)
1,427
(460)
4,926
2,681
2,245
4,466
4,926
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
153
153
FINANCIALS
Notes to the Consolidated
Financial Statements
A. SIGNIFICANT ACCOUNTING POLICIES
A1. Basis of Preparation
The consolidated financial statements for the year ended
31 December 2019 set out on pages 147 to 243 comprise the
financial statements of Phoenix Group Holdings plc (‘the Company’)
and its subsidiaries (together referred to as ‘the Group’), and were
authorised by the Board of Directors for issue on 6 March 2020.
permitted by an International Financial Reporting Standard (‘IFRS’)
or interpretation, as specifically disclosed in the accounting policies
of the Group.
Statement of compliance
The consolidated financial statements have been prepared in
accordance with IFRSs as adopted by the European Union (‘EU’).
In 2018, following a scheme of arrangement in accordance with
section 86 of the Cayman Islands Companies Law between Phoenix
Group Holdings (‘Old PGH’), the former ultimate parent company of
the Group, and its shareholders, all of the issued shares in Old PGH
were cancelled and an equivalent number of new shares in Old PGH
were issued to the Company in consideration for the allotment to Old
PGH shareholders of one ordinary share in the Company for each
ordinary share in Old PGH that they held on the scheme record date,
12 December 2018.
The scheme of arrangement had the effect of the Company being
inserted above Old PGH in the Group legal entity organisational
structure and constituted a group reconstruction. It was accounted
for in accordance with the principles of a reverse acquisition under
IFRS 3 Business Combinations.
In applying the principles of reverse acquisition accounting, the
consolidated financial statements were presented as a continuation
of the Old PGH business and the Group is presented as if the
Company had always been the ultimate parent company. The equity
structure as at 1 January 2018 was restated to reflect the difference
between the par value of shares issued by the Company (£39 million)
and the shares issued by Old PGH (£nil) prior to the share for share
exchange, with a corresponding adjustment to share premium. In
addition, the presentation within the consolidated statement of
changes in equity of the impact of shares issued during 2018 by Old
PGH up to the date of the share for share exchange reflected the par
value of the shares issued by the Company.
At 31 December 2018, the share premium reserve continued to reflect
the position of Old PGH. During 2019, Old PGH, in accordance with
Cayman Islands Companies Law, made a distribution of its entire share
premium reserve to Phoenix Group Holdings plc. This has been
reflected as a transfer of share premium in the statement of
consolidated changes in equity in the year.
No other adjustments have been reflected in equity, and as a
consequence, the carrying values of the components of equity
recognised in the consolidated financial statements are different to the
corresponding balances in the financial statements of the Company.
The consolidated financial statements have been prepared on a going
concern basis and on a historical cost basis except for investment
property, owner-occupied property and those financial assets and
financial liabilities (including derivative instruments) that have been
measured at fair value.
The consolidated financial statements are presented in sterling (£)
rounded to the nearest million except where otherwise stated.
Assets and liabilities are offset and the net amount reported in the
statement of consolidated financial position only when there is a
legally enforceable right to offset the recognised amounts and there
is an intention to settle on a net basis, or to realise the assets and
settle the liability simultaneously. Income and expenses are not
offset in the consolidated income statement unless required or
154
154
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Restatement of prior period information
Following the acquisition of the Standard Life Assurance businesses in
2018, the Group has revised the presentation of certain balances within
the statement of consolidated financial position and consolidated income
statement. These presentational changes have been made to ensure
consistency of accounting treatment for all similar items across the
Group’s subsidiaries.
2018
As
previously
reported
£m
Adjustments
£m
2018
restated
£m
Consolidated income
statement:
Net investment income
(9,600)
143
(9,457)
Change in investment
contract liabilities
7,975
(143)
7,832
Statement of consolidated
financial position:
Financial assets:
Loans and deposits
Debt securities
Collective investment
schemes
3,612
(3,189)
423
67,932
3,433
71,365
70,606
(2,914)
67,692
Reinsurers’ share of
investment contract liabilities
5,417
2,914
8,331
Prepayments and accrued income
478
(244)
234
Debt securities has been restated to include reclassified loans and
deposits designated at fair value through profit and loss and an uplift
to the value of certain assets for accrued interest previously classified
within prepayments and accrued interest. These reclassifications have
resulted in an increase to the fair value hierarchy totals for debt
securities as follows: £195 million for level 1; £45 million for level 2;
and £3,193 million for level 3 assets.
External Fund Link assets have been reclassified from collective
investment schemes to reinsurers’ share of investment contract
liabilities also as a level 1 asset. This has had an associated impact
within the consolidated income statement as shown above.
Following on from this change, the previously reported reinsurers’
share of investment contract liabilities balance of £5,381 million was
reclassified from level 2 to level 1.
The reclassifications noted above are also reflected in notes C2
investment income, E1.1 fair value analysis, E2 fair value hierarchy,
E6 financial risk analysis, H4 structured entities and I2 cash flows
from operating activities.
None of the restatements of prior period information have impacted
the total equity attributable to the owners of the parent.
Basis of consolidation
The consolidated financial statements include the financial statements
of the Company and its subsidiary undertakings, including collective
investment schemes, where the Group exercises overall control. In
accordance with the principles set out in IFRS 10 Consolidated
Financial Statements, the Group controls an investee if and only if
the Group has all the following:
• power over the investee;
• exposure, or rights, to variable returns from its involvement with
the investee; and
• the ability to use its power over the investee to affect its returns.
The Group considers all relevant facts and circumstances in assessing
whether it has power over an investee, including relevant activities,
substantive and protective rights, voting rights and purpose and design
of an investee. The Group reassesses whether or not it controls an
investee if facts and circumstances indicate that there are changes to
one or more of the three elements of control. Further details about the
consolidation of subsidiaries, including collective investment schemes,
are included in note H1.
A2. Accounting Policies
The principal accounting policies have been consistently applied in these
consolidated financial statements. Where an accounting policy can be
directly attributed to a specific note to the consolidated financial
statements, the policy is presented within that note, with a view to
enabling greater understanding of the results and financial position of the
Group. All other significant accounting policies are disclosed below. The
impacts of changes in accounting policies during the year are detailed in
note A6.
A2.1 Foreign currency transactions
Items included in the financial statements of each of the Group’s
entities are measured using the currency of the primary economic
environment in which the entity operates (the ‘functional currency’).
The consolidated financial statements are presented in sterling,
which is the Group’s presentation currency.
The results and financial position of all Group companies that have a
functional currency different from the presentation currency are
translated into the presentation currency as follows:
• assets and liabilities are translated at the closing rate at the period
end;
• income, expenses and cash flows denominated in foreign
currencies are translated at average exchange rates; and
• all resulting exchange differences are recognised through
the statement of consolidated comprehensive income.
Foreign currency transactions are translated into the functional
currency of the transacting Group entity using exchange rates
prevailing at the date of translation. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the
translation of monetary assets and liabilities denominated in foreign
currencies are recognised in the consolidated income statement.
Translation differences on debt securities and other monetary
financial assets measured at fair value through profit or loss are
included in foreign exchange gains and losses. Translation
differences on non-monetary items at fair value through profit or loss
are reported as part of the fair value gain or loss.
A3. Critical Accounting Estimates and Judgements
The preparation of financial statements requires management
to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities,
income and expenses. Disclosures of judgements made by
management in applying the Group’s accounting policies include
those that have the most significant effect on the amounts that are
recognised in the consolidated financial statements. Disclosures of
estimates and associated assumptions include those that have a
significant risk of resulting in a material change to the carrying value
of assets and liabilities within the next year. The estimates and
associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of the
judgements as to the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ
from these estimates.
Critical accounting estimates are those which involve the most
complex or subjective judgements or assessments. The areas
of the Group’s business that typically require such estimates are
the measurement of insurance and investment contract liabilities,
determination of the fair value of financial assets and liabilities,
valuation of pension scheme assets and liabilities, valuation of
intangibles on initial recognition and measurement of provisions.
The application of critical accounting judgements that could have the
most significant effect on the recognised amounts include recognition
of pension surplus, the determination of operating profit, identification
of intangible assets arising on acquisitions, the recognition of an
investment as an associate and determination of control with regards
to underlying entities. Details of all critical accounting estimates and
judgements are included below.
A3.1 Insurance and investment contract liabilities
Insurance and investment contract liability accounting is discussed in
more detail in the accounting policies in note F1 with further detail of
the key assumptions made in determining insurance and investment
contract liabilities included in note F4. Economic assumptions are set
taking into account market conditions as at the valuation date. Non-
economic assumptions, such as future expenses, longevity and
mortality are set based on past experience, market practice,
regulations and expectations about future trends.
The valuation of insurance contract liabilities is sensitive to the
assumptions which have been applied in their calculation. Details of
sensitivities arising from significant non-economic assumptions are
detailed on page 197 in note F4.
A3.2 Fair value of financial assets and liabilities
Financial assets and liabilities are measured at fair value and accounted
for as set out in the accounting policies in note E1. Where possible,
financial assets and liabilities are valued on the basis of listed market
prices by reference to quoted market bid prices for assets and offer
prices for liabilities. These are categorised as Level 1 financial
instruments and do not involve estimates. If prices are not readily
determinable, fair value is determined using valuation techniques
including pricing models, discounted cash flow techniques or broker
quotes. Financial instruments valued using valuation techniques based
on observable market data at the period end are categorised as Level 2
financial instruments. Financial instruments valued using valuation
techniques based on non-observable inputs are categorised as Level 3
financial instruments. Level 2 and Level 3 financial instruments
therefore involve the use of estimates.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
155
155
FINANCIALS
Notes to the Consolidated Financial Statements continued
A. SIGNIFICANT ACCOUNTING POLICIES continued
A3. Critical Accounting Estimates and Judgements continued
A3.2 Fair value of financial assets and liabilities continued
Further details of the estimates made are included in note E2. In
relation to the Level 3 financial instruments, sensitivity analysis is
performed in respect of the key assumptions used in the valuation of
these financial instruments. The details of this sensitivity analysis are
included in note E2.3.
A3.3 Pension scheme obligations
The valuation of pension scheme obligations is determined using
actuarial valuations that depend upon a number of assumptions,
including discount rate, inflation and longevity. External actuarial advice
is taken with regard to setting the financial assumptions to be used in
the valuation. As defined benefit pension schemes are long-term in
nature, such assumptions can be subject to significant uncertainty.
Further detail of these estimates and the sensitivity of the defined
benefit obligation to key assumptions is provided in note G1.
A3.4 Recognition of pension scheme surplus
A pension scheme surplus can only be recognised to the extent that
the sponsoring employer can utilise the asset through a refund of
surplus or a reduction in contributions. A refund is available to the
Group where it has an unconditional right to a refund on a gradual
settlement of liabilities over time until all members have left the
scheme. A review of the Trust Deeds of the Group’s pension schemes
that recognise a surplus has highlighted that the Scheme Trustees are
not considered to have the unilateral power to trigger a wind-up of the
Scheme and the Trustees’ consent is not needed for the sponsoring
company to trigger a wind-up. Where the last beneficiary died or left
the scheme, the sponsoring company could close the Scheme and
force the Trustees to trigger a wind-up by withholding its consent to
continue the Scheme on a closed basis. This view is supported by
external legal opinion and is considered to support the recognition of a
surplus. Management has determined that the scheme administrator
would be subject to a 35% tax charge on a refund and therefore any
surplus is reduced by this amount. Further details of the Group’s
pension schemes are provided in note G1.
A3.5 Operating profit
Operating profit is the Group’s non-GAAP measure of performance
and gives stakeholders a better understanding of the underlying
performance of the Group. The Group is required to make judgements
as to the appropriate longer-term rates of investment return for the
determination of operating profit, as detailed in note B2, and as to what
constitutes an operating or non-operating item in accordance with the
accounting policy detailed in note B1.
A3.6 Acquisition of the Standard Life Assurance businesses
The identification and valuation of identifiable intangible assets, such
as acquired in-force business or brand intangibles, arising from the
Group’s acquisition of the Standard Life Assurance businesses in
2018, required the Group to make a number of judgements and
estimates. Further details are included in notes G2 ‘Intangible assets’
and H2 ‘Acquisitions’.
A3.7 Control and consolidation
The Group has invested in a number of collective investment schemes
and other types of investment where judgement is applied in
determining whether the Group controls the activities of these entities.
These entities are typically structured in such a way that owning the
majority of the voting rights is not the conclusive factor in the
determination of control in line with the requirements of IFRS 10
Consolidated Financial Statements. The control assessment therefore
involves a number of further considerations such as whether the Group
has a unilateral power of veto in general meetings and whether the
existence of other agreements restrict the Group from being able to
influence the activities. Further details of these judgements are given
in note H1.
A3.8 Provisions
The Group holds a number of provisions and the amount of each
provision is determined based on the Group’s estimation of the
outflow of resources required to settle each obligation as at
31 December 2019. The recognition and measurement of these
provisions involves a high degree of judgement and estimation
uncertainty. Further details of these provisions and the key
uncertainties identified are included in note G7.
A4. Adoption of New Accounting Pronouncements
in 2019
In preparing the consolidated financial statements, the Group has
adopted the following standards, interpretations and amendments
effective from 1 January 2019:
• IFRS 16 Leases. The new standard replaces IAS 17 Leases and
removes the classification of leases as operating or finance leases
for the lessee, thereby treating all leases as finance leases. This has
resulted in the recognition of the Group’s previously classified
operating leases on balance sheet as right of use assets (see note
G3) and lease liabilities (see note G10). The Group’s finance leases
in respect of ground rents payable in connection with investment
properties were previously accounted for in accordance with IAS 17
and included within investment properties and other payables.
Amounts included in other payables have been reclassified to lease
liabilities. Short-term leases (less than 12 months) and leases of low-
value assets are exempt from the requirements. The Group has
applied IFRS 16 using the modified retrospective approach.
Accordingly, the comparative information for 2018 has not been
restated and continues to be reported under IAS 17 and related
interpretations. Further details of the impact of applying IFRS 16
as at 1 January 2019 are included in note A6.
• IFRIC Interpretation 23 Uncertainty over Income Tax
Treatments. The Interpretation explains how to recognise and
measure deferred and current tax assets and liabilities where there
is uncertainty over a tax treatment. There are no new disclosure
requirements; however, the Group has reviewed whether further
information should be provided about judgements and estimates
made in preparing the consolidated financial statements. No specific
issues have been identified that require disclosure in the period.
• Amendments to IAS 19 Employee Benefits – Plan
Amendment, Curtailment or Settlement. The amendments
address the accounting when a defined benefit plan amendment,
curtailment or settlement occurs during a reporting period and apply
prospectively from 1 January. The Group is required to update the
assumptions about its obligation and fair value of its plan assets to
calculate costs related to these changes. The proposed amendments
to IAS 19 specify that the Group is required to use the updated
information to determine current service cost and net interest for the
period followed by these changes. There have been no plan
amendments, curtailments or settlements within any Group pension
scheme during the year and retrospective application is not required.
• Annual Improvements Cycle 2015-2017: Amendments to IAS
12 Income Taxes, IAS 23 Borrowing Costs and IFRS 3
Business combinations/IFRS 11 Joint Arrangements. These
amendments do not currently have any impact on the Group.
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
A5. New Accounting Pronouncements not yet Effective
The IASB has issued the following new or amended standards and
interpretations which apply from the dates shown. The Group has
decided not to early adopt any of these standards, amendments or
interpretations where this is permitted.
• IFRS 9 Financial Instruments (2018 – recommended
implementation date extended to 2022). Under IFRS 9, all
financial assets will be measured either at amortised cost or fair value
and the basis of classification will depend on the business model and
the contractual cash flow characteristics of the financial assets. In
relation to the impairment of financial assets, IFRS 9 requires the use
of an expected credit loss model, as opposed to the incurred credit
loss model required under IAS 39 Financial Instruments. The expected
credit loss model will require the Group to account for expected credit
losses and changes in those expected credit losses at each reporting
date to reflect changes in credit risk since initial recognition.
The Group has taken advantage of the temporary exemption granted
to insurers in IFRS 4 Insurance Contracts from applying IFRS 9 until 1
January 2021 (recommended deferral period extended by IASB to
2022) as a result of meeting the exemption criteria as at 31 December
2015. As at this date the Group’s activities were considered to be
predominantly connected with insurance as the percentage of the total
carrying amount of its liabilities connected with insurance relative to
the total carrying amount of all its liabilities was greater than 90%.
Following the acquisition of the Standard Life Assurance businesses
on 31 August 2018, this assessment was re-performed and the
Group’s activities were still considered to be predominantly connected
with insurance.
IFRS 9 will be implemented at the same time as the new insurance
contracts standard (IFRS 17 Insurance Contracts) effective from 1
January 2021 (IASB recommended extending the implementation
date to 2022). During the year, the Group commenced its
implementation activities in respect of IFRS 9 and these will continue
through 2020.The Group expects to continue to value the majority of
its financial assets at fair value through profit or loss on initial
recognition, either as a result of these financial assets being managed
on a fair value basis or as a result of using the fair value option to
irrevocably designate the assets at fair value through profit or loss.
IFRS 9 also amends the general hedge accounting requirements for
the Group’s hedging relationships that are currently accounted for
under IAS 39. It is expected that the existing hedging relationships
will continue to be accounted for as cash flow hedges under IFRS 9
and hedge effectiveness testing processes and documentation will
be updated to reflect the new more principles based requirements.
A number of additional disclosures will be required by IFRS 7
Financial Instruments: Disclosures as a result of implementing IFRS
9. Additional disclosures have been made in note E1.2 to the
consolidated financial statements to provide information to allow
comparison with entities who have already adopted IFRS 9.
• Amendments to IFRS 9 Financial Instruments: Prepayment
Features with Negative Compensation (2019 – recommended
implementation date extended to 2022 for those companies
applying the IFRS 4 deferral option). The proposed
amendments would allow for a narrow exception to IFRS 9 that
would permit particular financial instruments with prepayment
features with negative compensation to be eligible for
measurement at amortised cost or at fair value through other
comprehensive income. It is not currently expected that these
amendments will have an impact on the Group and its
consolidated financial statements.
• Amendments to IAS 28 Investments in Associates and Joint
Ventures: Long-term Interests in Associates and Joint
Ventures (2019 – recommended implementation date
extended to 2022 for those companies applying the IFRS 4
deferral option). The amendments to IAS 28 clarify that an entity
applies IFRS 9 Financial Instruments to long-term interests in an
associate or joint venture that form part of the net investment in
the associate or joint venture but to which the equity method is
not applied. These amendments do not currently have any impact
on the Group.
• Amendments to References to the Conceptual Framework in
IFRS Standards (2020).
• Amendments to IAS 1 Presentation of Financial Statements
and IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors (2020). The amendments clarify the
definition of material and how it should be applied and ensures
that the definition of material is consistent across all IFRS
Standards.
• Amendments to IFRS 3 Business Combinations (2020).
The amendments have revised the definition of a business and
aim to assist companies to determine whether an acquisition
made is of a business or a group of assets. The amended
definition emphasises that the output of a business is to provide
goods and services to customers, whereas the previous definition
focused on returns in the form of dividends, lower costs or other
economic benefits to investors and others. These amendments
do not currently have any impact on the Group.
• Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS
39 and IFRS 7) (2020). The amendments have arisen following
the phasing out of interest-rate benchmarks such as interbank
offered rates (‘IBOR’). Specific hedge accounting requirements
have been modified to provide relief from potential effects of the
uncertainty caused by IBOR reform. In addition, these
amendments require entities to provide additional information
to investors about their hedging relationships which are directly
affected by these uncertainties. There is not expected to be an
impact for the Group from these amendments but a review will
be undertaken in 2020 to confirm this.
• IFRS 17 Insurance contracts (2021 – IASB recommended
extension of implementation date to 2022). Once effective IFRS
17 will replace IFRS 4 the current insurance contracts standard and it is
expected to significantly change the way the Group measures and
reports its insurance contracts. The overall objective of the new
standard is to provide an accounting model for insurance contracts that
is more useful and consistent for users. The new standard uses three
measurement approaches and the principles underlying two of these
measurement approaches will significantly change the way the Group
measures its insurance contracts and investment contracts with
Discretionary Participation Features (‘DPF’). These changes will impact
profit emergence patterns and add complexity to valuation processes,
data requirements and assumption setting. The Group’s IFRS 17
project continued through 2019 with an increasing focus on
implementation activities alongside ongoing financial and operational
impact assessments and methodology development.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
157
157
FINANCIALS
Notes to the Consolidated Financial Statements continued
The Group has applied IFRS 16 using the modified retrospective
approach, under which the cumulative effect of initial application
is recognised in retained earnings at 1 January 2019. Accordingly,
the comparative information for 2018 has not been restated and
continues to be reported under IAS 17 and related interpretations.
As a lessee, the Group previously classified certain property leases
as operating leases where a significant element of the risks and
rewards of title to the asset was retained by the lessor. Under IFRS
16, the Group recognises right-of-use assets and lease liabilities in
respect of these property leases in the statement of consolidated
financial position. The Group’s finance leases are in respect of
ground rents payable in connection with a number of investment
properties that the Group owns. These were previously accounted
for in accordance with IAS 17 and included within investment
properties and other payables in the statement of consolidated
financial position.
At 1 January 2019, the carrying value of the right of use assets and
lease liabilities for the Group’s finance leases is measured in
accordance with IAS 17, as permitted by IFRS 16, and the new
standard will be applied to these leases from 1 January 2019.The
details of the changes in accounting policies are discussed below.
Definition of a lease
Previously, the Group determined at contract inception whether an
arrangement was or contained a lease under IFRIC 4 ‘Determining
Whether an Arrangement contains a Lease’. The Group now
assesses whether a contract is or contains a lease based on IFRS16
which states that ‘a contract is, or contains, a lease if the contract
conveys a right to control the use of an identified asset for a period
of time in exchange for consideration’.
On transition to IFRS 16, the Group elected to apply the practical
expedient to grandfather the assessment of which transactions are
leases. It applied IFRS 16 only to contracts that were previously
identified as leases. Contracts that were not identified as leases under
IAS 17 and IFRIC 4 were not reassessed. Therefore, the definition of a
lease under IFRS 16 has been applied only to contracts entered into or
changed on or after 1 January 2019.
The Group excludes non-lease components such as service charges
and accounts for these on a straight-line basis over the lease term.
Accounting policy
The Group recognises a right-of-use asset and a lease liability at the
lease commencement date. The property, plant and equipment right-
of-use assets are initially measured at cost, and subsequently at cost
less any accumulated depreciation and impairments, and adjusted for
certain remeasurements of the lease liability. These right-of-use
assets are depreciated over the remaining lease term which is
between 1 and 11 years. The ground rent right-of-use asset is
classified as investment property and measured at fair value. Gains
and losses arising from the change in fair value are recognised in the
consolidated income statement.
A. SIGNIFICANT ACCOUNTING POLICIES continued
A5. New Accounting Pronouncements not yet Effective
continued
In June 2019, the IASB published an exposure draft of
amendments to IFRS 17 in response to feedback received. Whilst
the IASB has confirmed many of the changes that will be made to
the standard, there remains significant uncertainty in respect of
certain key areas of the standard. In relation to the implementation
date, the IASB staff have recently proposed to the IASB board that
the implementation date is extended to annual periods beginning
on or after 1 January 2023. The IASB board is expected to approve
this change at their March 2020 meeting. Development of the
Group’s methodologies and accounting policies is progressing;
however, these will not be finalised until after the amended
standard is published in mid-2020. All activities will continue
throughout 2020.
• Classification of Liabilities as Current and Non-current
(Amendments to IAS 1 Presentation of Financial Statements)
(2022). The amendments clarify rather than change existing
requirements and aim to assist entities in determining whether debt
and other liabilities with an uncertain settlement date should be
classed as current or non-current. It is currently not expected that
there will be any reclassifications as a result of this clarification.
• Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture (Amendments to IFRS 10 and IAS
28) (Effective date deferred). The amendments address the conflict
between IFRS 10 and IAS 28 in dealing with the loss of control of a
subsidiary that is sold or contributed to an associate or joint venture.
This amendment is currently not applicable to the Group.
All of the above have been endorsed by the EU with the exception
of the following:
• IFRS 17 Insurance contracts;
• Amendments to IFRS 3 Business Combinations; and
• Classification of Liabilities as Current and Non-current
(Amendments to IAS 1 Presentation of Financial Statements).
On 31 January 2020, the UK left the EU and consequently EFRAG
will no longer endorse IFRSs for use in the UK. Legislation is already
in place that will onshore and freeze EU-adopted IFRSs from the date
of the exit, and the European Commission’s powers to endorse and
adopt IFRSs will be delegated by the Secretary of State to a UK
endorsement board which will be set up by the UK Financial
Reporting Council. IFRSs in the UK will be known as ‘UK-adopted
International Accounting Standards’.
A6. Change in Accounting Policy – IFRS 16 Leases
IFRS 16 introduced a single, on-balance sheet accounting model for
lessees effective from 1 January 2019. IFRS 16 supersedes IAS17
‘Leases’, IFRIC 4 ‘Determining whether an Arrangement contains a
Lease’, SIC-15 ‘Operating Leases – Incentives’ and SIC-27
‘Evaluating the Substance of Transactions Involving the Legal Form
of a Lease’. As a result, the Group as a lessee has recognised right-
of-use assets representing its rights to use underlying assets and
lease liabilities representing its obligation to make lease payments in
respect of both its operating and finance leases. Lessor accounting
remains similar to previous accounting policies.
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Lease liabilities are presented as a separate line item and right-of-use
assets are presented within ‘property, plant and equipment’ and
‘investment property’ in the statement of consolidated financial position.
Impact on consolidated financial statements
The impact to the statement of consolidated financial position on
transition to IFRS 16 is outlined below:
The Group has elected not to recognise right-of-use assets and lease
liabilities for leases of low value assets, including IT equipment. The
Group recognises the lease payments associated with these leases
as an expense on a straight-line basis over the lease term.
The lease liability is initially measured at the present value of the
lease payments that are not paid at the commencement date,
discounted using the Group’s incremental borrowing rate as the
interest rate implicit in the lease cannot be readily determined. For
leases classified as finance leases, the incremental borrowing rate
of investment funds holding the associated investment properties
is used as the discount rate.
The lease liability is subsequently increased by the interest cost on
the lease liability and decreased by lease payments made. It is
remeasured when there is a change in future lease payments arising
from, for example, rent reviews or from changes in the assessment
of whether a termination option is reasonably certain not to be
exercised. The Group has applied judgement to determine the lease
term for some lease contracts with break clauses.
Transition
Previously, the Group classified certain property leases as operating
leases under IAS 17. Payments made under operating leases, net of
any incentives received from the lessor, were recognised as an
expense in the consolidated income statement on a straight-line basis
over the period of the lease.
At transition, for leases classified as operating leases under IAS 17,
lease liabilities were measured at the present value of the remaining
lease payments, discounted at the Group’s incremental borrowing
rate as at 1 January 2019. Right-of-use assets were measured at an
amount equal to the lease liability, adjusted by the amount of any
prepaid or accrued lease payments.
The Group used a further practical expedient when applying IFRS 16
to leases previously classified as operating leases under IAS 17 to
exclude initial direct costs from measuring the right-of-use asset at
the date of initial application.
At transition the carrying value of the right of use assets and lease
liabilities for the Group’s finance leases is measured in accordance with
IAS 17 and the requirements of IFRS 16 are applied to these leases
from 1 January 2019.
Right-of-use assets
Lease liabilities
Other payables1
Derecognition of accrual for rent free period
Total
1 January 2019
£m
77
(158)
80
1
–
1 At 1 January 2019 leased assets of £80 million included within investment properties
were classified as right-of-use assets.
The Group’s weighted average incremental borrowing rate applied
to operating lease liabilities in the statement of consolidated financial
position at the date of initial application was 2.84%. For leases
classified as finance leases, the weighted average incremental
borrowing rate of investment funds holding the associated
investment properties applied at the date of initial application
was 2.91%.
The table below reconciles closing operating lease commitments at
31 December 2018 to opening lease liabilities as classified under
IFRS16 at 1 January 2019.
1 January 2019
£m
Operating lease commitment as at 31 December
2018
Finance lease liability as at 31 December 2018
Restatement of opening operating lease commitment1
Restated lease liabilities as at 31 December 2018
Effect of discounting using the incremental borrowing
rate as at 1 January 2019
Less: Low value leases recognised on a straight-line
basis as expense
Add: Adjustments as a result of different treatment of
extension and termination options
Lease liabilities as at 1 January 2019
91
80
(8)
163
(11)
(1)
7
158
1 The opening restatement relates to service agreements incorrectly categorised as
operating lease commitments at 31 December 2018.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
159
159
FINANCIALS
Notes to the Consolidated Financial Statements continued
B. EARNINGS PERFORMANCE
B1 Segmental Analysis
The Group defines and presents operating segments in accordance
with IFRS 8 ‘Operating Segments’ which requires such segments to
be based on the information which is provided to the Board, and
therefore segmental information in this note is presented on a different
basis from profit or loss in the consolidated financial statements.
An operating segment is a component of the Group that engages in
business activities from which it may earn revenues and incur
expenses, including revenues and expenses relating to transactions
with other components of the Group.
Following the acquisition of the Standard Life Assurance businesses
in 2018, the Group reassessed its operating segments to reflect the
way the business was subsequently being managed. The Group now
has four reportable segments comprising UK Heritage, UK Open,
Europe and Management Services, as set out in note B1.1.
For management purposes, the Group is organised into business
units based on their products and services. For reporting purposes,
business units are aggregated where they share similar economic
characteristics including the nature of products and services, types of
customers and the nature of the regulatory environment. No such
aggregation has been required in the current year.
The UK Heritage segment contains UK businesses which no longer
actively sell products to policyholders and which therefore run-off
gradually over time. These businesses will accept incremental
premiums on in-force policies, and will provide annuities to existing
policyholders with vesting products. Bulk Purchase Annuity contracts
are included in this segment.
The UK Open segment includes new and in-force life insurance and
investment policies in respect of products that the Group continues
to actively market to new and existing policyholders. This includes
products such as workplace pensions and Self-Invested Personal
Pensions (‘SIPPs’) distributed through the Group’s Strategic
Partnership with Standard Life Aberdeen plc (‘SLA plc’), and also
products sold under the SunLife brand.
The Europe segment includes business written in Ireland and
Germany. This includes products that are actively being marketed to
new policyholders, and legacy in-force products that are no longer
being sold to new customers.
The Management Services segment comprises income from the life
and holding companies in accordance with the respective management
service agreements less fees related to the outsourcing of services and
other operating costs.
Unallocated Group includes consolidation adjustments and Group
financing (including finance costs) which are managed on a Group
basis and are not allocated to individual operating segments.
Inter-segment transactions are set on an arm’s length basis in a
manner similar to transactions with third parties. Segmental results
include those transfers between business segments which are then
eliminated on consolidation.
Segmental measure of performance: Operating Profit
The Company uses a non-GAAP measure of performance, being
operating profit, to evaluate segment performance. Operating profit is
considered to provide a comparable measure of the underlying
160
160
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
performance of the business as it excludes the impact of short-term
economic volatility and other one-off items. This measure incorporates
an expected return, including a longer-term return on financial
investments backing shareholder and policyholder funds over the
period, with consistent allowance for the corresponding expected
movement in liabilities. Annuity new business profits are included in
operating profit using valuation assumptions consistent with the pricing
of the business (including the Company’s expected longer-term asset
allocation backing the business).
Operating profit includes the effect of variances in experience for non-
economic items, such as mortality and expenses, and the effect of
changes in non-economic assumptions. It also incorporates the
impacts of significant management actions where such actions are
consistent with the Company’s core operating activities (for example,
actuarial modelling enhancements and data reviews). Operating profit
is reported net of policyholder finance charges and policyholder tax.
Operating profit excludes the impact of the following items:
• the difference between the actual and expected experience for
economic items and the impacts of changes in economic
assumptions on the valuation of liabilities (see notes B2.2 and B2.3);
• amortisation and impairments of intangible assets (net of
policyholder tax);
• finance costs attributable to owners;
• gains or losses on the acquisition or disposal of subsidiaries (net of
related costs);
• the financial impacts of mandatory regulatory change;
• the profit or loss attributable to non-controlling interests;
• integration, restructuring or other significant one-off projects; and
• any other items which, in the Directors’ view, should be disclosed
separately by virtue of their nature or incidence to enable a full
understanding of the Company’s financial performance. This is
typically the case where the nature of the item is not reflective of
the underlying performance of the operating companies.
Whilst the excluded items are important to an assessment of the
consolidated financial performance of the Group, management considers
that the presentation of the operating profit metric provides useful
information for assessing the performance of the Group’s operating
segments on an ongoing basis. The IFRS results are significantly
impacted by the amortisation of intangible balances arising on acquisition,
the one-off costs of integration activities and the costs of servicing debt
used to finance acquisition activity, which are not indicative of the
underlying operational performance of the Group’s segments.
Furthermore, the hedging strategy of the Group is calibrated to protect
the Solvency II capital position and cash generation capability of the
operating companies, as opposed to the IFRS financial position. This can
create additional volatility in the IFRS result which is excluded from the
operating profit metric.
The Company therefore considers that operating profit provides a
more representative indicator of the ability of the Group’s operating
companies to generate cash available for the servicing of the Group’s
debts and for distribution to shareholders. Accordingly, the measure
is more closely aligned with the business model of the Group and
how performance is managed by those charged with governance.
B1.1 Segmental result
Other non-operating items in respect of 2019 include:
Notes
2019
£m
2018
£m
694
640
Operating profit
UK Heritage
UK Open
Europe
Management Services
Unallocated Group
Total segmental operating profit
Investment return variances and
economic assumption changes on
long-term business
Variance on owners' funds
Amortisation of acquired in-force
business
B2.2
B2.3
Amortisation of other intangibles
G2
Other non-operating items
Finance costs on borrowing
attributable to owners
(Loss)/profit before the tax
attributable to owners of the
parent
Profit before tax attributable to non-
controlling interests
(Loss)/profit before the tax
attributable to owners
• an £80 million benefit arising from updated expense assumptions for
insurance contracts reflecting reduced future servicing costs as a
result of transition activity. Such benefits on the Group’s investment
contract business will typically be recognised as incurred. This
benefit has been more than offset by staff and external costs
incurred or provided for in the period with regard to transition activity
and the transformation of the Group’s operating model and
extended relationship with Tata Consultancy Services, totalling
£190 million, of which £175 million relates to external costs;
• £5 million of costs associated with preparations to ready the
business for Brexit;
• £41 million of other corporate project costs, including the Group’s
Internal Model harmonisation project and acquisition of ReAssure
Group; and
• net other one-off items totalling a cost of £13 million.
Other non-operating items in respect of 2018 include:
• a provision for £68 million in respect of a commitment to reduce
ongoing and exit charges for non-workplace pension products;
73
52
26
(35)
810
(177)
13
(375)
(20)
(169)
41
22
25
(20)
708
283
(193)
(189)
(18)
(38)
(127)
(114)
• costs of £43 million associated with the acquisition of the Standard
Life Assurance businesses, and £7 million incurred under the on-
going transition programme;
(45)
439
31
31
(14)
470
• costs of £59 million associated with the equalisation of accrued
Guaranteed Minimum Pension (‘GMP’) benefits within the Group’s
pension schemes (see note G1 for further details);
• a net benefit of £45 million reflecting anticipated costs savings
associated with process improvements and continued investment
in the digitalisation of the customer journey;
• a gain on acquisition of £141 million reflecting the excess of the
fair value of the net assets acquired over the consideration paid
for the acquisition of the Standard Life Assurance businesses
(see note H2 for further details); and
• net other one-off items totalling a cost of £47 million, including
other corporate project costs of £42 million.
Further details of the investment return variances and economic
assumption changes on long-term business, and the variance on
owners funds, are included in note B2.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
161
161
FINANCIALS
Notes to the Consolidated Financial Statements continued
B. EARNINGS PERFORMANCE continued
B1 Segmental Analysis continued
B1.2 Segmental revenue
2019
Revenue from external customers:
Gross premiums written
Less: premiums ceded to reinsurers
Net premiums written
Fees and commissions
Income from other segments
Total segmental revenue
2018
Revenue from external customers:
Gross premiums written
Less: premiums ceded to reinsurers
Net premiums written
Fees and commissions
Income from other segments
Total segmental revenue
UK
Heritage
£m
UK
Open
£m
Europe
£m
Management
Services
£m
Unallocated
Group
£m
2,525
(528)
1,997
360
–
2,357
229
–
229
278
–
507
1,284
(28)
1,256
62
–
1,318
–
–
–
–
894
894
–
–
–
–
(894)
(894)
UK
Heritage
£m
UK
Open
£m
Europe
£m
Management
Services
£m
Unallocated
Group
£m
1,959
(478)
1,481
272
–
1,753
200
(1)
199
91
–
290
486
(2)
484
22
–
506
–
–
–
–
505
505
–
–
–
–
(505)
(505)
Total
£m
4,038
(556)
3,482
700
–
4,182
Total
£m
2,645
(481)
2,164
385
–
2,549
Of the revenue from external customers presented in the table above, £3,131 million (2018: £2,199 million) is attributable to customers in the
United Kingdom (‘UK’) and £1,051 million (2018: £350 million) to the rest of the world. The Europe operating segment comprises business
written in Ireland and Germany to customers in both Europe and the UK. No revenue transaction with a single customer external to the Group
amounts to greater than 10% of the Group’s revenue.
The Group has total non-current assets (other than financial assets, deferred tax assets, pension schemes and rights arising under insurance
contracts) of £6,005 million (2018: £6,479 million) located in the UK and £375 million (2018: £367 million) located in the rest of the world.
162
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
B2. Investment Return Variances and Economic
Assumption Changes
The long-term nature of much of the Group’s operations means that,
for internal performance management, the effects of short-term
economic volatility are treated as non-operating items. The Group
focuses instead on an operating profit measure that incorporates an
expected return on investments supporting its long-term business.
The accounting policy adopted in the calculation of operating profit is
detailed in note B1. The methodology for the determination of the
expected investment return is explained below together with an
analysis of investment return variances and economic assumption
changes recognised outside of operating profit.
The effect of differences between actual and expected economic
experience on liabilities, and changes to economic assumptions used
to value liabilities, are taken outside operating profit. For many types
of long-term business, including unit-linked and with-profit funds,
movements in asset values are offset by corresponding changes in
liabilities, limiting the net impact on profit. For other long-term
business, the profit impact of economic volatility depends on the
degree of matching of assets and liabilities, and exposure to financial
options and guarantees.
The investment return variances and economic assumption changes
excluded from the long-term business operating profit are as follows:
B2.1 Calculation of the long-term investment return
The expected return on investments for both owner and policyholder
funds is based on opening economic assumptions applied to the
funds under management at the beginning of the reporting period.
Expected investment return assumptions are derived actively, based
on market yields on risk-free fixed interest assets at the start of each
financial year.
The long-term risk-free rate used as a basis for deriving the long-term
investment return is set by reference to the swap curve at the 15-
year duration plus 10bps at the start of the year. A risk premium of
350bps is added to the risk-free yield for equities (2018: 350bps),
250bps for properties (2018: 250bps), 120bps for other fixed interest
assets (2018: 150bps) and 50bps for gilts (2018: 50bps).
The principal assumptions underlying the calculation of the long-term
investment return are:
Equities
Properties
Gilts
Other fixed interest
2019
%
5.2
4.2
2.2
2.9
2018
%
5.2
4.2
2.2
3.2
B2.2 Life assurance business
Operating profit for life assurance business is based on expected
investment returns on financial investments backing owners’ and
policyholder funds over the reporting period, with consistent
allowance for the corresponding expected movements in liabilities.
Operating profit includes the effect of variance in experience for non-
economic items, for example mortality, persistency and expenses,
and the effect of changes in non-economic assumptions. Changes
due to economic items, for example market value movements and
interest rate changes, which give rise to variances between actual
and expected investment returns, and the impact of changes in
economic assumptions on liabilities, are disclosed separately outside
operating profit.
The movement in liabilities included in operating profit reflects both the
change in liabilities due to the expected return on investments and the
impact of experience variances and assumption changes for non-
economic items.
Investment return variances and
economic assumption changes on long-
term business
2019
£m
2018
£m
(177)
283
The net adverse investment return variances and economic
assumption changes on long-term business of £177 million (2018:
£283 million positive) primarily arise as a result of losses on hedging
positions held by the life funds reflecting improving equity markets in
the year. The Group’s exposure to equity movements arising from
future profits in relation to with-profit bonuses and unit-linked
charges is hedged to benefit the regulatory capital position. The
impact of equity market movements on the value of the hedging
instruments is reflected in the IFRS results, but the corresponding
change in the value of future profits is not. These adverse impacts
have been partly offset by the positive impacts of strategic asset
allocation activities, including investment in higher yielding illiquid
assets, and lower fixed interest yields experienced during the period.
B2.3 Owners’ funds
For non-long-term business including owners’ funds, the total
investment income, including fair value gains, is analysed between a
calculated longer-term return and short-term fluctuations.
The variances excluded from operating profit in relation to owners’
funds are as follows:
Variances on owners' funds of
subsidiary undertakings
2019
£m
2018
£m
13
(193)
The positive variance on owners’ funds of £13 million (2018:
£193 million negative) is principally driven by gains on foreign
currency swaps held by the holding companies to hedge exposure
of future life company profits to movements in exchange rates. The
prior year result included realised losses on derivative instruments
entered into by the holding companies to hedge exposure to equity
risk arising from the Group’s acquisition of the Standard Life
Assurance businesses. Losses of £143 million were incurred on
these instruments, together with option premiums of £22 million.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
163
163
FINANCIALS
Notes to the Consolidated Financial Statements continued
B. EARNINGS PERFORMANCE continued
B3. Earnings Per Share
The Group calculates its basic earnings per share based on the
present shares in issue using the earnings attributable to ordinary
equity holders of the parent, divided by the weighted average
number of ordinary shares in issue during the year.
Diluted earnings per share are calculated based on the potential
future shares in issue assuming the conversion of all potentially
dilutive ordinary shares. The weighted average number of ordinary
shares in issue is adjusted to assume conversion of dilutive share
awards granted to employees and warrants.
The basic and diluted earnings per share calculations are also
presented based on the Group's operating profit as this non-GAAP
performance measure is considered to provide a comparable
measure of the underlying performance of the business as it
excludes the impact of short-term economic volatility and other
one-off items.
B3.1 Basic earnings per share
The result attributable to ordinary equity holders of the parent for the
purposes of determining earnings per share has been calculated as
set out below.
Profit for the period attributable to
owners
Share of result attributable to non-
controlling interests
Coupon payable in respect of Tier 1
Notes, net of tax relief
2019
£m
116
(31)
(23)
2018
£m
410
(31)
(12)
The weighted average number of ordinary shares outstanding during
the period is calculated as detailed below:
Issued ordinary shares at beginning
of the period
Effect of ordinary shares issued
Own shares held by the employee
benefit trust
Weighted average number of
ordinary shares
Basic earnings per share is as follows:
Basic earnings per share
2019
Number
million
2018
Number
million
721
–
437
115
(1)
(1)
720
551
2019
pence
8.7
2018
pence
66.8
B3.2 Diluted earnings per share
The result attributable to ordinary equity holders of the parent used in
the calculation of diluted earnings per share is the same as that used
in the basic earnings per share calculation in B3.1 above. The diluted
weighted average number of ordinary shares outstanding during the
period is 722 million (2018: 551 million). The Group’s long-term
incentive plan, deferred bonus share scheme and sharesave share-
based schemes increased the weighted average number of shares
on a diluted basis by 1,474,170 shares for the year ended
31 December 2019 (2018: 375,020 shares).
Diluted earnings per share is as follows:
Profit attributable to ordinary equity
holders of the parent
62
367
Diluted earnings per share
2019
pence
8.6
2018
pence
66.7
164
164
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
B3.3 Operating earnings per share
The operating result attributable to ordinary equity holders of the parent for the purposes of computing earnings per share has been calculated as set
out below.
Profit/(loss) before the tax attributable to owners
Tax credit attributable to owners
Profit for the period attributable to owners
Share of result attributable to non-controlling interests
Coupon payable in respect of Tier 1 Notes, net of tax relief
Profit for the period attributable to ordinary equity holders
of the parent
Group
operating
profit
2019
£m
Non-
operating
items
2019
£m
810
(163)
647
–
–
(824)
293
(531)
(31)
(23)
Group
operating
profit
2018
£m
Non-
operating
items
2018
£m
708
(129)
579
–
–
(238)
69
(169)
(31)
(12)
Total
2019
£m
(14)
130
116
(31)
(23)
Total
2018
£m
470
(60)
410
(31)
(12)
647
(585)
62
579
(212)
367
The basic and diluted weighted average number of ordinary shares outstanding during the year are the same as those included in B3.1 and
B3.2 above. Basic operating earnings per share and diluted operating earnings per share are as follows:
Basic operating earnings per share
Diluted operating earnings per share
B4. Dividends
Final dividends on ordinary shares are recognised as a liability and
deducted from equity when they are approved by the Group’s
owners. Interim dividends are deducted from equity when they
are paid.
Prior to the creation of the UK-registered holding company (see note
A1), dividends were charged within equity against the share
premium account, as permitted by Cayman Islands Companies Law.
From the date of the scheme of arrangement, dividends are charged
to retained earnings in accordance with the UK Companies Act 2006.
Dividends for the year that are approved after the reporting period
are dealt with as an event after the reporting period. Declared
dividends are those that are appropriately authorised and are no
longer at the discretion of the entity.
2019
pence
89.8
89.6
2019
£m
338
2018
pence
105.0
104.9
2018
£m
262
Dividends declared and paid in the year
On 4 March 2019, the Board recommended a final dividend of 23.4p
per share in respect of the year ended 31 December 2018. The
dividend was approved at the Group’s Annual General Meeting, which
was held on 2 May 2019. The dividend amounted to £169 million and
was paid on 7 May 2019.
On 6 August 2019, the Board declared an interim dividend of 23.4p
per share for the half year ended 30 June 2019. The dividend
amounted to £169 million and was paid on 30 September 2019.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
165
165
FINANCIALS
2019
Fee income from
investment contracts
without DPF
Initial fees deferred during
the year
Revenue from investment
contracts without DPF
Other revenue from
contracts with customers
Fees and commissions
2018
Fee income from
investment contracts
without DPF
Initial fees deferred during
the year
Revenue from investment
contracts without DPF
Other revenue from
contracts with customers
Fees and commissions
Notes to the Consolidated Financial Statements continued
C. OTHER CONSOLIDATED INCOME STATEMENT NOTES
C1. Fees and Commissions
Fees related to the provision of investment management services
and administration services are recognised as services are provided.
Front end fees, which are charged at the inception of service
contracts, are deferred as a liability and recognised over the life of
the contract.
C2. Net Investment Income
Net investment income comprises interest, dividends, rents
receivable, net interest income/(expense) on the net defined benefit
asset/(liability), fair value gains and losses on financial assets (except
for reinsurers’ share of investment contract liabilities without DPF,
see note E1), financial liabilities and investment property at fair value
and impairment losses on loans and receivables.
The table below details the ‘Disaggregation of Revenue’ disclosures
required by IFRS15 Revenue from contracts with customers.
Interest income is recognised in the consolidated income statement
as it accrues using the effective interest method.
UK
Heritage
£m
UK
Open
£m
Europe
£m
Total
£m
Dividend income is recognised in the consolidated income statement
on the date the right to receive payment is established, which in the
case of listed securities is the ex-dividend date.
354
268
70
692
–
–
(8)
(8)
Rental income from investment property is recognised in the
consolidated income statement on a straight-line basis over the term
of the lease. Lease incentives granted are recognised as an integral
part of the total rental income.
354
268
62
684
6
360
10
278
–
62
16
700
Fair value gains and losses on financial assets and financial liabilities
designated at fair value through profit or loss are recognised in the
consolidated income statement. Fair value gains and losses includes
both realised and unrealised gains and losses.
UK
Heritage
£m
UK
Open
£m
Europe
£m
Total
£m
Investment income
Interest income on loans and
deposits at amortised cost
Interest income on financial assets
designated at FVTPL on initial
recognition
Dividend income
271
84
25
380
(3)
(3)
–
271
1
272
–
84
7
91
22
377
Rental income
–
22
8
385
Net interest expense on Group
defined benefit pension scheme
(liability)/asset
2019
£m
2018
restated1
£m
6
10
2,113
3,712
298
1,260
1,936
108
(29)
6,100
(6)
3,308
17,574
1,257
(55)
(12,873)
126
(18)
18,776
(12,765)
Fair value gains/ (losses)
Financial assets and financial liabilities
at FVTPL:
Designated upon initial recognition
Held for trading – derivatives
Investment property
Net investment income
24,876
(9,457)
1 See note A1 for details of restatements.
Remaining performance obligations
The practical expedient under IFRS 15 has been applied and
remaining performance obligations are not disclosed as the Group
has the right to consideration from customers in amounts that
correspond with the performance completed to date. Specifically
management charges become due over time in proportion to the
Group’s provision of investment management services.
Significant judgements in determining costs to obtain or fulfil
investment contracts
No significant judgements are required in determining the costs
incurred to obtain or fulfil contracts with customers, and no
amortisation is required, as income directly matches costs with
management charges being applied on an ongoing (or pro-rata) basis.
In the period no amortisation or impairment losses were recognised
in the statement of comprehensive income.
166
166
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
C3. Administrative Expenses
Administrative expenses
Administrative expenses are recognised in the consolidated income
statement as incurred.
Deferred acquisition costs
For insurance and investment contracts with DPF, acquisition costs
which include both incremental acquisition costs and other direct
costs of acquiring and processing new business, are deferred.
For investment contracts without DPF, incremental costs directly
attributable to securing rights to receive fees for asset management
services sold with unit linked investment contracts are deferred.
Trail or renewal commission on investment contracts without DPF
where the Group does not have an unconditional legal right to avoid
payment is deferred at inception of the contract and an offsetting
liability for contingent commission is established.
Deferred acquisition costs are amortised over the life of the contracts
as the related revenue is recognised. After initial recognition,
deferred acquisition costs are reviewed by category of business
and are written off to the extent that they are no longer considered
to be recoverable.
Employee costs
Outsourcer expenses
Movement in provision for transition and
transformation programme (see note
G7)
Professional fees
Commission expenses
Office and IT costs
Investment management expenses and
transaction costs
Direct costs of life companies
Direct costs of collective investment
schemes
Depreciation
Pension service costs
Pension administrative expenses
Advertising and sponsorship
Stamp duty payable on acquisition of
Standard Life Assurance businesses
Other
Acquisition costs deferred during the
year
Amortisation of deferred acquisition
costs
2019
£m
334
141
159
135
135
116
415
4
18
18
–
4
64
–
36
2018
£m
188
202
–
97
63
74
263
2
14
2
57
6
59
15
28
1,579
1,070
(33)
(15)
3
1
Total administrative expenses
1,549
1,056
Employee costs comprise:
Wages and salaries
Social security contributions
Average number of persons employed
2019
£m
304
30
334
2018
£m
170
18
188
2019
Number
4,403
2018
Number
2,034
C4. Auditor’s Remuneration
During the year the Group obtained the following services from its
auditor at costs as detailed in the table below.
Audit of the consolidated financial
statements
Audit of the Company’s subsidiaries
Audit-related assurance services
Reporting accountant assurance
services
Total fee for assurance services
Corporate finance services
Tax services fees
Other non-audit services
Total fees for other services
2019
£m
2018
£m
0.9
5.1
6.0
1.0
0.4
7.4
3.3
–
–
3.3
2.0
5.2
7.2
0.7
0.2
8.1
3.7
0.1
0.3
4.1
Total auditor’s remuneration
10.7
12.2
No services were provided by the Company’s auditors to the Group’s
pension schemes in either 2019 or 2018.
Audit of the consolidated financial statements includes amounts in
respect of reporting to the auditor of SLA plc given their status as a
significant investor in both 2019 and 2018. The 2018 balance also
includes amounts in respect of the audit of the acquisition balance
sheet of the acquired Standard Life Assurance businesses.
Audit related assurance services includes fees payable for services
where the reporting is required by law or regulation to be provided by
the auditor, such as reporting on regulatory returns. It also includes
fees payable in respect of reviews of interim financial information
and services where the work is integrated with the audit itself.
Reporting accountant services relate to assurance reporting on
historical information included within investment circulars. In 2019, this
includes public reporting associated with the acquisition of ReAssure
Group. In 2018, this included public reporting associated with the
acquisition of the Standard Life Assurance businesses and issuance of
the Group’s Tier 1 Notes.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
167
167
FINANCIALS
Notes to the Consolidated Financial Statements continued
C. OTHER CONSOLIDATED INCOME STATEMENT NOTES
continued
C4. Auditor’s Remuneration continued
Corporate finance services fees were £3.3 million (2018:
£3.7 million). These fees principally relate to services provided in
connection with the acquisition of ReAssure. £1.6 million of the fees
related to actuarial and finance due diligence procedures conducted
in relation to the acquisition where synergies were anticipated to
arise with subsequent audit work. The remaining balance of
£1.7 million relates to the provision of assurance services to the
Board and the sponsoring banks in support of disclosures made in
the public transaction documents. The 2018 fees principally related
to services provided in connection with the acquisition of the
Standard Life Assurance businesses and the Premium Listing of the
Company undertaken as part of the Group’s on-shoring activities.
£1.6 million of the fees related to the engagement of the external
auditors to perform actuarial and finance due diligence procedures
where synergies were anticipated to arise with subsequent audit
work. The remaining balance of £2.0 million related to the provision
of assurance to the Board and the sponsoring banks in support of
disclosures made in the public transaction documentation relating
to the Standard Life Assurance acquisition and the Premium Listing.
No tax services were provided by the Company’s auditors in 2019
(2018: £0.1 million). The 2018 fees principally related to services
provided to Standard Life Assurance for which the Group’s external
auditor was engaged prior to the completion of the acquisition (and
their appointment as auditors of those entities), and were terminated
as permitted within a period of three months following completion of
the acquisition. See page 95 for details of tax services provided by the
Group’s external auditor to Aberdeen Standard Investments where the
benefit of those services arose in funds controlled by the Group.
No other non-audit services were provided by the Company’s
auditors in 2019 (2018: £0.3 million). The 2018 fees related to
services provided to Standard Life Assurance where the
engagement occurred prior to completion of the acquisition and
which were terminated within the three-month grace period.
Further information on auditor’s remuneration and the assessment
of the independence of the external auditor is set out in the Audit
Committee report on pages 92 to 96.
C5. Finance Costs
Interest payable is recognised in the consolidated income statement
as it accrues and is calculated using the effective interest method.
Interest expense
On financial liabilities at amortised
cost
On financial liabilities at FVTPL
On leases
Attributable to:
• policyholders
• owners
2019
£m
2018
restated
£m
156
3
3
162
12
150
162
140
2
–
142
12
130
142
168
168
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
C6. Tax Charge
Income tax comprises current and deferred tax. Income tax is
recognised in the consolidated income statement except to the
extent that it relates to items recognised in the statement of
consolidated comprehensive income or the statement of
consolidated changes in equity, in which case it is recognised
in these statements.
Current tax is the expected tax payable on the taxable income for the
year, using tax rates and laws enacted or substantively enacted at
the date of the statement of consolidated financial position together
with adjustments to tax payable in respect of previous years.
The tax charge is analysed between tax that is payable in respect of
policyholders’ returns and tax that is payable on owners’ returns. This
allocation is calculated based on an assessment of the effective rate
of tax that is applicable to owners for the year.
C6.1 Current year tax charge/(credit)
Current tax:
UK corporation tax
Overseas tax
Adjustment in respect of prior years
Total current tax charge
Deferred tax:
Origination and reversal of temporary
differences
Change in the rate of corporation tax
Write-up of deferred tax assets
Total deferred tax credit
2019
£m
210
62
272
(11)
261
52
(50)
(28)
(26)
2018
£m
83
20
103
(54)
49
(195)
(4)
(1)
(200)
Total tax charge/(credit)
235
(151)
Attributable to:
• policyholders
• owners
Total tax charge/(credit)
365
(130)
235
(211)
60
(151)
The Group, as a proxy for policyholders in the UK, is required to pay
taxes on investment income and gains each year. Accordingly, the
tax credit or expense attributable to UK life assurance policyholder
earnings is included in income tax expense. The tax charge
attributable to policyholder earnings was £365 million (2018:
£211 million credit).
C6.2 Tax charged to other comprehensive income
Current tax charge
Deferred tax charge on defined benefit
schemes
Deferred tax charge on share schemes
2019
£m
1
56
–
57
2018
£m
–
8
2
10
C6.3 Tax credited to equity
Current tax credit on Tier 1 Notes
C6.4 Reconciliation of tax charge/(credit)
Profit before tax
Policyholder tax (charge)/credit
(Loss)/profit before the tax
attributable
to owners
Tax (credit)/charge at standard UK rate
of 19%1
Non-taxable income, gains and losses2
Disallowable expenses3
Prior year tax credit for shareholders4
Movement on acquired in-force
amortisation at less than 19%
Profits taxed at rates other than 19%5
Recognition of previously unrecognised
deferred tax assets6
Deferred tax rate change7
Other
Owners’ tax (credit)/charge
Policyholder tax charge/(credit)
Total tax charge/(credit) for the
period
2019
£m
(6)
2019
£m
351
(365)
2018
£m
(3)
2018
£m
259
211
D. EQUITY
D1. Share Capital
The Group has issued ordinary shares which are classified as equity.
Incremental external costs that are directly attributable to the issue
of these shares are recognised in equity, net of tax.
Issued and fully paid:
721.5 million ordinary shares of £0.10
each (2018: 721.2 million)
2019
£m
2018
£m
72
72
(14)
470
The holders of ordinary shares are entitled to one vote per share on
matters to be voted on by owners and to receive such dividends, if
any, as may be declared by the Board of Directors in its discretion
out of legally available profits.
(3)
3
22
(51)
9
(13)
(47)
(50)
–
89
(31)
21
(5)
–
(14)
–
(4)
4
Movements in issued share capital during the year:
2019
Number
£
Shares in issue at 1 January
721,199,214 72,119,921
Other ordinary shares issued in the
period
315,730
31,573
Shares in issue at 31 December
721,514,944 72,151,494
During the year, 315,730 shares were issued at a premium of
£2 million in order to satisfy obligations to employees under the
Group’s sharesave schemes (see note I1).
(130)
365
60
(211)
2018
Number
£
Shares in issue at 1 January
393,232,644 39,323,264
235
(151)
Ordinary shares issued under the
rights issue
183,581,978 18,358,198
1 The Phoenix operating segments are predominantly in the UK. The reconciliation of tax
(credit)/charge has, therefore, been completed by reference to the standard rate of UK
tax.
2 2019 non-taxable income, gains and losses includes non-taxable dividends and gains
and non-taxable pension scheme valuation movement.
3 2019 disallowable deductions are primarily in relation to a consolidation adjustment on
the PGL Pension scheme ‘buy-in’ agreement of £14 million, company acquisition costs
of £1 million and a FCA thematic review provision in Standard Life Assurance Limited of
£6 million.
4 The 2019 prior year credit primarily relates to the utilisation of trading losses in
Standard Life Assurance Limited and Standard Life International DAC of £(4) million,
Standard Life Assurance Limited YE18 tax provision true-up £(8) million, deferred tax
asset recognition on software intangibles of £(20) million and deferred acquisition costs
of £(6) million and the revised use of tax losses and other items £(13) million.
5 The 2019 profits taxed at rates other than 19% relates to overseas profits and UK life
company profits subject to marginal shareholder tax rates.
6 The 2019 tax credit represents the recognition of tax losses in the Group companies
£(12) million and intangible assets within Standard Life International DAC £(35) million.
7 The deferred tax rate change credit predominately relates to the Part VII transfer between
Standard Life Assurance Limited and Standard Life International DAC of £(31) million and a
reduction in AVIF tax rate relating to the German branch of £(19) million.
Ordinary shares issued to SLA plc
144,114,450 14,411,445
Other ordinary shares issued in the
period
270,142
27,014
Shares in issue at 31 December
721,199,214 72,119,921
On 10 July 2018, the Group issued 183,581,978 shares following a
rights issue undertaken in association with the acquisition of the
Standard Life Assurance businesses where 7 rights issue shares
were issued at 518 pence per new share for every 15 existing Old
PGH shares held. The rights issue raised £951 million and proceeds,
net of deduction of commission and expenses, were £934 million.
On 31 August 2018, the Group issued 144,114,450 shares to SLA
plc, giving them a 19.98% equity stake in the Group valued at
£1,023 million, based on the share price at that date.
During 2018, 270,142 shares were issued at a premium of £2 million
in order to satisfy obligations to employees under the Group’s
sharesave schemes (see note I1).
D2. Shares Held by the Employee Benefit Trust
Where the Phoenix Group Employee Benefit Trust (‘EBT’) acquires
shares in the Company or obtains rights to purchase its shares, the
consideration paid (including any attributable transaction costs, net of
tax) is shown as a deduction from owners’ equity. Gains and losses
on sales of shares held by the EBT are charged or credited to the
own shares account in equity.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
169
169
FINANCIALS
Notes to the Consolidated Financial Statements continued
D. EQUITY continued
D2. Shares Held by the Employee Benefit Trust continued
The EBT holds shares to satisfy awards granted to employees under
the Group’s share-based payment schemes.
to do so from the PRA. Furthermore, on occurrence of a trigger
event, linked to the Solvency II capital position and as documented
in the terms of the Tier 1 Notes, the Tier 1 Notes will be subject to
a permanent write-down in value to zero.
At 1 January
Shares acquired by the EBT
Shares awarded to employees by the
EBT
At 31 December
2019
£m
2018
£m
6
4
(3)
7
2
8
(4)
6
During the year 508,639 (2018: 518,322) shares were awarded to
employees by the EBT and 614,193 (2018: 1,188,435) shares were
purchased. The number of shares held by the EBT at 31 December 2019
was 1,096,356 (2018: 990,802).
Old PGH provided the EBT with an interest-free facility arrangement
to enable it to purchase the shares.
D3 Tier 1 Notes
The Fixed Rate Reset Perpetual Restricted Tier 1 Write Down Notes
(‘Tier 1 Notes’) meet the definition of equity and accordingly are
shown as a separate category within equity at the proceeds of issue.
The coupons on the instruments are recognised as distributions on
the date of payment and are charged directly to the statement of
consolidated changes in equity.
Tier 1 Notes
2019
£m
494
2018
£m
494
On 26 April 2018, Old PGH issued £500 million of Tier 1 Notes, the
proceeds of which were used to fund a portion of the cash consideration
for the acquisition of the Standard Life Assurance businesses. The Tier 1
Notes bear interest on their principal amount at a fixed rate of 5.75% per
annum. up to the ‘First Call Date’ of 26 April 2028. Thereafter the fixed
rate of interest will be reset on the First Call Date and on each fifth
anniversary of this date by reference to a 5 year gilt yield plus a margin
of 4.169%. Interest is payable on the Tier 1 Notes semi-annually in
arrears on 26 October and 26 April. Coupon paid in the year was
£29 million (2018: £14 million).
D4. Non-Controlling Interests
Non-controlling interests are stated at the share of net assets
attributed to the non-controlling interest holder at the time of
acquisition, adjusted for the relevant share of subsequent changes
in equity.
At 1 January 2019
Profit for the year
Dividends paid
At 31 December 2019
At 1 January 2018
Non-controlling interests recognised on acquisition of
the Standard Life Assurance business (see note H2)
Profit for the year
Dividends paid
At 31 December 2018
SLPET
£m
294
31
(11)
314
SLPET
£m
–
265
31
(2)
294
The non-controlling interests of £314 million (2018: £294 million)
reflects third party ownership of Standard Life Private Equity Trust
(‘SLPET’) determined at the proportionate value of the third party
interest in the underlying assets and liabilities. SLPET is a UK
Investment Trust listed and traded on the London Stock Exchange.
As at 31 December 2019, the Group held 55.2% of the issued share
capital of SLPET (2018: 55.2%).
The Group’s interest in SLPET is held in the with-profit and unit-
linked funds of the Group’s life companies. Therefore the
shareholder exposure to the results of SLPET is limited to the impact
of those results on the shareholder share of distributed profits of the
relevant fund.
At the issue date, the Tier 1 Notes were unsecured and subordinated
obligations of Old PGH. On 12 December 2018 the Company was
substituted in place of Old PGH as issuer.
Summary financial information showing the interest that non-controlling
interests have in the Group’s activities and cash flows is shown below:
The Tier 1 Notes have no fixed maturity date and interest is payable
only at the sole and absolute discretion of the Company; accordingly
the Tier 1 Notes meet the definition of equity for financial reporting
purposes and are disclosed as such in the consolidated financial
statements. If an interest payment is not made it is cancelled and it
shall not accumulate or be payable at any time thereafter.
The Tier 1 Notes may be redeemed at par on the First Call Date or on
any interest payment date thereafter at the option of the Company
and also in other limited circumstances. If such redemption occurs
prior to the fifth anniversary of the Issue Date such redemption must
be funded out of the proceeds of a new issuance of, or exchanged
into, Tier 1 Own Funds of the same or a higher quality than the Tier 1
Notes. In respect of any redemption or purchase of the Tier 1 Notes,
such redemption or purchase is subject to the receipt of permission
SLPET
Statement of financial position:
Investments
Other assets
Total assets
Total liabilities
Income statement:
Revenue
Profit after tax
Comprehensive income
Cash flows:
Net decrease in cash equivalents
2019
£m
286
40
326
12
34
31
31
4
2018
£m
271
23
294
–
33
31
31
3
170
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
E. FINANCIAL ASSETS & LIABILITIES
E1. Fair Values
Financial assets
Purchases and sales of financial assets are recognised on the trade
date, which is the date that the Group commits to purchase or sell
the asset.
For units in unit trusts and shares in open-ended investment
companies, fair value is determined by reference to published bid-
values. The fair value of receivables and floating rate and overnight
deposits with credit institutions is their carrying value. The fair value
of fixed interest-bearing deposits is estimated using discounted cash
flow techniques.
Loans and deposits are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market and only
include assets where a security has not been issued. These loans and
deposits are initially recognised at cost, being the fair value of the
consideration paid for the acquisition of the investment. All transaction
costs directly attributable to the acquisition are also included in the cost of
the investment. Subsequent to initial recognition, these investments are
carried at amortised cost, using the effective interest method.
Derivative financial instruments are largely classified as held for
trading. They are recognised initially at fair value and subsequently
are remeasured to fair value. The gain or loss on remeasurement to
fair value is recognised in the consolidated income statement.
Derivative financial instruments are not classified as held for trading
where they are designated and effective as a hedging instrument.
For such instruments, the timing of the recognition of any gain or
loss that arises on remeasurement to fair value in profit or loss
depends on the nature of the hedge relationship.
Equities, debt securities and collective investment schemes are
designated at FVTPL and accordingly are stated in the statement of
consolidated financial position at fair value. They are designated at
FVTPL because this is reflective of the manner in which the financial
assets are managed and reduces a measurement inconsistency that
would otherwise arise with regard to the insurance liabilities that the
assets are backing.
Reinsurers share of investment contracts liabilities without DPF are
valued, and associated gains and losses presented, on a basis
consistent with investment contracts liabilities without DPF as
detailed under the ‘Financial liabilities’ section below.
Impairment of financial assets
The Group assesses at each period end whether a financial asset or
group of financial assets held at amortised cost are impaired. The
Group first assesses whether objective evidence of impairment exists.
If it is determined that no objective evidence of impairment exists for
an individually assessed financial asset, the asset is included in a group
of financial assets with similar credit risk characteristics and that group
of financial assets is collectively assessed for impairment. Assets that
are individually assessed for impairment and for which an impairment
loss is, or continues to be recognised, are not included in the collective
assessment of impairment.
Fair value estimation
The fair values of financial instruments traded in active markets such
as publicly traded securities and derivatives are based on quoted
market prices at the period end. The quoted market price used for
financial assets is the applicable bid price on the period end date.
The fair value of investments that are not traded in an active market
is determined using valuation techniques such as broker quotes,
pricing models or discounted cash flow techniques. Where pricing
models are used, inputs are based on market related data at the
period end. Where discounted cash flow techniques are used,
estimated future cash flows are based on contractual cash flows
using current market conditions and market calibrated discount rates
and interest rate assumptions for similar instruments.
Associates
Investments in associates that are held for investment purposes are
accounted for under IAS 39 Financial Instruments: Recognition and
Measurement as permitted by IAS 28 Investments in Associates and
Joint Ventures. These are measured at fair value through profit or loss.
There is no investment in associates which are of a strategic nature.
Derecognition of financial assets
A financial asset (or part of a group of similar financial assets) is
derecognised where:
• the rights to receive cash flows from the asset have expired;
• the Company retains the right to receive cash flows from the assets,
but has assumed an obligation to pay them in full without material
delay to a third party under a ‘pass-through’ arrangement; or
• the Company has transferred its rights to receive cash flows from
the asset and has either transferred substantially all the risks and
rewards of the asset, or has neither transferred nor retained
substantially all the risks and rewards of the asset, but has
transferred control of the asset.
Financial liabilities
On initial recognition, financial liabilities are recognised when due and
measured at the fair value of the consideration received less directly
attributable transaction costs (with the exception of liabilities at
FVTPL for which all transaction costs are expensed).
Subsequent to initial recognition, financial liabilities (except for
liabilities under investment contracts without DPF and other liabilities
designated at FVTPL) are measured at amortised cost using the
effective interest method.
Financial liabilities are designated upon initial recognition at FVTPL and
where doing so results in more meaningful information because either:
• it eliminates or significantly reduces accounting mismatches that
would otherwise arise from measuring assets or liabilities or
recognising the gains and losses on them on different bases; or
• a group of financial assets, financial liabilities or both is managed and
its performance is evaluated and managed on a fair value basis, in
accordance with a documented risk management or investment
strategy, and information about the investments is provided
internally on that basis to the Group’s key management personnel.
Investment contracts without DPF
Contracts under which the transfer of insurance risk to the Group
from the policyholder is not significant are classified as investment
contracts and accounted for as financial liabilities.
Receipts and payments on investment contracts without DPF are
accounted for using deposit accounting, under which the amounts
collected and paid out are recognised in the statement of consolidated
financial position as an adjustment to the liability to the policyholder.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
171
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FINANCIALS
Notes to the Consolidated Financial Statements continued
E. FINANCIAL ASSETS & LIABILITIES continued
E1. Fair Values continued
The valuation of liabilities on unit-linked contracts is held at the fair
value of the related assets and liabilities. The liability is the sum of the
unit-linked liabilities plus an additional amount to cover the present
value of the excess of future policy costs over future charges.
Movements in the fair value of investment contracts without DPF
and reinsurers’ share of investment contract liabilities are included in
the ‘change in investment contract liabilities’ in the consolidated
income statement.
Investment contract policyholders are charged for policy administration
services, investment management services, surrenders and other
contract fees. These fees are recognised as revenue over the period in
which the related services are performed. If the fees are for services
provided in future periods, then they are deferred and recognised over
those periods. ‘Front end’ fees are charged on some non-participating
investment contracts. Where the non-participating investment contract is
measured at fair value, such fees which relate to the provision of
investment management services are deferred and recognised
as the services are provided.
Deposits from reinsurers
It is the Group’s practice to obtain collateral to cover certain
reinsurance transactions, usually in the form of cash or marketable
securities. Where cash collateral is available to the Group for
investment purposes, it is recognised as a ‘financial asset’ and the
collateral repayable is recognised as ‘deposits received from
reinsurers’ in the statement of consolidated financial position.
Net asset value attributable to unitholders
The net asset value attributable to unitholders represents the non-
controlling interest in collective investment schemes which are
consolidated by the Group. This interest is classified at FVTPL and
measured at fair value, which is equal to the bid value of the number of
units of the collective investment scheme not owned by the Group.
Obligations for repayment of collateral received
It is the Group’s practice to obtain collateral in stock lending and
derivative transactions, usually in the form of cash or marketable
securities. Where cash collateral is available to the Group for
investment purposes, it is recognised as a ‘financial asset’ and the
collateral repayable is recognised as ‘obligations for repayment of
collateral received’ in the statement of consolidated financial position.
The ‘obligations for repayment of collateral received’ are measured at
amortised cost, which in the case of cash is equivalent to the fair value
of the consideration received.
Derecognition of financial liabilities
A financial liability is derecognised when the obligation under the
liability is discharged or cancelled or expires.
Offsetting financial assets and financial liabilities
Financial assets and liabilities are offset and the net amount reported in
the statement of financial position only when there is a legally
enforceable right to offset the recognised amounts and there is an
intention to settle on a net basis, or to realise the asset and settle the
liability simultaneously. When financial assets and liabilities are offset any
related interest income and expense is offset in the income statement.
Hedge accounting
The Group designates certain derivatives as hedging instruments in order
to effect cash flow hedges. At the inception of the hedge relationship,
the Group documents the relationship between the hedging instrument
and the hedged item, along with its risk management objectives and its
strategy for undertaking various hedge transactions. Furthermore, at the
inception of the hedge and on an ongoing basis, the Group documents
whether the hedging instrument is highly effective in offsetting changes
in fair values or cash flows of the hedged item attributable to the hedged
risk. Note E3 sets out details of the fair values of the derivative
instruments used for hedging purposes.
Where a cash flow hedging relationship exists, the effective portion
of changes in the fair value of derivatives that are designated and
qualify as cash flow hedges is recognised in other comprehensive
income and accumulated under the heading of cash flow hedging
reserve. The gain or loss relating to the ineffective portion is
recognised immediately in profit or loss, and is included in net
investment income.
Amounts previously recognised in other comprehensive income and
accumulated in equity are reclassified to profit or loss in the periods
when the hedged item affects profit or loss, in the same line as the
recognised hedged item.
Hedge accounting is discontinued when the Group revokes the
hedging relationship, when the hedging instrument expires or is sold,
terminated, or exercised, or when it no longer qualifies for hedge
accounting. Any gain or loss recognised in other comprehensive
income and accumulated in equity at that time is recycled to profit or
loss over the period the hedged item impacts profit or loss.
172
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
E1.1 Fair values analysis
The table below sets out a comparison of the carrying amounts and fair values of financial instruments as at 31 December 2019:
2019
Financial assets measured at carrying and fair values
Financial assets at fair value through profit or loss:
Held for trading – derivatives
Designated upon initial recognition:
Equities1
Investment in associate1 (see note H3)
Debt securities
Collective investment schemes1
Reinsurers' share of investment contract liabilities1
Financial assets measured at amortised cost:
Loans and deposits
Total financial assets2
Financial liabilities measured at carrying and fair values
Financial liabilities at fair value through profit or loss:
Held for trading – derivatives
Designated upon initial recognition:
Borrowings
Net asset value attributable to unitholders1
Investment contract liabilities1
Financial liabilities measured at amortised cost:
Borrowings
Deposits received from reinsurers
Obligations for repayment of collateral received
Total financial liabilities
1 These assets and liabilities have no expected settlement date.
Carrying value
Amounts
due for
settlement
after 12 months
£m
Total
£m
Fair value
£m
4,454
4,023
4,454
58,979
513
76,113
69,415
8,881
516
218,871
–
–
69,165
–
–
62
Carrying value
Amounts
due for
settlement
after 12 months
£m
Total
£m
58,979
513
76,113
69,415
8,881
516
218,871
Fair value
£m
734
387
734
99
3,149
120,773
2,020
4,213
3,671
134,659
99
–
–
2,008
3,751
–
99
3,149
120,773
2,223
4,213
3,671
134,862
2 Total financial assets includes £2,050 million of assets held in a collateral account pertaining to the PGL pension scheme buy-in agreement. See note G1.2 for further details.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
173
173
FINANCIALS
Notes to the Consolidated Financial Statements continued
E. FINANCIAL ASSETS & LIABILITIES continued
E1. Fair Values continued
E1.1 Fair values analysis continued
2018 restated
Financial assets measured at carrying and fair values
Financial assets at fair value through profit or loss:
Held for trading – derivatives
Designated upon initial recognition:
Equities1
Investment in associate1
Debt securities2
Collective investment schemes1, 2
Reinsurers' share of investment contract liabilities1, 2
Financial assets measured at amortised cost:
Loans and deposits
Total financial assets3
Financial liabilities measured at carrying and fair values
Financial liabilities at fair value through profit or loss:
Held for trading – derivatives
Designated upon initial recognition:
Borrowings
Net asset value attributable to unitholders1
Investment contract liabilities1
Financial liabilities measured at amortised cost:
Borrowings
Deposits received from reinsurers
Obligations for repayment of collateral received
Total financial liabilities
1 These assets and liabilities have no expected settlement date.
Carrying value
Amounts
due for settlement
after 12 months
£m
Total
£m
Fair value
£m
3,798
3,608
3,798
52,716
496
71,365
67,692
8,331
423
204,821
–
–
65,448
–
–
77
Carrying value
Amounts
due for settlement
after 12 months
£m
Total
£m
52,716
496
71,365
67,692
8,331
423
204,821
Fair value
£m
1,093
936
1,093
127
2,659
114,463
2,059
4,438
2,645
127,484
113
–
–
2,048
4,077
–
127
2,659
114,463
2,011
4,438
2,645
127,436
2 Comparative figures have been restated to ensure a consistent presentation for all similar items across the Group’s subsidiaries, following the acquisition of the Standard Life
Assurance businesses in 2018. See note A1 for further details.
3 Total financial assets includes £1,063 million of assets held in a collateral account pertaining to the PGL pension scheme buy-in agreement. See note G1.2 for further details.
174
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
E1.2 IFRS 9 Temporary exemption disclosures
Following application of the temporary exemption granted to insurers in IFRS 4 Insurance Contracts from applying IFRS 9 Financial
Instruments (see note A5) the table below separately identifies financial assets with contractual cash flows that are solely payments of
principal and interest (‘SPPI’) (excluding those held for trading or managed on a fair value basis) and all other financial assets, measured
at fair value through profit or loss.
Financial assets with contractual cash flows that are SPPI excluding those held for trading or
managed on a fair value basis:
Loans and deposits
Cash and cash equivalents
Accrued income
Other receivables1
All other financial assets that are measured at fair value through profit or loss2
1 Other receivables excludes deferred acquisition costs.
2019
£m
2018
£m
516
4,466
160
1,199
423
4,926
151
1,026
218,355
204,398
2 The change in fair value during 2019 of all other financial assets that are measured at fair value through profit or loss is a £20,231 million gain (2018: £12,962 million loss).
An analysis of credit ratings of financial assets with contractual cash flows that are SPPI, excluding those held for trading or managed on a fair
value basis, is provided below:
2019
Carrying value
Loans and deposits
Cash and cash equivalents
Accrued income
Other receivables
AAA
£m
–
295
–
–
AA
£m
21
733
–
–
A
£m
47
3,105
–
–
164
23
–
–
295
754
3,152
187
2018
Carrying value
Loans and deposits
Cash and cash equivalents
Accrued income
Other receivables
AAA
£m
–
327
–
–
AA
£m
7
947
–
–
A
£m
46
–
1,836
1,265
–
–
–
–
1 The Group has assessed its non-rated assets as having a low credit risk.
327
954
1,882
1,265
BBB
£m
BB and below
£m
Non-rated1
£m
Unit-linked
£m
–
–
–
–
–
284
270
160
1,199
1,913
–
40
–
–
40
–
–
–
–
–
370
450
151
1,026
1,997
–
101
–
–
101
Total
£m
516
4,466
160
1,199
6,341
Total
£m
423
4,926
151
1,026
6,526
BBB
£m
BB and below
£m
Non-rated1
£m
Unit-linked
£m
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
175
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FINANCIALS
Notes to the Consolidated Financial Statements continued
E. FINANCIAL ASSETS & LIABILITIES continued
E2. Fair Value Hierarchy
E2.1 Determination of fair value and fair value hierarchy of financial
instruments
Level 1 financial instruments
The fair value of financial instruments traded in active markets (such
as exchange traded securities and derivatives) is based on quoted
market prices at the period end provided by recognised pricing
services. Market depth and bid-ask spreads are used to corroborate
whether an active market exists for an instrument. Greater depth and
narrower bid-ask spread indicate higher liquidity in the instrument
and are classed as Level 1 inputs. For collective investment
schemes, fair value is by reference to published bid prices.
Level 2 financial instruments
Financial instruments traded in active markets with less depth or
wider bid-ask spreads which do not meet the classification as Level 1
inputs, are classified as Level 2. The fair values of financial
instruments not traded in active markets are determined using
broker quotes or valuation techniques with observable market inputs.
Financial instruments valued using broker quotes are classified at
Level 2, only where there is a sufficient range of available quotes.
The fair value of over the counter derivatives is estimated using
pricing models or discounted cash flow techniques. Collective
investment schemes where the underlying assets are not priced
using active market prices are determined to be Level 2 instruments.
Where pricing models are used, inputs are based on market related
data at the period end. Where discounted cash flows are used,
estimated future cash flows are based on management’s best
estimates and the discount rate used is a market related rate for a
similar instrument.
Level 3 financial instruments
The Group’s financial instruments determined by valuation
techniques using non-observable market inputs are based on a
combination of independent third party evidence and internally
developed models. In relation to investments in hedge funds and
private equity investments, non-observable third party evidence in
the form of net asset valuation statements is used as the basis for
the valuation. Adjustments may be made to the net asset valuation
where other evidence, for example recent sales of the underlying
investments in the fund, indicates this is required. Securities that are
valued using broker quotes which could not be corroborated across a
sufficient range of quotes are considered as Level 3. For a small
number of investment vehicles and debt securities, standard
valuation models are used, as due to their nature and complexity
they have no external market. Inputs into such models are based on
observable market data where applicable. The fair value of loans,
derivatives and some borrowings with no external market is
determined by internally developed discounted cash flow models
using appropriate assumptions corroborated with external market
data where possible.
For financial instruments that are recognised at fair value on a
recurring basis, the Group determines whether transfers have
occurred between levels in the hierarchy by re-assessing
categorisation (based on the lowest level input that is significant to
the fair value measurement as a whole) during each reporting period.
Fair value hierarchy information for non-financial assets measured at
fair value is included in note G3 for owner-occupied property and in
note G4 for investment property.
E2.2 Fair value hierarchy of financial instruments
The tables below separately identify financial instruments carried at
fair value from those measured on another basis but for which fair
value is disclosed.
2019
Financial assets measured
at fair value
Level 1
£m
Level 2
£m
Level 3
£m
Total fair
value
£m
Derivatives
284
3,995
175
4,454
Financial assets designated at
FVTPL upon initial recognition:
Equities
Investment in associate
57,383
513
–
–
1,596 58,979
–
513
Debt securities
38,176 31,911
6,026 76,113
Collective investment
schemes
Reinsurers' share of
investment contract liabilities
67,513
1,256
646 69,415
8,856
25
–
8,881
172,441 33,192
8,268 213,901
Total financial assets
measured at fair value
Financial assets for which
fair values are disclosed
Loans and deposits at
amortised cost
2019
Financial liabilities
measured at fair value
172,725 37,187
8,443 218,355
–
516
–
516
172,725 37,703
8,443 218,871
Level 1
£m
Level 2
£m
Level 3
£m
Total fair
value
£m
Derivatives
76
584
74
734
Financial liabilities designated
at FVTPL upon initial
recognition:
Borrowings
Net asset value attributable
to unit-holders
–
3,149
–
–
99
99
–
3,149
Investment contract
liabilities
Total financial liabilities
measured at fair value
Financial liabilities for which
fair values are disclosed
– 120,773
– 120,773
3,149 120,773
99 124,021
3,225 121,357
173 124,755
Borrowings at amortised cost
–
1,974
249
2,223
Deposits received from
reinsurers
Total financial liabilities for
which fair values are disclosed
–
4,213
–
4,213
–
6,187
249
6,436
3,225 127,544
422 131,191
176
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
E2.3 Level 3 Financial instrument sensitivities
Level 3 investments in equities (including private equity and unlisted
property investment vehicles) and collective investment schemes
(including hedge funds) are valued using net asset statements provided
by independent third parties, and therefore no sensitivity analysis has
been prepared.
E2.3.1 Debt securities
Analysis of Level 3 debt securities
Unquoted corporate bonds:
Local authority loans
65,680
1,219
793 67,692
Private placements
8,295
36
–
8,331
165,553 28,475
6,572 200,600
165,901 31,763
6,734 204,398
Infrastructure loans
Equity release mortgages
Commercial real estate loans
Income strips
Bridging loans to private equity funds
Corporate transactions (see E2.3.3)
Other
2019
£m
262
1,147
341
2,781
388
690
320
43
54
2018
restated1
£m
225
776
170
2,020
449
654
–
66
50
–
423
–
423
1 See note A1 for details of the restatements.
Total Level 3 debt securities
6,026
4,410
2018
restated1
Financial assets measured
at fair value
Level 1
£m
Level 2
£m
Level 3
£m
Total fair
value
£m
Derivatives
348
3,288
162
3,798
Financial assets designated at
FVTPL upon initial recognition:
Equities
Investment in associate
51,347
496
–
–
1,369 52,716
–
496
Debt securities
39,735 27,220
4,410 71,365
Collective investment
schemes
Reinsurers' share of
investment contract liabilities
Total financial assets
measured at fair value
Financial assets for which
fair values are disclosed
Loans and deposits at
amortised cost
2018
Financial liabilities
measured at fair value
165,901 32,186
6,734 204,821
Level 1
£m
Level 2
£m
Level 3
£m
Total fair
value
£m
Derivatives
73
911
109
1,093
Financial liabilities designated
at FVTPL upon initial
recognition:
Borrowings
Net asset value attributable
to unitholders
–
2,659
–
–
Investment contract liabilities
– 114,463
127
127
–
2,659
– 114,463
2,659 114,463
127 117,249
Total financial liabilities
measured at fair value
Financial liabilities for which
fair values are disclosed
2,732 115,374
236 118,342
Borrowings at amortised cost
–
1,752
259
2,011
Deposits received from
reinsurers
Total financial liabilities for
which fair values are disclosed
1 See note A1 for details of the restatements.
–
4,438
–
4,438
–
6,190
259
6,449
2,732 121,564
495 124,791
Debt securities categorised as Level 3 investments predominantly
comprise unquoted corporate bonds, equity release mortgages,
commercial real estate loans, income strips, bridging loans to private
equity funds and corporate transactions. The remaining Level 3 debt
securities are valued using broker quotes. Although such valuations
are sensitive to estimates, it is believed that changing one or more
of the assumptions to reasonably possible alternative assumptions
would not change the fair value significantly. These assets are
typically held to back investment contract liabilities and participating
investments contracts and therefore fair value movements in such
financial assets will typically be offset by corresponding movements
in liabilities.
The Group holds unquoted corporate bonds comprising investments in
local authority loans, private placements and infrastructure loans with a
total value of £1,750 million (2018 restated: £1,171 million). These
unquoted corporate bonds are secured on various assets and are
valued using a discounted cash flow model. The discount rate is made
up of a risk-free rate and a spread. The risk-free rate is taken from an
appropriate gilt of comparable duration. The spread is taken from a
basket of comparable securities. The valuations are sensitive to
movements in this spread. An increase of 35bps would decrease the
value by £81 million (2018: £50 million) and a decrease of 35bps would
increase the value by £87 million (2018: £52 million).
Included within debt securities are investments in equity release
mortgages with a value of £2,781 million (2018: £2,020 million).
The loans are valued using a discounted cash flow model and a
Black-Scholes model for valuation of the No-Negative Equity
Guarantee (‘NNEG’). The NNEG caps the loan repayment in the
event of death or entry into long-term care to be no greater than
the sales proceeds from the property.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
177
177
FINANCIALS
Notes to the Consolidated Financial Statements continued
decrease the value by £66 million (2018: £70 million) and a decrease
of 35bps would increase the value by £79 million (2018: £79 million).
E2.3.2 Borrowings
Included within borrowings measured at fair value and categorised as
Level 3 financial liabilities are property reversion loans with a value of
£99 million (2018: £127 million), measured using an internally
developed model. The valuation is sensitive to key assumptions of
the discount rate and the house price inflation rate. An increase in
the discount rate of 1% would increase the value by £1 million (2018:
£2 million) and a decrease of 1% would decrease the value by
£1 million (2018: £2 million). An increase of 1% in the house price
inflation rate would decrease the value by £1 million (2018:
£2 million) and a decrease of 1% would increase the value by
£1 million (2018: £1 million).
E2.3.3 Corporate transactions
Included within financial assets and liabilities are related debt
securities of £43 million (2018: £66 million), borrowings of £nil (2018:
£13 million) and derivative liabilities of £4 million (2018: £13 million)
pertaining to a reinsurance and retrocession arrangement (see note
E3.2 for further information on these arrangements). These assets
and liabilities are valued using a discounted cash flow model that
includes valuation adjustments in respect of liquidity and credit risk.
At 31 December 2019, the net of these balances was an asset of
£39 million (2018: asset of £40 million). The valuation is sensitive to
movements in the euro swap curve. An increase of 100bps in the
swap curve would decrease the aggregate value by £2 million (2018:
£2 million) and a decrease of 100bps would increase the aggregate
value by £2 million (2018: £2 million).
Included within derivative assets and derivative liabilities are longevity
swap contracts with corporate pension schemes with a fair value of
£134 million (2018: £162 million) and £70 million (2018: £96 million)
respectively. These derivatives are valued on a discounted cash flow
basis, key inputs to which are the EIOPA interest rate swap curve and
RPI and CPI inflation rates.
An increase of 100bps in the swap curve would decrease the net
value by £13 million (2018: £16 million) and a decrease of 100bps
would increase the net value by £17 million (2018: £22 million). An
increase of 1% in the RPI and CPI inflation rates would increase the
value by £10 million (2018: £13 million) and a decrease of 1% would
decrease the value by £10 million (2018: £15 million).
E2.3.4 Derivatives
Included within derivative liabilities are forward local authority loans,
forward private placements and forward infrastructure loans with a
value of £41 million (2018: £nil). These investments include a
commitment to acquire or provide funding for fixed rate debt
instruments at specified future dates. These investments are valued
using a discounted cash flow model that takes a comparable UK
Treasury stock and applies a credit spread to reflect reduced liquidity.
The credit spreads are derived from a basket of comparable
securities. The valuations are sensitive to movements in this spread.
An increase of 35bps would decrease the value by £25 million (2018:
£16 million) and a decrease of 35bps would increase the value by
£28 million (2018: £17 million).
E. FINANCIAL ASSETS & LIABILITIES continued
E2. Fair Value Hierarchy continued
E2.3 Level 3 Financial instrument sensitivities continued
E2.3.1 Debt securities continued
The future cash flows are estimated based on assumed levels of
mortality derived from published mortality tables, entry into long-term
care rates and voluntary redemption rates. Cash flows include an
allowance for the expected cost of providing a NNEG assessed under
a real world approach using a closed form model including an assumed
level of property value volatility. For the NNEG assessment, property
values are indexed from the latest property valuation point and then
assumed to grow in line with Office for Budget Responsibility forecasts
in the short term and according to an RPI based assumption thereafter.
Cash flows are discounted using a risk free curve plus a spread,
where the spread is based on recent originations, with margins to
allow for the different risk profiles of ERM loans.
Considering the fair valuation uses certain inputs that are not market
observable, the fair value measurement of these loans has been
categorised as a Level 3 fair value. The key non-market observable
input is the voluntary redemption rate, for which the assumption varies
by the origin, age and loan to value ratio of each portfolio. Experience
analysis is used to inform this assumption; however, where experience
is limited for more recently originated loans, significant expert
judgement is required.
The significant sensitivities arise from movements in the yield curve,
inflation rate and house prices. An increase of 100bps in the yield curve
would decrease the value by £265 million (2018: £183 million) and a
decrease of 100bps would increase the value by £296 million (2018:
£205 million). An increase of 1% in the inflation rate would increase the
value by £26 million (2018: £11 million) and a decrease of 1% would
decrease the value by £43 million (2018: £21 million).
An increase of 10% in house prices would increase the value by
£15 million (2018: £6 million) and a decrease of 10% would decrease
the value by £25 million (2018: £14 million). An increase of 5% in
mortality would decrease the value by £8 million (2018: £5 million) and
a decrease of 5% in mortality would increase the value by £5 million
(2018: £3 million). An increase of 15% in the voluntary redemption rate
would decrease the value by £17 million (2018: £9 million) and a
decrease of 15% in the voluntary redemption rate would increase the
value by £15 million (2018: £7 million).
Also included within debt securities are investments in commercial
real estate loans of £388 million (2018: £449 million). The loans are
valued using a model which discounts the expected projected future
cash flows at the risk-free rate plus a spread derived from a basket
of comparable securities. The valuation is sensitive to changes in the
discount rate. An increase of 35bps in the discount rate would
decrease the value by £7 million (2018: £7 million) and a decrease of
35bps would increase the value by £7 million (2018: £8 million).
Also included within debt securities are income strips with a value
of £690 million (2018: £654 million). Income strips are transactions
where an owner-occupier of a property has sold a freehold or long
leasehold interest to the Group, and has signed a long lease (typically
30-45 years) or a ground lease (typically 45-175 years) and retains the
right to repurchase the property at the end of the lease for a nominal
sum (usually £1). The income strips are valued using an income
capitalisation approach, where the annual rental income is capitalised
using an appropriate yield. The yield is determined by considering
recent transactions involving similar income strips. The valuation
is sensitive to movements in yield. An increase of 35bps would
178
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
E2.4 Transfers of financial instruments between Level 1 and Level 2
2019
Financial assets measured at fair value
Financial assets designated at FVTPL upon initial recognition:
Collective investment schemes
Debt securities
2018
Financial assets measured at fair value
Financial assets designated at FVTPL upon initial recognition:
Debt securities
From
Level 1 to
Level 2
£m
From
Level 2 to
Level 1
£m
19
349
From
Level 1 to
Level 2
£m
16
25
From
Level 2 to
Level 1
£m
86
162
Consistent with the prior year, all the Group’s Level 1 and Level 2 assets have been valued using standard market pricing sources.
The application of the Group’s fair value hierarchy classification methodology at an individual security level, in particular observations with
regard to measures of market depth and bid-ask spreads, resulted in an overall net movement of financial assets from Level 1 to Level 2 in
the current period and from Level 2 to Level 1 in the comparative period.
E2.5 Movement in Level 3 financial instruments measured at fair value
2019
Financial assets
Derivatives
Financial assets designated at
FVTPL upon initial recognition:
Equities
Debt securities
Collective investment schemes
2019
Financial liabilities
Derivatives
Financial liabilities designated at
FVTPL upon initial recognition:
Borrowings
At 1 January
2019
£m
Net
gains/(losses)
in income
statement
£m
Effect of
purchases
£m
Transfers
from Level 1
and Level 2
£m
Transfers to
Level 1
and Level 2
£m
At
31 December
2019
£m
Sales
£m
Unrealised
gains/
(losses) on
assets held at
end
of period
£m
162
13
–
–
–
–
175
13
1,369
4,410
793
6,572
65
378
(135)
308
307
1,961
1
(387)
(721)
(13)
242
1
–
2,269
(1,121)
243
–
(3)
–
(3)
1,596
6,026
646
8,268
32
322
(136)
218
6,734
321
2,269
(1,121)
243
(3)
8,443
231
At 1 January
2019
£m
Net gains
in income
statement
£m
Effect of
purchases
£m
Repayments
£m
Transfers
from
Level 1 and
Level 2
£m
Transfers to
Level 1 and
Level 2
£m
At
31 December
2019
£m
Unrealised
gains on
liabilities
held at end
of period
£m
109
(35)
127
236
(6)
(41)
–
–
–
–
(22)
(22)
–
–
–
–
–
–
74
(35)
99
173
(6)
(40)
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
179
179
FINANCIALS
Notes to the Consolidated Financial Statements continued
E. FINANCIAL ASSETS & LIABILITIES continued
E2. Fair Value Hierarchy continued
E2.5 Movement in Level 3 financial instruments measured at fair value continued
2018
restated1
Financial assets
Derivatives
Financial assets designated at FVTPL
upon initial recognition:
Equities
Debt securities
Collective investment schemes
2018
Financial liabilities
Derivatives
Financial liabilities designated at FVTPL
upon initial recognition:
Borrowings
1 See note A1 for details of the restatements.
At
1 January
2018
£m
Net gains/
(losses) in
income
statement
£m
Effect of
acquisitions/
purchases
£m
Transfers to
Level 1
and Level 2
£m
At
31 December
2018
£m
Sales
£m
Unrealised
gains/(losses)
on assets
held at end
of period
£m
144
18
–
–
–
162
18
607
1,855
49
2,511
205
20
(51)
174
839
2,717
802
4,358
(282)
(174)
(7)
(463)
2,655
192
4,358
(463)
–
(8)
–
(8)
(8)
1,369
4,410
793
6,572
147
35
(47)
135
6,734
153
At
1 January
2018
£m
Net losses in
income
statement
£m
Effect of
acquisitions/
purchases
£m
Repayments
£m
Transfers to
Level 1
and Level 2
£m
At
31 December
2018
£m
Unrealised
losses on
liabilities
held at end
of period
£m
100
182
282
11
2
13
–
–
–
–
(2)
109
11
(57)
(57)
–
(2)
127
236
2
13
Gains and losses on Level 3 financial instruments are included in net investment income in the consolidated income statement. There were
no gains or losses recognised in other comprehensive income in either the current or comparative period.
180
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
E3. Derivatives
The Group purchases derivative financial instruments principally in connection with the management of its insurance contract and investment
contract liabilities based on the principles of reduction of risk and efficient portfolio management. The Group does not typically hold
derivatives for the purpose of selling or repurchasing in the near term or with the objective of generating a profit from short-term fluctuations
in price or margin. The Group also holds derivatives to hedge financial liabilities denominated in foreign currency.
Derivative financial instruments are largely classified as held for trading. Such instruments are recognised initially at fair value and are
subsequently remeasured to fair value. The gain or loss on remeasurement to fair value is recognised in the consolidated income statement.
Derivative financial instruments are not classified as held for trading where they are designated as a hedging instrument and where the
resultant hedge is assessed as effective. For such instruments, any gain or loss that arises on remeasurement to fair value is initially
recognised in other comprehensive income and is recycled to profit or loss as the hedged item impacts the profit or loss. See note E1 for
further details of the Group’s hedging accounting policy.
E3.1 Summary
The fair values of derivative financial instruments are as follows:
Forward currency
Credit default swaps
Contracts for difference
Interest rate swaps
Total return bond swaps
Swaptions
Inflation swaps
Equity options
Stock index futures
Fixed income futures
Retrocession contracts
Longevity swap contracts
Currency futures
Foreign exchange options
Total return equity swaps
Assets
2019
£m
138
138
1
1,738
33
1,800
46
344
10
70
–
134
2
–
–
Liabilities
2019
£m
Assets
2018
£m
Liabilities
2018
£m
90
33
–
143
–
16
111
161
52
54
4
70
–
–
–
60
13
1
1,959
10
912
34
553
45
47
–
162
–
2
–
79
17
2
695
4
3
46
59
23
50
13
96
3
–
3
4,454
734
3,798
1,093
E3.2 Corporate transactions
The Group has in place longevity swap arrangements with corporate pension schemes which do not meet the definition of insurance
contracts under the Group’s accounting policies. Under these arrangements the majority of the longevity risk has been passed to third parties.
Derivative assets of £134 million and derivative liabilities of £70 million have been recognised as at 31 December 2019 (2018: £162 million
and £96 million respectively).
In addition, the Group has entered into a transaction under which it has accepted reinsurance on a portfolio of single and regular premium life
insurance policies and retroceded the majority of the insurance risk. Taken as a whole, this transaction does not give rise to the transfer of
significant insurance risk to the Group and therefore does not meet the definition of an insurance contract under the Group’s accounting
policies. The fair value of amounts due from the cedant are recognised within debt securities (see note E1). The fair value of amounts due
to the retrocessionaire are recognised as a derivative liability and totalled £4 million at 31 December 2019 (2018: £13 million).
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
181
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FINANCIALS
Notes to the Consolidated Financial Statements continued
E. FINANCIAL ASSETS & LIABILITIES continued
E4. Collateral Arrangements
The Group receives and pledges collateral in the form of cash or non-cash assets in respect of stock lending transactions, derivative contracts
and reinsurance arrangements in order to reduce the credit risk of these transactions. The amount and type of collateral required where the
Group receives collateral depends on an assessment of the credit risk of the counterparty.
Collateral received in the form of cash, where the Group has contractual rights to receive the cash flows generated, is recognised as an asset in
the statement of consolidated financial position with a corresponding liability for its repayment. Non-cash collateral received is not recognised in
the statement of consolidated financial position, unless the counterparty defaults on its obligations under the relevant agreement.
Non-cash collateral pledged where the Group retains the contractual rights to receive the cash flows generated is not derecognised from the
statement of consolidated financial position, unless the Group defaults on its obligations under the relevant agreement. Cash collateral
pledged, where the counterparty has contractual rights to receive the cash flows generated, is derecognised from the statement of
consolidated financial position and a corresponding receivable is recognised for its return.
E4.1 Financial instrument collateral arrangements
The Group has no financial assets and financial liabilities that have been offset in the statement of consolidated financial position as at
31 December 2019 (2018: none).
The table below contains disclosures related to financial assets and financial liabilities recognised in the statement of consolidated financial
position that are subject to enforceable master netting arrangements or similar agreements. Such agreements do not meet the criteria for
offsetting in the statement of consolidated financial position as the Group has no current legally enforceable right to offset recognised
financial instruments. Furthermore, certain related assets received as collateral under the netting arrangements will not be recognised in the
statement of consolidated financial position as the Group does not have permission to sell or re-pledge, except in the case of default. Details
of the Group’s collateral arrangements in respect of these recognised assets and liabilities are provided below.
2019
Financial assets
OTC derivatives
Exchange traded derivatives
Stock lending
Total
Financial liabilities
OTC derivatives
Exchange traded derivatives
Total
Related amounts not offset
Gross and net
amounts of
recognised
financial
assets
£m
Financial
instruments
and cash
collateral
received
£m
3,908
546
3,050
7,504
3,542
6
3,050
6,598
Derivative
liabilities
£m
Net
amount
£m
43
–
–
43
323
540
–
863
Related amounts not offset
Gross and net
amounts of
recognised
financial
liabilities
£m
Financial
instruments
and cash
collateral
pledged
£m
650
84
734
313
10
323
Derivative
assets
£m
Net
amount
£m
43
–
43
294
74
368
182
182
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
2018
Financial assets
OTC derivatives
Exchange traded derivatives
Stock lending
Total
Financial liabilities
OTC derivatives
Exchange traded derivatives
Total
Related amounts not offset
Gross and net
amounts of
recognised
financial
assets
£m
Financial
instruments and
cash collateral
received
£m
3,435
363
2,417
6,215
2,804
34
2,417
5,255
Derivative
liabilities
£m
Net
amount
£m
455
–
–
455
176
329
–
505
Related amounts not offset
Gross and net
amounts of
recognised
financial
liabilities
£m
Financial
instruments and
cash collateral
pledged
£m
Derivative
assets
£m
Net
amount
£m
1,009
84
1,093
554
8
562
455
–
455
–
76
76
E4.2 Derivative collateral arrangements
Assets accepted
It is the Group’s practice to obtain collateral to mitigate the counterparty risk related to over-the-counter (‘OTC’) derivatives usually in the form
of cash or marketable financial instruments.
The fair value of financial assets accepted as collateral for OTC derivatives but not recognised in the statement of consolidated financial
position amounts to £437 million (2018: £374 million).
The amounts recognised as financial assets and liabilities from cash collateral received at 31 December 2019 are set out below.
Financial assets
Financial liabilities
OTC derivatives
2019
£m
3,671
(3,671)
2018
£m
2,619
(2,619)
The maximum exposure to credit risk in respect of OTC derivative assets is £3,908 million (2018: £3,435 million) of which credit risk of
£3,585 million (2018: £3,259 million) is mitigated by use of collateral arrangements (which are settled net after taking account of any OTC
derivative liabilities owed to the counterparty).
Credit risk on exchange traded derivative assets of £546 million (2018: £363 million) is mitigated through regular margining and the protection
offered by the exchange.
Assets pledged
The Group pledges collateral in respect of its OTC derivative liabilities. The value of assets pledged at 31 December 2019 in respect of OTC
derivative liabilities of £650 million (2018: £1,009 million) amounted to £692 million (2018: £554 million).
E4.3 Stock lending collateral arrangements
The Group lends listed financial assets held in its investment portfolio to other institutions.
The Group conducts stock lending only with well-established, reputable institutions in accordance with established market conventions. The
financial assets do not qualify for derecognition as the Group retains all the risks and rewards of the transferred assets except for the voting rights.
It is the Group’s practice to obtain collateral in stock lending transactions, usually in the form of cash or marketable financial instruments.
The fair value of financial assets accepted as such collateral but not recognised in the statement of consolidated financial position amounts to
£3,306 million (2018: £2,746 million).
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
183
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FINANCIALS
Notes to the Consolidated Financial Statements continued
E. FINANCIAL ASSETS & LIABILITIES continued
E4. Collateral Arrangements continued
E4.3 Stock lending collateral arrangements continued
The maximum exposure to credit risk in respect of stock lending transactions is £3,050 million (2018: £2,417 million) of which credit risk of
£3,050 million (2018: £2,417 million) is mitigated through the use of collateral arrangements.
E4.4 Other collateral arrangements
Details of collateral received to mitigate the counterparty risk arising from the Group’s reinsurance transactions is given in note F3.
Collateral has also been pledged and charges have been granted in respect of certain Group borrowings. The details of these arrangements
are set out in note E5.
E5. Borrowings
The Group classifies the majority of its interest bearing borrowings as financial liabilities carried at amortised cost and these are recognised
initially at fair value less any attributable transaction costs. The difference between initial cost and the redemption value is amortised through
the consolidated income statement over the period of the borrowing using the effective interest method.
Certain borrowings are designated upon initial recognition at fair value through profit or loss and measured at fair value where doing so
provides more meaningful information due to the reasons stated in the financial liabilities accounting policy (see note E1). Transaction costs
relating to borrowings designated upon initial recognition at fair value through profit or loss are expensed as incurred.
Borrowings are classified as either policyholder or shareholder borrowings. Policyholder borrowings are those borrowings where there is
either no or limited shareholder exposure, for example, borrowings attributable to the Group’s with-profit operations.
E5.1Analysis of borrowings
Limited recourse bonds 2022 7.59% (note a)
Property reversions loan (note b)
Retrocession contracts (note c)
Total policyholder borrowings
£200 million 7.25% unsecured subordinated loan (note d)
£300 million senior unsecured bond (note e)
£428 million Tier 2 subordinated notes (note h)
£450 million Tier 3 subordinated notes (note i)
US $500 million Tier 2 bonds (note j)
€500 million Tier 2 bonds (note k)
Total shareholder borrowings
Carrying value
Fair value
2019
£m
35
99
–
134
196
121
426
449
376
417
2018
£m
45
114
13
172
186
121
426
448
390
443
2019
£m
38
99
–
137
211
130
503
473
396
472
2018
£m
50
114
13
177
209
132
441
447
342
390
1,985
2,014
2,185
1,961
Total borrowings
2,119
2,186
2,322
2,138
Amount due for settlement after 12 months
2,107
2,174
a. In 1998, Mutual Securitisation plc raised £260 million of capital through the securitisation of Embedded Value on a block of existing unit-linked
and unitised with-profit life and pension policies. The bonds were split between two classes, which ranked pari passu and were listed on the
Irish Stock Exchange. The £140 million 7.39% class A1 limited recourse bonds matured in 2012 with no remaining outstanding principal. The
£120 million 7.59% class A2 limited recourse bonds with an outstanding principal of £36 million (2018: £48 million) have an average remaining
life of 1 year and mature in 2022. Phoenix Life Assurance Limited (‘PLAL’) has provided collateral of £14 million (2018: £21 million) to provide
security to the holders of the recourse bonds in issue. During 2019, repayments totalling £12 million were made (2018: £12 million).
b. The Property Reversions loan from Santander UK plc (‘Santander’) was recognised in the consolidated financial statements at fair value. It
relates to the sale of Extra-Income Plan policies that Santander finances to the value of the associated property reversions. As part of the
arrangement Santander receive an amount calculated by reference to the movement in the Halifax House Price Index and the Group is required
to indemnify Santander against profits or losses arising from mortality or surrender experience which differs from the basis used to calculate
the reversion amount. Repayment will be on a policy-by-policy basis and is expected to occur over the next 10 to 20 years. During 2019,
repayments totalling £22 million were made (2018: £25 million). Note G4 contains details of the assets that support this loan.
184
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
c. In July 2012, AXIA Insurance Limited (‘AXIA’) provided financing to Abbey Life, a Group company, for Abbey Life to in turn provide the
financing for the securitisation of the future surplus arising on a block of 1.7 million life insurance policies originating from the wholly owned
Spanish and Portuguese insurance subsidiaries of Banco Santander, S.A. (the ‘Cedants’). This transaction was executed in the form of a
reinsurance and retrocession arrangement that, taken as a whole, does not meet the definition of an insurance contract under the Group’s
accounting policies (see note E3.2). Abbey Life received an upfront reinsurance commission from AXIA and makes monthly repayments
based on the surplus emerging from the securitised policies as defined in the contracts. The repayments comprise a minimum guaranteed
surplus amount and a share of any excess surplus, net of a fee and certain other amounts. Any excess amount serves to accelerate the
repayment of the principal. Repayments are contingent on the receipt of payments due from the Cedants. Repayment of the loan principal
is expected to occur by 2021. The contracts are recognised in the consolidated financial statements at fair value. On 31 December 2018,
the retrocession contracts were transferred from Abbey Life to Phoenix Life Limited (‘PLL’), another Group company, under the terms of a
scheme under Part VII of the Financial Services and Markets Act 2000.
The contracts are recognised in the consolidated financial statements at fair value, which in the prior year was a liability of £13 million
presented within borrowings and in the current year is an asset of £24 million presented within debt securities. The asset represents the
excess of the fair value of the future fees under the reinsurance agreement over the remaining financing liability.
d. Scottish Mutual Assurance Limited issued £200 million 7.25% undated, unsecured subordinated loan notes on 23 July 2001 (‘PLL
subordinated debt’). The earliest repayment date of the notes is 25 March 2021 and thereafter on each fifth anniversary so long as the
notes are outstanding. With effect from 1 January 2009, following a Part VII transfer, these loan notes were transferred into the
shareholder fund of PLL. In the event of the winding-up of PLL, the right of payment under the notes is subordinated to the rights of the
higher-ranking creditors (principally policyholders). As a result of the acquisition of the Phoenix Life businesses in 2009, these subordinated
loan notes were acquired at their fair value and as such, the outstanding principal of these subordinated loan notes differs from the carrying
value in the statement of consolidated financial position. The fair value adjustments, which were recognised on acquisition, will unwind
over the remaining life of these subordinated loan notes. With effect from 23 December 2014, minor modifications were made to the
terms of the notes to enable them to qualify as Tier 2 capital for regulatory reporting purposes. Expenses incurred in effecting these
modifications amounted to £10 million. Given the modifications were not substantial, the carrying amount of the liability was adjusted
accordingly and the expenses are being amortised over the life of the notes.
e. On 7 July 2014, the Group’s financing subsidiary, PGH Capital plc (‘PGHC’), issued a £300 million 7 year senior unsecured bond at an annual
coupon rate of 5.75% (‘£300 million senior bond’). On 20 March 2017, Old PGH was substituted in place of PGHC as issuer of the £300 million
senior bond. On 5 May 2017, Old PGH completed the purchase of £178 million of the £300 million senior bond at a premium of £25 million in
excess of the principal amount. Accrued interest on the purchased bonds was settled on this date. On 18 June 2019, the Company was
substituted in place of Old PGH as issuer of the £300 million 7 year senior unsecured bond.
f. In 2018, the Group had in place an unsecured revolving credit facility (‘the facility’), maturing in June 2022. Old PGH drew down £295 million
under the facility on 31 August 2018. Following the issuance of €500 million Tier 2 bond on 24 September 2018, the facility was fully repaid
and remained undrawn at 31 December 2018. On 12 December 2018, the Company became an additional borrower and guarantor under the
facility. On 27 June 2019, the Company replaced this facility with a new £1.25 billion unsecured revolving credit facility (see item l).
g. On 23 February 2018, Old PGH entered into an acquisition facility with an aggregate principal amount of £600 million and the Company became
an additional borrower and guarantor under the acquisition facility on 12 December 2018. On 27 June 2019, the facility was cancelled.
h. On 23 January 2015, PGHC issued £428 million of subordinated notes due 2025 at a coupon of 6.625%. Fees associated with these notes
of £3 million were deferred and are being amortised over the life of the notes in the statement of consolidated financial position. Upon
exchange £32 million of these notes were held by Group companies. On 27 January 2017, £17 million of the £428 million subordinated
notes held by Group companies were sold to third parties and a further £15 million were sold to third parties on 31 January 2017, thereby
increasing external borrowings by £32 million. On 20 March 2017, Old PGH was substituted in place of PGHC as issuer of the £428 million
subordinated notes and then on 12 December 2018 the Company was substituted in place of Old PGH as issuer.
i. On 20 January 2017, PGHC issued £300 million Tier 3 subordinated notes due 2022 at a coupon of 4.125%. On 20 March 2017, Old PGH was
substituted in place of PGHC as issuer of the £300 million Tier 3 subordinated notes. On 5 May 2017, Old PGH completed the issue of a further
£150 million of Tier 3 subordinated notes, the terms of which are the same as the Tier 3 subordinated notes issued in January 2017. The Group
received a premium of £2 million in excess of the principal amount. Fees associated with these notes of £5 million were deferred and are being
amortised over the life of the notes. On 12 December 2018 the Company was substituted in place of Old PGH as issuer.
j. On 6 July 2017, Old PGH issued US $500 million Tier 2 bonds due 2027 with a coupon of 5.375%. Fees associated with these notes of
£2 million were deferred and are being amortised over the life of the notes. On 12 December 2018 the Company was substituted in place
of Old PGH as issuer.
k. On 24 September 2018, Old PGH issued €500 million Tier 2 notes due 2029 with a coupon of 4.375%. Fees associated with these notes
of £7 million were deferred and are being amortised over the life of the notes. On 12 December 2018 the Company was substituted in
place of Old PGH as issuer.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
185
185
FINANCIALS
Notes to the Consolidated Financial Statements continued
E. FINANCIAL ASSETS & LIABILITIES continued
E5 Borrowings continued
E5.1 Analysis of borrowings continued
l. On 27 June 2019, the Company replaced its £900 million unsecured revolving credit facility (see item f) with a new £1.25 billion unsecured
revolving credit facility (the ‘revolving facility’), maturing in June 2024. There are no mandatory or target amortisation payments associated
with the facility but the facility does include customary mandatory prepayment obligations and voluntary prepayments are permissible. The
facility accrues interest at a margin over LIBOR that is based on credit rating. On 23 October 2019 the Company drew down £100 million
under the revolving facility, the balance was fully repaid on 25 November 2019 and the facility remains undrawn as at 31 December 2019.
Changes to the Group’s borrowings since 31 December 2019 have been detailed in note I7.
E5.2 Reconciliation of liabilities arising from financing
The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash changes (with the
exception of lease liabilities, which have been included in note G10). Liabilities arising from financing activities are those for which cash flows
were, or future cash flows will be, classified in the Group’s consolidated statement of cash flows as cash flows from financing activities.
Limited recourse bonds 2022 7.59%
Property Reversions loan
Retrocession contracts
£200 million 7.25% unsecured
subordinated loan
£300 million senior unsecured bond
£1.25 billion revolving credit facility
£428 million Tier 2 subordinated notes
£450 million Tier 3 subordinated notes
US $500 million Tier 2 bonds
€500 million Tier 2 notes
Limited recourse bonds 2022 7.59%
Property Reversions loan
Retrocession contracts
£200 million 7.25% unsecured
subordinated loan
£300 million senior unsecured bond
£900 million unsecured revolving credit
facility
£428 million subordinated notes
£450 million Tier 3 subordinated notes
US $500 million Tier 2 bonds
€500 million Tier 2 notes
Cash movements
Non-cash movements
At
1 January
2019
£m
New
borrowings,
net of costs £m
Repayments
£m
Changes in
fair value
£m
Movement
in foreign
exchange
£m
45
114
13
186
121
–
426
448
390
443
–
–
–
–
–
(12)
(22)
–
–
–
100
(100)
–
–
–
–
–
–
–
–
–
7
(13)
–
–
–
–
–
–
–
2,186
100
(134)
(6)
–
–
–
–
–
–
–
–
(14)
(27)
(41)
Other
movements1
£m
2
–
–
10
–
–
–
1
–
1
14
At
31 December
2019
£m
35
99
–
196
121
–
426
449
376
417
2,119
Cash movements
Non-cash movements
At
1 January
2018
£m
New
borrowings,
net of costs
£m
Repayments
£m
Changes in
fair value
£m
Movement
in foreign
exchange
£m
Other
movements1
£m
At
31 December
2018
£m
56
131
51
177
121
–
426
448
368
–
1,778
–
–
–
–
–
(12)
(25)
(32)
–
–
295
(295)
–
–
–
438
733
–
–
–
–
(364)
–
8
(6)
–
–
–
–
–
–
–
2
–
–
–
–
–
–
–
–
22
5
27
1
–
–
9
–
–
–
–
–
–
10
45
114
13
186
121
–
426
448
390
443
2,186
1 Comprises amortisation under the effective interest method applied to borrowings held at amortised cost.
186
186
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
E6. Risk Management – Financial Risk
This note forms one part of the risk management disclosures in the consolidated financial statements. The Group’s management of insurance
risk is detailed in note F4.
E6.1 Financial risk and the Asset Liability Management (‘ALM’) framework
The use of financial instruments naturally exposes the Group to the risks associated with them, chiefly market risk, credit risk and financial
soundness risk.
Responsibility for agreeing the financial risk profile rests with the board of each life company, as advised by investment managers, internal
committees and the Actuarial function. In setting the risk profile, the board of each life company will receive advice from the appointed
investment managers, the relevant with-profit actuary and the relevant Actuarial function holder as to the potential implications of that risk
profile with regard to the probability of both realistic insolvency and of failing to meet the regulatory Minimum Capital Requirement. The Chief
Actuary will also advise the extent to which the investment risk taken is consistent with the Group’s commitment to treat customers fairly.
Derivatives are used in many of the Group’s funds, within policy guidelines agreed by the board of each life company and overseen by
investment committees of the boards of each life company supported by management oversight committees. Derivatives are primarily used
for risk hedging purposes or for efficient portfolio management, including the activities of the Group’s Treasury function.
More detail on the Group’s exposure to financial risk is provided in note E6.2 below.
The Group is also exposed to insurance risk arising from its Life business. Life insurance risk in the Group arises through its exposure to
longevity, persistency, mortality and to other variances between assumed and actual experience. These variances can be in factors such as
persistency levels and management, administrative expenses and new business pricing. More detail on the Group’s exposure to insurance
risk is provided in note F4.
The Group’s overall exposure to market and credit risk is monitored by appropriate committees, which agree policies for managing each type
of risk on an ongoing basis, in line with the investment strategy developed to achieve investment returns in excess of amounts due in respect
of insurance contracts. The effectiveness of the Group’s ALM framework relies on the matching of assets and liabilities arising from
insurance and investment contracts, taking into account the types of benefits payable to policyholders under each type of contract. Separate
portfolios of assets are maintained for with-profit business funds (which include all of the Group’s participating business), non-linked non-profit
funds and unit-linked funds.
E6.2 Financial risk analysis
Transactions in financial instruments result in the Group assuming financial risks. These include credit risk, market risk and financial
soundness risk. Each of these are described below, together with a summary of how the Group manages the risk, along with sensitivity
analysis where appropriate. The sensitivity analysis does not take into account second order impacts of market movements, for example,
where a market movement may give rise to potential indicators of impairment for the Group’s intangible balances.
E6.2.1 Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.
These obligations can relate to both on and off balance sheet assets and liabilities.
There are two principal sources of credit risk for the Group:
• credit risk which results from direct investment activities, including investments in debt securities, derivatives counterparties, collective
investment schemes and the placing of cash deposits; and
• credit risk which results indirectly from activities undertaken in the normal course of business. Such activities include premium payments,
outsourcing contracts, reinsurance, exposure from material suppliers and the lending of securities.
The amount disclosed in the statement of consolidated financial position in respect of all financial assets, together with rights secured under
off balance sheet collateral arrangements, and excluding the minority interest in consolidated collective investment schemes and those
assets that back policyholder liabilities, represents the Group’s maximum exposure to credit risk.
The impact of non-government debt securities and, inter alia, the change in market credit spreads during the year is fully reflected in the
values shown in these consolidated financial statements. Credit spreads are the excess of corporate bond yields over gilt yields to reflect
the higher level of risk. Similarly, the value of derivatives that the Group holds takes into account fully the changes in swap rates.
There is an exposure to spread changes affecting the prices of corporate bonds and derivatives. This exposure applies to with-profit funds
(to the extent that risks and rewards fall wholly to shareholders), non-profit funds and shareholders’ funds.
The Group holds £10,800 million (2018: £9,917 million) of corporate bonds which are used to back annuity liabilities in non-profit funds. These
annuity liabilities include an aggregate credit default provision of £583 million (2018: £496 million) to fund against the risk of default.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
187
187
FINANCIALS
2019
Loans and deposits
Derivatives
Debt securities1,2
Reinsurers’ share of
insurance contract
liabilities
Reinsurers’ share of
investment contract liabilities
Cash and cash equivalents
Notes to the Consolidated Financial Statements continued
E. FINANCIAL ASSETS & LIABILITIES continued
E6. Risk Management – Financial Risk continued
E6.2 Financial risk analysis continued
E6.2.1 Credit risk continued
A 100bps widening of credit spreads, with all other variables held constant and no change in assumed expected defaults, would result in a
decrease in the profit after tax in respect of a full financial year, and in equity, of £70 million (2018: £108 million).
A 100bps narrowing of credit spreads, with all other variables held constant and no change in assumed expected defaults, would result in an
increase in the profit after tax in respect of a full financial year, and in equity, of £26 million (2018: £100 million).
Credit risk is managed by the monitoring of aggregate Group exposures to individual counterparties and by appropriate credit risk
diversification. The Group manages the level of credit risk it accepts through credit risk tolerances. Credit risk on derivatives and securities
lending is mitigated through the use of collateral with appropriate haircuts. The credit risk borne by the shareholder on with-profit policies is
dependent on the extent to which the underlying insurance fund is relying on shareholder support.
Quality of credit assets
An indication of the Group’s exposure to credit risk is the quality of the investments and counterparties with which it transacts. The following
table provides information regarding the aggregate credit exposure split by credit rating.
AAA
£m
–
–
AA
£m
21
11
9,630
32,188
A
£m
47
2,194
15,778
BBB
£m
164
1,484
10,947
Non-rated
£m
Unit-linked
£m
BB and
below
£m
–
–
284
759
2,252
5,317
–
–
295
9,925
5,913
1,366
–
733
38,866
–
3,105
22,490
–
–
23
–
–
–
45
–
270
12,618
2,252
6,675
8,928
101,754
1 For financial assets that do not have credit ratings assigned by external ratings agencies, the Group assigns internal ratings for use in management and monitoring of credit risk. £51
million of AAA, £433 million of AA, £1,354 million of A, £272 million of BBB and £90 million of BB and below debt securities are internally rated. If a financial asset is neither rated by
an external agency nor internally rated, it is classified as ‘non-rated’.
2 Non-rated debt securities includes equity release mortgages with a value of £2,781 million. Further details are set out in note E2.3.
2018
restated1
Loans and deposits
Derivatives
Debt securities2,3
AAA
£m
–
–
AA
£m
7
5
9,743
31,446
A
£m
46
BBB
£m
–
2,092
13,712
1,032
10,894
Reinsurers’ share of
insurance contract liabilities
Reinsurers’ share of
investment contract liabilities
–
–
Cash and cash equivalents
327
1 See note A1 for details of restatements.
10,070
38,632
6,227
1,292
–
947
–
1,836
18,978
–
–
1,265
13,191
BB and
below
£m
–
–
Non-rated
£m
Unit-linked
£m
370
659
–
10
199
Total
£m
423
3,798
71,365
2,248
3,123
–
–
–
45
–
450
2,248
4,647
–
7,564
8,331
101
8,641
8,331
4,926
96,407
2 For financial assets that do not have credit ratings assigned by external ratings the Group assigns internal ratings for use in management and monitoring credit risk. £64 million of
AAA, £641 million of AA, £1,084 million of A, £291 million of BBB and £24 million of BB and below debt securities are internally rated.
3 Non-rated debt securities includes equity release mortgages with a value of £2,020 million. Further details are set out in note E2.3.
188
188
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Total
£m
516
4,454
76,113
7,324
8,881
4,466
–
6
1
–
8,881
40
Credit ratings have not been disclosed in the above tables for
holdings in unconsolidated collective investment schemes and
investments in associates. The credit quality of the underlying debt
securities within these vehicles is managed by the safeguards built
into the investment mandates for these vehicles.
The Group maintains accurate and consistent risk ratings across its
asset portfolio. This enables management to focus on the applicable
risks and to compare credit exposures across all lines of business,
geographical regions and products. The rating system is supported
by a variety of financial analytics combined with market information to
provide the main inputs for the measurement of counterparty risk. All
risk ratings are tailored to the various categories of assets and are
assessed and updated regularly.
The Group operates an Internal Credit Rating Committee to perform
oversight and monitoring of internal credit ratings for externally rated
and internally rated assets. A variety of methods are used to validate
the appropriateness of credit assessments from external institutions
and fund managers. Internally rated assets are those that do not have
a public rating from an external credit assessment institution. The
internal credit ratings used by the Group are provided by fund
managers or for certain assets (in particular, equity release mortgages)
determined by the Life Companies. The Committee reviews the
policies, processes and practices to ensure the appropriateness of
the internal ratings assigned to asset classes.
The Group has increased exposure to illiquid credit assets (eg equity
release mortgages and commercial real estate loans) with the aim of
achieving greater diversification and investment returns.
A further indicator of the quality of the Group’s financial assets is the
extent to which they are neither past due nor impaired. All of the
amounts in the table above for the current and prior year are neither
past due nor impaired.
Please refer to page 255 for additional life company asset disclosures
which include the life companies’ exposure to peripheral Eurozone
debt securities. Peripheral Eurozone is defined as Portugal, Spain, Italy,
Ireland and Greece. The Group’s exposure to peripheral Eurozone debt
continues to be relatively small compared to total assets.
Concentration of credit risk
Concentration of credit risk might exist where the Group has
significant exposure to an individual counterparty or a group of
counterparties with similar economic characteristics that would
cause their ability to meet contractual obligations to be similarly
affected by changes in economic and other conditions. The Group
has most of its counterparty risk within its life business and this is
monitored by the counterparty limits contained within the investment
guidelines and investment management agreements, overlaid by
regulatory requirements and the monitoring of aggregate
counterparty exposures across the Group against additional Group
counterparty limits. Counterparty risk in respect of OTC derivative
counterparties is monitored using a Potential Future Exposure (‘PFE’)
value metric.
The Group is also exposed to concentration risk with outsource partners.
This is due to the nature of the outsourced services market. The Group
operates a policy to manage outsourcer service counterparty exposures
and the impact from default is reviewed regularly by executive
committees and measured through stress and scenario testing.
Reinsurance
The Group is exposed to credit risk as a result of insurance risk
transfer contracts with reinsurers. This also gives rise to
concentration of risk with individual reinsurers, due to the nature of
the reinsurance market and the restricted range of reinsurers that
have acceptable credit ratings. The Group manages its exposure to
reinsurance credit risk through the operation of a credit policy,
collateralisation where appropriate, and regular monitoring of
exposures at the Reinsurance Management Committee.
Collateral
The credit risk of the Group is mitigated, in certain circumstances,
by entering into collateral agreements. The amount and type of
collateral required depends on an assessment of the credit risk of the
counterparty. Guidelines are implemented regarding the acceptability
of types of collateral and the valuation parameters. Collateral is
mainly in respect of stock lending, certain reinsurance arrangements
and to provide security against the daily mark to model value of
derivative financial instruments. Management monitors the market
value of the collateral received, requests additional collateral when
needed, and performs an impairment valuation when impairment
indicators exist and the asset is not fully secured (and is not carried
at fair value). See note E4 for further information on collateral
arrangements.
E6.2.2 Market risk
Market risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market
influences. Market risk comprises interest rate risk, currency risk
and other price risk (comprising equity risk, property risk, inflation risk
and alternative asset class risk).
The Group is mainly exposed to market risk as a result of:
• the mismatch between liability profiles and the related asset
investment portfolios;
• the investment of surplus assets including shareholder reserves
yet to be distributed, surplus assets within the with-profit funds
and assets held to meet regulatory capital and solvency
requirements; and
• the income flow of management charges derived from the value
of invested assets of the business.
The Group manages the levels of market risk that it accepts through
the operation of a market risk policy and an approach to investment
management that determines:
• the constituents of market risk for the Group;
• the basis used to fair value financial assets and liabilities;
• the asset allocation and portfolio limit structure;
• diversification from and within benchmarks by type of instrument
and geographical area;
• the net exposure limits by each counterparty or group of
counterparties, geographical and industry segments;
• control over hedging activities;
• reporting of market risk exposures and activities; and
• monitoring of compliance with market risk policy and review of
market risk policy for pertinence to the changing environment.
All operations comply with regulatory requirements relating to the
taking of market risk.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
189
189
FINANCIALS
Notes to the Consolidated Financial Statements continued
E. FINANCIAL ASSETS & LIABILITIES continued
E6. Risk Management – Financial Risk continued
E6.2 Financial risk analysis continued
E6.2.2 Market risk continued
Interest rate and inflation risk
Interest rate risk is the risk that the fair value of future cash flows of a
financial instrument will fluctuate relative to the respective liability due
to the impact of changes in market interest rates on the value of
interest-bearing assets and on the value of future guarantees provided
under certain contracts of insurance. The paragraphs in this section
also apply to inflation risk, but references to fixed rate assets and
liabilities would be replaced with index-linked assets and liabilities.
Interest rate risk is managed by matching assets and liabilities where
practicable and by entering into derivative arrangements for hedging
purposes where appropriate. This is particularly the case for the non-
participating funds and supported participating funds. For unsupported
participating business, some element of investment mismatching is
permitted where it is consistent with the principles of treating customers
fairly. The with-profit funds of the Group provide capital to allow such
mismatching to be effected. In practice, the life companies of the Group
maintain an appropriate mix of fixed and variable rate instruments
according to the underlying insurance or investment contracts and will
review this at regular intervals to ensure that overall exposure is kept
within the risk profile agreed for each particular fund. This also requires
the maturity profile of these assets to be managed in line with the
liabilities to policyholders.
The sensitivity analysis for interest rate risk indicates how changes in
the fair value or future cash flows of a financial instrument arising
from changes in market interest rates at the reporting date result in a
change in profit after tax and in equity. It takes into account the
effect of such changes in market interest rates on all assets and
liabilities that contribute to the Group’s reported profit after tax and in
equity. Changes in the value of the Group’s holdings in swaptions as
the result of time decay or changes to interest rate volatility are not
captured in the sensitivity analysis.
With-profit business and non-participating business within the with-
profit funds are exposed to interest rate risk as guaranteed liabilities
are valued relative to market interest rates and investments include
fixed interest securities and derivatives. For unsupported with-profit
business the profit or loss arising from mismatches between such
assets and liabilities is largely offset by increased or reduced
discretionary policyholder benefits dependent on the existence of
policyholder guarantees. The contribution of unsupported
participating business to the Group result is largely limited to the
shareholders’ share of the declared annual bonus. The contribution of
the supported participating business to the Group result is
determined by the shareholders’ interest in any change in value in
the capital advanced to the with-profit funds.
In the non-participating funds, policy liabilities’ sensitivity to interest
rates are matched primarily with debt securities and hedging if
necessary to match duration, with the result that sensitivity to
changes in interest rates is very low. The Group’s exposure to
interest rates principally arises from the Group’s hedging strategy to
protect the regulatory capital position, which results in an adverse
impact on profit on an increase in interest rates.
An increase of 1% in interest rates, with all other variables held
constant would result in a decrease in profits after tax in respect of a
full financial year, and in equity, of £114 million (2018: £141 million).
A decrease of 1% in interest rates, with all other variables held
constant, would result in an increase in profits after tax in respect of a
full financial year, and in equity, of £233 million (2018: £211 million).
The Group is exposed to inflation risk through certain contracts, such
as annuities, which may provide for future benefits to be paid taking
account of changes in the level of experienced and implied inflation,
and also through the Group’s cost base. The Group seeks to manage
inflation risk within the ALM framework through the holding of
derivatives, such as inflation swaps, or physical positions in relevant
assets, such as index-linked gilts, where appropriate.
Equity and property risk
The Group has exposure to financial assets and liabilities whose
values will fluctuate as a result of changes in market prices other
than from interest rate and currency fluctuations. This is due to
factors specific to individual instruments, their issuers or factors
affecting all instruments traded in the market. Accordingly, the Group
limits its exposure to any one counterparty in its investment
portfolios and to any one foreign market.
The portfolio of marketable equity securities and property
investments which is carried in the statement of consolidated
financial position at fair value, has exposure to price risk. The Group’s
objective in holding these assets is to earn higher long-term returns
by investing in a diverse portfolio of equities and properties. Portfolio
characteristics are analysed regularly and price risks are actively
managed in line with investment mandates. The Group’s holdings
are diversified across industries and concentrations in any one
company or industry are limited.
Equity and property price risk is primarily borne in respect of assets
held in with-profit funds, unit-linked funds or equity release mortgages
in the non-profit funds. For unit-linked funds this risk is borne by
policyholders and asset movements directly impact unit prices and
hence policy values. For with-profit funds policyholders’ future bonuses
will be impacted by the investment returns achieved and hence the
price risk, whilst the Group also has exposure to the value of
guarantees provided to with-profit policyholders. In addition some
equity investments are held in respect of shareholders’ funds. For the
non-profit fund property price risk from equity release mortgages is
borne by the Group with the aim of achieving greater diversification
and investment returns, consistent with the Strategic Asset Allocation
approved by the Board. The Group as a whole is exposed to price risk
fluctuations impacting the income flow of management charges from
the invested assets of all funds; this is primarily managed through the
use of derivatives.
Equity and property price risk is managed through the agreement and
monitoring of financial risk profiles that are appropriate for each of
the Group’s life funds in respect of maintaining adequate regulatory
capital and treating customers fairly. This is largely achieved through
asset class diversification and within the Group’s ALM framework
through the holding of derivatives or physical positions in relevant
assets where appropriate.
The sensitivity analysis for equity and property price risk illustrates
how a change in the fair value of equities and properties affects the
Group result. It takes into account the effect of such changes in
equity and property prices on all assets and liabilities that contribute
to the Group’s reported profit after tax and in equity (but excludes
the impact on the Group’s pension schemes).
190
190
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
A 10% decrease in equity prices, with all other variables held constant,
would result in an increase in profits after tax in respect of a full
financial year, and in equity, of £254 million (2018: £202 million).
E6.2.3 Financial soundness risk
Financial soundness risk is a broad risk category encompassing
capital management risk, tax risk and liquidity and funding risk.
A 10% increase in equity prices, with all other variables held
constant, would result in a decrease in profits after tax in respect of
a full financial year, and in equity, of £200 million (2018: £197 million).
A 10% decrease in property prices, with all other variables held
constant, would result in a decrease in profits after tax in respect of a
full financial year, and in equity, of £26 million (2018: £15 million).
A 10% increase in property prices, with all other variables held
constant, would result in an increase in profits after tax in respect of
a full financial year, and in equity, of £16 million (2018: £7 million).
The sensitivity to changes in equity prices is primarily driven by the
Group’s equity hedging arrangements over the value of future
management charges that are linked to asset values.
Currency risk
With the exception of Standard Life business sold in Germany and the
Republic of Ireland, and some historic business written in the latter, the
Group’s principal transactions are carried out in sterling. The assets for
these books of business are generally held in the same currency
denomination as their liabilities; therefore, any foreign currency
mismatch is largely mitigated. Consequently, the foreign currency risk
relating to this business mainly arises when the assets and liabilities
are translated into sterling.
The Group’s financial assets are primarily denominated in the same
currencies as its insurance and investment liabilities. Thus, the main
foreign exchange risk arises from recognised assets and liabilities
denominated in currencies other than those in which insurance and
investment liabilities are expected to be settled and, indirectly, from
the non-UK earnings of UK companies.
Some of the Group’s with-profit funds have an exposure to overseas
assets which is not driven by liability considerations. The purpose of
this exposure is to reduce overall risk whilst maximising returns by
diversification. This exposure is limited and managed through
investment mandates which are subject to the oversight of the
investment committees of the boards of each life company.
Fluctuations in exchange rates from certain holdings in overseas
assets are hedged against currency risks.
The Group has hedged the currency risk on its foreign currency
hybrid debt ($500 million Tier 2 bonds and €500 million Tier 2 bonds
as set out in note E5) through cross currency interest rate swaps.
Sensitivity of profit after tax and equity to fluctuations in currency
exchange rates is not considered significant at 31 December 2019,
since unhedged exposure to foreign currency was relatively low
(2018: not considered significant).
Capital management risk is defined as the failure of the Group, or
one of its separately regulated subsidiaries, to maintain sufficient
capital to provide appropriate security for policyholders and meet all
regulatory capital requirements whilst not retaining unnecessary
capital. The Group has exposure to capital management risk through
the requirements of the Solvency II capital regime, as implemented
by the PRA, to calculate regulatory capital adequacy at a Group level.
The Group’s UK life subsidiaries have exposure to capital
management risk through the Solvency II regulatory capital
requirements mandated by the PRA at the solo level. The Group’s
approach to managing capital management risk is described in detail
in note I3.
Tax risk is defined as the risk of financial or reputational loss arising
from a lack of liquidity, funding or capital due to an unforeseen tax
cost, or by the inappropriate reporting and disclosure of information
in relation to taxation. Tax risk is managed by maintaining an
appropriately-staffed tax team who have the qualifications and
experience to make judgements on tax issues, augmented by advice
from external specialists where required.
The Group has a formal tax risk policy, which sets out its risk appetite
in relation to specific aspects of tax risk, and which details the
controls the Group has in place to manage those risks. These
controls are subject to a regular review process. The Group’s
subsidiaries have exposure to tax risk through the annual statutory
and regulatory reporting and through the processing of policyholder
tax requirements.
Liquidity and funding risk is defined as the failure of the Group to
maintain adequate levels of financial resources to enable it to meet
its obligations as they fall due. The Group has exposure to liquidity
risk as a result of servicing its external debt and equity investors, and
from the operating requirements of its subsidiaries. The Group’s
subsidiaries have exposure to liquidity risk as a result of normal
business activities, specifically the risk arising from an inability to
meet short-term cash flow requirements. The Board of Phoenix
Group Holdings plc has defined a number of governance objectives
and principles and the liquidity risk frameworks of each subsidiary are
designed to ensure that:
• liquidity risk is managed in a manner consistent with the subsidiary
company boards’ strategic objectives, risk appetite and Principles
and Practices of Financial Management (‘PPFM’);
• cash flows are appropriately managed and the reputation of the
Group is safeguarded; and
• appropriate information on liquidity risk is available to those
making decisions.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
191
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FINANCIALS
Notes to the Consolidated Financial Statements continued
E. FINANCIAL ASSETS & LIABILITIES continued
E6. Risk Management – Financial Risk continued
E6.2 Financial risk analysis continued
E6.2.3 Financial soundness risk continued
The Group’s policy is to maintain sufficient liquid assets of suitable
credit quality at all times including, where appropriate, by having access
to borrowings so as to be able to meet all foreseeable current liabilities
as they fall due in a cost-effective manner. Forecasts are prepared
regularly to predict required liquidity levels over both the short and
medium term allowing management to respond appropriately to
changes in circumstances.
In extreme circumstances, the Group could be exposed to liquidity risk
in its unit-linked funds. This could occur where a high volume of
surrenders coincides with a tightening of liquidity in a unit-linked fund
to the point where assets of that fund have to be sold to meet those
withdrawals. Where the fund affected consists of property, it can take
several months to complete a sale and this would impede the proper
operation of the fund. In these situations, the Group considers its risk
to be low since there are steps that can be taken first within the funds
themselves both to ensure the fair treatment of all investors in those
funds and to protect the Group’s own risk exposure.
The vast majority of the Group’s derivative contracts are traded OTC
and have a two-day collateral settlement period. The Group’s
derivative contracts are monitored daily, via an end-of-day valuation
process, to assess the need for additional funds to cover margin or
collateral calls.
Some of the Group’s commercial property investments are held
through collective investment schemes. The collective investment
schemes have the power to restrict and/or suspend withdrawals,
which would, in turn, affect liquidity. This was invoked as a result of
the market volatility experienced following the result of the
referendum on membership of the European Union in 2016 in line
with other firms across the industry. In 2018 and 2019, all unit trusts
processed investments and realisations in a normal manner and have
not imposed any restrictions or delays.
Some of the Group’s cash and cash equivalents are held through
collective investment schemes. The collective investment schemes
have the power, in an extreme stress, to restrict and/or suspend
withdrawals, which would, in turn, affect liquidity. To date, the
collective investment schemes have continued to process both
investments and realisations in a normal manner and have not
imposed any restrictions or delays.
The following table provides a maturity analysis showing the
remaining contractual maturities of the Group’s undiscounted
financial liabilities and associated interest. ‘Liabilities under insurance
contracts’ contractual maturities are included based on the estimated
timing of the amounts recognised in the statement of consolidated
financial position in accordance with the requirements of IFRS 4
Insurance Contracts:
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
2019
Liabilities under insurance contracts
Investment contracts
Borrowings1
Deposits received from reinsurers1
Derivatives1
Net asset value attributable to unitholders
Obligations for repayment of collateral received
Reinsurance payables
Payables related to direct insurance contracts
Lease liabilities1
Accruals and deferred income
Other payables
2018
Liabilities under insurance contracts
Investment contracts
Borrowings1
Deposits received from reinsurers1
Derivatives1
Net asset value attributable to unitholders
Obligations for repayment of collateral received
Reinsurance payables
Payables related to direct insurance contracts
Accruals and deferred income
Other payables
1 year or
less or on
demand
£m
1–5 years
£m
Greater
than
5 years
£m
No fixed
term
£m
16,135
23,299
56,209
120,773
122
463
347
3,149
3,671
101
890
13
375
1,002
–
1,119
907
103
–
–
–
–
32
6
16
–
1,382
2,886
346
–
–
–
–
78
3
25
1 year or
less or on
demand
£m
1–5 years
£m
Greater
than
5 years
£m
15,511
22,049
53,651
114,463
105
361
156
2,659
2,645
30
902
329
777
–
1,189
1,371
147
–
–
–
–
5
–
1,500
2,767
1,092
–
–
–
–
3
22
74
–
–
99
–
–
–
–
–
–
–
–
–
No fixed
term
£m
–
–
114
–
–
–
–
–
–
–
–
Total
£m
95,643
120,773
2,722
4,256
796
3,149
3,671
101
890
123
384
1,043
Total
£m
91,211
114,463
2,908
4,499
1,395
2,659
2,645
30
902
337
873
1 These financial liabilities are disclosed at their undiscounted value and therefore differ from amounts included in the statement of consolidated financial position which discloses the
discounted value.
Investment contract policyholders have the option to terminate or transfer their contracts at any time and to receive the surrender or transfer
value of their policies. Although these liabilities are payable on demand, and are therefore included in the contractual maturity analysis as due
within one year, the Group does not expect all these amounts to be paid out within one year of the reporting date.
A significant proportion of the Group’s financial assets are held in gilts, cash, supranationals and investment grade securities which the Group
considers sufficient to meet the liabilities as they fall due. The vast majority of these investments are readily realisable immediately since
most of them are quoted in an active market.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
193
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FINANCIALS
Notes to the Consolidated Financial Statements continued
F. INSURANCE CONTRACTS, INVESTMENT CONTRACTS
WITH DPF AND REINSURANCE
F1. Liabilities Under Insurance Contracts
Classification of contracts
Contracts are classified as insurance contracts where the Group
accepts significant insurance risk from the policyholder by agreeing
to compensate the policyholder if a specified uncertain event
adversely affects the policyholder.
Contracts under which the transfer of insurance risk to the Group
from the policyholder is not significant are classified as investment
contracts or derivatives and accounted for as financial liabilities (see
notes E1 and E3 respectively).
Some insurance and investment contracts contain a DPF. This feature
entitles the policyholder to additional discretionary benefits as a
supplement to guaranteed benefits. Investment contracts with a DPF
are recognised, measured and presented as insurance contracts.
Contracts with reinsurers are assessed to determine whether they
contain significant insurance risks. Contracts that do not give rise to a
significant transfer of insurance risk to the reinsurer are classified as
financial instruments and are valued at fair value through profit or loss.
Insurance contracts and investment contracts with DPF
Insurance liabilities
Insurance contract liabilities for non-participating business, other than
unit-linked insurance contracts, are calculated on the basis of current
data and assumptions, using either a net premium or gross premium
method. Where a gross premium method is used, the liability
includes allowance for prudent lapses. Negative policy values are
allowed for on individual policies:
• where there are no guaranteed surrender values; or
• in the periods where guaranteed surrender values do not apply
even though guaranteed surrender values are applicable after a
specified period of time.
For unit-linked insurance contract liabilities the provision is based on
the fund value, together with an allowance for any excess of future
expenses over charges, where appropriate.
For participating business, the liabilities under insurance contracts
and investment contracts with DPF are calculated in accordance with
the following methodology:
The realistic liability for any contract is equal to the sum of the WPBR
and the cost of future policy-related liabilities.
Where policyholders have valuable guarantees, options or promises
in respect of the with-profit business, these costs are generally
valued using a stochastic model.
In calculating the realistic liabilities, account is taken of the future
management actions consistent with those set out in the Principles
and Practices of Financial Management (‘PPFM’).
Standard Life Assurance Limited (‘SLAL’), a wholly owned subsidiary of
the Group, includes the Heritage With Profits Fund (‘HWPF’). In 2006, the
Standard Life Assurance Company demutualised. The demutualisation
was governed by its Scheme of Demutualisation (‘the Scheme’). Under
the Scheme substantially all of the assets and liabilities of the Standard
Life Assurance Company were transferred to SLAL.
The Scheme of Demutualisation (‘the Scheme’) provides that certain
defined cash flows (recourse cash flows) arising in the HWPF on
specified blocks of UK and Ireland business, both participating and
non-participating, may be transferred out of that fund when they
emerge, being transferred to the Shareholder Fund (‘SHF’) or the
Proprietary Business Fund (‘PBF’) of SLAL, and thus accrue to the
ultimate benefit of equity holders of the Company. Under the
Scheme, such transfers are subject to certain constraints in order
to protect policyholders. The Scheme also provides for additional
expenses to be charged by the PBF to the HWPF in respect of
German branch business in SLAL.
Under the realistic valuation, the discounted value of expected future
cash flows on participating contracts not reflected in the WPBR is
included in the cost of future policy related liabilities (as a reduction
where future cash flows are expected to be positive). The
discounted value of expected future cash flows on non-participating
contracts not reflected in the measure on non-participating liabilities
is recognised as a separate asset (where future cash flows are
expected to be positive). The Scheme requirement to transfer future
recourse cash flows out of the HWPF is recognised as an addition to
the cost of future policy related liabilities. The discounted value of
expected future cash flows on non-participating contracts can be
apportioned between those included in the recourse cash flows and
those retained in the HWPF for the benefit of policyholders.
Applying the policy noted above for the HWPF:
• liabilities to policyholders arising from the with-profit business are
• The value of participating investment contract liabilities on the
stated at the amount of the realistic value of the liabilities, adjusted
to exclude the owners’ share of projected future bonuses;
consolidated statement of financial position is reduced by future
expected (net positive) cash flows arising on participating contracts.
• acquisition costs are not deferred; and
• Future expected cash flows on non-participating contracts are not
• reinsurance recoveries are measured on a basis that is consistent
with the valuation of the liability to policyholders to which the
reinsurance applies.
The With-Profit Benefit Reserve (‘WPBR’) for an individual contract
is determined by either a retrospective calculation of ‘accumulated
asset share’ approach or by way of a prospective ‘bonus reserve
valuation’ method. The cost of future policy related liabilities is
determined using a market consistent approach, mainly based on a
stochastic model calibrated to market conditions at the end of the
reporting period. Non-market related assumptions (for example,
persistency, mortality and expenses) are based on experience
adjusted to take into account of future trends.
recognised as an asset of the HWPF on the consolidated
statement of financial position. However, future expected cash
flows on non-participating contracts that are not recourse cash
flows under the Scheme are used to reduce the value of
participating insurance and participating investment contract
liabilities on the statement of consolidated financial position.
Present value of future profits on non-participating business in the with-
profit funds
For UK with-profit life funds, an amount may be recognised for the
present value of future profits (‘PVFP’) on non-participating business
written in a with-profit fund where the determination of the realistic
value of liabilities in that with-profit fund takes account, directly or
indirectly, of this value.
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Where the value of future profits can be shown to be due to
policyholders, this amount is recognised as a reduction in the liability
rather than as an intangible asset. This is then apportioned between
the amounts that have been taken into account in the measurement
of liabilities and other amounts which are shown as an adjustment to
the unallocated surplus.
Where it is not possible to apportion the future profits on this non-
participating business to policyholders, the PVFP on this business is
recognised as an intangible asset and changes in its value are
recorded as a separate item in the consolidated income statement
(see note G2).
The value of the PVFP is determined in a manner consistent with
realistic measurement of liabilities. In particular, the methodology and
assumptions involve adjustments to reflect risk and uncertainty, are
based on current estimates of future experience and current market
yields and allow for market consistent valuation of any guarantees or
options within the contracts. The value is also adjusted to remove
the value of capital backing the non-profit business if this is included
in the realistic calculation of PVFP. The principal assumptions used to
calculate the PVFP are the same as those used in calculating the
insurance contract liabilities given in note F4.
Embedded derivatives
Embedded derivatives, including options to surrender insurance
contracts, that meet the definition of insurance contracts or are
closely related to the host insurance contract, are not separately
measured. All other embedded derivatives are separated from the
host contract and measured at fair value through profit or loss.
Liability adequacy
At each reporting date, liability adequacy tests are performed to
assess whether the insurance contract and investment contract with
DPF liabilities are adequate. Current best estimates of future cash
flows are compared to the carrying value of the liabilities. Any
deficiency is charged to the consolidated income statement.
The Group’s accounting policies for insurance contracts meet the
minimum specified requirements for liability adequacy testing under
IFRS 4 Insurance Contracts, as they allow for current estimates of all
contractual cash flows and of related cash flows such as claims
handling costs. Cash flows resulting from embedded options and
guarantees are also allowed for, with any deficiency being
recognised in the consolidated income statement.
Consolidated income statement recognition
Gross premiums
In respect of insurance contracts and investment contracts with DPF,
premiums are accounted for on a receivable basis and exclude any
taxes or duties based on premiums. Funds at retirement under
individual pension contracts converted to annuities with the Group
are, for accounting purposes, included in both claims incurred and
premiums within gross premiums written.
Gross benefits and claims
Claims on insurance contracts and investment contracts with DPF
reflect the cost of all claims arising during the period, including
policyholder bonuses allocated in anticipation of a bonus declaration.
Claims payable on maturity are recognised when the claim becomes
due for payment and claims payable on death are recognised on
notification. Surrenders are accounted for at the earlier of the payment
date or when the policy ceases to be included within insurance
contract liabilities. Where claims are payable and the contract remains
in-force, the claim instalment is accounted for when due for payment.
Claims payable include the costs of settlement.
Reinsurance
Amounts recoverable from reinsurers are estimated in a manner
consistent with the outstanding claims provision or settled claims
associated with the reinsured policy.
Reinsurance ceded
The Group cedes insurance risk in the normal course of business.
Reinsurance assets represent balances due from reinsurance
providers. Reinsurers’ share of insurance contract liabilities is
dependent on expected claims and benefits arising under the related
reinsured policies.
Reinsurance assets are reviewed for impairment at each reporting
date, or more frequently, when an indication of impairment arises
during the reporting period. Impairment occurs when there is
objective evidence, as a result of an event that occurred after initial
recognition of the reinsurance asset, that the Group may not receive
all outstanding amounts due under the terms of the contract and the
event has a reliably measurable impact on the amounts that the
Group will receive from the reinsurer. The impairment loss is
recognised in the consolidated income statement. The reinsurers’
share of investment contract liabilities is measured on a basis that is
consistent with the valuation of the liability to policyholders to which
the reinsurance applies.
Reinsurance premiums payable in respect of certain reinsured
individual and group pensions annuity contracts are payable by
quarterly instalments and are accounted for on a payable basis. Due
to the period of time over which reinsurance premiums are payable
under these arrangements, the reinsurance premiums and related
payables are discounted to present values using a pre-tax risk-free
rate of return. The unwinding of the discount is included as a charge
within the consolidated income statement.
Reinsurance claims are recognised when the related gross insurance
claim is recognised according to the terms of the relevant contract.
Gains or losses on purchasing reinsurance are recognised in the
consolidated income statement at the date of purchase and are not
amortised. They are the difference between the premiums ceded to
reinsurers and the related change in the reinsurers’ share of insurance
contract liabilities.
Reinsurance accepted
The Group accepts insurance risk under reinsurance contracts.
Amounts paid to cedants at the inception of reinsurance contracts in
respect of future profits on certain blocks of business are recognised
as a reinsurance asset. Changes in the value of the reinsurance
assets created from the acceptance of reinsurance are recognised as
an expense in the consolidated income statement, consistent with
the expected emergence of the economic benefits from the
underlying blocks of business.
At each reporting date, the Group assesses whether there are any
indications of impairment. When indications of impairment exist, an
impairment test is carried out by comparing the carrying value of the
asset with the estimate of the recoverable amount. When the
recoverable amount is less than the carrying value, an impairment
charge is recognised as an expense in the consolidated income
statement. Reassurance assets are also considered in the liability
adequacy test for each reporting period.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
195
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FINANCIALS
Notes to the Consolidated Financial Statements continued
F. INSURANCE CONTRACTS, INVESTMENT CONTRACTS WITH DPF AND REINSURANCE continued
F1. Liabilities Under Insurance Contracts continued
The table below shows a summary of the liabilities under insurance contracts and the related reinsurers’ share included within assets in the
statement of consolidated financial position.
Life assurance business:
Insurance contracts
Investment contracts with DPF
Gross
liabilities
2019
£m
Reinsurers'
share
2019
£m
Gross
liabilities
2018
£m
Reinsurers'
share
2018
£m
70,685
24,958
95,643
7,324
–
7,324
66,872
24,339
91,211
7,564
–
7,564
Amounts due for settlement after 12 months
79,508
6,532
75,700
6,801
At 1 January
Premiums
Claims
Foreign exchange adjustments
Acquisition of Standard Life Assurance businesses
Other changes in liabilities1
At 31 December
Gross
liabilities
2019
£m
91,211
4,038
Reinsurers'
share
2019
£m
7,564
556
Gross
liabilities
2018
£m
44,435
2,645
(7,792)
(1,177)
(5,295)
(841)
–
9,027
95,643
(3)
–
384
7,324
35
51,487
(2,096)
91,211
Reinsurers'
share
2018
£m
3,320
481
(866)
–
4,264
365
7,564
1 Other changes in liabilities principally comprise changes in economic and non-economic assumptions and experience. Other changes in liabilities also includes the recognition of an
additional £44 million (2018: £22 million) of policyholder liabilities on the crystallisation of obligations initially included within the FCA thematic reviews provision.
F2. Unallocated Surplus
The unallocated surplus comprises the excess of the assets over the
policyholder liabilities of the with-profit business of the Group’s life
operations. For the Group’s with-profit funds this represents
amounts which have yet to be allocated to owners since the
unallocated surplus attributable to policyholders has been included
within liabilities under insurance contracts.
If the realistic value of liabilities to policyholders exceeds the value
of the assets in the with-profit fund, the unallocated surplus is valued
at £nil.
In relation to the HWPF, amounts are considered to be allocated
to shareholders when they emerge as recourse cash flows within
the HWPF.
• The unallocated surplus of the HWPF comprises the value of
future recourse cash flows in participating contracts (but not the
value of future cash flows on non-participating contracts), the
value of future additional expenses to be charged on German
branch business and the effect of any measurement differences
between the realistic value and the IFRS accounting policy value of
all assets and liabilities other than participating contract liabilities
recognised in the HWPF.
• The recourse cash flows are recognised as they emerge as an
addition to shareholders’ profits if positive or as a deduction if
negative. As the additional expenses are charged in respect of the
German branch business they are recognised as an addition to
equity holders’ profits.
At 1 January
Transfer to consolidated income
statement
Acquisition of Standard Life Assurance
Foreign exchange movements
2019
£m
1,358
(84)
–
93
2018
£m
925
(88)
525
(4)
At 31 December
1,367
1,358
F3. Reinsurance
This section includes disclosures in relation to reinsurance. Further
disclosures and accounting policies relating to reinsurance are
included in note F1.
F3.1 Premiums ceded to reinsurers
Premiums ceded to reinsurers during the period were £556 million
(2018: £481 million).
F3.2 Collateral arrangements
It is the Group’s practice to obtain collateral to mitigate the
counterparty risk related to reinsurance transactions usually in the
form of cash or marketable financial instruments.
Where the Group receives collateral in the form of marketable financial
instruments which it is not permitted to sell or re-pledge except in the
case of default, it is not recognised in the statement of consolidated
financial position. The fair value of financial assets accepted as
collateral for reinsurance transactions but not recognised in the
statement of consolidated financial position amounts to £3,217 million
(2018: £3,253 million).
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Where the Group receives collateral on reinsurance transactions in the
form of cash it is recognised in the statement of consolidated financial
position along with a corresponding liability to repay the amount of
collateral received, disclosed as ‘Deposits received from reinsurers’.
Where there is interest payable on such collateral, it is recognised within
‘Net income under arrangements with reinsurers’ (see note F3.3). The
amounts recognised as financial assets and liabilities from cash collateral
received at 31 December 2019 are set out below.
F4. Risk Management – Insurance Risk
This note forms one part of the risk management disclosures in the
consolidated financial statements. Financial risk is included in note E6.
Insurance risk refers to the risk that the frequency or severity of
insured events may be worse than expected and includes expense
risk. The contracts for the Life businesses include the following
sources of insurance risk:
Reinsurance transactions
Mortality higher than expected death claims on assurance
Financial assets
Financial liabilities
2019
£m
333
333
2018
£m
373
373
F3.3 Net (expense)/income under arrangements with reinsurers
The Group has reinsured the longevity and investment risk related to
a portfolio of annuity contracts held within the HWPF. At inception of
the reinsurance contract the reinsurer was required to deposit an
amount equal to the reinsurance premium with the Group. The
amount recognised in the statement of consolidated financial
position in respect of this deposit is £3.9 billion as at 31 December
2019 (31 December 2018: £4.1 billion). Interest is payable to the
reinsurer on the deposit at a floating rate. The Group maintains a ring
fenced pool of assets to back this deposit liability. Annuity payments
under the reinsured contracts are made by the Group from the ring
fenced assets and the deposit liability is reduced by the amount of
these payments. Periodically the Group is required to pay to the
reinsurer or receive from the reinsurer Premium Adjustments
defined as the difference between the fair value of the ring fenced
assets and the deposit amount, such that the deposit amount equals
the fair value of the ring fenced assets. This has the effect of
ensuring that the investment risk on the ring fenced pool of assets
falls on the reinsurer. The investment return on the ring fenced
assets included in investment return in the consolidated income
statement is equal to an equivalent amount recognised in expenses
under arrangements with reinsurers.
Interest payable on deposits from
reinsurers
Premium adjustments
Net (expense)/income under
arrangements with reinsurers
2019
£m
(33)
(241)
(274)
2018
£m
(11)
13
2
products or lower than expected improvements in
mortality;
Longevity lower than expected number of deaths experienced on
annuity products or greater than expected improvements
in annuitant mortality;
Morbidity higher than expected number of serious illness claims or
more sickness claims which last longer on income
protection policies;
Expenses unexpected timing or value of expenses incurred;
Lapses
adverse movement in surrender rates, GAO surrender
rates, GAO take-up rates, policyholder retirement dates
or the occurrence of a mass lapse event leading to
losses; and
inappropriate pricing of new business that is not in line
with the underlying risk factors for that business.
Pricing
Objectives and policies for mitigating insurance risk
The Group uses several methods to assess and monitor insurance
risk exposures for both individual types of risks insured and overall
risks. These methods include internal risk measurement models,
experience analyses, external data comparisons, sensitivity analyses,
scenario analyses and stress testing. In addition to this, mortality,
longevity and morbidity risks may in certain circumstances be
mitigated by the use of reinsurance.
The profitability of the run-off of the closed long-term insurance
businesses within the Group depends, to a significant extent, on the
values of claims paid in the future relative to the assets accumulated
to the date of claim. Typically, over the lifetime of a contract,
premiums and investment returns exceed claim costs in the early
years and it is necessary to set aside these amounts to meet future
obligations. The amount of such future obligations is assessed on
actuarial principles by reference to assumptions about the
development of financial and insurance risks.
It is therefore necessary for the Directors of each life company
to make decisions, based on actuarial advice, which ensure an
appropriate accumulation of assets relative to liabilities. These
decisions include investment policy, bonus policy and, where
discretion exists, the level of payments on early termination.
The Group’s longevity risk exposures have increased as a result of the
Bulk Purchase Annuity deals it has successfully acquired; however, the
vast majority of these exposures are reinsured to third parties.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
197
197
FINANCIALS
Notes to the Consolidated Financial Statements continued
F. INSURANCE CONTRACTS, INVESTMENT CONTRACTS
WITH DPF AND REINSURANCE continued
F4. Risk Management – Insurance Risk continued
Sensitivities
Insurance liabilities are sensitive to changes in risk variables, such as
prevailing market interest rates, currency rates and equity prices,
since these variations alter the value of the financial assets held to
meet obligations arising from insurance contracts and changes in
investment conditions also have an impact on the value of insurance
liabilities themselves. Additionally, insurance liabilities are sensitive to
the assumptions which have been applied in their calculation, such
as mortality and lapse rates. Sometimes allowance must also be
made for the effect on future assumptions of management or
policyholder actions in certain economic scenarios. This could lead to
changes in assumed asset mix or future bonus rates. The most
significant non-economic sensitivities arise from mortality, longevity
and lapse risk.
A decrease of 5% in assurance mortality, with all other variables held
constant, would result in an increase in the profit after tax in respect of
a full year, and an increase in equity of £58 million (2018: £54 million).
Discount rates
The Group discounts participating and non-participating insurance
contract liabilities at a risk-free rate derived from the swap yield
curve, plus an illiquidity premium of 10bps.
For certain non-participating insurance contract liabilities (eg. annuities),
the Group makes a further explicit adjustment to the risk-free rate to
reflect illiquidity in respect of the assets backing those liabilities.
Expense inflation
Expenses are assumed to increase at either the rate of increase in the
Retail Price Index (‘RPI’), or a rate derived from the UK inflation swaps
curve, plus fixed margins in accordance with the various management
service agreements (‘MSAs’) the Group has in place with outsource
partners. For with-profit business the rate of RPI inflation is determined
within each stochastic scenario. For other business it is based on the
Bank of England inflation spot curve. For MSAs with contractual
increases set by reference to national average earnings inflation, this is
approximated as RPI inflation plus 1%. In instances in which inflation
risk is not mitigated, a further margin for adverse deviations may then
be added to the rate of expense inflation.
An increase of 5% in assurance mortality, with all other variables
held constant, would result in a decrease in the profit after tax in
respect of a full year, and a decrease in equity of £58 million (2018:
£54 million).
A decrease of 5% in annuitant longevity, with all other variables held
constant, would result in an increase in the profit after tax in respect of a
full year, and an increase in equity of £288 million (2018: £265 million).
Mortality and longevity rates
Mortality rates are based on company experience and published
tables, adjusted appropriately to take account of changes in the
underlying population mortality since the table was published,
company experience and forecast changes in future mortality. Where
appropriate, a margin is added to assurance mortality rates to allow
for adverse future deviations. Annuitant mortality rates are adjusted
to make allowance for future improvements in pensioner longevity.
An increase of 5% in annuitant longevity, with all other variables held
constant, would result in a decrease in the profit after tax in respect of
a full year, and a decrease in equity of £298 million (2018: £273 million).
A decrease of 10% in lapse rates, with all other variables held
constant, would result in a decrease in the profit after tax in respect of
a full year, and a decrease in equity of £20 million (2018: £27 million).
An increase of 10% in lapse rates, with all other variables held
constant, would result in an increase in the profit after tax in respect of
a full year, and an increase in equity of £20 million (2018: £26 million).
F4.1 Assumptions
For participating business which is with-profit business (insurance and
investment contracts), the insurance contract liability is calculated on a
realistic basis, adjusted to exclude the shareholders’ share of future
bonuses and the associated tax liability. This is a market consistent
valuation, which involved placing a value on liabilities similar to the
market value of assets with similar cash flow patterns.
The non-participating insurance contract liabilities are determined
using either a net premium or gross premium valuation method.
The assumptions used to determine the liabilities, under these
valuation methods are updated at each reporting date to reflect
recent experience. Material judgement is required in calculating
these liabilities and, in particular, in the choice of assumptions about
which there is uncertainty over future experience. The principal
assumptions are as follows:
Lapse and surrender rates (persistency)
The assumed rates for surrender and voluntary premium
discontinuance depend on the length of time a policy has been in force
and the relevant company. Surrender or voluntary premium
discontinuances are only assumed for realistic basis companies.
Withdrawal rates used in the valuation of with-profit policies are based
on observed experience and adjusted when it is considered that future
policyholder behaviour will be influenced by different considerations
than in the past. In particular, it is assumed that withdrawal rates for
unitised with-profit contracts will be higher on policy anniversaries on
which Market Value Adjustments do not apply.
Discretionary participating bonus rate
For realistic basis funds, the regular bonus rates assumed in each
scenario are determined in accordance with each company’s PPFM.
Final bonuses are assumed at a level such that maturity payments will
equal asset shares subject to smoothing rules set out in the PPFM.
Policyholder options and guarantees
Some of the Group’s products give potentially valuable guarantees,
or give options to change policy benefits which can be exercised at
the policyholders’ discretion. These products are described below.
Most with-profit contracts give a guaranteed minimum payment
on a specified date or range of dates or on death if before that date
or dates. For pensions contracts, the specified date is the
policyholder’s chosen retirement date or a range of dates around
that date. For endowment contracts, it is the maturity date of the
contract. For with-profit bonds it is often a specified anniversary
of commencement, in some cases with further dates thereafter.
Annual bonuses when added to with-profit contracts usually increase
the guaranteed amount.
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
There are guaranteed surrender values on a small number
of older contracts.
Some pensions contracts include guaranteed annuity options.
The total amount provided in the with-profit and non-profit funds
in respect of the future costs of guaranteed annuity options are
£1,986 million (2018: £1,865 million) and £109 million (2018:
£93 million) respectively.
In common with other life companies in the UK which have written
pension transfer and opt-out business, the Group has set up provisions
for the review and possible redress relating to personal pension
policies. These provisions, which have been calculated from data
derived from detailed file reviews of specific cases and using a
certainty equivalent approach, which give a result very similar to a
market consistent valuation, are included in liabilities arising under
insurance contracts. The total amount provided in the with-profit funds
and non-profit funds in respect of the review and possible redress
relating to pension policies, including associated costs, are £225 million
(2018: £298 million) and £6 million (2018: £7 million) respectively.
2019:
The £186 million positive impact of changes in longevity assumptions
reflects updates to base and improvement assumptions to reflect
latest experience analyses and where applicable the most recent
Continuous Mortality Investigation 2018 projection tables.
The £19 million and £17 million negative impact of changes in
persistency and mortality assumptions respectively reflects the
results of the latest experience investigations.
The £68 million positive impact of changes in expense assumptions
principally reflects updated expense assumptions for insurance
contracts reflecting reduced future servicing costs as a result of
transition activity.
2018:
The £168 million positive impact of changes in longevity assumptions
reflects updates to base and improvement assumptions to reflect
latest experience analyses and where applicable the most recent
Continuous Mortality Investigation 2017 projection tables.
With-profit deferred annuities participate in profits only up to the
date of retirement. At retirement, a guaranteed cash option allows
the policyholder to commute the annuity benefit into cash on
guaranteed terms.
The £12 million and £16 million positive impact of changes in
persistency and mortality assumptions respectively reflects the
results of the latest experience investigations.
The £28 million positive impact of changes in expense assumptions
principally reflects updated investment expenses in light of updates
made to the asset mix and to reflect changes to agreements with
the Group’s external funds managers.
Demographic prudence margin
For non-participating insurance contract liabilities, the Group sets
assumptions at management’s best estimates and recognises an
explicit margin for demographic risks. For participating business in
realistic basis companies, the assumptions about future demographic
trends represent ‘best estimates’.
Assumption changes
During the year a number of changes were made to assumptions to
reflect changes in expected experience or to reflect transition activity.
The impact of material changes during the year was as follows:
(Decrease)/
increase in
insurance
liabilities
2019
£m
(Decrease)/
increase in
insurance
liabilities
2018
£m
Change in longevity assumptions
(186)
(168)
Change in persistency assumptions
Change in mortality assumptions
Change in expenses assumptions
19
17
(68)
(12)
(16)
(28)
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
199
199
FINANCIALS
Notes to the Consolidated Financial Statements continued
F. INSURANCE CONTRACTS, INVESTMENT CONTRACTS WITH DPF AND REINSURANCE continued
F4. Risk Management – Insurance Risk continued
F4.2 Managing product risk
The following sections give an assessment of the risks associated with the Group’s main life assurance products and the ways in which the
Group manages those risks.
2019
With-profit funds:
Pensions:
Deferred annuities – with guarantees
Deferred annuities – without guarantees
Immediate annuities
Unitised with-profit
Total pensions
Life:
Immediate annuities
Unitised with-profit
Life with-profit
Total life
Other
Non-profit funds:
Deferred annuities – without guarantees
Immediate annuities
Protection
Unit-linked
Other
Gross1
Reinsurance
Insurance
contracts
£m
Investment
contracts
with DPF
£m
Insurance
contracts
£m
Investment
contracts
with DPF
£m
8,468
1,133
7,178
12,940
29,719
173
6,386
2,171
8,730
1,061
824
19,635
686
10,182
(152)
63
–
–
23,021
23,084
–
774
–
774
–
–
–
–
1,083
17
924
–
4,580
–
5,504
4
–
4
8
205
–
1,567
76
33
(69)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1 £5,320 million (2018: £4,605 million) of liabilities are subject to longevity swap arrangements.
70,685
24,958
7,324
200
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
2018
With-profit funds:
Pensions:
Deferred annuities – with guarantees
Deferred annuities – without guarantees
Immediate annuities
Unitised with-profit
Total pensions
Life:
Immediate annuities
Unitised with-profit
Life with-profit
Total life
Other
Non-profit funds:
Deferred annuities – without guarantees
Immediate annuities
Protection
Unit-linked
Other
Gross
Reinsurance
Insurance
contracts
£m
Investment
contracts
with DPF
£m
Insurance
contracts
£m
Investment
contracts
with DPF
£m
8,329
1,111
7,583
11,717
28,740
171
6,145
2,391
8,707
1,237
844
17,600
488
9,440
(184)
69
–
–
22,449
22,518
–
791
–
791
–
–
–
–
1,021
9
807
–
4,808
(3)
5,612
4
(79)
3
(72)
208
–
1,776
80
44
(84)
66,872
24,339
7,564
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
With-profit fund (unitised and traditional)
The Group operates a number of with-profit funds in which the with-profit policyholders benefit from a discretionary annual bonus (guaranteed
once added in most cases) and a discretionary final bonus. Non-participating business is also written in some of the with-profit funds and
some of the funds may include immediate annuities and deferred annuities with Guaranteed Annuity Rates (‘GAR’).
The investment strategy of each fund differs, but is broadly to invest in a mixture of fixed interest investments and equities and/or property
and other asset classes in such proportions as is appropriate to the investment risk exposure of the fund and its capital resources.
The Group has significant discretion regarding investment policy, bonus policy and early termination values. The process for exercising
discretion in the management of the with-profit funds is set out in the PPFM for each with-profit fund and is overseen by with-profit
committees. Advice is also taken from the with-profit actuary of each with-profit fund. Compliance with the PPFM is reviewed annually and
reported to the PRA, Financial Conduct Authority (‘FCA’) and policyholders.
The bonuses are designed to distribute to policyholders a fair share of the return on the assets in the with-profit funds together with other
elements of the experience of the fund. The shareholders of the Group are entitled to receive one-ninth of the cost of bonuses declared for
some funds and £nil for others. For the HWPF, under the Scheme, shareholders are entitled to receive certain defined cash flows arising on
specified blocks of UK and Irish business.
Unitised and traditional with-profit policies are exposed to equivalent risks, the main difference being that unitised with-profit policies
purchase notional units in a with-profit fund whereas traditional with-profit policies do not. Benefit payments for unitised policies are then
dependent on unit prices at the time of a claim, although charges may be applied. A unitised with-profit fund price is typically guaranteed not
to fall and increases in line with any discretionary bonus payments over the course of one year.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
201
201
FINANCIALS
Notes to the Consolidated Financial Statements continued
F. INSURANCE CONTRACTS, INVESTMENT CONTRACTS
WITH DPF AND REINSURANCE continued
F4. Risk Management – Insurance Risk continued
F4.2 Managing product risk continued
Deferred annuities
Deferred annuity policies are written to provide either a cash benefit
at retirement, which the policyholder can use to buy an annuity on
the terms then applicable, or an annuity payable from retirement. The
policies contain an element of guarantee expressed in the form that
the contract is written in, i.e. to provide cash or an annuity. Deferred
annuity policies written to provide a cash benefit may also contain an
option to convert the cash benefit to an annuity benefit on
guaranteed terms; these are known as GAR policies. Deferred
annuity policies written to provide an annuity benefit may also
contain an option to convert the annuity benefit into cash benefits on
guaranteed terms; these are known as Guaranteed Cash Option
(‘GCO’) policies. In addition, certain unit prices in the HWPF are
guaranteed not to decrease.
During the last decade, interest rates and inflation have fallen and life
expectancy has increased more rapidly than originally anticipated. The
guaranteed terms on GAR policies are more favourable than the
annuity rates currently available in the market available for cash
benefits. The guaranteed terms on GCO policies are currently not
valuable. Deferred annuity policies which are written to provide annuity
benefits are managed in a similar manner to immediate annuities and
are exposed to the same risks.
The option provisions on GAR policies are particularly sensitive to
downward movements in interest rates, increasing life expectancy and
the proportion of customers exercising their option. Adverse
movements in these factors could lead to a requirement to increase
reserves which could adversely impact profit and potentially require
additional capital. In order to address the interest rate risk (but not the
risk of increasing life expectancy or changing customer behaviour with
regard to exercise of the option), insurance subsidiaries within the
Group have purchased derivatives that provide protection against an
increase in liabilities and have thus reduced the sensitivity of profit to
movements in interest rates (see note E6.2.2).
The Group seeks to manage this risk in accordance with both the
terms of the issued policies and the interests of customers, and has
obtained external advice supporting the manner in which it operates
the long-term funds in this respect.
Immediate annuities
This type of annuity is purchased with a single premium at the
outset, and is paid to the policyholder for the remainder of their
lifetime. Payments may also continue for the benefit of a surviving
spouse or partner after the annuitant’s death. Annuities may be level,
or escalate at a fixed rate, or may escalate in line with a price index
and may be payable for a minimum period irrespective of whether
the policyholder remains alive.
The main risks associated with this product are longevity and
investment risks. Longevity risk arises where the annuities are paid
for the lifetime of the policyholder, and is managed through the initial
pricing of the annuity and through reinsurance (appropriately
collateralised) or transfer of existing liabilities. Annuities may also be
a partial ‘natural hedge’ against losses incurred in protection business
in the event of increased mortality (and vice versa) although the
extent to which this occurs will depend on the similarity of the
demographic profile of each book of business. In addition, the Group
has in place longevity swaps that provide downside protection over
longevity risk.
The pricing assumption for mortality risk is based on both historic
internal information and externally-generated information on mortality
experience, including allowances for future mortality improvements.
Pricing will also include a contingency margin for adverse deviations
in assumptions.
Market and credit risk is influenced by the extent to which the cash
flows under the contracts have been matched by suitable assets
which is managed under the ALM framework. Asset/liability
modelling is used to monitor this position on a regular basis.
Protection
These contracts are typically secured by the payment of a regular
premium payable for a period of years providing benefits payable on
certain events occurring within the period. The benefits may be a
single lump sum or a series of payments and may be payable on
death, serious illness or sickness.
The main risk associated with this product is the claims experience and
this risk is managed through the initial pricing of the policy (based on
actuarial principles), the use of reinsurance and a clear process for
administering claims.
Market and credit risk is influenced by the extent to which the cash
flows under the contracts have been matched by suitable assets
which is managed under the ALM framework. Asset/liability
modelling is used to monitor this position on a regular basis.
202
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
G. OTHER STATEMENT OF CONSOLIDATED FINANCIAL
POSITION NOTES
G1. Pension Schemes
Defined contribution pension schemes
Obligations for contributions to defined contribution pension
schemes are recognised as an expense in the consolidated income
statement as incurred.
Defined benefit pension schemes
The net surplus or deficit (the economic surplus or deficit) in respect
of the defined benefit pension schemes is calculated by estimating
the amount of future benefit that employees have earned in return
for their service in the current and prior years; that benefit is
discounted to determine its present value and the fair value of any
scheme assets is deducted.
The economic surplus or deficit is subsequently adjusted to eliminate
on consolidation the carrying value of insurance policies issued by
Group entities to the defined benefit pension schemes (the reported
surplus or deficit). A corresponding adjustment is made to the
carrying values of insurance contract liabilities and investment
contract liabilities.
As required by IFRIC 14, IAS 19 ‘The limit on a Defined Benefit
Asset, Minimum Funding Requirements and their Interaction’, to
the extent that the economic surplus (prior to the elimination of the
insurance policies issued by Group entities) will be available as a
refund, the economic surplus is stated after a provision for tax that
would be borne by the scheme administrators when the refund is
made. The Group recognises a pension surplus on the basis that it
is entitled to the surplus of each scheme in the event of a gradual
settlement of the liabilities, due to its ability to order a winding up
of the Trust.
Additionally under IFRIC 14 pension funding contributions are
considered to be a minimum funding requirement and, to the extent
that the contributions payable will not be available to the Group after
they are paid into the Scheme, a liability is recognised when the
obligation arises. The net defined benefit asset/liability represents the
economic surplus net of all adjustments noted above.
The Group determines the net interest expense or income on the net
defined benefit asset/liability for the period by applying the discount
rate used to measure the defined benefit obligation at the beginning
of the annual period to the opening net defined benefit asset/liability.
The discount rate is the yield at the period end on AA credit rated
bonds that have maturity dates approximating to the terms of the
Group’s obligations. The calculation is performed by a qualified
actuary using the projected unit credit method.
The movement in the net defined benefit asset/liability is analysed
between the service cost, past service cost, curtailments and
settlements (all recognised within administrative expenses in the
consolidated income statement), the net interest cost on the net defined
benefit asset/liability, including any reimbursement assets (recognised
within net investment income in the consolidated income statement),
remeasurements of the net defined asset/liability (recognised in other
comprehensive income) and employer contributions.
This note describes the Group’s three main staff pension schemes
for its employees, the Pearl Group Staff Pension Scheme (‘the Pearl
Scheme’), the PGL Pension Scheme, and the Abbey Life Staff
Pension Scheme (‘Abbey Life Scheme’) and explains how the
pension asset/liability is calculated.
An analysis of the defined benefit asset/(liability) for each pension
scheme is set out below:
Pearl Group Staff Pension Scheme
Economic surplus
Minimum funding requirement
obligation
Provision for tax on that part of the
economic surplus available as a refund on
a winding-up of the Scheme
Net defined benefit asset
PGL Pension Scheme
Economic surplus (including £nil million
(2018: £432 million) available as a refund
on a winding-up of the Scheme)
Adjustment for amounts due to
subsidiary eliminated on consolidation
Adjustment for insurance policies
eliminated on consolidation
Net economic deficit
Provision for tax on that part of the
economic surplus available as a refund
on a winding-up of the Scheme
Net defined benefit liability
2019
£m
2018
£m
521
449
(24)
(37)
(183)
314
(157)
255
37
13
(1,687)
(1,637)
–
(1,637)
506
–
(877)
(371)
(151)
(522)
Abbey Life Staff Pension Scheme
Net defined benefit liability
(75)
(74)
Risks
The Group’s defined benefit schemes typically expose the Group
to a number of risks, the most significant of which are:
Asset volatility – the value of the schemes’ assets will vary as market
conditions change and as such is subject to considerable volatility. The
liabilities are calculated using a discount rate set with reference to
corporate bond yields; if assets underperform this yield, this will create
a deficit. The majority of the assets are held within a liability driven
investment strategy which is linked to the funding basis of the
schemes (set with reference to government bond yields). As such, to
the extent that movements in corporate bond yields are out of line with
movements in government bond yields, volatility will arise.
Inflation risk – a significant proportion of the schemes’ benefit
obligations are linked to inflation, and higher inflation will lead to higher
liabilities (although in most cases, caps on the level of inflationary
increases are in place to protect against extreme inflation). The majority
of the assets are held within a liability driven investment strategy which
allows for movements in inflation, meaning that changes in inflation
should not materially affect the surplus.
Life expectancy – the majority of the schemes’ obligations are to
provide benefits for the life of the member, so increases in life
expectancy will result in an increase in the liabilities. For the PGL
scheme, this is partially offset by the buy in policies that move in line
with the liabilities. These buy in policies are eliminated on consolidation
(see note G1.2 for further details).
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
203
203
FINANCIALS
Notes to the Consolidated Financial Statements continued
G. OTHER STATEMENT OF CONSOLIDATED FINANCIAL
POSITION NOTES continued
G1. Pension Schemes continued
Information on each of these schemes is set out below.
Guaranteed Minimum Pension (‘GMP’) Equalisation
GMP is a portion of pension that was accrued by individuals who
were contracted out of the State Second Pension prior to 6 April
1997. Historically, there was an inequality of benefits between male
and female members who have GMP. A High Court case concluded
on 26 October 2018 and confirmed that GMPs need to be equalised.
The Group has undertaken an initial assessment, and has included an
allowance for the potential cost of equalising GMP for the impact
between males and females in its IAS 19 actuarial liabilities as at
31 December 2018, pending further discussions with the scheme
Trustees and the issuance of guidance as to how equalisation should
be achieved. The cost of GMP equalisation across all schemes of
£59 million (Pearl Scheme: £32 million; PGL Scheme: £23 million;
and Abbey Scheme £4 million) was recognised as a past service cost
in the 2018 consolidated income statement. As at 31 December
2019 it is considered that the current rate of uplift to the liabilities as
a result of the GMP equalisation remains appropriate.
G1.1 Pearl Group Staff Pension Scheme
Scheme details
The Pearl Scheme comprises a final salary section, a money purchase
section and a hybrid section (a mix of final salary and money purchase).
The final salary and hybrid sections of the Pearl Scheme are closed to
new members, and since 1 July 2011 are also closed to future accrual
by active members.
Defined benefit scheme
The Pearl Scheme is established under, and governed by, the trust
deeds and rules and is funded by payment of contributions to a
separately administered trust fund. A Group company, Pearl Group
Holdings No.2 Limited (‘PGH2’), is the principal employer of the Pearl
Scheme. The principal employer meets the administration expenses
of the Pearl Scheme. The Pearl Scheme is administered by a
separate Trustee company, P.A.T. (Pensions) Limited, which is
separate from the Company. The Trustee company is comprised of
two representatives from the Group, three member nominated
representatives and one independent trustee in accordance with the
Trustee company’s articles of association. The Trustee is required by
law to act in the interest of all relevant beneficiaries and is
responsible for the investment policy with regard to the assets.
To the extent that an economic surplus will be available as a refund,
the economic surplus is stated after a provision for tax that would be
borne by the scheme administrators when the refund is made.
Additionally, pension funding contributions are considered to be a
minimum funding requirement and, to the extent that the contributions
payable will not be available to the Group after they are paid into the
Scheme, a liability is recognised when the obligation arises.
The valuation has been based on an assessment of the liabilities of the
Pearl Scheme as at 31 December 2019, undertaken by independent
qualified actuaries. The present values of the defined benefit obligation
and the related interest costs have been measured using the projected
unit credit method.
A triennial funding valuation of the Pearl Scheme as at 30 June 2018
was completed in 2019. This showed a surplus as at 30 June 2018 of
£104 million, on the agreed technical provisions basis. The cash flows
utilised in the IFRS valuation as at 31 December 2018 were updated to
204
204
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
reflect the latest data available from the 30 June 2018 funding
valuation and together with the impact of modelling enhancements
implemented during 2018, this resulted in the recognition of an
experience loss of £145 million in 2018. The funding and IFRS
accounting bases of valuation can give rise to different results for a
number of reasons. The funding basis of valuation is based on general
principles of prudence whereas the accounting valuation is based on
best estimates. Discount rates are gilt-based for the funding valuation
whereas the rate used for IFRS valuation purposes is based on a yield
curve for high quality AA-rated corporate bonds. In addition the values
are prepared at different dates which will result in differences arising
from changes in market conditions and employer contributions made in
the subsequent period.
On 27 November 2012 the principal employer and the Trustee of the
Pearl Scheme entered into a revised pensions funding agreement
(the ‘Pensions Agreement’), the principal terms of which were not
altered following finalisation of the 30 June 2018 triennial valuation.
The principal terms of the Pensions Agreement are:
• annual cash payments into the Scheme of £70 million in 2013
and 2014 payable on 30 September, followed by payments of
£40 million each year from 2015 to 2021. The timing of payment
of contributions changed during 2017 so that the contributions are
paid on a monthly basis following the last annual payment of
£40 million completed in September 2016. The Pensions
Agreement includes a sharing mechanism, related to the level of
dividends paid out of PGH2, that in certain circumstances allows for
an acceleration of the contributions to be paid to the Pearl Scheme;
• additional contributions may become payable if the Scheme is not
anticipated to meet the two agreed funding targets:
(i) to reach full funding on the technical provisions basis by
30 June 2022; and
(ii) to reach full funding on a gilts flat basis by 30 June 2031;
• the Trustee continues to benefit from a first charge over shares in
Phoenix Life Assurance Limited, National Provident Life Limited,
Pearl Group Services Limited and PGS2 Limited. The security
claim granted under the share charges is capped at the lower of
£600 million and 100% of the Pearl Scheme deficit (calculated on
a basis linked to UK government securities) revalued every three
years thereafter; and
• covenant tests relating to the Embedded Value of certain
companies with the Group.
It should be noted that the terms of the £1.25 billion facility
agreement (see note E5) restrict the Group’s ability, with certain
exceptions, to transfer assets into the secured companies over
which the Trustee holds a charge over shares.
An additional liability of £24 million (2018: £37 million) has been
recognised, reflecting a charge on any refund of the resultant
IAS 19 surplus that arises after adjustment for discounted future
contributions of £69 million (2018: £106 million) in accordance
with the minimum funding requirement. A deferred tax asset of
£12 million (2018: £18 million) has also been recognised to reflect tax
relief at a rate of 17% (2018: 17%) that is expected to be available on
the contributions, once paid into the Scheme.
Contributions totalling £40 million were paid into the Pearl Scheme in
2019 (2018: £40 million) reflecting the monthly instalments.
Liability management exercise
In June 2018, the Group commenced a pension increase exchange (‘PlE’) exercise in respect of the Pearl Scheme. Existing in-scope
pensioners were offered the option to exchange future non-statutory pension increases for a one-off uplift to their current pension, thereby
reducing longevity and inflation risk for the Group. The financial effect of all acceptances received was recognised in the 2018 consolidated
financial statements as a reduction in scheme liabilities of £2 million shown as past service credit in the consolidated income statement.
Summary of amounts recognised in the consolidated financial statements
The amounts recognised in the consolidated financial statements are as follows:
Fair value
of scheme
assets
£m
Defined
benefit
obligation
£m
Provision for
tax on the
economic
surplus
available as
a refund
£m
Minimum
funding
requirement
obligation
£m
2,631
(2,182)
(157)
(37)
2019
At 1 January
Interest income/(expense)
Included in profit or loss
Remeasurements:
Return on plan assets excluding amounts included in interest
income
Gain from changes in demographic assumptions
Loss from changes in financial assumptions
Experience gain
Change in provision for tax on economic surplus available as a refund
Change in minimum funding requirement obligation
73
73
202
–
–
–
–
–
(60)
(60)
–
12
(206)
11
–
–
Included in other comprehensive income
202
(183)
Total
£m
255
8
8
202
12
(206)
11
(22)
14
11
40
–
314
(4)
(4)
–
–
–
–
(22)
–
(22)
–
–
(1)
(1)
–
–
–
–
–
14
14
–
–
Employer’s contributions
Benefit payments
At 31 December
40
(112)
2,834
–
112
(2,313)
(183)
(24)
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
205
205
FINANCIALS
Notes to the Consolidated Financial Statements continued
G. OTHER STATEMENT OF CONSOLIDATED FINANCIAL POSITION NOTES continued
G1. Pension Schemes continued
G1.1 Pearl Group Staff Pension Scheme continued
2018
At 1 January
Interest income/(expense)
Past service cost
Included in profit or loss
Remeasurements:
Return on plan assets excluding amounts included in interest
income
Gain from changes in demographic assumptions
Gain from changes in financial assumptions
Experience loss
Change in provision for tax on economic surplus available as a refund
Change in minimum funding requirement obligation
67
–
67
(81)
–
–
–
–
–
(52)
(30)
(82)
–
8
70
(145)
–
–
Included in other comprehensive income
(81)
(67)
Employer’s contributions
Benefit payments
At 31 December
40
(117)
2,631
Scheme assets
The distribution of the scheme assets at the end of the year was as follows:
Hedging portfolio
Equities
Fixed interest gilts
Other debt securities
Properties
Private equities
Hedge funds
Cash and other
Obligations for repayment of stock lending collateral received
206
206
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Fair value
of scheme
assets
£m
Defined
benefit
obligation
£m
Provision for
tax on the
economic
surplus
available as
a refund
£m
Minimum
funding
requirement
obligation
£m
2,722
(2,150)
(200)
(50)
Total
£m
322
9
(30)
(21)
(81)
8
70
(145)
48
14
(86)
40
–
255
(5)
–
(5)
–
–
–
–
48
–
48
–
–
(1)
–
(1)
–
–
–
–
–
14
14
–
–
(37)
–
117
(2,182)
(157)
2019
2018
Of which not
quoted in an
active market
£m
Of which not
quoted in an
active market
£m
Total
£m
(18)
2,012
–
–
–
266
19
6
–
–
273
–
54
1,251
294
28
15
92
(1,115)
2,631
(4)
–
–
–
294
28
15
–
–
333
Total
£m
1,569
–
56
1,329
266
19
6
111
(522)
2,834
The Group ensures that the investment positions are managed
within an Asset Liability Matching (‘ALM’) framework that has been
developed to achieve long-term investments that are in line with the
obligations under the Pearl Scheme. Within this framework an
allocation of 25% of the scheme assets is invested in collateral for
interest rate and inflation rate hedging where the intention is to
hedge greater than 90% of the interest rate and inflation rate risk
measured on the Technical Provisions basis.
The Pearl Scheme uses swaps, UK Government bonds and UK
Government stock lending to hedge the interest rate and inflation
exposure arising from the liabilities which are disclosed in the table
above as ‘Hedging Portfolio’ assets. Under the Scheme’s stock
lending programme, the Scheme lends a Government bond to an
approved counterparty and receives a similar value in the form of
cash in return which is typically reinvested into other Government
bonds. The Scheme retains economic exposure to the Government
bond, hence the bonds continue to be recognised as scheme assets
with a corresponding liability to repay the cash received as disclosed
in the table above.
Defined benefit obligation
The calculation of the defined benefit obligation can be allocated
to the scheme’s members as follows:
• Deferred scheme members: 40% (2018: 40%); and
• Pensioners: 60% (2018: 60%)
The weighted average duration of the defined benefit obligation at
31 December 2019 is 16 years (2018: 16 years).
Principal assumptions
The principal financial assumptions of the Pearl Scheme are set out
in the table below:
Rate of increase for pensions in
payment (5% per annum or RPI if lower)
Rate of increase for deferred pensions
('CPI')
Discount rate
Inflation – RPI
Inflation – CPI
2019
%
2018
%
2.90
3.10
2.20
2.00
3.00
2.20
2.40
2.80
3.20
2.40
The discount rate and inflation rate assumptions have been determined
by considering the shape of the appropriate yield curves and the
duration of the Pearl Scheme’s liabilities. This method determines an
equivalent single rate for each of the discount and inflation rates, which
is derived from the profile of projected benefit payments.
It has been assumed that post-retirement mortality is in line with a
scheme-specific table which was derived from the actual mortality
experience in recent years based on the SAPS standard tables for males
and for females based on year of use. Future longevity improvements
from 1 January 2017 are based on amended CMI 2018 Core Projections
(2018: CMI 2017 Core Projections) and a long-term rate of improvement
of 1.60% (2018: 1.75%) per annum for males and 1.30% (2018: 1.50%)
per annum for females. Under these assumptions, the average life
expectancy from retirement for a member currently aged 40 retiring
at age 60 is 29.8 years and 32.2 years for male and female members
respectively (2018: 29.9 and 32.2 respectively).
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
207
207
FINANCIALS
Notes to the Consolidated Financial Statements continued
G. OTHER STATEMENT OF CONSOLIDATED FINANCIAL POSITION NOTES continued
G1. Pension Schemes continued
G1.1 Pearl Group Staff Pension Scheme continued
A quantitative sensitivity analysis for significant actuarial assumptions is shown below:
2019
Assumptions
Sensitivity level
Base
Discount rate
RPI
Life expectancy
25bps
increase
25bps
decrease
25bps
increase
25bps
decrease
1 year
increase
1 year
decrease
Impact on the defined benefit obligation (£m)
2,313
(85)
93
71
(65)
84
(84)
2018
Assumptions
Sensitivity level
Base
Discount rate
RPI
Life expectancy
25bps
increase
25bps
decrease
25bps
increase
25bps
decrease
1 year
increase
1 year
decrease
Impact on the defined benefit obligation (£m)
2,182
(82)
85
65
(76)
79
(79)
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to
occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant
actuarial assumptions the same method has been applied as when calculating the pension asset recognised within the statement of financial position.
G1.2 PGL Pension Scheme
The PGL Pension Scheme comprises a final salary section and a
defined contribution section.
Scheme details
Defined contribution scheme
Contributions in the year amounted to £7 million (2018: £7 million).
Defined benefit scheme
The defined benefit section of the PGL Pension Scheme is a final
salary arrangement which is closed to new entrants and has been
closed to future accrual by active members since 1 July 2011.
The PGL Scheme is administered by a separate trustee company,
PGL Pension Trustee Ltd. The trustee company is comprised of
two representatives from the Group, three member nominated
representatives and one independent trustee in accordance with
the trustee company’s articles of association. The Trustee is required
by law to act in the interest of all relevant beneficiaries and is
responsible for the investment policy with regard to the assets plus
the day to day administration of the benefits.
The valuation has been based on an assessment of the liabilities of
the PGL Pension Scheme as at 31 December 2019, undertaken by
independent qualified actuaries.
To the extent that an economic surplus will be available as a refund,
the economic surplus is stated after a provision for tax that would be
borne by the scheme administrators when the refund is made.
A triennial funding valuation of the PGL Pension Scheme as at
30 June 2018 was completed in 2019. This showed a surplus as at
30 June 2018 of £246 million. The IFRS valuation cash flows have
been updated to reflect the latest valuation data.
There are no further committed contributions to pay in respect of the
defined benefit section of the Scheme.
Insurance policies with Group entities
In June 2014, the PLL non-profit fund entered into a longevity swap with
the PGL Pension Scheme with effect from 1 January 2014, under which
the Scheme transferred the risk of longevity improvements to PLL. The
financial effect of this contract was eliminated on consolidation.
In December 2016, the PGL Pension Scheme entered into a ‘buy-in’
agreement with PLL, which converted the longevity swap contract
into a bulk annuity contract. The Scheme transferred certain
additional risks in respect of the benefits payable to the deferred
members covered by the longevity swap arrangement, including the
investment risk associated with the assets covering those benefits.
The Scheme transferred £1,164 million of plan assets to a collateral
account and this transfer constituted the payment of premium to
PLL, and was net of a £23 million prepayment by PLL to the Scheme
in respect of benefits up to 31 May 2017. The assets transferred to
PLL are recognised in the relevant line within financial assets in the
statement of consolidated financial position (see note E1). An
adjustment of £6 million to the value of the premium was paid by
PLL to the PGL Scheme in 2017. The economic effect of the ‘buy-in’
transaction in the Scheme is to replace the plan assets transferred
with a single line insurance policy reimbursement asset which is
eliminated on consolidation. The value of this insurance policy in
December 2016 was £892 million.
At the same time as the December 2016 buy-in transaction, there
was a rule change made with respect to pre-1997 excess benefits
for members of the Phoenix section of the PGL Pension Scheme.
Pension increases are now increased in line with CPI inflation subject
to a maximum of 5% per annum. Prior to this, members received
discretionary increases in payment on these benefits with the
discretionary increases not allowed for in the defined benefit obligation.
In March 2019, the PGL Pension Scheme entered into a further ‘buy-in’
agreement with Phoenix Life Limited (‘PLL’) which covered the
remaining pensioner and deferred members of the Scheme. The
scheme transferred £1,115 million of plan assets to a collateral account
and this transfer constituted the payment of premium to PLL. An
adjustment of £13 million to the value of the premium is due to be paid
to PLL in 2020. The assets transferred to PLL are recognised in the
relevant line within financial assets in the statement of consolidated
financial position. As with the initial ‘buy-in’ transaction completed in
December 2016, the economic effect of the transaction in the Scheme
is to replace the plan assets transferred with a single line insurance
policy reimbursement asset which is eliminated on consolidation. The
value of this insurance policy at the date of the buy-in was £670 million.
The value of the insurance policies with Group entities at
31 December 2019 is £1,687 million (2018: £877 million).
208
208
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Summary of amounts recognised in the consolidated financial statements
The amounts recognised in the consolidated financial statements are as follows:
2019
At 1 January
Interest income/(expense)
Administrative expenses
Included in profit or loss
Remeasurements:
Return on plan assets excluding amounts included in interest
income
Experience loss
Loss from changes in financial assumptions
Gain from changes in demographic assumptions
Change in provision for tax on economic surplus available as a refund
Included in other comprehensive income
Benefit payments
Income received from insurance policies
Assets transferred as premium for 2019 scheme buy-in
At 31 December
2018
At 1 January
Interest income/(expense)
Administrative expenses
Past service costs
Included in profit or loss
Remeasurements:
Return on plan assets excluding amounts included in interest
income
Experience gain
Gain from changes in financial assumptions
Loss from changes in demographic assumptions
Change in provision for tax on economic surplus available as a refund
Included in other comprehensive income
Benefit payments
Income received from insurance policies
At 31 December
Fair value of
scheme
assets
£m
Defined
benefit
obligation
£m
Provision for
tax on the
economic
surplus
available as a
refund
£m
1,157
(1,528)
(151)
10
(3)
7
10
–
–
–
–
(39)
–
(39)
–
(34)
(175)
11
–
10
(198)
(74)
69
(1,115)
74
–
–
54
(1,691)
(5)
–
(5)
–
–
–
–
156
156
–
–
–
–
Fair value of
scheme
assets
£m
Defined
benefit
obligation
£m
Provision for
tax on the
economic
surplus
available as a
refund
£m
1,206
(1,622)
(147)
30
(4)
–
26
(41)
–
–
–
–
(41)
(81)
47
(40)
–
(23)
(63)
–
17
62
(3)
–
76
81
–
(3)
–
–
(3)
–
–
–
–
(1)
(1)
–
–
Total
£m
(522)
(34)
(3)
(37)
10
(34)
(175)
11
156
(32)
–
69
(1,115)
(1,637)
Total
£m
(563)
(13)
(4)
(23)
(40)
(41)
17
62
(3)
(1)
34
–
47
1,157
(1,528)
(151)
(522)
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
209
209
FINANCIALS
Notes to the Consolidated Financial Statements continued
G. OTHER STATEMENT OF CONSOLIDATED FINANCIAL POSITION NOTES continued
G1. Pension Schemes continued
G1.2 PGL Pension Scheme continued
Scheme assets
The distribution of the scheme assets at the end of the year was as follows:
2019
2018
Of which not
quoted in an
active market
£m
Total
£m
Fixed interest gilts
Index-linked bonds
Swaps
Corporate Bonds
Cash and other
Obligations for repayment of stock lending collateral received
European Investment Bank Bonds
Reported scheme assets
Add back:
Insurance policies eliminated on consolidation
Adjustment for amounts due to subsidiary eliminated on consolidation
Economic value of assets
–
–
–
–
54
–
–
54
1,687
(13)
1,728
–
–
–
–
–
–
–
–
1,687
–
1,687
2,034
Total
£m
291
848
5
16
12
(24)
9
1,157
877
–
Of which not
quoted in an
active market
£m
–
–
5
–
–
–
–
5
877
–
882
The discount rate and inflation assumptions have been determined by
considering the shape of the appropriate yield curves and the duration
of the PGL Pension Scheme liabilities. This method determines an
equivalent single rate for each of the discount and inflation rates,
which is derived from the profile of projected benefit payments.
It has been assumed that post-retirement mortality is in line with
86%/94% of S1PL base tables with future longevity improvements
from 1 January 2017 are based on modified CMI 2018 Core
Projections (2018: CMI 2017 Core Projections) and a long-term rate
of improvement of 1.60% (2018: 1.75%) per annum for males and
1.30% (2018: 1.50%) per annum for females. Under these
assumptions, the average life expectancy from retirement for a
member currently aged 40 retiring at age 62 is 28.3 years (2018:
28.3 years) and 29.6 years (2018: 29.6 years) for male and female
members respectively.
Defined benefit obligation
The calculation of the defined benefit obligation can be allocated to
the scheme’s members as follows:
• Deferred scheme members: 36% (2018: 36%); and
• Pensioners: 64% (2018: 64%)
The weighted average duration of the defined benefit obligation at
31 December 2019 is 16 years (2018: 16 years).
Principal assumptions
The principal financial assumptions of the PGL Pension Scheme are
set out in the table below:
Rate of increase for pensions in
payment (7.5% per annum or RPI if
lower)
Rate of increase for deferred pensions
('CPI')
Discount rate
Inflation – RPI
Inflation – CPI
2019
%
2018
%
3.00
3.20
2.20
2.00
3.00
2.20
2.40
2.80
3.20
2.40
210
210
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
A quantitative sensitivity analysis for significant actuarial assumptions is shown below:
2019
Assumptions
Sensitivity level
Base
Discount rate
RPI
Life expectancy
25bps
increase
25bps
decrease
25bps
increase
25bps
decrease
1 year
increase
1 year
decrease
Impact on the defined benefit obligation (£m)
1,691
(65)
67
53
(51)
63
(63)
2018
Assumptions
Sensitivity level
Base
Discount rate
RPI
Life expectancy
25bps
increase
25bps
decrease
25bps
increase
25bps
decrease
1 year
increase
1 year
decrease
Impact on the defined benefit obligation (£m)
1,528
(59)
60
48
(51)
57
(57)
The above sensitivity analyses are based on a change in an
assumption while holding all other assumptions constant. In practice,
this is unlikely to occur, and changes in some of the assumptions
may be correlated. When calculating the sensitivity of the defined
benefit obligation to significant actuarial assumptions the same
method has been applied as when calculating the pension liability
recognised within the statement of consolidated financial position.
G1.3 Abbey Life Staff Pension Scheme
Scheme details
On 30 June 2017, the Abbey Life Scheme was transferred from Abbey
Life to Pearl Life Holdings Limited (‘PeLHL’), a fellow subsidiary.
PeLHL assumed the scheme covenant together with all obligations of
the scheme following implementation of the transfer. The Abbey Life
Scheme is a registered occupational pension scheme, set up under
Trust, and legally separate from the employer PeLHL. The scheme is
administered by Abbey Life Trust Securities Limited (the Trustee), a
corporate trustee. There are three Trustee Directors, one of whom is
nominated by the Abbey Life Scheme members and two of whom are
appointed by PeLHL. The Trustee is responsible for administering the
scheme in accordance with the Trust Deed and rules and pensions
laws and regulations. The Abbey Life Scheme is closed to new
entrants. The last active member ceased employment with the Group
during the year and consequently the Abbey Life Scheme no longer
recognises a current service cost.
The valuation has been based on an assessment of the liabilities of
the Abbey Life Scheme as at 31 December 2019 undertaken by
independent qualified actuaries. The present values of the defined
benefit obligation and the related interest costs have been measured
using the projected unit credit method.
Funding
The last funding valuation of the Abbey Life Scheme was carried out
by a qualified actuary as at 31 March 2018 and showed a deficit of
£98 million.
Prior to 19 November 2018, the following schedule of contributions
was applicable from 1 July 2017 and PeLHL was required to pay
39.5% of gross pensionable earnings and the following amounts in
respect of deficit contributions:
• a lump sum of £25 million into the Scheme settled on 31 July 2017;
• fixed monthly contributions of £400,000 payable up to 30 June 2026
and monthly contributions of £83,552 in respect of administration
expenses which are payable up to 30 June 2028 and will increase
annually in line with the Retail Prices Index assumption; and
• annual payments of £4 million into the 2016 Charged Account
by 31 July each year, with the first payment being made on
31 July 2017, and the last payment due by 31 July 2025.
Following the completion of the triennial funding valuation a revised
schedule of contributions was agreed effective from 19 November
2018, for PeLHL to pay the following amounts in respect of
deficit contributions:
• fixed monthly contributions of £400,000 payable up to
30 June 2026;
• monthly contributions in respect of administration expenses of
£85,640 payable up to 31 March 2019, then £100,000 payable up
to 30 June 2028 increasing annually in line with the Retail Prices
Index assumption; and
• annual payments of £4 million into the 2016 Charged Account
by 31 July each year, with the next payment being made by
31 July 2019, and the last payment due by 31 July 2025.
The Charged Accounts are Escrow accounts which were created in
2010 to provide the Trustees with additional security in light of the
funding deficit. The amounts held in the Charged Accounts do not
form part of Abbey Life Scheme assets.
Under the terms of the 2013 Funding Agreement dated 28 June 2013,
the funding position of the Abbey Life Scheme will be assessed as at
31 March 2021. A payment will be made from the 2013 Charged
Account to the Abbey Life Scheme if the results of the assessment
reveal a shortfall calculated in accordance with the terms of the 2013
Funding Agreement. The amount of the payment will be the lower
of the amount of the shortfall and the amount held in the 2013
Charged Account.
Under the terms of the 2016 Funding Agreement dated 23 June 2016,
the funding position of the Abbey Life Scheme will be assessed
as at 31 March 2027. A payment will be made from the 2016
Charged Account to the Scheme if the results of the assessment
reveal a shortfall calculated in accordance with the terms of the 2016
Funding Agreement. The amount of the payment will be the lower
of the amount of the shortfall and the amount held in the 2016
Charged Account.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
211
211
FINANCIALS
Notes to the Consolidated Financial Statements continued
G. OTHER STATEMENT OF CONSOLIDATED FINANCIAL POSITION NOTES continued
G1. Pension Schemes continued
G1.3 Abbey Life Staff Pension Scheme continued
Summary of amounts recognised in the consolidated financial statements
The amounts recognised in the consolidated financial statements are as follows:
Fair value of
scheme
assets
£m
233
Defined
benefit
obligation
£m
(307)
6
(1)
5
26
–
–
–
26
6
(16)
254
(9)
–
(9)
–
2
(33)
2
(29)
–
16
(329)
Fair value of
scheme
assets
£m
251
Defined
benefit
obligation
£m
(321)
–
6
(2)
4
(13)
–
–
–
(13)
6
(15)
233
(4)
(8)
–
(12)
–
(5)
12
4
11
–
15
(307)
Total
£m
(74)
(3)
(1)
(4)
26
2
(33)
2
(3)
6
–
(75)
Total
£m
(70)
(4)
(2)
(2)
(8)
(13)
(5)
12
4
(2)
6
–
(74)
2019
At 1 January
Interest income/(expense)
Administrative expenses
Included in profit or loss
Remeasurements:
Return on plan assets excluding amounts included in interest
income
Experience gain
Loss from changes in financial assumptions
Gain from changes in demographic assumptions
Included in other comprehensive income
Employer's contributions
Benefit payments
At 31 December
2018
At 1 January
Past service cost
Interest income/(expense)
Administrative expenses
Included in profit or loss
Remeasurements:
Return on plan assets excluding amounts included in interest
income
Experience loss
Gain from changes in financial assumptions
Gain from changes in demographic assumptions
Included in other comprehensive income
Employer's contributions
Benefit payments
At 31 December
212
212
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Scheme assets
The distribution of the scheme assets at the end of the year was as follows:
2019
2018
Of which not
quoted in an
active market
£m
–
–
–
–
(10)
–
(10)
Total
£m
–
105
73
71
(10)
15
254
Of which not
quoted in an
active market
£m
–
–
–
–
(40)
–
(40)
Total
£m
24
–
84
148
(40)
17
233
The discount rate and inflation assumptions have been determined by
considering the shape of the appropriate yield curves and the duration
of the Abbey Life Scheme liabilities. This method determines an
equivalent single rate for each of the discount and inflation rates,
which is derived from the profile of projected benefit payments.
It has been assumed that post-retirement mortality is in line with a
scheme-specific table which was derived from the actual mortality
experience in recent years, performed as part of the actuarial funding
valuation as at 31 March 2015, using the SAPS S2 ‘Light’ tables for
males and for females based on year of use. Future longevity
improvements are based on amended CMI 2018 Core Projections
(2018: CMI 2017 Core Projections) and a long-term rate of
improvement of 1.60% (2018: 1.75%) per annum for males and 1.30%
(2018: 1.50%) per annum for females. Under these assumptions the
average life expectancy from retirement for a member currently aged
45 retiring at age 65 is 25.7 years and 27.2 years for male and female
members respectively (2018: 25.7 years and 27.2 years respectively).
Equities – UK
Diversified income fund
Fixed interest government bonds
Corporate bonds
Derivatives
Cash and cash equivalents
Pension scheme assets
Derivative values above include interest rate and inflation rate swaps
and foreign exchange forward contracts. The Abbey Life Scheme has
hedged its inflation risk through an inflation swap. It is currently
exposed to interest rate risk to the extent that the holdings in bonds
are mismatched to the scheme liabilities. The long-term intention is
to fully hedge this risk through an interest rate swap. Further key
risks that will remain are longevity and credit spread exposures.
Defined benefit obligation
The calculation of the defined benefit obligation can be allocated to
the Abbey Life Scheme’s members as follows:
• Deferred scheme members: 49% (2018: 49%); and
• Pensioners: 51% (2018: 51%)
The weighted average duration of the defined benefit obligation at
31 December 2019 is 17 years (2018: 17 years).
Principal assumptions
The principal financial assumptions of the Abbey Life Scheme are set
out in the table below:
Rate of increase for pensions in
payment (5% per annum or RPI if lower)
Rate of increase for deferred pensions
('CPI' subject to caps)
Discount rate
Inflation – RPI
Inflation – CPI
2019
%
2018
%
2.90
3.10
2.20
2.00
3.00
2.20
2.40
2.80
3.20
2.40
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
213
213
FINANCIALS
Notes to the Consolidated Financial Statements continued
G. OTHER STATEMENT OF CONSOLIDATED FINANCIAL POSITION NOTES continued
G1. Pension Schemes continued
G1.3 Abbey Life Staff Pension Scheme continued
A quantitative sensitivity analysis for significant actuarial assumptions is shown below:
2019
Assumptions
Sensitivity level
Base
Discount rate
RPI
Life expectancy
25bps
increase
25bps
decrease
25bps
increase
25bps
decrease
1 year
increase
1 year
decrease
Impact on the defined benefit obligation (£m)
329
(13)
14
10
(9)
12
(12)
2018
Assumptions
Sensitivity level
Base
Discount rate
RPI
Life expectancy
25bps
increase
25bps
decrease
25bps
increase
25bps
decrease
1 year
increase
1 year
decrease
Impact on the defined benefit obligation (£m)
307
(12)
13
9
(9)
12
(11)
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is
unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit
obligation to significant actuarial assumptions the same method has been applied as when calculating the pension liability recognised within
the statement of consolidated financial position.
The acquired in-force business is allocated to relevant cash
generating units for the purposes of impairment testing.
Customer relationships
The customer relationship intangible asset includes vesting pension
premiums and is measured on initial recognition at cost. The cost of
this intangible asset acquired in a business combination is the fair
value as at the date of acquisition. Following initial recognition, the
customer relationship intangible asset is carried at cost less any
accumulated amortisation and any accumulated impairment losses.
The intangible asset is amortised on a straight-line basis over its
useful economic life and assessed for impairment whenever there is
an indication that the recoverable amount of the intangible asset is
less than its carrying value. The customer relationship intangible
asset is allocated to relevant cash generating units for the purposes
of impairment testing.
Present value of future profits on non-participating business in
the with-profit fund
The present value of future profits (‘PVFP’) is determined in a
manner consistent with the realistic measurement of insurance
contract liabilities. The Group’s accounting policy for PVFP is
described in note F1.
Brands and other contractual arrangements
Brands and other contractual arrangements acquired in a business
combination are recognised at fair value at the acquisition date, and
measured on initial recognition at cost. Amortisation is calculated
using the straight-line method to allocate the cost of brands and
other contractual arrangements over their estimated useful lives.
They are tested for impairment whenever there is evidence of
possible impairment. For impairment testing, they are allocated to
the relevant cash generating unit. Brands and other contractual
arrangements are impaired when the recoverable amount is less
than the carrying value.
G2. Intangible Assets
Goodwill
Business combinations are accounted for by applying the acquisition
method. Goodwill represents the difference between the cost of the
acquisition and the fair value of the net identifiable assets acquired.
Goodwill is measured on initial recognition at cost. Following initial
recognition, goodwill is stated at cost less any accumulated
impairment losses. It is tested for impairment annually or when there
is evidence of possible impairment. Goodwill is not amortised. For
impairment testing, goodwill is allocated to relevant cash generating
units. Goodwill is impaired when the recoverable amount is less than
the carrying value.
In certain acquisitions an excess of the acquirer’s interest in the net
fair value of the acquiree’s identifiable assets, liabilities, contingent
liabilities and non-controlling interests over cost may arise. Where
this occurs, the surplus of the fair value of net assets acquired over
the fair value of the consideration is recognised in the consolidated
income statement.
Acquired in-force business
Insurance and investment contracts with DPF acquired in business
combinations and portfolio transfers are measured at fair value at the
time of acquisition. The difference between the fair value of the
contractual rights acquired and obligations assumed and the liability
measured in accordance with the Group’s accounting policies for
such contracts is recognised as acquired in-force business. This
acquired in-force business is amortised over the estimated life of the
contracts on a basis which recognises the emergence of the
economic benefits.
The value of acquired in-force business related to investment
contracts without DPF is recognised at its fair value and is amortised
on a diminishing balance basis.
An impairment review is performed whenever there is an indication
of impairment. When the recoverable amount is less than the
carrying value, an impairment loss is recognised in the consolidated
income statement. Acquired in-force business is also considered in
the liability adequacy test for each reporting period.
214
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PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Goodwill
£m
Acquired
in-force
business
£m
Customer
relationships
£m
Present value
of future
profits
£m
Brands
and other
£m
Total
other
intangibles
£m
Other intangibles
2019
Cost or valuation
At 1 January
Revaluation
At 31 December
Amortisation and impairment
At 1 January
Amortisation charge for the year
At 31 December
57
–
57
–
–
–
5,197
–
5,197
(1,164)
(382)
(1,546)
297
–
297
(139)
(15)
(154)
Carrying amount at 31 December
57
3,651
143
Amount recoverable after 12 months
57
3,296
128
Total
£m
5,619
70
5,689
365
70
435
(144)
(20)
(164)
(1,308)
(402)
(1,710)
271
3,979
250
3,603
12
70
82
–
–
–
82
82
56
–
56
(5)
(5)
(10)
46
40
Goodwill
£m
Acquired
in-force
business
£m
Customer
relationships
£m
Present value
of future profits
£m
Brands
and other
£m
Total
other
intangibles
£m
Total
£m
Other intangibles
2018
Cost or valuation
At 1 January
On acquisition of Standard Life Assurance
businesses
Revaluation
At 31 December
Amortisation and impairment
At 1 January
Amortisation charge for the year
At 31 December
57
–
–
57
–
–
–
2,266
297
2,931
–
5,197
(968)
(196)
(1,164)
–
–
297
(124)
(15)
(139)
Carrying amount at 31 December
57
4,033
158
Amount recoverable after 12 months
57
3,651
143
11
–
1
12
–
–
–
12
12
20
36
–
56
(2)
(3)
(5)
51
47
328
2,651
36
1
365
2,967
1
5,619
(126)
(18)
(144)
(1,094)
(214)
(1,308)
221
4,311
202
3,910
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
215
215
FINANCIALS
Notes to the Consolidated Financial Statements continued
G. OTHER STATEMENT OF CONSOLIDATED FINANCIAL
POSITION NOTES continued
G2. Intangible Assets continued
G2.1 Goodwill
The carrying value of goodwill has been tested for impairment at the
year end. No impairment has been recognised because the value in
use of this intangible continues to exceed its carrying value.
£47 million of goodwill is attributable to the Management Services
segment including £8 million that arose on acquisition of Abbey Life.
Value in use has been determined as the present value of certain
future cash flows associated with this business. The cash flows used
in this calculation have been valued using a risk adjusted discount
rate of 8.3% (2018: 8.9%) and are consistent with those adopted by
management in the Group’s operating plan and, for the period 2025
and beyond, reflect the anticipated run-off of the Phoenix Life
insurance business. The underlying assumptions of these projections
include management’s best estimates with regards to longevity,
persistency, mortality and morbidity.
The remaining £10 million relates to the goodwill recognised on the
acquisition of AXA Wealth during 2016 and has been allocated to the
UK Open segment. This represents the value of the workforce
assumed and the potential for future value creation, which relates to
the ability to invest in and grow the SunLife brand. Value in use has
been determined as the present value of certain future cashflows
associated with that business. The cash flows used in the calculation
are consistent with those adopted by management in the Group’s
operating plan, and for the period 2025 and beyond assume a zero
growth rate. The underlying assumptions of these projections include
market share, customer numbers, commission rates and expense
inflation. The cashflows have been valued at a risk adjusted discount
rate of 11% that makes prudent allowance for the risk that future
cash flows may differ from that assumed.
Impairment tests have been performed using assumptions which
management consider reasonable. Given the magnitude of the
excess of the value in use over carrying value, management does not
believe that a reasonably foreseeable change in key assumptions
would cause the carrying value to exceed value in use.
G2.2 Acquired in-force business
Acquired in-force business on insurance contracts and investment
contracts with DPF represents the difference between the fair value
of the contractual rights under these contracts and the liability
measured in accordance with the Group’s accounting policies for
such contracts. This intangible is being amortised in accordance with
the run-off of the book of business.
Acquired in-force business on investment contracts without DPF is
amortised in line with emergence of economic benefits.
Acquired in-force business of £2,931 million was recognised during
2018 upon acquisition of the Standard Life Assurance businesses
(see note H2).
G2.3 Customer relationships
The customer relationships intangible at 31 December 2019 relates
to vesting pension premiums which captures the new business
arising from policies in-force at the acquisition date, specifically top-
ups made to existing policies and annuities vested from matured
pension policies.
The total value of this customer relationship intangible at acquisition
was £297 million and has been allocated to the UK Heritage
segment. This intangible is being amortised over a 20 year period,
and had a remaining useful life as at 31 December 2019 of 9.9 years.
G2.4 Present value of future profits on non-participating business in the
with-profit fund
The principal assumptions used to calculate the present value of
future profits are the same as those used in calculating the insurance
contract liabilities given in note F4.1. Revaluation of the present value
of future profits is charged or credited to the consolidated income
statement as appropriate.
G2.5 Other intangibles
Other intangibles include £20 million which was recognised at cost on
acquisition of the AXA Wealth businesses and £36 million recognised
at cost on acquisition of the Standard Life Assurance businesses.
The amount recognised in respect of AXA Wealth represents the
value attributable to the SunLife brand as at 1 November 2016. The
intangible asset was valued on a ‘multi-period excess earnings’ basis.
Impairment testing was performed in a combined test with the AXA
goodwill (see section G2.1). The value in use continues to exceed its
carrying value.
This brand intangible is being amortised over a 10 year period.
The amount recognised in respect of the Standard Life Assurance
businesses represents the value attributable to the Client Services
and Proposition Agreement (‘CSPA’) with SLA plc and the Group’s
contractual rights to use the Standard Life brand. The CSPA
formalises the Strategic Partnership between the two companies
and establishes the contractual terms by which SLA plc will continue
to market and distribute certain products that will be manufactured
by Group companies.
This intangible was valued on a ‘multi-period excess earnings’ basis
and is being amortised over a period of 15 years. The remaining
useful life as at 31 December 2019 was 13.7 years.
G3. Property, Plant and Equipment
Owner-occupied property is stated at its revalued amount, being its
fair value at the date of the revaluation less any subsequent
accumulated depreciation and impairment. Owner-occupied property
is depreciated over its estimated useful life, which is taken as 20-50
years. Land is not depreciated. Gains and losses on owner-occupied
property are recognised in the statement of consolidated
comprehensive income.
The right-of-use assets are initially measured at cost, and
subsequently at cost less any accumulated depreciation and
impairments, and adjusted for certain remeasurements of the lease
liability. The right-of-use assets are depreciated over the remaining
lease term which is between 1 and 11 years.
Equipment consists primarily of computer equipment and fittings.
Equipment is stated at historical cost less deprecation. Where
acquired in a business combination, historical cost equates to the fair
value at the acquisition date. Depreciation on equipment is charged
to the consolidated income statement over its estimated useful life
of between 2 and 15 years.
216
216
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
2019
Cost or valuation
At 1 January 2019
Transition to IFRS 16 (see note A6)
At 1 January 2019 restated
Additions
Disposals
Reclassification to investment property
At 31 December 2019
Depreciation
At 1 January 2019
Depreciation
At 31 December 2019
Owner-
occupied
properties
£m
Right-of-use
assets –
property
£m
Right-of-use
assets –
equipment
£m
Equipment
£m
Total
£m
31
–
31
2
(1)
(7)
25
–
–
–
–
75
75
–
–
–
75
–
(11)
(11)
–
2
2
–
–
–
2
–
–
–
2
19
–
19
8
–
–
27
(2)
(7)
(9)
50
77
127
10
(1)
(7)
129
(2)
(18)
(20)
18
109
Owner-
occupied
properties
£m
Equipment
£m
Total
£m
26
5
–
31
–
–
–
–
14
5
19
–
(2)
(2)
26
19
5
50
–
(2)
(2)
Carrying amount at 31 December 2019
25
64
2018
Cost or valuation
At 1 January 2018
On acquisition of Standard Life Assurance businesses
Additions
At 31 December 2018
Depreciation
At 1 January 2018
Depreciation
At 31 December 2018
Carrying amount at 31 December 2018
31
17
48
The fair value of the owner-occupied properties valuation would
increase (decrease) if the expected rental values per square foot
were to be higher (lower) and the capitalisation rates were to be
lower (higher).
Owner-occupied properties have been valued by accredited
independent valuers at 31 December 2019 on an open market basis
in accordance with the Royal Institution of Chartered Surveyors’
requirements, which is deemed to equate to fair value. The fair value
measurement for the properties of £25 million (2018: £31 million) has
been categorised as Level 3 based on the non-observable inputs to
the valuation technique used. Unrealised gains for the current and
prior years are £nil.
The fair value of the owner-occupied properties was derived using
the investment method supported by comparable evidence. The
significant non-observable inputs used in the valuations are the
expected rental values per square foot and the capitalisation rates.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
217
217
FINANCIALS
Notes to the Consolidated Financial Statements continued
G. OTHER STATEMENT OF CONSOLIDATED FINANCIAL
POSITION NOTES continued
G4. Investment Property
Investment property, including right-of-use assets, is stated at fair
value. Fair value is the price that would be received to sell a property
in an orderly transaction between market participants at the
measurement date. Gains and losses arising from the change in fair
value are recognised in the consolidated income statement.
Leases, where a significant portion of the risks and rewards of
ownership are retained by the lessor, are classified as operating
leases. Where investment property is leased out by the Group, rental
income from these operating leases is recognised as income in the
consolidated income statement on a straight-line basis over the
period of the lease.
At 1 January
On acquisition of the Standard Life
Assurance businesses
Additions
Improvements
Disposals
Reclassified from owner-occupied property
Remeasurement of right-of-use asset
Movement in foreign exchange
Losses on adjustments to fair value
(recognised in consolidated income
statement)
At 31 December
Unrealised losses on properties held at
end of period
2019
£m
6,520
–
214
5
(722)
7
(15)
(11)
2018
£m
612
5,878
119
3
(74)
–
–
–
(55)
(18)
5,943
6,520
(124)
(28)
As at 31 December 2019, a property portfolio of £5,824 million (2018:
£6,401 million) is held by the life companies in a mix of commercial
sectors, spread geographically throughout the UK and Europe.
Investment properties also include £101 million (2018: £119 million)
of property reversions arising from sales of the NPI Extra Income
Plan (see note E5 for further details).
Certain investment properties held by the life companies possess
a ground rent obligation which gives rise to both a right-of-use asset
and a lease liability under IFRS 16. Under IAS 17, these leases were
accounted for as finance leases. The right-of-use asset associated with
the ground rent obligation is valued at fair value and is included within
the total investment property valuation. The IAS 17 value of the ground
rent right-of-use asset on the date of transition to IFRS 16 totalled
£80 million (see note A6 for further details) and the remeasurement
of this balance gives rise to a reduction of £15 million. There were
disposals of right-of-use assets of £47 million. The value of the ground
rent right-of-use asset as at 31 December 2019 was £18 million.
Commercial investment property is measured at fair value by
independent property valuers having appropriate recognised
professional qualifications and recent experiences in the location and
category of the property being valued. The valuations are carried out
in accordance with the Royal Institute of Chartered Surveyors
(‘RICS’) guidelines with expected income and capitalisation rate as
the key non-observable inputs.
The residential property reversions, an interest in customers’
properties which the Group will realise upon their death, are valued
using a DCF model based on the Group’s proportion of the current
open market value, and discounted for the expected lifetime of the
policyholder derived from published mortality tables. The open
market value is measured by independent local property surveyors
having appropriate recognised professional qualifications with
reference to the assumed condition of the property and local market
conditions. The individual properties are valued triennially and
indexed using regional house price indices to the year end date.
The discount rate is a risk-free rate appropriate for the duration
of the asset, adjusted for the deferred possession rate of 3.6%.
Assumptions are also made in the valuation for future movements
in property prices, based on a risk free rate. The residential property
reversions have been substantially refinanced under the
arrangements with Santander as described in note E5.
The fair value measurement of the investment properties has been categorised as Level 3 based on the inputs to the valuation techniques used.
The following table shows the valuation techniques used in measuring the fair value of the investment properties, the significant non-observable
inputs used, the inter-relationship between the key non-observable inputs and the fair value measurement of the investment properties:
Description
Valuation techniques
Significant non-observable inputs
Weighted average 2019
Weighted average 2018
Commercial Investment
Property
RICS valuation
Expected income per sq. ft.
Estimated rental value per
hotel room
Estimated rental value per
parking space
Capitalisation rate
£25.46
£8,298
£1,170
5.15%
£28.88
£8,948
£1,170
5.10%
218
218
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
The estimated fair value of commercial properties would increase
(decrease) if:
• the expected income were to be higher (lower); or
• the capitalisation rate were to be lower (higher).
The estimated fair value of the residential property reversions would
increase (decrease) if:
• the deferred possession rate were to be lower (higher);
• the mortality rate were to be higher (lower).
Direct operating expenses (offset against rental income in the
consolidated income statement) in respect of investment properties
that generated rental income during the year amounted to £22 million
(2018: £11 million). The direct operating expenses arising from
investment property that did not generate rental income during
the year amounted to £1 million (2018: £2 million).
Future minimum lease rental receivables in respect of non-cancellable
operating leases on investment properties were as follows:
Not later than 1 year
Later than 1 year and
not later than 5 years
Later than 5 years
2019
£m
259
850
2,654
2018
£m
262
884
2,815
G5. Other Receivables
Other receivables are recognised when due and measured on initial
recognition at the fair value of the amount receivable. Subsequent to
initial recognition, these receivables are measured at amortised cost
using the effective interest rate method.
Investment broker balances
Cash collateral pledged
Reimbursement assets (note G7)
Property related receivables
Deferred acquisition costs
Other debtors
2019
£m
167
380
15
99
34
538
1,233
2018
£m
176
339
22
110
21
379
1,047
Amount recoverable after 12 months
20
8
G6. Cash and Cash Equivalents
Cash and cash equivalents comprise cash balances and short-term
deposits with an original maturity term of three months or less at the
date of placement. Bank overdrafts that are repayable on demand
and form an integral part of the Group’s cash management are
deducted from cash and cash equivalents for the purpose of the
statement of consolidated cash flows.
Bank and cash balances
Short-term deposits (including notice
accounts and term deposits)
2019
£m
2,706
1,760
4,466
2018
£m
1,673
3,253
4,926
Deposits are subject to a combination of fixed and variable interest
rates. The carrying amounts approximate to fair value at the period
end. Cash and cash equivalents in long-term business operations and
consolidated collective investment schemes of £4,201 million (2018:
£4,572 million) are primarily held for the benefit of policyholders and
so are not generally available for use by the owners.
G7. Provisions
A provision is recognised when the Group has a present legal or
constructive obligation, as a result of a past event, which is likely to
result in an outflow of resources and where a reliable estimate of the
amount of the obligation can be made. If the effect is material, the
provision is determined by discounting the expected future cash
flows at a pre-tax rate that reflects current market assessments of
the time value of money and, where appropriate, the risks specific
to the liability.
A provision is recognised for onerous contracts when the expected
benefits to be derived from the contracts are less than the related
unavoidable costs. The unavoidable costs reflect the net cost of
exiting the contract, which is the lower of the cost of fulfilling it and
any compensation or penalties arising from failure to fulfil it.
Where it is expected that a part of the expenditure required to settle
a provision will be reimbursed by a third party the reimbursement is
recognised when, and only when, it is virtually certain that the
reimbursement will be received. This reimbursement shall be
recognised as a separate asset within other receivables and will not
exceed the amount of the provision.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
219
219
FINANCIALS
Notes to the Consolidated Financial Statements continued
G. OTHER STATEMENT OF CONSOLIDATED FINANCIAL POSITION NOTES continued
G7. Provisions continued
Leasehold
properties
£m
Staff
related
£m
Known
incidents
£m
PA(GI)
provision
£m
Restructuring provisions
FCA
thematic
reviews
provision
£m
Transition and
Transformation
provision
£m
AXA
provision
£m
Transfer of
policy
administration
provision
£m
5
–
(1)
–
4
15
1
–
–
16
33
19
(9)
(1)
42
17
11
(21)
–
7
208
36
(145)
(93)
6
–
159
–
–
159
4
–
(4)
–
–
73
–
(14)
–
59
Other
£m
22
26
(11)
(2)
35
Total
£m
377
252
(205)
(96)
328
2019
At 1 January
Additions in the year
Utilised during the year
Released during the year
At 31 December
FCA thematic reviews provision – Abbey Life
On 3 March 2016, the FCA published a thematic review report on
the fair treatment of long-standing customers in the life insurance
sector. Following completion of the review, Abbey Life was subject
to additional investigations. Specifically, the FCA explored whether
remedial and/or disciplinary action was necessary or appropriate in
respect of exit or paid-up charges being applied. Additionally, Abbey
Life was investigated for potential contravention of regulatory
requirements across a number of other areas assessed in the
thematic review. On 14 December 2018 the Group was informed by
the FCA that it had closed its investigation into Abbey Life, having
found that the conduct of Abbey Life did not warrant enforcement
action. Accordingly the remaining provision was released in 2018.
In addition, on 14 October 2016, the FCA published its thematic
review of non-advised annuity sales. In its findings, the FCA
identified concerns in a small number of firms relating to significant
communications that took place orally, usually on the telephone. The
FCA also identified other areas of possible concern, including in
relation to the recording and maintenance of records of calls. The
FCA encouraged all firms to consider its feedback and take
appropriate action to address the points raised. The Group has
recognised provisions in respect of its best estimate of the likely
costs associated with its obligations in this regard and the opening
provision of £27 million was increased by £5 million during 2019.
During the year, £18 million was utilised and the balance of the
provision was released.
Under the terms of the Abbey Life acquisition, Deutsche Bank
provided Phoenix Life Holdings Limited (‘PLHL’) with an indemnity,
with a duration of up to eight years, in respect of exposures that may
arise in Abbey Life as a result of the FCA’s final thematic review
findings. The indemnity was subject to a limit of £175 million and
applied to all regulatory fines and to 80%-90% of the costs of
customer remediation. Reflecting the status of the review and
remediation processes, agreement was reached with Deutsche Bank
during 2019 to close out this indemnity and a payment was received
to reflect this closure. Recoveries of £15 million (2018: £9 million)
have been received during the year and the reimbursement asset
recognised in other receivables was £nil (2018: £14million).
Leasehold properties
The leasehold properties provision includes a £3 million (2018:
£3 million) dilapidations provision in respect of obligations under
operating leases and £1 million (2018: £2 million) in respect of the
excess of lease rentals and other payments on properties that are
currently vacant or are expected to become vacant, over the
amounts to be recovered from subletting these properties.
Staff related
Staff related provisions include provisions for unfunded pensions of
£13 million (2018: £12 million), private medical and other insurance
costs for former employees of £3 million (2018: £3 million).
Known incidents
The known incidents provision was created for historical data quality,
administration systems problems and process deficiencies on the
policy administration, financial reconciliations and operational finance
aspects of business outsourced.
On acquisition of the Standard Life Assurance businesses on
31 August 2018, obligations arising as a result of the areas described
above were recognised at £37 million on a fair value basis. Additional
incidents were identified during the year and the provision was
increased by £19 million. The balance at 31 December 2019 is
£42 million.
PA(GI) provision
In 2015, PA(GI) Limited, a subsidiary of the Group, was subject to
a Companies Court judgement that directed that PA(GI) is liable to
claimants for redress relating to creditor insurance policies within
a book of insurance underwritten by PA(GI) until 2006. As a
consequence, PA(GI) is liable for complaint handling and redress with
regard to the complaints.
The PA(GI) provision of £7 million (2018: £17 million) represents the
Group’s best estimate of the likely future costs. The FCA deadline of
29 August 2019 for submission of complaints has now passed and
consequently no new claims are expected. Following the passing of
the FCA deadline the level of uncertainty with respect to the remaining
exposure has reduced. At 31 December 2019, a reimbursement asset
of £15 million (2018: £8 million) has been recognised in other
receivables in connection with the Group’s exposure to these
complaints. This represents recoveries due from third parties under
contractual arrangements. Recoveries of £10 million (2018: £18 million)
have been received during the year.
220
220
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
FCA thematic reviews provision – SLAL
Standard Life Assurance Limited was also a participant in the
thematic review of non-advised annuity sales issued by the FCA on
14 October 2016. On acquisition of the Standard Life Assurance
businesses on 31 August 2018, obligations arising as a result of past
practices in the area described above were assessed. As a result, it
was determined appropriate to recognise a provision of £225 million
in respect of SLAL on a fair value basis. The provision recognised the
estimated costs associated with redress payable to customers, the
costs of the review and other expenses. It did not make allowance
for any financial penalties that may arise as a result of the completion
of the FCA investigation as it was not possible to determine a reliable
estimate in this regard.
Transfer of policy administration
A significant proportion of the Group’s policy administration is outsourced
to Diligenta Limited (‘Diligenta’), a UK-based subsidiary of Tata
Consultancy Services (‘TCS’). Diligenta provide life and pension business
process services to a large number of the Group’s policyholders. During
2018, the Group announced its intention to move to a single outsourcer
platform and as a result a further 2 million of the Group’s legacy policies
will be transferred to Diligenta by 31 December 2021.
A provision of £76 million was recognised in 2018 for the expected
cost of the platform migration. During the year £14 million of this
balance was utilised and the remaining £59 million is expected to be
utilised within two years.
Transition and Transformation provision
Following the acquisition of the Standard Life Assurance businesses
in August 2018, the Group established a transition and
transformation programme which aims to deliver the integration of
the Group’s operating models via a series of phases. During the year,
the Group announced its intention to extend its strategic partnership
with TCS to provide customer servicing, to develop a digital platform
and for migration of existing Standard Life policies to this platform by
2022 which raised a valid expectation of the impacts in those likely to
be affected. It is envisaged that £159 million of costs will be incurred
over a three year period and will include migration costs, severance
costs and other expenses. Migration costs payable to TCS are
subject to limited uncertainty as they are fixed under the terms of the
agreement entered into. The severance costs are subject to
uncertainty and will be impacted by the number of staff that transfer
to TCS, and the average salaries and number of years’ service of
those affected.
Other provisions
Other provisions comprises a number of items including litigation and
onerous contract provisions, obligations arising under a gift voucher
scheme operated by the SunLife business and a commission
clawback provision which represents the expected future clawback
of commission income earned by the SunLife business as a result of
assumed lapses of policies or associated benefits.
The FCA’s review has now completed and SLAL received a final
notice in July 2019 which imposed a financial penalty on the entity
of £31 million. SLAL agreed to settle in accordance with the final
notice and accordingly a provision of that amount was recognised.
As at 31 December 2019, the amount has been settled.
During the period, in addition to the payment of the £31 million noted
above, £96 million has been utilised, £79 million has been released,
and £6 million remains as at 31 December 2019.
Under the terms of the Standard Life Assurance acquisition, SLA plc
provided the Company with a deed of indemnity, with a duration of
up to four years from the date of the acquisition, in respect of certain
liabilities arising out of the FCA-mandated, and SLA plc’s voluntary,
review and redress programme in respect of SLAL’s historical non-
advised sales of pension annuities, and the FCA’s ongoing
investigation of historical non-advised annuity sales practices. To the
extent that total costs post 31 August 2018 exceed £225 million,
such amounts will be recoverable under the deed of indemnity and
related caps up to a maximum of £155 million. During the period
recoveries of £31 million were received from SLA plc in respect of
the financial penalty referred to above.
To the extent that total costs are less than £225 million, Old PGH is
required to pay the balance to SLA plc, together with any interest
that may have accrued on such sum, and subject to recovery of any
lost tax relief on the £225 million. In light of the release from the
thematic review provision in the year, a liability of £64 million has
been recognised within other payables at 31 December 2019 to
reflect obligations to SLA plc in this regard.
Restructuring provisions
AXA restructuring provision
Following the acquisition of AXA Wealth in 2016, the Group
commenced the restructuring of these businesses to align their
operating model with that of the other Group companies. These
activities involved separation and integration activities associated
with the exiting of interim services agreements entered into with the
vendor, and costs involved with implementing the Group’s preferred
outsourcer model. A provision of £30 million was recognised in 2016,
of which £4 million remained at the start of the 2019. This provision
was fully utilised in the year.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
221
221
FINANCIALS
Notes to the Consolidated Financial Statements continued
G. OTHER STATEMENT OF CONSOLIDATED FINANCIAL POSITION NOTES continued
G8. Tax Assets and Liabilities
Deferred tax is provided for on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. Deferred tax is not provided in respect of temporary differences arising from the initial
recognition of goodwill and the initial recognition of assets or liabilities in a transaction that is not a business combination and that, at the time
of the transaction, affects neither accounting nor taxable profit. The amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities, using tax rates and laws enacted or substantively enacted at the
period end.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be
utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Current tax:
Current tax receivable
Current tax payable
Deferred tax:
Deferred tax liabilities
Movement in deferred tax assets/(liabilities)
2019
Trading losses
Expenses and deferred acquisition costs carried forward
Provisions and other temporary differences
Non refundable pension scheme surplus
Committed future pension contributions
Pension scheme deficit
Accelerated capital allowances
Intangibles
Acquired in-force business
Customer relationships
Unrealised gains
IFRS transitional adjustments
Other
2019
£m
75
–
2018
£m
145
(20)
(873)
(843)
Recognised
in
consolidated
income
statement
£m
Recognised in
other
comprehensive
income
£m
1
January
£m
31
December
£m
13
50
9
(13)
18
13
7
–
(810)
(37)
(60)
(32)
(1)
(843)
1
(30)
23
2
(6)
–
1
40
119
4
(139)
8
3
26
–
–
–
14
20
32
(57)
(68)
–
1
–
–
–
–
–
–
–
12
14
8
40
(691)
(33)
(199)
(24)
2
(56)
(873)
222
222
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
2018
Trading losses
Expenses and deferred acquisition costs carried forward
Provisions and other temporary differences
Non refundable pension scheme surplus
Committed future pension contributions
Pension scheme deficit
Accelerated capital allowances
Unpaid interest
Acquired in-force business
Customer relationships
Unrealised gains
IFRS transitional adjustments
Other
Recognised in
consolidated
income
statement
£m
Recognised in
other
comprehensive
income
£m
Acquisition of
Standard Life
Assurance
businesses
£m
1 January
£m
31 December
£m
48
24
8
(13)
25
12
9
16
(341)
(33)
(81)
(40)
–
(366)
(36)
20
3
3
(2)
1
(2)
(16)
33
3
188
8
(3)
200
–
–
(2)
(3)
(5)
–
–
–
–
–
–
–
–
1
6
–
–
–
–
–
–
(502)
(7)
(167)
–
2
13
50
9
(13)
18
13
7
–
(810)
(37)
(60)
(32)
(1)
(10)
(667)
(843)
The Finance Act 2016 reduced the rates of corporation tax from 20%
to 19% in April 2017 and to 17% from April 2020. Consequently a
blended rate of tax has been used for the purposes of providing for
deferred tax in these consolidated financial statements.
Deferred income tax assets are recognised for tax losses carried forward
only to the extent that realisation of the related tax benefit is probable.
2019
£m
2018
£m
The Supreme Court concluded in favour of the tax payer in July 2018
and a tax benefit of £13 million was recognised at the end of 2018 in
relation to enhanced double tax relief claims which the Group is
entitled to in accordance with the Court judgement. The tax refund is
for the benefit of Group with-profits funds (total c£11 million) and unit
linked life funds (£2 million). In the case of the with-profits funds
there was an increase in unallocated surplus and for the unit linked
life funds there is a corresponding increase in investment contract
liabilities as a result of the recognition of the tax asset.
Deferred tax assets have not been
recognised in respect of:
Tax losses carried forward
Intangibles
Deferred tax assets not recognised on
capital losses1
HMRC issued a communication to taxpayers who are affected by the
dividend GLO but not direct participants of it, in January 2020, setting
out HMRC’s intended approach to settling enquiries into the amount
of double tax relief available for statutory protective or other claims.
In view of the large number of cases involved HMRC are currently
unable to offer a specific date by which HMRC will be able to deal
with the various claims outstanding.
53
–
21
30
13
2
1 These can only be recognised against future capital gains and have no expiry date.
On 31 January 2020, the UK formally left the EU. There is some
uncertainty about how the existing tax legislation will evolve
following the UK's exit. No changes are required to the
measurement of tax in these financial consolidated statements but
this will be monitored and reassessed at each reporting period.
The Group in conjunction with a number of other companies has
challenged HMRC’s position on the corporation tax treatment of
overseas portfolio dividends from companies resident in the EU (‘EU
dividends’) using a Group Litigation Order (‘GLO’). The issue relates
to whether the UK tax rules, which taxed EU dividends received prior
to 1 July 2009 was contrary to EU law given that dividends received
from UK companies were exempt from tax. In 2009 UK tax law was
changed with both overseas and UK dividends being treated as
exempt from corporation tax.
Some companies of the Group were late joiners or not members
of the GLO but have made statutory protective tax claims totalling
c£14 million for the benefit of unit linked life funds based on the
Supreme Court decision. HMRC has challenged the validity of such
claims and is currently considering further tax litigation in this area
against other third parties. Due to the uncertainty around the potential
success of the claims a tax asset has not been recognised in respect
of these claims.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
223
223
FINANCIALS
Notes to the Consolidated Financial Statements continued
G. OTHER STATEMENT OF CONSOLIDATED FINANCIAL
POSITION NOTES continued
G9. Payables Related to Direct Insurance Contracts
Payables related to direct insurance contracts primarily include
outstanding claims provisions. Outstanding claims under insurance
and investment contracts with DPF are valued using a best estimate
method under IFRS 4 ‘Insurance Contracts’. Outstanding claims
under investment contracts without DPF are measured at full
settlement value in accordance with IAS 39 ‘Financial Instruments’:
Recognition and Measurement.
Payables related to direct insurance
contracts
Amount due for settlement after 12
months
2019
£m
2018
£m
890
902
The Group adopted IFRS 16 effective from 1 January 2019 and
as noted in note A6 has applied the standard using the modified
retrospective approach. As a result, the comparative information for
2018 has not been restated and continues to be reported under IAS
17. The following disclosures are in respect of the operating leases
previously reported in the 2018 consolidated financial statements.
In 2018, leases where a significant portion of the risks and rewards
of ownership are retained by the lessor were classified as operating
leases. Where the Group is the lessee, payments made under
operating leases, net of any incentives received from the lessor were
charged to the consolidated income statement on a straight-line
basis over the period of the lease.
Operating lease rentals charged within administrative expenses in
2018 amounted to £10 million.
–
–
The Group had commitments under non-cancellable operating leases
as set out below.
G10. Lease Liabilities
The operating lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted using the Group’s incremental borrowing rate as the
interest rate implicit in the lease cannot be readily determined. For
leases classified as finance leases, the incremental borrowing rate
of investment funds holding the associated investment properties
is used as discount rate. The lease liability is subsequently increased
by the interest cost on the lease liability and decreased by lease
payments made. It is remeasured when there is a change in future
lease payments arising from, for example, rent reviews or from
changes in the assessment of whether a termination option is
reasonably certain not to be exercised. The Group has applied
judgement to determine the lease term for some lease contracts
with break clauses.
As at 1 January 2019 restated (see note A6)
Termination of finance leases following the
disposal of associated investment properties
Interest expense
Lease payments
Remeasurement of finance leases under IFRS 16
As at 31 December 2019
Amount due within twelve months
Amount due after twelve months
£m
158
(47)
3
(15)
(15)
84
11
73
The Group has elected not to apply the measurement requirements
of IFRS 16 to its low value leases and as such costs of these leases
are recognised on a straight-line basis as expense within
administrative expenses. The expense for the year was £1 million.
Not later than 1 year
Later than 1 year and not later than 5 years
Later than five years
2018
restated1
£m
12
31
40
1 The disclosures have been restated to reflect the adjustments made to the 2018
operating lease commitments as discussed in note A6.
G11. Accruals and Deferred Income
This note analyses the Group’s accruals and deferred income at the
end of the year.
Accruals and deferred income
2019
£m
384
2018
£m
337
Amount due for settlement after 12 months
9
9
G12. Other Payables
Other payables are recognised when due and are measured on initial
recognition at the fair value of the consideration payable. Subsequent
to initial recognition, these payables are measured at amortised cost
using the effective interest rate method.
Investment broker balances
Property related payables
Investment management fees
Amount due to SLA plc on deed of
indemnity (see note G7)
Other payables
2019
£m
616
35
8
64
320
1,043
2018
£m
199
117
39
–
518
873
Amount due for settlement after 12 months
42
97
224
224
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
H. INTERESTS IN SUBSIDIARIES AND ASSOCIATES
H1. Subsidiaries
Subsidiaries are consolidated from the date that effective control is
obtained by the Group (see basis of consolidation in note A1) and are
excluded from consolidation from the date they cease to be subsidiary
undertakings. For subsidiaries disposed of during the year, any difference
between the net proceeds, plus the fair value of any retained interest,
and the carrying amount of the subsidiary including non-controlling
interests, is recognised in the consolidated income statement.
The Group uses the acquisition method to account for the acquisition
of subsidiaries. The cost of an acquisition is measured at the fair
value of the consideration. Any excess of the cost of acquisition over
the fair value of the net assets acquired is recognised as goodwill. In
certain acquisitions an excess of the acquirer’s interest in the net fair
value of the acquiree’s identifiable assets, liabilities, contingent
liabilities and non-controlling interests over cost may arise. Where
this occurs, the surplus of the fair value of net assets acquired over
the fair value of the consideration is recognised in the consolidated
income statement.
Directly attributable acquisition costs are included within
administrative expenses, except for acquisitions undertaken prior to
2010 when they are included within the cost of the acquisition. Costs
directly related to the issuing of debt or equity securities are included
within the initial carrying amount of debt or equity securities where
these are not carried at fair value. Intra-group balances and income
and expenses arising from intra-group transactions are eliminated in
preparing the consolidated financial statements.
The Group has invested in a number of collective investment
schemes such as Open-ended Investments Companies (‘OEICs’),
unit trusts, Société d’Investissement à Capital Variable (‘SICAVs’),
investment trusts and private equity funds. These invest mainly in
equities, bonds, property and cash and cash equivalents. The
Group’s percentage ownership in these collective investment
schemes can fluctuate according to the level of Group and third party
participation in the structures.
When assessing control over collective investment schemes, the
Group considers those factors described under the ‘Basis of
consolidation’ in note A1. In particular, the Group considers the scope
of its decision-making authority, including the existence of substantive
rights (such as power of veto, liquidation rights and the right to remove
the fund manager) that give it the ability to direct the relevant activities
of the investee. The assessment of whether rights are substantive
rights, and the circumstances under which the Group has the practical
ability to exercise them, requires the exercise of judgement. This
assessment includes a qualitative consideration of the rights held by
the Group that are attached to its holdings in the collective investment
schemes, rights that arise from contractual arrangements between the
Group and the entity or fund manager and the rights held by third
parties. In addition, consideration is made of whether the Group has de
facto power, for example, where third party investments in the
collective investment schemes are widely dispersed.
Where Group companies are deemed to control such collective
investment schemes they are consolidated in the Group financial
statements, with the interests of external third parties recognised as
a liability (see the accounting policy for ‘Net asset value attributable
to unitholders’ in note E1 for further details).
Certain of the collective investment schemes have non-coterminous
period ends and are consolidated on the basis of additional financial
statements prepared to the period end.
H1.1 Significant restrictions
The ability of subsidiaries to transfer funds to the Group in the form
of cash dividends or to repay loans and advances is subject to local
laws, regulations and solvency requirements.
Each UK Life company and the Group must retain sufficient capital at
all times to meet the regulatory capital requirements mandated by or
otherwise agreed with the PRA. Further information on the capital
requirements applicable to Group entities are set out in the Capital
Management note (I3). Under UK company law, dividends can only
be paid if a UK company has distributable reserves sufficient to cover
the dividend.
In addition, contractual requirements may place restrictions on the
transfer of funds as follows:
• the Pearl Pension Scheme funding agreement includes certain
covenants which restrict the transfer of funds within the Group.
Details are provided in note G1.1.
• Pearl Life Holdings Limited (‘PeLHL’) is required to make payments
of contributions into charged accounts on behalf of the Abbey Life
Scheme. These amounts do not form part of the pension scheme
assets and at 31 December 2019, PeLHL held £49 million (2018:
£46 million) within debt securities and £7 million (2018: £1 million)
within cash and cash equivalents in respect of these charged
accounts. Further details of when these amounts may become
payable to the pensions scheme are included in note G1.3.
H2. Acquisition of Standard Life Assurance Businesses
On 31 August 2018, the Group acquired 100% of the issued share
capital of Standard Life Assurance Limited, Standard Life Pensions
Fund Limited, Standard Life International Designated Activity
Company, Vebnet (Holdings) Limited, Vebnet Limited, Standard Life
Lifetime Mortgages Limited, Standard Life Assets and Employee
Services Limited and Standard Life Investment Funds Limited
(together known as ‘the Standard Life Assurance businesses’) from
SLA plc for total consideration of £2,994 million. The consideration
consisted of £1,971 million of cash funded by a fully underwritten
rights issue of £950 million, with the remaining balance of
£1,021 million funded by a mix of new debt and Phoenix’s own
resources. In addition, SLA plc took a 19.98% equity stake in the
Enlarged Group on completion valued at £1,023 million, based on
the share price at 31 August 2018.
The fair values of the identifiable assets acquired, liabilities assumed
and the resultant gain arising on acquisition of £141 million
determined at the date of acquisition have not been adjusted within
the 12 month period since the date of acquisition.
H3. Associates: Investment in UK Commercial Property
Trust Limited (‘UKCPT’)
UKCPT is a property investment company which is domiciled in
Guernsey and is admitted to the official list of the UK Listing
Authority and to trading on the London Stock Exchange.
The Group’s interest in UKCPT is held in the with-profit funds of the
Group’s life companies. Therefore, the shareholder exposure to fair
value movements in the Group’s investment in UKCPT is limited to
the impact of those movements on the shareholder share of
distributed profits of the relevant fund.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
225
225
FINANCIALS
Notes to the Consolidated Financial Statements continued
H. INTERESTS IN SUBSIDIARIES AND ASSOCIATES continued
H3. Associates: Investment in UK Commercial Property
Trust Limited (‘UKCPT’) continued
As at 31 December 2019, the Group held 44.6% (2018: 44.7%) of the
issued share capital of UKCPT and the value of this investment,
measured at fair value, was £513 million (2018: £496 million).
Management has concluded that the Group did not control UKCPT in
either the current or comparative periods. The Group does not hold a
unilateral power of veto in general meetings and is restricted by the
terms of an existing relationship agreement it has with UKCPT.
Summary financial information (at 100%) for UKCPT is shown below:
Non-current assets
Current assets
Non-current liabilities
Current liabilities
2019
£m
1,309
128
(247)
(23)
2018
£m
1,431
67
(249)
(36)
The Group’s holdings in the above investments are subject to the
terms and conditions of the respective fund’s prospectus and are
susceptible to market price risk arising from uncertainties about
future values. The Group holds redeemable shares or units in each
of the funds. The funds are managed by internal and external fund
managers who apply various investment strategies to accomplish
their respective investment objectives. All of the funds are managed
by fund managers who are compensated by the respective funds for
their services. Such compensation generally consists of an asset-
based fee and a performance-based incentive fee and is reflected in
the valuation of each fund.
H4.1 Interests in consolidated structured entities
The Group has determined that where it has control over funds,
these investments are consolidated structured entities.
The EBT is a consolidated structured entity that holds shares to
satisfy awards granted to employees under the Group’s share-based
payment schemes.
1,167
1,213
During the year, the Group granted further loans to the EBT of £4 million
(2018: £8 million). Further loans are expected to be granted in 2020.
Revenue
Profit before tax
Taxation
Profit for the year after tax
29
2
–
2
85
59
(6)
53
H4. Structured Entities
A structured entity is an entity that has been designed so that voting
or similar rights are not the dominant factor in deciding who controls
the entity, such as when any voting rights relate to administrative
tasks only, and the relevant activities are directed by means of
contractual arrangements. A structured entity often has some or all
of the following features or attributes: (a) restricted activities; (b) a
narrow and well-defined objective, such as to provide investment
opportunities for investors by passing on risks and rewards
associated with the assets of the structured entity to investors;
(c) insufficient equity to permit the structured entity to finance its
activities without subordinated financial support; and (d) financing in
the form of multiple contractually linked instruments to investors that
create concentrations of credit or other risks (tranches).
As at the reporting date the Group has no intention to provide financial
or other support in relation to any other consolidated structured entity.
H4.2 Interests in unconsolidated structured entities
The Group has interests in unconsolidated structured entities. These
investments are held as financial assets in the Group’s consolidated
statement of financial position held at fair value through profit or loss.
Any change in fair value is included in the consolidated income
statement in ‘net investment income’. Dividend and interest income
is received from these investments.
A summary of the Group’s interest in unconsolidated structured
entities is included below. These are shown according to the
financial asset categorisation in the consolidated statement of
financial position.
The Group has determined that all of its investments in collective
investment schemes are structured entities. In addition, a number of
debt security structures and private equity funds have been identified as
structured entities. The Group has assessed that it has interests in both
consolidated and unconsolidated structured entities as shown below:
Equities
Collective investment schemes1
Debt securities2
• Unit trusts;
• OEICs;
• SICAVs;
• Private Equity Funds;
• Asset backed securities;
• Collateralised Debt Obligations (‘CDOs’);
• Other debt structures; and
• Phoenix Group EBT.
1 See note A1 for details of the restatement.
2 The Group’s interests in unconsolidated structured entities within debt securities in
2018 has been restated following a re-assessment of the nature of the Group’s
interests in certain investment structures.
The Group’s maximum exposure to loss with regard to the interests
presented above is the carrying amount of the Group’s investments.
Once the Group has disposed of its shares or units in a fund, it
ceases to be exposed to any risk from that fund. The Group’s
holdings in the above unconsolidated structured entities are largely
less than 50% and as such the size of these structured entities are
likely to be significantly higher than their carrying value.
Details of commitments to subscribe to private equity funds and
other unlisted assets are included in note I5.
226
226
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
2019
Carrying value
of financial
assets
£m
2018
restated
Carrying value
of financial
assets
£m
528
69,415
3,975
73,918
463
67,692
3,864
72,019
H5. Group Entities
The table below sets out the Group's subsidiaries (including collective investment schemes that have been consolidated within the Group's
financial statements), associates and significant holdings in undertakings (including undertakings where holding amounts to 20% or more of
the nominal value of the shares or units and they are not classified as a subsidiary or associate).
Subsidiaries:
Phoenix Life Limited (life assurance company)
Phoenix Life Assurance Limited (life assurance
company)
Standard Life Assurance Limited (life assurance
company – directly owned by the Company)
Standard Life International Designated Activity
Company (life assurance company – directly owned
by the Company)
Standard Life Pension Funds Limited (life assurance
company)
Pearl Group Management Services Limited
(management services company)
Pearl Group Services Limited (management services
company)
Standard Life Assets and Employee Services Limited
(management services company)
Britannic Finance Limited (finance and insurance
services company)1
Pearl Customer Care Limited (financial services
company)1
Pearl Group Holdings (No. 1) Limited (finance
company)
Phoenix Customer Care Limited (financial services
company)1
Phoenix ER1 Limited (finance company)
PGH (LC1) Limited (finance company)
PGH (LC2) Limited (finance company)
PGH (LCA) Limited (finance company)1
PGH (LCB) Limited (finance company)1
PGH (MC1) Limited (finance company)1
PGH (MC2) Limited (finance company)1
PGH Capital plc (finance company – directly owned
by the Company)
PGMS (Ireland) Limited (management services
company)
Phoenix ER3 Limited (finance company)
Phoenix ER4 Limited (finance company)
Phoenix ER6 Limited (finance company)
Phoenix SL Direct Limited (management services
company)1
Phoenix Unit Trust Managers Limited (unit trust
manager)
Phoenix Wealth Services Limited (management
services company)
Phoenix Wealth Trustee Services Limited
(management services company)
Registered address of
incorporated entities
If unincorporated,
address of principal
place of business
Type of investment
(including class of
shares held)
% of shares/
units held
Wythall2
Wythall2
Edinburgh26
Dublin6
Ordinary Shares
Ordinary Shares
100.00%
100.00%
Ordinary Shares
100.00%
Ordinary Shares
100.00%
Edinburgh26
Limited by Guarantee
100.00%
Wythall2
Wythall2
Edinburgh26
Wythall2
Wythall2
London3
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Dublin8
Dublin7
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Ordinary Shares
100.00%
Ordinary Shares
100.00%
Ordinary Shares
100.00%
Ordinary Shares
100.00%
Ordinary Shares
100.00%
Ordinary Shares
100.00%
Ordinary Shares
100.00%
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Ordinary Shares
100.00%
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
100.00%
100.00%
100.00%
100.00%
Ordinary Shares
100.00%
Ordinary Shares
100.00%
Ordinary Shares
100.00%
SLACOM (No. 8) Limited (loan provider company)
Edinburgh26
Ordinary Shares
100.00%
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
227
227
FINANCIALS
Notes to the Consolidated Financial Statements continued
H. INTERESTS IN SUBSIDIARIES AND ASSOCIATES continued
H5. Group Entities continued
Standard Life Lifetime Mortgages Limited (mortgage
provider company)
The Standard Life Assurance Company of Europe
B.V. (financial holding company)
Vebnet Limited (services company)
Mutual Securitisation plc (finance company)
Britannic Money Investment Services Limited
(investment advice company)1
Inesia SA (investment company)
Axial Fundamental Strategies (US Investments) LLC
IH (Jersey) Limited (investment company)
Pearl (WP) Investments LLC (investment company)
Pearl Assurance Group Holdings Limited (investment
company)
PGMS (Glasgow) Limited (investment company)1
PGS 2 Limited (investment company)
Phoenix SCP Limited (investment company)
Phoenix SPV1 Limited (investment company)1
Phoenix SPV2 Limited (investment company)1
Phoenix SPV3 Limited (investment company)1
Phoenix SPV4 Limited (investment company)1
Standard Life Private Equity Trust plc (investment
company)
CH Management Limited (investment company)
3 St Andrew Square Apartments Limited (property
management company)
Abbey Life Assurance Company Limited (non-trading
company)
Abbey Life Trust Securities Limited (pension trustee
company)
Abbey Life Trustee Services Limited (dormant
company)
Alba LAS Pensions Management Limited (dormant
company)
Alba Life Trustees Limited (non-trading company)
BA (FURBS) Limited (dormant company)
Britannic Group Services Limited (dormant company)
Century Trustee Services Limited (dormant company)
Cityfourinc (dormant company)
Evergreen Trustee Limited (dormant company)
G Park Management Company Limited (property
management company)
Gallions Reach Shopping Park (Nominee) Limited
(dormant company)
Iceni Nominees (No. 2) Limited (dormant company)
Impala Holdings Limited (holding company)
Impala Loan Company 1 Limited (dormant company)1
Inhoco 3107 Limited (dormant company)
Registered address of
incorporated entities
Edinburgh26
If unincorporated,
address of principal
place of business
Type of investment
(including class of
shares held)
Ordinary Shares
% of shares/
units held
100.00%
Amsterdam10
Ordinary Shares
100.00%
Wythall2
Dublin27
Wythall2
Luxembourg20
Wilmington18
Jersey15
Wilmington18
Wythall2
Edinburgh26
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Edinburgh25
Delaware19
Edinburgh25
Wythall2
Wythall2
Wythall2
Glasgow11
Edinburgh26
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
London17
London17
London17
Wythall2
Edinburgh26
London17
Ordinary Shares
N/A
Ordinary Shares
Ordinary Shares
Limited Liability Company
Ordinary Shares
Limited Liability Company
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
55.20%
100.00%
100.00%
Ordinary Shares
100.00%
Ordinary Shares
100.00%
Ordinary Shares
100.00%
Ordinary Shares
100.00%
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Unlimited with Shares
Ordinary Shares
Ordinary Shares
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Ordinary Shares
100.00%
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
100.00%
100.00%
100.00%
100.00%
228
228
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Lake Meadows Management Company Limited
(property management company)
London Life Limited (non-trading company)
London Life Trustees Limited (dormant company)
National Provident Institution (dormant company)
National Provident Life Limited (non-trading company)
NP Life Holdings Limited (holding company)
NPI (Printworks) Limited (dormant company)
NPI (Westgate) Limited (dormant company)
PA (GI) Limited (non-trading company)
Pearl (Barwell 2) Limited (dormant company)
Pearl (Chiswick House) Limited (dormant company)
Pearl (Covent Garden) Limited (dormant company)
Pearl (Martineau Phase 1) Limited (dormant
company)
Pearl (Martineau Phase 2) Limited (dormant
company)
Pearl (Moor House 1) Limited (dormant company)
Pearl (Moor House 2) Limited (dormant company)
Pearl (Moor House) Limited (dormant company)1
Pearl (Printworks) Limited (dormant company)
Pearl (Stockley Park) Limited (dormant company)
Pearl AL Limited (dormant company)
Pearl Group Holdings (No. 2) Limited (holding
company)
Pearl Group Secretariat Services Limited (dormant
company)
Pearl Life Holdings Limited (holding company)
Pearl MG Birmingham Limited (dormant company)
Pearl MP Birmingham Limited (dormant company)
Pearl RLG Limited (dormant company)
Pearl Trustees Limited (dormant company)
Pearl ULA Limited (dormant company)
Phoenix Group Capital Limited (dormant company)
PG Dormant (No 4) Limited (dormant company)
PG Dormant (No 5) Limited (dormant company)
PG Dormant (No 6) Limited (dormant company)
PG Dormant (No. 7) Limited (dormant company)
PGH (TC1) Limited (holding company – directly
owned by the Company)
PGH (TC2) Limited (holding company – directly
owned by the Company)
PGMS (Ireland) Holdings Unlimited Company (holding
company)
Phoenix & London Assurance Limited (dormant
company)
Phoenix AW Limited (non-trading company)1
Phoenix ER2 Limited (dormant company)
Phoenix ER5 Limited (dormant company)
Phoenix Group Holdings (holding company – directly
owned by the Company)
Registered address of
incorporated entities
London17
If unincorporated,
address of principal
place of business
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Glasgow11
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
London3
Wythall2
Wythall2
Dublin7
Wythall2
Wythall2
Wythall2
Wythall2
Cayman Islands5
Type of investment
(including class of
shares held)
Ordinary Shares
Ordinary Shares
Ordinary Shares
Unlimited without Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
% of shares/
units held
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Ordinary Shares
100.00%
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Ordinary Shares
100.00%
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Ordinary Shares
100.00%
Unlimited with Shares
100.00%
Ordinary Shares
100.00%
Ordinary Shares
Ordinary Shares
Ordinary Shares
Private Company
100.00%
100.00%
100.00%
100.00%
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
229
229
FINANCIALS
Notes to the Consolidated Financial Statements continued
H. INTERESTS IN SUBSIDIARIES AND ASSOCIATES continued
H5. Group Entities continued
Registered address of
incorporated entities
If unincorporated,
address of principal
place of business
Phoenix Life Holdings Limited (holding company –
directly owned by the Company)
Phoenix Life Pension Trust Limited (dormant
company)
Phoenix Pension Scheme (Trustees) Limited
Phoenix Pensions Trustee Services Limited (dormant
company)
Phoenix SCP Pensions Trustees Limited (trustee
company)
Phoenix SCP Trustees Limited (trustee company)
Phoenix Wealth Holdings Limited (holding company)1
Scottish Mutual Assurance Limited (dormant
company)1
Scottish Mutual Nominees Limited (dormant
company)
Scottish Mutual Pension Funds Investment Limited
(trustee company)
SL (NEWCO) Limited (dormant company)
SL Liverpool plc (dormant company)
SLA Belgium No.1 SA (property company)
SLA Netherlands No.1 B.V. (financial holding
company)
SLACOM (No. 10) Limited (dormant company)
SLACOM (No. 9) Limited (dormant company)
SLIF Property Investment GP Limited (General
Partner to SLIF Property Investment)
SLIF Property Investment LP Limited (General
Partner to SLIF Property Investment)
Standard Life Agency Services Limited (dormant)
Standard Life Investment Funds Limited (dormant
company)
Standard Life Master Trust Co. Ltd (dormant
company)
Standard Life Property Company Limited (dormant)
Standard Life Trustee Company Limited (trustee
company)
SunLife Limited (financial services distribution
company)
The Heritable Securities and Mortgage Investment
Association Ltd (dormant company)
The London Life Association Limited (dormant
company)
The Pearl Martineau Galleries Limited Partnership
(dormant company)
The Pearl Martineau Limited Partnership (dormant
company)
The Phoenix Life SCP Institution (dormant company)
The Scottish Mutual Assurance Society (dormant
company)
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Edinburgh26
Wythall2
Edinburgh26
Edinburgh26
Edinburgh26
Edinburgh26
Wythall2
Belgium4
Amsterdam10
Edinburgh26
Edinburgh26
Edinburgh25
Edinburgh25
Edinburgh26
Edinburgh26
Wythall2
Edinburgh26
Edinburgh26
Wythall2
Edinburgh26
Wythall2
Wythall2
Lynch Wood21
Edinburgh26
Glasgow11
Type of investment
(including class of
shares held)
Ordinary Shares
% of shares/
units held
100.00%
Ordinary Shares
100.00%
Ordinary Shares
Ordinary Shares
100.00%
100.00%
Ordinary Shares
100.00%
Ordinary Shares
Ordinary Shares
Ordinary Shares
100.00%
100.00%
100.00%
Ordinary Shares
100.00%
Ordinary Shares
100.00%
Ordinary Shares
Public Limited Company
Société Anonyme
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Limited partnership
100.00%
Ordinary Shares
Ordinary Shares
100.00%
100.00%
Ordinary Shares
100.00%
Ordinary Shares
Ordinary Shares
100.00%
100.00%
Ordinary Shares
100.00%
Ordinary Shares
100.00%
Limited by Guarantee
100.00%
Limited Partnership
100.00%
Limited Partnership
100.00%
Limited by Guarantee
Limited by Guarantee
100.00%
100.00%
Vebnet (Holdings) Limited (holding company)
Wythall2
Ordinary Shares
100.00%
230
230
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Welbrent Property Investment Company Limited
(dormant company)
Registered address of
incorporated entities
London17
If unincorporated,
address of principal
place of business
Pearl Private Equity LP
Pearl Strategic Credit LP
European Strategic Partners LP
Pilangen Logistik AB
Pilangen Logistik I AB
SLA Germany No.1 S.A.R.L
SLA Germany No.2 S.A.R.L
SLA Germany No.3 S.A.R.L
SLA Ireland No.1 S.A.R.L
Standard Life Assurance (HWPF) Luxembourg SARL
Phoenix Group Employee Benefit Trust
28 Ribera del Loira SA (dormant company)
330 Avenida de Aragon SL (property management
company)
Edinburgh25
Edinburgh25
Edinburgh25
Stockholm22
Stockholm22
Luxembourg24
Luxembourg24
Luxembourg24
Luxembourg24
Luxembourg24
Jersey16
Madrid36
Madrid36
Hundred S.à r.l. (property management company)
Luxembourg24
Type of investment
(including class of
shares held)
Ordinary Shares
Limited Partnership
Limited Partnership
Limited Partnership
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Trust
Ordinary Shares
Ordinary Shares
Ordinary Shares
London29
Authorised unit trust
% of shares/
units held
100.00%
100.00%
100.00%
72.70%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Janus Henderson Institutional Short Duration Bond
Fund
Janus Henderson Institutional Mainstream UK Equity
Trust
Janus Henderson Institutional UK Equity Tracker
Trust
Janus Henderson Institutional High Alpha UK Equity
Fund
Janus Henderson Global Funds – Janus Henderson
Institutional Overseas Bond Fund
Janus Henderson Strategic Investment Funds –
Janus Henderson Institutional North American Index
Opportunities Fund
Janus Henderson Strategic Investment Funds –
Janus Henderson Institutional Asia Pacific ex Japan
Index Opportunities Fund
Janus Henderson Diversified Growth Fund
Janus Henderson Institutional UK Index
Opportunities Fund
Janus Henderson Strategic Investment Funds –
Janus Henderson Institutional Japan Index
Opportunities Fund
PUTM Cautious Unit Trust
PUTM European Unit Trust
PUTM Far Eastern Unit Trust
PUTM Growth Unit Trust
PUTM Opportunity Unit Trust
PUTM International Growth Unit Trust
PUTM UK Stock Market Fund
PUTM UK Stock Market Fund (Series 3)
PUTM UK All-Share Index Unit Trust
PUTM UK Equity Unit Trust
PUTM Bothwell Asia Pacific (Excluding Japan) Fund
PUTM Bothwell Europe Fund
London29
Authorised Unit Trust
100.00%
London29
Authorised Unit Trust
100.00%
London29
Authorised Unit Trust
81.90%
London29
London29
OEIC, sub fund
99.08%
OEIC, sub fund
86.37%
London29
OEIC, sub fund
82.55%
London29
London29
London29
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
OEIC, sub fund
OEIC, sub fund
81.83%
54.37%
OEIC, sub fund
75.40%
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
100.00%
99.36%
99.67%
100.00%
100.00%
100.00%
100.00%
100.00%
99.90%
99.85%
99.54%
98.82%
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
231
231
FINANCIALS
Notes to the Consolidated Financial Statements continued
H. INTERESTS IN SUBSIDIARIES AND ASSOCIATES continued
H5. Group Entities continued
PUTM Bothwell Emerging Market Debt
Unconstrained Fund
PUTM Bothwell European Credit Fund
PUTM Bothwell Global Bond Fund
PUTM Bothwell Global Credit Fund
PUTM Bothwell Floating Rate ABS Fund
PUTM Bothwell Index-Linked Sterling Hedged Fund
PUTM Bothwell Japan Tracker Fund
PUTM Bothwell Long Gilt Sterling Hedged Fund
PUTM Bothwell Emerging Markets Equity Fund
PUTM Bothwell North America Fund
PUTM Bothwell Sterling Government Bond Fund
PUTM Bothwell Euro Sovereign Fund
PUTM Bothwell Sterling Credit Fund
PUTM Bothwell Tactical Asset Allocation Fund
PUTM Bothwell UK All Share Listed Equity Fund
PUTM Bothwell UK Equity Income Fund
PUTM Bothwell Institutional Credit Fund
PUTM Bothwell Sub-Sovereign Bd B GBP Acc
PUTM ACS UK All Share Listed Equity Fund
PUTM ACS European ex UK Fund
PUTM ACS Japan Equity Fund
PUTM ACS North American Fund
PUTM Bothwell Short Duration Credit Fund
Standard Life Investments Strategic Bond Fund
Standard Life Multi Asset Trust
Standard Life European Trust II
Standard Life Investment Company Global Emerging
Markets Equity
Standard Life Investment Company Japanese Equity
Growth Fund
Standard Life Investment Company II Euro Ethical
Equity Fund
Standard Life Investment Company II Corporate Debt
Fund
Standard Life Trust Management European Trust
Standard Life Trust Management Japanese Trust
Standard Life Trust Management North American
Trust
Standard Life Trust Management Standard Life Short
Dated UK Government Bond Trust
Standard Life Trust Management Standard Life Global
Equity Trust II
Standard Life Trust Management UK Government
Bond Trust
Standard Life Trust Management UK Corporate Bond
trust
Standard Life Trust Management Standard Life Active
Plus Bond Trust
Registered address of
incorporated entities
If unincorporated,
address of principal
place of business
Wythall2
Type of investment
(including class of
shares held)
% of shares/
units held
Unit Trust
100.00%
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
OEIC, sub fund
84.95%
99.98%
100.00%
100.00%
100.00%
99.57%
100.00%
99.94%
99.40%
99.56%
87.75%
99.85%
100.00%
99.17%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
72.38%
100.00%
100.00%
80.60%
Edinburgh25
OEIC, sub fund
83.87%
Edinburgh25
OEIC, sub fund
83.03%
Edinburgh25
OEIC, sub fund
100.00%
Edinburgh25
Edinburgh25
Edinburgh25
Unit Trust
Unit Trust
Unit Trust
92.73%
84.77%
86.80%
Edinburgh25
Unit Trust
99.99%
Edinburgh25
Unit Trust
99.99%
Edinburgh25
Unit Trust
99.98%
Edinburgh25
Unit Trust
100.00%
Edinburgh25
Unit Trust
99.99%
232
232
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Standard Life Trust Management Pacific Trust
Standard Life Trust Management Standard Life
International Trust
Standard Life Trust Management Pan European Trust
Standard Life Trust Management UK Equity General
Trust
Standard Life Investment Company III MyFolio
Managed III Fund
Standard Life Investment Company III Enhanced-
Diversification Growth Fund
Standard Life Investments Global SICAV II Global
Short Duration Corporate Bond Fund
Standard Life Investments Global SICAV II Myfolio
Multi-Manager II Fund
Standard Life Investments Global SICAV II Myfolio
Multi-Manager IV Fund
Standard Life Investments Global SICAV II Myfolio
Multi-Manager V Fund
Standard Life Investments Global SICAV European
Equities Fund
Standard Life Investments Global SICAV Indian Equity
Midcap Opportunities Fund
Standard Life Investments Global SICAV European
Equity Unconstrained Fund
Standard Life Investments Global SICAV Global
Equities
Standard Life Investments Global SICAV European
Government All Stocks
Standard Life Investments Global SICAV Japanese
Equities
Standard Life Investments Global SICAV Global Bond
Standard Life Investments Global SICAV Global High
Yield Bond
Standard Life Investments Global SICAV Global REIT
Focus
Standard Life Investments Global SICAV China
Equities
Standard Life Investments Global SICAV Absolute
Return Global Bond Strategies
Standard Life Investments Global SICAV Global
Emerging Markets Unconstrained
Standard Life Investments Global SICAV Global
Emerging Markets Local CCY Debt
Standard Life Investments Global SICAV Emerging
Market Debt
Seabury Assets Fund Standard Life Investments The
Sterling VNAV Liquidity Fund
Seabury Assets Fund Standard Life Investments The
Euro VNAV Liquidity Fund
Ignis Private Equity Fund LP
Ignis Strategic Credit Fund LP
ASI Phoenix Fund Financing SCSp (PLFF)
Registered address of
incorporated entities
If unincorporated,
address of principal
place of business
Type of investment
(including class of
shares held)
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Unit Trust
Unit Trust
Unit Trust
Unit Trust
% of shares/
units held
94.40%
99.98%
99.97%
99.75%
Edinburgh25
OEIC, sub fund
77.28%
Edinburgh25
OEIC, sub fund
98.06%
Luxembourg30
SICAV, sub fund
83.63%
Luxembourg30
SICAV, sub fund
66.67%
Luxembourg30
SICAV, sub fund
59.04%
Luxembourg30
SICAV, sub fund
55.18%
Luxembourg30
SICAV, sub fund
99.02%
Luxembourg30
SICAV, sub fund
64.89%
Luxembourg30
SICAV, sub fund
98.97%
Luxembourg30
SICAV, sub fund
85.09%
Luxembourg30
SICAV, sub fund
100.00%
Luxembourg30
SICAV, sub fund
96.29%
Luxembourg30
Luxembourg30
SICAV, sub fund
SICAV, sub fund
75.98%
75.05%
Luxembourg30
SICAV, sub fund
96.14%
Luxembourg30
SICAV, sub fund
75.36%
Luxembourg30
SICAV, sub fund
59.18%
Luxembourg30
SICAV, sub fund
87.46%
Luxembourg30
SICAV, sub fund
80.46%
Luxembourg30
SICAV, sub fund
97.81%
Dublin28
UCITS, sub fund
99.57%
Dublin28
UCITS, sub fund
100.00%
Cayman Islands5
Cayman Islands5
Luxembourg33
Limited Partnership
Limited Partnership
Special Limited
Partnership
100.00%
100.00%
100.00%
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
233
233
FINANCIALS
Notes to the Consolidated Financial Statements continued
H. INTERESTS IN SUBSIDIARIES AND ASSOCIATES continued
H5. Group Entities continued
Registered address of
incorporated entities
If unincorporated,
address of principal
place of business
North American Strategic Partners 2008 L.P.
North American Strategic Partners (Feeder) 2008 L.P.
North American Strategic Partners 2006 L.P.
North American Strategic Partners (Feeder) 2006 L.P.
Crawley Unit Trust
Ignis Strategic Solutions Funds plc – Fundamental
Strategies Fund
Ignis Strategic Solutions Funds plc – Systematic
Strategies Fund
AB SICAV I – ESG Responsible Global Factor Portfolio
SF1 GBP (Acc)
ASI Financial Equity Fund A Inc
Associates:
UK Commercial Property Estates Limited (property
investment company)
UK Commercial Property GP Limited
UK Commercial Property Holdings Limited (property
investment company)
UK Commercial Property Nominee Limited (property
investment company)
The Moor House Limited Partnership
Moor House General Partner Limited
UK Commercial Property REIT Limited
UK Commercial Property Estates Holdings Limited
(property investment company)
UKCPT Limited Partnership
UK Commercial Property Finance Holdings Limited
UK Commercial Property Estates (Reading) Limited
Brixton Radlett Property Limited
Significant holdings:
Janus Henderson Institutional Global Responsible
Managed Fund
Standard Life Capital Infrastructure I L.P.
Standard Life Investment Company – Global
Emerging Market Equity Income Fund
Standard Life Investments Global Absolute Return
Strategies Retail Acc
Standard Life Investments Dynamic Distribution Fund
Standard Life Investments UK Real Estate
Accumulation Feeder Fund
Standard Life Investments Real Estate Income
Feeder Fund
Standard Life Investment Company UK Equity
Recovery Fund
Standard Life Investment Company American Equity
Income
Standard Life Investment Company UK Equity
Growth Fund
Standard Life Investment Company UK Equity High
Income Fund
Wilmington18
Edinburgh25
Wilmington18
Edinburgh25
Jersey12
Dublin9
Type of investment
(including class of
shares held)
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Unit Trust
OEIC, sub fund
% of shares/
units held
100.00%
100.00%
70.00%
70.00%
100.00%
100.00%
Guernsey13
Guernsey13
Guernsey13
Guernsey13
London14
London14
Guernsey13
Guernsey13
Guernsey13
Guernsey13
London17
London17
Dublin9
OEIC, sub fund
100.00%
Luxembourg30
OEIC, sub fund
64.36%
London17
OEIC, sub fund
80.78%
Ordinary Shares
44.62%
Ordinary Shares
Ordinary Shares
44.62%
44.62%
Ordinary Shares
44.62%
Limited Partnership
Limited Partnership
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
33.27%
33.30%
44.62%
44.62%
44.62%
44.62%
44.62%
44.62%
London29
OEIC, sub fund
55.00%
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Limited Partnership
OEIC, sub fund
26.30%
69.68%
Unit Trust
68.12%
Unit Trust
Unit Trust
53.60%
45.64%
London17
Unit Trust
37.75%
Edinburgh25
OEIC, sub fund
36.71%
Edinburgh25
OEIC, sub fund
42.09%
Edinburgh25
OEIC, sub fund
25.62%
Edinburgh25
OEIC, sub fund
31.66%
234
234
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Standard Life Investment Company UK Equity High
Alpha Fund
Standard Life Investment Company Global Equity
Unconstrained
Standard Life Investment Company Higher Income
Fund
Standard Life Investment Company UK Opportunities
Fund
Standard Life Investment Company Short Duration
Credit Fund
Standard Life Investment Company Smaller
Companies Fund
Standard Life Investment Company European Equity
Growth Fund
Standard Life Investment Company II Short Dated
Corporate Bond
Standard Life Investment Company II UK Equity
Unconstrained Fund
Standard Life Investment Company II Ethical
Corporate Bond Fund
Standard Life Investment Company II GLOBAL REIT
OEIC
Standard Life Managed Trust – American Equity
Unconstrained
Standard Life Managed Trust – Standard Life Japan
Fund
Standard Life Managed Trust – Standard Life Global
REIT Fund
Standard Life Investments Global Real Estate Fund
Standard Life Investment Company III MyFolio
Market I Fund
Standard Life Investment Company III MyFolio
Market II Fund
Standard Life Investment Company III MyFolio
Market III Fund
Standard Life Investment Company III MyFolio
Market IV Fund
Standard Life Investment Company III MyFolio
Market V Fund
Standard Life Investment Company III MyFolio Multi-
Manager I Fund
Standard Life Investment Company III MyFolio Multi-
Manager II Fund
Standard Life Investment Company III MyFolio Multi-
Manager III Fund
Standard Life Investment Company III MyFolio Multi-
Manager IV Fund
Standard Life Investment Company III MyFolio Multi-
Manager V Fund
Standard Life Investment Company III MyFolio
Managed I Fund
Standard Life Investment Company III MyFolio
Managed II Fund
Registered address of
incorporated entities
If unincorporated,
address of principal
place of business
Edinburgh25
Type of investment
(including class of
shares held)
OEIC, sub fund
% of shares/
units held
25.99%
Edinburgh25
OEIC, sub fund
45.19%
Edinburgh25
OEIC, sub fund
39.91%
Edinburgh25
OEIC, sub fund
55.36%
Edinburgh25
OEIC, sub fund
25.61%
Edinburgh25
OEIC, sub fund
29.40%
Edinburgh25
OEIC, sub fund
35.76%
Edinburgh25
OEIC, sub fund
21.81%
Edinburgh25
OEIC, sub fund
43.67%
Edinburgh25
OEIC, sub fund
41.79%
Edinburgh25
OEIC, sub fund
26.72%
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Unit Trust
48.89%
Unit Trust
46.33%
Unit Trust
59.26%
Unit Trust
OEIC, sub fund
46.97%
45.32%
Edinburgh25
OEIC, sub fund
41.19%
Edinburgh25
OEIC, sub fund
55.75%
Edinburgh25
OEIC, sub fund
54.58%
Edinburgh25
OEIC, sub fund
63.10%
Edinburgh25
OEIC, sub fund
54.31%
Edinburgh25
OEIC, sub fund
52.75%
Edinburgh25
OEIC, sub fund
59.12%
Edinburgh25
OEIC, sub fund
53.80%
Edinburgh25
OEIC, sub fund
51.83%
Edinburgh25
OEIC, sub fund
68.15%
Edinburgh25
OEIC, sub fund
67.64%
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
235
235
FINANCIALS
Notes to the Consolidated Financial Statements continued
H. INTERESTS IN SUBSIDIARIES AND ASSOCIATES continued
H5. Group Entities continued
Standard Life Investment Company III MyFolio
Managed IV Fund
Standard Life Investment Company III MyFolio
Managed V Fund
Standard Life Investment Company III MyFolio Multi-
Manager Inc III Fund
Standard Life Investments Global SICAV II Enhanced-
Diversification Multi Asset Fund
Standard Life Investments Global SICAV Euro Smaller
Companies
Standard Life Investments Global SICAV European
Corporate Bond
Standard Life Investments Global SICAV Global
Absolute Return Strategies
Aberdeen Liquidity Fund (Lux) Sterling Fund
Aberdeen Liquidity Fund (Lux) Euro Fund
Aberdeen Liquid (Lux) Ultra Short Duration Sterling
Fund
Brent Cross Partnership
Castlepoint LP
Gallions Reach Shopping Park Unit Trust
Standard Life Investments UK Retail Park Trust
Standard Life Investments UK Shopping Centre Trust
Gallions Reach Shopping Park Limited Partnership
Standard Life Investments Brent Cross LP
AXA Fixed Interest Investment ICVC – Sterling
Strategic Bond Fund
AB SICAV I – Diversified Yield Plus Portfolio
MI Somerset Global Emerging Markets
BlackRock Market Advantage X GBP (Acc)
Aberdeen Global Emerging Markets Quantitative
Equity Fund
AXA Global High Income Fund
BMO Barclays 1-3 Year Global Corporate Bond (GBP
Hedged) UCITS ETF
iShares Bloomberg Roll Select Commodity Swap
UCITS ETF GBP (Acc)
Nomura Funds Ireland American Century
Concentrated Global Growth Equity Fund (Acc )
Amundi Index Solutions SICAV Funds – AIS Amundi
Index Msci World SRI I14 HG Cap
Amundi UCITS Funds – Amundi Global Multi-Factor
Equity Fund C Cap
AQR UCITS Funds – AQR Global Risk Parity C5 GBP
(Acc)
Registered address of
incorporated entities
If unincorporated,
address of principal
place of business
Edinburgh25
Type of investment
(including class of
shares held)
OEIC, sub fund
% of shares/
units held
63.99%
Edinburgh25
OEIC, sub fund
69.78%
Edinburgh25
OEIC, sub fund
53.83%
Luxembourg30
SICAV, sub fund
49.94%
Luxembourg30
SICAV, sub fund
30.36%
Luxembourg30
SICAV, sub fund
31.54%
Luxembourg30
SICAV, sub fund
44.54%
Luxembourg35
Luxembourg35
Luxembourg35
London14
Birmingham38
Jersey12
Jersey37
Jersey37
London17
Edinburgh25
London31
Luxembourg30
Essex32
London39
London17
London31
London34
Dublin40
Dublin42
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
Limited Partnership
Ordinary Shares
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
UCITS, sub fund
SICAV, sub fund
OEIC, sub fund
UCITS, sub fund
SICAV, sub fund
OEIC, sub fund
UCITS, sub fund
37.23%
37.55%
39.38%
24.16%
34.81%
78.30%
56.60%
40.67%
78.30%
40.67%
58.88%
42.92%
43.86%
54.64%
25.00%
24.58%
54.51%
UCITS, sub fund
49.74%
Unit Trust
25.36%
Luxembourg41
SICAV, sub fund
20.38%
Luxembourg41
UCITS, sub fund
53.60%
USA23
UCITS, sub fund
51.22%
236
236
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
1 These subsidiaries have been granted audit exemption by parental guarantee.
22 Citco (Sweden) Ab Stureplan 4c 4 Tr 114 35 Stockholm
2 1 Wythall Green Way, Wythall, Birmingham, West Midlands, B47 6WG, United
23 Aqr Capital Management LLC, Greenwich, 06830, United States
Kingdom
3 Juxon House, 100 St. Paul’s Churchyard, London, EC4M 8BU, United Kingdom
4 Avenue Louise 326, bte 33 1050 Brussels, Belgium
5 Ugland House, Grand Cayman, KY1-1104, Cayman Islands
6 90 St. Stephen’s Green, Dublin, D2, Ireland
7 Goodbody Secretarial Limited, International Financial Services Centre, 25/28 North
Wall Quay, Dublin 1, Ireland
8 Arthur Cox Building, 10 Earlsfort Terrace, Dublin 2, Dublin, Ireland
9 25/28 North Wall Quay, Dublin 1, Dublin, Ireland
10 Telestone 8, Teleport, Naritaweg 165, 1043 BW, Amsterdam, Netherlands
11 301 St Vincent Street, Glasgow, G2 5HN, United Kingdom
12 Ogier House, The Esplanade, St Helier, JE4 9WG, Jersey
13 Trafalgar Court, Les Banques, St Peter Port, GY1 3QL, Guernsey
14 Kings Place, 90 York Way, London, N1 9GE, United Kingdom
24 6B, rue Gabriel Lippmann, Parc d’Activité Syrdall 2, L-5365 Münsbach, Luxembourg
25 1 George Street, Edinburgh, EH2 2LL, United Kingdom
26 Standard Life House, 30 Lothian Road, Edinburgh, EH1 2DH, United Kingdom
27 4th Floor, 25-28 Adelaide Road, Dublin 2, D02RY98, Ireland
28 70 Sir Rogerson’s Quay, Dublin 2, Republic of Ireland
29 201 Bishopsgate, London, EC2M 3AE, United Kingdom
30 88 2-4, Rue Eugène Ruppert, L-2453 Luxembourg, Luxembourg
31 7 Newgate Street, London EC1A 7NX, United Kingdom
32 Springfield Lodge, Colchester Road, Chelmsford, Essex CM2 5PW, United Kingdom
33 49, Avenue J.F. Kennedy, L-1855 Luxembourg
34 BMO Global Asset Management, Exchange House, Primrose Street, London EC2A
2NY, United Kingdom
35 35a Avenue J.F. Kennedy, L-1855, Luxembourg
36 Avenida de Aragon 330 – Building 5, 3rd Floor, Parque Empresarial Las Mercedes,
15 22-24 New Street, St Pauls Gate, 4th Floor, JE1 4TR, Jersey
28022 – Madrid, Spain
16 32 Commercial Street, St Helier, Jersey, Channel Islands, JE2 3RU, Jersey
37 Elizabeth House, 9 Castle Street, St Helier, JE4 2QP, Jersey
17 Bow Bells House, 1 Bread Street, London, EC4M 9HH, United Kingdom
38 2 Snowhill, Birmingham, B4 6WR, United Kingdom
18 Corporation Service Company, 2711 Centerville Rd Suite 400, Wilmington, DE 19808,
39 12 Throgmorton Avenue, London EC2N 2DL
United States
19 Suite 202, 103 Foulk Road, Wilmington, Delaware, 19803, USA
20 8 Boulevard Royal, L-2449, Luxembourg, Luxembourg
21 The Pearl Centre, Lynch Wood, Peterborough, PE2 6FY, England
40 1st Floor, 2 Ballsbridge Park, Ballsbridge, Dublin, D04 YW83, Ireland
41 5, Allée Scheffer, 2520 Luxembourg, Luxembourg
42 33 Sir John Rogerson’s Quay, Dublin 2, Ireland
The following subsidiaries were dissolved during the period. The
subsidiaries were deconsolidated from the date of dissolution:
The Group no longer has significant holdings in the following
undertakings:
• Alcobendas Entrust Limited;
• Century Group Limited;
• Clearfol Investment Limited;
• Corunna Limited;
• NPI Limited;
• Pearl RLH Limited;
• Pearl Life Services Limited;
• Scottish Widows Tracker and Specialist Investment Funds –
International Bond Fund;
• AXA Sterling Index Linked Bond Fund;
• iShares MSCI Taiwan UCITS ETF;
• Scottish Widows UK and Income – Scottish Widows Ethical Fund;
• AQR UCITS Funds – AQR Global Risk Parity C4 UCITS Fund;
• Standard Life Investment Company American Equity
Unconstrained Fund;
• Phoenix Life Insurance Services Limited;
• Standard Life Investment Company III MyFolio Managed Income II
Fund;
• Standard Life Investment Company III MyFolio Managed Income
III Fund;
• Standard Life Investments Global SICAV Global Corporate Bond;
• Standard Life Investments Global SICAV Global Focused Strategies.
• Phoenix Pensions Limited;
• Scottish Mutual Customer Care Limited;
• SPL (Holdings 1) Limited;
• SPL (Holdings) Limited;
• Zilmer Limited.
The following subsidiaries were either fully disposed of or holdings
became insignificant to the Group. The subsidiaries were
deconsolidated either from the date of disposal or from the date
when the holdings became insignificant:
• Janus Henderson Strategic Investment Funds – Janus Henderson
Institutional European Index Opportunities Fund;
• Janus Henderson Institutional UK Gilt Fund;
• AB SICAV I – Global Factor Portfolio;
• Aberdeen Capital Trust Inc;
• Standard Life Investment Company Emerging Market Debt Fund;
• Standard Life Investments Global SICAV Emerging Market Debt
Unconstrained.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
237
237
FINANCIALS
Notes to the Consolidated Financial Statements continued
I. OTHER NOTES
I1. Share-Based Payment
Equity-settled share-based payments to employees and others
providing services are measured at the fair value of the equity
instruments at the grant date. The fair value excludes the effect of
non-market-based vesting conditions. Further details regarding the
determination of the fair value of equity-settled share-based
transactions are set out below.
The fair value of these awards is estimated at the share price at the
grant date, taking into account the terms and conditions upon which
the instruments were granted. The fair value of the 2017, 2018 and
2019 LTIP awards is adjusted in respect of the TSR performance
condition which is deemed to be a ‘market condition’. The fair value
of the 2017, 2018 and 2019 TSR elements of the LTIP awards has
been calculated using a Monte Carlo model. The inputs to this model
are shown below:
The fair value determined at the grant date of the equity-settled
share-based payments is expensed on a straight-line basis over the
vesting period, based on the Group’s estimate of equity instruments
that will eventually vest. At each period end, the Group revises its
estimate of the number of equity instruments expected to vest as a
result of the effect of non-market-based vesting conditions. The
impact of the revision of the original estimates, if any, is recognised
in the consolidated income statement such that the cumulative
expense reflects the revised estimate with a corresponding
adjustment to equity.
I1.1 Share-based payment expense
The expense recognised for employee services receivable during the
year is as follows:
Expense arising from equity-settled
share-based payment transactions
2019
£m
11
2018
£m
9
2019 TSR
performance
condition
2018 TSR
performance
condition
2017 TSR
performance
condition
Share price (p)
694.0
709.5
787.5
Expected term (years)
Expected volatility (%)
Risk-free interest rate (%)
3.0
20
0.74
3.0
20
0.96
2.8
24
0.2
Expected
dividend
yield (%)
Dividends are received by holders of the
awards therefore no adjustment to fair
value is required
On 21 December 2018 LTIP awards were granted to certain
employees under the terms of the new PGH plc scheme rules. There
are discreet vesting periods for these awards and the first tranche of
awards vested on 24 March 2019. The remaining awards vest on
27 March 2020 and 28 March 2021. These grants of shares are
conditional on the employees remaining in employment with the
Group for the vesting period.
I1.2 Share-based payment schemes
Long-Term Incentive Plan (‘LTIP’)
The Group implemented a long-term incentive plan to retain and
motivate its senior management group. The awards under this plan
are in the form of nil-cost options to acquire an allocated number
of ordinary shares. Following the scheme of arrangement on
12 December 2018, participants in the Old PGH LTIP plan had their
outstanding awards automatically exchanged for equivalent awards
over PGH plc ordinary shares.
Each year, the Group issues a Chairman’s share award under the
terms of the LTIP which is granted to a small number of employees
in recognition of their outstanding contribution in the previous year.
On 11 March 2019, awards were granted and are expected to vest
on 11 March 2022. The 2017 and 2018 awards are expected to vest
on 24 March 2020 and 21 March 2021 respectively. These grants of
shares are conditional on the employees remaining in employment
with the Group for the vesting period and achieving an established
minimum performance grading.
Assuming no good leavers or other events which would trigger early
vesting rights, the 2017 LTIP award is subject to performance
conditions tied to the Company’s performance in respect of
cumulative cash generation and Total Shareholder Return (‘TSR’).
The 2018 and 2019 LTIP awards are subject to performance
conditions tied to the Company’s performance in respect of
cumulative cash generation, return on Adjusted Shareholder
Solvency II Own Funds and TSR.
For all LTIP awards, a holding period applies so that any LTIP awards
to Executive Committee members for which the performance
vesting requirements are satisfied will not be released for a further
two years from the third anniversary of the original award date.
Dividends will accrue on LTIP awards until the end of the holding
period. There are no cash settlement alternatives.
2019 LTIP awards were granted on 11 March 2019 and are expected
to vest on 11 March 2022. The number of shares for all outstanding
LTIP awards as at 10 July 2018 were increased to take into account
the impact of the Group’s rights issue (see note D1). This adjustment
was based on the Theoretical Ex-Rights Price. The 2016 LTIP awards
vested on 30 March 2019 and 2 June 2019. The 2017 awards will vest
on 24 March 2020 and the 2018 awards will vest on 21 March 2021.
Deferred Bonus Share Scheme (‘DBSS’)
Each year, part of the annual incentive for certain executives is
deferred into shares of the parent company. As noted for the LTIP,
following the Scheme of Arrangement, participants in the Old PGH
DBSS plan had their outstanding awards automatically exchanged for
equivalent awards over PGH plc ordinary shares. The grant of these
shares is conditional on the employee remaining in employment with
the Group for a period of three years from the date of grant. Dividends
will accrue for DBSS awards over the three year deferral period.
The 2019 DBSS was granted on 11 March 2019 and is expected to
vest on 11 March 2022. The number of shares for all outstanding
DBSS awards as at 10 July 2018 were increased to take into account
the impact of the Group’s rights issue (see note D1). This adjustment
has been based on the Theoretical Ex-Rights Price. The 2016 DBSS
awards vested during the year. The 2017 awards are expected to
vest on 20 March 2020 and the 2018 awards are expected to vest
on 15 March 2021.
The fair value of these awards is estimated at the share price at the
grant date, taking into account the terms and conditions upon which
the options were granted.
238
238
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Sharesave scheme
The sharesave scheme allows participating employees to save up to
£500 each month for the UK scheme and up to €500 per month for
the Irish scheme over a period of either three or five years. The Irish
sharesave scheme commenced with the 2019 grant. The 2019
sharesave options were granted on 1 April 2019.
Following the scheme of arrangement, participants in the Old PGH
sharesave plan exchanged their options over Old PGH shares for
equivalent options over PGH plc ordinary shares. All sharesave
options were increased in November 2016 and again in July 2018
following the Group’s rights issues (see note D1) and the exercise
price of these awards was also amended as a result of these issues.
Under the sharesave arrangement, participants remaining in the
Group’s employment at the end of the three or five year saving
period are entitled to use their savings to purchase shares at an
exercise price at a discount to the share price on the date of grant.
Employees leaving the Group for certain reasons are able to use their
savings to purchase shares if they leave less than six months before
the end of their three or five year periods.
The fair value of the options has been determined using a Black-
Scholes valuation model. Key assumptions within this valuation model
include expected share price volatility and expected dividend yield.
The following information was relevant in the determination of the fair value of the 2015 to 2019 UK sharesave options:
Share price (£)
Exercise price (£) (Revised)
Expected life (years)
Risk-free rate (%) – based on UK government
gilts commensurate with the expected term
of the award
Expected volatility (%) based on the
Company’s share price volatility to date
Dividend yield (%)
2019
sharesave
6.800
5.610
2018
sharesave
7.685
5.629
2017
sharesave
7.470
5.674
2016
sharesave
8.890
5.746
2015
sharesave
8.430
5.654
3.25 and 5.25
3.25 and 5.25
3.25 and 5.25
3.25 and 5.25
3.25 and 5.25
1.0 (for 3.25 year
scheme) and 1.1
(for 5.25 year
scheme)
1.0 (for 3.25 year
scheme) and 1.1
(for 5.25 year
scheme)
0.2 (for 3.25 year
scheme) and 0.4
(for 5.25 year
scheme)
0.6 (for 3.25 year
scheme) and 1.0
(for 5.25 year
scheme)
0.8 (for 3.25 year
scheme) and 1.2
(for 5.25 year
scheme)
30.0
6.8
30.0
6.5
30.0
6.3
30.0
6.0
30.0
6.3
The information for determining the fair value of the 2019 Irish sharesave
options differed from that included in the table above as follows:
Number of share options 2019
LTIP Sharesave
DBSS
• share price (€): 7.946
• Exercise price (€) 6.540
Outstanding at the
beginning of the year
3,794,061 1,375,620
771,040
Granted during the year
1,657,107 1,669,701
356,872
• Risk-free rate (%): (0.1) (for 3.25 year scheme) and nil (for
Forfeited during the year
(588,747) (186,878)
–
5.25 year scheme).
Share Incentive Plan
The Group operates two Share Incentive Plans (‘SIPs’) open to UK
and Irish employees which allows participating employees to
purchase ‘Partnership shares’ in the Company through monthly
contributions. In respect of the UK SIP, the contributions are limited
to the lower of £150 per month and 10% gross monthly salary.
During the year the matching element of the UK SIP was amended
to give the employee one ‘Matching share’ for each ‘Partnership
share’ purchased limited to £50. Contributions above £50 are not
matched. The Irish SIP was launched during the year and this plan
gives the employee 1.4 ‘Matching shares’ for each ‘Partnership
share’ purchased. For this plan monthly contributions are limited to
the lower of €40 per month and 7.5% of gross monthly salary.
The fair value of the Matching shares granted is estimated as the
share price at date of grant, taking into account terms and conditions
upon which the instruments were granted. At 31 December 2019,
146,769 matching shares (including unrestricted shares) were
conditionally awarded to employees (2018: 57,918).
I1.3 Movements in the year
The following tables illustrate the number of, and movements in,
LTIP, Sharesave and DBSS share options during the year:
Exercised during the year
(224,866) (315,679) (222,045)
Outstanding at the end
of the year
4,637,555 2,542,764
905,867
Outstanding at the
beginning of the year
Number of share options 2018
LTIP Sharesave
DBSS
2,992,327 1,264,992
630,489
Granted during the year
1,215,824
453,167
289,625
Corporate action
Forfeited during the year
Exercised during the year
Outstanding at the end
of the year
416,937
164,896
77,642
(576,218)
(237,293)
(26,141)
(254,809)
(270,142)
(200,575)
3,794,061 1,375,620
771,040
The weighted average fair value of options granted during the year
was £4.10 (2018: £5.75).
The weighted average share price at the date of exercise for the
rewards exercised is £6.81 (2018: £6.82).
The weighted average remaining contractual life for the rewards
outstanding as at 31 December 2019 is five years (2018: six years).
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
239
239
FINANCIALS
Notes to the Consolidated Financial Statements continued
I. OTHER NOTES continued
I2. Cash Flows From Operating Activities
The following analysis gives further detail behind the ‘cash
generated/(utilised) by operations’ figure in the statement of
consolidated cash flows.
I3. Capital Management
The Group’s capital management is based on the Solvency II
framework. This involves a valuation in line with Solvency II principles
of the Group’s Own Funds and risk-based assessment of the
Group’s Solvency Capital Requirement (‘SCR’).
This note sets out the Group’s approach to managing capital and
provides an analysis of Own Funds and SCR.
Risk and capital management objectives
The risk management objectives and policies of the Group are based
on the requirement to protect the Group’s regulatory capital position,
thereby safeguarding policyholders’ guaranteed benefits whilst also
ensuring the Group can meet its various cash flow requirements.
Subject to this, the Group seeks to use available capital to achieve
increased returns, balancing risk and reward, to generate additional
value for policyholders and shareholders.
In pursuing these objectives, the Group deploys financial and other
assets and incurs insurance contract liabilities and financial and other
liabilities. Financial and other assets principally comprise investments
in equity securities, debt securities, collective investment schemes,
property, derivatives, reinsurance, trade and other receivables, and
banking deposits. Financial liabilities principally comprise investment
contracts, borrowings for financing purposes, derivative liabilities and
net asset value attributable to unit holders.
The risk management disclosures in the consolidated financial
statements set out the major risks that the Group businesses are
exposed to and describe the Group’s approach to managing these.
The section on financial risk is included in note E6, the section on
insurance risk is included in note F4 and the sections on risk and
capital management objectives and other risks are included below.
The Group’s risk management framework is described in the risk
management commentary on pages 48 to 56 of the Annual Report
and Accounts.
Other risks
Customer risk
Customer risk is the risk of reductions in earnings and/or value
through inappropriate or poor customer treatment (including poor
advice).
Operational risk
Operational risk is the risk of reductions in earnings and/or value,
through financial or reputational loss, from inadequate or failed internal
processes and systems, or from people related or external events.
(46)
(46)
Capital Management Framework
The Group’s Capital Management Framework is designed to achieve
the following objectives:
–
43
273
(324)
• to provide appropriate security for policyholders and meet all
regulatory capital requirements under the Solvency II regime while
not retaining unnecessary excess capital;
• to ensure sufficient liquidity to meet obligations to policyholders
and other creditors;
• to optimise the Fitch Ratings financial leverage to maintain an
investment grade credit rating; and
• to maintain a stable and sustainable dividend policy.
Profit for the period before tax
Non-cash movements in profit for the
period before tax:
Gain on acquisition
Fair value losses/(gains) on:
Investment property
Financial assets and derivative
liabilities
Change in fair value of borrowings
Amortisation of intangible assets
Change in present value of future
profits
Change in unallocated surplus
Share-based payment charge
Finance costs
Net interest expense on Group
defined benefit pension scheme
liability/asset
Pension past service costs
Other costs of pension schemes
2019
£m
351
–
55
2018
restated1
£m
259
(141)
18
(18,784)
12,718
(47)
402
(70)
(84)
11
162
29
–
4
29
214
(1)
(88)
9
142
6
57
6
Decrease in investment assets
6,131
5,230
(295)
681
11,792
(19,043)
(236)
(178)
1,026
(568)
(128)
329
(Increase)/decrease in reinsurance
assets
Increase/(decrease) in insurance
contract and investment contract
liabilities
Decrease in deposits received from
reinsurers
Increase/(decrease) in obligation for
repayment of collateral received
Net (increase)/decrease in working
capital
Other items:
Contributions to defined benefit
pension schemes
Acquisition related expenses to be
included within cash flows from
investing activities
Cash generated/(utilised)
by operations
1 See note A1 for details of restatements.
240
240
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
The framework comprises a suite of capital management policies
that govern the allocation of capital throughout the Group to achieve
the framework objectives under a range of stress conditions. The
policy suite is defined with reference to policyholder security,
creditor obligations, owner dividend policy and regulatory capital
requirements.
Group capital
Group capital is managed on a Solvency II basis. Under the Solvency II
framework, the primary sources of capital managed by the Group
comprise the Group’s Own Funds as measured under the Solvency II
principles adjusted to exclude surplus funds attributable to the Group’s
unsupported with-profit funds and unsupported pension schemes.
A Solvency II capital assessment involves valuation in line with
Solvency II principles of the Group's Own Funds and a risk-based
assessment of the Group's Solvency Capital Requirement ('SCR').
Solvency II surplus is the excess of Own Funds over the SCR.
The Group aims to maintain a Solvency II surplus at least equal to its
Board-approved capital policy, which reflects Board risk appetite for
meeting prevailing solvency requirements.
The capital policy of each Life Company is set and monitored by each
Life Company Board. These policies ensure there is sufficient capital
within each Life Company to meet regulatory capital requirements
under a range of stress conditions. The capital policy of each Life
Company varies according to the risk profile and financial strength
of the company.
The capital policy of each Group Holding Company is designed to
ensure that there is sufficient liquidity to meet creditor obligations
through the combination of cash buffers and cash flows from the
Group’s operating companies.
Own Funds and SCR
Basic Own Funds represents the excess of assets over liabilities from
the Solvency II balance sheet adjusted to add back any relevant
subordinated liabilities that meet the criteria to be treated as capital items.
The Basic Own Funds are classified into three Tiers based on
permanency and loss absorbency (Tier 1 being the highest quality
and Tier 3 the lowest). The Group’s Own Funds are assessed for
their eligibility to cover the Group SCR with reference to both the
quality of capital and its availability and transferability. Surplus funds
in with-profit funds of the Life companies and in the pension
schemes are restricted and can only be included in Eligible Own
Funds up to the value of the SCR they are used to support.
Eligible Own Funds to cover the SCR are obtained after applying the
prescribed Tiering limits and transferability restrictions to the Basic
Own Funds.
The SCR is calibrated so that the likelihood of a loss exceeding the
SCR is less than 0.5% over one year. This ensures that capital is
sufficient to withstand a broadly ‘1 in 200 year event’.
In December 2015, the Group was granted the PRA’s approval for
use of its Internal Model to assess capital requirements. Following
the 2016 acquisitions of the AXA Wealth and Abbey Life businesses,
the Group obtained the PRA’s approval to incorporate the acquired
AXA Wealth and Abbey Life businesses within the scope of the
Group’s Internal Model in March 2017 and March 2018 respectively.
The acquired Standard Life Assurance businesses also determine
their capital requirements in accordance with an approved partial
Internal Model. In accordance with the approvals received from the
PRA, the Enlarged Group operates a partial Internal Model to
calculate Group SCR, aggregating outputs from both the existing
Phoenix Internal Model and the Standard Life Internal Model with no
diversification between the two. A harmonisation programme to
combine the two models into a single Internal Model has
commenced. The Irish life entity, Standard Life International
Designated Activity Company, determines its capital requirements
in accordance with the Standard Formula.
Group capital resources – unaudited
The Group capital resources are based on the Group's Eligible Own
Funds adjusted to remove amounts pertaining to unsupported with-
profit funds and Group pension schemes:
Unaudited
PGH plc Eligible Own Funds
Remove Own Funds pertaining to
unsupported with-profit funds and
pension schemes
Group capital resources
2019
£bn
10.8
(2.5)
8.3
2018
£bn
10.3
(2.3)
8.0
Solvency II surplus – unaudited
An analysis of the PGH plc Solvency II surplus as at 31 December 2019
is provided in the business review section on pages 42 to 44. The Group
has complied with all externally imposed capital requirements during
the year.
Additional information on the PGH plc Own Funds, SCR and MCR is
included in the additional capital disclosures on pages 262 and 263.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
241
241
FINANCIALS
Notes to the Consolidated Financial Statements continued
I. OTHER NOTES continued
I4. Related Party Transactions
In the ordinary course of business, the Group and its subsidiaries
carry out transactions with related parties as defined by IAS 24
‘Related party disclosures’.
I4.1 Related party transactions
During the year, the Group entered into the following transactions
with related parties. As set out in note H2, SLA plc took a 19.98%
equity stake in the Enlarged Group, and as a result became a related
party of the Group. SLA plc is considered to have a significant
influence over the Group due to their equity stake and representation
on the Board of Directors.
Transactions
2019
£m
Balances
outstanding
2019
£m
Transactions
2018
£m
Balances
outstanding
2018
£m
Pearl Group Staff
Pension Scheme
Payment of
administrative
expenses
UK Commercial
Property Trust
Limited
Dividend income
Reduction in
investment
SLA plc
Investment
management fees
Fees under
Transitional Services
Arrangement and
material outsource
agreements
Receipts under
Transitional Services
Arrangement
Net receipts under
Client Service
Proposition
Agreement
Net payments under
deed of indemnity
Dividend paid
(3)
21
(17)
–
–
–
(3)
22
(35)
–
–
–
(133)
(55)
(87)
(55)
(6)
(4)
(2)
(2)
75
10
26
15
18
23
(33)
(67)
(64)
–
5
–
(33)
2
–
–
I4.2 Transactions with key management personnel
The total compensation of key management personnel, being those
having authority and responsibility for planning, directing and
controlling the activities of the Group, including the Executive and
Non-Executive Directors, are as follows:
Salary and other short-term benefits
Equity compensation plans
2019
£m
5
2
2018
£m
5
2
Details of the shareholdings and emoluments of individual Directors
are provided in the Remuneration report on pages 99 to 130.
242
242
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
During the year to 31 December 2019 key management personnel
and their close family members contributed £16,395 (2018:
£28,000) to Pensions and Savings products sold by the Group.
At 31 December 2019, the total value of key management
personnel’s investments in Group Pensions and Savings products
was £2,590,240 (2018: £1,639,000).
I5. Commitments
This note analyses the Group’s other commitments.
To subscribe to private equity funds and
other unlisted assets
To purchase, construct or develop
investment property and income strips
For repairs, maintenance or
enhancements of investment property
2019
£m
396
161
6
2018
£m
655
125
15
I6. Contingent Liabilities
Where the Group has a possible future obligation as a result of a past
event, or a present legal or constructive obligation but it is not
probable that there will be an outflow of resources to settle the
obligation or the amount cannot be reliably estimated, this is
disclosed as a contingent liability.
Agreements with Standard Life Aberdeen
On 23 February 2018, the Group entered into the share purchase
agreement with Standard Life Aberdeen plc (the ‘SLA SPA’), in
connection with the Group’s acquisition of the Standard Life
Assurance businesses. In connection with the acquisition, certain
members of the Group entered into the SLA Transitional Services
Agreement (‘the TSA’) with certain members of the Standard Life
Aberdeen group, pursuant to which certain services were agreed to
be provided from one group to the other group for a specified period.
In addition, certain members of the Group entered into the SLA
Client Service and Proposition Agreement (‘the CSPA’) with certain
members of the Standard Life Aberdeen group, which set out the
terms under which the parties would provide services and support
to each other with respect to certain client propositions, products
and services. The Group is currently engaged in ongoing discussions
with members of the Standard Life Aberdeen group in respect of
disagreements over the operation of certain aspects of the SLA SPA
relating to services and expenses, and the scope and cost of
services provided pursuant to the TSA, the CSPA and certain other
agreements between the Group and members of the Standard Life
Aberdeen group. Whilst Phoenix and Standard Life Aberdeen are
currently seeking a commercial resolution in respect of such
disagreements, it is possible that all or some of these matters could
be escalated to a dispute resolution process provided for in the
relevant agreements, or result in legal or arbitration proceedings.
There is no certainty as to how the current disagreements will be
resolved and the extent to which an outflow of resources will be
required to settle any obligation, should it arise.
Legal proceedings
In the normal course of business, the Group is exposed to certain
legal issues, which can involve litigation and arbitration. At the period
end, the Group has a number of contingent liabilities in this regard,
none of which are considered by the Directors to be material, with
the exception of the Standard Life Aberdeen agreements matters
detailed above.
I7. Events After the Reporting Period
The consolidated financial statements are adjusted to reflect
significant events that have a material effect on the financial results
and that have occurred between the period end and the date when
the financial statements are authorised for issue, provided they give
evidence of conditions that existed at the period end. Events that are
indicative of conditions that arise after the period end that do not
result in an adjustment to the consolidated financial statements
are disclosed.
On 29 January 2020, the Company issued US $750 million fixed rate
reset perpetual restricted Tier 1 contingent convertible notes with an
initial fixed interest rate of 5.625%. Fees associated with these notes
will be deferred and amortised over the life of the loan.
On 6 December 2019, the Company announced the proposed
acquisition of the entire issued share capital of ReAssure Group plc
from Swiss Re Finance Midco (Jersey) Limited (‘Swiss Re’). The
acquisition was approved at a general meeting of the Company’s
shareholders on 13 February 2020 and is subject to regulatory
approvals. Total consideration of £3.2 billion payable to Swiss Re
upon completion will be satisfied through cash consideration of
£1.2 billion, subject to certain customary adjustments, and the
issuance to Swiss Re (or a nominated member of its group) of
ordinary shares with a value of £2.0 billion.
On 27 February 2020, the Company entered into a £500 million bridge
facility (the ‘bridge facility’). The bridge facility matures on the first
anniversary of the completion of the acquisition of ReAssure Group plc
but can be extended by a further six months on two occasions. The
bridge facility is available to be used to finance the acquisition of
ReAssure Group plc on a customary certain funds basis, and, subject
to the agreement of the lenders, may also be available to be utilised
after completion of the acquisition for the general corporate purposes
of the Group. There are no mandatory or target amortisation payments
associated with the bridge facility but the bridge facility does include
mandatory prepayment obligations that are customary for a bridge
facility of this nature and voluntary prepayments are permissible. The
bridge facility accrues interest at a margin over LIBOR that starts at
0.35% per annum and steps up periodically until maturity.
On 6 March 2020, the Board recommended a final dividend of 23.4p per
share (2018: 23.4p per share) for the year ended 31 December 2019.
Payment of the final dividend is subject to shareholder approval at the
AGM. The cost of this dividend has not been recognised as a liability in
the consolidated financial statements for 2019 and will be charged to the
consolidated statement of changes in equity in 2020.
N LYONS
C BANNISTER
J MCCONVILLE
A BARBOUR
A BRIGGS
C FLEMING
K GREEN
W MAYALL
J POLLOCK
B RICHARDS
N SHOTT
K SORENSON
M TUMILTY
6 March 2020
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
243
243
FINANCIALS
PARENT COMPANY
FINANCIAL STATEMENTS
STATEMENT OF FINANCIAL POSITION
As at 31 December 2019
ASSETS
Investments in Group entities
Financial assets
Equities
Loans and deposits
Derivatives
Debt securities
Collective investment schemes
Deferred tax
Other amounts due from Group entities
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Equity attributable to ordinary shareholders
Share capital
Share premium
Other reserve
Retained earnings
Total equity attributable to ordinary shareholders
Tier 1 Notes
Total equity
Liabilities
Financial liabilities
Borrowings
Derivatives
Other amounts due to Group entities
Provisions
Accruals and deferred income
Total liabilities
Total equity and liabilities
Notes
2019
£m
2018
£m
9
6,928
4,146
11
10
6
11
11
12
18
13
3
3
4
5
6
18
7
8
2
–
1,227
2,056
5
43
200
15
198
45
–
–
–
–
20
1
8,663
6,223
72
2
(4)
5,368
5,438
411
5,849
72
–
(4)
4,075
4,143
411
4,554
2,020
1,634
31
533
172
58
2,814
8,663
1
1
–
33
1,669
6,223
The notes identified numerically on pages 247 to 254 are an integral part of these separate financial statements. Where items also appear in
the consolidated financial statements, reference is made to the notes (identified alphanumerically) on pages 154 to 243.
244
244
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2019
At 1 January 2019
Total comprehensive income for the year
attributable to owners
Issue of ordinary share capital, net of
associated commissions and expenses
Dividends paid on ordinary shares (note B4)
Coupon paid on Tier 1 Notes,
net of tax relief
Credit to equity for equity-settled share-
based payments (note I1)
At 31 December 2019
Share capital
(note 3)
£m
72
–
–
–
–
–
72
Share
premium
(note 3)
£m
–
–
2
–
–
–
2
Other reserve
(note 9)
£m
Retained
earnings
£m
(4)
4,075
Total
£m
4,143
1,643
1,643
–
(338)
2
(338)
(23)
(23)
–
–
–
–
–
11
(4)
5,368
For the period from 5 October 2018 to 31 December 2018
On incorporation at 5 October 2018
Total comprehensive expense for the
period attributable to owners
Issue of ordinary shares under
scheme of arrangement
Capital reduction
Issue of Tier 1 Notes via substitution
At 31 December 2018
Share capital
(note 3)
£m
Share
premium
(note 3)
£m
Other reserve
(note 9)
£m
–
–
72
–
–
72
–
–
4,078
(4,078)
–
–
–
–
(4)
–
–
(4)
Retained
earnings
£m
–
(3)
–
4,078
–
4,075
4,143
11
5,438
Total
£m
–
(3)
4,146
–
–
Tier 1
Notes
(note 4)
£m
411
–
–
–
–
–
411
Tier 1
Notes
(note 4)
£m
–
–
–
–
411
411
Total
equity
£m
4,554
1,643
2
(338)
(23)
11
5,849
Total
equity
£m
–
(3)
4,146
–
411
4,554
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
245
245
FINANCIALS
STATEMENT OF CASH FLOWS
For the year ended 31 December 2019
Cash flows from operating activities
Cash generated by operations
Net cash flows from operating activities
Cash flows from investing activities
Investment income
Interest received from Group entities
Net cash flows from investing activities
Cash flows from financing activities
Proceeds from issuing ordinary shares
Proceeds from new shareholder borrowings, net of associated expenses
Repayment of shareholder borrowings
Ordinary share dividends paid
Interest paid on borrowings
Coupon paid on Tier 1 Notes
Net cash flows from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
Notes
14
3
5
5
2019
£m
411
411
2
77
79
2
100
(100)
(338)
(81)
(29)
(446)
44
1
45
2018
£m
–
–
–
29
29
–
–
–
–
(28)
–
(28)
1
–
1
246
246
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
NOTES TO THE PARENT COMPANY
FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
(a) Basis of Preparation
The financial statements have been prepared on a going concern and
on an historical cost basis except for those financial assets and
financial liabilities that have been measured at fair value.
The Company has taken advantage of the exemption in section 408
of the Companies Act 2006 not to present its own income statement
in these financial statements. Profit attributable to owners for the
year ended 31 December 2019 was £1,643 million (2018: £3 million
loss).
Statement of compliance
The Company’s financial statements have been prepared in
accordance with International Financial Reporting Standards (‘IFRSs’)
as adopted by the European Union (‘EU’) and in accordance with the
provisions of the UK Companies Act 2006.
The financial statements are presented in sterling (£) rounded to the
nearest million except where otherwise stated.
Assets and liabilities are offset and the net amount reported in the
statement of financial position only when there is a legally
enforceable right to offset the recognised amounts and there is an
intention to settle on a net basis, or to realise the assets and settle
the liability simultaneously.
(b) Accounting Policies
Where applicable, the accounting policies in the separate financial
statements are the same as those presented in the consolidated
financial statements on pages 147 to 243 with the exception of the
two policies detailed below.
The Company’s accounting policy for financial assets is in
accordance with the requirements of IFRS 9 ‘Financial Instruments’.
As the Group has applied the temporary exemption from IFRS 9
available for entities whose activities are predominantly connected
with insurance contracts, a different accounting policy has been
adopted in the preparation of the consolidated financial statements.
In addition, the Company has not adopted the Group’s policy of
hedge accounting.
Where an accounting policy can be directly attributed to a specific
note to the consolidated financial statements, the policy is presented
within that note. Each note within the Company financial statements
makes reference to the note to the consolidated financial statements
containing the applicable accounting policy. The accounting policy in
relation to foreign currency transactions is included within note A2.1
to the consolidated financial statements.
Investments in Group entities
Investments in Group entities are carried in the statement of financial
position at cost less impairment.
The Company assesses at each reporting date whether an investment
is impaired by assessing whether any indicators of impairment exist. If
objective evidence of impairment exists, the Company calculates the
amount of impairment as the difference between the recoverable
amount of the Group entity and its carrying value and recognises the
amount as an expense in the income statement.
The recoverable amount is determined based on the cash flow
projections of the underlying entities.
Financial assets
Classification of financial assets
Financial assets are measured at amortised cost where they:
• have contractual terms that give rise to cash flows on specified
dates, that represent solely payments of principal and interest on
the principal amount outstanding; and
• are held within a business model whose objective is achieved by
holding to collect contractual cash flows.
These financial assets are initially recognised at cost, being the fair
value of the consideration paid for the acquisition of the financial
asset. All transaction costs directly attributable to the acquisition are
also included in the cost of the financial asset. Subsequent to initial
recognition, these financial assets are carried at amortised cost,
using the effective interest method.
Financial assets measured at amortised cost are included in notes 10
and 13.
Equities, debt securities, collective investment schemes and
derivatives are measured at FVTPL as they are managed on a fair value
basis.
Impairment of financial assets
The Company assesses the expected credit losses associated with its
loans and deposits, other amounts due from Group entities and cash
carried at amortised cost. The measurement of credit impairment is
based on an Expected Credit Loss (‘ECL’) model and depends upon
whether there has been a significant increase in credit risk.
For those credit exposures for which credit risk has not increased
significantly since initial recognition, the Company measures loss
allowances at an amount equal to the total expected credit losses
resulting from default events that are possible within 12 months
after the reporting date (‘12-month ECL’). For those credit exposures
for which there has been a significant increase in credit risk since
initial recognition, the Company measures and recognises an
allowance at an amount equal to the expected credit losses over
the remaining life of the exposure, irrespective of the timing of the
default (‘Lifetime ECL’). If the financial asset becomes ‘credit-
impaired’ (following significant financial difficulty of issuer/borrower,
or a default/breach of a covenant), the Company will recognise a
Lifetime ECL. ECLs are derived from unbiased and probability-
weighted estimates of expected loss.
See note 15 for detail of how the Company assesses whether the
credit risk of a financial asset has increased since initial recognition
and the approach to estimating ECLs.
The loss allowance reduces the carrying value of the financial asset
and is reassessed at each reporting date. ECLs and subsequent
remeasurements of the ECL are recognised in the income statement.
For other receivables, the ECL rate is recalculated each reporting
period with reference to the counterparties of each balance.
2. FINANCIAL INFORMATION
New Accounting Pronouncements not yet Effective
Details of the standards, interpretations and amendments to be
adopted in future periods are detailed in note A5 to the consolidated
financial statements, none of which are expected to have a
significant impact on the Company’s financial statements.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
247
247
FINANCIALS Notes to the Parent Company Financial Statements continued
2. FINANCIAL INFORMATION continued
New Accounting Pronouncements not yet Effective
continued
Note A5 outlines that the Group has taken advantage of the
temporary exemption granted to insurers in IFRS 4 ‘Insurance
Contracts’ from applying IFRS 9 until 1 January 2021 (recommended
deferral period extended by IASB to 2022) as a result of meeting the
exemption criteria as at 31 December 2015. As detailed above, such
an exemption is not applicable to the Company given it is not an
insurer. Therefore IFRS 9 has been adopted by the Company and the
relevant disclosures are included in these financial statements.
2018
At incorporation on 5 October 2018
Issue of shares under scheme of
arrangement
Ordinary shares in issue at
31 December
Number
2
£
–
721,199,212 72,119,921
721,199,214 72,119,921
4. TIER 1 NOTES
The accounting policy for the Tier 1 Notes is included in note D3 to
the consolidated financial statements.
Note A4 outlines that the Group has adopted IFRS 16 ‘Leases’ and
amendments to IAS19 ‘Employee benefits’ but the Company
currently does not have any leases or pension schemes and
therefore has not adopted these changes.
Tier 1 notes
2019
£m
411
2018
£m
411
3. SHARE CAPITAL AND SHARE PREMIUM
The Company was incorporated on 5 October 2018 with an issued
share capital comprising 2 ordinary shares of £0.10 each and 50,000
redeemable preference shares of £1.00 each.
On 12 December 2018 the Company was substituted in place of Old
PGH as issuer of the Tier 1 Notes and these were recognised at the
£411 million fair value of an intra-group loan that was received as
consideration. Details of the terms of the Tier 1 Notes can be found
in note D3 to the consolidated financial statements.
On 31 October 2018 all issued redeemable preference shares
were cancelled.
5. BORROWINGS
The accounting policy for borrowings is included in note E5 to the
consolidated financial statements.
Under a scheme of arrangement in accordance with section 86
of the Cayman Islands Companies Law between Phoenix Group
Holdings (‘Old PGH’), the former ultimate parent company of the
Group, and its shareholders, all of the issued shares in Old PGH were
cancelled and an equivalent number of new shares in Old PGH were
issued to the Company in consideration for the allotment to the Old
PGH shareholders of one ordinary share in the Company for each
ordinary share in Old PGH that they held on the scheme record date,
12 December 2018.
The shares of the Company are listed on the London Stock Exchange
and trading in these shares commenced on 13 December 2018.
Following court approval on 18 December 2018, the entire issued
share premium of the Company as at that date was cancelled. The
sum of £4,078 million arising on the share premium cancellation has
been credited to the Company’s retained earnings.
During 2019, the Company issued 315,730 shares at a premium of
£2 million in order to satisfy its obligations to employees under the
Group’s sharesave schemes.
Issued and fully paid:
721.5 million ordinary shares of
£0.10 each (2018: 721.2 million)
2019
2019
£m
2018
£m
72
Number
72
£
Shares in issue at 1 January
721,199,214 72,119,921
Ordinary shares issued in the period
315,730
31,573
Ordinary shares in issue at
31 December
721,514,944 72,151,494
£428 million subordinated
loans (note a)
£450 million Tier 3
subordinated notes (note b)
US $500 million Tier 2
bonds (note c)
€500 million Tier 2 notes
(note d)
£300 million senior
unsecured bond (note e)
Loan due to Standard Life
Assurance Limited (note f)
Carrying value
Fair value
2019
£m
2018
£m
2019
£m
2018
£m
437
439
503
441
448
447
473
447
334
343
396
342
385
405
473
390
128
288
–
–
130
288
–
–
Total borrowings
2,020
1,634
2,263
1,620
Amount due for settlement
after 12 months
2,020
1,634
a. On 12 December 2018, the Company was substituted in place of
Old PGH as issuer of the £428 million subordinated notes due
2025 at a coupon of 6.625%, which were initially recognised at fair
value of £439 million.
b. On 12 December 2018, the Company was substituted in place of
Old PGH as issuer of the £450 million Tier 3 subordinated notes
due 2022 at a coupon of 4.125%, which were initially recognised
at fair value of £447 million.
c. On 12 December 2018, the Company was substituted in place of
Old PGH as issuer of the US $500 million Tier 2 bonds due 2027
with a coupon of 5.375%, which were initially recognised at fair
value of £349 million.
248
248
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
d. On 12 December 2018, the Company was substituted in place of Old
PGH as issuer of the €500 million Tier 2 notes due 2029 with a coupon
of 4.375%, which were initially recognised at fair value of £407 million.
e. On 18 June 2019, the Company was substituted in place of Old PGH
as issuer of the £300 million 7 year senior unsecured bond due 2021 at
an annual coupon of 5.75% with principal outstanding of £122 million,
which was initially recognised at fair value of £131 million.
f. On 22 February 2019, the Company recognised a loan to Standard
Life Assurance Limited (‘SLAL’) for £162 million, as consideration
for Standard Life International Designated Activity Company
(‘SLIDAC’) due 2024. On 28 March 2019 the purchase price was
adjusted by £120 million, which resulted in an increase in the loan
principal. Interest accrues at LIBOR plus 1.66% and during 2019
£6 million of interest was capitalised.
g. On 12 December 2018, the Company became an additional
borrower on a £900 million unsecured revolving credit facility,
maturing in June 2022. On 27 June 2019, the Company replaced
this facility with a £1.25 billion unsecured revolving credit facility (the
‘revolving facility’), maturing in June 2024. There are no mandatory
or target amortisation payments associated with the facility but the
facility does include customary mandatory prepayments obligations
and voluntary prepayments are permissible.
The facility accrues interest at a margin over LIBOR that is based
on credit rating. On 23 October 2019 the Company drew down
£100 million under the facility and the balance was repaid on
25 November 2019. The facility remains undrawn as at
31 December 2019.
h. On 12 December 2018, the Company became an additional
borrower and guarantor to an acquisition facility with an aggregate
principal amount of £600 million. The acquisition facility was
undrawn as at 31 December 2018. On 27 June 2019, the facility
was cancelled.
Borrowings initially recognised at fair value are being amortised to
par value over the life of the borrowings.
As part of the substitutions, accrued interest was also transferred to
the Company and was settled prior to 31 December 2018.
For the purposes of the additional fair value disclosures for liabilities
recognised at amortised cost, all borrowings have been categorised
as Level 2 financial instruments.
Reconciliation of Liabilities Arising from Financing Activities
The table below details changes in the Company’s liabilities arising from financing activities, including both cash and non-cash changes.
Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Company’s
statement of cash flows as cash flows from financing activities.
Cash
Non-Cashflow
At 1
January
2019
£m
New
borrowings,
net of costs
£m
Repayments
£m
Loan issued
via
subsitution1
£m
New
borrowings
net of issue
costs2
£m
Movement
in foreign
exchange
£m
Amortisation
£m
Capitalised
interest
At 31
December
2019
£m
–
–
–
–
–
–
–
–
–
–
100
(100)
–
–
–
–
131
–
–
–
100
–
(100)
131
£428 million
subordinated notes
£450 million Tier 3 subordinated
notes
US $500 million Tier 2 bonds
€500 million Tier 2 notes
£300 million senior unsecured
bond
£1.25 billion revolving credit facility
Loan due to Standard Life
Assurance Limited
439
447
343
405
–
–
–
1,634
£428 million subordinated notes
£450 million Tier 3 subordinated notes
US $500 million Tier 2 bonds
€500 million Tier 2 notes
–
–
–
–
–
–
282
282
–
–
(13)
(24)
–
–
–
(37)
(2)
1
4
4
(3)
–
–
4
–
–
–
–
–
–
6
6
437
448
334
385
128
–
288
2,020
Non-Cashflow
At
5 October
2018
£m
Loan issued
via
subsitution1
£m
Movement in
foreign
exchange
£m
At 31
December
2018
£m
–
–
–
–
–
439
447
349
407
1,642
–
–
(6)
(2)
(8)
439
447
343
405
1,634
1 Loans issued via substitution are a non-cashflow item as consideration was the transfer of loans and deposits (refer to note 10).
2 Loan issued to SLAL, a subsidiary undertaking, was in consideration for the transfer to the Company of its investment in SLIDAC.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
249
249
FINANCIALS
Notes to the Parent Company Financial Statements continued
6. DERIVATIVES
In 2019, the Company entered into a forward currency swap with
another group company to hedge against adverse currency
movements in respect of the €287 million capital injection into SLIDAC.
The Company also entered into a forward currency swap in 2019 to
hedge against adverse currency movements in respect of the equity
and debt holding in a property investment structure which was
transferred to the Company.
The Company entered into a cross currency swap with another
group company in 2018 to hedge against adverse currency
movements in respect of the €500 million Tier 2 notes.
The fair value of the derivative financial instruments are as follows:
9. INVESTMENTS IN GROUP ENTITIES
Cost
At 1 January 2019 and 5 October 2018
Additions
At 31 December
Impairment
2019
£m
2018
£m
4,146
6,928
11,074
–
4,146
4,146
At 1 January 2019 and 5 October 2018
Charge for the year
At 31 December
–
(4,146)
(4,146)
–
–
–
Asset
Liability
2019
£m
2018
£m
2019
£m
2018
£m
Carrying amount
At 31 December
6,928
4,146
Cross currency swap
Forward currency swap
–
5
5
–
–
–
31
–
31
1
–
1
Derivative Collateral Arrangements
The accounting policy for collateral arrangements is included in note
E4 to the consolidated financial statements.
Assets Accepted
The maximum exposure to credit risk in respect of OTC derivative
assets is £5 million of which credit risk of £3 million is mitigated by
use of collateral arrangements (which are settled net after taking
account of any OTC derivative liabilities owed by the counterparty).
Assets Pledged
The Company pledges collateral in respect of its OTC derivative
liabilities. The value of assets pledged at 31 December 2019 in respect
of OTC derivative liabilities of £34 million amounted to £3 million.
7. PROVISIONS
During 2019 the Company recognised a Standard Life transition
restructuring provision of £159 million and other provisions of
£13 million. Details are included in note G7 to the consolidated
financial statements.
8. ACCRUALS AND DEFERRED INCOME
The accounting policy for accruals and deferred income is included in
note G11 to the consolidated financial statements.
Accruals and deferred income
2019
£m
58
2018
£m
33
Amount due for settlement after 12
months
–
–
On 12 December 2018, the Company became the ultimate parent
undertaking of the Group by acquiring the entire share capital of Old
PGH via a share for share exchange. The cost of investment in Old
PGH, reflected in the table above, was determined as the carrying
amount of the Company’s share of the equity of Old PGH on the
date of the transaction. The difference between the cost of
investment and the market capitalisation of Old PGH immediately
before the share for share exchange of £4 million has been
recognised as an other reserve, and is shown as a separate
component of equity.
On 21 February 2019, the Company acquired SLIDAC from its
subsidiary SLAL, for an initial consideration of £162 million settled
in the form of a loan (see note 5) such that its interest in SLIDAC is
now directly held. On acquisition, the Company subscribed for an
additional share in SLIDAC for a consideration of £250 million.
Following the completion of a Part VII transfer of the European
branch business from SLAL to SLIDAC, the purchase price for the
acquisition of SLIDAC was increased by £120 million, again settled
in the form of a loan, which increased the carrying value of the
Company’s investment in SLIDAC to £532 million.
On 18 June 2019, the Company acquired Phoenix Life Holdings
Limited from its subsidiaries PGH (LCA) Limited and PGH (LCB)
Limited for a consideration of £3,356 million, settled via a distribution
in-specie. On the same day, the Company also acquired SLAL from
Old PGH for an initial consideration of £2,994 million which was
subsequently increased by £46 million. The consideration for this
acquisition was settled partly through the cancellation of the
£825 million loan due from Old PGH (see note 10), with the
remainder settled through a distribution in-specie.
Where indicators of impairment have been identified the carrying
value of the Company’s investments in its subsidiaries has been
tested for impairment at the period end. In 2019, impairments of
£4,146m (2018: £nil) were recognised to align the carrying value of
certain investments to their recoverable amount. The impairment
charge arose as a consequence of the receipt of a £5,640 million
dividend from Old PGH during the year.
The value in use has been used as the recoverable amount and this has
been determined using the present value of the future cash flows of
the Company’s subsidiaries including the in-force long-term business, the
asset management business and the service company. The cash flows
used in this calculation are consistent with those adopted by
250
250
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
management in the operating plan and, beyond the period of this plan,
reflect the anticipated run-off of the in-force life insurance business.
Future cash flows have been valued using discount rates which reflect
the risks inherent to each cash flow. For the other subsidiaries, the value
in use has been determined using net assets values.
For a list of principal Group entities, refer to note H5 of the
consolidated financial statements. The entities directly held by the
Company are separately identified.
c) On 18 June 2019, the Company was assigned an interest free facility
arrangement with Phoenix Group Employee Benefit Trust (‘EBT’) of
£6 million. During 2019, an additional £4 million was drawn down
against this facility. The loan is fully recoverable until the point the
awards held in the EBT vest to the participants, at which point the loan
is reviewed for impairment. Any impairments are determined by
comparing the carrying value to the estimated recoverable amount of
the loan. Following the vesting of awards in 2019 £3 million of the loan
has been written off. At 31 December 2019, the carrying value of the
loan was £7 million.
10. LOANS AND DEPOSITS
Carrying value
Fair value
None of the loans are considered to be past due.
Loans due from
PLHL (note a)
Loans due from Old
PGH (note b)
Loans due from
Phoenix Group
Employee Benefit
Trust (note c)
Total loans and
deposits
2019
£m
2018
£m
2019
£m
2018
£m
1,220
1,231
1,363
1,231
–
825
–
808
For the purposes of the additional fair value disclosures for assets
recognised at amortised cost, all loans and deposits are categorised
as Level 3 financial instruments. The fair value of loans and deposits
with no external market is determined by internally developed
discounted cash flow models using a risk adjusted discount rate
corroborated with external market data where possible.
7
–
7
–
Details of the factors considered in determination of fair value are
included in note E2 to the consolidated financial statements.
1,227
2,056
1,370
2,039
11. FINANCIAL ASSETS
Amounts due after
12 months
1,227
2,056
All loans and deposit balances are due from Group entities and are
measured at amortised cost using the effective interest method.
The fair value of these loans and deposits are also disclosed.
a) On 12 December 2018, the Company was assigned a £428 million
subordinated loan by Phoenix Life Holdings Limited (‘PLHL’). The loan
accrues interest at a rate of 6.675% and matures on 18 December
2025. This loan was initially recognised at fair value of £439 million
and is accreted to par over the period to 2025. At 31 December 2019,
the carrying value of the loan was £438 million (2018: £440 million).
On 12 December 2018, the Company was assigned a £450 million
subordinated loan by PLHL. The loan accrues interest at a rate of
4.175% and matures on 20 July 2022. This loan was initially
recognised at fair value of £447 million and is accreted to par over
the period to 2022. At 31 December 2019, the carrying value of
the loan was £448 million (2018: £448 million).
On 12 December 2018, the Company was assigned a US $500 million
loan by PLHL due 2027 with a coupon of 5.375%. This loan was
initially recognised at fair value of £349 million and is accreted to par
over the period to 2027. Movement in foreign exchange during the
period decreased the carrying value by £13 million (2018: £6 million).
At 31 December 2019, the carrying value of the loan was £334 million
(2018: £343 million).
b) On 12 December 2018, the Company entered into a new £825 million
loan agreement with Old PGH as consideration for the substitution
of the Company as issuer of the Tier 1 Notes and €500 million Tier 2
notes. The loan accrued interest at a rate of 6 month LIBOR plus
1.22% and matured on 31 December 2023. On 18 June 2019
the loan was settled as part of the consideration for the Company’s
acquisition of SLAL from Old PGH (see note 9).
Financial assets at fair value through
profit or loss:
Derivatives
Equities
Debt securities
Collective investment schemes
Amounts due after 12 months
2019
£m
2018
£m
5
2
43
200
250
43
–
–
–
–
–
–
Determination of Fair Value and Fair Value Hierarchy of
Financial Assets
Details of the factors considered in determination of the fair value are
included in note E2 to the consolidated financial statements.
Year ended 31 December 2019
Financial assets at fair value
through profit or loss:
Derivatives
Equities
Debt securities
Collective investment
schemes
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
–
–
–
200
200
5
–
–
–
5
–
2
43
–
45
5
2
43
200
250
There were no transfers between levels in 2019.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
251
251
FINANCIALS
Notes to the Parent Company Financial Statements continued
Level 3 Financial Instrument Sensitivities
The investment in equity and debt securities is in respect of equity
and debt holdings in a property investment structure which was
transferred to the Company via an in-specie dividend received from
Old PGH during 2019.
The structure is valued as a whole on a discounted cash flow basis
and allocated to the debt and equity components in order of priority.
The valuation is sensitive to the discount rate applied. A decrease in
the discount rate of 175bps would increase the value by £9 million
whilst an increase of 200bps would decrease the value by £6 million.
12. DEFERRED TAX
The accounting policy for tax assets and liabilities is included in note
G8 to the consolidated financial statements.
Movement in Deferred Tax Asset
1 January
2019
£m
Credit for the
year
£m
31 December
2019
£m
15. CAPITAL AND RISK MANAGEMENT
The Company’s capital comprises share capital, the Tier 1 Notes and
all reserves as calculated in accordance with IFRSs, as set out in the
statement of changes in equity. Under English company law,
dividends must be paid from distributable profits. As the ultimate
parent undertaking of the Group, the Company manages its capital to
ensure that it has sufficient distributable profits to pay dividends in
accordance with its dividend policy.
At 31 December 2019, total capital was £5,849 million (2018:
£4,554 million). The movement in capital in the period comprises
the total comprehensive income for the period attributable to owners
of £1,643 million (2018: £3 million expense), dividends paid of
£338 million (2018: £nil), coupon paid on Tier 1 Notes, net of tax
relief of £23 million (2018: £nil), credit to equity for equity-settled
share-based payments of £11 million (2018: £nil), issue of ordinary
share capital of £2 million (2018: £nil), proceeds from the issue of
shares under the scheme of arrangement of £nil (2018: 4,146 million)
and the substituted Tier 1 Notes of £nil (2018: £411 million).
Provisions and other
temporary differences
–
15
15
In addition, the Group also manages its capital on a regulatory basis
as described in note I3 to the consolidated financial statements.
The principal risks and uncertainties facing the Company are interest
rate risk, liquidity risk, foreign currency risk and credit risk. The
Company has hedged the currency risk on its foreign currency hybrid
debt (US $500 million Tier 2 bonds and €500 million Tier 2 notes)
through a US $500 million internal loan and a €500 million internal
cross currency swap.
Details of the Group’s financial risk management policies are outlined
in note E6 to the consolidated financial statements.
The Finance Act 2016 reduced the rates of corporation tax from 20%
to 19% in April 2017 and to 17% from April 2020. Consequently a
blended rate of tax has been used for the purposes of providing for
deferred tax in the Company.
13. CASH AND CASH EQUIVALENTS
The accounting policy for cash and cash equivalents is included in
note G6 to the consolidated financial statements.
Bank and cash balances
2019
£m
45
14. CASH FLOWS FROM OPERATING ACTIVITIES
Profit/(loss) for the period before tax
Non-cash movements in profit/(loss)
for the period before tax:
Dividend income from other Group
entities
Impairment of investment in subsidiary
Impairment of loan due from subsidiary
Investment income
Finance costs
Fair value losses/(gains) on financial
assets
Foreign exchange movement on
borrowings at amortised cost
Share-based payment charge
Increase in investment assets
Net decrease in working capital
Cash generated by operations
2019
£m
1,598
(5,640)
4,146
3
(79)
103
19
(37)
11
(236)
523
411
2018
£m
1
2018
£m
(2)
–
–
–
(5)
5
(2)
(2)
–
–
6
–
252
252
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Credit Risk Management Practices
The Company’s current credit risk grading framework comprises the following categories:
Category
Description
Basis for recognising ECL
Performing
The counterparty has a low risk of default and does not have any past-due amounts
12 month ECL
Doubtful
There has been a significant increase in credit risk since initial recognition
Lifetime ECL – not credit impaired
In default
There is evidence indicating the asset is credit-impaired
Write-off
There is evidence indicating that the counterparty is in severe financial
difficulty and the Group has no realistic prospect of recovery
Lifetime ECL – credit impaired
Amount is written off
The table below details the credit quality of the Company’s financial assets, as well as the Company’s maximum exposure to credit risk by
credit risk rating grades:
2019
External
credit
rating
Internal
credit
rating
12 month
or lifetime
ECL
Loans and deposits (note 10)
N/A
Performing 12 month ECL
Other amounts due from Group entities
(note 18)
N/A
Performing 12 month ECL
Cash and cash equivalents (note 13)
A
N/A 12 month ECL
2018
External
credit
rating
Internal
credit
rating
12 month
or lifetime
ECL
Loans and deposits (note 10)
N/A
Performing 12 month ECL
Other amounts due from Group entities
(note 18)
N/A
Performing 12 month ECL
Cash and cash equivalents (note 13)
A
N/A 12 month ECL
Gross
carrying
amount
£m
1,227
198
45
Gross
carrying
amount
£m
2,056
20
1
Loss
allowance
£m
–
–
–
Loss
allowance
£m
–
–
–
Net carrying
amount
£m
1,227
198
45
Net carrying
amount
£m
2,056
20
1
The Company considers reasonable and supportable information that is relevant and available without undue cost or effort to assess whether
there has been a significant increase in risk since initial recognition. This includes quantitative and qualitative information and also forward-
looking analysis.
Loans and deposits – The Company is exposed to credit risk relating to loans and deposits from other Group companies, which are
considered low risk. Given their low risk, the loss allowance has been set at less than £1 million. The Company assesses whether there has
been a significant increase in credit risk since initial recognition by assessing whether there have been any historic defaults, by reviewing the
going concern assessment of the borrower and the ability of the Group to prevent a default by providing a capital or cash injection. Specific
considerations for the loan to the EBT loan are discussed in note 10.
Amounts due from other Group entities – The credit risk from activities undertaken in the normal course of business is considered to be
extremely low risk. Given their low risk, the loss allowance has been set at less than £1 million. The Company assesses whether there has
been a significant increase in credit risk since initial recognition by assessing past credit impairments, history of defaults and the long-term
stability of the Group.
Cash and cash equivalents – The Company’s cash and cash equivalents are held with bank and financial institution counterparties, which have
investment grade ‘A’ credit ratings. The Company considers that its cash and cash equivalents have low credit risk based on the external
credit ratings of the counterparties and there being no history of default, and therefore the impact to the net carrying amount shown in the
table above is not material.
The Company writes off a financial asset when there is information indicating that the counterparty is in severe financial difficulty and there is
no realistic prospect of recovery, e.g. when the counterparty has been placed into liquidation or has entered into bankruptcy proceedings.
Financial assets written off may still be subject to enforcement activities under the Company’s recovery procedures, taking into account legal
advice where appropriate. Any recoveries made are recognised in profit or loss.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
253
253
FINANCIALS
Notes to the Parent Company Financial Statements continued
Amounts due to related parties at the end of the year:
Loans due to Group entities
Cross currency swap
Other amounts due to Group entities
Amount due for settlement
after 12 months
2019
£m
288
31
533
852
288
2018
£m
1
1
–
2
–
19. AUDITOR’S REMUNERATION
Details of auditor’s remuneration, for Phoenix Group Holdings plc
and its subsidiaries, is included in note C4 to the consolidated
financial statements.
20. EVENTS AFTER THE REPORTING PERIOD
Details of events after the reporting date are included in note I7 to
the consolidated financial statements.
N LYONS
C BANNISTER
J MCCONVILLE
A BRIGGS
A BARBOUR
C FLEMING
K GREEN
W MAYALL
J POLLOCK
B RICHARDS
N SHOTT
K SORENSON
M TUMILTY
06 March 2020
16. SHARE-BASED PAYMENTS
For detailed information on the long-term incentive plans, sharesave
schemes and deferred bonus share schemes refer to note I1 in the
consolidated financial statements.
17. DIRECTORS’ REMUNERATION
Details of the remuneration of the Directors of Phoenix Group
Holdings plc is included in section B of the Directors’ Remuneration
Report on pages 114 to 130 of the Annual Report
and Accounts.
18. RELATED PARTY TRANSACTIONS
The Company has related party transactions with Group entities and
its key management personnel. Details of the total compensation of
key management personnel, being those having authority and
responsibility for planning, directing and controlling the activities
of the Group, including the Executive and Non-Executive Directors,
are included in note I4 to the consolidated financial statements.
On 31 August 2018, SLA plc took a 19.98% equity stake in the
Enlarged Group, and as a result became a related party of the
Company. SLA plc is considered to have significant influence over
the Group due to its equity stake and representation on the Board.
During the year ended 31 December 2019 the Company entered into
the following transactions with Group entities and SLA plc:
Dividend income from other Group entities
Interest income from other Group entities
Impairment of investment in subsidiary
Impairment of loan due from subsidiary
Unrealised loss on internal cross
currency swap
Expense to other Group entities
Interest expense to other Group entities
Dividends paid to SLA plc
2019
£m
5,989
77
6,066
4,146
3
27
235
12
4,423
67
2018
£m
–
5
9
–
–
4
–
–
4
–
Amounts due from related parties at the end of the year:
Loans due from Group entities
Forward currency swap
Other amounts due from Group entities
Amount due for settlement
after 12 months
2019
£m
1,227
3
198
2018
£m
2,056
–
20
1,428
2,076
1,227
2,056
254
254
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
ADDITIONAL LIFE COMPANY
ASSET DISCLOSURES
The analysis of the asset portfolio provided below comprises the assets held by the Group’s life companies, and it is stated net of derivative
liabilities. It excludes other Group assets such as cash held in the holding and management service companies and the assets held by the
non-controlling interests in consolidated collective investment schemes.
The following table provides an overview of the exposure by asset category of the Group’s life companies’ shareholder and policyholder funds:
31 December 2019
Carrying value
Cash and cash equivalents
Debt securities – gilts
Debt securities – bonds
Equity securities
Property investments
Other investments4
At 31 December 2019
Cash and cash equivalents in Group holding companies
Cash and financial assets in other Group companies
Financial assets held by the non-controlling interest in consolidated
collective investment schemes
Total Group consolidated assets
Comprised of:
Investment property
Financial assets
Cash and cash equivalents
Derivative liabilities
Shareholder
and non-profit
funds1
£m
Participating
supported1
£m
Participating
non-
supported2
£m
3,486
3,905
13,744
145
92
3,508
24,880
2,009
339
1,882
48
37
386
4,701
Unit-linked2
£m
6,391
4,870
30,242
72,959
5,335
9,897
Total3
£m
16,674
23,281
70,042
89,114
7,354
17,529
4,788
14,167
24,174
15,962
1,890
3,738
64,719
129,694
223,994
275
616
3,661
228,546
5,943
218,871
4,466
(734)
228,546
1 Includes assets where shareholders of the life companies bear the investment risk.
2 Includes assets where policyholders bear most of the investment risk.
3 This information is presented on a look through basis to underlying funds where available.
4 Includes equity release mortgages of £2,781 million, commercial real estate loans of £388 million, income strips of £690 million, policy loans of £10 million, other loans of
£284 million, net derivative assets of £3,976 million, reinsurers’ share of investment contracts of £8,881 million and other investments of £519 million.
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
255
255
FINANCIALS
Additional Life Company Asset Disclosures continued
31 December 2018 restated1
Carrying value
Cash and cash equivalents
Debt securities – gilts
Debt securities – bonds
Equity securities
Property investments
Other investments5
At 31 December 2018
Cash and cash equivalents in Group holding companies
Cash and financial assets in other Group companies
Financial assets held by the non-controlling interest in consolidated
collective investment schemes
Total Group consolidated assets
Comprised of:
Investment property
Financial assets
Cash and cash equivalents
Derivative liabilities
Shareholder
and non-profit
funds2
£m
Participating
supported2
£m
Participating
non-
supported3
£m
2,522
3,058
12,906
129
101
2,949
21,665
2,304
378
1,633
45
44
192
4,596
Unit-linked3
£m
6,840
5,806
29,322
65,618
6,059
9,185
Total4
£m
16,712
25,083
66,247
79,702
8,250
15,170
5,046
15,841
22,386
13,910
2,046
2,844
62,073
122,830
211,164
346
674
2,990
215,174
6,520
204,821
4,926
(1,093)
215,174
1 Following the acquisition of the Standard Life Assurance businesses in 2018, the Group has revised the presentation of certain balances within the statement of consolidated
financial position. Total Group consolidated assets has been restated to include £244 million of accrued interest previously reported in prepayments and accrued income. In addition,
£2,914 million of unit-linked assets previously reported as collective investments schemes and presented on a look-through basis within the disclosure has been reclassified to
reinsurers’ share of investment contract liabilities.
2 Includes assets where shareholders of the life companies bear the investment risk.
3 Includes assets where policyholders bear most of the investment risk.
4 This information is presented on a look through basis to underlying funds where available.
5 Includes equity release mortgages of £2,020 million, commercial real estate loans of £449 million, income strips of £654 million, policy loans of £9 million, other loans of £170 million,
net derivative assets of £2,825 million, reinsurers’ share of investment contracts of £8,331 million and other investments of £712 million.
The following table provides a reconciliation of the total life company assets to the Assets under Administration (‘AUA’) as at 31 December
2019 detailed in the Business Review on page 41:
Total Life Company assets
Off-balance sheet AUA1
Less: Standard Life Trustee Investment Plan assets2
Assets Under Administration
2019
£bn
224.0
35.1
(10.8)
248.3
2018
restated
£bn
211.2
31.1
(15.8)
226.5
1 Off-balance sheet AUA represents assets held in respect of certain Group Self-Invested Personal Pension products where the beneficial ownership interest resides with the
customer (and which are therefore not recognised in the consolidated statement of financial position) but on which the Group earns fee revenue.
2 Assets held within the Standard Life Trustee Investment Plan product are excluded from AUA as materially all profits accrue to third party investment managers.
256
256
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
The following table analyses by type the debt securities of the life companies:
31 December 2019
Analysis by type of debt securities
Gilts
Other government and supranational1
Corporate – financial institutions
Corporate – other
Asset backed securities ('ABS')
At 31 December 2019
31 December 2018 restated
Analysis by type of debt securities
Gilts
Other government and supranational1
Corporate – financial institutions
Corporate – other
Asset backed securities ('ABS')
At 31 December 2018
Shareholder
and non-profit
funds
£m
Participating
supported
£m
Participating
non-supported
£m
Unit-linked
£m
3,905
1,548
5,867
5,750
579
339
300
577
580
425
14,167
9,729
8,555
5,273
617
4,870
8,737
7,948
13,387
170
17,649
2,221
38,341
35,112
Shareholder
and non-profit
funds
£m
Participating
supported
£m
Participating
non-supported
£m
3,058
1,473
5,200
5,665
568
378
309
650
168
506
15,841
9,335
7,631
4,838
582
Unit-linked
£m
5,806
9,669
10,348
9,141
164
15,964
2,011
38,227
35,128
Total
£m
23,281
20,314
22,947
24,990
1,791
93,323
Total
£m
25,083
20,786
23,829
19,812
1,820
91,330
1 Includes debt issued by governments; public and statutory bodies; government backed institutions and supranationals.
The life companies’ debt portfolio was £93.3 billion at 31 December 2019 (2018: £91.3 billion). Shareholders had direct exposure to
£19.9 billion (2018: 18.0 billion) of these assets (including supported participating funds), of which 99.8% (2018: 99.5%) of rated securities
were investment grade. The shareholders’ credit risk exposure to the non-supported participating funds is primarily limited to the
shareholders’ share of future bonuses. Shareholders’ credit risk exposure to the unit-linked funds is limited to the level of asset management
fee, which is dependent on the underlying assets.
The following table sets out a breakdown of the life companies’ sovereign and supranational debt security holdings by country:
31 December 2019
Analysis of sovereign and supranational debt security holdings by country
UK
Supranationals
USA
Germany
France
Netherlands
Italy
Greece
Spain
Belgium
Other – non-Eurozone
Other – Eurozone
At 31 December 2019
Shareholder
and non-profit
funds
£m
Participating
supported
£m
Participating
non-supported
£m
Unit-linked
£m
Total
£m
4,452
385
14,411
4,898
24,146
544
–
155
59
23
–
–
–
5
183
32
5,453
73
3
54
33
17
–
–
–
1
60
13
639
320
52
3,397
2,559
360
–
28
–
783
1,340
646
41
1,859
324
450
159
550
19
380
89
4,521
317
978
1,914
3,930
3,101
559
550
47
380
878
6,104
1,008
23,896
13,607
43,595
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
257
257
FINANCIALS
Additional Life Company Asset Disclosures continued
31 December 2018 restated
Analysis of sovereign and supranational debt security holdings by country
UK
Supranationals
USA
Germany
France
Netherlands
Italy
Greece
Spain
Belgium
Other – non-Eurozone
Other – Eurozone
Indirectly held debt securities
At 31 December 2018
Shareholder
and non-profit
funds
£m
3,443
579
6
70
72
28
46
–
–
5
246
36
–
Participating
supported
£m
Participating
non-supported
£m
Unit-linked
£m
Total
£m
418
16,051
5,844
25,756
84
3
62
39
19
–
–
–
1
51
10
–
335
125
3,438
2,455
345
–
12
–
710
1,045
659
1
52
3,433
386
340
106
340
46
144
36
1,050
3,567
3,956
2,906
498
386
58
144
752
4,563
5,905
79
106
784
107
4,531
687
25,176
15,475
45,869
Sovereign and supranational debt represented 31% (2018: 29%) of the debt portfolio in respect of shareholder exposure, or £6.1 billion,
at 31 December 2019 (2018: £5.2 billion). The vast majority of the life companies’ exposure to sovereign and supranational debt holdings is to
UK gilts.
All of the life companies’ debt securities are held at fair value through profit or loss under IAS 39, and therefore already reflect any reduction in
value between the date of purchase and the reporting date.
The life companies have in place a comprehensive database that consolidates credit exposures across counterparties, geographies and
business lines. This database is used for credit monitoring, stress testing and scenario planning. The life companies continue to manage
their balance sheets prudently and have taken extra measures to ensure their market exposures remain within risk appetite.
The following table sets out a breakdown of the life companies’ financial institution corporate debt security holdings by country:
31 December 2019
Analysis of financial institution corporate debt security holdings by country
UK
USA
Germany
France
Netherlands
Portugal
Italy
Ireland
Spain
Luxembourg
Belgium
Other – non-Eurozone
Other – Eurozone
At 31 December 2019
Shareholder
and non-profit
funds
£m
Participating
supported
£m
Participating
non-supported
£m
3,055
167
846
139
203
392
–
30
–
64
–
12
1,044
82
5,867
80
4
43
36
–
–
–
–
–
3
215
29
577
3,184
1,017
556
1,089
244
3
42
25
150
34
3
1,942
266
8,555
Unit-linked
£m
1,962
862
415
967
342
11
37
19
217
15
13
Total
£m
8,368
2,805
1,114
2,302
1,014
14
109
44
431
49
31
2,880
208
7,948
6,081
585
22,947
258
258
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
31 December 2018 restated
Analysis of financial institution corporate debt security holdings by country
Shareholder and
non-profit funds
£m
Participating
supported
£m
Participating
non-supported
£m
Unit-linked
£m
UK
USA
Germany
France
Netherlands
Italy
Ireland
Spain
Luxembourg
Belgium
Other – non-Eurozone
Other – Eurozone
At 31 December 2018
2,699
163
3,017
758
127
174
412
29
–
58
1
6
883
53
5,200
46
13
52
42
–
–
–
–
20
299
15
650
934
410
734
377
44
31
91
18
84
1,723
168
7,631
1,917
1,137
567
1,405
745
43
42
209
11
80
4,073
119
Total
£m
7,796
2,875
1,117
2,365
1,576
116
73
358
30
190
6,978
355
10,348
23,829
The life companies had £94 million (2018: £87 million) shareholder exposure to financial institution corporate debt of the Peripheral Eurozone,
defined as Portugal, Italy, Ireland, Greece, and Spain, at 31 December 2019. The £6,444 million (2018: £5,850 million) total shareholder
exposure to financial institution corporate debt comprised £3,376 million (2018: £3,107 million) senior debt, £2,567 million (2018:
£2,249 million) Tier 1 debt and £501 million (2018: £494 million) Tier 2 debt.
The £6,444 million shareholder exposure to financial institution corporate debt comprised £3,673 million (2018: £3,535 million) bank debt and
£2,771 million (2018: £2,315 million) non-bank debt.
For each of the life companies’ significant financial institution counterparties, industry and other data has been used to assess the exposure of
the individual counterparties. As part of the Group’s risk appetite framework and analysis of shareholder exposure to a potential worsening of
the economic situation, this assessment has been used to identify counterparties considered to be most at risk from defaults. The financial
impact on these counterparties, and the contagion impact on the rest of the shareholder portfolio, is assessed under various scenarios and
assumptions. This analysis is regularly reviewed to reflect the latest economic outlook, economic data and changes to asset portfolios. The
results are used to inform the Group’s views on whether any management actions are required.
The following table sets out a breakdown of the life companies’ corporate – other debt security holdings by country:
31 December 2019
Analysis of corporate – other debt security holdings by country
UK
USA
Germany
France
Netherlands
Italy
Ireland
Spain
Luxembourg
Belgium
Other – non-Eurozone
Other – Eurozone
Indirectly held debt securities
At 31 December 2019
Shareholder
and non-profit
funds
£m
2,742
828
423
580
103
113
11
84
–
115
722
29
–
5,750
Participating
supported
£m
Participating
non-supported
£m
56
26
45
11
–
–
–
1
–
–
6
435
–
580
2,371
873
456
646
51
109
15
77
9
103
560
3
–
5,273
Unit-linked
£m
3,411
2,757
913
802
286
165
51
136
80
145
2,445
86
2,110
13,387
Total
£m
8,580
4,484
1,837
2,039
440
387
77
298
89
363
3,733
553
2,110
24,990
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
259
259
FINANCIALS
Additional Life Company Asset Disclosures continued
31 December 2018 restated
Analysis of corporate – other debt security holdings by country
UK
USA
Germany
France
Netherlands
Italy
Ireland
Spain
Luxembourg
Belgium
Other – non-Eurozone
Other – Eurozone
Indirectly held debt securities
At 31 December 2018
Shareholder
and non-profit
funds
£m
2,502
877
509
547
112
120
11
95
–
123
758
11
–
Participating
supported
£m
Participating
non-supported
£m
55
32
64
5
–
1
–
1
–
1
9
–
–
2,200
681
437
472
79
73
23
62
4
97
626
2
82
5,665
168
4,838
Unit-linked
£m
2,499
2,066
702
475
123
109
46
95
50
120
1,230
64
1,562
9,141
Total
£m
7,256
3,656
1,712
1,499
314
303
80
253
54
341
2,623
77
1,644
19,812
The following table sets out a breakdown of the life companies’ ABS holdings by country:
31 December 2019
Analysis of ABS holdings by country
UK
USA
Germany
France
Netherlands
Italy
Ireland
Spain
Luxembourg
Other – non-Eurozone
Other – Eurozone
At 31 December 2019
Shareholder
and non-profit
funds
£m
Participating
supported
£m
Participating
non-supported
£m
Unit-linked
£m
523
244
481
136
Total
£m
1,384
–
–
–
8
–
26
–
–
22
–
–
21
35
58
–
1
8
49
8
1
2
–
10
30
11
39
–
10
34
–
579
425
617
3
–
2
1
–
2
–
7
19
–
170
5
21
47
97
11
68
8
66
83
1
1,791
260
260
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
31 December 2018 restated
Analysis of ABS holdings by country
UK
USA
Germany
France
Netherlands
Italy
Ireland
Spain
Luxembourg
Other – non-Eurozone
Indirectly held debt securities
At 31 December 2018
The following table sets out the credit rating analysis of the debt portfolio:
Shareholder
and non-profit
funds
£m
Participating
supported
£m
Participating
non-supported
£m
Unit-linked
£m
Total
£m
510
317
424
115
1,366
–
–
–
8
–
27
–
–
23
–
–
29
33
64
–
1
17
34
11
–
2
–
8
45
5
32
–
17
49
–
568
506
582
1
–
1
12
–
2
–
5
22
6
164
31 December 2019
Credit rating analysis of debt portfolio
AAA
AA
A
BBB
BB
B and below
Non-rated
Indirectly held debt securities
At 31 December 2019
Shareholder
and non-profit
funds
£m
Participating
supported
£m
Participating
non-supported
£m
Unit-linked
£m
1,502
6,491
6,498
2,795
–
30
333
–
686
1,163
352
3
–
–
17
–
5,820
20,578
6,188
4,734
221
413
387
–
3,322
7,354
6,103
5,758
1,139
902
1,854
8,680
17,649
2,221
38,341
35,112
93,323
3
29
42
129
5
62
17
56
105
6
1,820
Total
£m
11,330
35,586
19,141
13,290
1,360
1,345
2,591
8,680
96.7% of rated securities were investment grade at 31 December 2019 (2018: 94.7%). The percentage of rated securities that were
investment grade in relation to the shareholder and policyholders’ funds were 99.8% and 95.7% respectively (2018: 99.5% and 93.4%
respectively).
31 December 2018 restated
Credit rating analysis of debt portfolio
AAA
AA
A
BBB
BB
B and below
Non-rated
Indirectly held debt securities
At 31 December 2018
Shareholder
and non-profit
funds
£m
Participating
supported
£m
Participating
non-supported
£m
Unit-linked
£m
1,505
5,230
5,921
2,920
15
71
302
–
791
765
364
38
3
–
50
–
5,633
21,898
5,453
3,990
188
386
595
84
4,737
8,413
7,074
4,788
59
3,733
1,199
5,125
Total
£m
12,666
36,306
18,812
11,736
265
4,190
2,146
5,209
15,964
2,011
38,227
35,128
91,330
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
261
261
FINANCIALS
ADDITIONAL CAPITAL DISCLOSURES
Restricted Tier 1 capital comprises the Tier 1 Notes issued in April
2018, the terms of which enable it to qualify as restricted Tier 1
capital for regulatory reporting purposes. There is no impact to the
treatment of the restricted Tier 1 capital in the Group solvency
calculation as a result of the PRA policy statement PS4/19 ‘Solvency
II: Adjusting for the reduction of loss absorbency where own fund
instruments are taxed on write down’, issued during the period.
Tier 2 capital is comprised of subordinated notes whose terms enable
them to qualify as Tier 2 capital for regulatory reporting purposes.
Tier 3 items include the Tier 3 subordinated notes of £0.4 billion
(2018: £0.4 billion) and the deferred tax asset of £0.1 billion (2018:
£0.1 billion).
BREAKDOWN OF SCR
The Group operates two PRA approved Internal Models, a Phoenix
Internal Model covering all the pre-acquisition Phoenix entities and a
Standard Life Internal Model which covers the acquired Standard Life
Assurance entities, with the exception of the Irish entity, Standard
Life International. Standard Life International calculates its capital
requirements in accordance with the Standard Formula. An analysis
of the pre-diversified SCR of PGH plc is presented below:
31 December 2019
Estimated
31 December 2018
Phoenix
Internal
Model
%
Standard
Life Internal
Model
%
Phoenix
Internal
Model
%
Standard
Life Internal
Model
%
Longevity
Credit
Persistency
Interest rates
Operational
Swap spreads
Property
Other market risks
Other non-market risks
26
19
12
8
6
2
12
5
10
Total pre-diversified SCR
100
16
12
28
5
9
1
1
15
13
100
26
18
10
11
7
2
9
7
10
100
15
13
26
10
8
1
1
15
11
100
The principal risks of the Group are described in detail in note E6 and
F4 in the IFRS consolidated financial statements.
PGH PLC SOLVENCY II SURPLUS
The PGH plc surplus at 31 December 2019 is £3.1 billion (2018:
£3.2 billion).
Own Funds
SCR
Surplus
31 December
2019
Estimated
£bn
31 December
2018
£bn
10.8
(7.7)
3.1
10.3
(7.1)
3.2
CALCULATION OF GROUP SOLVENCY
The Solvency II regulations set out two methods for calculating
Group solvency, ‘Method 1’ (being the default accounting based
consolidation method) and ‘Method 2’ (the deduction and
aggregation method).
Under Method 2, the solo Own Funds are aggregated rather than
consolidated on a line by line basis. The SCR is also aggregated,
with no allowance for diversification. Method 2 is used for all entities
within the Standard Life Assurance businesses acquired and Method
1 is used for all other entities of the Group. The Group has approval
to use a combination of Methods 1 and 2 for consolidating its Group
solvency results.
COMPOSITION OF OWN FUNDS
Own Funds items are classified into different Tiers based on the
features of the specific items and the extent to which they possess
the following characteristics, with Tier 1 being the highest quality:
• availability to be called up on demand to fully absorb losses on a
going-concern basis, as well as in the case of winding-up
(‘permanent availability’); and
• in the case of winding-up, the total amount that is available to
absorb losses before repayment to the holder until all obligations
to policyholders and other beneficiaries have been met
(‘subordination’).
PGH plc’s total Own Funds are analysed by Tier as follows:
Tier 1 – Unrestricted
Tier 1 – Restricted
Tier 2
Tier 3
31 December
2019
Estimated
£bn
31 December
2018
£bn
8.3
0.5
1.5
0.5
7.8
0.5
1.5
0.5
Total Own Funds
10.8
10.3
PGH plc’s unrestricted Tier 1 capital accounts for 77% (2018: 76%)
of total Own Funds and comprises ordinary share capital, surplus
funds of the unsupported with-profit funds which are recognised only
to a maximum of the SCR, and the accumulated profits of the
remaining business.
262
262
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
MINIMUM CAPITAL REQUIREMENTS
Minimum Capital Requirement (‘MCR’) is the minimum amount of
capital an insurer is required to hold below which policyholders and
beneficiaries would become exposed to an unacceptable level of risk
if an insurer was allowed to continue its operations. For Groups this
is referred to as the Minimum Consolidated Group SCR (‘MGSCR’).
The MCR is calculated according to a formula prescribed by the
Solvency II regulations and is subject to a floor of 25% of the SCR or
€3.7 million, whichever is higher, and a cap of 45% of the SCR. The
MCR formula is based on factors applied to technical provisions and
capital at risk.
The MGSCR represents the sum of the underlying insurance
companies’ MCRs in respect of the Method 1 part of the Group.
The Eligible Own Funds to cover the MGSCR is subject to
quantitative limits as shown below:
• the Eligible amounts of Tier 1 items should be at least 80% of the
MGSCR; and
• the Eligible amounts of Tier 2 items shall not exceed 20% of the
MGSCR.
PGH plc’s MGSCR at 31 December 2019 is £1.1 billion (2018:
£1.0 billion).
PGH plc’s Method 1 Eligible Own Funds to cover MGSCR is
£4.3 billion (2018: £4.2 billion) leaving an excess of Eligible Own
Funds over MGSCR of £3.2 billion (2018: £3.2 billion), which
translates to an MGSCR coverage ratio of 386% (2018: 408%).
The MCR for the Method 2 part of the Group is £1.2 billion (2018:
£1.1 billion), with Eligible Own Funds of £4.9 billion (2018:
£4.2 billion), leaving an excess of Eligible Own Funds over MCR of
£3.7 billion (2018: £3.1 billion), which translates to an MCR coverage
ratio of 394% (2018: 377%).
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
263
263
FINANCIALS
ALTERNATIVE PERFORMANCE
MEASURES
The Group assesses its financial performance based on a number of measures. Some measures
are management derived measures of historic or future financial performance, position or cash
flows of the Group; which are not defined or specified in accordance with relevant financial
reporting frameworks such as International Financial Reporting Standards (‘IFRS’) or Solvency II.
These measures are known as Alternative Performance Measures (‘APMS’).
APMs are disclosed to provide stakeholders with further helpful information on the performance of the Group and should be viewed as
complementary to, rather than a substitute for, the measures determined according to IFRS and Solvency II requirements� Accordingly,
these APMs may not be comparable with similarly titled measures and disclosures by other companies�
A list of the APMs used in our results as well as their definitions, why they are used and, if applicable, how they can be reconciled to
the nearest equivalent GAAP measure is provided below� Further discussion of these measures can be found in the business review
from page 38 and the definitions of all APMs are included in the glossary on pages 268 to 270�
APM
Definition
Why is this measure used
Assets under
Administration
Financial
leverage
ratio
Incremental
long-term cash
generation
New business
contribution –
UK Open and
Europe
The Group’s Assets under
Administration (‘AUA’) represents
assets administered by or on behalf of
the Group, covering both policyholder
fund and shareholder assets� It
includes assets recognised in the
Group’s IFRS consolidated statement
of financial position together with
certain assets administered by the
Group for which beneficial ownership
resides with customers�
Financial leverage is calculated by
Phoenix (using Fitch Ratings’ stated
methodology) as debt as a percentage
of the sum of debt and equity� Debt
is defined as the IFRS carrying value
of shareholder borrowings� Equity
is defined as the sum of equity
attributable to the owners of the
parent, the unallocated surplus and
the Tier 1 Notes�
Incremental long-term cash generation
represents the operating companies’
cash generation that is expected to
arise in future years as a result of new
business transacted in the current
period within our UK Open and Europe
segments, and from the writing of bulk
purchase annuities within our Heritage
segment� It excludes any costs
associated with the acquisition of the
new business�
Represents the increase in Solvency
II shareholder Own funds arising from
new business written in the year,
adjusted to exclude the associated risk
margin and any restrictions in respect
of contract boundaries and stated on a
net of tax basis�
Reconciliation to
financial statements
A reconciliation from the Group’s IFRS
consolidated statement of financial
position to the Group’s AUA is provided
on page 256�
AUA indicates the potential earnings
capability of the Group arising from its
insurance and investment business�
AUA flows provide a measure of the
Group’s ability to deliver new business
growth�
The Group seeks to manage the
level of debt on its balance sheet by
monitoring its financial leverage ratio�
This is to ensure the Group maintains
its investment grade credit rating as
issued by Fitch Ratings and optimises
its funding costs and financial flexibility
for future acquisitions�
The debt and equity figures are
directly sourced from the Group’s IFRS
consolidated statement of financial
position on pages 149 and 150 and
the analysis of borrowings note on
page 184�
This measure provides an indication
of the Group’s performance in
delivering new business growth to
offset the impact of run-off of the
Group’s Heritage business and to bring
sustainability to future cash generation�
Incremental long-term cash generation
is not directly reconcilable to the
financial statements as it relates to
cash generation expected to arise in
the future�
This measure provides an assessment
of the day 1 value arising on the writing
of new business in the UK Open
and Europe segments, and is stated
after applicable taxation and
acquisition costs�
New business contribution is not
directly reconcilable to the Group’s
Solvency II metrics as it represents an
in-year movement� Further analysis
is provided on page 41�
264
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Reconciliation to
financial statements
Operating companies’ cash generation
is not directly reconcilable to an
equivalent GAAP measure (IFRS
statement of consolidated cash flows)
as it includes amounts that eliminate
on consolidation�
Further details of holding companies’
cash flows are included within the
business review on pages 39 to 40
and a breakdown of the Group’s cash
position by type of entity is provided
in the additional life company asset
disclosures section on page 255�
A reconciliation of operating profit to
the IFRS result before tax attributable
to owners is included in the business
review on page 45 and in the primary
financial statements on page 161�
APM
Definition
Why is this measure used
Operating
companies’
cash
generation
Cash remitted by the Group’s
operating companies to the Group’s
holding companies�
Operating
profit
Operating profit is a financial
performance measure based on
expected long-term investment
returns� It is stated before tax and non-
operating items including amortisation
and impairments of intangibles, finance
costs attributable to owners and other
non-operating items which in the
Director’s view should be excluded
by their nature or incidence
to enable a full understanding of
financial performance�
Further details of the components of
this measure and the assumptions
inherent in the calculation of the long-
term investment return are included
in note B1�2 to the IFRS consolidated
financial statements�
The statement of consolidated cash
flows prepared in accordance with
IFRS combines cash flows relating to
shareholders with cash flows relating
to policyholders, but the practical
management of cash within the Group
maintains a distinction between the
two� The Group therefore focuses
on the cash flows of the holding
companies which relate only to
shareholders� Such cash flows are
considered more representative of the
cash generation that could potentially
be distributed as dividends or used for
debt repayment and servicing, group
expenses and pension contributions�
Operating companies’ cash generation
is a key performance indicator used by
management for planning, reporting
and executive remuneration�
This measure provides a more
representative view of the Group’s
performance than the IFRS result
after tax as it provides long-term
performance information unaffected
by short-term economic volatility and
one-off items, and is stated net of
policyholder finance charges and tax�
It helps give stakeholders a better
understanding of the underlying
performance of the Group by
identifying and analysing
non-operating items�
Life Company
Free Surplus
The Solvency II surplus of the life
companies that is in excess of their
Board approved capital management
policies�
Shareholder
Capital
Coverage Ratio
Represents total Eligible Own Funds
divided by the Solvency Capital
Requirements (‘SCR’), adjusted to a
shareholder view through the exclusion
of amounts relating to those ring-
fenced with-profit funds and Group
pension schemes whose Own Funds
exceed their SCR�
This figure provides a view of the level
of surplus capital in the Life companies
that is available for distribution to the
holding companies, and the generation
of Free Surplus underpins future
operating cash generation�
Please see business review section
page 44 for further analysis of
the solvency positions of the life
companies�
The unsupported with-profit funds and
Group pension funds do not contribute
to the Group Solvency II surplus�
However, the inclusion of related Own
Funds and SCR amounts dampens the
implied Solvency II capital ratio�
Further details of the Shareholder
Capital Coverage Ratio and its
calculation are included in the business
review on page 38 and the additional
capital disclosures section on
page 262�
The Group therefore focuses on
a shareholder view of the capital
coverage ratio which is considered to
give a more accurate reflection of the
capital strength of the Group�
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
265
FINANCIALS SHAREHOLDER INFORMATION
ANNUAL GENERAL MEETING
Our Annual General Meeting (‘AGM’) will be held on 15 May 2020 at 10:00am.
The voting results for our 2020 AGM, including proxy votes and votes withheld, will be available on the Group’s website
shortly after the meeting.
SHARE PRICE PERFORMANCE
Phoenix Group Holdings plc share price performance
Price pence per share (rebased to Phoenix)
850
800
750
700
650
600
550
500
450
400
Jan
2019
Feb
2019
Mar
2019
Apr
2019
Jun
2019
Jul
2019
Aug
2019
Sep
2019
Oct
2019
Nov
2019
Dec
2019
Phoenix Group
FTSE 350 Life Assurance
FTSE 100
SHAREHOLDER PROFILE AS AT 31 DECEMBER 2019
Range of shareholdings
1–1,000
1,001–5,000
5,001–10,000
10,001–250,000
250,001–500,000
500,001 and above
Total
No. of
shareholders
546
676
161
410
75
160
2,028
%
26.92
33.33
7.94
20.22
3.70
7.89
No. of
shares
265,325
1,653,314
1,134,640
29,387,930
27,125,800
661,947,935
721,514,944
%
0.04
0.23
0.16
4.07
3.76
91.74
266
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
SHAREHOLDER SERVICES
Managing your shareholding
Our registrar, Computershare, maintains the Company’s
register of members� Shareholders may request a hard copy
of this Annual Report from our registrar and if you have any
further queries in respect of your shareholding please
contact them directly using the contact details set out
below�
If you receive any unsolicited investment advice:
• make sure you get the correct name of the person and
organisation;
• check that they are properly authorised by the Financial
Conduct Authority (‘FCA’) before getting involved by
visiting www�fca�org�uk/firms/systems-reporting/register;
• report the matter to the FCA by calling the FCA Consumer
Registrar details
Computershare Investor Services PLC
The Pavilions, Bridgwater Road, Bristol, BS99 6ZZ
Shareholder helpline number +44 (0) 370 702 0181
Fax number +44 (0) 370 703 6116
www�investorcentre�co�uk/contactus
Dividend mandates
Shareholders may find it convenient to have their dividends
paid directly to their bank or building society account�
Access Computershare’s web-based enquiry service
www�investorcentre�co�uk to download forms such as a
dividend mandate form or submit dividend mandate details
online; view details of your Phoenix Group shareholding and
recent dividend payments; update your address details and
register for shareholder electronic communications to
receive notification of Phoenix Group shareholder mailings
by email�
Alternatively, contact Computershare using the
details above�
Scrip dividend alternative
The Company does not currently offer a scrip dividend
alternative�
Warning to shareholders
Over recent years, many companies have become aware
that their shareholders have received unsolicited phone calls
or correspondence concerning investment matters� These
are typically from overseas-based ‘brokers’ who target UK
shareholders, offering to sell them what often turn out to
be worthless or high-risk shares in US or UK investments�
These operations are commonly known as ‘boiler rooms’�
Shareholders are advised to be very wary of any unsolicited
advice, offers to buy shares at a discount or offers of free
reports about the Company�
Helpline on 0800 111 6768; and
• if the calls persist, hang up�
If you deal with an unauthorised firm, you will not be eligible
to receive payment under the Financial Services
Compensation Scheme (‘FSCS’)� The FCA can also be
contacted by completing an online form available at
www�fca�org�uk/consumers/report-scam-unauthorised-firm�
Details of any share dealing facilities that the Company
endorses will be included in Company mailings�
More detailed information on this or similar activity can be
found on the FCA website available at www�fca�org�uk/
consumers�
SHARE PRICE
You can access the current share price of Phoenix Group
Holdings plc on the Group’s website together with electronic
copies of the Group’s financial reports and presentations
at www�thephoenixgroup�com/investor-relations�aspx�
ORDINARY SHARES – 2019 FINAL DIVIDEND
Ex-dividend date
Record date
Payment date for the
recommended final dividend
GROUP FINANCIAL CALENDAR FOR 2020
Annual General Meeting
Announcement of unaudited six
months’ Interim Results
2 April 2020
3 April 2020
19 May 2020
15 May 2020
6 August 2020
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
267
ADDITIONAL INFORMATION GLOSSARY
ABBEY LIFE
ABS
ACQUIRED VALUE
IN FORCE (‘AVIF’)
ALM
ALTERNATIVE
PERFORMANCE
MEASURE
ANNUITY POLICY
ASSET
MANAGEMENT
ASSETS UNDER
ADMINISTRATION
BREXIT
CAGR
The companies comprising of Abbey Life
Assurance Company Limited, Abbey Life
Trustee Services Limited and Abbey Life
Trust Securities Limited
Asset Backed Securities – A collateralised
security whose value and income payments
are derived from a specified pool of
underlying assets
The present value of future profits on
a portfolio of long-term insurance and
investment contracts, acquired either
directly or through the purchase of,
or investment in, a business
Asset Liability Management – Management
of mismatches between assets and
liabilities within risk appetite
An Alternative Performance Measure
(’APM’) is a financial measure of historic
or future financial performance, financial
position or cash flows, other than a
financial measure defined under IFRS or
under Solvency II regulations� The Group
uses a range of these metrics to provide
a better understanding of the underlying
performance of the Group� All APMs are
defined within this glossary and the APM
section on page 264
A policy that pays out regular benefit
amounts, either immediately and
for the remainder of a policyholder’s
lifetime (immediate annuity), or deferred to
commence at some future date (deferred
annuity)
The management of assets using a
structured approach to guide the act
of acquiring and disposing of assets,
with the objective of meeting defined
investment goals and maximising value for
investors, including policyholders
Assets administered by or on behalf of the
Group, covering both policyholder funds
and shareholder assets� This includes
assets recognised in the Group’s IFRS
consolidated statement of financial position
together with certain assets administered
by the Group but for which beneficial
ownership resides with customers�
The vote by the people of the United
Kingdom to leave the EU in the referendum
held on 23 June 2016
Compound annual growth rate, or CAGR,
is the mean annual growth rate of an
investment over a specified period of time
longer than one year
CLOSED LIFE FUND
A fund that no longer accepts new business�
The fund continues to be managed for the
existing policyholders
EBT
Employee Benefit Trust – A trust set up to
enable its Trustee to purchase and hold
shares to satisfy employee share-based
incentive plan awards� The Company’s EBT
is the Phoenix Group Holdings plc Employee
Benefit Trust
ECONOMIC
ASSUMPTIONS
Assumptions related to future interest rates,
inflation, market value movements and tax
EEA
European Economic Area – Established
on 1 January 1994 and is an agreement
between Norway, Iceland, Liechtenstein
and the European Union� It allows these
countries to participate in the EU’s single
market without joining the EU
ENLARGED GROUP
The Phoenix Group including the acquired
Standard Life Assurance businesses
EXPERIENCE
VARIANCES
FINANCIAL
LEVERAGE
FINANCIAL
REPORTING
COUNCIL
FREE SURPLUS
FCA
FOS
Current period differences between
the actual experience incurred and the
assumptions used in the calculation
of IFRS insurance liabilities
Calculated by Phoenix using Fitch Ratings
stated methodology as debt as a percentage
of the sum of debt and equity� Debt is
defined as the IFRS carrying value of
shareholder borrowings� Equity is defined as
the sum of equity attributable to the owners
of the parent adjusted to exclude goodwill,
the unallocated surplus and the Tier 1 Notes
The UK’s independent regulator responsible
for promoting high-quality corporate
governance and reporting to foster
investment
The amount of capital held in life companies
in excess of that needed to support their
regulatory Solvency Capital Requirement,
plus the capital required under the Board
approved capital management policy
Financial Conduct Authority – The body
responsible for supervising the conduct
of all financial services firms and for the
prudential regulation of those financial
services firms not supervised by the
Prudential Regulation Authority (’PRA’),
such as asset managers and independent
financial advisers
Financial Ombudsman Service – An
ombudsman established in 2000, and given
statutory powers in 2001 by the Financial
Services and Markets Act 2000, to help
settle disputes between consumers and
UK-based businesses providing financial
services
268
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
GAR
Guaranteed Annuity Rate – A rate available
to certain pension policyholders to acquire
an annuity at a contractually guaranteed
conversion rate
NEW BUSINESS
CONTRIBUTION
HMRC
HM Revenue and Customs
HOLDING
COMPANIES
IASB
IFRS
INCREMENTAL
LONG-TERM CASH
GENERATION
IN-FORCE
INHERITED ESTATE
LIBOR
LTIP
Refers to Phoenix Group Holdings plc,
Phoenix Group Holdings, PGH Capital plc,
Phoenix Life Holdings Limited, Pearl Group
Holdings (No� 2) Limited, Impala Holdings
Limited, Pearl Group Holdings (No� 1)
Limited, PGH (LCA) Limited, PGH (LCB)
Limited and Pearl Life Holdings Limited
International Accounting Standards Board
International Financial Reporting Standards
– Accounting standards, interpretations and
the framework adopted by the International
Accounting Standards Board
New business contribution after adjustment
to add back ‘day 1’ acquisition costs
Long-term business written before the
period end and which has not terminated
before the period end
The assets of the long-term with-profit
funds less the realistic reserves for non-
profit policies written into the non-profit
fund, less asset shares aggregated across
the with-profit policies and any additional
amounts expected at the valuation date
to be paid to in-force policyholders in the
future in respect of smoothing costs and
guarantees
London Interbank Offer Rate – The average
interbank interest rate at which a selection
of banks on the London money market are
prepared to lend to one another
Long-Term Incentive Plan – The part of an
executive’s remuneration designed to
incentivise long-term value for shareholders
through an award of shares with vesting
contingent on employment and the
satisfaction of stretching performance
conditions linked to Group strategy
MINIMUM CAPITAL
REQUIREMENTS
(‘MCR’)
MCR is the minimum amount of capital that
the Group needs to hold to cover its risks
under the Solvency II regulatory framework
MSA
Management Services Agreement
– Contracts that exist between Phoenix Life
and management services companies or
between management services companies
and their outsource partners
Represents the increase in Solvency II
shareholder Own Funds arising from
new business written in the year (net of
associated tax), adjusted to exclude the
associated risk margin and any restrictions
recognised in respect of contract
boundaries� It is stated net of ‘Day 1’
acquisition costs and is calculated as the
value of expected cash flows from new
business sold, discounted at the risk free
rate
NON-ECONOMIC
ASSUMPTIONS
Assumptions related to future levels
of mortality, morbidity, persistency and
expenses
NON-PROFIT FUND
A fund which is not a with-profit fund,
where risks and rewards of the fund
fall wholly to shareholders
OPERATING
COMPANIES
Refers to the trading companies within
Phoenix Life
OPERATING
COMPANIES’ CASH
GENERATION
Operating companies’ cash generation
represents cash remitted by the
Group’s operating companies to
the holding companies
OPERATING PROFIT
Operating profit is a non-GAAP measure
that is considered a more representative
measure of performance than IFRS profit or
loss after tax as it is based on expected
long-term investment returns
ORIGO
An electronic pensions transfer system
OWN FUNDS
PARTIAL INTERNAL
MODEL
PART VII TRANSFER
Basic Own Funds comprise the excess of
assets over liabilities valued in accordance
with the Solvency II principles and
subordinated liabilities which qualify to
be included in Own Funds under the
Solvency II rules� Eligible Own Funds are
the amount of Own Funds that are available
to cover the Solvency Capital Requirements
after applying prescribed tiering limits and
transferability restrictions to Basic Own
Funds
The model used to calculate the
Group Solvency Capital Requirement
pursuant to Solvency II� It aggregates
outputs from both the existing Phoenix
Internal Model and the Standard Life Internal
Model with no diversification between the
two
The transfer of insurance policies under Part
VII of Financial Services and Markets Act
2000� The insurers involved can be in the
same corporate group or in different groups�
Transfers require the consent of the High
Court, which will consider the views of the
PRA and FCA and of an Independent Expert
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
269
ADDITIONAL INFORMATION Glossary continued
PARTICIPATING
BUSINESS
See with-profit fund
SUNLIFE
PERIPHERAL
EUROZONE
Refers to Portugal, Ireland, Italy, Greece and
Spain
PRA
PROTECTION
POLICY
RIGHTS ISSUE
SHAREHOLDER
CAPITAL COVERAGE
RATIO
SOLVENCY
Prudential Regulation Authority – The body
responsible for the prudential regulation
and supervision of banks, building
societies, credit unions, insurers and major
investment firms� The PRA and FCA use
a Memorandum of Understanding to
co-ordinate and carry out their respective
responsibilities
A policy which provides benefits payable on
certain events� The benefits may be a single
lump sum or a series of payments and
may be payable on death, serious illness or
sickness
The rights issue announced by Phoenix on
30 May 2018 and completed on 10 July
2018 in connection with the part financing
of the acquisition of the Standard Life
Assurance businesses
Represents total Eligible Own Funds divided
by the Solvency Capital Requirements
(‘SCR’), adjusted to a shareholder view
through the exclusion of amounts relating
to those ring-fenced with-profit funds and
Group pension schemes whose Own Funds
exceed their SCR
A new regime for the prudential regulation
of European insurance companies that
came into force on 1 January 2016
SOLVENCY II
SURPLUS
The excess of Eligible Own Funds over the
Solvency Capital Requirement
SOLVENCY CAPITAL
REQUIREMENTS
(’SCR’)
SCR relates to the risks and obligations
to which the Group is exposed, and is
calibrated so that the likelihood of a loss
exceeding the SCR is less than 0�5%
over one year� This ensures that capital
is sufficient to withstand a broadly ’1-in-200-
year event’
STANDARD
FORMULA
A set of calculations prescribed by
the Solvency II regulations for generating
the SCR
STANDARD LIFE
ASSURANCE
BUSINESSES
Standard Life Assurance Limited, Standard
Life Pensions Fund Limited, Standard Life
International Designated Activity Company,
Vebnet (Holdings) Limited, Vebnet Limited,
Standard Life Lifetime Mortgages Limited,
Standard Life Assets and Employee
Services Limited and Standard Life
Investment Funds Limited (together known
as the Standard Life Assurance businesses)
acquired by the Group on 31 August 2018
270
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
TIER 1 NOTES
TRANSITIONAL
MEASURES
ON TECHNICAL
PROVISIONS
TSR
UK CORPORATE
GOVERNANCE
CODE
UKCPT
UK HERITAGE
SunLife Limited� The Company which
distributes SunLife branded products on
behalf of its immediate parent company,
Phoenix Life Limited and certain third
parties
The £500 million fixed rate reset perpetual
restricted Tier 1 write down Notes issued
by Phoenix
Transitional Measures on Technical
Provisions (’TMTP’) is an allowance, subject
to the PRA’s approval, to apply a transitional
deduction to technical provisions� The
transitional deduction corresponds to the
difference between net technical provisions
calculated in accordance with Solvency
II principals and net technical provisions
calculated in accordance with the previous
regime and is expected to decrease linearly
over a period of 16 years starting from
1 January 2016 to 1 January 2032� TMTP is
subject to a mandatory recalculation every
two years or on the occurrence of certain
defined events
Total Shareholder Return – The total return,
over a fixed period, to an investor in terms of
share price growth and dividends (assuming
that dividends paid are re-invested, on the
ex-dividend date, in acquiring further shares)
Standards of good corporate governance
practice in the UK relating to issues such
as board composition and development,
remuneration, accountability, audit and
relations with shareholders
A property investment company which
is domiciled in Guernsey and listed on the
London Stock Exchange
The Group’s business segment where
products are no longer marketed to
customers, for example with-profits,
annuities and many legacy unit linked
life and pension products
UK OPEN
The Group’s business segment where
products are actively marketed to new and
existing customers
UNIT-LINKED
POLICY
A policy where the benefits are determined
by the investment performance of the
underlying assets in the unit-linked fund
WITH-PROFIT FUND
A fund where policyholders are entitled to
a share of the profits of the fund� Normally,
policyholders receive their share of the
profits through bonuses� Also known as
a participating fund as policyholders have
a participating interest in the with-profit
funds and any declared bonuses� Generally,
policyholder and shareholder participation
in the with-profit funds in the UK is split
90:10
ONLINE RESOURCES
REDUCING OUR ENVIRONMENTAL IMPACT
In line with our Corporate Responsibility programme, and as part of our desire to reduce our environmental impact,
you can view key information on our website�
Go online
www.thephoenixgroup.com
INVESTOR RELATIONS
Our Investor Relations section includes information such as our most recent news and announcements, results
presentations, annual and interim reports, share-price performance, AGM and EGM information, UK Regulatory Returns
and contact information�
Go online
www.thephoenixgroup.com/investor-relations
NEWS AND UPDATES
To stay up-to-date with Phoenix Group news and other changes to our site’s content, you can sign up for e-mail alerts,
which will notify you when content is added�
Go online
www.thephoenixgroup.com/site-services/e-mail-alerts.aspx
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
271
ADDITIONAL INFORMATION FORWARD-LOOKING STATEMENTS
The 2019 Annual Report and Accounts contains, and the Group may make other statements (verbal or otherwise) containing, forward-looking statements and
other financial and/or statistical data about the Group’s current plans, goals and expectations relating to future financial conditions, performance, results,
strategy and/or objectives, including in relation to the enlarged Group following the acquisition of ReAssure Group plc and the acquired businesses�
Statements containing the words: ‘believes’, ‘intends’, ‘will’, ’may’, ‘should’, ‘expects’, ‘plans’, ‘aims’, ‘seeks’, ‘targets’, ’continues’ and ‘anticipates’ or
other words of similar meaning are forward-looking� Such forward-looking statements and other financial and/or statistical data involve risk and uncertainty
because they relate to future events and circumstances that are beyond the Group’s control� For example, certain insurance risk disclosures are dependent
on the Group’s choices about assumptions and models, which by their nature are estimates�
As such, actual future gains and losses could differ materially from those that we have estimated� Other factors which could cause actual results to differ
materially from those estimated by forward-looking statements include but are not limited to:
• domestic and global economic and business conditions;
• asset prices;
• market-related risks such as fluctuations in interest rates and exchange rates, the potential for a sustained low-interest rate environment,
and the performance of financial markets generally;
• the policies and actions of governmental and/or regulatory authorities, including, for example, new government initiatives related to the financial crisis
and the effect of the European Union’s ‘Solvency II’ requirements on the Group’s capital maintenance requirements;
• the political, legal and economic effects of the UK’s vote to leave the European Union;
• the impact of inflation and deflation;
• market competition;
• changes in assumptions in pricing and reserving for insurance business (particularly with regard to mortality and morbidity trends, gender pricing
and lapse rates);
• the timing, impact and other uncertainties of proposed or future acquisitions or combinations within relevant industries, including but not limited
to the acquisition of ReAssure Group plc;
• risks associated with arrangements with third parties;
• inability of reinsurers to meet obligations or unavailability of reinsurance coverage; and
• the impact of changes in capital, solvency or accounting standards, and tax and other legislation and regulations in the jurisdictions in which members
of the Group operate�
As a result, the Group’s actual future financial condition, performance and results may differ materially from the plans, goals and expectations set out
in the forward-looking statements and other financial and/or statistical data within the 2019 Annual Report and Accounts� No representation is made that
any of these statements will come to pass or that any future results will be achieved� As a result, you are cautioned not be place undue reliance on such
forward-looking statements contained in this 2019 Annual Report and Accounts�
The Group undertakes no obligation to update any of the forward-looking statements contained within the 2019 Annual Report and Accounts or any other
forward-looking statements it may make or publish�
The 2019 Annual Report and Accounts has been prepared for the members of the Company and no one else� The Company, its Directors or agents do
not accept or assume responsibility to any other person in connection with this document and any such responsibility or liability is expressly disclaimed�
Nothing in the 2019 Annual Report and Accounts is or should be construed as a profit forecast or estimate�
272
PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
PHOENIX GROUP HOLDINGS PLC
Registered address
Phoenix Group Holdings plc
Juxon House
100 St Paul’s Churchyard
London EC4M 8BU
Registered Number
11606773
thephoenixgroup.com