HELPING PEOPLE
SECURE A LIFE OF
POSSIBILITIES
PHOENIX GROUP HOLDINGS PLC
ANNUAL REPORT & ACCOUNTS 2020
In this report
Our performance
STRATEGIC REPORT
What we do
Why invest in us?
Our purpose and strategy
Delivering cash
Delivering resilience
Delivering growth
Chairman’s statement
Group Chief Executive Officer’s report
Market trends
Our business model
Our strategic priorities and KPIs
Business review
Stakeholder engagement
Task Force on Climate-related Financial Disclosures
SECR statement
Risk management
Viability statement
2
3
4
6
8
10
12
14
18
20
26
46
58
67
77
79
90
KEY PERFORMANCE
INDICATORS
OTHER PERFORMANCE
INDICATORS
£1,713m
(2019: £707m)
Operating companies’
cash generation
APM REM
£5.3bn
£834m
(2019: £116m)
IFRS profit after tax
£13.4bn
2020 pro forma*
(2019 pro forma: £14.1bn)
(2019 pro forma: £4.4bn)
Group long-term free cash
Group Solvency II surplus
(estimated)
APM
Board activities for 2020
Board composition, experience and biographies
CORPORATE GOVERNANCE
Chairman’s introduction
The Board as a guardian of our purpose and values
Our leadership
92
94
95
96
98
101
Executive management team
102
The Board’s COVID-19 response
103
The Board Sustainability Committee
104
Board engagement with colleagues
106
ReAssure case study – our M&A strategy in action
Our stakeholders and the Board’s application of section 172 108
112
112
112
113
114
116
122
124
159
163
Board education
Board Risk Committee report
Board Audit Committee report
Nomination Committee report
Directors’ remuneration report
Directors’ report
Statement of Directors’ responsibilities
Division of responsibilities
Independence of Directors
Meeting attendance
FINANCIALS
Independent auditor’s report
IFRS consolidated financial statements
Notes to the consolidated financial statements
Parent company financial statements
Notes to the parent company financial statements
Additional Life Company asset disclosures
Additional capital disclosures
Alternative performance measures
ADDITIONAL INFORMATION
Shareholder information
Glossary
Forward-looking statements
164
177
184
290
293
303
307
309
311
313
318
The Strategic Report was approved by the Board of
Directors on 7 March 2021 and signed on its behalf by
£362m
(2019: £199m)
New business contribution
APM REM
£338bn
(2019: £248bn)
Assets under administration
APM
28%
(2019: 22%)
Fitch financial leverage ratio
APM REM
All amounts throughout the report
marked with REM are KPIs linked to
Executive remuneration. See Directors’
remuneration report on page 124.
All amounts throughout the report
marked with APM are alternative
performance measures. Read more
on page 309.
* 2020 pro forma Group long-term free cash
includes £(0.2)bn adverse impact of disposal of
Wrap SIPP, Onshore Bond and TIP products to
Standard Life Aberdeen and £(0.3)bn adverse
impact in relation to the expected increase in
the rate of corporation tax from April 2023 to
25% announced in the March 2021 budget.
164%
(2019 pro forma: 152%)
Group shareholder capital
coverage ratio (estimated)
APM REM
£766m
(2019: £483m)
Incremental new business
long-term cash generation
APM REM
47.5p
2020 total ordinary dividend
per share
£1,199m
(2019: £810m)
Operating profit
APM
94%
(2019: 94%)
Customer satisfaction
score – telephony
REM Phoenix Life only
90%
(2019: N/A)
Customer satisfaction
score – telephony
REM Standard Life only
Andy Briggs
Group Chief Executive Officer
Visit our website at
thephoenixgroup.com
Read more about our strategic
priorities and KPIs
page 26 to 45
HELPING PEOPLE
SECURE A LIFE OF
POSSIBILITIES
Today, there is no longer a typical life and people’s pensions
needs are therefore evolving.
Phoenix has a pivotal role to play as the country navigates
the shifting pensions landscape.
That’s why our purpose is helping people secure a life of
possibilities. This means providing the right guidance and
products, at the right time, to support the right choices.
Our vision is to grow a strong and sustainable business
to help more people on their journey to and through
retirement.
We will focus on delivering against our strategic priorities
and managing the business to deliver cash, resilience
and growth.
Phoenix Group Holdings plc Annual Report & Accounts 2020
1
STRATEGIC REPORT Main brands
What we do
PHOENIX
AT A GLANCE
Phoenix is the UK’s largest long-term
savings and retirement business
with £338 billion of assets under
administration and c.14 million customers.
We are a constituent of the FTSE 100
with c.7,500 colleagues and offer a broad
range of products to support people
across all stages of the savings life cycle.
We are a growing and sustainable
business with a clear purpose – helping
people secure a life of possibilities.
Our business
Assets under administration by division and product
3
1
£338bn
2
6
4
5
48%
52%
AUA by division
1. Heritage
2. Open
AUA by product
3. Unit linked
4. Annuities
5. With-profits
6. Protection,
Shareholder &
Other funds
63%
12%
23%
2%
2
Phoenix Group Holdings plc Annual Report & Accounts 2020
HERITAGE
Our Heritage business, where we are the
market-leader, is focused on the safe and
efficient management of insurance policies.
It comprises products that are no longer
actively marketed to new customers and
where we have stepped in as the custodian
of these policies. We have built this
business through the consolidation
of over 100 legacy insurance brands and
have a proven track record of improving
customer outcomes.
OPEN
Our Open business operates products
that are actively marketed to new and
existing customers.
The Open business comprises five separate
business units including our Workplace
pensions and Customer Savings &
Investments (‘CS&I’) units both of which
operate under the Standard Life brand, the
Retirement Solutions unit that includes both
vesting annuities and our Bulk Purchase
Annuity (‘BPA’) business, as well as our
over-50s brand ‘SunLife’ and our European
business operating in Ireland and Germany.
Read more about our
operating structure
page 22
Why invest in us?
PHOENIX
INVESTMENT CASE
Our model is
differentiated from
our peers by a unique
set of competitive
advantages and is
a business where
the whole is greater
than the sum
of the parts…
CASH
We deliver high levels of dependable
cash generation which supports our
dividend over the long term.
RESILIENCE
Our unique risk management
framework delivers resilience
across all of our in-force business.
GROWTH
We also generate surplus capital
with excess cash to invest in growth
options which are aligned to the
industry drivers of change.
MARKET-LEADING
COST EFFICIENCY
Our optimised operating model
delivers an enhanced customer
experience and significant cost
efficiencies within our business.
BROAD, DIVERSIFIED
PRODUCT RANGE
A diversified insurance business
drives capital efficiency across both
our Heritage and Open businesses.
SCALE
As the UK’s largest long-term
savings and retirement provider,
we already have relationships with
c.14 million customers.
…which enables Phoenix to deliver
long-term predictable cash generation…
n
o
i
t
a
r
e
n
e
g
h
s
a
C
M&A
Management actions
Open
Heritage
Time
Undertake value
accretive M&A,
extracting synergies
through integration
Accelerate and increase
total cash generation
Growth of our Open
business will offset the
run-off of our in-force
business
Manage our in-force
business for cash
and resilience
…that supports a stable and sustainable dividend
with M&A as the historic trigger for uplifts…
10-year dividend track record
+ 4% C A G R
45.2p
46.0p
46.8p
47.5p
40.8p
40.8p
40.8p
41.9p
36.5p
32.2p
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Dividend per share1
1 Dividends rebased to take into account the bonus element of rights issues.
…and, in time, if Open growth more than offsets
Heritage run off and long-term free cash is growing,
can provide a platform for a growing dividend.
Phoenix Group Holdings plc Annual Report & Accounts 2020
3
STRATEGIC REPORT
Our purpose and strategy
A MORE SECURE AND
SUSTAINABLE FUTURE
Phoenix has a clear strategy that leverages
our leading share of in-force business and
the major market trends for growth.
Our purpose is helping people
secure a life of possibilities...
…which in turn drives
our clear strategy that is
underpinned by our values…
CUSTOMERS
We are committed to contributing
to the closure of the growing
pensions and savings gap.
We can do this by providing
customers with the right guidance
and products, at the right time,
to support the right choices –
across both our Heritage and
Open businesses.
COLLEAGUES
We are committed to engaging all
colleagues in our purpose, building
a truly diverse workforce and
adapting our ways of working to
match the best interests of our
colleagues. We support our people
to grow and this in turn supports
the delivery of a growing and
sustainable business.
SOCIETY
As a market leader, we believe
we have a broader role to play
in society. This means taking
responsible and sustainable
investment decisions and
minimising the environmental
impact of our business operations.
We will also use our presence and
voice to advocate on behalf of
the UK’s savers.
Our strategy
OPTIMISE IN-FORCE
BUSINESS
We manage our in-force business
to deliver resilient cash generation
and management actions, including
cost and capital synergies.
DEEPEN CUSTOMER
RELATIONSHIPS
By engaging with our customers
and meeting their broader needs,
we will retain our customers and
they will consolidate towards us
as they journey to and through
retirement.
CUSTOMER
ACQUISITION
We will acquire customers and grow
our in-force business by leveraging
the industry drivers of change.
Our values
PASSION
Making a positive
impact by caring about
customers, colleagues
and communities.
RESPONSIBILITY
Doing the right thing by
taking personal
ownership.
Read more about our
stakeholder engagement
page 58
Read more about our
business model
page 20
4
Phoenix Group Holdings plc Annual Report & Accounts 2020
HERITAGE
• Market leader
• Bedrock of our
business
OPEN
• Strong foundation
• Unique advantages
from operating
alongside Heritage
M&A & INTEGRATION
• Market leader
• Differentiated capabilities
…to deliver cash,
resilience and growth
CASH
Dependable long-term
cash generation
supports dividends.
Read more
page 6
RESILIENCE
Our risk management
framework delivers
resilience.
Read more
page 8
GROWTH
Capital allocation
framework supports
our growth aspirations.
Read more
page 10
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.
Read more about our
strategic priorities
page 26
Phoenix Group Holdings plc Annual Report & Accounts 2020
5
STRATEGIC REPORT DELIVERING
CASH
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.
6
Phoenix Group Holdings plc Annual Report & Accounts 2020
‘Cash is king’ at Phoenix, with cash generated
by our Life Companies and remitted to Group
our key performance metric.
The majority of our ‘organic’ cash generation
comes from the emergence of surplus as our
in-force business runs off over time and capital
unwinds. However, we also have a strong track
record of delivering management actions which
increase free surplus and therefore enhance this
organic cash generation.
Our new Group metric of long-term free cash
represents the cash available for operating costs,
interest, growth and shareholder returns.
£1.7bn
2020 cash generation
£13.4bn
Group long-term free cash
(2020 pro forma)
£1.5–1.6bn
2021 one-year cash generation target
Phoenix Group Holdings plc Annual Report & Accounts 2020
7
STRATEGIC REPORT DELIVERING
RESILIENCE
Phoenix operates a risk management
framework designed to bring resilience
to our Solvency II surplus and certainty
to cash generation.
8
Phoenix Group Holdings plc Annual Report & Accounts 2020
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% and manage our key individual
risk sensitivities within this range also.
£5.3bn
Group Solvency II surplus
(estimated)
164%
Group Shareholder Capital
Coverage Ratio (estimated)
Phoenix Group Holdings plc Annual Report & Accounts 2020
9
STRATEGIC REPORT DELIVERING
GROWTH
Phoenix has a range of growth options
across both its Heritage and Open
businesses that bring sustainability
and the potential for future growth to
long-term cash generation.
10
Phoenix Group Holdings plc Annual Report & Accounts 2020
Growth from new business brings incremental cash
generation to Phoenix which offsets the run-off of
our in-force business and we are well positioned to
capitalise on the key market trends driving growth.
Our growing Open business is focused on both
deepening the relationship with our existing
customers and acquiring new customers.
We also deliver growth through value-accretive
acquisitions and we possess market-leading M&A
capabilities that enable us to be at the forefront of
future consolidation in the industry.
£766m
2020 incremental new business
long-term cash generation
£7bn
of additional long-term cash
generation added through the
acquisition of ReAssure Group plc
Phoenix Group Holdings plc Annual Report & Accounts 2020
11
STRATEGIC REPORT Chairman’s statement
A CLEAR ROLE
IN SOCIETY
Nicholas Lyons, Chairman
2020 has been a year of
change for Phoenix as we
welcomed Andy Briggs
as our new CEO and
completed the acquisition
of ReAssure, making
Phoenix the UK’s largest
long-term savings and
retirement business.
A YEAR OF SIGNIFICANT
PROGRESS
Under Andy’s leadership, Phoenix
is evolving from being a financial
consolidator to a purpose-led business
with a clear role in society.
The Board recognises that Phoenix
has a pivotal role to play as the country
navigates the shifting pensions and
savings landscape and is committed to
fulfilling our purpose of helping people
secure a life of possibilities.
It is with great enthusiasm that
we have supported Andy as he has
built his executive team who will help
him deliver this new vision for the
Group. This team brings together the
strengths of our legacy businesses,
with internal promotions being
augmented by new colleagues from
ReAssure and external appointments
to fill gaps in our skills and bring
market-leading experience.
Phoenix’s journey is one of evolution.
We are building on our market-leading
capabilities in managing Heritage
businesses and undertaking M&A and
integration, and are now developing a
thriving Open business that supports
customer retention and customer
acquisition.
In addition to the strategic change we
had expected in 2020, we have also
been dealing with the challenges
resulting from the COVID-19 pandemic.
Phoenix’s priorities throughout this
period have been to protect our
customers and colleagues and support
the communities in which we operate.
The Board has played a key role in
these efforts with bi-weekly virtual
briefing sessions to keep apprised of
the Group’s operational and financial
position, and to support the executive
team as they adapted to the emerging
needs of our customers and
colleagues.
This challenging period has
demonstrated the strength of
Phoenix’s business model. The
Group has continued to deliver
cash, resilience and growth and has
performed strongly against its strategic
objectives. This financial stability has
enabled Phoenix to continue to pay
dividends as planned. The Board
recognises that dividends are an
important income stream both for retail
shareholders and the end consumer
who invests in institutional income
funds. They are typically ordinary
savers and pensioners who need this
income stream, which in turn supports
the broader economy.
12
Phoenix Group Holdings plc Annual Report & Accounts 2020
“ I am delighted to see
the progress Phoenix
is making as it evolves
from being a specialist
financial consolidator
to a purpose-led
organisation that uses
its scale and resources
to play a pivotal role
in society.”
You can find out more about how
we are delivering on our ambitious
sustainability commitments in our
comprehensive 2020 Sustainability
Report at: www.thephoenixgroup.
com/sustainability/reports
The successful acquisition of the
ReAssure Group has further enhanced
the sustainability of our dividend. I am
therefore pleased to confirm that, in
line with our previous guidance, the
Board is recommending a final 2020
dividend of 24.1 pence per share, an
increase of 3% compared to the
interim dividend.
BOARD CHANGES
In addition to Andy Briggs joining as our
new CEO, I was also pleased that
Rakesh Thakrar was promoted to the
role of Group CFO and joined the
Board. Rakesh had previously served
as the Group’s Deputy CFO and so his
promotion is testament to our strong
succession planning.
Another important societal shift is the
increasing focus on environmental
sustainability. I am therefore delighted
that Phoenix has put sustainability at
the heart of its strategy and has
committed to achieving net-zero carbon
by 2025 across our operations and by
2050 across our investment portfolio.
Given its importance, the Board
wanted to ensure that our sustainability
agenda was fully embedded in the
business and underpinned by strong
governance. We have therefore
established a new Board Sustainability
Committee chaired by Karen Green.
This committee is responsible for the
review and oversight of the Group’s
sustainability strategy which continues
to evolve at pace.
LOOKING AHEAD
After a very successful year, we look
towards the future with optimism.
Phoenix’s market leading Heritage and
thriving Open businesses, combined
with a strategy that is closely aligned to
our industry’s trends, ensure the Group
is well positioned to take advantage of
emerging opportunities. Phoenix is
growing a strong and resilient business
to help more people on their journey to
and through retirement.
Following completion of the ReAssure
acquisition, Christopher Minter and
Hiroyuki Iioka joined the Board as part
of our relationship agreements with
the Swiss Re Group and MS&AD
respectively. They bring substantial
experience and executive skills to our
Board and additional international
perspectives. Also, Campbell Fleming
from Standard Life Aberdeen has
left the Board due to its reduced
shareholding following the completion
of the ReAssure transaction. On
behalf of the Board I would like to
thank Campbell for his excellent and
insightful contribution during his time
with us.
THANK YOU
Finally, I would like to take the
opportunity to thank the Board,
my colleagues, our partners and our
stakeholders for their hard work and
dedication in what has been another
successful, albeit challenging, year.
Nicholas Lyons
Chairman
Phoenix Group Holdings plc Annual Report & Accounts 2020
13
STRATEGIC REPORT Group Chief Executive Officer’s report
A REMARKABLE
YEAR OF
PROGRESS
Andy Briggs, Group Chief Executive Officer
2020 was a landmark year
for Phoenix during which
the Group became the
UK’s largest long-term
savings and retirement
business and once again
delivered on its key
attributes of Cash,
Resilience and Growth.
We delivered our highest ever year of
cash generation, exceeding the upper
end of our target range, and built good
momentum in the growth of our Open
business. Phoenix’s strong operational
and financial resilience ensured we
continued to deliver for all of our
stakeholders in the face of an
unprecedented period of disruption,
and it also enabled us to pay our
dividends as planned.
In addition, we completed our largest
M&A transaction to date with the
acquisition of ReAssure Group plc,
bringing an additional £7 billion of
incremental long-term cash generation
to the Group, together with market-
leading skills and capabilities. You can
find out more about the ReAssure
acquisition in the case study on the
next page.
SUPPORTING OUR CUSTOMERS,
COLLEAGUES AND COMMUNITIES
2020 has been an unprecedented year
for all of us due to the global health
crisis caused by the COVID-19
pandemic. Phoenix’s key priorities
throughout this time have been to
protect our customers and colleagues,
and to support the communities in
which we operate. I am immensely
proud of the dedication and resilience
our colleagues have shown as they
provided the very best support for our
customers and supported each other.
Our colleagues have lived up to the
values we seek to embody and have
demonstrated the key attributes of the
purpose-led organisation we are. You
can find out more about our COVID-19
response in the case study opposite.
DELIVERING CASH, RESILIENCE
AND GROWTH
Phoenix has continued its 11-year
unbroken track record of delivering
against all of its publicly stated financial
targets. With £1.7 billion of cash
generation in 2020, we exceeded the
upper end of our target range of £1.5 to
£1.6 billion. We also maintained our
strong capital position reflected in
a Solvency II surplus of £5.3 billion and
a Shareholder Capital Coverage Ratio
(SCCR) of 164%.
The growth of our Open business has
continued at pace, with strong new
business generating £766 million of
incremental long-term cash, a 59%
increase from 2019 and significant
progress towards proving ‘the wedge’.
Retirement Solutions was the largest
contributor during the year at £522
million, where our Bulk Purchase
Annuity (BPA) business growth is
accelerating and we also made further
progress in reducing our external deal
capital strain having reduced it to 8%.
14
Phoenix Group Holdings plc Annual Report & Accounts 2020
Our response to
COVID-19
Our modern IT platform enabled us
to equip 99% of our colleagues to
work from home within 10 days of
the first lockdown and still maintain
customer satisfaction at pre-
pandemic levels with call answer
rates >95% and customer
satisfaction scores at 90%+.
To enhance our support for
customers we accelerated our
digitisation strategy and rolled out a
range of additional support services
such as waiving the moratorium on
COVID-19-related claims in our
SunLife business and rapidly
enabling customers to move from
cheque to BACS payments.
For our colleagues, we offered a
range of homeworking support
solutions in addition to both a
remote working and homeschooling
expense provision. We also
launched new initiatives to engage
and inspire our colleagues, including
a range of resources to support
mental and physical wellbeing.
Our colleagues also remained
deeply involved in community work,
operating as NHS responders or by
embracing remote volunteering.
We are committed to providing the
best support to all our stakeholders
and what we have learnt during this
time will make a significant
difference to how we operate over
the long term, and is driving an
enduring change in our business.
Andy Briggs, Group Chief Executive Officer
In July we completed the
acquisition of ReAssure Group plc
and were delighted to welcome
c.3,000 new colleagues to our
Group. The transaction significantly
enhanced Phoenix’s cash
generation profile and scale with £7
billion of additional long-term cash
generation, £75 billion of AUA and
c.4 million customers. The
acquisition makes Phoenix the UK’s
largest long-term savings and
retirement business.
The transaction also reflects the
highly cash generative nature of
legacy consolidation businesses.
The relatively front-loaded acquired
cashflows significantly bolster the
amount of surplus cash we have
available to fund future M&A and to
reinvest in our Open business
growth strategy.
Phoenix and ReAssure have been
leaders in the UK consolidation
market over recent years with both
companies having strong track
records of successful M&A and
integrations. ReAssure’s ALPHA
administration platform has proven
to be flexible, scalable and resilient.
Operating this in-house platform
alongside Phoenix’s outsourced
Diligenta BANCS platform further
strengthens the Group’s market
leading integration capabilities. It
enables the Group to run multiple
integrations in parallel, which in turn
provides us with opportunities to
enhance the speed and frequency
with which we can undertake M&A
and deliver cost and capital
efficiencies.
This will support the ongoing
development of a range of ESG
products across the savings life cycle
and follows the launch of a workplace
ESG passive default fund in December.
Alongside this, as individuals
increasingly incorporate ESG
considerations into their long-term
savings decisions, we are also focused
on fostering responsible investment
through the active stewardship of
assets on behalf of our clients.
The resilience of our business model
and the dependable cashflows we
generate enabled the Board to approve
the payment of our planned dividends
throughout 2020, against a backdrop of
paused or cancelled dividends across
the wider market. This positions
Phoenix in the top-30 largest ‘dividend
payers’ in the FTSE 100 and is
testament to our sustainable dividend.
A CLEAR ROLE TO PLAY
IN SOCIETY
It is clear that there is a significant shift
in macro and demographic trends that
is driving profound change in the UK’s
long-term savings and pensions
market. The market is increasingly
complex and people need more
support than ever as they journey to
and through retirement.
Phoenix therefore has a pivotal role
to play as the country navigates the
shifting pensions landscape. That is
why our purpose is helping people
secure a life of possibilities. This
means providing the right guidance and
products, at the right time, to support
the right choices, across the savings
life cycle.
I passionately believe that businesses
with the best people, focused on their
purpose and their role in society,
deliver better customer outcomes, and
in turn, stronger returns for
shareholders.
COMMITTING TO A
SUSTAINABLE FUTURE
We see sustainability as being at the
core of our purpose and a key enabler
of our strategy. That is why we recently
launched our comprehensive
sustainability strategy that addresses
the critical trends impacting our
industry, including the aging population
and the responsibility to address global
environmental challenges.
Our strategy focuses on delivering for
our c.14 million customers and investing
our £338 billion of assets under
administration in a sustainable manner.
A key part of this is our commitment to
achieving net-zero carbon using
science-based techniques across the
Group’s operations by 2025 and our
investment portfolio by 2050. You can
find out more about what we are doing
here in the case study on page 17.
As the UK’s largest long-term savings
and retirement business, we are also
committed to contributing towards the
closure of the UK’s growing pensions
and intergenerational savings gap. We
believe that we can contribute to this
through providing innovative ESG-led
products for a changing society, by
promoting financial inclusion and
education with a particular focus on
supporting vulnerable customer
groups, and by enhancing our digital
experience to widen access for all.
Our vision is therefore to grow a strong
and sustainable business to help more
people on their journey to and through
retirement.
For example, this year we undertook an
innovative research project aimed at
better understanding the needs of our
customers in relation to sustainability.
Phoenix Group Holdings plc Annual Report & Accounts 2020
15
STRATEGIC REPORT Chief Executive Officer’s report continued
EVOLVING THE PHOENIX
STRATEGY
Our strategy, which we announced at
our Capital Markets Day in December
2020, is one of evolution, not
revolution. It builds on the strong
foundations that underpin Phoenix’s
market leading capabilities and
responds to the shifting pensions
landscape to deliver future growth.
Phoenix’s strategy is therefore focused
on optimising our in-force business to
deliver resilient cash generation,
deepening the relationships with our
c.14 million existing customers by
engaging with them and meeting their
broader needs, and acquiring new
customers through both our Open
businesses and M&A as we leverage
the industry drivers of change.
Lower for longer interest rates and
turbulent equity markets are resulting
in insurers continuing to look to free up
capital by divesting their legacy or
‘heritage’ books of business to scale
players such as Phoenix. As the market
leader in the acquisition and
management of closed-book life and
pensions insurance businesses,
Heritage will remain the bedrock of our
business. Here we will continue to
focus on delivering improved customer
outcomes and managing our in-force
book for cash and resilience. In
addition, our market-leading M&A and
integration expertise provide a
differentiated capability that will allow
us to deliver value from industry
consolidation. There is a huge M&A
opportunity for us to explore with the
UK Heritage market worth £440 billion
alone and we have the integration
capacity to do the next transaction
when it emerges.
Looking to the future, people’s needs
are changing as they move through the
stages of the life savings cycle. We are
seeing strong growth in the workplace
market, driven by auto-enrolment, an
ageing population and a move from
defined benefit to defined contribution
pension schemes. We also know that
as individuals prepare for retirement
and move into the decumulation stage
of the savings life cycle, they are
increasingly seeking guidance. At the
same time, corporate pension schemes
are looking to de-risk their balance
sheets through BPA transactions. Our
strategy is therefore designed to
position the Group for sustainable
long-term growth by responding to
these rapidly evolving sector trends
and changing customer needs.
We are already a top-three player in the
£40 billion per annum UK workplace
market. Our strategy in this segment is
to protect our existing business and
grow our market share by accelerating
the investment in our proposition and
aligning to changing sector trends such
as the growth in Master Trusts.
Within our Customer Savings &
Investments segment we are focused
on engaging our c.14 million customers
to better understand their savings
needs and provide innovative solutions
as they journey to and through
retirement. We estimate annual flows
of about £30 billion per annum into
products supporting this stage of the
life savings cycle.
And we are an established participant
in the £40 billion per annum BPA
market which constitutes a dependable
growth opportunity. Our strategy here
is to grow and expand through further
developing our market proposition,
building a best in class asset
management capability and improving
our capital efficiency.
To support the delivery of this strategy
we have recently implemented a new
organisational design, as we build out
our existing team with high calibre new
appointments designed to bring on
board additional skills and experience.
INVESTING IN OUR PEOPLE
AND CULTURE
I believe that building a strong culture
and diverse team of highly engaged
colleagues is fundamental to the
fulfilment of our purpose and the
delivery of our strategy. We are
committed to making Phoenix the best
place our colleagues have ever worked.
To achieve this, we want to be an
organisation where diversity of thought
and perspective is genuinely
embraced. We have made strong
progress across our main areas of
focus which revolve around employee
engagement and culture, diversity and
inclusion, wellbeing and mental health,
as well as talent and capabilities.
The crafting of our new purpose
statement involved a Company-wide
consultation initiative to incorporate our
colleagues’ perspectives and ensure
our purpose resonated strongly. We
have also launched a number of
16
Phoenix Group Holdings plc Annual Report & Accounts 2020
initiatives including a Group-wide
employee engagement exercise aimed
at determining our future ways of
working, a comprehensive Diversity
and Inclusion strategy underpinned by
a range of targeted support networks,
and an enhanced talent management
framework to support development.
As a result, we have already seen
some strong momentum in terms of
improved colleague advocacy through
our annual colleague engagement
survey, with a 10ppts increase in
overall colleague engagement to 75%.
DELIVERING FOR OUR
CUSTOMERS
Delivering for customers is central to
our strategy. We are therefore focused
on improving customer outcomes,
providing strong customer service and
investing in developing market leading
propositions. 2020 has been a year of
delivery across each of these areas.
Within our Heritage business we have
been improving customer outcomes
through ensuring we deliver good value
for money for our customers, making
continuous improvements to our
customer communications to increase
engagement, and by proactively tracing
and repatriating unclaimed life
insurance policies. Our focus on the
customer has seen us continue to
provide excellent customer service as
evidenced by having met or exceeded
all of our key customer satisfaction
scores in 2020, despite the pandemic
challenges.
In our Open business Workplace unit,
we have made significant
enhancements to our proposition such
as broadening our ESG fund offering
with the launch of a new multi-asset
ESG Defined Contribution Default fund
and the launch of an in-scheme
draw-down functionality so that more
of our customers can access their
pension benefits in a flexible way.
While the development of an enhanced
client analytics tool, in collaboration
with our digital partner Tata
Consultancy Services (TCS), will
provide enhanced customer insights
and allow us to offer a more
personalised customer experience.
Meanwhile, the trend to ‘digital first’ is
set to further accelerate and become
the preferred method of interaction for
our customers. We have made
significant digital enhancements across
Net-zero carbon pledge
Climate change is one of the biggest
global issues we face and in support of
the goals of the 1.5° Paris Agreement,
Phoenix is committed to becoming
net-zero carbon in our operations by
2025 and in our investment portfolio
by 2050.
We have devised a clear emission
reduction plan for our operations and
by the end of 2021 we expect to have
100% renewable energy contracts
across all sites, 100% of waste
diverted away from landfill and we
have set a target to reduce our Scope
1 & 2 emissions by 20% in 2021.
We are also committed to
decarbonising our investment
portfolios. Through our membership of
the Institutional Investors Group on
Climate Change (IIGCC), we took part
in a pilot to build and test Paris
Agreement-aligned portfolios and this
has provided valuable insight into how
we can look to implement our net-zero
investment strategy.
Read more about our sustainability
progress
page 38
We also see the recommendations of
the Task Force on Climate-related
Financial Disclosures (‘TCFD’) as an
enabler of our net-zero carbon
commitment and of the transition to a
low-carbon economy.
Find out more in our
TCFD report
page 67.
THANK YOU
I am proud that Phoenix has continued
to progress and evolve in 2020 despite
the challenging backdrop. I want to
thank all of my colleagues for their
dedication and efforts to support each
other, our customers and the
communities within which we operate.
I look forward to delivering another year
of significant progress in 2021.
Andy Briggs
Group Chief Executive Officer
both our Heritage and Open
businesses this year and have seen
increased usage of our digital solutions
with >50% of total log-ins now through
our enhanced mobile app and a more
than doubling in the use of secure
messaging by customers.
STANDARD LIFE BRAND
ACQUISITION
The recently announced simplification
of our Strategic Partnership with
Standard Life Aberdeen plc has seen
us acquire the Standard Life brand and
with it full control over marketing and
distribution. This will enable us to
provide a more streamlined, multi-
channel customer experience and allow
us to accelerate the delivery of a
broader set of product and service
propositions. We therefore see this as
a key enabler for accelerating our Open
business growth strategy and
delivering incremental new business
long-term cash generation over time.
OUTLOOK
Phoenix is well positioned to leverage
the key industry drivers of growth
while continuing to optimise its
market-leading share of in-force
business in the UK long-term savings
and retirement market.
Phoenix’s differentiated operating
model epitomises the whole being
greater than the sum of the parts. Our
Open business benefits from a unique
set of advantages from operating
alongside our Heritage business.
We are the market leader in the UK
Heritage consolidation market and
while this remains our priority for
M&A, we would also consider the
acquisition of Open books of business
if they offered a clear strategic fit.
Within our Open business, we are
building on our strong foundations to
deliver growth by further strengthening
our proposition, deepening the
engagement with our large existing
customer base and acquiring new
customers through our Workplace and
BPA businesses. All of which is now
enhanced by our ownership of the
Standard Life brand, marketing and
distribution.
Delivering on our Open business
growth aspirations will bring enhanced
long-term sustainability to the Group’s
organic cash generation and also has
the potential to support future dividend
growth subject to two clear conditions.
The first is that we must prove ‘the
wedge’ and see the cash generated
from new business more than offset
the run off of our in-force business of
c.£800m per annum, which we came
close to achieving in 2020 at £766m.
The second is that our recurring
sources of cash must exceed our
recurring uses, to support sustainable
growth in Group long-term free cash.
Our priorities for 2021 are clear. We will
focus on managing our balance sheet
for cash and resilience, and we will
accelerate our Open business growth
strategy. As a purpose-led organisation,
we will do this through delivering on
our sustainability commitments,
ensuring our customers are at the
centre of everything we do and by
investing in our people and culture.
Phoenix Group Holdings plc Annual Report & Accounts 2020
17
STRATEGIC REPORT Market trends
THE MACRO AND
MARKET CONTEXT
IS EVOLVING RAPIDLY
Macro trends are driving profound change and growth in the UK long-term savings
and retirement market. We identify six significant trends that inform our strategy:
AGEING POPULATION
RESPONSIBILITY SHIFT
TO THE INDIVIDUAL
GROWTH IN
AUTO-ENROLMENT
We live in an ageing society,
with more people than ever
benefiting from a longer, healthier
life. But this has created
retirement savings challenges for
individuals and companies alike.
24%
of the UK population will be >65
by 2043 up from 18% in 2018
At the same time, the world of
pensions has radically shifted
with individuals now expected
to take the lead in planning and
funding their longer retirements.
We are seeing strong growth
in auto-enrolment pension
contributions following its launch
in the UK in 2012 as more people
start saving for retirement.
8x
the number of defined contribution
scheme members compared to
defined benefit scheme members
£24bn
of annual flows into workplace
schemes in 2019 having tripled
since 2012
FINANCIAL UNCERTAINTY
DIGITISATION
SUSTAINABILITY
Uncertainty is forcing people
not simply to live for today, but
to look further ahead. However,
pensions are unsurprisingly seen
as complex, and not everyone
is saving enough to secure the
future they would like.
There is increasing demand from
customers for digital solutions
for financial management, with
digital set to become the normal
method of interaction and a
key differentiator for attracting
new customers.
Interest in sustainability is
increasingly shaping decisions,
as people want their money being
put to good use. This includes a
focus on climate change and how
businesses are responding and
taking steps to reduce emissions.
18
Phoenix Group Holdings plc Annual Report & Accounts 2020
Looking forward, we see four major market trends which represent
significant growth opportunities for Phoenix:
INSURERS ARE CONSOLIDATING
Pressure on insurer balance sheets to free up capital
trapped in heritage books makes more consolidation
likely. This represents a £440 billion M&A opportunity
for our Heritage business in the UK market alone.
STRONG AUTO-ENROLMENT WORKPLACE GROWTH
The workplace market has flows of £40 billion per annum
and this is growing rapidly, driven by auto-enrolment, an
ageing population and the move from defined benefit
schemes to defined contribution schemes.
Phoenix response
We remain focused on identifying value-accretive M&A
opportunities, where we can leverage our market-leading
capabilities in successfully completing transactions,
integrating businesses and delivering cost and capital
synergies.
Phoenix response
We are a top-three player in the Workplace market with a
c.11% market share and our strategy is to protect and grow
our business. We will do this by continuing to invest in
strengthening our proposition and digital platform, as well as
improving our cost efficiency to support competitive pricing.
£630bn
Heritage M&A opportunity across UK,
Germany and Ireland
£40bn
Estimated future market flows per annum
INDIVIDUALS ARE RETIRING
As responsibility for managing retirement income
continues to shift to the individual, people are seeking
guidance on their journey to and through retirement, with
additional market flows of £30 billion per annum.
CORPORATES ARE DE-RISKING
Corporates are increasingly de-risking their defined benefit
scheme liabilities through BPA transactions in order to focus
on their core businesses. This is fuelling increased demand
for BPAs with market flows of £40 billion per annum.
Phoenix response
By engaging our c.14 million customers to better
understand their savings needs we can invest in our
proposition to provide innovative solutions that encourage
customers to consolidate their pension pots with Phoenix
and enables us to retain them after they reach retirement.
Phoenix response
We are an established player in the BPA market and are
investing further to develop a market-leading franchise to
enable us to grow and expand our business. This will be
supported by building a best-in-class asset management
capability and improving our capital efficiency.
£30bn
£40bn
Estimated future market flows per annum
Estimated future market flows per annum
Phoenix Group Holdings plc Annual Report & Accounts 2020
19
STRATEGIC REPORT Our business model
INSPIRING CONFIDENCE
BY DELIVERING VALUE
Our business model leverages our
core capabilities and clear strategy to
deliver for all of our stakeholders.
Phoenix has a simple business model and
operating structure which underpin our financial
framework of cash, resilience and growth.
Dividends
and interest
Support
growth
GROUP
Cash remitted
to Group
Cash remitted
to Group
LIFE COMPANIES
HERITAGE
OPEN
THE GROUP function
manages corporate and
strategic activity including
M&A. Cash remitted to
Group is used to pay
interest and dividends
and supports growth.
LIFE COMPANIES manage
the financial assets of
customers and integrate
acquired businesses. This
simplifies the operating
model and ensures the
efficient use of capital.
The Life Companies remit
cash to the Group.
We are set apart by the
core capabilities that
underpin our business
model
EXPERTISE
Our experienced team of colleagues
are experts in managing our in-force
business for cash and resilience, and
the delivery of management actions.
We also have a growing team
dedicated to driving Open business
growth.
OPTIMISED OPERATING MODEL
Delivers an enhanced customer
experience and market-leading
cost efficiency across both our
Heritage and Open businesses.
SCALE
As the UK’s largest long-term savings
and retirement provider, we have
relationships with c.14 million
customers.
TRUST AND CREDIBILITY
Our financial strength, combined with
our strong track record of successful
M&A and integration, means we are
a trusted counterparty for vendors
looking to dispose of life insurance
assets and for pension trustees in the
BPA market.
RISK MANAGEMENT FRAMEWORK
We operate a unique risk management
framework that makes us less
sensitive to market fluctuations and
delivers a resilient balance sheet.
Read more about our efficient
operating structure
page 22
Read more about how we
page 24
generate cash
20
Phoenix Group Holdings plc Annual Report & Accounts 2020
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
Our strategy is delivered through
five strategic priorities
Positive outcomes are delivered
for all of our stakeholders
MANAGE OUR CAPITAL POSITION
Read more
page 26
CREATE VALUE AND DELIVER
DEPENDABLE CASH GENERATION
Read more
page 30
MEET CHANGING
CUSTOMER NEEDS
Read more
page 34
PUT SUSTAINABILITY AT THE
HEART OF OUR BUSINESS
page 38
Read more
INSPIRE OUR PEOPLE
Read more
page 42
CUSTOMERS
Improved customer
outcomes.
Read more
page 60
SHAREHOLDERS
Shareholder value
created and stable
and sustainable
dividends delivered.
Read more
page 64
COLLEAGUES
Challenged, motivated
and rewarded colleagues.
Read more
page 62
SOCIETY
Support for local
communities and
charity partners.
Read more
page 63
90%+
customer satisfaction
scores all met or
exceeded group
targets
47.5p
2020 total ordinary
dividend per share
75%
colleague engagement
score up 10ppts in 2020
£2million
of charitable
donations in 2020
ENVIRONMENT
Reduced environmental
impact.
Read more
page 63
net-zero
carbon commitment for
our operations by 2025
and investments by 2050
Read more about how we improve
stakeholder outcomes
page 58
Phoenix Group Holdings plc Annual Report & Accounts 2020
21
STRATEGIC REPORT
Our business model continued
AN EFFICIENT
OPERATING
STRUCTURE
To set ourselves up for future growth and success, Phoenix is organised
into customer-oriented business units, shared services and functions
CORPORATE CENTRE
M&A
HERITAGE
OPEN
2 business units
• Phoenix
• ReAssure
5 business units
• Workplace
• Customer
Savings &
Investments
• Retirement
Solutions
• Europe
• SunLife
CUSTOMER FUNCTION
GROUP FUNCTIONS
• Finance
• General Counsel
• Risk
• HR
• Internal Audit
• Corporate Affairs and
Investor Relations
SHARED SERVICES
Asset management
Operations
Divisions and business units within
EVOLVING OUR OPERATING STRUCTURE
During 2020, Phoenix has evolved its operating structure to
support our vision of building a growing and sustainable
business, whilst retaining the attributes of a small and agile
organisation. Our new matrix structure is designed to drive
accountability down into the organisation and empower our
leaders and people to deliver on our strategy.
SHARED SERVICES
Asset management
We are building a best-in-class asset management function
that operates as a shared service and provides investment
solutions into each of the business units. This comprises
both a market-leading in-house function and a range of
external partners including our core strategic partner ASI.
DIVISIONS
Business units
Our Heritage and Open divisions operate through a number
of customer-oriented business units – more details opposite.
Customer function
Our customer function is responsible for the customer
journey for all of our c.14 million customers and is focused
on improving customer outcomes and providing strong
customer service.
Operations
Our cost-efficient hybrid operating model for customer
administration uses both in-house and out-sourced solutions
with a unique flexibility provided by the two platforms we
operate, with both ReAssure’s ALPHA platform and Tata
Consulting Services (‘TCS’) BANCS platform key to our model.
CORPORATE CENTRE
The Group operates centralised functions that partner with
our divisions and manage our corporate and strategic
activity, including a centralised M&A capability.
22
Phoenix Group Holdings plc Annual Report & Accounts 2020
Heritage
Assets under administration
2
£162bn
1
1. Phoenix
2. ReAssure
62%
38%
Open
Assets under administration
4
£176bn
3
1
2
1. Workplace
2. Customer Savings &
Investments
3. Retirement Solutions
4. Europe
5. SunLife
25%
33%
26%
16%
0%
Our Heritage business comprises
products that are no longer
actively marketed to customers.
Our strategy is to deliver
improved customer outcomes
and manage our in-force
business for resilience and cash.
Phoenix is the market leader in the safe
and efficient management of Heritage
in-force business and has a strong track
record of delivery.
The business has been built from two
decades of consolidation and comprises
over 100 legacy brands including
Britannic, Pearl, Scottish Mutual, AXA
and Abbey Life, as well as the heritage
customers of Standard Life Assurance
Limited. It also includes the recently
acquired ReAssure business that
currently operates as a business unit.
The business has a broad range of life
and pensions products which provide
diversification and capital efficiencies.
Organic cash emerges naturally from our
in-force business as it runs off over time
and we enhance this organic cash
generation through our proven ability to
deliver management actions which
either increase the overall cashflows
from the business or accelerate the
timing of these cashflows.
Organic cash generation runs off at c.6%
per annum depending on the particular
features of each book.
Integral to the efficient management of
our Heritage business is ensuring we
continue to optimise our operating
model including implementing a single
administration platform and harmonising
our actuarial and finance models.
Our growing Open business
comprises products that are
actively marketed to customers.
Our strategy seeks to capitalise
on the industry drivers of change
through helping customers’
journey to and through
retirement by providing long-
term solutions to their
savings needs.
Our Open business comprises five
business units: Workplace, Customer
Savings & Investments, Retirement
Solutions, Europe and SunLife.
WORKPLACE
Workplace is our engine for growth in
customer acquisition and is marketed
through our Standard Life brand. We are
a top-three workplace pensions provider
with £44 billion of AUA across 36
thousand schemes and 1.8 million
members. Our proposition includes
contract-based, trust-based and the
increasingly popular master-trust
schemes. Our strategy here is to protect
and grow our business by continuing to
invest in strengthening our proposition
and digital platform.
CUSTOMER SAVINGS &
INVESTMENTS
We offer a range of products across both
the accumulation and decumulation
stages of the life-savings cycle through
our Standard Life brand. Our strategy is
built on better understanding our c.14
million customers’ needs in order to
provide them with innovative solutions.
Future new business will be generated
as we engage our customers in their
holistic savings needs to motivate them
to consolidate their pension pots with
Phoenix and as we retain our existing
customers when they reach retirement
age through a guidance proposition.
RETIREMENT SOLUTIONS
This business unit includes both vesting
annuities and our BPA business, where
we acquire annuities and deliver the
financial stability required to secure
pensions currently provided by UK
corporates. We are an established player
in the BPA market with a c.6% market
share in 2020. We are building a
market-leading team to deliver our
strategy to grow and expand this
business. Key to this will be broadening
our market proposition, developing a
best-in-class asset management
capability and improving our capital
efficiency.
EUROPE
Our European business operates in
Ireland and Germany primarily through
our Standard Life brand. It offers a range
of pensions and savings products,
including international bonds.
SUNLIFE
SunLife continues to hold a strong
position in the over-50s market,
generating new business across its life
cover, equity release and funeral plans.
Phoenix Group Holdings plc Annual Report & Accounts 2020
23
STRATEGIC REPORT Management
actions
Cash
remitted to
the holding
companies
Cash
remitted
from the Life
Companies
Head office
costs
Our business model continued
HOW WE
GENERATE
CASH
Any assets which
the Life Companies
hold in excess of
overall internal
capital buffers
required are known
as free surplus
Organic
surplus
emergence
Pensions
Debt
interest and
repayments
Dividends
Remaining
cash at
holding
company
level
Opening
free
surplus
Closing
free
surplus
Opening
cash at
holding
company
level
Cash generation within our Life Companies
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
HOW IS FREE SURPLUS
GENERATED?
Organic surplus
emergence
Life Companies earn margins
on different types of life and
pensions products increasing
Own Funds. In addition, as
our in-force business runs off
the Solvency Capital
Requirements reduce.
Less Solvency Capital
Requirement
The level of regulatory
capital required is known
as the Solvency Capital
Requirement.
Less Capital Policy
The Life Companies hold
internal capital buffers above
the regulatory capital
requirement for prudence.
Management actions
These can either increase
Own Funds or reduce capital
requirements.
24
Phoenix Group Holdings plc Annual Report & Accounts 2020
Management
actions
Cash
remitted to
the holding
companies
Cash
remitted
from the Life
Companies
Head office
costs
Organic
surplus
emergence
Opening
free
surplus
Closing
free
surplus
Opening
cash at
holding
company
level
Pensions
Debt
interest and
repayments
Cash at the holding
company level
provides resources
for future growth
and resilience for
the Group
Dividends
Remaining
cash at
holding
company
level
Cash utilisation 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?
Head office costs
Including salaries and other
administration costs.
Pensions contributions
To the Group’s employee
Defined Benefit schemes.
Debt interest and
repayments
On outstanding Group
shareholder debt.
Dividends
The Group currently
operates a stable and
sustainable dividend policy.
WHAT IS THE REMAINING
CASH USED FOR?
Mergers and acquisitions
As well as providing a clear
strategic fit, M&A
transactions must meet our
three key criteria of being
value accretive, supporting
the dividend level and
maintaining the Group’s
investment grade rating.
BPA transactions
Generate increased cash
flows over the longer term
and are value accretive.
Phoenix Group Holdings plc Annual Report & Accounts 2020
25
STRATEGIC REPORT
Our strategic priorities and KPIs
MANAGE
OUR CAPITAL
POSITION
We seek to optimise our capital structure while
addressing the diverse needs of our policyholders,
investors and regulators.
We continue to focus on the effective
management of our risks and the efficient
allocation of capital against those risks.
Our approach to risk management brings
resilience to our Solvency II balance sheet which
in turn brings dependability to the timing of our
cash generation.
This differentiated approach to risk management
means that we are comparatively more resilient to
market stresses than the majority of our peers.
26
Phoenix Group Holdings plc Annual Report & Accounts 2020
Phoenix Group Holdings plc Annual Report & Accounts 2020
27
STRATEGIC REPORT Our strategic priorities and KPIs continued
MANAGE OUR
CAPITAL POSITION
We have a disciplined approach to
balance sheet management which
is articulated through our risk
management framework and follows
three key principles: protect solvency,
optimise free surplus and deliver
resilience.
We manage capital within a target
shareholder capital coverage ratio of
140% to 180% and manage our Fitch
leverage ratio within a target range of
25% to 30%.
We deliver resilience to our capital
position by hedging unrewarded risks
such as equity, interest rate and
currency risks. And we proactively
manage rewarded risks, like credit risk,
through a well-diversified, defensively
positioned asset portfolio that is
actively managed.
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 2020
• The Group’s shareholder capital
variances during 2020 with a
Solvency II surplus impact of just
£0.2 billion for the year.
coverage ratio of 164% has been
maintained in the middle of our
target range of 140% to 180%
despite the significant market
volatility in 2020 and is testament to
our approach to risk management.
• We proactively manage our
shareholder capital coverage ratio
within our target range and by
maintaining this throughout the year
we were able to fund the ReAssure
deal efficiently whilst also being able
to pay our interim dividend and
increase our final dividend.
• Capital synergies associated with
the acquisition of the Standard Life
Assurance businesses benefited
the Group Solvency II surplus by
£75 million in 2020.
• Capital synergies associated with the
acquisition of ReAssure benefited
the Group Solvency II surplus by
£479 million in 2020 primarily
resulting from applying the Group’s
hedging strategy and the
harmonisation of methodologies,
including the calculation of
transitional measures on technical
provisions, and the total expected
capital synergies have been
increased from £450 million to
£600 million.
• The Group made good progress
in reducing its BPA capital strain
in 2020 from 9% to 8% and reduced
average payback periods from 6–7
years in 2019 to 5–6 years in 2020.
• Proactive management of our credit
portfolio saw us prudently rotate out
of UK BBB assets into USD A or
better credit assets to enhance our
risk profile and deliver capital
benefits.
• The Group issued £1.5 billion of debt
during the year to fund the ReAssure
transaction and had a Fitch leverage
ratio of 28% at year end, comfortably
within its 25 to 30% target range.
• The Group continued to work closely
with the PRA during 2020 on its
internal model harmonisation
application and expects to submit
this in 2021.
• The Board considered the potential
impact of a range of scenarios,
including very severe ones, on the
Group’s solvency and liquidity
position as a result of COVID-19 and
the related market volatility, before
concluding that the robustness of
our capital position supported the
payment of the 2019 final dividend
and 2020 interim dividend.
PRIORITIES FOR 2021
• Implement further management
actions to enhance the Group’s
capital position.
• Submit our harmonised internal
model application to the PRA.
• Reduce the capital strain associated
with writing external BPAs from the
8% achieved in 2020 further towards
our target of 5%.
• The Group’s dynamic hedging
• Optimise our debt funding in line
approach led to limited economic
with our maturity profile.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
Insight
EFFECTIVE RISK MANAGEMENT
IN VOLATILE MARKETS
“Our active approach to risk
management limited the impact of
the unprecedented market volatility
seen in the first half of 2020 as
markets swung violently in response
to the pandemic news. Phoenix
reported only a £0.2bn reduction in
its Solvency II surplus at H1 2020
due to economic variances and this
is testament to the strengths of both
our dynamic hedging approach and
our prudent risk appetite.”
Rakesh Thakrar
Group Chief Financial Officer
KPI: Dividend per share (pence)
47.5p
2019: 46.8p
2018 22.6p
23.4p
46.0p
2019 23.4p
23.4p
46.8p
2020
23.4p
24.1p
47.5p
How we measure delivery
KPI: Solvency II surplus (£bn)
£5.3bn
2019: £4.4bn (pro forma)
KPI: Shareholder capital
coverage ratio (%)
164%
2019: 152% (pro forma)
2019
2020
£4.4bn
£5.3bn
2019
2020
152%
164%
WHY IS IT IMPORTANT?
WHY IS IT IMPORTANT?
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.
The Shareholder Capital Coverage Ratio
demonstrates the extent to which shareholders’
Eligible Own Funds cover the Solvency
Capital Requirements.
The Group’s dividend per share helps measure
how the Group delivers value to shareholders
in accordance with its stable and sustainable
dividend policy.
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.
ANALYSIS
ANALYSIS
ANALYSIS
The Group’s Solvency II surplus of £5.3 billion
has significantly increased compared to prior year
(2019: £4.4 billion). Surplus emergence and the
strong delivery of management actions was partly
offset by interest, dividends and costs, as well as
the BPA capital strain and economic variances.
A coverage ratio of 164% remains in the middle
of our target range of 140% to 180%.
The Board has proposed a final dividend of 24.1
pence per share which is a 3% increase on the
2020 interim dividend of 23.4 pence per share
reflecting the significant value generated by the
ReAssure transaction.
LINKED: APM REM
Phoenix Group Holdings plc Annual Report & Accounts 2020
29
STRATEGIC REPORT Our strategic priorities and KPIs continued
CREATE VALUE
AND DELIVER
DEPENDABLE
CASH GENERATION
Long-term dependable cash generation is a
key attribute of Phoenix’s business model.
It underpins the Group’s stable and sustainable
dividend while also providing us with the means
to fund future growth.
In order to create value, the Group looks to
maximise the economic performance of its
in-force business and to deliver management
actions which increase and accelerate cash
flows, while identifying and executing on
organic and inorganic growth opportunities.
30
Phoenix Group Holdings plc Annual Report & Accounts 2020
Phoenix Group Holdings plc Annual Report & Accounts 2020
31
STRATEGIC REPORT Our strategic priorities and KPIs continued
CREATE VALUE AND DELIVER
DEPENDABLE CASH GENERATION
• ReAssure completed the Part VII
transfer of the L&G business during
2020 creating capital synergies of
£0.1 billion and also completed the
acquisition of Old Mutual Wealth
which delivered £290 million of cash
generation during the year.
PRIORITIES FOR 2021
• Deliver new 2021 cash generation
target of £1.5 to £1.6 billion.
• Deliver strong incremental long-term
cash generation from new business
and continue to progress with our
ambition to deliver Open new
business growth that offsets
Heritage run-off to prove ‘the
wedge’.
• Deliver cost efficiencies through
the migration of the SLAL customer
and IT operating model to the
BANCS single platform.
• Deliver integration synergies from
the ReAssure transaction.
• Seek further investment
opportunities in the BPA market and
improve our capital efficiency further.
• Identify and execute additional
management actions.
• Continue to assess value-accretive
M&A opportunities in line with our
clear capital allocation framework.
Cash generated by our Life companies
and remitted to Group is our key
performance metric.
The majority of the Group’s cash
generation stems from the run-off of
in-force business. We harness its key
characteristics of predictable fund
maturity and liability profiles to deliver a
high level of sustainable cash
generation. This in turn is used to cover
operating costs, fund dividends to
shareholders, as well as service and
repay outstanding debt. We then look
to deploy any surplus cash into
value-accretive growth opportunities to
bring sustainability and future growth
to our cash generation.
There are significant opportunities
across our in-force business to increase
and accelerate cash flows through the
delivery of management actions
spanning four key areas: operational
management, risk management,
restructuring and effective partnerships.
Furthermore, new business written
within our Open division brings
additional scale to our in-force business
and delivers incremental long-term
cash generation. This extends the
sustainability of the Group’s cash
generation profile and it is hoped in
time it can offset the Heritage run-off.
And finally, value-accretive M&A
can yield significant additional cash
generation and provide the opportunity
to deliver incremental cost and
capital synergies.
KEY INITIATIVES AND PROGRESS
IN 2020
• At £1.7 billion, the Group delivered
record cash generation in the year,
exceeding the upper end of its £1.5
to £1.6 billion target range.
• New business written within the
Open division delivered incremental
long-term cash generation of £766
million in 2020, a record year.
• Our BPA business was the largest
new business contributor at £522
million with seven bulk purchase
annuity transactions successfully
completed with total contracted
liabilities of £2.5 billion. The Group
invested £228 million of capital to
facilitate these transactions.
• A key BPA transaction was the initial
buy-in of the Phoenix Group’s own
Pearl Scheme which unlocks >£100
million of future capital benefits
through the release of a share charge
that enables the Part VII of our UK
life companies.
• In aggregate, the Group delivered
£1.3 billion of Solvency II management
actions, with £1.1 billion increasing
Own Funds and this included £0.5
billion of capital synergies associated
with the acquisition of ReAssure (see
page 28), cost synergies arising from
the Part VII transfer of the L&G
business, strategic asset allocation
activities including further investment
in ERM and the optimisation of
matching adjustment portfolios.
• The acquisition of ReAssure Group
completed in July, significantly
increased our scale and added £7
billion of future cash generation to
the Group which supported a 3%
increase in the final 2020 dividend.
32
Phoenix Group Holdings plc Annual Report & Accounts 2020
Insight
DELIVER DEPENDABLE OPEN
BUSINESS GROWTH
“As 2020 has demonstrated, BPAs
provide a dependable source of
new business growth with £522m
of long-term cash generation in the
year. We are an established player
in the BPA market and are building
a best-in-class team to grow and
expand our business while also
reducing the capital strain.”
Andy Curran
CEO Savings and Retirement
UK & Europe
How we measure delivery
KPI: Operating companies’
cash generation (£m)
KPI: Incremental new business
long-term cash generation
KPI: Operating profit (£m)
£1,713m
2019: £707m
£766m
2019: £483m
£1,199m
2019: £810m
£664m
£707m
2018
2019
2020
£1,713m
£530m
£483m
2018
2019
2020
£766m
£708m
£810m
2018
2019
2020
£1,199m
WHY IS IT IMPORTANT?
WHY IS IT IMPORTANT?
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.
Incremental new business long-term cash
generation represents the new business cash
generated by the products sold to new customers
in our Open business, including BPA transactions.
Our strategy seeks to leverage the industry drivers
of growth to deliver incremental new business cash
generation that can offset the run-off of our in-force
business. Delivering on our growth aspirations
will bring enhanced long-term sustainability to the
Group’s organic cash generation and also has the
potential to support future dividend growth.
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.
A reconciliation of operating profit of £1,199 million
to the IFRS profit after tax of £834 million (2019:
£116 million) is included in the Business Review
section.
ANALYSIS
ANALYSIS
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 2020 was £1,713 million and
includes £790 million of contribution from ReAssure.
Incremental new business long-term cash
generation of £766 million represents an increase of
59% on the prior year (£483 million) primarily due to
a strong performance from our BPA business which
contributed £522 million in 2020, up from £235
million in 2019.
Operating profit has increased by £389 million
compared to prior year, principally reflecting the
contribution of ReAssure following completion of
the acquisition.
TARGET
• To generate £1.5 to 1.6 billion of cash in 2021
• To generate £4.4 billion of cash across 2021–23
LINKED: APM REM
LINKED: APM REM
LINKED: APM
Phoenix Group Holdings plc Annual Report & Accounts 2020
33
STRATEGIC REPORT Our strategic priorities and KPIs continued
MEET CHANGING
CUSTOMER NEEDS
We will continue to improve customer outcomes,
broadening the focus of our business so that we
can help customers as they journey to and
through retirement. This means developing new
propositions and services, filling the guidance
gap faced by millions of savers, and investing
in market leading technology to provide the
digital service customers expect. We will build
a powerful brand, based on superior consumer
insights and engagement, which will be the
foundation for future growth.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
35
STRATEGIC REPORT Our strategic priorities and KPIs continued
We are entrusted with the long-term savings,
investment and protection of c.14 million customers
and we are passionate about helping them secure
a life of possibilities.
MEET CHANGING
CUSTOMER NEEDS
Our customer mission is to deliver the
best service and experience to our
customers, fuelled by innovation, a
‘can-do’ culture and being customer
obsessed in everything we do.
More than ever, people need help and
guidance from a company which is
simple to deal with and which they
trust. We deliver this to our customers
through strong service delivery and by
ensuring we remain relevant, engaging
and easy to deal with.
As a result of the ReAssure transaction
we were proud to welcome an
additional c.4 million customers to the
Group. We are continuing to work with
ReAssure colleagues to align our
approach and learn from best practice
to enhance our offering and deliver the
best possible experience for all
customers across the Group.
COVID-19
At the start of the pandemic we
enabled our colleagues to work from
home to ensure their safety whilst
continuing to deliver a service to
our customers.
We strengthened our support to
customers, to ensure no customer
suffered poor outcomes or harm as
a result. We used our Interactive Voice
Response and website messaging to
keep customers updated, increased our
online capability so customers could do
more digitally and created a
Coronavirus Support Hub.
Despite the alterations to our way of
working the pandemic has required we
have continued to provide a highly
rated telephony and digital service, and
have tracked customer satisfaction
scores at 90% or above throughout the
year. We have seen a reduction in the
number of complaints received in 2020
and we continued to perform well
against peers in regards to closure of
complaints within eight weeks.
KEY INITIATIVES AND
PROGRESS IN 2020
• We extended drawdown capability
across the Group so more customers
can access their pension benefits in
a flexible way, offering SLAL’s
non-advised drawdown to Phoenix
Life customers.
• We continued to support savings
through drawdown by offering the
option to select from four investment
solutions linked to the customer’s
needs and plans for their retirement.
• Our mobile app for our Standard Life
customers now has a 4.5 star app
store rating, proving the benefits of
this service to our customers.
• We launched our enhanced client
analytics tool for workplace clients,
delivered in conjunction with our
strategic partner TCS.
• We launched a new passive ESG
default fund in December 2020.
• We have reduced the ongoing
charges for c.20,000 endowment
customers, improving the value for
money provided by their products.
• We implemented in-scheme
drawdown functionality to allow
Master Trust customers over 55 to
withdraw money from their pension
flexibly and leave any money not
taken invested for later.
• We implemented MyColleague
functionality to enable straight-
through processing on journeys
including retirements and
bereavements.
• We completed a Group-wide
research programme looking at
vulnerability, to help colleagues
understand the functional and
emotional needs of customers,
so we can support and guide
them appropriately.
PRIORITIES FOR 2021
• We continue to focus on customer
sustainability, and ensure it is at the
core of our customer offerings.
• A range of innovative and digital
initiatives will be trialled to support
our customers to further engage
them with their savings and
investments across their life stages.
• We will use insight from our
customers to continue to improve
our guidance offer and support them
in making better decisions.
• We will further enhance how we
analyse and act upon feedback to
develop our insight approach and
help us improve key communications
and customer journeys.
• We are expanding the range of
investments to provide even more
retirement income fund solutions for
our customers.
• In collaboration with TCS we are
developing a salary-deductible ISA
which we plan to launch in 2021.
.
36
Phoenix Group Holdings plc Annual Report & Accounts 2020
Insight
“For some of our customers, COVID-19 has heightened
existing vulnerabilities or made them vulnerable for the
first time. During the year, we adapted our ways of
working and strengthened our customer support to
ensure we continued to provide the best possible
service to all of our customers. I am very proud of the
continued service and support we have provided
throughout 2020.”
How we measure delivery
John McGuigan
Group Customer Director
KPI: Financial
Ombudsman Service
(‘FOS’) overturn rate (%)
KPI: Speed of pension
transfer payouts –
Origo (days)
14%
2019: 17%
9.76
2019: 9.69
KPI: Customer
satisfaction score (%)
KPI: Customer
satisfaction score (%)
94%
2019: 94%
Phoenix Life only
90%
Standard Life only
20181
20192
20203
17%
20181
17%
20192
14%
2020
11.03
2018
9.69
9.76
2019
2020
93%
94%
94%
During 2020 we evolved the way
in which we measured customer
satisfaction in SLAL. This is the first
year of reporting in this manner.
WHY IS IT IMPORTANT?
WHY IS IT IMPORTANT?
WHY IS IT IMPORTANT?
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.
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.
This measure highlights how satisfied
customers are with Phoenix’s
telephony servicing proposition.
This measure highlights how satisfied
customers are with Standard Life’s
telephony servicing proposition.
ANALYSIS
ANALYSIS
ANALYSIS
ANALYSIS
The FOS overturn rate of
14% is significantly below the
industry average of 34% and the
‘Decumulation, Life and Pensions’
category average of 27%.
The Group’s pension transfer times
are better than the industry target.
To achieve a score of 94%
reflects our commitment to
ensuring customers are satisfied
with the service they receive from
Phoenix.
To achieve a score of 90%
reflects our commitment to
ensuring customers are satisfied
with the service they receive from
Standard Life.
TARGET
TARGET
TARGET
TARGET
To maintain a FOS overturn target of
less than the industry average
of 30%.
Twelve days, in line with the industry
stated target for Origo Pension
Transfers.
To maintain a customer satisfaction
score which is 93% or above.
To maintain a customer satisfaction
score which is 90% or above.
1 2018 figures, Phoenix Life only.
2 2019 figures, combined Phoenix Life and SLAL.
3 FOS overturn rate shown as H2 2019 and H1 2020.
LINKED: REM
LINKED: REM
Phoenix Group Holdings plc Annual Report & Accounts 2020
37
STRATEGIC REPORT Our strategic priorities and KPIs continued
PUTTING
SUSTAINABILITY
AT THE HEART OF
OUR BUSINESS
As the UK’s largest long-term savings and
retirement business we have a clear role to play
in society. We will be driven by our purpose
in the decisions we take, by putting sustainability
at the heart of our business. We are focused on
delivering for our c. 14 million customers and
investing our £338 billion of assets under
administration in a sustainable manner. We
are committed to reducing our environmental
impact, investing in our people and culture,
supporting our communities and working
responsibly with suppliers.
38
Phoenix Group Holdings plc Annual Report & Accounts 2020
PLACEHOLDER
PLACEHOLDER
Phoenix Group Holdings plc Annual Report & Accounts 2020
39
STRATEGIC REPORT Our strategic priorities and KPIs continued
Our purpose is helping people secure a life of
possibilities. We will play an integral role in creating a
more sustainable future for all and have therefore put
sustainability at the heart of our business as a key
strategic priority.
PUTTING SUSTAINABILITY AT
THE HEART OF OUR BUSINESS
OVERVIEW
Our sustainability strategy is fully
aligned to our purpose, to our
enterprise strategy and to our corporate
values. Our strategy has evolved during
2020, as the world we operate in and
the needs of our stakeholders’ change.
Fostering responsible investment
We are committed to factoring ESG
matters into our investment decision-
making process. We will play a vital
role in decarbonising the capital
markets and financing the transition
to a sustainable, low carbon economy.
We reassessed the materiality of
Environmental, Social and Governance
(‘ESG’) issues which highlighted a
growth in the importance of financial
literacy and inclusion, digitalisation
and responsible investment.
Our sustainability strategy has a
refreshed pillar design, focus and
ambitions to ensure that it meets the
changing needs of our many
stakeholders.
Delivering for our customers
We are committed to contributing to
the closure of the growing pensions
and savings gap by addressing the
diverse needs of society and fostering
better financial and social wellbeing.
We aim to deliver product optionality
to enable improved financial wellbeing
across our differing customer needs,
and remove barriers to inclusion
through well developed and targeted
education programmes.
Innovative digital solutions will offer
greater transparency on our ESG
offering and increase customer
engagement, empowerment and
confidence. We will continue to develop
on customer vulnerability initiatives.
During 2020, we became a signatory
to the UN-supported Principles of
Responsible Investment which, as
the largest UK asset owner signatory in
the UK, demonstrates our commitment
to embed ESG factors in investment
decision-making and stewardship
activities.
Our net-zero commitment
We are creating actions to respond to
the need to reduce greenhouse gas
emissions and accelerate the transition
to a low-carbon future.
To support our activity on climate
change, we are a signatory to
Business Ambition for 1.5˚C and the
recommendations of the Task Force
for Climate-Related Financial
Disclosures (‘TCFD’).
We have set a net-zero carbon
commitment in our operations by 2025
and a net-zero commitment in our
investment portfolio by 2050.
KEY INITIATIVES AND
PROGRESS IN 2020
We delivered all commitments
outlined in our 2019 Sustainability
Report, including:
• Expanding the range of Responsible
Investment funds offered to pension
savers, including an ESG Default
40
Phoenix Group Holdings plc Annual Report & Accounts 2020
solution for our workplace business.
• Launching a new four pillar Diversity
and Inclusion strategy to create the
culture that reflects the nature of our
business and ensures that every
colleague is treated with dignity
and respect.
• Deepening our understanding of
our customers’ sustainability needs
through a series of customer
research focus groups.
PRIORITIES FOR 2021
• Undertake customer research for
product innovation and increase the
ESG fund content offering to
customers.
• Integrate material ESG elements into
our investment management process
and establish regular reporting to our
Board on known and emerging
ESG risks.
• Implement our net-zero carbon plans
and deliver target footprint reduction
for 2021.
• Enhance our diversity data to support
the aims of our people agenda, enrich
our reporting, and tailor our actions.
• Launch new ways of working that
support our culture and colleague
wellbeing and delivers flexibility for
our colleagues.
Read more about our Sustainability
strategy, aspirations and progress
to date
please refer to our
separate 2020 Sustainability Report
Read more about our
TCFD reporting
page 67
Insight
OUR APPROACH TO MAKING
A DIFFERENCE
“We are embedding sustainability
into everything that we do, and
have enhanced our strategy to
address the critical trends impacting
our industry including societal
issues such as an ageing
population, financial uncertainty, the
evolving digitisation of businesses,
and the responsibility to address
global environmental challenges.”
Claire Hawkins
Director of Corporate Affairs
& Investor Relations
How we measure delivery
2021 target: Review responsible
investment content of workplace
default solutions (Active Plus and
Passive Plus)
2021 target: 60% of shareholder
illiquid asset origination in
sustainable investments
(excluding ERM)
2021 target: 20% reduction in scope
1 and 2 emissions from occupied
premises per full time employee
intensity (from 2020 value of 1.2
tonnes per FTE)
WHY IS IT IMPORTANT?
WHY IS IT IMPORTANT?
WHY IS IT IMPORTANT?
As our customers consider where and how to
save, they want their money put to good use
and we have seen a growing awareness and
demand from customers to understand how
their investments take into account ESG factors.
We will focus on product innovation which will
enable greater customer choice, through a broad
range of ESG funds and products to suit evolving
customer preferences. We will complete a review
of the responsible investment content of our
promoted workplace default solutions, Active Plus
and Passive Plus. Stakeholder engagement and
implementation of the changes will then follow.
Responsible investment is at the core of our
strategy and will deliver benefits to policyholders,
investors and society. Expansion into sustainable
assets is a core part of our responsible investment
strategy. We will increase investment in sustainable
assets within the shareholder and policyholder
business. We look forward to playing a key role in
society over the coming years; putting our assets to
good use and supporting our Company purpose of
helping people secure a life of possibilities.
We are committed to the need to reduce
greenhouse gas emissions and accelerate the
transition to a low-carbon future, and have
committed to achieving net-zero across all emission
scopes by 2050. We have begun the work of
identifying the best approach for this by setting our
first milestone to bring our operations to net-zero
carbon by 2025. We are currently implementing
net-zero plans including developing our science-
based targets.
ANALYSIS
ANALYSIS
ANALYSIS
These positive changes will impact over 3.3
million customers and £28 billion of assets under
management in these solutions.
We have set a target of 60% of illiquid asset
origination as sustainable investments for the
shareholder portfolio.
Scope 1 emissions are generated from within our
operations and scope 2 are purchased energy
emissions to power our operations. We will remove
wasteful emissions and switch to renewables.
You can find out more about how
we are delivering on our ambitious
sustainability commitments in our
comprehensive 2020 Sustainability
Report at: www.thephoenixgroup.
com/sustainability/reports
Phoenix Group Holdings plc Annual Report & Accounts 2020
41
STRATEGIC REPORT Our strategic priorities and KPIs continued
INSPIRE
OUR PEOPLE
As Phoenix has grown organically and through
acquisition, we have developed talent with the
specialist skills that have enabled the business
to succeed. We are now building the capabilities
and culture which will deliver success in the
future, focusing relentlessly on customer needs
and outcomes. We will retain and attract top
talent through creating a rich and diverse
working environment and aim to be the
employer of choice in our sector.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
Phoenix Group Holdings plc Annual Report & Accounts 2020
43
STRATEGIC REPORT Our strategic priorities and KPIs continued
We are committed to making Phoenix the best place
any of us have ever worked. This includes embedding
our culture, engaging colleagues and holding everyone
accountable for creating a truly diverse workforce. We
are also dedicated to adapting to the changing way of
working in the best interests of all colleagues.
INSPIRE OUR PEOPLE
COVID-19
The pandemic has brought about a
seismic shift in the way that we
operate. Central to this has been
keeping colleagues safe, customers
and shareholders supported and
satisfied, and supporting the
communities where we operate.
We responded swiftly to the pandemic,
ensuring colleagues across the Group
stayed safe and were successfully set
up to work from home, supporting
customers as normal. We then focused
our attention on the wellbeing of
colleagues and ensuring we continued
to offer an inclusive, attractive and safe
work environment. Our support
included:
• Working-from-home expense
provision for colleagues.
• Additional five days’ parental
emergency leave and carer’s leave
made available.
• The October colleague engagement
survey demonstrated that despite the
challenges of the pandemic, overall
engagement was recorded as 75%,
an increase of 10% on the previous
year.
• We also saw a 16-point rise to 71% in
advocacy of Phoenix as a place to
work and 87% of colleagues are
committed to the success of Phoenix.
• We launched the ‘Who We Are’
application which allows colleagues to
share their diversity data confidentially,
showing an accurate demographic
make-up of the Group.
• We remained a signatory to the
Women in Finance Charter. At year
end, we had women in 21% of the
top 100 roles, increasing to 24% in Q1
21 with known hires (target 30%),
36% of the Group’s green/amber
successors are women (target 40%)
and the Group-wide mean gender pay
gap is 24.1% (target 22%).
• Snapshot surveys to gather real-time,
• We implemented a new Talent and
actionable insights into what
colleagues need and how they are
feeling.
• A host of wellbeing support and
guidance.
• An IT subsidy for parents and
guardians to support them with
home schooling.
Capability Review process which has
enabled us to strengthen senior
teams and succession plans through
targeted promotions, functional
moves and external hires. As a result,
our percentage of green/amber
women successors will increase to
44% in 2021.
• Colleague engagement events
• The number of colleagues on
throughout December.
KEY INITIATIVES AND
PROGRESS IN 2020
• Our new Phoenix Story was launched
in July 2020 and was developed
collaboratively with our colleagues to
reflect our purpose-led culture and
the values that we strive for.
our mentoring scheme doubled to
over 200, and we participated in the
30% Club.
• Our new learning offering, Flourish at
Phoenix, brings together all the
resources colleagues need to grow
their own future and move forward
in their careers.
• We continued to address local
societal issues through donations of
44
Phoenix Group Holdings plc Annual Report & Accounts 2020
skills, money, time and resources: we
donated £1 million to charities
supporting those most vulnerable
from coronavirus. In total, support to
charities in UK and Europe amounted
c. £2 million across 2020. Due to the
pandemic, existing UK corporate
partnerships were extended to year
end. In the absence of fundraising we
widened our charity matching
programme.
• All status and length of service-
related benefits have been removed
to focus on rewarding all colleagues
equally based on their own
contribution to our business.
• Our upper-quartile family policy offers
all new parents 52 weeks’ leave, with
six months fully paid.
PRIORITIES FOR 2021
• Embed an employee culture that is
forward-looking, customer-obsessed,
accountable and empowered.
• Deliver new ways of working that
support our culture and colleague
wellbeing and delivers flexibility for
our colleagues.
• Create a continuous listening
environment to understand colleague
engagement monthly and generate
the agility to respond to the
moments that matter.
• Create a rejuvenated employee value
proposition that creates a highly
engaged workforce, attracts and
nurtures talent, supports colleagues
and reflects our Diversity and
Inclusion strategy.
• Maintain support for our
communities through volunteering,
fundraising and engagement.
Insight
CREATING A POSITIVE IMPACT
“We want to make Phoenix the
best place any of us have ever
worked. Building a strong culture
and creating an engaging
environment that drives
empowerment and accountability
for our colleagues, supports
changing ways of working and
genuinely embraces diversity of
thought and perspective, are
fundamental to achieving this.”
Sara Thompson,
Group HR Director
Our committed gender targets
Our Women in Finance
Charter commitments
2021 target: Minimum of 30%
of our top 100 roles (as defined
by base salary) to be occupied
by women
21%
2021 target: Minimum
of 40% of green/amber
successors to be women
2021 target: Group-wide gender
pay gap to be less than or to
equal 22%
36%
24.1%
Based on contracted hires as at 31 December 2020, we will have 24% of our top 100 roles occupied by women and 44%
green/amber successors identified as women.
Total workforce
Total employees
Male
Female
Directors (includes Non-Executive Directors)
Male
Female
Executive Committee1
Male
Female
Workforce that is of Black, Asian or Minority Ethnic (‘BAME’) background
2020
7,653
3,709
3,944
13
9
4
10
8
2
5572
2019
4,417
2,270
2,147
12
8
4
9
8
1
2073
Total workforce
by gender
Direct reports to senior
management by gender
Female 52%
48%
Male
Female 41%
59%
Male
1 Excludes Group CEO and Group CFO, who are recorded as Directors.
2 Based on information disclosed by employees. Data not recorded for SunLife and Germany/Austria employees (26.3% workforce).
3 Based on information disclosed by employees. Data not recorded for SunLife and Standard Life Assurance Limited employees (55% workforce).
Phoenix Group Holdings plc Annual Report & Accounts 2020
45
STRATEGIC REPORT Business review
INSPIRING
CONFIDENCE
THROUGH
FINANCIAL
DELIVERY
Rakesh Thakrar, Chief Financial Officer
2020 was a year of
exceptionally strong
performance for the
Group. Despite significant
market volatility
experienced as a result
of COVID-19 all of the
Group’s financial targets
were met or exceeded.
This demonstrates the
Group’s resilience
and continued focus
on growth through
new business.
IFRS
The Group generated an increased
operating profit of £1,199 million for the
year (2019: £810 million), reflecting the
contribution of the ReAssure
businesses for the five-month period
post-completion of the acquisition on
22 July and increased Bulk Purchase
Annuity (‘BPA’) transaction activity
in the period.
The IFRS profit after tax attributable to
owners for the year is £834 million
(2019: £116 million). The increase
primarily reflects the increased
operating profit together with a gain
recognised on the acquisition of the
ReAssure businesses of £372 million
and gains on hedging positions held in
the shareholder funds.
CASH
Cash generation remains our key
reporting metric.
The Group’s cash generation of £1,713
million in the year allowed the Group to
exceed the upper end of its £1,500 to
£1,600 million target range for that
period, and includes £690 million of
cash remitted by the ReAssure Life
Companies in the period prior to
completion of the acquisition.
The Group now monitors an additional
cash metric, Long-Term Free Cash
(‘LTFC’). LTFC provides a measure of
the Group’s long-term cash available
for operating costs, interest, growth
and shareholder returns. Group LTFC
as at 31 December 2020 was £13.4
billion (2019: £14.1 billion) and is stated
on pro forma basis to reflect the £0.2
billion reduction in future long-term
cash generation arising as a result of
the disposal of the Wrap Self-Invested
Personal Pension (‘Wrap SIPP’),
Onshore Bond and UK Trustee
Investment Plan (‘TIP’) businesses and
also £0.3 billion for the adverse impact
of the expected increase in the rate of
corporation tax from April 2023 to
25%, announced in the March 2021
budget. The Group’s ambition is
to replenish the cash that it uses
year-on-year through growth in
long-term cash generation and the
delivery of management actions.
RESILIENCE
The Group’s capital position of £5.3
billion (2019: £4.4 billion pro forma)
remained resilient in the year, and our
shareholder capital coverage ratio of
164% (2019: 152% pro forma) remains
comfortably in the middle of our target
range of 140% to 180%. Despite the
market volatility experienced in the
year, we have seen only a £0.2 billion
strain from economics, reflecting
the impact of the Group’s hedging
programme and active approach to
credit portfolio management. The
closing surplus has been positively
impacted by the delivery of capital
synergies following the acquisition
of the ReAssure businesses, together
with management actions delivered
in the year and the issuance of capital
qualifying subordinated debt.
GROWTH
The Group’s Assets under
Administration (‘AUA’) increased to
£337.7 billion in the year (2019: £248.3
billion). The increase in the year is
largely driven by the acquisition of
the ReAssure businesses on 22 July,
net inflows from the Group’s Open
business, and net positive market
movements. These factors have been
partly offset by net outflows from
the Group’s Heritage businesses.
Long-term cash generation is expected
to increase by £766 million as a result
of new business transacted in the year
(2019: £483 million). This includes the
impact of seven BPA transactions
executed in the period, together with
new business from our Open segment.
46
Phoenix Group Holdings plc Annual Report & Accounts 2020
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
309 for further details of this measure.
Maintaining strong cash flow delivery
underpins debt servicing and
repayments, shareholder dividends as
well as opportunities for further M&A
and investment in new business.
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 2020 was £1,713
million (2019: £707 million). This
includes £690 million of cash remitted
by the ReAssure Life companies in the
period prior to completion and accruing
to the Group under the ‘locked box’
acquisition completion mechanism.
The total is reported net of a £50
million contribution into the Group’s
Irish domiciled subsidiary, Standard Life
International Designated Activity
Company (‘SLIDAC’), in order to
strengthen its capital position following
the fall in yields during the period.
USES OF CASH
The operating expenses of £42
million (2019: £43 million) principally
comprise corporate office costs,
net of income earned on holding
company cash and investment
balances.
Annual pension scheme contributions
of £80 million (2019: £50 million)
were made during the year and
include total contributions of £70
million into the Pearl Group Scheme
and £10 million into the Abbey Life
Scheme, which includes £4 million
paid into Charged Accounts and held
in escrow. Following the signing of
the new Commitment Agreement
with the Scheme Trustees, the Pearl
Group Scheme contributions included
the balance of the remaining
contributions under the 2012
Pensions Agreement (£37 million) in
addition to the monthly instalments
paid up to this date. No further
contributions are expected to be
paid to the Pearl Group Scheme.
Debt interest of £184 million (2019:
£112 million) increased in the year as
a result of the cash settlement of a
full annual coupon on the €500
million Tier 2 bond issued in
September 2018, the first coupons
on the US$750 million Tier 1 bond
issued in January and the US$500
million Tier 2 bond issued in June.
Additionally debt interest includes a
semi-annual coupon paid in the post
completion period on three debt
instruments which were substituted
to the Group as part of the acquisition
of the ReAssure businesses (£250
million Tier 2, £500 million Tier 2 and
£250 million Tier 3). Coupons on the
£500 million Tier 2 bond issued in
April are not due until 2022.
LOOKING AHEAD
Phoenix remains on track to achieve its
long-term cash generation target for
the five-year period 2019 to 2023 of
£6.8bn. The target has been upgraded
to reflect the acquisition of ReAssure,
together with the impact of new
business and management actions
delivered in 2019 and 2020. The Group
looks forward to the future from a
position of financial strength.
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 that 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
309, including definitions, why the
measure is used and if applicable,
how the APM can be reconciled
to the nearest GAAP measure.
Phoenix Group Holdings plc Annual Report & Accounts 2020
47
STRATEGIC REPORT Business review continued
NON-OPERATING NET CASH
OUTFLOWS
Non-operating net cash outflows
of £66 million (2019: £137 million)
principally comprises £156 million
of recharged staff costs and Group
expenses associated with corporate-
related projects, including the transition
programmes, partly offset by £115
million of cash realised or posted as
collateral in respect of derivative
instruments entered into by the holding
companies to hedge the Group’s
exposure to currency and equity risk.
The remainder of the balance includes
£22 million of expenses associated
with the acquisition of the ReAssure
businesses and £3 million of net
other items.
SHAREHOLDER DIVIDEND
The shareholder dividend of £403
million represents the payment of
£169 million in May for the 2019 final
dividend and the payment of the 2020
interim dividend of £234 million in
September. The 2020 final dividend
per share proposed is 24.1 pence.
DEBT ISSUANCE (NET OF FEES)
The £1,445 million debt issuance in the
year comprises the net proceeds of the
£572 million (US$750 million) Tier 1
bond in January, the £500 million Tier 2
bond issuance in April and the £398
million (US$500 million) Tier 2 bond
issuance in June.
COST OF ACQUISITIONS
Cost of acquisitions of £1,265 million
relates to the cash consideration
settlement to finance the acquisition
of the ReAssure businesses.
REASSURE HOLDING COMPANY
CASH ACQUIRED
Cash within the ReAssure holding
companies of £580 million was
recognised on acquisition of those
entities on 22 July.
SUPPORT OF BPA ACTIVITY
£228 million (2019: £98 million) of
funding has been provided to the life
companies to support BPA new
business, including the buy-in
transaction with the Pearl Group
Scheme.
Cash and cash equivalents at 1 January
Operating companies’ cash generation:
Cash receipts from Life Companies
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
Debt issuance (net of fees)
Cost of acquisitions
ReAssure Holding Company cash acquired
Support of BPA activity
Cash and cash equivalents at 31 December
Year ended
31 December
2020
£m
275
Year ended
31 December
2019
£m
346
1,073
–
(50)
1,023
(42)
(80)
(184)
(66)
(372)
(403)
(775)
1,445
(1,265)
580
(228)
1,055
932
25
(250)
707
(43)
(50)
(112)
(137)
(342)
(338)
(680)
–
–
–
(98)
275
1
Total cash receipts include £108 million received by the holding companies in respect of tax losses
surrendered (2019: £112 million) and exclude £690 million of cash generation from the ReAssure Life
Companies arising in the period prior to completion.
All amounts in the Business Review section marked with an ’APM’ are alternative performance measures.
See ’Alternative Performance Measures’ section on page 309 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 124 for further details of executive remuneration including
the financial and non-financial performance measures on which it is based.
Illustrative stress testing1
Base case three-year cash guidance
Following a 20% fall in equity markets
Following a 12% fall in property values2
Following a 73bps interest rates rise3
Following a 88bps interest rates fall3
Following credit spread widening4
Following credit downgrade: immediate full letter
downgrade on 20% of portfolio5
Following 6% decrease in annuitant mortality rates6
Following a 10% change in lapse rates7
1 January 2021 to
31 December
2023
£bn
4.4
4.4
4.2
4.7
4.0
4.3
3.8
3.5
4.2
Assumes stress occurs on 1 January 2021 and that there is no market recovery.
1
2 Represents an average fall in property values of 12%.
3
4
5
Assumes the impact of a dynamic recalculation of transitionals and an element of dynamic hedging which
is performed on a continuous basis to minimise exposure to the interactions of rates with other correlated
risks including longevity.
Credit stress varies by rating and term and is equivalent to an average 120bps spread widening (full range of
spread widening is 49bps to 204bps). It assumes the impact of a dynamic recalculation of transitionals and
makes no allowance for the cost of defaults/downgrades.
Impact of an immediate full letter downgrade across 20% of the shareholder exposure to the bond portfolio
(e.g from AAA to AA, AA to A etc). This sensitivity assumes no management actions are taken to rebalance
the annuity portfolio back to the original average credit rating and makes no allowance for the spread
widening which would be associated with a downgrade.
6 Equivalent of six months increase in longevity applied to the annuity portfolio.
7 Assumes most onerous impact of a 10% increase/decrease in lapse rates across different product groups.
48
Phoenix Group Holdings plc Annual Report & Accounts 2020
TARGET CASH FLOWS
The Group set a short-term cash
generation target of £1,500 to £1,600
million for 2020 (including cash
generation from the ReAssure Life
companies in the period prior to
completion) and with £1,713 million of
cash generation achieved, the Group
has exceeded the upper end of its
target range.
The Group had a cash generation target
of £3.8 billion for the five-year period
2019 to 2023. Following the acquisition
of the ReAssure businesses, this was
increased by £2.7 billion to £6.5 billion.
£0.7 billion was achieved in 2019 with
a further £1.7 billion delivered in 2020.
The target has been updated by £0.3
billion, reflecting £0.2 billion of new
business written in 2019 and 2020,
£0.3 billion to reflect over-delivery of
management actions in 2020 offset
by £(0.2) billion for the impact of net
adverse economic and market
movements, notably credit
downgrades in the period.
This takes the target up to £6.8 billion,
of which £4.4 billion remains to be
delivered over 2021 to 2023. 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 £13.3 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.
£13.4bn
Group Long-Term Free Cash
APM
£1,713m
Operating companies’
Cash generation
APM REM
Long-term in-force cash generation
Less M&A and transition costs
Plus closing Holding Company cash
Long-term Group cash
Less shareholder debt
Group Long-Term Free Cash
Group LTFC
Pro forma
Year ended
31 December
20202
£bn
Group LTFC
Pro forma
Year ended
31 December
20191
£bn
17.7
(0.3)
1.0
18.4
(5.0)
13.4
19.0
(0.2)
0.3
19.1
(5.0)
14.1
2020 change in Group Long-Term Free Cash
0.8
0.3
(0.2)
(0.8)
14.1
(0.2)
(0.1)
13.9
(0.2)
(0.3)
13.4
Opening
LTFC
FY19
(pro
forma)
New
business
long-term
cash
generation
Over
delivery of
management
actions
Investment
in Open
growth
strategy
BPA
funding
Other
Operating
costs,
interest
and
dividend
Closing
LTFC
FY20
Change in
corporation
tax rate
Sale
of Wrap
SIPP,
Onshore
Bond & TIP
Closing
LTFC
FY20
(pro
forma)
GROUP LONG-TERM FREE CASH
The Group now monitors an additional
cash metric, Long-Term Free Cash
(‘LTFC’). Group LTFC is comprised of
long-term cash to emerge from in-force
business, plus holding company cash
less M&A and transition costs and
shareholder debt outstanding. Group
LTFC provides a measure of the
Group’s total long term cash available
for operating costs, interest, growth
and shareholder returns.
Increases in Group LTFC will be driven
by the sources of long-term cash i.e.
new business and over-delivery of
management actions.
Decreases in Group LTFC will reflect
the uses of cash at holding company
level, including expenses, interest,
investment in BPA and dividends.
In addition, in 2020, £0.2 billion has
been set aside for investment in our
growth strategy. This reflects a c.£20
million of cost per annum, capitalised
for 10 years to invest in enhancing
capabilities in our Open businesses,
Asset Management, our brand and
in our sustainability strategy.
The other movement of £0.1 billion
includes the cash settlement with SLA
in relation to historic legacy items and a
small net impact from economics and
assumption changes.
The impact of the sale of Wrap SIPP,
Onshore Bond and ‘TIP’ to SLA is
expected to result in a £0.2 billion
reduction in Group LTFC. Further
details are set out on page 289 in
events after the reporting period.
The impact of the expected increase in
the rate of corporation tax from April
2023 to 25% announced in the March
2021 budget is expected to result in a
£0.3 billion reduction in Group LTFC.
The Group’s ambition is to replenish
cash that it uses year-on-year through
growth in long-term cash generation
and management actions.
Read more about our APM section
page 309 for further details
of this measure
1 Stated on a pro forma basis as if the acquisition of the ReAssure businesses took place on 31 December 2019.
Stated on a pro forma basis to reflect the £0.2 billion reduction in future long-term cash generation as a result
2
of the disposal of Wrap SIPP, Onshore Bond and TIP and £0.3 billion for the adverse impact of the expected
increase in the rate of corporation tax from April 2023 to 25% announced in the March 2021 budget.
Phoenix Group Holdings plc Annual Report & Accounts 2020
49
STRATEGIC REPORT Business review continued
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 statement of
consolidated 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.
GROUP AUA
Group AUA as at 31 December 2020
was £337.7 billion (2019: £248.3
billion). The increase in the year is
largely driven by the acquisition of the
ReAssure businesses on 22 July, net
inflows from the Group’s UK Open
business, and net positive market
movements. These factors have been
partly offset by net outflows from the
Group’s UK Heritage businesses.
UK HERITAGE NET FLOWS
UK Heritage net outflows of £(7.3)
billion (2019: £(6.2) billion1) 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. The acquisition of the
ReAssure Heritage business increased
net outflows relative to the prior year.
A reconciliation from the Group’s IFRS
statement of consolidated financial
position to the Group’s AUA is provided
on page 305. Please see the
Alternative Performance Measure
(‘APM’) section on page 309 for
further details of this measure.
UK OPEN FLOWS
The UK Open segment experienced
gross inflows of £12.4 billion (2019:
£11.7 billion1) during the year, of which
£7.7 billion (2019: £8.2 billion) was
received in respect of new contracts
transacted in the period.
includes £0.7 billion arising from buy-in
transactions with the Group’s Pension
Schemes and £1.8 billion (2019: £1.1
billion) of new business inflows arising
from BPA transactions completed in
the year.
Gross inflows in the Workplace product
of £4.7 billion (2019: £4.9 billion) were
impacted by challenging market
conditions relating to COVID-19,
however inflows have trended back to
pre-COVID-19 levels during the latter
months of 2020.
Gross inflows in the Customer Savings
& Investment (‘CS&I’) business unit,
which encompasses our Wrap and
Retail products, of £4.2 billion (2019:
£4.9 billion) were also adversely
impacted by challenging market
conditions relating to COVID-19,
resulting in reduced volumes
of inflows.
Outflows for the UK Open business
were £(9.6) billion (2019: £(9.8) billion1)
mainly due to run-off, resulting in net
inflows of £2.8 billion (2019: £1.9 billion).
Gross inflows in Retirement Solutions,
which encompasses our Annuity and
BPA business, experienced £3.2 billion
(2019: £1.9 billion) of inflows. This
EUROPE NET FLOWS
The European business contributed a
small net inflow of £0.2 billion (2019:
small net outflow of £(0.1) billion) to
the Group’s AUA.
Movement In AUA
(£bn)
75.2
(7.3)
12.4
(9.6)
0.2
18.5
337.7
248.3
AUA
as at
1 Jan
2020
ReAssure
Acquisition
UK
Heritage
Net Flows
UK
Open
Inflows
UK Open
Outflows
Europe
Net Flows
Other
movement
including
Markets
AUA
as at
31 Dec
2020
1
2019 has been restated to reflect the revised definition of the UK Open segment which now includes
the Group’s annuity and BPA business.
50
Phoenix Group Holdings plc Annual Report & Accounts 2020
£766m
Incremental long-term cash generation
APM REM
£338bn
Assets under Administration
APM
£362m
New business contribution
APM REM
OTHER MOVEMENTS INCLUDING
MARKETS
AUA increased by £18.5 billion (2019:
£26.4 billion) as a result of other
movements, largely driven by the net
positive impacts of market movements,
with the impact of falling yields on the
value of the Group’s debt security
portfolios, rises in several overseas
equity markets and a weakening of
sterling, more than offsetting the
impact of declining UK equities
performance.
NEW BUSINESS CONTRIBUTION
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 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.
The new business contribution metric
now includes all business written
by the Group’s Open business units,
including Retirement Solutions,
having previously excluded the Group’s
annuity and BPA activity.
New business contribution for 2020
was £362 million (2019: £199 million1),
which benefited significantly from the
increase in new BPA deals written,
partially offset by the impacts from
COVID-19 on gross inflows where
sales volumes within both the
CS&I (Wrap SIPP product) and
European business were lower
than the prior year.
INCREMENTAL LONG-TERM CASH
GENERATION
Our incremental long-term cash
generation measure demonstrates the
impact on the Group’s future cash
generation arising as a result of new
business transacted in the year. It is
stated on an undiscounted basis.
Incremental long-term cash generation
increased to £766 million (2019: £483
million)2, which includes £522 million
from our Retirement Solutions
business unit.
The incremental long-term cash
generation split by business unit is
shown in the table at the bottom of
the page.
2020 has benefited from improved BPA
performance with record incremental
long-term cash generation of £350
million (2019: £235 million) reflecting
an increase in volume of transactions
but also improved deal economics. The
average payback period reduced from
6–7 years in 2019 to 5–6 years.
Seven BPA transactions (including
the buy-in transaction mentioned
below) were completed in the year,
reflecting the Group’s selective
and proportionate approach to its
participation in this market.
Following the signing of the new
Commitment Agreement with the
Scheme Trustees the Group has also
recognised £172 million of incremental
long-term cash generation as a result
of the buy-in transaction with the Pearl
Group Scheme.
For our Workplace business unit
incremental long-term cash generation
has remained resilient despite the
effects of COVID-19.
CS&I and Europe incremental long-
term cash generation were impacted
by the effects of COVID-19 on gross
inflows with sales volumes lower than
the prior year.
SunLife has seen an increase in
incremental long-term cash generation
due to an increase in sales volumes
during the year.
Business unit
Retirement Solutions
Workplace
Customer Savings & Investment (CS&I)
Europe
SunLife
Incremental long-term cash generation
Year ended
31 December
2020
£m
Year ended
31 December
20192
Restated
£m
522
140
56
25
23
766
235
155
59
26
8
483
1
2019 has been restated to reflect the revised definition of the UK Open segment which now includes
the Group’s annuity and BPA business.
2 2019 has been restated to include incremental long-term cash generation from SunLife.
Phoenix Group Holdings plc Annual Report & Accounts 2020
51
STRATEGIC REPORT Business review continued
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 SLIDAC, the
Group’s Irish subsidiary, which remains
on Standard Formula.
The Standard Formula is also used
in the determination of the capital
requirements for the acquired
ReAssure businesses.
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
the Standard Formula, without further
diversification. A harmonisation
programme to combine the two
Internal Models into a single Internal
Model is ongoing.
CHANGE IN GROUP SOLVENCY
II SURPLUS (ESTIMATED)
The Group Solvency II surplus has
increased to £5.3 billion (2019 pro
forma: £4.4 billion). In this section, we
focus on an analysis of the movement
in the Group’s Solvency II surplus on a
pro forma basis as if the acquisition of
the ReAssure businesses took place on
31 December 2019. Further details
regarding the actual comparative
position as at 31 December 2019 are
set out in the additional capital
disclosures on page 307.
During the year, total proceeds (net
of issue costs) from the issuance
of hybrid debt were £1.4 billion,
comprising the US$750 million Tier 1
bond, £500 million Tier 2 bond and
US$500 million Tier 2 bond. On the pro
forma basis, £1.2 billion of the debt
issued to fund the cash consideration
for the acquisition of ReAssure was
assumed to have been issued on 31
December 2019. Remaining proceeds
of £0.2 billion provides additional
flexibility for the refinancing of existing
Phoenix borrowings and increased the
surplus in the year.
Surplus generation and the impact of
the reduction in capital requirements
for the Group added £0.6 billion to the
surplus during the year.
Management actions undertaken
increased the surplus by £1.3 billion.
This includes £0.5 billion in respect of
capital synergies associated with the
acquisition of the ReAssure
businesses, primarily resulting from the
implementation of additional hedging
to protect the value of the acquired
business and harmonisation of
methodologies for the calculation of
transitional measures on technical
provisions. The £0.8 billion of other
management actions includes expense
synergies arising upon the Part VII
transfer of the L&G Mature Savings
business, further investment in Equity
Release Mortgage (‘ERM’) assets,
additional strategic asset allocation
activities and the optimisation of
matching adjustment portfolios.
£5.3bn
Group Solvency II
surplus (estimated)
164%
Group Shareholder Capital
Coverage ratio (estimated)
APM REM
The Group Solvency II surplus position at 31 December is set out in
the table below:
Own Funds1
SCR2
Surplus3
Estimated
position as at
31 December
2020
£bn
16.8
(11.5)
5.3
Pro forma4
31 December
2019
£bn
15.6
(11.2)
4.4
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 147% as at 31 December 2020 (2019 pro forma:
140%).
4 Stated pro forma as if the acquisition of the ReAssure businesses took place on 31 December 2019.
52
Phoenix Group Holdings plc Annual Report & Accounts 2020
Change In Group Solvency II Surplus
(£bn)
1.3
(0.2)
(0.9)
4.4
0.2
0.6
Group Shareholder Capital
Coverage Ratio (£bn)
164%
152%
0.1
(0.2)
5.3
5.3
13.6
13.0
8.3
4.4
8.6
Surplus
as at
FY19
(Pro forma)
Impact
of debt
issuance
Management
actions
Surplus
emerging
and release
of capital
requirements
New
business
including
BPA
Financing,
dividends,
pensions
and
corporate
costs
Assumption
changes
and
experience
variances
Economic
and
other
variances
Surplus
as at
FY20
(estimated)
FY20 (estimated)
FY19 (pro forma)
Surplus
SCR
Own Funds
The impact of new business written
during the year reduced the surplus by
£0.2 billion. This primarily reflects the
capital strain associated with Bulk
Purchase Annuity (‘BPA’) transactions
executed in the year.
Financing costs, pension contributions,
dividend payments (including accrual
for the 2020 final dividend) and
corporate expenses amount to £0.9
billion and reduced the surplus in
the year.
Assumption changes and experience
variances increased the surplus by
£0.1 billion. This includes the positive
impact of changes to longevity
assumptions, partially offset by an
increase to the provision for the
expected costs associated with the
delivery of the Standard Life transition
programme and the strengthening of
actuarial assumptions in respect of
ERM and persistency.
The adverse impact of economic and
other variances reduced the surplus by
£0.2 billion, driven by the net adverse
impact of economic and market
movements in the year, notably falling
yields and credit downgrades
experienced during the period.
Illustrative stress-testing
Base: 1 January 2021
Following a 20% fall in equity markets
Following a 12% fall in property values2
Following a 73bps interest rates rise3
Following a 88bps interest rates fall3
Following credit spread widening4
Following credit downgrade: immediate full letter
downgrade on 20% of portfolio5
Following 6% decrease in annuitant mortality rates6
Following a 10% change in lapse rates7
Estimated PGH
Solvency II
Surplus
£bn
5.3
5.3
5.1
5.4
5.2
5.1
4.8
4.4
5.0
Assumes stress occurs on 1 January 2021 and that there is no market recovery.
1
2 Represents an average fall in property values of 12%.
3
4
5
Assumes the impact of a dynamic recalculation of transitionals and an element of dynamic hedging which is
performed on a continuous basis to minimise exposure to the interactions of rates with other correlated risks
including longevity.
Credit stress varies by rating and term and is equivalent to an average 120bps spread widening (full range of
spread widening is 49bps to 204bps). It assumes the impact of a dynamic recalculation of transitionals and
makes no allowance for the cost of defaults/downgrades.
Impact of an immediate full letter downgrade across 20% of the shareholder exposure to the bond portfolio
(e.g from AAA to AA, AA to A etc). This sensitivity assumes no management actions are taken to rebalance
the annuity portfolio back to the original average credit rating and makes no allowance for the spread
widening which would be associated with a downgrade.
6 Equivalent of six months increase in longevity applied to the annuity portfolio.
7 Assumes most onerous impact of a 10% increase/decrease in lapse rates across different product groups.
Phoenix Group Holdings plc Annual Report & Accounts 2020
53
STRATEGIC REPORT Business review continued
CAPITAL MANAGEMENT
CONTINUED
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 £2.8 billion (2019 pro forma: £2.4
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. 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%. As at 31 December 2020, the
Group Shareholder Capital Coverage
ratio is 164% (2019 pro forma: 152%).
Please see the APM section on
page 309 for further details of this
measure.
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 on the previous page and
demonstrate the resilience of the
Group’s Solvency II surplus.
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 2020, the Life
Company Free Surplus is £2.9 billion
(2019 pro forma: £2.6 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 £108
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.
Opening Free Surplus (pro forma)1
Surplus generation and run-off of capital requirements
Management actions
Economics, financing and other
Free Surplus before cash remittances
Cash remittances to holding companies
Closing Free Surplus
Estimated
position as at
31 December
2020
£bn
2.6
0.8
1.3
(0.2)
4.5
(1.6)
2.9
1 Pro forma as if the acquisition of the ReAssure businesses took place on 31 December 2019.
54
Phoenix Group Holdings plc Annual Report & Accounts 2020
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
309 for further details of this measure.
The Group generated an increased
operating profit of £1,199 million (2019:
£810 million), reflecting the contribution
of the ReAssure businesses for a full
five-month period post completion of
the acquisition on 22 July, and
increased Bulk Purchase Annuity (BPA)
transaction activity in the period.
The IFRS profit after tax attributable
to owners is £834 million (2019: £116
million). The increase primarily reflects
the increased operating profit
described above together with a gain
recognised on acquisition of the
ReAssure businesses of £372 million
and gains on hedging positions held
in the shareholder funds.
The aforementioned benefits were
partially offset by adverse investment
variances, recognition of additional
amortisation charges on intangible
assets for ReAssure, and financing
costs on new debt issuances which
supported the acquisition.
BASIS OF OPERATING PROFIT
Operating profit generated by the UK
Heritage, ReAssure, UK Open and
Europe business segments is based
on expected investment returns on
financial investments backing
shareholder and policyholder funds
£1,199m
Operating profit
APM
£834m
IFRS profit after tax
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 2019 figures for the operating
profit segments have been restated to
reflect strategic changes whereby the
Group’s annuity and BPA business is
now part of the UK Open segment,
where previously it was included in UK
Heritage.
The principal assumptions underlying
the calculation of the long-term
investment return are set out in note
B2 to the IFRS consolidated financial
statements.
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.
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.
The with-profit operating profit of £129
million (2019: £135 million) represents
the shareholders’ one-ninth share of
the policyholder bonuses.
The with-profit funds where internal
capital support has been provided
generated an operating loss of £(1)
million (2019: £18 million). The loss in
the current year is driven by a net
negative impact of updating actuarial
assumptions, notably persistency,
compared to a net positive impact in
the prior year, principally reflecting
updates to longevity assumptions.
Profit/(loss) after tax
UK Heritage
ReAssure
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
Profit/(loss) before the tax attributable to
owners of the parent
Profit before tax attributable to non-controlling interests
Profit/(loss) before tax attributable to owners
Tax (charge)/credit attributable to owners
Profit after tax attributable to owners
Year ended
31 December
2020
£m
278
444
472
44
6
(45)
1,199
Year ended
31 December
2019
Restated1
£m
350
–
417
52
26
(35)
810
(47)
148
(482)
281
1,099
(191)
908
36
944
(110)
834
(177)
13
(395)
(169)
82
(127)
(45)
31
(14)
130
116
Phoenix Group Holdings plc Annual Report & Accounts 2020
55
STRATEGIC REPORT Business review continued
IFRS RESULTS
CONTINUED
The non-profit and unit-linked funds
operating profit is £148 million (2019:
£224 million). The reduction reflects
the impact of short-term expense
overruns and project costs, adverse
model and methodology changes
and the inclusion of one-off positive
impacts from balance sheet reviews
in the prior period comparative.
The long-term return on owners’ funds
of £2 million (2019: £(6) million) reflects
the return on owners’ assets, primarily
cash-based assets and fixed interest
securities, and the impact of expenses
borne by the shareholder.
REASSURE OPERATING PROFIT
The ReAssure business segment
comprises operating profit for the
ReAssure businesses for the full five-
month period, post-completion of the
acquisition on 22 July. The result
includes a £214 million benefit from
positive actuarial assumption changes
in the period principally longevity.
UK OPEN OPERATING PROFIT
The Group’s UK Open business
segment delivered an operating profit
of £472 million (2019: £417 million1).
This includes operating profits
generated across the Retirement
Solutions (including BPA), Workplace
and CS&I business units, including new
business distributed through the
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 positive impact from
updating longevity assumptions,
increased new business profits on Bulk
Purchase Annuity (BPA) transactions
written in the year together with strong
performance in the SunLife business.
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 £44 million during the year
(2019: £52 million).
MANAGEMENT SERVICES
COMPANIES OPERATING PROFIT
The operating profit for management
services of £6 million (2019: £26
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 decrease
compared to the prior period reflects a
re-phasing of income from the life
companies under revised management
services agreements and the impacts
of run-off.
GROUP COSTS
Group costs in the period were £45
million (2019: £35 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 the inclusion
of corporate costs associated with the
acquired ReAssure businesses.
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
2020
£m
129
(1)
148
2
278
Year ended
31 December
20191
Restated
£m
135
18
203
(6)
350
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 £47
million (2019: £177 million adverse)
primarily arise as a result of
movements in credit spreads, the
impact of credit downgrades in the
Group’s investment portfolio and
a net adverse impact from equity
movements. Equity movements
arising from future profits in relation
to with-profit bonuses and unit-linked
charges are 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. Losses have been
experienced on hedging positions held
by the Life companies in respect of
rises in certain overseas equity markets
in 2020, and on positions held by the
ReAssure businesses as a result of
improving UK equity markets in the
post-acquisition period. These losses
have been partly offset by gains on UK
equity market hedges that the Group
has had in place since 1 January 2020.
Falling yields and strategic asset
allocation activities undertaken by the
Group, including investment in higher
yielding illiquid assets, also gave rise
to positive investment return variances
in the period.
VARIANCE ON OWNERS’ FUNDS
The positive variance on owners’ funds
of £148 million (2019: £13 million
positive) is principally driven by gains
on the close out of foreign currency
swaps held by the holding companies
to hedge exposure of future life
company profits and non-sterling
denominated shareholder borrowings
to foreign currency movements. It also
includes gains on hedges in place to
protect against equity risk in the
ReAssure businesses in the pre-
completion period. The prior year
1
During the year, the Group reassessed its operating segments as a result of strategic developments. Specifically, the categorisation of the provision of annuities to existing
policyholders with vesting products and from Bulk Purchase Annuity contracts has been revised such that this business is now included within the UK Open segment instead of
within the UK Heritage segment. Comparative information has been restated to reflect this new presentation.
56
Phoenix Group Holdings plc Annual Report & Accounts 2020
positive variance includes gains on
foreign currency swaps held by the
holding companies to hedge exposure
of future life company profits to
movements in exchange rates.
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 £464 million (2019: £375
million) with the increase from the prior
year driven by additional amortisation
charges on intangible assets
recognised on acquisition of ReAssure.
Amortisation of other intangible assets
totalled £18 million in the year (2019:
£20 million).
OTHER NON-OPERATING ITEMS
Other non-operating items of £281
million positive (2019: £169 million
negative) includes a gain recognised on
acquisition of the ReAssure business
of £372 million, and also an £85 million
gain arising on completion of the Part
VII transfer of the mature savings
liabilities and associated assets from
the L&G Group (see note H2.2 of the
IFRS financial statements for further
details). These positive non-operating
items are partially offset by a net cost
of £43 million associated with the
delivery of the Group Target Operating
Model for IT and Operations, costs
of £37 million associated with the
acquisition of the ReAssure
businesses, £19 million incurred under
the subsequent integration programme.
The balance also includes costs of £20
million associated with the on-going
integration of the Old Mutual Wealth
business acquired by ReAssure Group
plc in December 2019, incurred since
the Group’s acquisition of ReAssure
Group plc in July 2020, costs of £16
million associated with the transfer and
integration of the L&G mature savings
business, £34 million of other
corporate project costs and net other
one-off items totalling a cost of
£7 million.
The prior period result of £169 million
negative included an £80 million
benefit arising from updated expense
assumptions for insurance contracts,
reflecting reduced future servicing
costs as a result of transition activity.
This benefit was 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
related to external costs. Also included
in the net other non-operating items
were £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 the ReAssure businesses
and net other items which totalled an
expense of £13 million.
FINANCE COSTS
Finance costs of £191 million (2019:
£127 million) have increased by £64
million, reflecting the interest charges
on the new debt issuances in the year
including the three debt agreements
which were substituted to the Group
as part of the acquisition of the
ReAssure businesses.
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 2020
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
UKlegislation. Following the acquisition
of the Standard Life Assurance
businesses, the Group’s overseas
operations have increased, in Ireland
and Germany in particular. The
ReAssure businesses acquired in July
2020 are also primarily based in the
UK. The Group complies with the local
tax obligations in the jurisdictions in
which it operates.
The Group tax charge for the period
attributable to owners is £110 million
(2019: £130 million tax credit) based on
a profit (after policyholder tax) of £944
million (2019: loss of £14 million). The
tax adjustments to the Owners’ profit
before tax are primarily due to a
deferred tax charge for the impact of
the retention of the 19% corporate tax
rate and impact of the L&G Mature
Savings business Part VII transfer of
£(37) million, non-taxable income and
gains of £(78) million, amortisation on
acquired in-force business at a rate
other than 19% of £77 million, a prior
year credit for shareholders £(17)
million, deferred tax credit for
recognition of previously unrecognised
tax losses of £(25) million, the impact
of non-tax deductible costs of £9
million and profits taxed at a rate other
than the 19% statutory corporate tax
rate of £(10) million.
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 2020
(as calculated by the Group in
accordance with Fitch Ratings’ stated
methodology) is 28% (2019: 22%). This
is within 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.
Phoenix Group Holdings plc Annual Report & Accounts 2020
57
STRATEGIC REPORT Stakeholder engagement
IMPROVING
STAKEHOLDER OUTCOMES
We have a
responsibility to
address the needs
of a broad group of
stakeholders. Positive
engagement and
meaningful outcomes
are key to ensuring
a strong and
sustainable business.
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 engagements.
Key stakeholder groups
CUSTOMERS
The Group has c.14 million policies
with £338 billion of assets under
administration. Key products
and services include with-profit,
unit linked, annuities, protection
and workplace pensions.
SUPPLIERS
The Group has c.1,000 suppliers
of which c.36 are considered
strategic or critical to the business.
COLLEAGUES
We have 7,653 colleagues
based across UK, Ireland and
Germany. Our operational sites
include Edinburgh, Telford,
Hitchin, Wythall, Norwich, Bristol,
Dublin, Frankfurt, and London.
WHAT MATTERS TO THEM
• Help our customers achieve
a life of possibilities.
• Deliver support at times
of vulnerability.
• A collaborative approach.
• Long-term relationships
based on trust.
• Prompt payment in accordance
• Provide high quality, simpler,
with agreed terms.
value for money service.
• Be easy to interact with
and be accessible.
• Trust, competence and integrity.
• Product innovation and
service creativity.
• Clear mutual expectations and
requirements on standards and
processes, including modern
slavery and human rights,
climate and the environment,
and health and safety.
• Having a sense of belonging and
connection to Phoenix and its
purpose, and being empowered
to make a difference.
• Training and development to fulfil
career and development goals.
• Being appropriately recognised
and rewarded for performance.
• Engaging in effective
two-way feedback.
HOW WE ENGAGE
Through a variety of channels that
best suits our customers’ needs
including, phone, email, website
and apps, seminars and events, as
well as written communications. We
conduct direct customer research,
participate in research projects
and hold direct interaction. We
regularly collate feedback on how
we can improve performance.
ACTIONS AND OUTCOMES
The Group has procurement 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.
We are embedding our Phoenix
Story through real-life examples
and application. Our colleagues
are enabled to speak up through
a continuous listening culture,
including engagement surveys. We
also engage through our colleague
advisory forum, colleague
representation groups, networks
and Phoenix Together events.
• Renewed customer loyalty and
• The Supplier Code of Conduct
reputational strength – Customer
satisfaction score above 90%1.
• Implemented various initiatives
to support customers with
the impact of COVID-19.
• Reduced charges for
endowment customers.
• Broadened digital engagement
and functionality.
• Conducted ESG and vulnerability
customer research.
• Extended drawdown capability
to more of our customers.
published on our website.
• Introduced Sustainable
Supply Chain standards
and further due diligence
monitoring on our suppliers’
sustainability performance.
• Harmonised Procure to Pay
practice, including centralised
invoicing to improve managing
and tracking invoices to
make it more efficient for our
colleagues and suppliers.
READ MORE
• Meet changing customer
needs on pages 34 to 37.
• Our 2020 Sustainability
Report on pages 16 to 23.
• https://www.standardlife.co.uk
https://www.phoenixlife.co.uk
https://www.reassure.co.uk
https://www.sunlife.co.uk
• Our 2020 Sustainability
Report on pages 45 to 48.
• Our website
www.thephoenixgroup.
com/our-suppliers
• Launched revised Diversity and
Inclusion strategy focusing on:
Gender, Ethnicity, Disability,
and Social Mobility.
• Enhanced access to
wellbeing tools and resources
across the Group.
• Tailored communication on new
organisation purpose and story.
• Clear communications
on working and support
arrangements in response
to COVID-19, including
multiple surveys to gather
feedback to inform action.
• Inspire our people on
pages 42 to 45.
• Our 2020 Sustainability
Report on pages 37 to 40.
• Our website
www.thephoenixgroup.com/
corporate-responsibility
1
This excludes ReAssure acquired
during the year.
58
Phoenix Group Holdings plc Annual Report & Accounts 2020
COMMUNITY
We are committed to making a difference
in the communities in which we are
based, including interacting with schools,
charities, and community groups.
INVESTORS
We maintain an active dialogue with
our financial audiences who include
institutional investors, private investors,
rating agencies and research analysts.
GOVERNMENT,
TRADE BODIES
AND REGULATORS
The Group has various political stakeholders
at Westminster and Holyrood, along
with key trade bodies representing the
industry, and several regulators including
the Prudential Regulation Authority (‘PRA’)
and Financial Conduct Authority (‘FCA’).
• Investment into local innovation, infrastructure
• Receiving regular updates on the Group’s
• Effective regulatory engagement
and sustainable communities.
• Providing decent work and economic
growth, including social mobility.
• Financial and volunteering support
to our local charities.
• Taking action on key societal and
environmental concerns.
strategy, operations and performance.
and compliance.
• Answering questions and
completing questionnaires.
• Actively contributing to policy developments
impacting long-term savings.
• Clearly communicating our investment
• Collaboration with a range of trade
proposition to enable investors to appropriately
associations relevant to sector.
• Communicating the views and concerns
of customers and other stakeholders.
• Educational support to our local schools.
evaluate Phoenix as an investment.
We hold regular meetings with ‘charity
We have a comprehensive annual
We have a comprehensive programme of proactive
partners’ and partnership schools, and stay
communications and engagement programme,
engagement across all regulators. We hold regular
connected with other good causes. We
invite our colleagues to input on matters
important to them in their communities.
Surveys and feedback is routinely captured.
which includes investor meetings, results
presentations, conferences and Capital
Markets Days. This year we successfully
moved our interactions on-line, achieving
high levels of engagement with 412
external live viewers having watched our
Capital Markets Day presentation.
meetings with political stakeholders and key trade
bodies. Andy Curran, CEO Savings and Retirement
UK & Europe, is chair of the Association of British
Insurers’ (‘ABI’) Long-Term Savings Committee.
• Investment into our UK cities and infrastructure
• The directors recommend the payment
• Our regulated subsidiaries have approved
to promote sustainable communities –
£549 million invested in social housing,
of a total dividend per share of 47.5
pence for 2020. Phoenix also paid its
capital and policies for distributions
which protect customers.
£127 million in renewable energy and £212
2019 final dividend in May 2020 against a
• Raised importance of customers’ ability to
million in other sustainability assets.
• £2 million donated to registered charities.
• Donation initiatives in response to
COVID-19, including iPads to community
turbulent financial markets backdrop.
• The Group delivered on all its publicly
announced financial targets, including
exceeding the cash generation target.
hospitals, fruit baskets to front-line workers,
• The Group maintained its Fitch Insurer
paper reams for a local primary school,
Personal Protection Equipment and
perishable food items to local charities.
Financial Strength Ratings of A+ and
increased several ESG ratings.
• The Board’s strategy was set out
at Capital Markets Day.
see all pension pots in one place online.
• Taken a lead role in supporting the
Pensions Scams Industry Group to
prevent instances of pension fraud.
• Our 2020 Sustainability Report
• Our website www.thephoenixgroup.
• Goverment, trade bodies and
com/investor-relations
regulators on page 65
on pages 41 to 44
• Our website www.thephoenixgroup.
com/sustainability/communities
administration. Key products
and services include with-profit,
unit linked, annuities, protection
and workplace pensions.
WHAT MATTERS TO THEM
• Help our customers achieve
a life of possibilities.
• Deliver support at times
of vulnerability.
• A collaborative approach.
• Long-term relationships
based on trust.
• Having a sense of belonging and
connection to Phoenix and its
purpose, and being empowered
• Prompt payment in accordance
to make a difference.
• Provide high quality, simpler,
with agreed terms.
value for money service.
• Be easy to interact with
and be accessible.
• Trust, competence and integrity.
• Product innovation and
service creativity.
• Clear mutual expectations and
requirements on standards and
processes, including modern
slavery and human rights,
climate and the environment,
and health and safety.
• Training and development to fulfil
career and development goals.
• Being appropriately recognised
and rewarded for performance.
• Engaging in effective
two-way feedback.
HOW WE ENGAGE
Through a variety of channels that
best suits our customers’ needs
including, phone, email, website
The Group has procurement and
relationship management teams
which, using our governance
We are embedding our Phoenix
Story through real-life examples
and application. Our colleagues
and apps, seminars and events, as
framework, defines the engagement
are enabled to speak up through
well as written communications. We
with our strategic and critical
conduct direct customer research,
suppliers to build and develop
mutually beneficial partnerships.
a continuous listening culture,
including engagement surveys. We
also engage through our colleague
advisory forum, colleague
representation groups, networks
and Phoenix Together events.
participate in research projects
and hold direct interaction. We
regularly collate feedback on how
we can improve performance.
ACTIONS AND OUTCOMES
reputational strength – Customer
published on our website.
satisfaction score above 90%1.
• Implemented various initiatives
to support customers with
the impact of COVID-19.
• Reduced charges for
endowment customers.
• Introduced Sustainable
Supply Chain standards
and further due diligence
monitoring on our suppliers’
sustainability performance.
• Harmonised Procure to Pay
• Broadened digital engagement
and functionality.
practice, including centralised
invoicing to improve managing
• Conducted ESG and vulnerability
and tracking invoices to
customer research.
• Extended drawdown capability
to more of our customers.
make it more efficient for our
colleagues and suppliers.
READ MORE
• Meet changing customer
needs on pages 34 to 37.
• Our 2020 Sustainability
Report on pages 16 to 23.
• Our 2020 Sustainability
Report on pages 45 to 48.
• Our website
www.thephoenixgroup.
• https://www.standardlife.co.uk
com/our-suppliers
https://www.phoenixlife.co.uk
https://www.reassure.co.uk
https://www.sunlife.co.uk
Inclusion strategy focusing on:
Gender, Ethnicity, Disability,
and Social Mobility.
• Enhanced access to
wellbeing tools and resources
across the Group.
• Tailored communication on new
organisation purpose and story.
• Clear communications
on working and support
arrangements in response
to COVID-19, including
multiple surveys to gather
feedback to inform action.
• Inspire our people on
pages 42 to 45.
• Our 2020 Sustainability
Report on pages 37 to 40.
• Our website
www.thephoenixgroup.com/
corporate-responsibility
CUSTOMERS
SUPPLIERS
COLLEAGUES
The Group has c.14 million policies
The Group has c.1,000 suppliers
with £338 billion of assets under
of which c.36 are considered
We have 7,653 colleagues
based across UK, Ireland and
strategic or critical to the business.
Germany. Our operational sites
include Edinburgh, Telford,
Hitchin, Wythall, Norwich, Bristol,
Dublin, Frankfurt, and London.
COMMUNITY
We are committed to making a difference
in the communities in which we are
based, including interacting with schools,
charities, and community groups.
INVESTORS
We maintain an active dialogue with
our financial audiences who include
institutional investors, private investors,
rating agencies and research analysts.
GOVERNMENT,
TRADE BODIES
AND REGULATORS
The Group has various political stakeholders
at Westminster and Holyrood, along
with key trade bodies representing the
industry, and several regulators including
the Prudential Regulation Authority (‘PRA’)
and Financial Conduct Authority (‘FCA’).
• Investment into local innovation, infrastructure
and sustainable communities.
• Providing decent work and economic
growth, including social mobility.
• Financial and volunteering support
to our local charities.
• Educational support to our local schools.
• Taking action on key societal and
environmental concerns.
• Receiving regular updates on the Group’s
strategy, operations and performance.
• Effective regulatory engagement
and compliance.
• Answering questions and
completing questionnaires.
• Clearly communicating our investment
proposition to enable investors to appropriately
evaluate Phoenix as an investment.
• Actively contributing to policy developments
impacting long-term savings.
• Collaboration with a range of trade
associations relevant to sector.
• Communicating the views and concerns
of customers and other stakeholders.
We hold regular meetings with ‘charity
partners’ and partnership schools, and stay
connected with other good causes. We
invite our colleagues to input on matters
important to them in their communities.
Surveys and feedback is routinely captured.
We have a comprehensive annual
communications and engagement programme,
which includes investor meetings, results
presentations, conferences and Capital
Markets Days. This year we successfully
moved our interactions on-line, achieving
high levels of engagement with 412
external live viewers having watched our
Capital Markets Day presentation.
We have a comprehensive programme of proactive
engagement across all regulators. We hold regular
meetings with political stakeholders and key trade
bodies. Andy Curran, CEO Savings and Retirement
UK & Europe, is chair of the Association of British
Insurers’ (‘ABI’) Long-Term Savings Committee.
• Renewed customer loyalty and
• The Supplier Code of Conduct
• Launched revised Diversity and
• Investment into our UK cities and infrastructure
• The directors recommend the payment
• Our regulated subsidiaries have approved
to promote sustainable communities –
£549 million invested in social housing,
£127 million in renewable energy and £212
million in other sustainability assets.
• £2 million donated to registered charities.
• Donation initiatives in response to
COVID-19, including iPads to community
hospitals, fruit baskets to front-line workers,
paper reams for a local primary school,
Personal Protection Equipment and
perishable food items to local charities.
of a total dividend per share of 47.5
pence for 2020. Phoenix also paid its
2019 final dividend in May 2020 against a
turbulent financial markets backdrop.
• The Group delivered on all its publicly
announced financial targets, including
exceeding the cash generation target.
• The Group maintained its Fitch Insurer
Financial Strength Ratings of A+ and
increased several ESG ratings.
• The Board’s strategy was set out
at Capital Markets Day.
capital and policies for distributions
which protect customers.
• Raised importance of customers’ ability to
see all pension pots in one place online.
• Taken a lead role in supporting the
Pensions Scams Industry Group to
prevent instances of pension fraud.
• Our 2020 Sustainability Report
• Our website www.thephoenixgroup.
• Goverment, trade bodies and
on pages 41 to 44
• Our website www.thephoenixgroup.
com/sustainability/communities
com/investor-relations
regulators on page 65
Phoenix Group Holdings plc Annual Report & Accounts 2020
59
STRATEGIC REPORT customers better has shown us how
we can support and guide them more,
whilst using the knowledge to educate
our colleagues across the Group.
Phoenix has a vulnerable customer
framework which enables a flexible and
adaptive customer experience to
respond to vulnerable circumstances. It
is a living set of principles that helps us
remain aware, to recognise and
respond to vulnerability and be mindful
that our actions don’t create
vulnerability.
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.
DATA PRIVACY AND CYBER
SECURITY
Our Data Protection Officer monitors
compliance with the GDPR and DPA
2018, providing advice on the Group’s
data privacy obligations and acting as
the point of contact for data subjects
and regulatory authorities. The Data
Protection Officer owns the Group
Privacy policy and Data Protection Risk
policy and maintains oversight of
ongoing privacy compliance. Phoenix
maintains security and controls over
customer data.
Security controls to protect the Group
from cyber-related incidents have also
been deployed and a dedicated
security operations team responds to
emerging cyber threats. The Group has
had no significant cyber-related
incidents over the year.
Stakeholder engagement continued
SECTION
172 STATEMENT
OUR
CUSTOMERS
During the year, the Directors
have applied section 172 of the
Companies Act 2006 in a
manner consistent with the
Group’s purpose, values and
strategic priorities.
The Group recognises the
responsibility it has to all its
customers and operates a
number of policies to ensure
we are protecting our
customers’ interests.
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.
We our proud of our strong service
delivery, always ensuring we remain
relevant, engaging and easy to deal
with. The Group continually improves
communications with customers to
make it easy for them to interact with
us in connection with their policy and
go on to make an informed decision
should they wish to take any action.
This includes enhancing customer
experience and vulnerable customer
support.
Vulnerability will affect the majority of
our customers during their lives. For
some, COVID-19 has heightened
existing vulnerabilities or made them
vulnerable for the first time. During the
year, we completed a Group-wide
research programme looking at
customer vulnerability which helped us
to further understand the functional
and emotional needs of our customers
experiencing challenging
circumstances. Understanding our
When considering issues of strategic
importance, and making key decisions
about the Company, the Directors have
acted in a way which they consider, in
good faith, is most likely to promote
the success of the Company for the
benefit of its members as a whole.
In doing so the Directors have paid due
regard to the matters set out in section
172(1)(a) to (f). Examples of key
decisions (amongst others), linked to
our strategic priorities, considered by
the Board include:
• the payment of the PGH plc final
dividend during the COVID-19
pandemic;
• the formation of the Board
Sustainability Committee; and
• expansion of our Open business and
Bulk Purchase Annuities activity.
For each of these decisions, the Board
paid due regard to the factors set out in
section 172(1)(a) to (f) where relevant,
namely:
• the likely consequences of decisions
in the long term;
• the interests of our employees;
• the need to foster business
relationships with suppliers,
customers and others;
• the impact of our operations on the
community and the environment;
• the desirability of maintaining our
reputation for high standards of
business conduct; and
• the need to act fairly between
members of the Company.
Read more on how the Board
considered each of these
matters in accordance with section
172 in the Corporate Governance
report, on pages 108 to 111.
60
Phoenix Group Holdings plc Annual Report & Accounts 2020
HUMAN RIGHTS AND
MODERN SLAVERY
Phoenix Group takes active steps to
ensure its suppliers are not engaging in
any form of modern slavery or human
trafficking. A statement is published on
the Group website pursuant to Section
54, Part 6 of the Modern Slavery and
Human Trafficking Act 2015.
Suppliers must comply with the UK
Modern Slavery Act 2005 (applicable if
turnover is over £36 million) or meet
the local equivalent standard/Act and
the International Labour Organisation
(ILO) standards. At Phoenix Group
there is zero tolerance for child labour
throughout the supply chain and
employment of young workers adheres
to UK regulations regardless of
location.
We expect our key suppliers to support
freedom of association and the
effective recognition of the right to
collective bargaining and publish their
performance externally.
To date there have been no issues
raised with reviews conducted. The
Group’s Modern Slavery and Human
Trafficking Statement is available at
www.thephoenixgroup.com/
modernslavery
ENVIRONMENT AND CLIMATE
CHANGE
We will be working with our key
suppliers to develop best practice
carbon management, including net-zero
targets, and robust waste minimisation
including reduction of single-use plastic
strategies.
HEALTH AND SAFETY
We expect robust health and safety
conditions for all workers in the supply
chain, and to comply with the Health
and Safety at Work Act UK or local
equivalent. Suppliers are expected to
have health and safety staff training
and management system in place and
to publish their health and safety
performance externally.
OUR
SUPPLIERS
We work closely with our
service providers and partners
to support the delivery of our
strategic objectives. We are
committed to focusing on key
issues associated with modern
slavery and human rights,
climate and environment and
health and safety.
SUPPLIER MANAGEMENT
FRAMEWORK
Our sourcing and procurement 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 operating standards for
the management of sourcing and
procurement risk throughout the
Group, and forms part of the control
framework.
The framework provides support
throughout the sourcing lifecycle,
including supplier evaluation, risk-based
due diligence and contract
management. Phoenix has a
professional relationship manager
assigned to strategic or critical
providers. Their role is to govern the
relationship, measure and monitor
performance and continually improve
outcomes.
Our new sustainable supply chain
standards require our key suppliers* to
meet our enhanced requirements for
Modern Slavery and Human Rights,
Climate and Environment and Health
and Safety.
*
Key suppliers include: strategic (those that we work closely with due to the strategic nature of the services they provide), critical (suppliers where the goods or services provided is
limited in the market and barriers to change are complex) and financially important with spend ≥£1m (suppliers which are numerous but where value to Phoenix is significant).
Phoenix Group Holdings plc Annual Report & Accounts 2020
61
STRATEGIC REPORT Stakeholder engagement continued
HEALTH AND SAFETY
The Group operates a Health and
Safety policy which helps manage risks
and adverse effects. The Group had no
accidents during 2020 which were
reportable to the Health and Safety
Executive under the Reporting of
Incidents, Disease and Dangerous
Occurrence Regulations (‘RIDDOR’).
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.
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. 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.
HUMAN RIGHTS
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.
During the year the Group effectively
resolved all colleague disputes and as a
result has not been subject to any
adverse Employment Tribunals
judgements or awards.
OUR
COLLEAGUES
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 function via
quarterly assessment of the minimum
control standards. There were no
material issues raised during the year.
FINANCIAL CRIME AND
PREVENTION
The Group’s Financial Crime Prevention
and Anti-Bribery policy addresses risks
such as money laundering, terrorist
financing, fraud, bribery and corruption
risks and the facilitation of tax evasion.
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.
No instances or breaches were
recorded during the year.
Read more about our colleague
engagement activities in the Group’s
Sustainability Report www.
thephoenixgroup.com/
sustainability/reports
Read more about diversity and
inclusion at www.
thephoenixgroup.com/diversity
62
Phoenix Group Holdings plc Annual Report & Accounts 2020
OUR
COMMUNITY
The past year has been
difficult for our communities
and the pandemic has
disrupted the normal ways we
support our various charities,
schools and other community
stakeholders. Phoenix has
adapted its engagement
approach to make sure it keeps
people safe by observing social
distancing and stay-at-home
guidance whilst providing
support where it is needed.
Our focus this year has been providing
support to those considered most at
risk to coronavirus; the elderly,
vulnerable and individuals experiencing
homelessness and food-poverty.
Details of the support provided can be
found in our 2020 Sustainability Report.
We are committed to using Phoenix
Group’s collective expertise to address
pressing societal issues. Going
forward, we will be aligning our
community investment programmes
with our purpose of helping people
secure a life of possibilities, and
increasing the focus on issues such as
financial inclusion and mental health.
Through this, we will make a tangible
impact in the wider societies in which
we operate.
All Group monetary donations are in
line with our charity donations
approach, only benefiting registered
charities and nothing deemed religious
or political is supported.
DONATIONS AND CHARITABLE
PARTNERSHIPS
Donations totalling £2 million were paid
to registered charities during the year
from the Group, which included
colleague fundraising and supplier
contributions. Integral to this was a £1
million COVID-19 specific donation.
£500,000 of this was donated to Age
UK’s Emergency Coronavirus Appeal.
Other charities that benefited included
our corporate charity partners, local
food banks, those supporting the
homeless and hospital charities.
The Group also donated to The
COVID-19 Support Fund launched
by the UK insurance and long-term
savings industry.
The Group supported seven formal
corporate charity partners during the
year; Midlands Air Ambulance Charity,
London’s Air Ambulance Charity,
Hampshire and Isle of Wight Air
Ambulance, Scotland’s Charity Air
Ambulance, ALONE, Hilfe für
krebskranke Kinder Frankfurt e.V, and
Österreichische Krebshilfe Wien.
Our UK partnerships were extended
across 2020 in direct response to
the pandemic and its impact on
fundraising. In the period 2014 to 2020,
£1.4 million was donated across the
UK to our air ambulance partnerships.
VOLUNTEERING
Colleagues Group-wide are entitled
to take two days for individual
volunteering and a further one day
with their team. The opportunity to
volunteer in the year was
understandably affected by the
pandemic, but where possible we
moved opportunities online and
continued to support our literacy
programmes remotely. 1,747 hours
were donated in support of our local
communities.
OUR
ENVIRONMENT
Our impact on the environment is a
material concern for the Group.
As a significant long-term asset owner,
we play a vital role in directing
investments towards activities that are
aligned to the Paris Agreement and
away from those that are not. In
addition, we have the ability to work
with suppliers that will support the
acceleration of decarbonisation.
We are committed to the need to
reduce greenhouse gas emissions and
accelerate the transition to a low-carbon
future. We have set a target of achieving
net-zero across all emission scopes by
2050. We have begun the work of
identifying the best approach for this
and set our first milestone to bring our
operations to net-zero carbon by 2025.
We are a Business Ambition for 1.5°C
signatory, and we will set and pursue
an ambitious science-based emissions
reduction target, with any remaining
hard-to-decarbonise emissions
compensated using certified
greenhouse gas removal projects.
Read more about our climate-related
reporting on pages 67 to 77, and our
sustainability actions in the 2020
Sustainability Report. Our greenhouse
gas emissions and energy consumption
disclosure can be found in our 2020
ESG Report.
Read more about our community
initiatives in the Group’s
Sustainability Report www.
thephoenixgroup.com/
sustainability/reports
Phoenix Group Holdings plc Annual Report & Accounts 2020
63
STRATEGIC REPORT 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 and comprises
topics such as the annual election of
Directors, the appointment of the
Auditor and the dividend declaration.
Due to COVID-19 restrictions the 2020
AGM was held via a webcast where
shareholders could view and hear the
meeting and could also raise questions
prior to the meeting. For the 2021
AGM, we will be seeking to increase
shareholder interaction although
mindful of the impact of COVID-19 and
the restrictions that are in place.
The Group will also hold Extraordinary
General Meetings (‘EGMs’) as needed
to address matters that arise in
between AGMs that require a
shareholder vote. An EGM in 2020 was
held to obtain shareholder approval to
the ReAssure transaction.
Stakeholder engagement continued
CONFERENCES
Conferences enable the Group to meet
with a significant number of investors
and are important platforms for
presenting Phoenix’s investment
proposition. As with investor meetings,
conferences from March onward were
held in virtual format this year. Phoenix
participated in ten conferences
organised by a number of investment
banks and equity research firms.
RESEARCH ANALYSTS AND
SALES TEAMS
Phoenix maintains an active dialogue
with its equity and debt research
analysts who, in addition to results
presentations, are invited to attend
investor events such as the Capital
Markets Day. Senior management and
Investor Relations also held a total of
24 presentations to equity and debt
sales teams to promote the Phoenix
investment case. In addition, they
participated in seven reverse
roadshows organised by various
equity research institutions.
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 a comprehensive
presentation in June as part of the
annual review process. Prior to that,
Phoenix senior management presented
to Fitch in April on the Impact of
COVID-19 on the company and the
measures that have been put in place
to manage and mitigate the risks.
The Group Treasury department and
senior management also keep a
constant dialogue with the Group’s
relationship banks.
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.
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.
EQUITY INVESTORS
Throughout the year the Group CEO,
Group CFO and the Investor Relations
team held virtual meetings with
investors to provide updates on the
Group’s strategy and operations. This
involved 15 virtual shareholder
roadshows and a total of 168 virtual
meetings with institutions based
primarily in the UK and North America
but also across various other regions.
The Chairman and Non-Executive
Directors are available for investor
meetings on subjects such as strategy,
financial performance, remuneration
policy and environmental, social and
governance (‘ESG’) aspects in order to
share perspectives and ensure a
mutual understanding of the Group’s
objectives.
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.
DEBT INVESTORS
The Debt Investor Relations
programme is led by the Group
Treasury department and supported by
the Investor Relations department. The
Board is kept informed of the current
views of debt investors through regular
debt capital markets updates and
summaries of meeting feedback.
In order to prepare the issuance of two
bonds, senior management conducted
two deal-specific virtual debt investor
roadshows with investors based in the
UK, Continental Europe, the Americas
and Asia and participated in 173 debt
investor meetings overall in 2020.
64
Phoenix Group Holdings plc Annual Report & Accounts 2020
Andy Briggs has also been invited to
chair the ABI Climate Change Board,
which will inform on how the sector
should adapt to the impacts of climate
change and migrate to a decarbonised
economy.
Andy Curran, CEO Savings and
Retirement UK & Europe and Group
Director Scotland, is chair of the 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.
During the year, we joined TheCityUK,
an industry-led body representing
UK-based financial and related
professional services, and also the
Geneva Association, a leading think
tank of the insurance industry
conducting research and organising
debates on a number of political,
economic and societal issues.
As a major employer in Scotland, the
Group is a signatory to the Scottish
Business Pledge, 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.
GOVERNMENT,
TRADE BODIES
AND
REGULATORS
We communicate the views
and concerns of customers to
our regulators, government
and wider policymakers. We
have a comprehensive
programme of proactive
engagement across all
regulators. 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.
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.
COLLABORATIONS
Andy Briggs, Group CEO, is the UK’s
Business Champion for Older Workers
and for the Ageing Society, working
across different government
departments to improve the lives
of our ageing population.
Andy Briggs is a member of the
Association of British Insurers’ (‘ABI’)
Board, which helps inform public policy
debates, promoting the value of the UK
insurance and long-term savings
industry products, encourages
consumer understanding, and supports
a competitive insurance industry.
Phoenix Group Holdings plc Annual Report & Accounts 2020
65
STRATEGIC REPORT Stakeholder engagement continued
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.
Reporting requirement
Environmental
matters
Phoenix policies which
govern our approach
• Code of Conduct
• Sustainability policy
Employees
• Code of Conduct
• HR Group policy
Social and
community matters
• Code of Conduct
• Sustainability policy
Human rights
Anti-bribery
and corruption
Business model
• Code of Conduct
• Sourcing and Procurement
Group policy
• Modern Slavery statement
• Health and Safety Group policy
• Code of Conduct
• Financial Crime and
Anti-Bribery Group policy
• Whistleblowing Group policy
• Financial Control and
Reporting Group policy
• Market Abuse and
Disclosure policy
Section within
Annual Report
• Our environment –
stakeholder engagement
• Putting sustainability at the
heart of the business
• Inspire our people
• Our colleagues –
stakeholder engagement
• Our community – stakeholder
engagement
• Our customers –
stakeholder engagement
• Meet changing customer
needs
• Our suppliers –
stakeholder engagement
• Our colleagues –
stakeholder engagement
• Our colleagues –
stakeholder engagement
• Our business model
• Cash generation process
• Our strategy and KPIs
Principal risks and uncertainties
• Risk Management Framework
Page
63
38
42
62
63
60
34
61
62
62
20 to 21
24 to 25
26 to 45
79
Non-financial
key performance indicators
• Our performance
• Our strategy and KPIs
Inside front cover
26 to 45
66
Phoenix Group Holdings plc Annual Report & Accounts 2020
Task Force on Climate-related Financial Disclosures (‘TCFD’)
TCFD REPORT
The impact of climate change is one of the biggest global
challenges facing our colleagues, customers, partners,
communities and the Group. Phoenix’s success in fulfilling
its purpose of helping people secure a life of possibilities will
in part be defined by how well we address this challenge.
The Group publicly committed to
implementing the recommendations
of the Task Force on Climate-related
Financial Disclosures (‘TCFD’) in March
2020 and since then, we have made
progress to develop our disclosures
in line with the TCFD’s four
pillar framework.
This report gives an overview of our
progress and future priorities across
this framework.
We support the goals of the Paris
Agreement to limit global warming
to well below 2°C, preferably to 1.5°C
compared to pre-industrial levels and
to help achieve this outcome, we have
committed to become net-zero carbon
by 2050.
In November 2020, we joined the
Science Based Targets Initiative (‘SBTi’)
to help us develop a clearly-defined
pathway to reduce greenhouse gas
emissions, help prevent the worst
impacts of climate change and
future-proof business growth.
Over 2021, we will continue to
integrate the assessment of climate-
related risks and opportunities into our
governance, strategy, risk management
and reporting frameworks and to
enhance our future disclosures in line
with revised guidance from the TCFD,
emerging best practice and feedback
from key stakeholders.
We are committed to full disclosure in
line with the TCFD recommendations
by March 2022, given the expectations
of the UK Government’s Green Finance
Strategy.
Roadmap for TCFD disclosure
August
Establishment of a dedicated TCFD
project overseen by senior leadership
December
Net-zero carbon
commitment made
2021
Deliver key areas
of focus
March 2020
March 2021
March
Climate change classified as a principal risk for
Phoenix and first TCFD disclosure published
October
Preparatory work for scenario
analysis and heat-mapping exercise
March
Developing TCFD disclosure
March 2022
Full TCFD
disclosure
Key areas of focus for 2021
• Further enhance the governance framework and Board and Executive level knowledge
and skills.
• Progress quantitative scenario and stress testing analysis and participate in
the 2021 Climate Risk Biennial Exploratory Scenario (‘CBES’) exercise.
• Complete a strategic implication assessment of identified climate risks and opportunities.
• Further embed climate risk considerations within the Group’s Risk Management Framework.
• Baseline Scope 3 investment emissions and develop our metrics and targets framework.
Phoenix Group Holdings plc Annual Report & Accounts 2020
67
STRATEGIC REPORT Task Force on Climate-related Financial Disclosures (‘TCFD’)
GOVERNANCE
The Phoenix Group Holdings plc Board (‘the Board’) recognises the
importance of addressing climate change and during the year, the Group’s
Corporate Governance framework has been enhanced to ensure clear
oversight and ownership of the management of climate-related risk
and opportunity impacts.
BOARD OVERSIGHT
The Board oversees the delivery of the
Group sustainability strategy, a key
priority of which is the management of
climate-related risk and opportunities.
Andy Briggs, the Group Chief Executive
Officer (‘CEO’), is the Executive Board
Director responsible for implementation
and delivery of the Group’s
sustainability strategy.
The Board has an established
committee structure to assist it in the
discharge of its responsibilities which
are managed via delegations within
approved terms of reference.
The following Committees of the
Board have specific oversight of
climate-related risks, opportunities
and disclosures:
During 2020 the Board discussed
climate-related matters on three
occasions:
• sustainability and climate-related
matters were considered at the
Board’s annual strategy session;
• a sustainability education session
was held with Board members; and
• the Board approved the Group’s
net-zero carbon commitment.
The impact of climate change and
wider Environmental, Social and
Governance (‘ESG’) risks is explicitly
identified as a Group principal risk.
Under delegation from the Board, the
Board Risk Committee considers
climate change risk as part of the
bi-annual review of principal and
emerging risks.
Read more in our Group’s Risk
Management Report
page 79
Read more about our Group’s
Corporate Governance
page 92
The Board Sustainability Committee
was established in December 2020
and is responsible for reviewing,
challenging and overseeing the Group’s
sustainability strategy, including the
setting of sustainability key
performance indicators. It comprises
five members of the Board (including a
non-executive Director as Chair). The
Group CEO, Group HR Director and
Director of Corporate Affairs and
Investor Relations are standing
attendees and further participants are
invited as required. Please refer to page
103 of this Report for further details of
this Committee. The establishment of
this new Board Committee reflects the
importance of sustainability in the
Group’s strategic agenda.
In 2020, a review of the Terms of
Reference for the Board Committees
was conducted to ensure they included
appropriate oversight of sustainability
and climate-related matters. The Board
Sustainability Committee engages
with the following Board Committees
as required:
The Board Audit Committee
oversees the internal controls and
financial reporting procedures and
recommends for approval the Annual
Report and Accounts, including the
TCFD Report, and other ESG
disclosures for compliance with
relevant regulations, legislation
and reporting standards.
The Board Risk Committee oversees
the identification, assessment,
management and reporting of climate-
related risks within the Group Risk
Management Framework including
climate-related stress and scenario
testing; and the reporting of risk
disclosures in respect of climate-
related risks.
The Board Remuneration
Committee oversees the Group’s
remuneration and compensation plans
and policies to ensure they are aligned
with our strategy and social purpose,
including from 2021, the inclusion of
climate-related targets within the
strategic scorecard for the Executive
Directors.
The Board Committees considered
sustainability (including climate-related
matters) during 2020 and during 2021
to the date of this report to fulfil their
relevant duties in accordance with their
approved terms of reference.
The Board Sustainability and Board
Risk Committees also reviewed the
TCFD Report before approval by the
Board Audit Committee.
68
Phoenix Group Holdings plc Annual Report & Accounts 2020
Climate-related governance framework
Phoenix Group Holdings Board
Board Audit
Committee
Board Risk
Committee
Board
Sustainability
Committee
Board
Remuneration
Committee
Board
Nomination
Committee
Executive
Sustainability Committee
TCFD Steering Group
Sustainability Working Group
TCFD Working Forum
MANAGEMENT OVERSIGHT
Individual responsibility for ensuring the
appropriate identification, assessment,
management and reporting of climate-
related financial risks and opportunities
that could impact the Group sits with
the Group’s Chief Financial Officer
(‘CFO’), Rakesh Thakrar and the
Group’s Chief Risk Officer (‘CRO’),
Jonathan Pears.
Both Rakesh Thakrar and Jonathan
Pears have been formally appointed as
joint Senior Managers responsible for
climate-related financial risk under the
Senior Managers Regime.
As part of wider financial reporting
responsibilities, the Group CFO is
responsible for reporting metrics and
targets and external disclosures; and as
part of wider risk responsibilities, the
Group CRO is responsible for ensuring
that climate-related risks are
incorporated into the existing risk
management framework.
An Executive Sustainability
Committee (established in 2020) is
responsible for oversight,
management, delivery and reporting of
the overall sustainability strategy and
programme and its underlying climate-
related initiatives. Its membership
comprises key executive members.
Chaired by the Director of Corporate
Affairs and Investor Relations, the
Committee meets at least monthly
and reports formally to the Board
Sustainability Committee. It works
closely with the Board Sustainability
Committee and other Committees
as required.
In addition, a TCFD Working Forum
was also established in 2020 which
comprises key functional
representatives from across the
business including Risk, Strategy,
Investment and Governance. This
forum meets weekly to ensure the day
-to-day implementation and embedding
of the recommendations of the TCFD.
KEY NEXT STEPS
• Implement and embed the climate-
related agenda in accordance with
the Group Sustainability Strategy.
• Further enhance the governance
framework across the Group to
address climate-related risks and
opportunities.
• Continue to develop the skills and
expertise of the Board, Executives
and the wider Group.
Management is supported by a TCFD
Steering Group which was also
established in 2020 and oversees the
TCFD implementation programme,
including progress against the
recommendations and the publication
of the annual disclosure. Its broader
aim is to ensure Phoenix has an
integrated approach to managing
climate-related risk and opportunities
and a strategic approach to managing
climate change. It comprises key
executive representatives from across
the business including the CFO and
CRO, the Chief Investment Officer,
Chief Operating Officer, Director of
Corporate Affairs and Investor
Relations and Group Company
Secretary. Chaired by the Head of
TCFD Implementation, the Group
meets monthly and reports to the
Executive Sustainability Committee.
Phoenix Group Holdings plc Annual Report & Accounts 2020
69
STRATEGIC REPORT Task Force on Climate-related Financial Disclosures (‘TCFD’) continued
STRATEGY
Phoenix is the UK’s largest long-term savings and retirement business. We
have a strategically important role in supporting global efforts to transition to
a low-carbon economy. This requires an understanding of how climate-
related impacts could affect the Group’s business, corporate strategy and
financial planning in the short, medium and long term.
IDENTIFICATION OF
CLIMATE-RELATED RISK
AND OPPORTUNITIES
During 2020, an exercise was
undertaken (with support from
third-party consultants) to help identify
and understand the climate-related
risks and opportunities which may
impact the Group. Phoenix will be
impacted by physical climate impacts,
low carbon transition risks and potential
opportunities. These impacts, as
defined by TCFD, are summarised
below.
Risk or Opportunity
Drivers
Potential impacts
Physical
Risks related to the physical impacts
of climate change
• Disruptions to business operations due to short-lived extreme
weather impacts
Acute
• Damage to physical assets and impacts on insurance liabilities
Transition
Risks associated with the transition
to a low carbon economy
Opportunities
Produced through efforts to adapt to
climate change
• Greater energy consumption needs due to chronic changes, such
as temperature rise, impacting cooling/heating requirements
• Risk to the workforce due to illness and mortality or disrupted
working patterns due to changing climatic conditions
• Increased compliance costs, stranded assets,asset impairment,
restrictions and limitations on carbon intensive assets and asset
depreciation
• Adverse impact on company valuation, asset impairment, viability
of business model and credit rating implications
• Write-offs of investments in disrupted technologies, required
investment in new technologies and process change costs
to accommodate new technologies
• Reputational or brand value damage resulting in lost income
and additional expenditures, for example through future litigation
and capital charges
• Reduced operating costs through greater resource and energy
efficiency
• Development of new products, investment and market
opportunities
Chronic
Policy and
Legal
Market and
Economic
Technology
Reputation
Internal and
External
To provide a more comprehensive view
of risks and opportunities across
Phoenix’s business areas, a series of
workshops with representatives across
the business was held, supported by
external research. This informed a
qualitative assessment of risks and
opportunities facing the business in
the short, medium and long term; the
result of which is illustrated in a
heatmap opposite.
quantify the financial impact of any
risks and opportunities to the business.
The heatmap is an initial qualitative
view of risks which has been used to
engage with internal and external
stakeholders and allows the Group to
focus on its most material risks and
opportunities. It does not attempt to
Quantitative scenario analysis will
be used to provide further insight into
the risks and opportunities from
climate change.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
Indicative materiality of climate-related risks and opportunities to Phoenix
Phoenix
area *
Predominant
Level 1 risk
type **
Phoenix
Group
Strategic
Operations
Operational
Heritage
Open
Investments
Insurance/
Market/
Credit/
Customer
Insurance /
Market /
Credit/
Customer***
Market /
Credit
Physical risks
Transition risks
Opportunities
Acute
physical
Chronic
physical
Policy
and legal
Market and
economic
Technology Reputation
N/A****
N/A****
VH
H
M
M
L
L
L
M
M
M
M
L
M
M
L
M
M
M
VH
M
M
H
Resource
efficiency &
renewable
energy
Products,
services &
market
N/A
L
M
N/A
N/A
L
N/A
VH
Most material risk area. Risks determined by sectors and geographies.
N/A
VH
Significance and relevance of climate-impact
Assessment has been structured by Phoenix business areas to help drive internal discussion.
*
** Predominant risk type as defined in Phoenix’s Risk Management Framework.
*** Although physical and transition risks lead to changes in mortality and persistency changes, the predominant
risks are driven by market and customer risks in these business areas.
Low
Medium
High
Very high
**** Physical risks to the Group are covered under operations.
PHOENIX EXPOSURES
As illustrated above, the relative
materiality of climate-related risks and
opportunities varies across Phoenix’s
business areas, with investments
considered to be the most material
risk area. Further analysis of the
investments area is summarised
overleaf.
Physical risks are more likely to
impact the Group over the medium
to long term.
Acute physical risk, in particular
damage to operating assets and
processes is material. Climate
considerations are being factored into
business continuity processes but
future projection data is needed to
properly understand and mitigate
these risks.
Chronic physical risks, such as
increasing average temperatures, may
increase life expectancy in the UK;
however, increasing frequency and
severity of acute climate events, may
increase fatalities by a greater factor.
These will impact the liabilities of both
the Heritage and Open businesses.
The Group and its customers are
exposed to a number of transition risks
arising from policy and legal changes,
market and economic factors and the
implications for our reputation.
Customers may be exposed to
transition risks depending on the nature
of the assets backing their policies.
Transition risks arising from regulation
and market shifts will impact the value
of securities in sectors exposed to
transition, and hence the value of
customer investments.
Phoenix will be exposed to conduct
and reputational risks associated with
managing these risks. If Phoenix fails
to improve its climate-related activity
in investments and/or operations,
customers may choose to look
elsewhere and Phoenix will lose
business and face reputational damage.
Growth in the Open Division is likely to
be adversely impacted if climate-related
considerations are not embedded in
new propositions.
Risks relating to policy changes, legal
implications and reputational damage
are most material at Group level. They
evolve around potential future litigation
and capital charges against the Group
for failure to meet regulatory deadlines,
green taxes on the financial services
sector and not meeting our net-zero
carbon targets.
These risks are more likely to impact the
Group over the short to medium term.
Opportunities available to Phoenix may
include improving energy efficiency
and reducing energy consumption in
offices, data centres and home
working environments.
As awareness of climate change
increases among customers, there may
be opportunities for Phoenix to offer
‘green’ products and services to meet
increasing demand. Additional
opportunities will be available if
Phoenix moves faster than peers and
gains competitive advantage.
Further work will be conducted to
embed the heatmap output within the
Group’s Risk Management Framework
(‘RMF’) and risks arising from climate
change will be reviewed in line with
regular risk management processes.
Phoenix Group Holdings plc Annual Report & Accounts 2020
71
STRATEGIC REPORT Task Force on Climate-related Financial Disclosures (‘TCFD’) continued
Indicative materiality of potential exposures to physical and transition risk by investment asset category
Asset Category
Debt
Equity securities
Property investments
Equity release mortgages
Commercial real estate loans
Physical Risks
Transition Risks
Shareholder
Policyholder
Shareholder
Policyholder
VH
VL
VL
L
VL
L
H
L
N/A
N/A
H
VL
VL
VL
VL
L
H
L
N/A
N/A
Significance and relevance of climate-impact
Very Low
Low
Medium
High
Very high
The heatmap scores above are not comparable to the Phoenix business-wide heatmap scores as each
risk rating is based on the combined sector, geography and exposure scores for each asset category.
Phoenix and publicly available data were used to develop this heatmap. Undertaking asset level
quantification will help to verify and improve these initial heatmap results.
INVESTMENT ASSET EXPOSURES
Further analysis was carried out
to assess the climate risks within
investments, the most material
risk area.
The potential climate risk exposure of
an investment asset depends on a
number of factors:
• the characteristics of the asset class
itself, for example a physical asset,
such as real estate, will be more
exposed to physical climate risks;
• the sector the asset operates in, for
example high-carbon sectors such as
oil and gas will be more impacted by
the transition to a low-carbon
economy; and
• geography, for example certain
countries are more vulnerable to or
less prepared for climate events.
Transition pathways and associated
policies will differ by country and
alter their transition risks.
Phoenix’s climate risk exposure is
ultimately driven by the level of direct
financial holding. The overall exposure
to climate-related risk can be reduced
by holding investments in asset
classes, sectors or geographies with
lower climate risk.
As illustrated above, at an investment
class level, Phoenix’s debt portfolio in
the shareholder funds faces the
greatest climate-related risks.
From a policyholder perspective, the
greater exposure is in the equity
holdings under both physical and
transition. There is a greater level of
uncertainty within the policyholder
equity holdings due to the wide range
of stocks, including managed funds and
we have therefore assumed a high
financial exposure.
Policyholder investments in passive
funds (e.g. FTSE trackers) may have
high climate risk exposure and our
ability to restrict investment in passive
funds is limited.
Real estate is the highest physical risk
sector but this is diluted in the overall
score due to these investments making
up a small proportion of the portfolio.
Exposure arises to policyholders
through investment in property funds
and to shareholders from equity
release mortgages.
CLIMATE SCENARIO ANALYSIS
Climate scenario analysis is a key tool
which allows the Group to better
understand the impact of the identified
physical and transition risks on the
Group in future possible scenarios.
In 2019, the Group (and ReAssure
Group plc that it has since acquired)
participated in the Prudential
Regulation Authority’s (‘PRA’)
Insurance Stress Test (‘IST’) which
required quantitative analysis against
three prescribed climate change
scenarios for the transition towards a
low carbon economy: a long-term
orderly transition; a sudden disorderly
medium term transition; and a ‘hot
house world’ or failed/no transition.
The key findings from the Group’s IST
exercise were as follows:
• the proportion of assets mapped to
higher climate risk sectors was
relatively low (15% to 20%);
• the greater exposures were in the
policyholder funds, given their
greater exposure to riskier assets.;
• the overall reduction in market value
is relatively low compared to the
overall size of the stresses; and
• a disorderly transition would be
expected to be more onerous than
an orderly one.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
During 2020, the Group further
developed its internal climate scenario
analysis and stress testing capabilities
and methodologies, with support from
third-party consultants to supplement
our in-house resource.
The key areas of focus included:
Scenarios selection: We have chosen
a range of scenarios that align to our
strategy and risk profile. These include
coverage of physical and transition risks
as well as mapping to externally
recognised scenarios. We also
conducted an exercise to map these
scenario narratives to recognised and
appropriate external scenarios aligned
with recommended frameworks. This
is summarised below.
exposures then building the required
models to assess the impacts under
the different scenarios.
Data: We are developing our strategy
regarding climate data, including asset
data, counterparty data and external
climate data (for both physical and
transition risks).
Calibration: We are developing our
methodology and approach to translate
these data into the factors required to
assess the impacts on our business.
Modelling: We are developing
methodologies for modelling different
Capability building: We are taking
steps to enhance our capabilities to
allow us to participate in the upcoming
Bank of England’s Climate Biennial
Exploratory Scenario (‘CBES’)
regulatory stress test exercise starting
in the second half of 2021 and to
develop the necessary framework
to allow us to run climate scenario
analysis and stress testing for future
risk management and strategic
decision-making.
Phoenix’s climate scenario analysis framework
Risk
Risk drivers
Physical Risk
Transition Risk
Acute
Chronic
Policy
and Legal
Market
and Economic
Technology
Reputation
Reference frameworks
The Intergovernmental Panel on
Climate Change Representative
Concentration Pathways (‘IPCC RCP’)
Network for Greening the
Financial System (‘NGFS’)
Scenarios
1.5oC
N/A
Orderly – 1.5˚C with Carbon Dioxide Removal
2oC
4oC
RCP2.6
(Assumes global temperature
rise below 2 °C by 2100)
RCP8.5 (Assumes emissions continue
to rise – worse case scenario)
Disorderly – 2˚C with limited Carbon Dioxide Removal
‘Hot house world’ – Current Policies
Time horizon for analysis
To be determined –
within 2030 to 2050
To be determined –
within 2030 to 2040
RESPONSIBLE INVESTMENT
PHILOSOPHY
The Group has developed a
Responsible Investment Philosophy
(available on the Group website) as the
first step towards embedding climate
change risk and ESG considerations
within the Investment Management
process. The philosophy serves as a
framework that sets out a high level
commitment and focus to both internal
and external stakeholders.
We aim to ensure that the Group’s
investment strategy and processes
remain consistent with the latest best
practice and scientific research. Our
strategy for decarbonisation of the
investment portfolios focuses on:
• reducing the Greenhouse Gas
intensity of our investment portfolios;
• increasing investment in ‘climate
solutions’, such as renewable energy,
low carbon buildings, and energy
efficient technologies; and
• Paris-Aligned Stewardship where we
influence the investee companies to
transition to a low carbon economy.
The Group is engaging with its Asset
Management Partners to identify
appropriate inclusion of climate change
considerations within both the
investment strategy and risk
management processes. This activity
will be progressed on a phased basis,
identifying pilot portfolios for early
adoption and to initially focus on
equities and fixed income asset
classes.
In December 2020, Phoenix became
a signatory to the Principles for
Responsible Investment (‘PRI’), an
international association of asset
owners, investment managers and
service providers working towards
a more sustainable global financial
system through the incorporation of
ESG factors into investment decision
making and ownership. As a PRI
member, Phoenix joins a network of
over 3,000 organisations committing
to the PRI’s six key principles and
regularly reporting through the TCFD
disclosure.
KEY NEXT STEPS
• Undertake pilot quantitative scenario
exercise to develop methodology.
• Develop internal climate scenario
modelling capabilities for most
material asset classes.
• Use results of scenario analysis to
identify additional risk management
actions and assist in strategic
decision-making.
• Support and participate in the CBES
exercise.
• Complete a strategic implication
assessment of climate risks
and opportunities.
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73
STRATEGIC REPORT Task Force on Climate-related Financial Disclosures (‘TCFD’) continued
RISK
MANAGEMENT
The Group has continued to embed the identification, assessment, management,
monitoring and reporting of climate-related risks within the Risk Management
Framework.
From a ‘top-down’ perspective, the
Group first reported climate risk as an
emerging risk in 2018. As our
understanding of the impact of
climate- related risks on the Group and
our customers has evolved, we have
increased the focus on climate risk in
the Group’s Risk Management
Framework (‘RMF’). We have classified
climate risk as a principal risk to the
Group since 2019 reflecting the
potentially material impact of climate
risks on our strategy, operations and
customers.
The Group’s RMF sets out how the
Group identifies, manages, monitors
and reports on the risks to which it is,
or could be exposed (including climate-
related risks). Please see page 79 to
read more in the Group’s Risk
Management Report.
In 2020, we have continued to embed
the assessment of climate-related risks
into our RMF.
Risk universe: Phoenix treats climate
change risk as a cross-cutting risk that
impacts all aspects of the risk universe.
reporting will be developed further to
reflect these enhancements.
Risk identification: We have
undertaken a qualitative assessment of
the aspects of Phoenix’s business
which are most exposed to these
potential climate-related risks and
opportunities. These are summarised
above in the Strategy section.
Quantitative analysis, building on the
PRA’s IST, will be developed over 2021.
Risk policies: The Group has
developed a Sustainability Risk Policy
and work is in progress to fully embed
material climate-related risks into the
Group Risk Policies by the end of 2021.
Risk reporting: As a principal risk,
climate risk is monitored and reported
internally and externally. As our metrics
and targets framework develops over
2021 and climate-related risks are fully
reflected in Group Risk Policies, our risk
Risk appetite: The Sustainability Risk
Appetite Statement is one of the
Group’s six high-level appetite
statements: “The Group will deliver on
its sustainability commitments to foster
responsible investment, reduce our
environmental impact, follow our
corporate purpose and be a good
corporate citizen.”
More granular policy level appetites are
being developed alongside the
development of the metrics and targets
framework and the embedding of
climate risks into the Group’s Risk
Policies.
Scenario analysis: The scenario
section above describes the work that
has been done to quantify potential
climate exposures and how we are
developing our own internal
quantification of the impacts of
potential climate change scenarios.
The physical,
transitional, legal and
reputational risks of
climate change are
viewed by the Group
as cross-cutting the
risk universe; with
strategic, financial,
operational and
customer implications
should we fail
to successfully embed
the management of
climate-related risk.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
MANAGEMENT OF CLIMATE-RELATED RISKS
We have made progress to understand the most material risk areas that may impact the Group as highlighted in the
heatmaps illustrated earlier. The table below summarises these material risk areas and outlines the action we are taking or
planning to take to mitigate these risks.
Risk type
Material risk
areas
Mitigation of material risk areas
Physical
Operations
• Continue to ensure that robust business continuity and operational resilience
frameworks consider all office locations, staff, systems and processes
• Together with our suppliers, work to develop a leading sustainable supply chain
programme, aligning with those organisations that share our sustainability aspirations and
commitment
• Conduct regular reviews of energy efficiency of offices, business travel guidelines, etc.
• Develop and implement required actions to meet interim net-zero carbon
commitment by 2025
Property assets
• Develop and include climate considerations within investment mandates
to limit/avoid exposures to high risk geographies and locations
• Consider whether to undertake more frequent valuations of higher risk property assets
• Undertake a review of key underwriting terms of property based products such
as Equity Release Mortgages
Transition
Policy/legal
• Ensure appropriate consideration of climate change within existing regulatory
horizon scanning framework
• Complete embedding consideration of climate risks into the Group’s Risk
Management Framework
• Identify, assess and manage risks associated with the transition to
a low carbon economy
Reputational
• Evidence increasing consideration of climate change risk management as
a key part of strategy
• Continue to develop climate disclosures to ensure good quality reporting
compared to peers and best practice
• Appropriate consideration of climate-related expectations of a broad range
of stakeholders
Investments*
• Develop more granular consideration of investment climate risks by asset class/
sector/geography
• Assess ESG capabilities of new asset managers and regularly review
existing managers
• Enhance climate analysis of material investment counterparties
• Continue to increase engagement and stewardship with counterparties
through asset managers
• Develop exclusion policy and use divestment when engagement fails to yield required
results
• Develop interim targets and implement required actions to meet net-zero carbon
commitment by 2050
Open business
• Actively engage with customers to understand requirements and expectations
to offer credible ESG funds and solutions
• Consider potential opportunities for developing new ‘green’ products and services
• Monitor persistency reporting to identify and understand any increase in
climate risk drivers
* This applies to the whole portfolio (heritage and open business).
KEY NEXT STEPS
• Develop internal climate risk appetites linked to metrics and targets framework
• Embed climate risk considerations within the Group’s Risk Management Framework
• Develop internal climate risk reporting
Phoenix Group Holdings plc Annual Report & Accounts 2020
75
STRATEGIC REPORT Task Force on Climate-related Financial Disclosures (‘TCFD’) continued
METRICS
AND TARGETS
Phoenix is committed to developing a robust metrics framework to help us
measure and manage the impact of climate-related risks and opportunities.
In 2021, we will be focusing our efforts on developing these metrics and
targets using TCFD guidance, emerging best practice and ongoing
engagement with our key stakeholders.
targets consistent with the 2050
net-zero position.
The Science Based Target Initiative
(‘SBTi’) framework will be used to
validate the delivery of our ambition to
pursue a 1.5°C aligned emissions
reduction target. This will involve
setting specific science based targets
for our net-zero carbon targets and
milestones.
KEY NEXT STEPS
• Identify and source appropriate
climate data to measure the carbon
intensity of the investment portfolio.
• Baseline Scope 3 investment
emissions.
• Develop our metrics and targets
framework to include specific
investment metrics including,for
example, Weighted Average Carbon
Intensity.
• Develop, validate and set our SBTi
net-zero targets for all scopes and
align future reporting metrics.
The Group has continued to focus on
the key areas of Greenhouse Gas
(‘GHG’) reduction, carbon management
and staff engagement. Key
achievements during the year have
included:
• the development of an operational
GHG reduction action plan;
• the creation of a Group-wide
environmental policy to bring
together cohesive action across
all Group sites;
• procurement of 100% renewable
energy sources across all UK sites;
• the development of a responsible
consumables action plan, which will
remove single-use plastics from our
vending points by the end of 2021
and ensure the effective disposal of
our waste; and
• the implementation of colleague
environmental scorecards to provide
statistics to encourage responsible
behaviour related to energy, print,
travel and consumables.
GHG EMISSIONS
Within Table 1 of the Streamlined and
Energy Consumption Report (‘SECR’)
overleaf, we have included GHG
emissions disclosures for Scopes 1 and
2 (operations) and selected Scope 3
(tenanted properties, business travel
and home-working emissions).
Phoenix’s Operations Intensity Metrics
are included within Table 2 and we
have also provided an update on the
energy efficiency actions we have
taken in 2020.
The 2020 carbon intensity for our
operations is 1.2 tonnes CO2e/FTE and
we have set a target to reduce this by
20% during 2021. We have reduced
0.5 tonnes CO2e/FTE in 2020 from our
2019 baseline of 1.7 CO2e/FTE.
NET-ZERO CARBON
In December 2020, the Group
committed to becoming net-zero
carbon across all emission scopes by
2050. A high level roadmap to net-zero
is included within the Group’s
Sustainability Report.
We have initiated work to identify the
best approach to deliver this
commitment by setting our first
milestone to bring our operations
(Scopes 1, 2 and selected scope 3
business travel) to net-zero carbon by
2025.
In 2021, we will baseline the Scope 3
carbon emissions of the investment
portfolio. We will then identify
appropriate interim decarbonisation
Metric
Target
Date
GHG emissions Reduce Scope 1 and 2 emissions from occupied premises
2021
per full time employee intensity by 20% on 2020 value
Net-zero carbon emissions from operations
(Scope 1, 2 and selected scope 3)
Net-zero carbon emissions from investment portfolio
(Selected scope 3)
2025
2050
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Phoenix Group Holdings plc Annual Report & Accounts 2020
SECR STATEMENT: GREENHOUSE GAS
(‘GHG’) EMISSIONS AND ENERGY
CONSUMPTION DISCLOSURE
This is Phoenix Group’s first SECR
statement on the Group’s UK and
global energy consumption and GHG
emissions for the financial year 1
January 2020 to 31 December 2020,
and including the 2019 comparative
year. Emissions disclosed here relate
to activities, facilities and property
investment portfolios where Phoenix
Group has operational control.
METHODOLOGY
Phoenix Group has used the main
requirements of the GHG Protocol
Corporate Standard (revised edition),
together with International Energy
Agency (‘IEA’) and DEFRA UK
Government Conversion Factors 2020,
as the basis to report on any GHG
emissions in tonnes of carbon dioxide
equivalent (‘tCO2e’). This expresses
multiple greenhouse gases in terms of
carbon dioxide based on their global
warming potential (including methane,
nitrous oxide, hydrofluorocarbons,
perfluorocarbons and sulphur
hexafluoride).
Emissions considered relate to
activities both in the UK and globally for
which Phoenix Group is responsible,
and include as applicable: combustion
of any fuel and operation of its facilities;
fugitive emissions released from
refrigerants purchased (based on
refrigerant top-ups); and annual
emissions from the purchase of
electricity, heat, steam or cooling by
Phoenix Group for its own use. In this
statement Phoenix has also chosen to
include estimated employee home-
working emissions (Scope 3), using
the EcoAct Homeworking Emissions
Whitepaper 2020, in order to recognise
the indirect emissions resulting from
the move to home-working in 2020
due to COVID-19.
Following the purchase of ReAssure
Group plc in 2020, included here are
the property investment portfolios as
well as the occupied premises in the
UK, Ireland, Germany and Austria.
Furthermore, in the property
investment portfolios, where energy
consumption is sub-metered to
tenants, this falls into the Scope 3
reporting, whereas all other landlord-
obtained consumption remains as
Scope 1 or 2 emissions. The 2019
comparative figures do not include
ReAssure Group plc emissions.
Phoenix Group reports Scope 2
emissions using the GHG Protocol
dual-reporting methodology, stating
two figures, location and market-based,
to reflect the GHG emissions from
purchased electricity:
• 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.
GREENHOUSE GAS EMISSIONS1
Table 1: Absolute energy and GHG emissions in tonnes of CO2e
Consumption, GWh2 from:
Building Electricity
Building Natural Gas
Business Travel
Homeworking Electricity
Homeworking Natural Gas
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,
transmissions and distribution losses from electricity
Scope 3 – Employee home-working emissions
Scopes 1, 2 and 3 – Voluntary three scopes carbon footprint
2020
41.9
24.1
0.4
1.3
20.2
20193
44.7
21.0
0.9
N/A
N/A
(market-
based)
(location-
based)
(market-
based)
(location-
based)
4,913
4,913
4,203
4,203
3,266
10,065
8,178
14,978
1,040
3,129
4,272
13,490
4,129
22,236
3,702
7,905
760
N/A
8,665
13,052
17,255
4,267
N/A
21,523
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 2020 factors will not be published until late 2022. Therefore all 2020 consumption
data are converted using the factors actually arising in 2016 (except car travel which uses DEFRA factors as published in 2020). 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.
2 Energy Units: 1 GWh = 1,000,000 kWh.
3 The ReAssure Group plc portfolio is not included in the 2019 data, as the acquisition was completed on the 22 July 2020.
Phoenix Group Holdings plc Annual Report & Accounts 2020
77
STRATEGIC REPORT SECR Statement: Greenhouse Gas (‘GHG’) emissions and Energy
Consumption Disclosure continued
CHANGES TO PHOENIX GROUP’S
OPERATIONS
In 2020 there was 66.4 GWh of
Phoenix Group global energy
consumption (building energy and
business travel in either employees’
cars or company cars) as shown in
Table 1, 93% of which was from UK
operations. This is a decrease on the
66.6 GWh of global energy use
reported in 2019, despite the addition
of ReAssure Group plc.
Separately, in 2020 we have estimated
(for information purposes only) that
21.5 GWh can be attributed to
employee home-working energy
consumption, of which 90% occurred
within the UK. In GHG emissions terms
(Scopes 1, 2 and 3), 91% of Phoenix
Group emissions occurred at UK sites.
intensity metric of tonnes per floor area
in Table 2.
In 2020, despite the acquisition of the
ReAssure Group plc portfolio, absolute
emissions (location-based Scope 1 and
2) have decreased by 13%. This
reduction is largely attributed to the
COVID-19 world health crisis, which
has resulted in significant disruption to
the conventional way of working, and
meant that almost all employees have
had to work from home for the duration
of the year. This change to home
working has also caused a 20%
reduction in the like-for-like building
emissions of Phoenix Group as per the
Approximately 85% of electricity
consumption is from certified
renewable sources, accounting for why
the market-based emissions for Scope
2 are significantly less than the
location-based emissions, as shown in
Table 1. This is a reduction in
percentage of renewable sources
compared to 2019 due to the addition
of ReAssure Group plc. This has
increased the proportion of market-
based emissions compared to location-
based emissions in 2020 versus 2019.
Table 2: Phoenix’s chosen intensity measurement2
Emissions, tonnes of CO2e per chosen intensity metric:
Scope 1 and 2 Emissions from occupied premises per floor area intensity2
Scope 1 and 2 Emissions from occupied premises per full-time equivalent employee (‘FTE’) intensity3
2020
(location-
based)
80 kg
CO2e/m2
2019
(location-
based)
101 kg
CO2e/m2
1.2 tonnes
CO2e/FTE
1.7 tonnes
CO2e/FTE
2
3
The 2019 and 2020 CO2e/m2 intensity metric calculations include Phoenix Group’s Wythall Estate, Standard Life House, St Stephen Green, SL Data Centre, Glenogle Road and
leased floor area of Juxon House, accounting for 67% of Phoenix Group’s total occupied floor area. The 2019 intensity metric has been restated here based on increased data
coverage in 2020 which provides a more accurate representation and allows for better overall comparison across 2019–2020.
The CO2e/FTE intensity metric calculation for 2019 and 2020 exclude the FTE and Scope 1 and 2 emissions for the ReAssure Group plc portfolio as this was not acquired until mid
2020, and is therefore not comparable.
Where practical, the consolidation of
offices will take place to help to reduce
Phoenix Group’s operational footprint
and increase efficiency of area usage.
Due to these actions being carried out
in 2020, any subsequent energy
reduction will be accounted for and
commented on in the Group’s SECR
statement.
ENERGY INTENSITY METRICS
As shown above in Table 2, Phoenix
Group’s Operations Intensity Metrics
detail carbon emissions per floor area
(‘m2’) and per full-time equivalent
employee (‘FTE’) in occupied premises.
The intensity for both m2 and FTE has
decreased from 2019 to 2020, largely
driven by the move to home-working
for most of the Group’s employees as
a result of COVID-19.
ENERGY EFFICIENCY ACTIONS
In 2020 Phoenix carried out a number
of energy efficiency actions on its
premises. To applicable and appropriate
properties the following have been
carried out:
• LED lighting roll out (68% lighting
energy reduction at Standard Life
House obtained);
• building control systems have been
upgraded to allow for greater
flexibility and operational efficiency;
• electrical vehicle charging points
have been installed;
• within ventilation systems, fans have
been upgraded and inverter controls
have been retrofitted (15% overall
improvement expectation);
• roof insulation materials have been
upgraded;
• electric ‘point of use’ water heaters
have replaced gas storage systems;
• half-hourly data gas meters have
been installed;
• sub-metering installation has been
carried out to allow for greater data
granularity and management;
• boilers have been upgraded or
replaced as necessary (20% overall
improvement expectation); and
• heat pumps are being considered (to
replace gas boilers) in applicable
properties.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
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 all material risks are identified, assessed, controlled, monitored,
managed within approved risk appetites and reported through agreed
governance routes in line with delegated authorities.
The nine components of the RMF are
outlined in the diagram, with further
information given in the sections that
follow. Following the acquisition of
ReAssure Group plc, the Group is
working to complete the integration of
the Phoenix RMF into ReAssure in the
second half of 2021.
RISK ENVIRONMENT
The overall risk environment is
heightened since March 2020; this
predominantly reflects prolonged
uncertainty relating to COVID-19 and
the resulting impacts on the economy,
our customers and our colleagues, in
addition to the scale of internal
demands from the extent of change in
the organisation.
The rollout of COVID-19 vaccines is
positive; however, there is significant
uncertainty over the timing of any
economic recovery and the
consequences of the pandemic remain
unclear, both from a financial and
societal perspective. Due to the
heightened risk environment there is a
continued need to consider a wide
range of adverse scenarios to inform
key business decisions; this is
facilitated through our established
Stress and Scenario Testing
Programme, a key component of our
RMF and Own Risk and Solvency
Assessment (‘ORSA’).
The Group utilised its RMF to respond
effectively to the rapidly changing
pandemic; we continue to adapt a
range of COVID-19 stresses to assess
the resilience of the Group to a range
of potential adverse outcomes from
the pandemic. A number of mitigating
actions have been taken since March
Risk Management Framework
Risk
strategy
and culture
Risk appetite
Risk universe
Risk
policies
Governance and
organisation
Emerging
risk
Strategic risk
management
Risk and
capital
models
Risk and control processes and reporting
2020, to provide ongoing support to
customers, protect customer
outcomes and ensure the Group
remains financially resilient.
The well-being of colleagues remains
critical, particularly as lockdown
measures continue, compounded by
periods of home schooling and caring
responsibilities. The Group has
managed this carefully since the start
of the pandemic through cross-
organisational collaboration and health
and well-being support.
In addition, to ensure no material
impact on our priorities, operational
capacity across the Group and within
our outsourcing partners continues to
be actively monitored by management
and Boards. This ensures the Group is
effectively prioritising activity so it can
continue to meet business demands
and prevent any adverse impact to
customer outcomes and business
performance.
Following the addition of a principal risk
on climate change and wider ESG risk
in 2019 we have continued to embed
Phoenix Group Holdings plc Annual Report & Accounts 2020
79
STRATEGIC REPORT Risk management continued
climate-related risks and opportunities
into our RMF. Further details on future
priorities across each of the TCFD
focus areas are outlined on page 67.
As a result of pre-emptive action, the
Group was well placed to deal with the
operational consequences arising from
the end of the Brexit transition period.
The Group continues to monitor the
implications for our operations in light
of the new trading relationship agreed
between the UK and EU and will take
mitigating action if required.
In July 2020, the Group successfully
completed its acquisition of ReAssure
Group plc bringing additional scale to
Phoenix’s Heritage business and
enhancing our key attributes of cash
generation, resilience and growth. The
impact of the ReAssure Group plc
acquisition on the enlarged Group’s risk
profile is considered within the Group’s
principal risks and uncertainties on
pages 83 to 89.
OWN RISK AND SOLVENCY
ASSESSMENT (‘ORSA’)
The Group’s ORSA cycle brings
together inter-linked risk management,
capital and strategic processes. The
ORSA provides:
• 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.
RISK STRATEGY AND CULTURE
Risk strategy
Our risk strategy is our overall approach
to taking rewarded risks that are
understood, managed effectively and
are consistent with our social purpose
and enterprise strategy. Our risk
strategy supports a more stable,
well-managed business with improved
customer, shareholder, colleague and
societal outcomes.
ORSA process cycle
ORSA
reporting
Strategy and
business plan
Stress and
scenario testing
Risk exposure
and appetite
Risk management
and monitoring
Risk capital
Assessment
We achieve our social purpose and
enterprise strategy not by avoiding
risks, but through the identification and
management of an acceptable level of
risk (our ‘risk appetite’) which ensures
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 our customers,
shareholders, colleagues and society.
Our risk culture reflects the way we
think and act, both individually and
collectively. Our risk culture vision is to
promote:
“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 support
the realisation of this environment.
We regularly assess ourselves against
our risk culture vision, doing this
through a comprehensive dashboard
with a suite of measures on people,
governance, customers and leadership.
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
the attainment of our strategic
objectives. The Group’s risk appetite
statements establish the risk
boundaries within which we are
prepared to operate, set the tolerance
for delivery against our objectives, and
are a key tool in balancing the interests
of different stakeholders.
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.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
Liquidity – The Group and each Life
Company will seek to ensure that it has
sufficient liquidity to meet its financial
obligations under a range of Board-
approved scenarios.
Shareholder value – The Group only
has appetite for risks that are rewarded,
adequately 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 maintains the
highest conduct standards in line with
regulatory, customer and market
expectations. Any deliberate or
negligent actions leading to unfair
customer outcomes, poor market
conduct, reputational damage or
regulatory censures are not acceptable.
If an unfair outcome should arise, the
Group will put it right in a fair and
prompt manner.
Sustainability – The Group will deliver
on its sustainability commitments to
foster responsible investment, reduce
our environmental impact, follow our
corporate purpose and be a good
corporate citizen.
RISK UNIVERSE
A key element of effective risk
management is ensuring the business
understands the risks it faces. These
risks are defined in the Risk Universe.
The Risk Universe allows the Group to
deploy a common language, allowing
for meaningful comparison 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
The Group treats climate change risk
and conduct risk as cross-cutting risks
that impact all aspects of the Risk
Universe.
RISK POLICIES
The Group Risk Policy Framework
supports the delivery of the Group’s
social purpose and enterprise strategy
by establishing the operating principles
and expectations for managing the key
risks to the Group’s business. Each of
the risk 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 control standards
required in order to manage the risk
to an acceptable level; and
• the frequency of the control’s
operation.
The risk policies are mapped to each
of the Level 2 Risk Universe categories
to ensure complete coverage of all
material risks.
The Group Risk Policy Framework
further supports the Group in operating
within the boundaries of its Risk
Appetite statements by seeking to limit
volatility under a range of adverse
scenarios agreed with the Board.
Quantitative and qualitative appetite
limits are chosen which specify the
acceptable likelihood for breaching the
agreed appetite statements (e.g. less
than x% chance of a breach in
regulatory capital) and assessment
against the appetite targets is
undertaken through scenario testing.
Breaches of appetite are corrected
through management actions where
appropriate. The effective use of risk
mitigation techniques such as
reinsurance, hedging and outsourcing
are key to ensuring the Group remains
within risk appetite and are described
in the relevant Group Risk Policies.
Key performance indicators for risk
categories are considered in each
corresponding Group Risk Policy.
A Group Conduct Risk Framework
overarches all risk policies to provide a
holistic view of conduct risk. This
provides a consistent and
comprehensive approach to the
management of conduct risks and
achievement of customer outcomes
across the Group.
GOVERNANCE AND
ORGANISATION
Governance
The RMF sets out a consistent three
lines of defence model with clearly
defined roles and responsibilities for all
components. Risk accountability and
ownership are embedded in the first
line, with first line assurance teams
established to support the business by
providing substantiated evidence that
controls are fit for purpose.
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.
Group Risk conducts an annual
assessment of the effectiveness of
each function in the business in
adhering to the requirements of the
RMF. This provides assurance to
management and the Boards that the
RMF has been implemented
consistently and is operating effectively
across the Group.
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. The first line is responsible
for implementation of the RMF,
ensuring risks to the Group and its
customers, shareholders, colleagues
and society are identified, assessed,
controlled, monitored, managed and
reported.
Second line: Risk oversight
Independent oversight of risk
management is provided by the Group
Risk Function through advice, guidance,
review, challenge, opinion and
assurance; their views are reported to
the Board Risk Committee. Group
Risk’s purpose and responsibilities are
set out in the Risk Mission, Mandate
and Plan, which is presented to the
Board Risk Committee for approval
annually.
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81
STRATEGIC REPORT Risk management continued
Governance framework
Board
Phoenix Group
Holdings Board
Board
Remuneration
Committee
Board
Nomination
Committee
Board
Sustainability
Committee
Board Risk
Committee
Board Audit
Committee
First line of defence
Second line
of defence
Third line
of defence
Executives
Group Chief
Executive Officer
Chief Risk
Officer
Management
Group
Functions
Business Unit
Management
Third line: Independent assurance
Independent verification of the
adequacy and effectiveness of internal
controls and risk management is
provided by the Group Internal Audit
function, reporting their output to the
Group Board Audit Committee.
The governance framework in
operation throughout the Group can be
found in the chart above.
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. Emerging risks
could either be completely new risks or
connected with existing risks in
unfamiliar conditions.
The distinction between a current risk
and an emerging risk predominantly
relates to the amount of available
information, with fewer details
available for emerging risks meaning
the likelihood and severity impacts
must be estimated. Emerging risks or
opportunities can typically take longer
to crystallise, but in many cases
immediate action is needed so risks
can be pre-emptively mitigated or
opportunities fully maximised.
Whilst any estimates have an element
of subjectivity, they are validated during
Management Board and Board Risk
Committee discussions. These
conversations help drive out potential
new risks and opportunities, drawing
on the collective expertise and
experiences of senior individuals. The
Group captures emerging risks and
opportunities in a detailed log and
examples of these are outlined in the
table on page 89.
STRATEGIC RISK MANAGEMENT
Strategic risks threaten the
achievement of the Group’s social
purpose and enterprise strategy.
The Group recognises that core
strategic activity brings with it
exposure to strategic risk.
A Strategic Risk Policy is 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
identification and assessment of risk
types and the corresponding resilience
of the Group’s capital position. The
Group continually strives to enhance its
internal risk and capital models and the
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Phoenix Group Holdings plc Annual Report & Accounts 2020
Group Risk and
Compliance
Group
Internal Audit
related modelling must be sufficiently
accurate to enable appropriate ranking
and 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 Internal
Model output is used within the 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,
including learning lessons from
incidents, is undertaken across the
three lines of defence, and reported
through business and management
governance to the relevant Boards
and Committees.
PRINCIPAL RISKS AND
UNCERTAINTIES FACING
THE GROUP
The Group’s principal risks and uncertainties are detailed in this
section, together with their potential impact, mitigating actions
in place and any change in risk exposure since the Group’s
2019 Annual Report and Accounts, published in March 2020.
These risks reflect the impact of the ReAssure Group plc
acquisition on the enlarged Group’s risk profile.
Management and the Board Risk
Committee have carried out a robust
assessment of principal risks and
emerging risks. As a result of this,
two new strategic risks around ‘Open
business’ and ‘Delivery of change’
have been introduced. This recognises
the growing importance of managing
risk in these areas to enable the
Group to effectively deliver its
strategic objectives.
In addition, a principal risk in the
Group’s 2019 Annual Report and
Accounts involving customer
proposition development has been
combined with our ‘customer
outcomes’ principal risk. This reflects
the importance of delivering
propositions that meet the evolving
needs of our customers across our
Heritage and Open businesses.
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).
Change in risk:
Risk improved
No change
Risk heightened
New principal risk
Strategic priorities:
1 Manage capital
2 Create value
3 Meet customer needs 4
Sustainability 5
Inspire our people
STRATEGIC RISK
Risk
Impact
Mitigation
Strategic
priorities
Change from last year
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,
including acquisitions of life and
pensions books of businesses.
The transition of acquired
businesses into the Group
could introduce structural or
operational challenges that
result in the Group failing
to deliver the expected
outcomes for customers or
value for shareholders.
The Group continues to assess
new inorganic growth opportunities
and applies a clear set of criteria to
assessing these 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.
The Group continues to actively
manage operational capacity
required to deliver its strategy,
including transition activities.
1
2
3
No change
Phase 1 of the Standard Life Assurance
integration is substantially complete with
Phases 2 and 3 progressing well. We remain
on track to deliver our synergy targets.
In July 2020,the Group successfully
completed the acquisition of ReAssure
Group plc bringing additional scale to the
Heritage business and enhancing our key
attributes of cash generation, resilience and
growth. Integration of the ReAssure Group
plc into the wider Group is underway.
Following the ReAssure Group plc
acquisition, we have completed the Part
VII transfer of business acquired from
L&G and migrated customers to our
in-house administration platform.
Phoenix Group Holdings plc Annual Report & Accounts 2020
83
STRATEGIC REPORT Risk management continued
STRATEGIC RISK CONTINUED
Risk
Impact
Mitigation
Strategic
priorities
Change from last year
Risk improved
The changes announced by the Group and
SLA plc in February 2021 to simplify and
extend the strategic partnership lead to
an improvement in this risk, including the
conclusion of all legacy issues related to
services and expenses in relation to the
Transitional Services Agreement, Client
Service Proposition Agreement and certain
other agreements between the Group and
SLA plc entered into when the Group acquired
the Standard Life Assurance businesses.
The Group continues to effectively develop
the partnership with TCS as they support
our strategic deliverables. Most notably, in
2020 the blueprint for Phase 3 of the Group’s
Standard Life Assurance transition activity
was finalised and signed with TCS; this was a
significant milestone in progressing transition
activity. Other strategic activity involving
both parties continues to be assessed for
COVID-19 impacts with actions being taken
to protect strategic and BAU activity.
New Principal Risk
The Group’s
strategic
partnerships
fail to deliver
the expected
benefits
The Group
fails to deliver
long-term
growth in its
Open business
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. The
Group’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.
Some of our key strategic
partnerships include:
SLA plc: Provides investment
management services to
the Group including the
development of investment
solutions for our customers.
TCS: Our enlarged partnership
with TCS is also expected
to support growth plans for
our Open business, enabling
further digital and technology
capabilities to be developed
to support enhanced
customer outcomes.
HSBC: The Group is continuing
its plan to transfer all fund-
accounting services to HSBC,
enlarging and enhancing
our current partnership.
The Group’s Open business has
strong foundations and is central
to our purpose of helping people
secure a life of possibilities.
It is also fundamental to our
plans of delivering the Wedge
which assumes that Open
business growth can offset
the run-off from the in-force
business and bring sustainability
to organic cash generation.
Significant negative reputational
damage could occur if the
Open business fails to deliver
against its strategic objectives,
particularly as the Group seeks to
promote a ‘customer obsessed’
mind-set underpinned by strong
retention and consolidation
as customers journey to
and through retirement.
2
3
4
2
3
The Group has in place established
engagement processes with SLA plc
to oversee and develop the strategic
partnership. These processes will be
adapted to reflect the new simplified
extended strategic partnership
between the Group and SLA plc that
was announced in February 2021.
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.
We have in place established
processes to oversee services
provided by HSBC.
The Group’s new Business Unit
structure brings renewed focus
and accountability. The key
areas of growth are Workplace,
Customer Savings & Investments
and Retirement Solutions.
Each Business Unit will hold an
annual strategy setting exercise
to consider customer needs,
the interests of shareholders,
the competitive landscape
and the Group’s overall
purpose and objectives.
As part of the Annual Operating
Plan the Group is committed to
making significant investment
in our Open business which will
include propositions which are
driven by customer insight.
The Group is established in the Bulk
Purchase Annuity (‘BPA’) market and
continues to invest in its operating
model to further strengthen its
capability to support its growth plans.
For new BPA business, the
Group continues to be selective
and proportionate, focusing on
value not volume, by applying
the Group’s rigorous Capital
Allocation Framework.
84
Phoenix Group Holdings plc Annual Report & Accounts 2020
Change in risk:
Risk improved
No change
Risk heightened
New principal risk
Strategic priorities:
1 Manage capital
2 Create value
3 Meet customer needs 4
Sustainability 5
Inspire our people
Strategic
priorities
Change from last year
1
2
3
4
No change
The TCFD disclosures (page 67) provide
an overview of progress against the
recommendations and planned future
priorities across each of the TCFD focus
areas including, developing internal climate
risk appetites linked to metrics and targets
framework, embedding climate risk
considerations within the Group’s RMF and
developing internal climate risk reporting.
In 2020 the Group committed to supporting
the goals of the 1.5° Paris Agreement to limit
global warming to 1.5°C above pre-industrial
levels, and the Group has set a target of being
net-zero carbon by 2025 across our operations
and by 2050 across our investment portfolio.
Later in 2021 the Group will be participating
in the Bank of England’s Climate Biennial
Exploratory Scenario exercise (‘CBES’).
New Principal risk
2
3
4
STRATEGIC RISK CONTINUED
Risk
Impact
Mitigation
The Group fails
to appropriately
prepare for
and manage
the effects of
climate change
and wider
ESG risks
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 Environmental, Social and
Governance (‘ESG’) risks and
delivering on our social purpose;
for example, failing to meet our
sustainability commitments.
COVID-19 has amplified
expectations for delivery of
the Group’s social purpose and
sustainability vision. A failure to
deliver could result in adverse
customer outcomes, reduced
colleague engagement, reduced
proposition attractiveness
and reputational risks.
The Group
does not have
sufficient
capacity and
capability to
fully deliver
its significant
change
agenda which
is required
to execute
the Group’s
strategic
objectives
The Group’s ability to deliver
change on time and within
budget could be adversely
impacted by insufficient
resource and capabilities as
well as inefficient prioritisation,
scheduling and oversight
of projects. The risk could
materialise both within the Group
and our strategic partners.
This could result in the benefits
of change not being realised
by the Group in the timeframe
assumed in our business
plans and may result in the
Group being unable to deliver
its strategic objectives.
A Group-wide project is underway to
enhance our approach to managing
the financial risks of climate
change, including embedding
climate risk considerations
within the Group’s RMF, which
will meet the requirements of
Supervisory Statement 3/19.
In March 2020, the Group became
a signatory to the Task Force on
Climate-related Financial Disclosures
(‘TCFD’). Our disclosures in line
with TCFD recommendations,
including planned future priorities
across each of the TCFD focus
areas are outlined on page 67.
Work is in progress to fully
embed material climate-related
risks into the Group risk policies.
The Group Board has also
approved a new Sustainability
Risk Appetite Statement.
Our new sustainability strategy has
evolved to respond to the changing
needs of our stakeholders and
we have set targets to monitor
progress towards our sustainability
commitments. Further details on our
sustainability strategy are available
in our Sustainability Report.
The Group continues to actively
engage with regulators on progress
with all climate change and
sustainability-related deliverables.
The Group’s Change Management
Framework is to be strengthened
over 2021 with a revised change
model, consistent with ensuring
empowerment and accountability
within Business Units to effectively
deliver change. An enhanced
prioritisation model will be
implemented, with clearer alignment
to the Group’s Strategic Framework.
Information setting out the levels
of resource demand and supply,
both a current and forecast view,
will continue to be provided to
accountable senior management so
that informed decision-making can
take place, with all risks to delivery
appropriately identified, assessed,
managed, monitored and reported.
Phoenix Group Holdings plc Annual Report & Accounts 2020
85
STRATEGIC REPORT
Risk management continued
CUSTOMER RISK
Risk
Impact
Mitigation
Strategic
priorities
Change from last year
The Group fails
to deliver fair
outcomes for
its customers or
fails to deliver
propositions
that continue
to meet the
evolving needs
of customers
The Group is exposed to the
risk that it fails to deliver fair
outcomes for its customers,
leading to adverse customer
experience and potential
customer detriment. This
could also lead to reputational
damage for the Group and/
or financial losses.
In addition a failure to deliver
propositions that meet the
evolving needs of our customers
may result in a failure to deliver
our purpose of helping people
secure a life of possibilities.
OPERATIONAL RISK
The Group is
impacted by
significant
changes in the
regulatory,
legislative
or political
environment
Changes in regulation could lead
to non-compliance with new
requirements that could impact
the Group’s fair treatment of its
customers. These could require
changes to working practices
and have an adverse impact on
resources and the balance sheet.
Political uncertainty or changes
in the government could
see changes in policy that
could impact the industry
in which we operate.
The Group’s Conduct Risk Appetite
sets the boundaries within which
the Group expects customer
outcomes to be managed.
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 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.
The Group’s Proposition
Development Process ensures
consideration of customer
needs and conduct risk when
developing propositions.
The Group undertakes proactive
horizon scanning to understand
potential changes to the regulatory
and legislative landscape. This allows
the Group to understand the potential
impact of these changes to amend
working practices to meet the new
requirements by the deadline.
2
3
4
1
2
3
No change
Throughout the pandemic the Group has
continued to provide ongoing support to
customers, including those most vulnerable,
both when paying out on their protection
plans and when making decisions about their
life savings during this period of uncertainty.
In addition, one-off initiatives have been
undertaken to support customers, with all
changes being communicated clearly.
In 2020, the Group continued to make
significant investments in our propositions,
driven by customer insight, with the
completion of an enhanced client
analytics tool, in-scheme drawdown
functionality and the launch of a
workplace ESG passive default fund.
Following the ReAssure Group plc acquisition,
we have completed the Part VII transfer of
business acquired from L&G and migrated
customers to our in-house administration
platform. Work is ongoing to ensure that
customer service for the transferring
customers meets our internal standards.
No change
There is some uncertainty as to whether
the UK government will change the current
regulatory and legislative requirements
in a post-Brexit environment but it is
anticipated that any such change will
include a sufficiently long lead in time to
allow the Group to react appropriately.
There is a lack of clarity in relation to how
the post-Brexit environment will impact
former UK customers who are now
resident in EEA countries. The Group is
working with UK regulators who are, in
turn, working with European regulators,
to better understand the situation. The
Group view is that it planned appropriately
and as a result has communicated,
and will continue to communicate with
these customers to ensure they are fully
aware of any potential implications.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
Change in risk:
Risk improved
No change
Risk heightened
New principal risk
Strategic priorities:
1 Manage capital
2 Create value
3 Meet customer needs 4
Sustainability 5
Inspire our people
OPERATIONAL RISK CONTINUED
Risk
Impact
Mitigation
Strategic
priorities
Change from last year
The Group or its
outsourcers are
not sufficiently
operationally
resilient
The Group fails
to retain or
attract a diverse
and engaged
workforce
with the skills
needed to
deliver its
strategy
1
2
3
1
2
3
5
The Group is exposed to the
risk of causing intolerable levels
of disruption to its customers
and stakeholders if it cannot
maintain the provisions of
important business services
when faced with a major
operational disruption to core
IT systems and operations.
This could occur either
within our own organisation
or those of our primary and
downstream outsourcers.
The Group is also increasing its
use of online functionality to
meet customer preferences.
This, coupled with a
move to home working,
exposes the Group to the
risk of cyber- attacks.
Regulatory guidance in respect
of operational resilience is
expected to be published in
2021, together with a timetable
to achieve full compliance.
Failure to meet this timetable
will expose the business to the
potential for regulatory censure
and reputational damage.
Delivery of the Group’s strategy
is dependent on a talented,
diverse and engaged workforce.
Periods of prolonged 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 and specialist risk
management skillsets.
Potential areas of uncertainty
include the transition of the
Standard Life Assurance and
ReAssure businesses into
the Group and the expanded
strategic partnership with TCS.
Prolonged home working,
caring and childcare lockdown
implications and extended
distancing due to COVID-19 can
affect colleague engagement,
wellbeing and productivity.
The Group has established
business continuity management
frameworks that are subject to an
annual refresh and regular testing.
The Group has also established an
Operational Resilience Programme
which will define and implement an
operational resilience framework that
will enable regulatory compliance
with the new guidelines.
The Group’s response to COVID-19
has contributed towards the
mitigation of some aspects of this
risk; the current working from home
model significantly reduces the
exposure to a number of physical
risks which could cause disruption
to our important business services.
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
team provides independent oversight
and challenge of information security
controls; identifying trends, internal
and external threats and advising on
appropriate mitigation solutions.
Timely communications to our
colleagues 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.
Following the transition to working
from home due to COVID-19,
the Group has conducted regular
Colleague Snapshot Surveys to
monitor colleague engagement
levels and identify any concerns;
appropriate actions are taken
following analysis of the results.
The Group continues to actively
manage operational capacity
required to deliver our strategy.
This is particularly pertinent
given the increasing demands
on our workforce at this time.
A project to define our ‘Future Ways
of Working’ is underway which is
likely to offer colleagues greater
flexibility in both where and how
they choose to work in future.
Risk heightened
There are three core drivers for the
heightened risk assessment:
COVID-19 could still adversely impact the
operational resilience of the Group and its
operations both in the UK and globally, in
regions where some our outsource partners
have a presence. Whilst many potential
exposures can be effectively mitigated,
a large-scale loss of colleagues on a
temporary or more permanent basis is more
challenging to resolve in the short-term.
The threat posed by an Information or Cyber
Security breach that affects the availability
of the core information technology assets,
which underpin the delivery of important
business services to our customers, is
considered to be increasing. This inevitably
leads to greater interest from cyber criminals;
subsequently it is critical that the ongoing
commitment to continually improving security
controls, where appropriate, is maintained.
The scale of strategic customer
transformation activity across the
Group over the coming two to three
years creates increased potential for
operational disruption to occur.
No change
There has been a significant increase
in engagement scores in our colleague
surveys during 2020. However, there
remains the potential for colleague
engagement, wellbeing and resilience to be
adversely affected by ongoing COVID-19
restrictions, prolonged home working
and organisational design changes.
The Group continues to manage this
carefully through cross-organisational
collaboration, health and wellbeing support
and regular communications to staff.
The Group successfully rolled out its Unified
People Proposition creating a more aligned
experience for our colleagues. This means
the Group is prepared for future acquisition
and transition activity, and will be able to
respond flexibly to future business needs.
The increased scale and presence of the
Group, and our success in multi-site and
remote working, gives us greater access to
a larger talent pool to attract in the future.
The ‘Phoenix Story’ launched in summer
2020 bringing renewed societal and
business purpose to the Group. Our
colleagues have reacted positively to this.
Phoenix Group Holdings plc Annual Report & Accounts 2020
87
STRATEGIC REPORT Risk management continued
MARKET RISK
Risk
Impact
Mitigation
Strategic
priorities
Change from last year
Adverse market
movements
can impact the
Group’s ability
to meet its cash
flow targets,
along with
the potential
to negatively
impact
customer
sentiment
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, global
pandemics and financial risks
of climate change, including
risks from the transition to
a low carbon economy.
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,
interest rates and foreign currencies.
The Group 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. The
Group regularly discusses market
outlook with our asset managers.
1
2
3
Risk heightened
The potential for adverse market risk is further
heightened from March 2020 due to the
prolonged period of low interest rates and
ongoing uncertainty regarding the external
environment, particularly COVID-19.
Markets reacted favourably to the positive
news on the COVID-19 vaccines, but
there remains significant uncertainty over
the timing and extent of any recovery and
the medium to longer term economic
consequences of the pandemic.
The Group implemented a number
of management actions in 2020 that
provided resilience against unanticipated
market movements. Further contingency
actions are available to help manage the
Group’s capital and liquidity position.
The Group’s Stress and Scenario Testing
Programme considered the changes to the
environment as a result of COVID-19 and the
potential future implications of the pandemic.
During 2020, and as a consequence of
COVID-19, a number of our Unit Linked
Property funds were put into suspension
due to valuation uncertainty; we managed
this in line with our standard fund deferral
process. At the time of writing the majority
of these funds are now out of suspension.
Our exposure to residential property
continues to increase as a result of our
BPA investment strategy, however,
exposures are currently relatively small
in the context of the Group’s AUM and
remain within our risk appetite.
Risk heightened
The heightened risk exposure reflects
increased uncertainty around future
demographic experience as a result of
COVID-19 impacts, particularly mortality,
longevity and persistency risk. The long-term
impact of COVID-19 on both longevity and
persistency experience is not yet clear.
The Group has monitoring and
triggers in place to ensure current
assumptions remain representative
of our view on future experience.
The Group completed six external bulk
annuity transactions in 2020 with a combined
premium of c. £1.8 billion. Consistent with
previous transactions, we continue to reinsure
the vast majority of the longevity risk with
existing arrangements reviewed regularly.
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.
The Group undertakes regular
reviews of experience and annuitant
survival checks to identify any trends
or variances in assumptions.
1
2
The Group regularly reviews
assumptions to reflect the
continued trend of reductions in
future mortality improvements.
The Group continues to 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.
Where required the Group continues
to take capital management
actions to mitigate against adverse
demographic experience.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
Change in risk:
Risk improved
No change
Risk heightened
New principal risk
Strategic priorities:
1 Manage capital
2 Create value
3 Meet customer needs 4
Sustainability 5
Inspire our people
CREDIT RISK
Risk
Impact
Mitigation
Strategic
priorities
Change from last year
The Group
is exposed
to the risk of
downgrade
or failure of
a significant
counterparty
The Group is exposed to
the risk of downgrades
and a deterioration in the
creditworthiness or default
of investment, reinsurance
or banking counterparties.
This could cause immediate
financial loss or a reduction
in future profits.
The Group is also exposed
to trading counterparties,
such as reinsurers or service
providers failing to meet all
or part of their obligations.
The Group regularly monitors its
counterparty exposures and has
specific limits relating to individual
exposures, counterparty credit
rating, sector and geography.
The Group undertakes regular
stress and scenario testing of the
credit portfolio. Where possible,
exposures are diversified through
the use of a range of counterparty
providers. All material reinsurance
and derivative positions are
appropriately collateralised.
The Group regularly discusses market
outlook with our asset managers.
For mitigation of risks associated
with stock-lending, additional
protection is provided through
indemnity insurance.
1
2
Risk heightened
The risk of unexpected downgrades
and defaults within the Group’s credit
risk portfolio is heightened as a result of
market volatility and wider economic and
social impacts arising from COVID-19.
Throughout 2020, the Group took de-risking
action to increase the overall credit quality
of the portfolio and mitigate the impact
of future downgrades on risk capital.
The Group continues to increase
investment in illiquid credit assets as
a result of BPA transactions. This is in
line with our strategic asset allocation
plan and within our risk appetite.
EMERGING RISKS AND OPPORTUNITIES
The Group’s senior management and Board take emerging risks and opportunities into account when considering
potential outcomes. This determines if appropriate management actions are in place to manage the risk or take advantage
of the opportunity.
Examples of some emerging risks and opportunities the Group currently considers are listed in
the table below.
Risk title
Description
Market disruptors
Pensions dashboard
Addressing UK savings gap
COVID-19 aftershocks
The impact of alternative providers in the market or those with
more comprehensive digital propositions.
An industry-wide dashboard giving customers a single view of
their defined benefit, defined contribution and State pensions.
There is an opportunity to play a leading role in the development of
the dashboard and to attract pension pot consolidation and deliver
good customer outcomes.
Generations of UK savers face projected funding shortfalls in
retirement. The Group is seeking to address this gap through
investment and growth in the Open business.
Multiple political, economic, social, technological and global
impacts emerged as COVID-19 pushed the global economy into
a recession.
Risk Universe
category
Strategic
Customer
Customer
All categories
Phoenix Group Holdings plc Annual Report & Accounts 2020
89
STRATEGIC REPORT Viability statement
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 2025.
The Board has also made certain
assumptions when making the
assessment and these include
the following:
• no change in stated stable and
sustainable dividend policy;
ASSESSMENT PROCESS AND 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 activities include
an annual strategy session and it 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
strategic priorities, detailed financial
forecasts, and risks and contingent
actions to be considered. The latest
AOP was approved by the Board
in January 2021 and incorporated
the Group’s assessment of the
impacts of the COVID-19 global
pandemic on customer behaviours,
macroeconomic factors and the
Group’s financial position.
Progress against the AOP is reviewed
monthly by both the Group’s Executive
Committee and the Board.
The Board has determined that the
five-year period to December 2025
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.
• that corporate acquisitions are not
relevant, as any acquisition would
only be progressed on the basis it
meets the Group’s stated criteria and
capital allocation framework; and
• the stresses calculated occur on 1
January 2021 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 priorities and the impacts
of management actions on the
Group. The AOP was finalised in
January 2021 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.
• The stress testing was applied to an
AOP that reflected a stress event,
incorporating the Board’s view of the
most likely COVID-19 impacts on the
Group’s business, which includes an
allowance for further downgrades;
• The Board considered further the
impacts of COVID-19 on the Group
including additional stress and
scenario testing as detailed below;
• 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
report above; and
• 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.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
Additional economic stress testing has
been performed to demonstrate the
impact of further downside scenarios
on the Group’s financial position,
including severe and prolonged
recessionary scenarios and a significant
credit loss event (incorporating a full
letter downgrade on 50% of the
Group’s bond portfolio). Although the
assumptions applied in these scenarios
are possible, they are considered low
likelihood and do not represent our
view of the likely outturn. Furthermore,
whilst economic recovery under such
scenarios is delayed compared to the
base scenario applied in the AOP, it is
assumed to take place before the end
of the Group’s five-year projection
period.
The Board therefore believes that the
market stress applied as part of the
viability assessment (which assumes
no economic recovery) appropriately
allows for the macroeconomic risks to
which the Group is exposed over the
period of the viability assessment. The
results of the additional COVID-19
scenario testing have however, been
considered in the Board’s overall
assessment of the viability of the
Group.
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.
The results of the stress testing,
including a combination of individual
scenarios, as disclosed in the Business
Review Section, demonstrated that
due to the Group’s strong capital
position, the resilience of the Group
and the access to additional funding
(including the Group’s undrawn £1.25
billion unsecured revolving credit
facility), 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.
COVID-19
The Group’s business has remained
resilient during the COVID-19
pandemic. The Group has successfully
been able to maintain its operational
capability with almost all colleagues
working from home. Operational
capacity across the Group, and within
our outsourcing partners, continues to
be actively monitored by management
and Boards. This ensures the Group is
effectively prioritising activity and
sufficient capacity exists to continue to
meet business demands and prevent
any adverse impact to customer
outcomes and business performance.
COVID-19 has exposed the Group to
increased mortality risk. Given the
relative size of the business, this risk is
less onerous than the longevity stress
applied within the viability assessment,
and hence no additional stress testing
was deemed required in this regard.
COVID-19 has had a significant impact
on the macro-economic conditions in
which the Group operates. Whilst the
Group’s hedging strategy provides
resilience in this regard, the Group’s
financial position retains exposure to
volatile economic conditions.
Phoenix Group Holdings plc Annual Report & Accounts 2020
91
STRATEGIC REPORT Chairman’s introduction
Nicholas Lyons
Chairman
“ During this extraordinary
year, our governance has
stood up strongly,
underpinning the
protection of our
customers, colleagues
and shareholders and
the enhancement of our
performance as we
increasingly look to our
wider role in society.”
Market cap
£7.0bn
£5.40bn in 2019
CONTINUED RESILIENCE
IN A CHALLENGING YEAR
Our Board has overseen a year of
much achievement by Phoenix,
underpinning the resilience of our
model. As the COVID-19 situation
emerged, the response from executive
management and our Board was swift
and effective.
From March 2020, starting before the
UK lockdown commenced, our Board
began holding weekly briefing meetings
as well as the formal Board meetings,
to monitor the ongoing situation, both
operationally and financially. These
changed to fortnightly after our AGM
on 15 May 2020.
Our Board held three full Board
meetings in May 2020 alone, with a
focus on assessing our current and
projected financial position under
various scenarios, prior to deciding to
recommend to shareholders the
payment of the final 2019 dividend.
The Board was particularly focused on
supporting our customers and the
wellbeing of our Phoenix colleagues. It
was opportune that 2020 was the first
full year that Karen Green performed
her role as our designated non-
executive director for workforce
engagement. I am very grateful to
Karen for the diligence with which she
has performed this role and the
concern she has shown to ensure she
provides a strong interface between
the Colleague Advisory Forum and the
Board. Two of our other non-executive
directors, Wendy Mayall and Kory
Sorenson, attended the last Colleague
Advisory Forum meeting with Karen in
November 2020, and I am keen that
we continue to widen the interaction
between our Board and our colleagues.
The Board is focused on the wider role
of Phoenix in society. In December
2020, we established a new Board
Committee, the Sustainability
Committee, chaired by Karen Green.
Sustainability is central to our Group’s
purpose and values. This new
committee will not remove
responsibility from other committees,
but will oversee and bring together the
Group’s sustainability priorities in a
coherent way.
We have an exciting governance
agenda, aligning to changes in the
wider environment. Diversity is an area
where we must continue to make
progress on all fronts. I am pleased
that we comply with the Parker
recommendation for FTSE 100
companies to have at least one ethnic
minority director by 2021. We must
do more and are looking at ways to
do so in 2021.
During 2020, the Board continued to
oversee the integration of Standard Life
Assurance, which we acquired in 2018,
and the acquisition of ReAssure from
Swiss Re, which completed in July
2020. With that acquisition, our Board
changed with the addition of
Highlights of 2020 Board activity
Covid 19
Dividend
considerations
CFO
succession
Continued
regular
contact
New Board appointments
ReAssure
completion
Day 1 ReAssure integration
Digital
capability
deep dive
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
EGM for
ReAssure
acquisition
CEO
succession
AGM
ReAssure
completion
considerations
Board annual
strategy
session
HY results
Diversity,
inclusion and
capability
deep dive
92
Phoenix Group Holdings plc Annual Report & Accounts 2020
UK Corporate Governance Code
As summarised on page 94 and detailed in
the Corporate Governance Report on
pages 94 to 123, we complied in 2020
with all the provisions of the UK Corporate
Governance Code (‘the Code’). We have
complied with all the provisions of the
Code in its appropriate version in each of
the last six years.
AGM votes in favour of
all resolutions May 2020
96%
92% in 2019
FTSE position
70
91 in 2019
UK Corporate
Governance Code
FULLY
COMPLIANT
IN 2020
Fully compliant in 2019
Culture and values deep dive
Sustainability
Committee
formation
NOV
DEC
External Board
evaluation
Capital
Markets
Day
Sustainability deep dive
contribute beyond the formal
meetings.”
“The Board has strongly encouraged
and supported a clear and broader
strategy that serves the needs of all
its stakeholders.”
“The governance structure, processes
and implementation are very strong.”
2020 was been a landmark year for
Phoenix, completing the ReAssure
acquisition, continuing to perform
strongly across all our financial metrics,
maintaining strong customer service
and increasing our colleagues’
engagement. Our market cap increased
from £5.4 billion at the start of 2020 to
£7.0 billion at the end of the year. Our
share price outperformed the FTSE
100 and our peer index. All this was
achieved against the enormously
challenging COVID-19 backdrop. Our
governance robustly supported that
performance.
During this difficult year, I was grateful
for the continued strong support of our
shareholders, who approved our
acquisition of ReAssure at a General
Meeting in February 2020 with over
99.9% votes cast in favour; and approved
all 28 resolutions at our AGM in May
2020 with at least 96% votes cast in
favour of all resolutions. I am pleased that
our AGM proceeded as scheduled on 15
May 2020, notwithstanding that being at
the height of the first wave of the
pandemic. We reacted quickly to enable
the meeting to proceed, moving venue
to our own premises and webcasting the
proceedings with a facility to ask
questions before the meeting.
I am very grateful for the support we
receive from our biggest shareholders
and strategic partners, Standard Life
Aberdeen, Swiss Re and MS&AD.
My last comment, though, is to thank
our people for their remarkable
contributions and resilience in the face
of great adversity. We look to the
future with great optimism.
Nicholas Lyons
Chairman
Christopher Minter and Hiroyuki Iioka
as nominees of new strategic
shareholders, Swiss Re and MS&AD
respectively. Chris and Hiro have
brought substantial experience and
executive skills to our Board as well as
additional international perspectives.
At that time, Standard Life Aberdeen’s
shareholding in Phoenix reduced to a
level where they were entitled to
nominate one director instead of two
to the Phoenix Board. As a result,
Campbell Fleming left the Board. I wish
to thank Campbell for his excellent,
insightful contribution over two years
on our Board.
In March 2020, we wished farewell to
Clive Bannister after almost nine
tremendous years as the Phoenix CEO.
He was succeeded by Andy Briggs
whom we were thrilled to welcome as
our new CEO after a very thorough
recruitment process. Andy has taken to
the role with the skill and vigour we
expected and the Board is very
confident in his ability to drive
Phoenix’s strategy forward as the UK’s
largest long-term savings and
retirement business. Jim McConville
retired from the Board at the May 2020
AGM after eight successful years as
the Group CFO, to be succeeded by
Rakesh Thakrar, previously the Group’s
Deputy CFO. I am very pleased that
our succession planning achieved
this outcome.
Given the executive directorship
changes and rotation of Non-Executive
Directors over the last few years, the
Board evaluation review undertaken
towards the end of 2019 concluded
that a period of Board stability would
be preferable going forward (excluding
the nominees from our strategic
shareholders). So we undertook no
non-executive recruitment in 2020.
Our Board evaluation review
undertaken towards the end of 2020
was externally facilitated by Consilium
Board Review who reported to the
Board on 2 December 2020. Its
conclusion was of a very strong Board
performance, with extracts being:
“The Board is very able, well-led, has
guided change deftly in a demanding
working environment (COVID-19), and
added value in the last year.”
“Directors are cohesive, but
independent-minded. The Chairman
and Non-Executive Directors are
committed to the business and
Phoenix Group Holdings plc Annual Report & Accounts 2020
93
CORPORATE GOVERNANCE Corporate governance
THE BOARD AS A GUARDIAN OF
OUR PURPOSE AND VALUES
The Board of Phoenix Group Holdings plc is the guardian of our purpose and values.
A key focus of the Board’s two-day strategic session in July 2020 was defining
Phoenix’s social purpose as the UK’s leading retirement and savings business.
During 2020, the Board has overseen the redefining of the
Company’s purpose, values and strategic priorities. These are set
out below and described in more detail on pages 4 to 5 and 26 to
45 of the Strategic Report.
The Board’s activities in 2020, which are linked to our strategic
priorities, are described on pages 96 to 97.
• The Board’s role in redefining our purpose is highlighted on page 96
• The Board’s commitment to our values and the promotion thereof is
illustrated throughout this report.
COMPLIANCE WITH THE UK CORPORATE
GOVERNANCE CODE IN 2020
The following report illustrates how Phoenix Group Holdings plc
has applied the principles and complied with the provisions of the
2018 UK Corporate Governance Code (the ‘Code’) during 2020.
It is the Board’s view that during 2020 the Company has been fully
compliant with the principles and provisions set out in the Code.
The following schedule provides a summary of where this report
illustrates Phoenix Group Holdings plc’s compliance with the Code.
Phoenix’s purpose is helping people
secure a life of possibilities
Our strategic
priorities
MANAGE OUR
CAPITAL POSITION
CREATE VALUE AND
DELIVER DEPENDABLE
CASH GENERATION
Our common
values
Passionate about
doing the best for our
customers, our colleagues
and our investors.
Valuing what makes
us different and our
diversity of views.
MEET CHANGING
CUSTOMER NEEDS
Taking personal
responsibility for the role
we play in our Company
and customers’ future.
PUT SUSTAINABILITY
AT THE HEART OF
OUR BUSINESS
Always looking to grow,
as individuals, as a team
and as a business.
INSPIRE OUR
PEOPLE
With the courage to ask
questions, innovate and
make bold decisions.
Read more about our
purpose, strategy and
pages 4 and 5
values
BOARD LEADERSHIP AND COMPANY PURPOSE
Purpose and values
Strategic priorities
Operation of the Board and conflicts of interest
Board activities during 2020
Employee engagement
Stakeholder engagement
The Board’s section 172 Companies Act 2006 duty
Whistleblowing arrangements
pages 94 & 96
pages 94 & 96 to 97
page 95
pages 96 to 97
pages 104 to 105
pages 108 to 109
pages 109 to 111
page 118
DIVISION OF RESPONSIBILITIES
Operation of the Board (role and responsibilities)
Board composition
Our Board
The Executive Committee
Division of responsibilities
• The Chairman, Group Chief Executive Officer
and Senior Independent Director
• Independence of Board members and appointment terms
• 2020 Board and Committee attendance
page 95
page 98
pages 98 to 100
page 101
page 112
COMPOSITION, SUCCESSION AND EVALUATION
Nomination Committee report
• Role of the Committee
• Board succession
• Board changes and recruitment process
• Board diversity, including diversity policy
• Board evaluation
pages 122 to 123
Skills, knowledge and experience
• Board composition
• Board education
pages 98 and 113
pages 98 to 100
page 113
AUDIT, RISK AND INTERNAL CONTROL
Audit Committee report
• Role of the Committee
• Principal activities during 2020
• Auditor’s appointment, effectiveness of external audit process,
pages 116 to 121
Auditor independence and external auditor Policy
• Consideration of Significant Matters relating to the Financial Statements
Risk Committee report
• Role of the Committee
• Principal activities and significant matters discussed in 2020
• Review of system of internal controls
pages 114 to 115
REMUNERATION
Remuneration Committee report
• Role of the Committee
• Remuneration Committee Chair’s letter
• Directors’ Remuneration Report
• Remuneration at a glance
• Directors Remuneration Policy
• Annual Report on Remuneration
pages 124 to 158
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Phoenix Group Holdings plc Annual Report & Accounts 2020
Our leadership
COMMITTED TO THE HIGHEST
STANDARDS OF GOVERNANCE
The Phoenix Group Holdings Board focuses on the Group’s strategy
and performance, with input from its Board Committees.
The chart below sets out the main responsibilities 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 its five standing Board committees, as
shown below. The terms of reference of each of the committees
can be found on the Company’s website.
Phoenix Group Holdings plc Board
• Group strategy
• Group risk appetite
• Performance monitoring
• Major transactions
• External debt
• Group budget
• External/shareholder reporting
Audit
Committee
Risk
Committee
Sustainability
Committee
Remuneration
Committee
Nomination
Committee
Responsible for:
• Financial reporting
• Internal controls
• External audit
• Internal audit
• Whistleblowing
Responsible for:
• Risk appetite and
high-level risk
matters
• The Group’s Risk
Management
Framework
Responsible for:
• Sustainability
strategy
• ESG reporting
• Culture monitoring
Responsible for:
• Group
remuneration
framework
• Executive Director
remuneration
• Employee share
schemes
Responsible for:
• Board and senior
executive
appointments
• Diversity and
inclusion
• Board and senior
executive
succession
planning
The schedule of matters reserved for the Board is available on the
Company’s website. 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.
Conflicts of interest
A register of conflicts of interest is maintained on behalf of the Board.
The Directors each understand their responsibility to identify and
manage conflicts of interest, bringing conflicts to the attention of the
Board and the Group Company Secretary as required under the
Companies Act 2006.
OPERATION OF THE BOARD
The Board is responsible to the shareholders and wider stakeholders
for the overall performance of the Group. The Board’s role is to
provide entrepreneurial leadership, promoting the long-term
sustainable success of the Company, generating value for
shareholders and positively contributing to wider society, 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.
These matters include:
• Group strategy and business plans;
• oversight of the Group’s culture;
• 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.
Phoenix Group Holdings plc Annual Report & Accounts 2020
95
CORPORATE GOVERNANCE Our leadership continued
BOARD LEADERSHIP AND
COMPANY PURPOSE
During a year of change and unprecedented global events, the Board
has remained steadfast in ensuring Phoenix Group’s commitment to
high standards of corporate governance, leading the Group to
continue to generate cash, maintain resilience, and foster the growth
and long-term success of Phoenix for our stakeholders.
The Group’s high standards of
corporate governance are anchored
to its compliance with the Code which
sets standards of good governance
for UK listed companies.
During 2020, we redefined our purpose
to: helping people secure a life of
possibilities. The strategic priorities
approved by the Board and core to the
achievement of the Group’s purpose
are highlighted on page 94, with further
detail available on pages 4 to 5 and 26
to 45 of the Strategic Report.
THE BOARD DISCHARGING
SECTION 172 COMPANIES
ACT 2006 DUTIES
When making decisions, the Board has
paid due regard to the matters set out
in section 172 of the Companies Act
2006 relating to stakeholder
considerations. The Company’s section
172 statement can be found on page
60 of the Strategic Report. In addition,
the way in which the Directors have
exercised their section 172 duties is
explained on pages 109 to 111 within
this corporate governance report.
Our Board in action – what the Board did this year
Areas of focus
Board activities
Defining our
purpose, values
and strategy
• Redefining the Company’s purpose and values
• Reviewing the ‘Phoenix story’
• Consideration of our brand aspirations and opportunities
• Defining our strategic priorities, approving the strategy and
annual operating plan
Overseeing
operational
performance
against strategy
• Approving and monitoring 2020 targets
• Consideration and challenge of CEO updates on strategic
performance
• Driving the future sustainability of our business – growth of
long-term cash generation focused on the expansion of our
Open business, including Bulk Purchase Annuities (‘BPA’)
Financial
management
and
performance
Engagement
with
Stakeholders
• Monitoring of the Group’s solvency and liquidity positions
• Recommendation of the 2019 Final Dividend payment and
2020 Interim Dividend – following detailed scenario testing in
light of COVID-19
• Approval of funding arrangements for the ReAssure acquisition
• Support for long-term cash generation through Open business
expansion
• Approval of capital allocation for the expansion of BPA activity
• Continual monitoring of customer service, operational
resilience and colleague wellbeing during COVID-19 pandemic
• Deep-dive session on digital engagement with customers
• Consideration of 2019 Final Dividend payment in light of
COVID-19 and its projected impact on stakeholders
• Approval of announcement on Capital Markets Day, including
new purpose of helping people secure a life of possibilities
and net-zero carbon targets
• PRA/FCA meeting with the Board
• Interaction with colleagues through the Colleague Advisory
Forum, chaired by the Designated Non-Executive Director for
Workforce Engagement
• Monitoring of investor feedback and analyst reports
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Phoenix Group Holdings plc Annual Report & Accounts 2020
Areas of focus
Board activities
Key to strategic links
Manage our capital position
Create value and deliver
dependable cash generation
Meet changing customer needs
Put sustainability at the heart
of our business
Inspire our people
Workforce policies
and culture
• COVID-19 – workforce impact and working from home
operating model
• Group risk policies approval
• Whistleblowing oversight
• Deep dive on talent, capability, diversity and succession
• Monitoring existing corporate culture, future aspirations and
cohesion following the ReAssure acquisition
Sustainability
• Approving the formation of the Board Sustainability
Committee
• Approval of sustainability commitments, including net zero
carbon commitments
• Board deep-dive session on sustainability including external
benchmarking
• Monitoring progress against the Group’s sustainability
agenda
People strategy,
Board changes
and succession
planning
• CFO succession
• Appointment of Swiss Re and MS&AD nominee Directors
• Board inductions and education/deep-dive sessions
• Reviewing changes to the Executive Management Team
and succession planning
• Deep dive on talent, capability, diversity and succession
Risk management
and assurance
• COVID-19 monitoring and stress and scenario testing
• Approval of the Group’s Risk Appetite Statement,
Principal Risks and approach to identifying and
managing emerging risks
• Updates from the Board Audit Committee and Board Risk
Committee
Corporate
governance and
reporting
• Simplified governance
• Monitoring compliance with the Code
• Externally facilitated Board effectiveness review
• Holding a successful AGM on scheduled date
(15 May 2020) reacting to COVID-19 restrictions
Phoenix Group Holdings plc Annual Report & Accounts 2020
97
CORPORATE GOVERNANCE
Board of Directors
THE GROUP IS GOVERNED BY
OUR BOARD OF DIRECTORS
Valuing what makes
us different and our
diversity of views.
Board composition
Gender balance
(including Chairman)
Balance of Non-Executive
Directors v Executive Directors
(not including Chairman)
Independence of
Non-Executive Directors
(not including Chairman)
Independent 70%
Non-Independent 30%
Female 40% (outer) 31% (inner)
60% (outer) 69% (inner)
Male
Non-executive 83%
Executive 17%
Tenure of Directors
(including Chairman)
Outer Ring – Excludes shareholder nominees
Inner ring – Full Board including shareholder
nominees
0–3 years 46%
3–6 years 39%
6–9 years or more 15%
Board experience
As highlighted in the Chairman’s Introduction on page 93, our 2020 external Board evaluation review stated that
”The Board is very able, well-led, has guided change deftly in a demanding working environment (Covid), and
added value in the last year.” In addition, during 2020, the Nomination Committee reviewed the balance of skills,
experience and knowledge of the Board which concluded that the Board has strong and diverse skills and
experience. Following a review of the Board’s succession plan in 2020, a more detailed Board skills audit is
planned for 2021 to ensure the continued suitability of the Board’s mix of experience to drive the Group’s strategy
forward, matched to skills, knowledge and diversity requirements. The Board’s current balance of skills,
experience and knowledge includes coverage across the spheres of ‘mergers and acquisitions’; ‘finance,
accounting and audit’; ‘customer’; ‘insurance’; ‘investment’; and ‘operations’. More detail about the experience of
individual Board members can be found below and on pages 98 to 100.
Committee
membership
Audit
Nomination
Remuneration
Risk
Sustainability
Chairman
Appointed: 31 October 2018
“As Chairman of Phoenix, I have plenty of opportunity to utilize
experience gained over nearly 40 years in financial services; setting
strategy, overseeing the implementation of our short and medium
term plans and leading the Board on governance matters for the
benefit of the Group and all our stakeholders. That experience was
gained whilst investment banking at JP Morgan (in debt and equity
capital markets and M&A); Lehman Brothers (as Managing Director
in the European financial institutions group); the Pension Insurance
Corporation (as Senior Independent Director); Catlin Group Limited,
Miller Insurance Services Ltd (as Chair); Friends Life Group Limited
and Friends Life Holdings plc amongst others.”
External appointments:
Board of the British United
Provident Association Limited
(BUPA), Miller Insurance
Services LLP and Convex Group
Limited. Chairman of Clipstone
Industrial REIT plc (due to cease
on 1 April 2021); and Alderman
in the City of London
Corporation.
Appointed: 10 February 2020
“I was thrilled at the opportunity to become Group CEO of Phoenix
during 2020. I have a passion for our Group purpose and believe
that my 30-plus years of experience in the insurance industry will
help support our achievement thereof. I was most recently CEO,
UK Insurance at Aviva plc; and prior to that worked as Group Chief
Executive of Friends Life; Managing Director of Scottish Widows;
Chief Executive of the Retirement Income division at Prudential;
and Chair of the ABI.”
External appointments:
Board member of the
Association of British Insurers,
Trustee of the NSPCC and Chair
of their Income Generation
Committee. Also the
government’s Business
Champion for Older Workers
and for the Ageing Society
Grand Challenge. Awarded an
MBE in the 2021 New Year
Honours.
NICHOLAS LYONS
Chairman
ANDY BRIGGS
Group Chief
Executive Officer
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Phoenix Group Holdings plc Annual Report & Accounts 2020
The Board comprises the Non-Executive Chairman, Group Chief Executive Officer,
the Group Chief Financial Officer, one SLA-nominated Director, one Swiss Re-nominated
Director, one MS&AD-nominated Director and seven independent Non-Executive Directors.
Changes to the composition of the Board are detailed in the Directors’ Report on page 159,
which names all persons who were, at any time during the financial year, Directors of the Board.
RAKESH THAKRAR
Group Chief
Financial Officer
ALASTAIR BARBOUR
Senior Independent
Director
KAREN GREEN
Independent
Non-Executive Director
HIROYUKI IIOKA
Non-Executive Director
WENDY MAYALL
Independent
Non-Executive Director
Appointed: 15 May 2020
“I was delighted to have been appointed Group CFO in May 2020,
following six years as Deputy CFO and 20 years with Phoenix. My
experience has spanned a breadth of finance and strategy-related
roles, as well as numerous acquisitions and integrations. This has
enabled me to develop a deep understanding of the insurance
business and the clear financial framework that we operate within,
allowing me to create value, deliver dependable cash generation
and bring consistency to the next phase of our journey.”
External appointments:
None
Appointed: 1 October 2013
“I have over 30 years of audit experience (obtained with KPMG)
which enables me to effectively lead the Phoenix Group Holdings
plc Audit Committee as its Chair. My experience as a non-executive
director also enables me to act as the Phoenix Senior Non-
Executive Independent Director, a role which I was honoured to
take on in 2018. In addition to my roles at Phoenix, I am currently
the Chairman of Liontrust Asset Management plc and a Director of
both RSA Insurance Group plc and The Bank of N. T. Butterfield &
Son Limited.”
External appointments:
Chairman of Liontrust Asset
Management plc, Director of
RSA Insurance Group plc and
Director of The Bank of N. T.
Butterfield & Son Limited.
Appointed: 1 July 2017
“I have over 30 years’ experience in financial services and insurance,
which encompasses M&A, corporate finance and private equity
(Baring Brothers, Schroders, GE Capital and MMC Capital) and senior
executive roles in the insurance industry (Aspen Insurance Holdings)
including strategy, corporate development and as CEO of Aspen UK,
comprising the Group’s principal UK (re)-insurance companies. I am
also a Non-Executive Director at Admiral Insurance Group PLC, a
Council Member of Lloyd’s of London and a Vice President of the
Insurance Institute of London. My knowledge of the insurance
industry from the perspective of both investment banking/corporate
development and as a senior executive, enables me to contribute
broadly to the development and execution of the Group’s strategy.”
External appointments:
Non-Executive Director at
Admiral Group plc, a Non-
Executive Director and Chair
of the Risk Committee of Asta
Managing Agency Limited and
a Council Member of Lloyd’s
of London. Also Vice President
of the Insurance Institute of
London and a member of the
Development Council of the
Almeida Theatre Company.
Appointed: 23 July 2020
“I was privileged to become a Non-Executive Director of Phoenix in
July 2020. The Group’s vision, purpose and mission strongly
resonate with me and I am excited to work to materialise them, to
which I believe my experience in the global insurance industry will
be devoted. I have worked for MS&AD, an insurance group
operating globally, where I held various executive and director
positions including at its UK businesses”
Appointed: 1 September 2016
“I was delighted to take on my role as an Independent Non-
Executive Director at Phoenix Group Holdings in 2016. My role
enables me to use my experience in matters of governance,
insurance and investments. During my tenure, Phoenix has grown
enormously, and I have always felt incredibly well supported by an
exceptional executive team, which is always open to challenge and
input from the Independent Non-Executive Directors. My previous
experience included being Chief Investment Officer at Unilever,
Group Chief Investment Officer at LV=, and Chair of the Investment
Committee at The Mineworkers Pension Scheme, a Government
appointment to one of the largest pension schemes in the UK.”
External appointments:
Senior General Manager, Head
of Business Development
Department for MS&AD
Insurance Group Holdings, Inc.
Alternate Non-Executive
director of Challenger Limited,
listed on the Australian Stock
Exchange
External appointments:
Non-Executive Director of
Aberdeen Global Funds
(Luxembourg) and Old Mutual
Wealth Oversight Council. Also
Senior Independent Director
and Audit Committee Chair of
Fidelity Investments Life
Insurance Company.
Phoenix Group Holdings plc Annual Report & Accounts 2020
99
CORPORATE GOVERNANCE
Board of Directors continued
CHRISTOPHER MINTER
Non-Executive Director
JOHN POLLOCK
Independent
Non-Executive Director
BELINDA RICHARDS
Independent
Non-Executive Director
Appointed: 23 July 2020
“I believe passionately in the importance of the insurance industry
in making societies more resilient. Hence it is an honour to bring my
experience to bear at the Group. My executive experience has been
at PwC, at Deutsche Bank (Head of Corporate Development and
subsequently Global Head of DB Private Equity), and at Swiss Re
where I manage a global portfolio of equity holdings in insurance
businesses. I have also sat on boards both of private and public
companies across the globe.”
Appointed: 1 September 2016
“After 35 years in insurance with Legal & General, ultimately as
CEO of LGAS, Phoenix was a very natural next step for me. It has
been extremely rewarding, helping Phoenix grow from the
FTSE250 when I joined. Chairing the Risk Committee has allowed
me to be closely involved in helping govern this growth to ensure
sustainability for customers and shareholders and enabling the
Executive to draw upon my experience of 12 years on a FTSE100
board.”
External appointments:
Head of Principal Investments
& Acquisitions for Swiss Re.
External appointments:
None
Appointed: 1 October 2017
“I really enjoy my role as a Non-Executive Director on the Phoenix
Board as it enables me to use my strategic and operational
experience gained in both an executive and non-executive capacity.
As the Global Head of Merger Integration Services at Deloitte, and
previously at EY, I have led over 50 major acquisition integrations
– many of which were in the insurance and banking sectors. Given
Phoenix’s consolidation strategy this has helped me to add value to
Phoenix and to our stakeholders.”
External appointments:
Non-Executive Director, currently
on the boards of Avast plc, The
Monks Investment Trust plc and
Schroder Japan Growth Fund plc.
Also the Audit Chair and a Trustee
of Youth Sport Trust.
Appointed: 1 September 2016
“I’ve spent 30 years as an investment banker at Lazard. Initially
I ran the European Media franchise, but for several years I’ve been
a generalist, doing deals in a wide range of sectors and countries;
I became European Vice Chairman in 2007 and Head of UK
Investment Banking in 2009.
External appointments:
European Vice Chairman of
Lazard since 2007 and Head of
UK Investment Banking at Lazard
since 2009 (joined Lazard in 1991
and became a partner in 1997).
NICHOLAS SHOTT
Independent
Non-Executive Director
When I joined the Board in 2016, Phoenix was beginning to play
a leading role in the consolidation of the closed life sector, so my
M&A experience has been very relevant.”
Appointed: 1 July 2014
“Serving Phoenix and its stakeholders as a Non-Executive Director
and Chair of Remuneration leverages my expertise in insurance,
finance and human capital. As Managing Director, Head of
Insurance Capital Markets, at Barclays Capital, I led a highly
qualified team of finance, actuarial and accounting experts focused
on the optimisation of capital resources via equity, hybrid and debt
capital management as well as M&A, risk management, and life
insurance securitisation. My 8 years on the board of SCOR SE, the
world’s 4th largest reinsurer, provide a deep perspective on the
wider insurance market. My remuneration committee roles at
Pernod Ricard SA and SGS SA give me a broader view of key
considerations across geography and sector.”
External appointments:
Non-Executive Director and Chair
of the Audit Committee of SCOR
SE, a Non-Executive Director and
Chair of the Remuneration
Committee of Pernod Ricard SA,
a Non-Executive Director and
member of the Audit Committee
and Remuneration Committee of
SGS SA and a member of the
supervisory board of the
privately-owned bank Gutmann
AG.
Appointed: 1 September 2019
“My role on the Board at Phoenix allows me to utilise my
experience which has been accumulated over the last 26 years in
my time at Standard Life Aberdeen. My career has predominantly
been spent in the Change, Technology and Operations arena. Given
the significant change agenda that we have at Phoenix this gives
me a great opportunity to utilise my experience for the benefit of
the Group and all of our stakeholders.”
External appointments:
Global Chief Operating Officer
of Standard Life Aberdeen.
KORY SORENSON
Independent
Non-Executive Director
MIKE TUMILTY
Non-Executive Director
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Phoenix Group Holdings plc Annual Report & Accounts 2020
Executive Management Team
OUR BUSINESS, LED BY THE
EXECUTIVE MANAGEMENT COMMITTEE
The Executive Management of the Group is led by the Group Chief
Executive Officer, who is supported by the Executive Committee (‘ExCo’).
2020 was a year of change within ExCo and the executive management
team, creating a stronger leadership team equipped to achieve the long-
term success of our business. The roles and responsibilities of each ExCo
member are set out below.
ANDY BRIGGS
Group Chief Executive Officer
• leads the development of the Group’s strategy for
agreement by the Board, to create a purpose-led
organisation with sustainability at the heart and
a brand that reflects a leading industry voice for
savers and pensioners;
• leads and directs the Group’s businesses in
delivery of the Group strategy and business plan,
to create a customer-obsessed organisation that
can profitably grow organically and through M&A;
• creates a diverse team connected by common
values, with market-leading capability and talent
that is engaged and empowered to deliver, and
performance manages the senior executive team;
• manages the Group’s risk profile and sets clear
standards and policies by making informed
decisions and controlling risks in line with
appetites, supported by an effective risk culture
and strong regulatory relationships;
• leads the Group to deliver strong, dependable cash
generation, underpinned by a resilient balance
sheet, which delivers a safe and sustainable
dividend with the potential for progression;
• oversees the evolution of the operating model
through effective delivery of transformation and
change, delivering target benefits and underpinned
by operational excellence; and
• manages the Group’s key external stakeholders.
MATT CUHLS
CEO ReAssure
• leads on the Sustainable Investing agenda for
the Group, including net-zero carbon for assets
by 2050;
• ensures strategic asset allocation and delivering
ongoing performance of the portfolio; and
• supports the Group’s requirements with
investors, rating agencies, regulators, external
directors on the asset management platform.
CLAIRE HAWKINS
Corporate Affairs and Investor
Relations Director
• challenges the development of the Group’s social
purpose and strategy;
• develops an appropriate Investor Relations
strategy that raises the profile of the Group and
ensure engagement with investors and analysts;
• develops a market-leading sustainability strategy
with plans to drive delivery across the Group;
• defines the public relations and public affairs
strategy for external stakeholder groups; and
• develops and evaluates choices for the Group
brand strategy.
TONY KASSIMIOTIS
Group Chief Operating Officer
to regulatory requirements, risk appetite and risk
strategy.
JONATHAN PEARS
Chief Risk Officer
• leads the Group’s risk function, promoting
informed decision-making and controlled risk-
taking;
• oversees and manages the Group’s relationship
with the FCA and PRA; and
• supports the Group Board Risk Committee in the
oversight of the Group’s risk framework, in line
with risk strategy and appetite.
RAKESH THAKRAR
Group Chief Financial Officer
• supports the Group Chief Executive Officer in
formulating the Group strategy and managing the
Group’s key external stakeholders;
• develops and delivers the Group’s financial
business plan in line with strategy;
• ensures resilience, effective management and
control of the Group’s balance sheet and solvency
position;
• develops and delivers the Group’s debt capital
strategy and other treasury matters;
• leads development and delivery of the Group’s
• ensures effectiveness of processes to meet the
operating platforms in line with regulatory
requirements, the risk universe and strategy;
• ensures the delivery of the Group’s information
technology and information security strategy;
• leads the management of the Group’s long-term
Group’s external reporting obligations; and
• enhances shareholder value through clear,
rigorous assessment of growth opportunities and
M&A in line with the Group’s capital allocation
framework.
• leads the delivery of Group strategy within the
outsourcing arrangements; and
ReAssure businesses;
• safeguards policyholder outcomes and
grows shareholder value within the ReAssure
businesses, including by leading integrations into
ReAssure businesses; and
• embeds a risk-conscious Group which recognises
policyholder obligations in terms of service and
security within the ReAssure businesses.
ANDY CURRAN
Chief Executive, Savings and Retirement,
UK and Europe
• ensures that the Group’s procurement activities
and operational shared services are efficient and
effective.
JOHN MCGUIGAN
Group Customer Director
• leads the Group’s customer function to drive
operational and experience delivery for the
Group’s customer base;
• sets standards and policies for customer
management and interaction; and
• provides customer oversight, complaint handling
• leads the development and delivery of the Open
and remediation activity.
SARA THOMPSON
Group HR Director
• leads the implementation of the Group’s people
strategy in order to recruit, retain, motivate and
develop high-quality colleagues;
• provides guidance and support on all HR
matters to the Group Chief Executive Officer,
the Executive Committee, the Board and
Remuneration Committee; and
• delivers HR services to the Group.
QUENTIN ZENTNER
General Counsel
business strategy;
• enables better outcomes for customers; and
• redeploys excess capital at attractive rates to
generate future predictable cash flows and offset
the Heritage business run-off.
MIKE EAKINS
Group Chief Investment Officer
• leads the development and delivery of Group
asset management and investment strategy;
• responsible for managing the Group asset risk to
within the stated risk appetite;
ANDY MOSS
Phoenix Life CEO and Group Director,
Heritage Business
• leads development of the Heritage business
strategy including the integration of acquired life
businesses;
• focuses on optimising outcomes for customers in
terms of service, value and security; and
• drives entity-wide financial performance,
• leads provision of legal advice to the Board,
other Group company boards, the Executive
Committee and senior management;
• oversees and coordinates 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
solvency and capital efficiency with due regard
• designs and implements a whistleblowing
framework within the Group.
Phoenix Group Holdings plc Annual Report & Accounts 2020
101
CORPORATE GOVERNANCE Corporate governance report continued
PASSIONATE ABOUT
DOING THE BEST
FOR OUR CUSTOMERS,
COLLEAGUES AND INVESTORS
2020 was a year of unprecedented events that have impacted
everyone. COVID-19 has changed our world and the way we live our
lives. The Board has worked hard to ensure the continued robustness
of our business – delivering cash, resilience and growth for the benefit
of our stakeholders.
THE BOARD’S RESPONSE
TO COVID-19
During 2020, the Board held weekly
briefing meetings (changing to
fortnightly after May 2020) to monitor
management’s continued ability to
operate the business, robustly
upholding customer service; and to
ensure continued focus for the
achievement of our strategic priorities
and high standards of governance.
KEY AREAS OF BOARD FOCUS
DURING THE PANDEMIC
• The Group’s ability to support and
protect customers, colleagues and
the community, whilst protecting the
long-term value of the Group.
OUTCOME: Continued delivery of
strong customer service with
extra support initiatives provided,
including out of normal hours’
service for NHS staff. Regular
monitoring of the health and
wellbeing of colleagues.
• Business continuity planning in
action, to mobilise homeworking and
ensure our sustained delivery of high
standards of service to customers.
OUTCOME: 99% of employees
could work remotely within 10
days of the first 2020 lockdown
being announced, supported by
the deployment of over 4,500
individual pieces of IT equipment.
• Close monitoring of the Group’s
solvency and liquidity positions,
including our Solvency II surplus and
shareholder capital coverage ratio.
OUTCOME: The Group’s capital
position was materially
strengthened, despite COVID-19,
from a combined Group pro forma
surplus of £4.4 billion at 30 June
2020, to £5.3 billion at 31
December 2020 – a shareholder
capital coverage ratio of 164%.
• Close monitoring of the Group’s
performance against its cash
generation target of £800–900
million to YE20.
OUTCOME: The Group exceeded
its revised target (£1.5 – £1.6
billion set in August 2020),
achieving cash generation of £1.7
billion.
• The continued payment of all
employees without utilising
government support schemes
or furloughing any staff.
OUTCOME: No government
support schemes were accessed
and all employees received full
pay with none furloughed.
• Close monitoring of progress to
complete the ReAssure Group plc
acquisition despite the pandemic.
OUTCOME: The ReAssure
acquisition successfully
completed on 22 July 2020.
• Addressing the need to reorganise
the Annual General Meeting format
to react to rapidly changing
Government guidelines.
OUTCOME: A webcast Annual
General Meeting was held in May
2020 with all resolutions passed
with 96.5% or more votes in
favour.
SPOTLIGHT ON THE BOARD’S
DECISION TO PAY THE 2019
FINAL DIVIDEND
During the course of May 2020 the
Board considered the payment of the
2019 Final Dividend. The impact of the
payment on stakeholders was
assessed using stress scenarios,
testing solvency and liquidity
positions. Despite the extreme market
volatility resulting from COVID-19, the
Board considered the Group’s
solvency position to remain robust in
all modelled scenarios. The Board
considered the need to protect our
customers across the 14 million life
and pension policies Phoenix has
in-force and the impact of the dividend
decision on them. Following such
considerations and paying due regard
to regulatory guidance and investor
feedback, the Board concluded that
the proposed 2019 Final Dividend of
23.4 pence per share was prudent
and consistent with our risk appetite.
See page 110 for more detail about
the Board’s consideration of the
dividend payment on its stakeholders.
102
Phoenix Group Holdings plc Annual Report & Accounts 2020
PUTTING SUSTAINABILITY
AT THE HEART OF OUR BUSINESS
Our contribution to a more sustainable world is fundamental
to our purpose of helping people secure a life of possibilities.
THE BOARD SUSTAINABILITY
COMMITTEE MEMBERSHIP
• Karen Green (Chair)
• Wendy Mayall
• Nicholas Shott
• Kory Sorenson
• Mike Tumilty
The Board of Phoenix Group Holdings
plc approved the formation of the
Board Sustainability Committee in
December 2020 to ensure that the
Group’s sustainability activities and
reporting could be brought together
in a coherent way; and to provide
appropriate oversight and challenge
thereof. The Committee’s first meeting
was held in January 2021.
The Group has been involved in a
wide variety of sustainability-related
activities during the year. This activity
resulted in our net-zero carbon
commitment (Operations by 2025 and
Investment Portfolio by 2050) and
confirmation of our status as a
signatory of the UN-supported
Principles of Responsible Investment,
announced in December 2020. More
detail about these activities can be
found in our Sustainability Report for
the year ended 31 December 2020.
THE BOARD SUSTAINABILITY
COMMITTEE’S KEY ROLE
AND FOCUS
• Sustainability strategy – The
Committee is responsible for
ensuring the appropriateness of the
Group’s sustainability strategy.
The sustainability strategy is aligned
with, and forms part of, the overall
Corporate Strategy. It sets out the
Group’s six key pillars of
sustainability – customer, responsible
investment, environment, suppliers,
people and culture, and community
engagement; with key performance
indicators (‘KPIs’) set for each pillar.
• Reporting – The Committee
supports the Board and Board Audit
Committee in relation to the Group’s
sustainability reporting. For more
information about the Group’s
sustainability reporting, including
matters relating to climate risk see
pages 40 to 41 and 67 to 78 of the
Strategic Report.
• Sustainability oversight – The
Committee reviews and challenges
activities carried out within the
business aligned with the
sustainability strategy (approved
by the Board) and associated risk
appetites (set by the Board Risk
Committee), ensuring that the
strategy is embedded throughout
the organisation.
• Horizon scanning – The Committee
keeps sustainability best practice
under review, referring to thought
leadership and monitors the Group’s
position with regard to relevant
emerging sustainability issues.
• Culture – The Committee assists
the Board with its oversight of
corporate culture, supporting the
Group’s purpose and values.
The Board Sustainability Committee
receives regular MI and updates on
progress against the sustainability
strategy through the Group’s ExCo
Sustainability Committee, led by the
Group Director of Corporate Affairs
and Investor Relations.
The membership of the Committee
provides coverage of cross-Board
Committee membership to support
engagement on matters of
sustainability within the Group’s
governance framework. See the Board
Directors’ Committee membership
details on pages 98 to 100.
FOCUS FOR THE YEAR AHEAD:
• Oversight of progress to embed the
Group sustainability strategy and
strides towards the Group’s 2021
sustainability commitments.
• Holistic oversight of Group
sustainability reporting in
conjunction with the Board Audit
and Risk Committees.
• Deep-dive sessions focused on key
sustainability topics to support the
fulfilment of the Committee’s
duties.
• Monitoring our corporate culture;
and the Group’s people, Diversity
and Inclusion policies and practices.
“ I am very enthusiastic about the new Board
Sustainability Committee, its role within the
Phoenix Group and the positive impact it aims
to provide – contributing to a more sustainable
world for the benefit of our stakeholders.”
Karen Green, Chair of the Sustainability Committee
Phoenix Group Holdings plc Annual Report & Accounts 2020
103
CORPORATE GOVERNANCE Corporate governance report continued
CONTINUING OUR FOCUS ON
COLLEAGUE ENGAGEMENT
Colleague engagement is integral to our strategy and our ambition to be the best
company that colleagues have worked for. Continuing to develop two-way
communication with colleagues and the Board is a key element of this.
Survey feedback from colleagues
post the Forum was that over 92%
of members felt more connected to
the Board as a result and 94% of
colleagues found the Forum very
or extremely valuable.
HOW THE BOARD MONITORS AND
ASSESSES CULTURE AND KEY
THEMES ACROSS THE GROUP
Sara Thompson, the Group’s HR
Director, reports regularly to the Board
on our people agenda. The Board has
also held fortnightly update calls with
Andy Briggs and members of the
Executive Committee for most of 2020
alongside its regular meeting schedule
with frequent updates on colleague
wellbeing and organisational resilience
generally. Following the acquisition of
Standard Life Assurance in 2018 and
ReAssure in 2020, embedding and
reinforcing a common culture
throughout the business is a strategic
priority for both the Executive
Committee and the Board. 2020 saw
the launch of ‘The Phoenix Story’,
which presents our strategic narrative,
places focus on our unified set of
values and embeds a common cultural
thread throughout the Group (read
more about The Phoenix Story on page
44 of the Strategic Report).
Alongside ‘The Phoenix Story’, the
Board held a number of deep-dives
on the following topics:
• ReAssure including people
• Digitisation strategy and related
skills assessment
• Talent Strategy including
Diversity and Inclusion
• Brand
• Future Ways of Working
THE BOARD’S ENGAGEMENT WITH
COLLEAGUES DURING 2020
Understanding how and ensuring that
colleagues were well supported as
they sought to adjust to the personal
and business challenges resulting from
COVID-19 including working remotely
for the majority of the year was a key
focus area for the Board.
In my role as the Designated Director
for Workforce Engagement, I undertook
a programme of virtual visits across the
business, including our new ReAssure
colleagues, and representatives of our
colleague-led networks. Discussions
were focused around the following
topics:
1. The organisation’s response to
COVID-19 and colleagues’ well-being
2. The current and likely future impacts
of COVID-19
3. The volume and scope of
organisational change within the
Group after the acquisitions of
Standard Life Assurance and
ReAssure.
4. The Group’s evolving approach
to Sustainability
5. Options for the future world of work
Feedback from these sessions was
provided to the Board, which allowed
the Board to gain additional perspective
and insights on the impact of the
pandemic on colleagues and their
well-being; in assessing change
capability and capacity, and the
evolution of the Group’s strategy as a
sustainable and growing business
underpinned by a clear purpose to help
people secure a lifetime of possibilities.
A key theme in relation to the Group’s
response to the pandemic and in
evaluating options for the future world
of work was the need to adapt from
the cultural ‘ecosystems’ around
physical offices and finding ways to
replicate this in an entirely virtual or
hybrid environment.
OUR 2020 VIRTUAL COLLEAGUE
ADVISORY FORUM
Our Colleague Advisory Forum in 2020
took place virtually in November and,
as with our inaugural event in 2019,
sought to build on discussions from my
virtual visits and key priorities for the
Group to allow for broad based
discussion around three main areas:
culture, people and employee well-
being; the Group’s ongoing strategic
evolution, and organisational change/
integration activity. Specific agenda
items included:
• 2020 Board focus and activity
• The output from the Group’s
bi-annual Colleague Insights Survey
• Diversity and Inclusion
• Change and integration updates
• Our approach to Sustainability
• The workplace of the future
Colleagues were joined by Andy Briggs,
Group CEO, other members of the
Group Executive Committee and a
number of Non-Executive Directors.
The Group’s bi-annual survey
highlighted an improved engagement
score of 75% and the Forum focused
on understanding the drivers behind
this and some key focus areas for
colleagues. These included options
around continued home working;
continuing communications around
future business planning; and
improving colleagues’ work/life
balance. There is clear support from
colleagues for the Group’s ambition to
become a more diverse and inclusive
workforce with the introduction of the
‘Who We Are’ app. This is a simple and
confidential way for colleagues to share
their data and help us build a picture
of where we are today and is seen as
a positive step. Additional information
on our commitments to colleagues can
be found within the ‘Inspire our people’
section of the Strategic Report.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
Taking personal
responsibility for the role
we play in our company
and customers’ future.
“ The speed with which the Group was able to transition
to a fully remote working environment and adapt to the
continuing challenges from COVID-19 whilst maintaining
very high levels of customer satisfaction is a tribute to
the extraordinary commitment shown by our colleagues.
I have also been struck by the enthusiasm and passion
from Colleagues in support of our internal and external
communities, including the establishment of Enable,
a network which focuses on Disability.”
Karen Green, Designated Non-Executive
Director for Workforce Engagement
“ Engaging with members of the Phoenix Group Board and
being a member of the Colleague Advisory Forum has
given me the opportunity to communicate with our senior
leaders and share my thoughts about the things that
matter to me, like the mental wellbeing of our colleagues”
Valuing what makes
us different and our
diversity of views.
Ed Jackson, Investment Operations Unit Linked Manager
(Colleague Advisory Forum 2020)
Passionate about
doing the best for our
customers, our colleagues
and our investors.
Phoenix Group Holdings plc Annual Report & Accounts 2020
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CORPORATE GOVERNANCE Corporate governance report
BRINGING TOGETHER
BUSINESSES – OUR M&A
STRATEGY IN ACTION
In December 2019, the Phoenix Group
announced the proposed acquisition
of ReAssure Group plc. On 22 July 2020
Phoenix successfully completed the
acquisition of ReAssure Group plc from
the Swiss Re Group. Considerable
regard was paid to the merits and
rationale for the acquisition, completed
over a period of transition for the Group,
with the succession of the new Chief
Executive Officer in March 2020, and
against the backdrop of the COVID-19
pandemic.
The Board considered, amongst other
matters, regulatory aspects associated
with the acquisition; the allotment and
issue of shares to fund part of the
acquisition; and the Group’s solvency
and liquidity positions following
completion of the acquisition –
ensuring the continued robustness of
the Group for the protection of its
stakeholders. At a General Meeting
held on 13 February 2020 shareholders
voted 99.99% in favour of the
ReAssure acquisition and 99.89% in
favour of the allotment and issue of
equity securities to Swiss Re whom
Phoenix welcomed as a strategic
shareholder along with MS&AD.
Following shareholder approval, the
Board closely monitored progress
towards Change in Control approval
and completion in July 2020, having
regard to the impact of the emerging
COVID-19 pandemic on financial
strength and operational capacity.
With the acquisition of ReAssure, two
strong cultures have been brought
together, united in our passion for
customers.
BOARD EDUCATION
During 2020, the Board undertook five
‘ReAssure completion modules’. These
modules were designed to ensure that
the Board was appropriately educated
and informed about key matters
relating to ReAssure, enabling the
Board’s continued ability to successfully
lead the Group, equipped with
appropriate knowledge and skills.
Details of the modules can be seen
on the following page.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
Always looking to grow,
as individuals, as a team
and as a business.
Board education sessions – ReAssure completion modules
MAY 2020
Introduction to ReAssure – the Board
received education from ReAssure’s Chief
Executive Officer covering its purpose;
business model and business plan;
organisational history; legal entity structure;
products and policy counts; customer focus;
assets, key relationships; and people and
culture.
JUNE 2020
Customers and operations – the Chief
Executive Officer of ReAssure provided an
education session covering: ReAssure
customers and its conduct framework
embedding Treating Customers Fairly
principles; ReAssure’s operating model to
support customer strategy; and other key
priorities including operational risks,
investment activity, and cyber.
JUNE 2020
ReAssure finance and actuarial function
– the Board received an overview from the
ReAssure Chief Financial Officer and Chief
Actuary including: Year End 2019 Entity
Structure and Solvency II Balance Sheets;
Year End 2019 Cashflows; 2020–2022
Solvency II Capital Projections and
Sensitivities; Year End 2019 Solvency II
Balance Sheet Partial Internal Model vs
Standard Formula; and 2020–2022
International Financial Reporting Standards
Profit Before Tax Projections.
SEPTEMBER 2020
ReAssure asset management – the Group
Chief Investment Officer provided an
induction for the Board including: ReAssure
asset management team and strategy;
an overview of ReAssure investments
portfolio; ReAssure key strategic initiatives;
response to COVID-19; ReAssure Separation
Programme and Asset Manager Oversight.
SEPTEMBER 2020
ReAssure risk and compliance function
– the Board received an overview from the
ReAssure Chief Risk Officer including: an
overview of ReAssure’s key risks, risk and
compliance function, risk management
framework and key risk topics such as
cyber risk.
Phoenix Group Holdings plc Annual Report & Accounts 2020
Phoenix Group Holdings plc Annual Report & Accounts 2020
107
107
CORPORATE GOVERNANCE Corporate governance report continued
FOCUSED ON LONG-TERM
SUSTAINABLE SUCCESS
FOR OUR STAKEHOLDERS
AND ENVIRONMENT
Our key stakeholders
Passionate about
doing the best for our
customers, our colleagues
and our investors.
THE BOARD CONSIDERS THE FOLLOWING TO BE THE GROUP’S KEY STAKEHOLDERS:
Customers
Colleagues
Investors
Suppliers
Our communities
Government, trade
bodies and regulators
Without our customers we would not exist. The Group’s core purpose is centred on
our customers (existing and potential), helping them to secure a life of possibilities.
The Board recognises the responsibility it has to ensure the success of the business
for all customers.
Our colleagues glue our common values together, working to achieve our strategic
priorities in our pursuit of the Phoenix purpose. The Group’s success would not be
possible without the dedication and commitment of our talented colleagues.
The Group is dedicated to delivering long-term value to our shareholders and aims
to maintain our stable and sustainable dividend policy through a continued focus
on delivering cash, resilience and growth. As with our customers, without
our shareholders we would not be the Group we are today. We have achieved
growth and secured opportunities for all our stakeholders thanks to the support of
our investors.
Our suppliers, including service providers and partners, are key to our success and
the achievement of our strategic objectives. The relationship we maintain with our
suppliers, strategic or otherwise is of vital importance in our drive to achieve our
ultimate purpose of helping people secure a life of possibilities.
We connect with our local communities and community partnerships. These
communities comprise our colleagues, customers, suppliers and many other
stakeholders. We understand the importance of building trust and inspiring
confidence through community engagement and partnerships.
Our relationships with the Government, trade bodies and regulators is of vital
importance in our role in thought leadership and for our responsibility to communicate
the views and concerns of our customers. Without the relationship the Group
maintains with the PRA/FCA, we could not provide services for our customers
and utilise opportunities for growth.
BOARD STAKEHOLDER
ENGAGEMENT
COVID-19 and the restrictions
associated with it created challenges
for the Board’s engagement with
stakeholders during the year. Those
challenges were overcome through
improved digital capabilities and
commitment to our purpose
and values.
REGULAR COMMUNICATION
WITH INVESTORS AND OTHERS
Phoenix Group 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
investors relations programme.
See pages 59 and 64 of the Strategic
Report for details regarding
the Company’s engagement with
investors. The Board, supported by
the CEO and Executive Committee
successfully engaged with investors,
analysts and proxy advisers through:
meetings (including virtual meetings),
the Group’s Annual General Meeting
and the virtually held Capital Markets
Day. The Board experienced an
increased scrutiny on the Group’s
ability to pay the 2019 final dividend,
which required clear and regular
engagement with our investors
and regulators.
The Board ensured appropriate
oversight and monitoring of our
colleagues wellbeing and health during
a very challenging and uncertain
situation. The Board engaged with
colleagues via the Designated Non-
Executive Director for Workforce
Engagement through the virtual
Colleague Advisory Forum (also
attended by two other Non-Executive
Directors); our annual Colleague
Insights survey; and regular updates
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Phoenix Group Holdings plc Annual Report & Accounts 2020
from the HR Director and Chief
Operating Officer. The ability of the
Group to continue its service for
customers was central to Board
discussions (held weekly and then
fortnightly during the first months of
the UK COVID-19 pandemic), with
particular focus on vulnerable
customers and those most in need
during the pandemic. The Board
received feedback on customer
satisfaction and closely monitored
customer service performance,
resulting in Board support for options
such as: offering out-of-hours service
for NHS workers; new ways for paying
claims to enable customers to stay at
home; and a fee holiday for smaller
employers. The Board engaged with
our communities through its
consideration of charitable
contributions with strong support for
a £1 million donation to the COVID-19
relief effort, split between Age UK’s
Emergency Coronavirus Appeal and
charitable organisations operating in
the Group’s regional offices’ local
communities. In the first part of 2020,
prior to the pandemic, the former
Group CEO Clive Bannister travelled to
Mumbai to visit the headquarters of
our strategic supplier, TCS, in order
to understand their operations and
to reinforce the relationship with our
outsource service providers. Details
of our broader stakeholder engagement
can be found in the Strategic Report
on pages 58 to 65.
The Board’s fulfilment of its duty under
section 172 Companies Act 2006 during 2020
Section 172 of the Companies Act
2006 requires each 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 so,
each director must 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 the
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.
During the year, the Board has applied
section 172 of the Companies Act
2006 in a manner consistent with the
Group’s purpose, values and strategic
priorities (detailed on page 94 of this
Corporate Governance report) having
due regard to the Group’s ongoing
regulatory responsibilities as a financial
services operation.
Examples of key decisions of the
Board, their link to our strategic
priorities, how the matters set out in
section 172 have been considered and
the outcome of those considerations is
set out in the table on the pages 110 to
111 below, demonstrating how the
directors of Phoenix Group Holdings
plc have carried out their duties under
section 172 of the Companies Act
2006. To support the fulfilment of the
Directors’ duties outlined above, each
paper prepared for consideration by the
Board contains an analysis of the
potential impact of proposals to be
considered by the Board in light of the
factors contained in section 172.
Phoenix Group Holdings plc Annual Report & Accounts 2020
109
CORPORATE GOVERNANCE Corporate governance report continued
KEY BOARD
DECISION
Strategic
Importance
Managing our
capital position
PAYMENT OF THE 2019 FINAL DIVIDEND DURING THE COVID-19 PANDEMIC
Consideration of section 172 matters
• The Board considered the long-term impact of paying the 2019 Final Dividend on the Group’s liquidity and solvency
positions by reviewing the outcome of six stress scenarios relating to COVID-19 and associated economic recovery
periods. The Board also considered the impact of the dividend decision on expectations relating to the Group’s
dividend policy.
Inspiring our
people
• A large proportion of our employees are Phoenix shareholders as a result of participation in the Group’s employee share
schemes. The payment of the dividend therefore enabled returns for those shareholder employees.
• In reviewing the appropriateness of the payment or non-payment of the dividend, the Board spent time discussing the
impact of its decision on the wider economy.
Creating value
and delivering
dependable cash
generation
• The Board focused on the Group’s liquidity and solvency in light of the impact of COVID-19, by considering the stress
scenarios referred to above. Those scenarios were also reviewed against the Bank of England’s Financial Stability
Report and Monetary Policy Report during May to assess the likelihood of the scenarios materialising. The Board was
focused on ensuring a robust review was carried out before making its final decision to ensure the highest standards
of business conduct were maintained, as expected by all our stakeholders.
• Consideration was given to the impact of the non-payment of a dividend, where the dividend was financially
supportable, on shareholders invested in Phoenix as an income stock. The Board considered feedback received from
investors during the pandemic and the need to provide clarity about the intention to pay the final dividend.
OUTCOME
Following due consideration of all the matters set out in section 172, the Board determined that
the payment of the 2019 Final Dividend was consistent with the Group’s risk appetite having
assessed the likely impact on the business and its stakeholders (including in the long term).
KEY BOARD
DECISION
Strategic
importance
Meeting changing
customer needs
Sustainability
at the heart of
our business
THE FORMATION OF THE BOARD SUSTAINABILITY COMMITTEE
Consideration of section 172 matters
• When considering the need for a Board Sustainability Committee (‘BSC’), the Board discussed the long-term impact of
driving forward the Group’s sustainability agenda. It was understood that the BSC’s role would evolve and adapt with
the dynamic nature of the sustainability environment. The BSC’s role in overseeing the sustainability strategy was
considered by the Board, noting that the associated commitments would benefit the business in the long term. Key
commitments can be found on pages 9 and 10 of the Company’s Sustainability Report.
• The Board considered the impact of the formation of the BSC on Phoenix’s employees and it was agreed that one
consequence of the establishment of the Committee would be a clear signal to our colleagues that the Group was
strongly committed to sustainability at the highest level of governance. The Board discussed the positive effects of this
clear commitment for colleague engagement as feedback collated during the year suggested that the Group’s
approach to sustainability was a priority for colleagues.
Inspiring our
people
• The Board undertook a sustainability deep-dive session in December 2020, at the same time it considered the
formation of the BSC. During this session, the Directors reflected on the positive impact our commitment to
sustainability would have on our relationships with suppliers, customers and business partners.
• The Board considered the importance of the establishment of the BSC in driving forward the Group’s ability to
contribute to a more sustainable environment for the benefit of all stakeholders, including future generations.
• The Board also considered the impact of the decision on our ability to better support communities, noting that the BSC
would provide enhanced oversight and challenge for sustainability initiatives within the business thus ensuring support
for our communities was available and consistent across the Group.
• The Group engaged Deloitte to provide guidance and an independent assessment of the Group’s sustainability
achievements and strategy and to support the decision-making process by the Board. The Board considered
benchmarking data, comparing our progress and activities against those of our peers, to ensure the appropriateness of
the Group’s sustainability aspirations and steps being taken to achieve those aspirations. By engaging Deloitte, the
Board was better able to meaningfully consider our ability to maintain a reputation for high standards of business
conduct in the area of sustainability and beyond.
• The Board considered the evolving expectations of Phoenix Group Holdings plc’s shareholders when looking at the
need for the BSC. During the Board’s sustainability deep-dive session, referred to above, the expected levels of
scrutiny on climate and sustainability agendas by investors was discussed.
OUTCOME
Following due consideration of all the matters set out in section 172, the Board approved the formation of the
BSC with strong support from all directors. The formation of the new Committee was considered to be in the
best interests of the Company as a whole and all its stakeholders and a decision to move the Group forward in
its steps towards our sustainability aspirations. More detail about the new BSC can be found on page 103.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
KEY BOARD
DECISION
Strategic
Importance
Managing our
capital position
Creating value
and delivering
dependable cash
generation
Meeting changing
customer needs
EXPANSION OF OUR OPEN BUSINESS AND BULK PURCHASE ANNUITIES ACTIVITY
Consideration of section 172 matters
• Throughout 2020, the Board discussed the long-term strategic direction of the organisation – recognising both its
position as the market leader in managing Heritage businesses but also focusing on the opportunities to expand our
Open business and Bulk Purchase Annuities (‘BPA’) activity. When considering the opportunity to expand our BPA
business, the Board aimed to balance the future long-term benefits for the Company with the short-term expense
of material upfront capital allocation. In doing so, the Board considered improvements to capital efficiency to grow
the Group’s market share and the long-term consequences of sustainable long-term cash generation aligned with
the Group’s ‘wedge’ concept. More detail about the ‘wedge’ can be found in the Strategic Report on pages 14, 17, 32
and 84. The Board also considered other long-term benefits associated with expanding our Open and
BPA businesses, including related investments in illiquid assets supporting our ESG agenda and proposition
wherever possible.
• The Board discussed feedback received about energy levels and workloads from the Colleague Advisory Forum.
Through monitoring, the work involved in activities driving the strategic evolution of the business was considered
to be manageable (boosted by investment in recruitment) resulting in long-term benefits for all stakeholders
including colleagues.
• The Board approved investment in assets which support our BPA business and support our communities and the
sustainability of our environment.
Sustainability
at the heart of
our business
• By providing the Board with detailed plans and implementation roadmaps for driving the execution of strategic plans for
expansion of our Open and BPA businesses, the Directors were able to consider and monitor potential impacts on the
Group’s reputation for high standards of business conduct and ensure that high standards of business conduct and
governance standards were maintained following the decision to enable such expansion.
• Throughout the year, investors were kept informed of developments to the Group’s strategic direction through investor
presentations and market announcements. When considering the decision to increase the Group’s BPA capital budget
to expand BPA activities, the Board paid due regard to the needs of its investors, including expectations about capital
allocation and the ability to generate returns. The Board, through regular updates provided by management, monitored
the Group’s ability to pay dividends and generate growth for the benefit of its members, noting the overall impact of the
strategy to maintain the strength of the Heritage business whilst expanding the Open business.
OUTCOME
Following due consideration of all the matters set out in section 172, the Board approved the
plans to expand the Open business and BPA activities, including an increase in the Group’s BPA
capital budget. The expansion supports the concept of the ‘wedge’ and is expected to support
significant incremental long-term cash generation. See pages 25 and 33 for more detail.
Phoenix Group Holdings plc Annual Report & Accounts 2020
111
CORPORATE GOVERNANCE Corporate governance report continued
TAKING PERSONAL
RESPONSIBILITY FOR THE ROLE
WE PLAY IN OUR COMPANY’S
AND CUSTOMERS’ FUTURE
The members of the Phoenix Group
Holdings plc Board of Directors
understand their personal
responsibilities as directors and the
role they play in ensuring the long-term
success of the Company and, thus,
the future of its customers – striving
towards helping people secure a life of
possibilities. As a matter of good
governance, the Board ensures the
appropriate division of responsibilities
on the Board, ensuring no existence
of unfettered power nor over-reliance
on any one person.
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, Andy
Briggs, who is responsible to the Board
for the overall management and
operation of the Group. The Chairman’s
external commitments are set out on
page 98 within this report. The
Chairman was independent upon
appointment and was appointed on the
basis of committing two days per week
to the Company.
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. Descriptions
of the roles and responsibilities of the
Chairman, Group Chief Executive
Officer and Senior Independent
Director are available on the
Company’s website.
Independence of Board members
and appointment terms
The Board considers the following
Directors to be 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 terms and conditions of
appointment of our Non-Executive
Directors are on the Group’s website.
The remuneration of the Directors is
shown in the Directors’ Remuneration
Report on pages 124 to 158. 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.
Board meeting attendance
The Board met formally 10 times during
2020, including for a two-day strategy
setting meeting. The Board met
additionally for regular briefing
meetings (over 15) to monitor the
evolving pandemic situation. The Board
considered it necessary to meet
weekly and then fortnightly to ensure
appropriate oversight of operations
during the COVID-19 pandemic, to
achieve the Group’s strategic
objectives and protect policyholders.
The Non-Executives met with the
Chairman three times without the
Executive Directors present.
2020 Board and
Committee attendance
The following Board and Committee
attendance is for all formal Board
meetings held during 2020. The
Nomination Committee has confirmed
its absolute satisfaction with the time
and commitment given to Phoenix by
all Directors.
Board
Audit
Committee
Risk
Committee
Remuneration
Committee
Nomination
Committee
Actual/Max Actual/Max Actual/Max Actual/Max Actual/Max
Chairman
Nicholas Lyons
Executive Directors
Clive Bannister (CEO)1
Andy Briggs (CEO)2
Jim McConville (Group FD)3
Rakesh Thakrar (Group CFO)4
Non-Executive Directors
Alastair Barbour
Campbell Fleming5
Karen Green
Hiroyuki Iioka6
Wendy Mayall
Christopher Minter7
John Pollock
Belinda Richards
Nicholas Shott
Kory Sorenson
Michael Tumilty
10/10
3/3
8/8
5/5
5/5
9/10
7/7
10/10
3/3
9/10
3/3
10/10
9/10
10/10
10/10
10/10
5/5
4/5
5/5
5/5
8/8
8/8
8/8
8/8
8/9
9/9
9/9
9/9
9/9
8/8
8/8
8/8
8/8
1 Clive Bannister resigned from the Board on 10 March 2020.
2 Andy Briggs was appointed to the Board on 10 February 2020.
3 Jim McConville resigned from the Board on 15 May 2020.
4 Rakesh Thakrar was appointed to the Board on 15 May 2020.
5 Campbell Fleming resigned from the Board on 23 July 2020.
6 Hiroyuki Iioka was appointed to the Board on 23 July 2020.
7 Christopher Minter was appointed to the Board on 23 July 2020.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
ALWAYS LOOKING TO
GROW AS INDIVIDUALS,
AS A TEAM AND BUSINESS
During the year, the Board has received education sessions and
participated in deep-dive sessions covering the following subjects,
helping the Directors to ensure their continued development as
individuals and as a team.
DIGITAL CAPABILITY
October 2020 – the Board undertook a
deep-dive session covering external
digital trends and the approach of
BigTech (including the macro impact of
digital disruption) and opportunities for
Phoenix today and in the future
(including how digital intersects
strategy; how digital transformation
generates value for our business
and customers).
REASSURE COMPLETION
MODULES
See page 107 for details of the
ReAssure completion modules
undertaken by the Board between
May and September 2020.
INTERNAL MODEL
HARMONISATION
January 2020 – The Board received
an educational update covering: the
Internal Model Harmonisation
Programme progress, key
harmonisation decisions and
crystallised programme risks; the
Group Solvency II balance sheet; main
components of the Group Solvency
Capital; estimates of harmonisation
capital impacts and an update on the
Group’s relationship with the PRA.
August 2020 – The Board received
a further educational update on the
Internal Model Harmonisation
Programme, including: pre-application
financial impacts; pre-application
validation work; and PRA engagement.
SENIOR MANAGERS’ AND
CERTIFICATION REGIME
January 2020 – the Board received an
education session covering the key
elements of the Senior Managers and
Certification Regime – covering the
Certification Regime and Conduct Rules.
SUSTAINABILITY
December 2020 – the Board
undertook a deep-dive session
including a focus on key changes in
2020 which increased the importance
of sustainability such as COVID-19 and
the Group’s redefined purpose from a
financial consolidator to a purpose-
driven organisation; the establishment
of the new Board Sustainability
Committee and its role; delivery of
2020’s sustainability commitments; an
overview of the Task Force on Climate-
related Financial Disclosures (‘TCFD’);
the evolution of the Group’s
sustainability strategy and sustainability
benchmarking results.
VALUES AND CULTURE
December 2020 – the Board
undertook a deep-dive session
covering the Phoenix story, defining
the common purpose of businesses
brought together; the current culture
and feedback from colleagues; values
at the forefront of the Group’s
pandemic response; colleague
engagement levels, results and
feedback from the 2020 colleagues’
insights survey; and embedding culture
as a strategic priority.
TALENT, CAPABILITY, DIVERSITY
AND SUCCESSION
October 2020 – during this deep-dive
session, the Board reflected on
discussions during its annual strategy
meeting in July 2020 and focused on
drivers shaping the Phoenix talent
model (with diversity and inclusion at
its centre); the Group’s target talent
model and what success looks like;
identifying capability gaps and roles
where changes might be required;
developing existing talent; attracting
the best external talent; reinforcing
culture and values; and embedding
diversity and inclusion. During this
session, the Board also considered the
Group’s aspiration to become a leader
on diversity and inclusion.
BRAND
October 2020 – the Board discussed
the following during this deep-dive
session: building a brand that is
understood, trusted and relevant
across all stakeholder groups; the
building blocks of trust; understanding
our stakeholders’ ‘personal agenda’;
the brand we want to be; brand
architecture and thought leadership.
Phoenix Group Holdings plc Annual Report & Accounts 2020
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CORPORATE GOVERNANCE Corporate governance report continued
RISK
COMMITTEE
REPORT
MEMBERS
John Pollock (Chair)
Alastair Barbour
Wendy Mayall
Belinda Richards
Kory Sorenson
KEY RISK COMMITTEE
ACTIVITIES IN 2020
• Considered regular updates on
the Risk Management
Framework
• Reviewed the operational
resilience framework
• Monitored the Group’s risk
appetite
• Continued to review the Group’s
risk profile and principal risk
policies including the impact of
COVID-19 on the risk profile
• 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 emergence of COVID-19 in early
2020 presented new emerging risks
and heightened the financial and
operational risk exposure for the
business. The Committee continues to
monitor and evaluate the management
of these risks and risk profile exposure
across the Group. Whilst there remain
uncertainties in light of the pandemic,
the organisation’s ability to respond to
COVID-19, successfully transform its
business operating model and continue
to make progress in achieving its
strategic aims is a reflection on the
strength of the Group’s resilience and
effectiveness of the internal control
systems.
The performance of the Committee
during 2020 was assessed as part of the
annual Board effectiveness review which
was an externally facilitated independent
review. The conclusions demonstrate
that the Committee continues to operate
effectively, particularly in light of the
COVID-19 environment and having held
virtual meetings since the start of the
pandemic.
Details of the Risk Management
Framework (‘RMF’), for which the Risk
Committee has oversight, are provided
in the Risk Management section on
pages 79 to 89.
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
mitigate 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, Chief Financial Officer, the
Chief Executives of the subsidiary
Life Company boards, the Group
General Counsel and the Group Head
of Internal Audit.
114
Phoenix Group Holdings plc Annual Report & Accounts 2020
• The Committee met a total of nine
times in 2020 including three
out-of-cycle meetings.
• The Committee received briefing
sessions to review the Recovery and
Resolution Plan as well as a session
on emerging risks and opportunities
that could impact the Group post
COVID-19.
• 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 2020
Operational resilience/impact
• A key area of focus for the
Committee during the year has been
to enhance the existing operational
resilience framework to strengthen
the control environment due to the
impact of COVID-19 and changes in
the business operating model.
Financial risks of climate change
• The Committee reviewed and
considered the approach to embed
the management of climate-related
risks and received briefing sessions
on both climate change risk and
Taskforce for Climate-related
Financial Disclosures.
Brexit
• The Committee continued to monitor
risks to the Group due to Brexit
uncertainty and the impact of a
‘no-deal’ scenario.
Own Risk & Solvency Assessment
(‘ORSA’)
• Consideration, and recommendation
for Board approval, of the annual
ORSA report for the Group and its
regulated subsidiaries. ORSA refresh
due to COVID-19 and change in risk
profile.
Implement a single harmonised
Risk Management Framework
(‘RMF’)
• The Committee continued to review
the progress of the implementation
of the harmonised RMF approach
across the Group.
RISK COMMITTEE’S PRINCIPAL
ACTIVITIES DURING 2020
In addition to the significant matters
discussed in 2020, the Committee also:
• Reviewed adherence to the Group
Risk Management Framework and
considered the appropriateness of
the Group’s overall risk appetite
statements including the addition of
a new sustainability risk appetite
statement
• Received a number of updates and
briefing sessions which covered
issues such as operational risk in light
of COVID-19; the consideration of
emerging risks and opportunities that
could impact the Group post
COVID-19; and the Recovery and
Resolution plan.
• Monitored progress against the 2020
Group risk function plan.
• Approved the Group market risk
appetite limits.
• Considered the Group’s capital
risk appetite framework and the
development of quantitative
risk metrics
• 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.
• Reviewed and approved the
Operating Principles
• Considered risks, issues and matters
that are escalated from the Phoenix
Life Risk Committee.
• 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. 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 2020, 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
2020 was presented to the Board,
following review by both Audit and Risk
Committees, on 5 March 2021. 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.
“ The challenges and
uncertainty during the year
have rapidly transformed
the external and internal
risk landscape and required
a broader view of
resilience for the Group.
This will continue to be a
core focus for the
Committee in addition
to addressing key
environmental, social
and governance risks.”
John Pollock
Chair of Risk Committee
Phoenix Group Holdings plc Annual Report & Accounts 2020
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CORPORATE GOVERNANCE
Corporate governance report continued
AUDIT
COMMITTEE
REPORT
MEMBERS
Alastair Barbour (Chair)
Karen Green
John Pollock
Nicholas Shott
KEY AUDIT COMMITTEE
ACTIVITIES IN 2020
• Reviewed the Company’s 2019
Annual Report and 2020 Interim
Financial Statements
• Considered and reviewed the
actuarial processes,
methodologies and assumptions
• Considered regular updates on
the 2020 Internal Audit Plan; and
• Reviewed and monitored the
effectiveness and independence
of the Company’s External
Auditors.
AUDIT COMMITTEE ROLE
AND FOCUS
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. The Board has
confirmed that all four members of the
Audit Committee are considered as
Independent Non-Executive Directors.
In accordance with the Code, Alastair
Barbour and Karen Green have recent
and relevant financial experience. Also,
in accordance with DTR 7.1.1AR, at
least one member of the Committee
has competence in accounting and/or
auditing as well as the members as a
whole having competence relevant to
the insurance industry.
The Audit Committee met eight times
during 2020. Its meetings are attended
by the Chair of the Risk Committee
(who is also a member of the Audit
Committee),the Group Chief Financial
Officer, the Group Financial Controller,
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
Chief Financial Officer, 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 PRINCIPAL
ACTIVITIES DURING 2020
In December 2019, Phoenix announced
the proposed acquisition of ReAssure
and as a result the Audit Committee
reviewed, prior to completion, the
financial and control related matters
including working capital, financial and
prospects report, synergies and the
SII and IFRS pro formas. Following
completion of the ReAssure
acquisition, the Audit Committee
has focused on accounting for
the acquisition and analysis of the
ReAssure acquisition balance sheet.
2020 has been a year of continued
change and challenges for the Group
with the ongoing transition activities
that have followed the acquisition of
both Standard Life, the acquisition of
the ReAssure Group as well as
consideration of the impact on the
Group of COVID-19. In addition to
these significant matters for the Audit
Committee to consider there has also
been the continued turbulence
surrounding the political landscape with
continued uncertainty around Brexit
and other macroeconomic factors
leading to continuing volatility in the
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.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
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 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.
• 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.
External reporting and controls
The Audit Committee during 2020 and
to the date of this report carried out the
following activities in relation to the
Group’s external reporting and the
effectiveness of its internal controls:
• Reviewed the Company’s 2020
Annual Report and Accounts, and the
2020 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 pages
120 to 121. 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
164 to 176.
• 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;
• Considered the financial position and
risks associated with the 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, Line 1
Risk Report Deep Dives on Actuarial
Data and Unit Linked Fund Pricing
Controls, Governance Matters
relating to the Group’s service
companies and an overview of the
European Business.
• Reviewed the final accounting
adopted in the 2020 consolidated
financial statements for the
acquisition of the ReAssure
businesses, including the valuation of
tangible net assets, the valuation of
intangibles and other acquisition
related balances, supported by
reports from management and the
external auditor.
• Received regular updates from
Company management, Internal
Audit and External Audit as to the
impacts of COVID-19 and the
implementation of remote working
practices on the Company’s
accounting, reporting and internal
control activities. Assessed that
those processes remained fit for
purpose in supporting the
Company’s financial reporting and
disclosure obligations throughout
2020.
“ The Committee has
continued to deliver on its
key responsibilities through
taking into account
COVID-19, the volatility
surrounding the economic
environment as well as the
impact of the acquisition of
the ReAssure Group. The
Committee will remain
focused on the issues
surrounding the pandemic,
ensuring that the Group
continues to maintain a
robust internal control
environment. ”
Alastair Barbour
Chair of Audit Committee
Phoenix Group Holdings plc Annual Report & Accounts 2020
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CORPORATE GOVERNANCE
Corporate governance report continued
AUDIT COMMITTEE’S
PERFORMANCE
At the December 2020 Board meeting,
Consilium presented a report, following
their appointment to undertake an
external Board Effectiveness Review.
As part of that report the Board
Committees were reviewed and
assessed, and with regard to the Audit
Committee, Consilium concluded that
the Committee operated extremely
effectively.
GENERAL
The other areas that the Audit
Committee covered throughout 2020
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
and 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
The Audit Committee also considered
matters pertaining to the mandatory
rotation of the external audit firm – see
Auditor’s Appointment on page 119.
INTERNAL AUDIT
During 2020, 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. The Committee 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.
INTERNAL CONTROL
The Committee is responsible for
supporting the Board in ensuring a
robust system of internal control and
risk management systems is in place.
In supporting this framework, the
Committee receives regular reports on
the status of the control environment
and updates on the management of the
risks and controls across the Group’s
Risk Management Framework. The
Committee receives biannually control
reports from Line 2 (Risk) through the
internal control assessments from
Group Risk as well as the annual Line 3
(Internal Audit) internal control
environment opinion report. These
reports provide assessments of the
control environment metrics including:
any risks that are reported to be
outside of appetite; the action plan to
bring within appetite; the status of
internal audit opinions and any key
issues identified and emerging trends
and themes for the Committee to
focus on going forward.
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 throughout 2020, including the
2020 Audit Plan, progress reports
against that plan, and a report on their
audit procedures on the 2020 annual
IFRS and Solvency II results, and their
interim review of the half year 2020
IFRS results.
The Audit Committee considered
throughout 2020 the effectiveness,
engagement and remuneration of the
current external auditors. These
reviews and presentations 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 2020 AGM
– see ‘Assessment of the effectiveness
of the external audit process’ and
‘Auditor’s Appointment’ on page 119.
The external auditor partner attended
all Audit Committee meetings during
2020, presenting reports on the
external audit process, 2020 year end
and 2020 interim results, a hot-topics
survey and assessments on
methodology and actuarial
assumptions. The external auditor
provided details on benchmarking with
regard to assumptions setting as well
as challenging and providing guidance
on reporting matters and disclosure
requirements. There were instances
where the external auditor challenged
management’s view on certain
assumptions and reporting
requirements which were clarified by
the Committee.
The external auditor’s 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 119. In addition, the
Audit Committee reviewed the
appointment of EY as auditors of the
ReAssure entities following their
acquisition during the period. This
included an assessment of their
independence and a review of services
provided by EY during the 2019 and
2020 financial years.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
In light of the above, the Audit
Committee is satisfied that the
non-audit services performed during
2020 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 196.
AUDITOR’S APPOINTMENT
During 2020, 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 14 May 2021.
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:
• Review of the detailed audit plan and
consideration of its coverage and
approach to identified risks;
• An assessment of the quality of
interactions between the Audit team
and the Committee, including the
provision of technical and industry
knowledge;
• Consideration of the level of insight
provided by the audit findings in the
key areas of judgment, including
quality of benchmarking with regard
to insignificant valuation assumptions
and supporting analysis, and the
ability of the audit team to
demonstrate that they had applied
professional scepticism in their
dealings with management;
• A comprehensive assessment and
review of the External Auditor where
feedback was received from
management, Life Company
directors as well as members of the
Audit Committee.
• Meeting privately with EY to discuss
in depth Quality Assurance that is
undertaken by EY with regard to its
practices across the audit firm; and
• The Committee considered the
findings of external evaluations of EY,
notably the findings from the
Financial Reporting Council’s Audit
Quality Inspection Report.
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 are 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 in line with statutory
requirements.
In 2020, total fees of £14.5 million
were paid to EY. Of this amount £11.7
million related to statutory audit fees of
the parent and its subsidiaries, with a
further £2.1 million incurred in relation
to services provided pursuant to legal
or regulatory requirements.
The remaining fees of £0.7 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 9% for the 2020 year, and 17%
based on a three year average audit
fee. This lies well within the limits
prescribed in the Group’s policy.
Of the £0.7 million of non-audit fees,
£0.4 million related to in-flight services
being provided to ReAssure entities at
the time of acquisition. This principally
relates to implementation support
provided for a non-financial front-office
system, and was assessed as
permissible under the Financial
Reporting Council’s Ethical Standard.
The remaining balance of £0.3 million
includes 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 of ReAssure and debt
issuances in the period. 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.
Phoenix Group Holdings plc Annual Report & Accounts 2020
119
CORPORATE GOVERNANCE Corporate governance report continued
SIGNIFICANT MATTERS CONSIDERED BY THE AUDIT COMMITTEE IN RELATION TO THE FINANCIAL
STATEMENTS
Significant matters in
relation to the 2020 IFRS
financial statements
How these issues were addressed
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
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.
This included assumptions related to longevity, mortality, persistency, expenses and
policyholder behaviour, as well as economic assumptions. These assumptions and
methodologies were debated and challenged by the Life Company Audit Committees, prior
to their approval.
Valuation of complex and
illiquid financial assets
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.
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 including benchmarking analysis.
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. This included management’s
assessment of the impacts of economic volatility arising as a result of the global COVID-19
pandemic.
The valuation information was then presented for oversight review by the Audit Committee
who considered and further challenged the information prior to confirmation of 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.
Acquisition accounting
The Audit Committee considered the impact of the acquisition of ReAssure on the Group
consolidated IFRS financial statements. This included consideration of the adoption of Group
accounting policies and methodologies by the acquired entities.
Management presented papers detailing the basis of fair value adjustments made to the
acquisition balance sheets including the valuation of tangible net assets, the valuation of
intangibles including the Acquired Value of In-Force business and the gain on bargain
purchase. The key methodologies and assumptions applied in determining such adjustments
were reviewed and approved by the Audit Committee.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
Significant matters in
relation to the 2020 IFRS
financial statements
Provisions
How these issues were addressed
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 and confirmed agreement with the 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 and
viability analysis
The Audit Committee reviewed information on the capital and liquidity position of the Group,
together with a review of the associated risks and supporting stress and scenario testing,
including the impacts of COVID-19. This was part of a comprehensive assessment
undertaken prior to the Committee recommending to the Board that the Group financial
statements should be prepared on a going concern basis and that the disclosures with
regard to the long-term viability of the Group were sufficient and appropriate.
Phoenix Group Holdings plc Annual Report & Accounts 2020
121
CORPORATE GOVERNANCE Corporate governance report continued
NOMINATION
COMMITTEE
REPORT
MEMBERS
Nicholas Lyons (Chair)
Alastair Barbour
Nicholas Shott
Kory Sorenson
KEY NOMINATION COMMITTEE
ACTIVITIES IN 2020
• Group CFO appointment
(Executive Director role)
• Board and senior executive
succession planning
• Talent, capability, diversity and
inclusion reviews
• Review of Directors’ time
commitment to Phoenix
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 five
times in 2020. Following the
announcement in November 2019 of
Andy Briggs as successor to Clive
Bannister as Group Chief Executive
Officer, the Nomination Committee
continued its focus at the start of 2020
on the succession to Jim McConville
as Group Chief Financial Officer in view
of his impending retirement. This
concluded with the appointment of
Rakesh Thakrar to succeed Jim at the
May 2020 Annual General Meeting.
There was no non-executive
recruitment in 2020. This was driven by
the outcome of the November 2019
Board evaluation review which
concluded that, due to the many recent
Board changes, stability in non-
executive membership on the Board in
the near-term was desired. However,
the Committee did review the Board
succession plan in 2020 to ensure
planning was in place for future
changes matched to skills, experience
and diversity requirements. The two
new Board appointments in 2020,
Hiroyuki Iioka and Chris Minter, were
by nomination of strategic shareholders
MS&AD and Swiss Re respectively in
accordance with their shareholder
rights following Phoenix’s acquisition of
ReAssure from Swiss Re, completed in
July 2020.
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
• October 2018 – Nicholas Lyons
There have, in addition, been the
following appointments through
strategic shareholder nomination
under their shareholding rights:
• August 2018 – SLA nominees,
Campbell Fleming and Barry
O’Dwyer
• September 2019 – SLA nominee,
Mike Tumilty
• July 2020 – MS&AD nominee,
Hiroyuki Iioka; Swiss Re nominee,
Chris Minter
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 shortlisted candidates
are undertaken by the search
consultancy, followed by interviews
with Committee members and other
122
Phoenix Group Holdings plc Annual Report & Accounts 2020
Directors and the sourcing of references
before the Committee recommends the
appointments to the Board.
The Board supports the Hampton-
Alexander guidance for FTSE 350
companies that the Board should be
comprised of at least 33% female
directors. The Board complies with this
guidance in respect of the Board
composition excluding nominees from
strategic shareholders, with a 40%
female gender representation. This
reduces to 31% when the strategic
shareholder nominees are taken into
account. Whilst the Board considers
that it currently complies comfortably
with the Hampton-Alexander guidance,
the Board expects to exceed the
guidance in 2022 even when taking
account of nominees to the Board from
strategic shareholders. The Board
complies 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 (Rakesh Thakrar, the
CFO).
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 2020 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 diversity and
inclusion initiatives for executives are
contained in the Inspire Our People
section on page 42 to 45 of this Annual
Report including the gender balance of
those in senior management.
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 2020 exceeded
the level expected in their appointment
terms, particularly given the time
devoted by the Board to oversee the
Group during a year dominated by
COVID-19 and its impact on society.
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 2020, Chris Minter and Hiroyuki
Iioka, the new non-executive directors
nominated by strategic shareholders,
Swiss Re and MS&AD respectively,
undertook a comprehensive induction,
including detailed strategic and
operational briefings and information,
before and following their appointments.
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
14 May 2021.
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 2020. The process
was externally facilitated by Consilium
Board Review, who have no other
connection with Phoenix or individual
directors. The process included the
following:
• A review of the full year’s Board and
Committee packs and strategy
papers.
• Questionnaires and interviews with
all 13 directors and the Company
Secretary; and interviews with four
further executives.
• Observation of a Board meeting,
two committee meetings and Board
education sessions over 22–23
October 2020.
Consilium’s report was presented to,
and discussed at, the Board meeting
on 2 December 2020. Its conclusion
was very positive about the Board’s
performance, particularly in the light
of the COVID-19 environment. Extracts
from the report (agreed with the
reviewer) are contained in the
Chairman’s Governance Introduction
on page 93. Consilium provided the
Board with some “matters to be
mindful of” which the Board will
address to ensure it continues to
enhance its performance. In the case
of the Nomination Committee,
Consilium concluded that it was very
effective and very well chaired, with a
strong challenge on Diversity &
Inclusion. The outputs from the review
will be taken into account in the
Board’s succession planning.
“ I am very pleased
with the successful
outcome from the
Nomination Committee’s
work on the succession
planning for the vital
executive positions
of Group Chief Executive
Officer and Group Chief
Financial Officer, resulting
in the appointments
of Andy Briggs to succeed
Clive Bannister, and
Rakesh Thakrar to succeed
Jim McConville,
both occurring
during 2020.”
Nicholas Lyons
Chairman
Phoenix Group Holdings plc Annual Report & Accounts 2020
123
CORPORATE GOVERNANCE
Directors’ remuneration report
REMUNERATION
COMMITTEE
REPORT
MEMBERS
Kory Sorenson (Chair)
Karen Green
Belinda Richards
Nicholas Shott
KEY REMUNERATION
COMMITTEE ACTIVITIES IN 2020
• Group CEO and CFO
remuneration
• A remuneration framework for
strategic executive hires
• Consideration of measurable,
tangible and impactful targets
including ESG
• Continuing alignment of
remuneration to customer and
shareholder outcomes
• Ongoing M&A and integration
activity
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 2020.
SUMMARY OF THE YEAR
2020 was an extraordinary year.
Despite the significant challenges
presented by COVID-19, Phoenix
continued to perform strongly: full
year operating Cash Generation and
Shareholder Value exceeded the top
end of our target range; our high-quality
portfolio of assets and diligent
approach to risk management during
the year have proved its resilience; and
our shareholder solvency ratio remained
comfortably within the 140% to 180%
target range, at 164% at year end.
The acquisition of ReAssure Group plc
completed in July has made Phoenix
the UK’s largest long-term savings and
retirement business and we have
delivered £22 million of annual cost
synergies and £479 million of capital
synergies in 2020. The Standard Life
Assurance (‘SLA’) transition
programme continues to progress well.
IMPACT OF COVID-19
The safety of our colleagues has been
one of our top priorities throughout the
pandemic. 99% of our colleagues were
enabled to work from home within
10 days of lockdown. We rapidly
introduced practical support for home
working including paid emergency
leave to colleagues with carers’
responsibilities. Our employees have all
received full pay throughout the period
with none furloughed. The Group has
not accessed any government support
schemes. During this period, the
Group’s annual engagement survey
highlighted an increase in pride and
advocacy of Phoenix as a place of work
as well as an increase in the overall
engagement score.
We have continued to deliver strong
customer service alongside supporting
customers through a range of
initiatives, including increased use
of digital channels. Across our
communities we have given £1 million
in charitable donations with a further
£1 million for colleague matching and
volunteering in local communities.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
SUSTAINABILITY
Phoenix has made significant progress
on its sustainability journey in 2020.
We announced the commitment for
our operations to become net-zero
carbon by 2025 and our investment
portfolio to do so by 2050, and we
signed the UN-supported Principles of
Responsible Investment. Sustainability
is at the heart of our purpose of helping
people secure a life of possibilities.
Reducing our environmental impact will
be integral to delivering long-term value
for all of our stakeholders.
Based on its assessment of the
corporate metrics the Committee
determined that the Annual Incentive
Plan (‘AIP’) outcome should be 81.7%
of the maximum opportunity. With
regard to the achievements under the
Strategic Scorecard, the Committee
determined outcomes should be
85.9% for Andy Briggs and 82.6% for
Rakesh Thakrar. This results in total
awards of 82.5% and 81.9%
respectively of the maximum bonus
opportunity in line with the overall
assessment.
BOARD CHANGES
The Board is very grateful to our former
Group Chief Executive Officer (‘CEO’)
and former Group Finance Director
Clive Bannister and Jim McConville, for
the enormous impact they both had on
the business and the tremendous
contributions they made during their
tenures. The Board was delighted to
welcome as their successors, Andy
Briggs as Group CEO designate from
January 2020, and as Group CEO from
March 2020, and very proud to
promote Rakesh Thakrar, an
exceptional internal talent, as Group
Chief Financial Officer (‘CFO’) from
May 2020. Phoenix, its customers,
colleagues and investors have truly
benefited from the smooth succession
of both roles during this transition
period in 2020.
Full details of the remuneration
arrangements for both our joining
and departing Executive Directors
were set out in last year’s report and
are repeated for reference on page 134
of this report.
REMUNERATION OUTCOMES
FOR 2020
Despite the challenges of COVID-19,
Phoenix’s teams were able to keep our
business performing and our strategy
on track. The incentive outcomes
reflect the achievements in terms of
financial, non-financial, and strategic
contributions. In the context of the
experience of Phoenix’s employees,
customers, and shareholders during
the year, the Committee is satisfied
that it is appropriate to pay out the
incentives according to the formulaic
outcomes.
The 2018 Long Term Incentive Plan
(‘LTIP’) award covering the years
2018–2020 will vest at 99.9% of the
maximum opportunity for Rakesh
Thakrar. The performance conditions
for the buyout award granted to Andy
Briggs in lieu of his forfeited 2018 LTIP
from Aviva have not been met and this
award will lapse in full.
For both the AIP and the 2018 LTIP, the
relevant targets were adjusted to
account for the impact of the ReAssure
transaction on our metrics as assumed
in the pricing of the transaction. This is
the principle set in place in 2017 to
adapt performance metrics to our
dynamic M&A activity for events
closing in a given year. In addition to
adjusting the targets, we also adjust
the target ranges on cash generation
to maintain a stretch comparable to
that originally set. Details of the
adjustments to the targets are set
out on pages 136 and 137.
Both Clive Bannister and Jim
McConville were eligible for a 2020 AIP
award for the portion of the year in
which they remained employed by the
Group. The Committee determined
that they should receive the same
outcome of 81.7% under the Corporate
element, and 80.0% in relation to their
achievements under the Strategic
Scorecard metrics. This results in total
awards for them both of 81.4% of the
maximum bonus opportunity in line
with the overall assessment which will
be pro-rated to their respective end
dates. This will be payable in March
2021 and subject to 50% deferral in
line with the Directors’ Remuneration
Policy. Their in-flight LTIP awards were
pro-rated to their respective end dates.
The resulting single total figure of
remuneration for Andy Briggs was
£1,706k, for Rakesh Thakrar £930k,
for Clive Bannister £321k and for Jim
McConville £403k. Full details are set
out on page 130.
The Committee did not exercise any
discretion in respect of remuneration
outcomes during the year. We believe
the numbers are an accurate reflection
of the year’s performance and the
trajectory of the business.
IMPLEMENTATION OF PAY IN 2021
The Committee regularly reviews the
performance measures of the incentive
plans to ensure they remain aligned
with our strategy. Following review of
the AIP metrics in the light of our
developing new business ambitions,
the Committee determined that
Workplace Net Flows should be
replaced by Incremental Long-term
Cash Generation after deduction of
New Business Strain. This metric will
provide a more complete assessment
of management’s achievement of our
strategic aims by including in particular
BPA performance in addition to new
business from the other Open business
units, including Workplace. It is robust,
transparent and measurable. This
metric will be weighted at 16% of the
assessment and the Shareholder Value
metric will be reweighted from 24% to
20%.
No changes are proposed to the LTIP
metrics for 2021. The Committee is of
the view that these remain well aligned
with the Group’s long-term strategy.
As detailed on page 142, the underpin
relating to the formulaic outturn of the
LTIP has been revised to better reflect
the extent to which the Group has
operated within its stated Risk Appetite
A summary of the metrics is set out
overleaf.
Phoenix Group Holdings plc Annual Report & Accounts 2020
125
CORPORATE GOVERNANCE Directors’ remuneration report continued
Annual incentive plan
2020
2021
Cash Generation
24%
Shareholder Value
24%
Cash Generation
24%
Shareholder Value
20%
Net Flows
(Workplace)
12%
Incremental Cash
Generation (less
new business strain)
16%
Customer
Experience
20%
Customer
Experience
20%
Strategic Scorecard
20%
Strategic Scorecard
20%
Deferral 50%
for a period
of 3 years
Deferral 50%
for a period
of 3 years
Long term incentive plan
Corporate Component – 80% of AIP metrics
2020
2021
Net Operating Cash Receipts
35%
Return on Shareholder value
25%
Persistency
20%
Net Operating Cash Receipts
35%
Return on Shareholder value
25%
Persistency
20%
TSR
20%
TSR
20%
“ In a year of
transformative change
for Phoenix and the
challenges of Covid,
the Committee
attentively reviewed
and monitored our
remuneration policies
to ensure alignment
with our long-term
strategy and social
purpose and to drive
the business forward
sustainably for all of
our stakeholders.”
Kory Sorenson
Chair of Remuneration
Committee
During the year, it became apparent
that the increase in the LTIP potential
for our Group CEO made it possible
to have a level of vesting at 68.75%
for threshold performance. This
mechanical impact was not intentional
and, in line with best practice, we have
made the clarification with the support
of Andy Briggs that the level of
threshold vesting is capped at the
lower of 25% of maximum vesting
or 50% of salary. This has been
implemented retrospectively to his
2020 LTIP award.
The Committee does not intend to
make any adjustments to the
performance targets of in-flight LTIP
awards due to COVID-19. The awards
will be assessed over the original
performance periods and subject to
the original performance targets,
notwithstanding any amendments to
targets as a result of M&A activity as
per our policy. Details of adjustments
to targets as a result of the ReAssure
transaction are set out on page 136 of
this report.
There is no salary increase proposed
for Andy Briggs and a 2.3% salary
increase proposed for Rakesh
Thakrar, which is in line with the
average increase awarded to the
wider workforce.
LOOKING FORWARD
The Committee greatly values the high
level of feedback and support from our
shareholders. We are continuously
refining our remuneration assessment
to adapt to our dynamically growing
business. We hope the in-policy
modifications as outlined above and
detailed in this DRR, will meet our
shareholders’ high standards of
discipline and rigour and will be voted
for favourably in the resolution
proposed at the 2021 AGM.
Kory Sorenson
Remuneration Committee Chair
7 March 2021
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Phoenix Group Holdings plc Annual Report & Accounts 2020
DIRECTORS’ REMUNERATION
REPORT AT A GLANCE
ALIGNMENT TO STRATEGY
This table demonstrates how each of our performance measures for AIP and LTIP align with the Group’s strategy.
Meet
Changing
Customer
Needs
Create Value
and Deliver
Dependable
Cash
Generation
Manage
our Capital
Position
Inspire
our People
Put
Sustainability
at the
Heart of
our Business
Phoenix’s Strategic KPIs
2021 Corporate Metrics
Cash Generation
Incremental Long Term Cash Generation
less New Business Strain
Shareholder Value
AIP
Customer Experience
Strategic Scorecard
Net Operating Cash Receipts
Return on Shareholder Value
Persistency
TSR
LTIP
AIP metrics engage employees across the Group to achieve common targets
As detailed in the strategy section of the 2020 Annual Report and Accounts under the ‘Engage Colleagues’ section, all
employees with the exception of those who recently joined the Group from ReAssure, participate in a common incentive
plan ensuring consistency of corporate goals and individual performance management. Employees from ReAssure
continued with their existing bonus arrangements for the remainder of 2020 and will join the Group AIP described in this
report from January 2021. Both variable pay plans for 2021 align to Phoenix’s Strategic KPIs as shown below.
2020 SINGLE FIGURE
The outcomes under the AIP and LTIP resulted in a single figure outcome for Andy Briggs of £1,706k and for Rakesh Thakrar
of £930k. The figure for Rakesh Thakrar reflects the period from when he was appointed to the Board of Phoenix Group
Holdings plc apart from his 2018 LTIP award which is included in full per the regulations.
The single figure outcomes for the former Executive Directors of Clive Bannister and James McConville from 1 January to
their termination dates were £321k and £403k respectively.
2020
717
887
1,706
26
76
7
28
2020
263
323
309
930
CEO
CFO
£'000
Salary
Benefits
Pension
AIP
LTIP
Read more
page 130
Phoenix Group Holdings plc Annual Report & Accounts 2020
127
CORPORATE GOVERNANCE Directors’ remuneration report continued
HOW WE PERFORMED IN 2020
Group performance measures
Long Term Incentive Plan (‘LTIP’):
Below we show outturn against the measures which applied for the 2018 LTIP awards which are reflected in the Single
Figure Table on page 130. Cumulative Cash Generation, Return on Adjusted Shareholder Solvency II Own Funds and Total
Shareholder Return (‘TSR’) performance are shown over the three-year performance period (financial years 2018, 2019 and
2020). 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.
Cumulative Cash Generation
(£m)
Return on adjusted shareholder
solvency II Own Funds (£m)
Relative Total Shareholder
Return (percentile)
Threshold
2500
Threshold
4.0
Threshold
50th
Target
Outturn
2735
Target
6.0
£2,788m
Outturn
11.6
Target
Outturn
80th
79.9th
Group performance measures
Annual Incentive Plan (‘AIP’):
Below we show the target ranges and outturn against the metrics within the 2020 AIP. More details of the 2020 AIP can
be found on pages 131 to 133. 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. Further information on how the Committee
determined the AIP outcomes in the context of the wider stakeholder experience this year is set out on page 133.
Cash Generation (£m)
Shareholder Value (£m)
Workplace Net flows (£m)
Threshold
1521
Target
Maximum
1606
Threshold
Target
1691
Maximum
7868
7968
8168
Threshold
1100
Target
1500
Maximum
1900
Outturn
£1,713m
Outturn
£8,597m
Outturn
£1,757m
Customer Satisfaction
(SLAL Telephony) (%)
Customer Satisfaction
(Phoenix Telephony) (%)
SLAL
Digital (%)
Threshold
Target
Maximum
Outturn
93
94
95
94
Threshold
Target
Maximum
Outturn
90
92
94
95
Threshold
Target
Maximum
Outturn
Servicing
Complaints (%)
Threshold
Target
Maximum
90
91
92
90
57.5
60.0
62.5
Outturn
48.0
128
Phoenix Group Holdings plc Annual Report & Accounts 2020
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 2020 Andy Briggs and Rakesh Thakrar have not reached their shareholding requirements as both
were newly appointed in 2020. The outgoing Executive Directors, Clive Bannister and James McConville had both
exceeded their shareholding requirements and are now subject to post-cessation shareholding requirements.
Further details on shareholding guidelines, including post-cessation requirements are included on page 140 of the
Implementation Report (Section A) and in the Remuneration Policy attached as Appendix to this report on page 155.
Group Chief Executive Officer Andy Briggs
Group Chief Financial Officer Rakesh Thakrar
Group Chief Executive Officer Clive Bannister
Group Finance Director James McConville
Shareholding guidelines
Shares held at 31 December 2020
Shareholding guidelines
Shares held at 31 December 2020
Shareholding guidelines
Shares held at date of leaving
Shareholding guidelines
Shares held at date of leaving
300%
231%
250%
155%
200%
1164%
200%
472%
Shareholding Guidelines percentage shown for Andy Briggs and Rakesh Thakrar includes the value of shares held based on a share price of £7.014 (as at close of business on
31 December). The share price for Clive Bannister (£7.498) and James McConville (£6.1736) has been calculated based on the three-month average closing price prior to them
leaving the Group. Shares included are those shares held directly and beneficially, any vested LTIP awards that have not been exercised and unvested DBSS options taking into
account tax liabilities.
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 remuneration policy is delivered in
shares and deferred for up to five years. Under the maximum scenario, 65% of the Group 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
Pension
CEO: 12%
CFO: 12%
Benefits
Salary
CEO: £800k
CFO: £430k
Salary
CEO: £800k
CFO: £430k
Maximum
2021
2022
2023
2024
2025
2026
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 The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2008
(as amended) (‘the DRR regulations’).
DIRECTORS’ REMUNERATION POLICY
The Remuneration Policy approved by the shareholders at the 2020 AGM is attached in full as Appendix to this report.
Phoenix Group Holdings plc Annual Report & Accounts 2020
129
CORPORATE GOVERNANCE Directors’ remuneration report continued
SECTION A
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 2021 AGM on 14 May 2021
IMPLEMENTATION REPORT – AUDITED INFORMATION SINGLE FIGURE TABLE
Salary/fees5
Benefits6
Pension7
Total Fixed Pay
Annual
Incentive8
Long-term
incentives
Total
Variable Pay
Total
2020 2019
£000
Executive Directors
Andy Briggs1
–
Rakesh Thakrar2
–
Former Executive Directors
Clive Bannister3
700
James
McConville4
717
263
440
166
133
2020 2019
2020 2019
2020 2019
2020 2019 20209
201910
(restated)
2020 2019
2020
201910
(restated)
26
7
3
6
–
–
16
16
76
28
–
–
819
298
–
–
887
323
–
–
011
309
–
–
887
632
–
–
1,706
930
–
–
23
123
159
839
162
969
29
77
201
533
202
576
–
–
907
162 1,876
321 2,715
570
202 1,146
403 1,679
7
8
9
1 Andy Briggs joined the Board of Phoenix Group Holdings plc on 10 February 2020 as Group CEO Designate and became CEO on 10 March 2020.
2 Rakesh Thakrar joined the Board of Phoenix Group Holdings plc on 15 May 2020.
3 Clive Bannister resigned from the Board of Phoenix Group Holdings plc on 10 March 2020.
4 James McConville resigned from the Board of Phoenix Group plc on 15 May 2020.
5 The Executive Directors are entitled to adjust their salary/benefit combination under flexible benefits arrangements and the figures shown are before individual elections.
6
Benefits for Andy Briggs comprise car allowance, private medical insurance and legal fees relating to his appointment totalling £26,323. Benefits for Rakesh Thakrar, Clive
Bannister and James McConville comprise car allowance and private medical totalling £6,607, £3,177 and £6,103 respectively.
Andy Briggs and Rakesh Thakrar are entitled to each receive a Company pension contribution of 12% which may be paid as a cash supplement, reduced for the effect of
employers’ National Insurance contributions. Andy Briggs received his whole contribution as a cash supplement (10.5%) and Rakesh Thakrar received a combination of cash
supplement and contribution (10.6%). Clive Bannister and James McConville were entitled to each receive a Company pension contribution which was paid in cash so reduced for
the effect of employers’ National Insurance contributions to 17.6%. No Director participated in a defined benefit pension arrangement in the year and none have any prospective
entitlement to a defined benefit pension arrangement.
Annual incentive amounts are presented inclusive of any amounts which must be deferred into shares for three years (ie 50% of the AIP award for 2020). In 2020 £443,653 of
Andy Briggs’s incentive payment is subject to three-year deferral delivered in shares, and £161,713 of Rakesh Thakrar’s incentive payment is subject to a similar deferral. In 2020
and 2019, £80,898 and £387,660 respectively of Clive Bannister’s incentive payment is subject to three-year deferral delivered in shares, and £101,216 and £230,472 of James
McConville’s incentive payment is subject to a similar deferral. Deferred amounts are subject to continued employment or good leaver status. The Remuneration Committee
confirmed good leaver status for both Clive Bannister and James McConville.
In accordance with the requirements of the DRR regulations, the 2020 value for long-term incentives is an estimate of the vesting outcomes for LTIP awards granted in 2018 and
which are due to vest on 21 March 2021 for Rakesh Thakrar. This vesting level is at 99.9% reflecting outcomes against the Cumulative cash generation, return on adjusted
shareholder Solvency II own funds and TSR performance measures to 31 December 2020 (see page 133). This vesting outcome is then applied to the average share price between
1 October 2020 and 31 December 2020 (718.08p) to produce the estimated long-term incentives figures shown for 2020 in the above table. The assumptions will be trued up for
actual share price at the day of vesting in the report for 2021. For Rakesh Thakrar, the disclosed LTIP figure of £308,666 comprises the disclosed LTIP figure of £254,854 for the
value of the proportion of the original LTIP award, which ultimately vested, plus the value of dividend roll-up on those shares of £53,812. All values are calculated using the three
month average share price to 31 December 2020 (718.08p). There was no increase in the value of Rakesh’ vested LTIPs due to share price movement with the award based on a
share price of £7.825. Clive Bannister and James McConville will receive shares in respect of the 2018 LTIP. The final number of shares and value at vesting will be disclosed in
next year’s DRR.
10 For 2017’s LTIP awards which are reflected in the 2019 long-term incentives column above, the performance conditions were met as to 68.5% of maximum. The 2019 long-term
incentives values in the above table reflect the value of the Company’s shares on the date of vesting which was 24 March 2020 (557.4p per share) multiplied by the number of
shares vesting whereas the equivalent figure within the published 2019 Single Figure Table was an estimate which reflected the average share price between 1 October 2019 and
31 December 2019 (717.09p per share) and certain assumptions regarding the cumulative value of dividends on the number of shares vesting.
11 The disclosed LTIP figure of £0, relates to the 2018 Aviva LTIP buy-out award granted to Andy Briggs, which the Company has been advised by Aviva has a performance outturn of
0% over the performance period. This award was due to vest on 26 March 2021 at which date the award will lapse.
130
Phoenix Group Holdings plc Annual Report & Accounts 2020
AIP OUTCOMES FOR 2020 – AUDITED INFORMATION
Against the specific Corporate measures, outturns were as follows:
Performance measure
Cash Generation
Shareholder Value
Workplace Net Flows
Customer experience
Customer satisfaction
(SLAL Telephony)1
Customer satisfaction
(Phoenix Telephony)²
SLAL Digital3
Servicing complaint closure4
Total
Threshold
performance
level of
2020 AIP
£1,521m
£7,868m
£1,100m
Target
performance
level for
2020 AIP
£1,606m
£7,968m
£1,500m
Maximum
performance
level for
2020 AIP
£1,691m
£8,168m
£1,900m
Performance
level attained
for 2020 AIP
£1,713m
£8,597m
£1,757m
% of
incentive
potential
based on
Performance
Measure
30.00%
30.00%
15.00%
%
achieved
30.00%
30.00%
12.32%
90.0%
91.0%
92.0%
90.0%
6.25%
0.00%
93.0%
90.0%
57.5%
94.0%
92.0%
60.0%
95.0%
94.0%
62.5%
94.0%
95.0%
48.0%
6.25%
6.25%
6.25%
100.00%
3.13%
6.25%
0.00%
81.70%
1
2
3
4
Telephone customer feedback surveys are delivered to customers after key interactions using the Rant & Rave solution, either by SMS or email. The question asks “Using a scale
of 5 (excellent) to 1 (very poor) reply to tell us how you would rate your call experience today?” and the score is calculated as the % of responses of 4 or 5. 90% of responses to the
question asked scored a rating of 4 or above.
The rating is a customer satisfaction score based on the results of a satisfaction survey following telephony interaction 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.
Digital customer satisfaction surveys are offered to customers on the Customer Dashboard, asking them to rate their experience after completing a key transaction. Digital
Journeys measured include Payments, Retirement, Subsequent Withdrawal and Fund Switch. CSAT is measured as the % of responses rating their experience as ‘good’ or
‘excellent’.
The rating is a percentage based upon the volume of servicing complaints (i.e. not product or advice) resolved within 3 days divided by the total number of servicing complaints
resolved. This is a strategic requirement to provide better than mid-range performance within the complaints peer group.
To drive a continuous improvement of performance against the customer targets, the outturn of the 2019 performance was
used as the on target anchor point for all customer metrics in the 2020 scheme. This approach effectively reset the
companies target ensuring that the achievement above ‘on-target’ would require a tangible improvement in performance
against the customer metrics. To reflect the increasing importance of the digital channel to customers, a new customer
satisfaction measure for digital journeys was introduced. It should be also noted that no adjustment to the customer metrics
and targets has been made as a result of the disruption caused by COVID-19.
Following the acquisition of ReAssure by the Group on 22 July 2020, the AIP targets for Cash Generation and Shareholder
Value performance measures were amended to reflect the new organisation. The adjustments were made in line with the
Remuneration Committee’s established principles for target setting in the event of an acquisition and the Committee was
satisfied that the revised targets were equally stretching as those originally set. The original targets for the Cash Generation
performance measure were £866 million, £916 million and £966 million for threshold, target and maximum performance
respectively. The target has been amended by £690 million and the threshold and maximum targets amended +/-£35 million
each. The original targets for the Shareholder Value were £5,500 million, £5,600 million and £5,800 million for threshold
target and maximum performance respectively. These were increased by £2,368 million at the threshold, target and
maximum levels to reflect the estimated adjustment to Shareholder Value arising on completion of the ReAssure
transaction.
As described in the Group Chairman’s and Group CEO’s reports (pages 12 to 17), 2020 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, which is reflected in the outcomes of the corporate measures above. Prior to confirming the outcomes for
the 2020 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 2020 formulaic outcome was necessary.
The element of AIP that was previously attributed to personal objectives was replaced in 2020 with a Strategic Scorecard.
Metrics and targets relating to this scorecard were agreed by the Group Board and Remuneration Committee at the start of
the year. Outcomes against these targets are shown below with the exception of those which are considered as
commercially sensitive.
Phoenix Group Holdings plc Annual Report & Accounts 2020
131
CORPORATE GOVERNANCE Directors’ remuneration report continued
The Strategic Scorecard represents 20% of the overall incentive opportunity with the Corporate (financial and customer)
measures representing 80%. The table below details the outcome against targets of the Strategic Scorecard together with
respective weightings for the Group CEO and Group CFO .
10% 10% Deliver for our customers
Objective CEO CFO Description
ESG–
Committing
to a
sustainable
future
Foster responsible investment
Be a good corporate citizen
Governance and good business practice
Reduce environmental impact
Work ethically with our supply chain
Base
Qualitative
assessment
Performance Outcome
Qualitative
assessment
Our people 20% 10% Engagement survey results
Gender pay gap
Percentage of females in top 100
Percentage of females named
as green or amber successors
>= 65%
<= 22%
by 2021 (positive
trend 2020)
>= 30%
by 2021 (positive
trend by 2020)
>= 40%
(maintain)
75%
24.1%
(not adjusted for
contracted hires)
24%
(including
contracted hires)
44%
(including
contracted hires)
Customer 15% 10% Customer incidents targets met
Risk and
internal
control
10% 20% Maintain effective operation of the
Risk management Framework and
deliver risk framework harmonisation
Operate within risk appetite
Financial
15% 20% PGH shareholder solvency ratio
84%
remediated
Category A
Target = 80%
remediated
within 2 months 94% remediated
Category B
Target = 72.5%
remediated
within 9 months
Qualitative
assessment
based on
baseline
timescales
Qualitative
assessment
Partially met
Met
Maintained
within the 140
– 180% target
range
£553m
Maintained
25/30%
£2.2bn
164%
£525m
Maintained
28%
£2.5bn
£160m
£646m
£362m
£766m
Group operating expenses
(excluding SunLife and ReAssure)
Investment grade rating
Fitch leverage
10% 5% BPA and Group Pension Scheme
buy-in net flows
NBC (Total Open, Europe and BPAs)
Long term cash generation–
undiscounted (Open, Europe and BPA)
10% 15% Complete regulatory change
Business
development
ReAssure
transaction
and
onboarding
in control process, secure funding
and deliver the transaction
Delivery of 2020 cost and
capital synergies
Complete Group Head Office integration By end 2020
Complete Group Head Office integration By end 2020
Transaction
complete
mid 2020
£177m
£105m
Transaction
completed
in July
£501m
Completed
Completed
£105m
Standard
Life
10% 10% Tracking to deliver 2019/21
cost synergies
Tracking to deliver 2019/21
capital synergies
£720m
(net of costs)
£720m
(net of costs)
132
Phoenix Group Holdings plc Annual Report & Accounts 2020
75%
Delivered the Group’s first
Sustainability report and
developed a clear future strategy
that puts sustainability at the
heart of the Group’s business.
The focus can now shift to
further embedding the Group’s
ESG agenda and delivering
against its targets.
95%
Excellent progress in the year,
especially employee engagement
during a difficult period due
to COVID-19. Allowing for
contracted hires who will join the
business in early 2021, promising
progress has been made towards
diversity targets with work still to
do to meet the Group’s ambitions
in this regard.
87.5%
Resolution of customer incidents
has been managed at lead times
well within target levels.
50%
The risk management framework
has been assessed as operating
effectively across the Group.
Certain risk and control
enhancement actions have been
determined during the year with
agreed timetables for completion.
100%
The Group’s financial resilience
has been demonstrated in volatile
macro-economic conditions.
87.5%
The Group has achieved
strong performance against
all incremental new business
targets.
100%
The transaction was completed
on time and excellent progress
has been in integration activities
and on delivery against publicly
stated synergy targets.
75%
The Group remains on target
to meet or exceed publicly
stated synergy targets.
In light of the above achievements during the year, the Committee determined it was appropriate to pay the following
outcomes under the Strategic Scorecard element for the Group CEO and Group CFO:
Andy Briggs
Rakesh Thakrar
% outturn
of maximum
20% opportunity
85.9%
82.6%
The former Executive Directors were subject to the same Strategic Scorecard measures and the Committee determined it
was appropriate to pay the following outcomes to them under this element:
Clive Bannister
James McConville
% outturn
of maximum
20% opportunity
80%
80%
The Committee was also satisfied that it was appropriate to pay out the incentives according to the formulaic outcomes in
the context of the experience of Phoenix’s stakeholders during the year, in particular employees and shareholders, as our
employees all received full pay throughout the year with none furloughed, the Group did not access any government support
schemes, and the dividend has been maintained.
The table below shows the actual outturn against the annual incentive maximum.
Andy Briggs
Rakesh Thakrar
Clive Bannister
James McConville
Corporate
Strategic Scorecard
Total
Maximum
Total
As a % of
maximum
Corporate
element
81.70
81.70
81.70
81.70
As a % of
salary
98.04
98.04
98.04
98.04
As a % of
maximum
scorecard
element
85.90
82.60
80.00
80.00
As a %
of salary
25.77
24.78
24.00
24.00
As a %
of salary
123.81
122.82
122.04
122.04
As a %
of salary
150.00
150.00
150.00
150.00
As a % of
maximum
opportunity
82.54
81.88
81.36
81.36
As described in the Remuneration Policy, 50% of 2020 AIP outcomes will be delivered as an award of deferred shares under
the DBSS which will vest after a three-year deferral period subject to continued employment or good leaver status.
Whilst the performance measures for the AIP for 2021 have been disclosed (see Implementation of Remuneration Policy for
2021 on page 141), 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 Group intends to disclose the performance
targets for 2021’s AIP retrospectively in next year’s Remuneration Report on a similar basis to the disclosures made above in
respect of 2020’s AIP. In 2020, Phoenix announced its new sustainability agenda and the metrics and targets for the ESG
component of the 2021 strategic scorecard will align to this strategy.
LTIP OUTCOMES FOR 2018 AWARDS – AUDITED INFORMATION
Performance measure
and weighting
Cumulative cash
generation (40%)
Return on Solvency II
Shareholder Own Funds
(35%)
TSR (25%)
Target range
Target range between Cumulative cash generation of £2.500
billion and Cumulative cash generation of £2.735 billion.
Target range between 4% CAGR and 6% CAGR.
Performance
achieved
£2,788bn
Vesting
outcome
100.0%
%
achieved
40.0%
11.6
100.0%
35.0%
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.
79.9th
99.9%
24.9%
Total
99.9%
The above targets were all measured over the period of three financial years 1 January 2018 to 31 December 2020.
Following the acquisition of ReAssure Group plc by the Group on 22 July 2020, the LTIP targets for Cumulative cash
generation were amended to reflect the new organisation. The adjustments were made in line with the Committee’s
established principles for target setting in the event of an acquisition and the Committee was satisfied that the revised
targets were equally stretching as those originally set. The previous targets for the Cumulative Cash Generation metric were
Phoenix Group Holdings plc Annual Report & Accounts 2020
133
CORPORATE GOVERNANCE Directors’ remuneration report continued
£1.824 billion at threshold (where 25% of this part of the award vests) and £2.024 billion at maximum (full vesting of this part
of the award).
In addition to the above targets, the Committee confirmed that the underpin performance condition relating to Risk
Management within the Group, customer satisfaction and, in exceptional cases, personal performance had been achieved in
the performance period.
ANDY BRIGGS’S BUYOUT AWARD – AUDITED INFORMATION
Buyout awards were granted under the LTIP to Andy Briggs in 2019 (and the number of shares in relation to each award was
finalised in 2020 following confirmation of the share prices to be used which were based on the average three-day closing
middle market prices for both Aviva plc and Phoenix Group Holdings plc as at 31 December 2019). The buyout awards were
made as a result of Andy Briggs forfeiting a proportion of his Aviva long-term incentive options awarded to him in March
2017 and May 2018 by Aviva following his leaving. The Aviva March 2017 LTIP vested on 27 March 2020 with a performance
outturn of 50%. In line with the Directors’ Remuneration Policy, Andy Brigg’s buyout awards will have a further two-year
holding period post vesting before the executive is able to exercise his options. The Company has been advised that the
performance outturn for the Aviva 2018 LTIP has vested at 0% and these awards will lapse on the vesting date. Details on
these awards can be found on page 138.
PAYMENTS FOR LOSS OF OFFICE – AUDITED INFORMATION
Payments made to Directors who departed during the year are disclosed below:
In the 2019 Directors’ remuneration report we announced that Clive Bannister would step down as Group CEO following the
publication of our 2019 full year results and after nine very successful years with the business, and that James McConville
would step down from his position as Group Finance Director and leave the Group on 15 May 2020. Arrangements for the
departure of both Executive Directors were in line with the Remuneration Policy.
Clive Bannister left the Group on 10 March 2020. He received 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. This was paid in three
instalments: £270,512 paid in June 2020, and £137,530 was paid in both September 2020 and November 2020. He received
no compensation for loss of car allowance. As is standard practice, payment for unused holiday is added to final salary for all
leavers in Phoenix Group, which resulted in a payment of £12,789. Clive’s 2019 AIP, which was reported in the 2019 single
figure table, was paid in the normal way and subject to 40% deferral in line with the policy in force at the time of his
departure. Clive will be eligible for a 2020 AIP award for the portion of the year in which he remained employed by the
Group, which will be payable in March 2021 and subject to 50% deferral in line with remuneration policy adopted in 2020.
Clive’s in-flight LTIP awards were time pro-rated to his end date. Clive is retaining his unvested DBSS awards and LTIP
awards, subject to a holding period, as disclosed in the 2019 Directors´ remuneration report.
James McConville left the Group on 15 May 2020. His departure arrangements were in line with the Remuneration Policy.
He received 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. This was paid in three instalments: £211,250 was paid in May 2020 and £105,625 paid in
November 2020. The final payment of £105,625 will be paid in March 2021. He received no compensation for loss of car
allowance. As is standard practice, payment for unused holiday is added to final salary for all leavers in Phoenix Group, which
resulted in a payment of £29,193. James’s 2019 AIP was paid in the normal way and subject to 40% deferral in line with the
policy in force at the time of his departure. He will be eligible for a 2020 AIP award for the portion of the year in which he
remained employed by the Group, which will be payable in March 2021 and subject to 50% deferral in line with the
remuneration policy adopted in 2020. James’s in-flight LTIP awards were time pro-rated to his end date. James is retaining
his unvested DBSS awards and LTIP awards, subject to a holding period, as disclosed in the 2019 Directors´ remuneration
report.
PAYMENTS TO PAST DIRECTORS – AUDITED INFORMATION
Payments made to former Directors are disclosed below:
Clive Bannister, who resigned from the Board on 10 March 2020, will receive shares in respect of the 2018 LTIP. The final
number of shares and value at vesting will be disclosed in the 2021 DRR.
James McConville, who resigned from the Board on 15 May 2020, will receive shares in respect of the 2018 LTIP. The final
number of shares and value at vesting will be disclosed in the 2021 DRR.
134
Phoenix Group Holdings plc Annual Report & Accounts 2020
NON-EXECUTIVE FEES – AUDITED INFORMATION
The emoluments of the Non-Executive Directors for 2020 based on the current disclosure requirements were as follows:
Name
Non-Executive Chairman
Nicholas Lyons
Non-Executive Directors
Alastair Barbour
Campbell Fleming3
Karen Green
Hiroyuki Iioka2
Wendy Mayall
Chris Minter3
John Pollock
Belinda Richards
Nicholas Shott
Kory Sorenson
Mike Tumilty3
Total
Directors’
salaries/fees
2020
£000
Directors’
salaries/fees
2019
£000
Benefits1
2020
£000
Benefits1
2019
£000
325
145
–
125
–
105
–
135
105
105
125
–
1,170
325
145
–
117
–
105
–
134
105
105
125
–
1,161
–
6
–
–
–
–
–
–
–
1
–
–
7
7
15
–
5
–
1
–
3
5
5
–
–
41
Total
2020
£000
325
151
–
125
–
105
–
135
105
106
125
–
1,177
Total
2019
£000
332
160
–
122
–
106
–
137
110
110
125
–
1,202
1
2
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 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).
Hiroyuki IIoka and Chris Minter joined the Board of Phoenix Group Holdings plc on 23 July 2020 and as nominated appointed directors of MS&AD and SwissRe respectively,
waived all current and future emoluments with regard to their Directors’ fees.
3 On 23 July 2020 Campbell Fleming resigned from the Board. 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 £4.537 million (2019: £4.120 million).
Phoenix Group Holdings plc Annual Report & Accounts 2020
135
CORPORATE GOVERNANCE Directors’ remuneration report continued
SHARE-BASED AWARDS – AUDITED INFORMATION
As at 31 December 2020, Directors’ interests under long-term share-based arrangements were as follows:
LTIP
Name
Andy Briggs
LTIP Buyout Award
LTIP Buyout Award
LTIP
Rakesh Thakrar
LTIP
LTIP
LTIP
LTIP
Clive Bannister
LTIP
LTIP
LTIP
LTIP
LTIP
James McConville
LTIP
LTIP
LTIP
LTIP
LTIP
Date of
grant
Share price
on grant
No. of
shares
as at
1 Jan
2020
No. of
shares
granted
in 2020
No. of
dividend
shares
accumulating
at vesting1
No. of
shares
exercised2
No. of
shares not
vested3
No. of
shares
as at
31 Dec
2020
7 Nov 2019
7 Nov 2019
13 Mar 2020
7.515p
7.515p
620.5p
174,443
101,158
–
–
–
354,529
275,601
354,529
24 Mar 2017
21 Mar 2018
11 Mar 2019
13 Mar 2020
708.7p
703.6p
700.4p
620.5p
28 Sept 2015
2 Jun 2016
24 Mar 2017
21 Mar 2018
11 Mar 2019
28 Sept 2015
2 Jun 2016
24 Mar 2017
21 Mar 2018
11 Mar 2019
632.8p
670.9p
708.7p
703.6p
700.4p
632.8p
670.9p
708.7p
703.6p
700.4p
22,720
35,527
39,259
–
97,506
169,669
123,740
197,526
198,956
199,865
889,756
106,646
77,777
124,159
125,058
125,629
559,269
–
–
–
135,365
135,365
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,612
–
–
–
4,612
20,679
–
40,117
–
–
60,796
12,997
–
25,213
–
–
38,210
–
–
–
–
(87,222)
–
–
87,221
101,158
354,529
(87,222)
542,908
(18,722)
–
–
–
(18,722)
(190,348)
–
–
–
–
(190,348)
(119,643)
–
–
–
–
(119,643)
(8,610)
–
–
–
(8,610)
–
–
(74,858)
–
–
(74,858)
–
–
(47,053)
–
–
(47,053)
–
35,527
39,259
135,365
210,151
–
123,740
162,785
198,956
199,865
685,346
–
77,777
102,319
125,058
125,629
430,783
Vesting
date4
27 Mar 2020
26 Mar 2021
13 Mar 2023
24 Mar 2020
21 Mar 2021
11 Mar 2022
13 Mar 2023
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
2
3
4
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).
Gains of Directors from share options exercised and vesting shares under the LTIP in 2020 were £2,426,388 (Clive Bannister’s gain was £1,477,955 arising from an LTIP award
exercised on 26 November 2020 at a share price of £7.764494; James McConville’s gain was £829,623 arising from an LTIP award exercised on 20 October 2020 at a share price
of £6.934157 and Rakesh Thakrar’s gain was £118,810 arising from an LTIP award exercised on 27 May 2020 at a share price of £6.346 .
The 2017 LTIP award vested at 68.5% of maximum. The 2018 LTIP award vested at 99.9% of maximum.
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.
The Committee reviewed the grant price of the 2020 LTIP awarded to Andy Briggs and Rakesh Thakrar and determined that the grant price of 620.5p was not below 20% of the grant
price of 700.4p for the 2019 LTIP and was therefore satisfied that the award would not be subject to windfall gains and no adjustments were required to the awards.
During the year, certain shareholders provided feedback that the level of threshold vesting for the Group CEO’s LTIP award (68.75% of salary) was considered excessive and that it
should be no higher than 50% of salary. The Committee considered this feedback and decided that the level of threshold vesting for the Group CEO’s LTIP award will therefore be
capped at the lower of 25% of maximum vesting or 50% of salary. With the agreement of Andy Briggs, this has also been implemented retrospectively to his 2020 LTIP award.
LTIP TARGETS
The performance conditions for the 2018, 2019 and 2020 awards are set out below. These targets now reflect adjustments
made following the acquisition of ReAssure in July 2020 and are described below. The adjustments were made in line with
the Committee’s established principles for target setting in the event of an acquisition.
Cash Generation/Net Operating Cash Receipts – targets under the 2018, 2019 and 2020 LTIP have been adjusted to
reflect the cashflow assumptions made as part of the ReAssure transaction pricing and to appropriately reflect activity and
circumstances arising in the period between announcement and completion. Additional cash released was anticipated to be
£676 million in 2020 (£690 million less £14 million additional operating expenses), and is anticipated to be £811 million (£828
million less £17 million additional operating expenses) in 2021, and £549 million (£564 million less £15 million additional
operating expenses) in 2022. The stretch target for each award has been adjusted in the same proportions as the impact
ReAssure has on the base target. The resulting impact on the Cumulative Cash Generation and Net Operating Cash
Receipts targets is as follows:
2018 LTIP: Cumulative Cash generation threshold increased from £1.824 billion to £2.500 billion with maximum target
increased from £2.024 billion to £2.735 billion.
2019 LTIP: Cumulative Cash generation threshold increased from £2.097 billion to £3.584 billion with maximum target
increased from £2.397 billion to £3.949 billion.
2020 LTIP: Net Operating Cash Receipts threshold increased from £2.375 billion to £4.411 billion with maximum target
increased from £2.725 billion to £ 4.966 billion.
136
Phoenix Group Holdings plc Annual Report & Accounts 2020
Return on Shareholder Value – consistent with the approach taken on previous transactions and in compliance with the
Group’s documented principles established for adjusting remuneration targets to reflect the impacts of acquisitions, there
are no amendments to the target ranges for compound annual growth rates as a result of the acquisition of ReAssure.
However, for each of the 2018, 2019 and 2020 Schemes, the opening Shareholder Value balance used to calculate the return
is rebased by the value of equity issued (£2 billion) in consideration for the acquisition.
Persistency (2020 LTIP only) – no changes to this target have been made as Persistency relates to the Open business only
and is therefore not impacted by the ReAssure transaction.
2018 award
(40% Cumulative cash
generation, 35% Return on
Adjusted Shareholder Solvency II
Own Funds and 25% Relative TSR)
2019 award
(40% Cumulative cash
generation, 35% Return on
Adjusted Shareholder Solvency II
Own Funds and 25% Relative TSR)
2020 award
(35% Net Operating Cash
Receipts, 25% Return on
Shareholder Value, 20% Relative
TSR, 20% Persistency)
Target range of £2.500bn to
£2.735bn.
Target range of £3.584bn to
£3.949bn.
n/a
Performance measure
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.
Net Operating Cash Receipts
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.
n/a
n/a
Target range of £4.411bn to
£4.966bn.
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.
Between 4% CAGR and 6%
CAGR.
Between 4.5% CAGR and
6.5% CAGR.
n/a
Return on Shareholder Value
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.
n/a
n/a
Between 2% CAGR and 4%
CAGR.
Relative 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.
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 as for 2018.
Target range between median
performance against the
constituents of the FTSE 350
(excluding Investment Trusts)
rising on a pro rata basis until
full vesting for upper quintile
performance.
Persistency
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.
n/a
n/a
Target range between 8.0%
and 6.5%1
1 This was incorrectly stated as ‘Target range between 6.5% and 8.0%’ in the 2019 DRR.
For the 2021 LTIP award, the underpin has been revised to better reflect the extent to which the Group has operated within
its stated Risk Appetite.
Phoenix Group Holdings plc Annual Report & Accounts 2020
137
CORPORATE GOVERNANCE Directors’ remuneration report continued
DBSS – AUDITED INFORMATION
Date
of grant
Share price
on grant
No. of
shares
granted
as at
1 Jan 2020
No. of
shares
granted
in 2020
No. of
dividend
shares
accumulating
at vesting1
No. of
shares
exercised2
No. of
shares
lapsed/
waived
No. of
shares
as at
31 Dec 2020
Vesting
date
Andy Briggs
DBSS
Rakesh Thakrar
DBSS
DBSS
DBSS
DBSS
Clive Bannister
DBSS
DBSS
DBSS
DBSS
James McConville
DBSS
DBSS
DBSS
DBSS
–
–
–
–
–
–
24 Mar 2017
21 Mar 2018
11 Mar 2019
13 Mar 2020
24 Mar 2017
21 Mar 2018
11 Mar 2019
13 Mar 2020
24 Mar 2017
21 Mar 2018
11 Mar 2019
13 Mar 2020
708.7p
703.6p
700.4p
620.5p
708.7p
703.6p
700.4p
620.5p
708.7p
703.6p
700.4p
620.5p
7,080
6,863
11,740
–
25,683
41,548
51,277
51,265
–
144,090
26,116
32,232
33,166
–
91,514
–
–
–
15,262
15,262
–
–
–
62,471
62,471
–
–
–
37,140
37,140
1,435
–
–
–
1,435
8,436
–
–
–
8,436
5,301
–
–
–
5,301
(8,515)
–
–
–
(8,515)
(49,984)
–
–
–
(49,984)
(31,417)
–
–
–
(31,417)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,863
11,740
15,262
33,865
–
51,277
51,265
62,471
165,013
–
32,232
33,166
37,140
102,538
20 Mar 2020
15 Mar 2021
11 Mar 2022
13 Mar 2023
20 Mar 2020
15 Mar 2021
11 Mar 2022
13 Mar 2023
20 Mar 2020
15 Mar 2021
11 Mar 2022
13 Mar 2023
1
2
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.
Gains of Directors from share options exercised and vesting shares under the DBSS in 2020 were £532,034 (2019: £590,721). Clive Bannister’s gain was £279,510 arising from an
award exercised on 22 April 2020 at a share price of £5.592, James McConville’s gain was £198,227 (2019: 240,217) arising from an award exercised on 9 July 2020 at a share
price of £6.309559 and Rakesh Thakrar’s gain was £54,297 arising from an award exercised on 27 May 2020 at a share price of £6.376609.
The DBSS is the share scheme used for the deferral of AIP. No performance conditions apply therefore, although awards are
subject to continued employment or good leaver status.
SCHEME INTERESTS AWARDED IN THE YEAR – AUDITED INFORMATION
Recipient
Andy Briggs
Rakesh Thakrar
Clive Bannister
James McConville
Date of award
7 November
2019
7 November
2019
13 March
2020
13 March
2020
13 March
2020
13 March
2020
13 March
2020
Type of award
LTIP BuyOut
Award
LTIP BuyOut
Award
LTIP
LTIP
DBSS
DBSS1
DBSS1
Nature of
the Award
Nil Cost
Option
Nil Cost
Option
Nil Cost
Option
Nil Cost
option
Nil Cost
Option
Nil cost
option
Nil cost
option
How the award
is calculated
Buyout
award
Buyout
award
275%
of salary
200%
of salary
50%
of AIP
50%
of AIP
50%
of AIP
Percentage
vesting at
threshold
performance1
Face value
of award
£1,310,944
£760,206
Performance
Measures1
Vesting date
27 March
2020 See footnote 2
26 March
2021 See footnote 2
13 March
£2,199,994
25%
2023 See page 137
£839,994
25%
2023 See page 137
13 March
£94,707
£387,657
£230,468
13 March
2023
13 March
2023
13 March
2023
–
–
–
None
None
None
1 The DBSS awards have no threshold performance level.
2
The buyout awards are based on the following Aviva’s related metrics: 2017 Award (vesting 27 March 2020), 50% TSR and 50% Return on Equity; 2018 Award (vesting 26 March
2021), 50% TSR and 50% Earnings per Share
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 (2020 LTIP and DBSS award share price was 620.54p).
138
Phoenix Group Holdings plc Annual Report & Accounts 2020
SHARESAVE – AUDITED INFORMATION
Andy Briggs
Rakesh Thakrar
Clive Bannister
James McConville
As at
1 Jan 2020
–
1,604
–
3,171
Options
exercised
–
–
–
3,171
Options
lapsed
–
–
–
–
As at
31 Dec
2020
–
1,604
–
–
Exercise
price
–
£5.61
–
£5.67431
Exercisable
from
–
1 June 2022
–
1 Jun 2020
Date of
expiry
–
1 Dec 2022
–
1 Dec 2020
Gains of Directors from share options exercised under Sharesave during 2020 were £4,838 (2019: £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 under all share plans in 2020 were £2,963,260 (2019: £590,721).
During the year ended 31 December 2020, the highest mid-market price of the Company’s shares was 803.05 pence and
the lowest mid-market price was 467.675 pence. At 31 December 2020, the Company’s share price was 701.4 pence.
DIRECTORS’ INTERESTS – AUDITED INFORMATION
The number of shares and share plan interests held by each Director and their connected persons are shown below:
Andy Briggs
Rakesh Thakrar
Clive Bannister
James McConville
Alastair Barbour
Campbell Fleming
Karen Green
Hiroyuki Iioka2
Nicholas Lyons
Wendy Mayall
Chris Minter
John Pollock
Belinda Richards
Nicholas Shott
Kory Sorenson
Michael Tumilty
Share interests
as at
1 January 2020
or date of
appointment
if later
147,300
60,324
854,810
253,227
9,716
–
–
–
20,000
30,000
–
14,666
–
7,333
20,704
–
Share interests
as at
31 December
2020 or
retirement
if earlier
216,830
75,131
854,810
113,227
9,716
–
–
–
65,990
40,000
–
14,666
–
38,995
26,600
–
Total share plan
interests as at
31 December
2020 – Subject
to performance
measures
455,687
210,151
398,821
250,687
–
–
–
–
–
–
–
–
–
–
–
–
Total share plan
interests as at
31 December
2020
Not subject
to performance
measures
–
35,469
165,013
102,538
–
–
–
–
–
–
–
–
–
–
–
–
Total share plan
interests as at
31 December
2020 – Vested
but unexercised
scheme interest
87,221
–
286,525
180,096
–
–
–
–
–
–
–
–
–
–
–
–
The Directors’ share interests of the following Directors have increased between 31 December 2020 and 1 March 2021
(being one month prior to the date of the notice of the AGM) following purchases under the Group’s Share Incentive Plan:
Andy Briggs 56 shares and Rakesh Thakrar 56 shares. There were no other changes between these dates.
Phoenix Group Holdings plc Annual Report & Accounts 2020
139
CORPORATE GOVERNANCE Directors’ remuneration report continued
SHAREHOLDING REQUIREMENTS – AUDITED INFORMATION
As explained in the Remuneration Policy under the Shareholding Guidelines section, the Executive Directors are subject
to shareholding requirements during their employment with the Group and for a period of two years post termination
of employment.
Andy Briggs and Rakesh Thakrar are subject to a post-cessation shareholding of 100% of their in-employment shareholding
for a period of two years post-employment. Clive Bannister and James McConville are subject to 100% of their in-
employment shareholding for 12 months post-employment, and half of this level for the next 12 months.
The extent to which Executive Directors have achieved the requirements by 31 December 2020 (using the share price of
701.4 pence as at 31 December 2020) is summarised below. Unvested share awards no longer subject to performance
conditions (discounted for tax liabilities) are included within the Guidelines. Clive Bannister and James McConville’s
shareholding ownership guidelines percentage has been based on the three-month average closing share price for the
period up to their date of leaving the Group:
Position
Andy Briggs
Rakesh Thakrar
Clive Bannister
James McConville
Shareholding
Guideline
(minimum
% of salary)
300%
250%
200%
200%
Value of
shares held at
31 December
2020 or date of
leaving
(% of salary)
231%
155%
1,164%
472%
The post cessation shareholding requirement is monitored and enforced by direct liaison and confirmation with the Directors
and their brokers, all trades and transfers are discussed and notified to the Group by the relevant Director.
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.
IMPLEMENTATION OF REMUNERATION POLICY IN 2021 – NON-AUDITABLE
A summary of the packages of the new Executive Directors is set out in the table below.
Salary
Benefits
Pension
Andy Briggs
£800,000
Rakesh Thakrar
£430,000, a 2.3% salary increase in line with the
average increase awarded to the wider workforce.
Benefits in line with the rest of the workforce including car allowance of £10,000 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 (reduced for the impact of employers’ NIC if taken as a cash
payment), aligned to our wider workforce.
Annual bonus
150% of base salary at maximum. Details of the 2020 AIP are set out below.
LTIP
275% of base salary.
200% of base salary.
Shareholding requirement
300% of base salary.
250% of base salary.
Details of the 2020 LTIP awards are set out below.
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.
Post cessation
shareholding requirement
Executive Directors are expected to retain the lower of their shareholding on termination or their full
in-employment shareholding requirement for two years.
140
Phoenix Group Holdings plc Annual Report & Accounts 2020
Element of Remuneration Policy
Detail of Implementation of Policy for 2021
Annual Incentive Plan (‘AIP’)
As described in the Committee Chairman’s covering letter on page 124, the Committee regularly
reviews the performance measures of the incentive plans to ensure they remain aligned with our
strategy. In light of our developing new business ambitions, the Committee determined that Workplace
Net Flows should be replaced by Incremental Long-term Cash Generation after deduction of New
Business Strain. This metric will provide a more complete assessment of management’s achievement
of our strategic aims by including in particular BPA performance in addition to new business from the
other Open business units, including Workplace. It is robust, transparent and measurable. This metric
will be weighted at 16% of the assessment and the Shareholder Value metric will be reweighted from
24% to 20%.
As introduced in 2020, a Strategic Scorecard will reflect 20% of the Executive Directors’ AIP.
This 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 and for 2021 will align with the Phoenix sustainability
strategy announced in 2020.
The overall weightings between Corporate measures and Strategic Scorecard for AIP in 2021 are:
• Corporate (financial and customer) performance measures – 80% (2020: 80%).
• Strategic Scorecard (strategic company priorities 20% (2020: 20%).
The weightings of the AIP performance measures for 2021 are summarised below:
Performance measure
Corporate measure
Cash Generation
Shareholder Value
Incremental Long Term Cash Generation
less New Business Strain
Customer Experience
Strategic Scorecard
Total
% of incentive potential
(30% of Corporate component) 24%
(25% of Corporate component) 20%
(20% of Corporate component) 16%
(25% of Corporate component) 20%
20%
100%
Outcomes from performance measures for 2021’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 2021 AIP outcomes are confirmed.
The targets for the specific performance measures for AIP in 2021 are regarded as commercially
sensitive by the Group but will be disclosed retrospectively in the Remuneration Report for 2021.
50% of AIP outcomes for 2021 will be delivered as an award of deferred shares under the DBSS
which will vest after a three-year deferral period.
Deferred Bonus Share
Scheme (‘DBSS’)
DBSS awards made in 2021 (in respect of 2020’s AIP outcome) will be made automatically on the
fourth dealing day following the announcement of the Group’s 2020 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.
Long-Term Incentive
Plan (‘LTIP’)
Awards under the LTIP will be made automatically on the fourth dealing day following the
announcement of the Group’s 2020 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.
Phoenix Group Holdings plc Annual Report & Accounts 2020
141
CORPORATE GOVERNANCE Directors’ remuneration report continued
Element of Remuneration Policy
Detail of Implementation of Policy for 2021
Long-Term Incentive
Plan (‘LTIP’) continued
The performance measures for the 2021 LTIP have remained the same as for 2020 as these continue
to reflect the long-term strategy for Phoenix.
The performance measures are measured over a period of three financial years, commencing with
financial year 2021.
No changes are proposed to the measures and relative weightings for the 2021 LTIP as the Committee
considers these remain well aligned with the Group’s long-term strategy. Details of the 2021 measures,
weightings and targets are shown below:
Performance measure and weighting
Net Operating Cash Receipts (35%)
Return on Shareholder Value (return above risk free
on Shareholder value (pre shareholder dividends) over
a three-year period (25%)
Persistency (20%)
Relative TSR measure against the constituents of the FTSE
350 (excluding Investment Trusts), subject to an underpin
regarding underlying financial performance (20%)
Threshold target
£4,330 million
2%
in excess of the
risk-free rate
7.4%
Full vesting target
£4,780 million
4%
in excess of the
risk-free rate
6.1%
Median
Upper quintile
All 2021 LTIP awards are subject to an underpin relating to risk management within the Group,
consideration of customer satisfaction and, to meet Solvency II requirements, in exceptional cases,
personal performance. This underpin relating to the formulaic outturn of the LTIP has been revised to
better reflect the extent to which the Group has operated within its stated Risk Appetite and ensures
that management is not incentivised to accept risk outside of appetite in the pursuit of improved
delivery against LTIP performance targets. It also offers a broader assessment than the previous focus
on the management of the Group’s debt position.
For the Group CEO, awards vesting under the LTIP will be subject to a cap on threshold performance of
the lower of 50% of salary or 25% of maximum vesting.
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.
All-Employee Share Plans
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.
Chairman and Non-Executive
Directors’ fees
The fee levels as at 1 January 2021 are: £325,000 for the Chairman, £75,000 for the role of Non-
Executive Director with additional fees of: (i) £20,000 payable for the role of SID; and/or (ii) £30,000
payable where an individual also chairs the Audit, Remuneration, Risk or Sustainability Committee;
and £18,000 for the other members of those committees and the Model Governance Committee.
We anticipate a review of the Chairman’s fee in September 2021 on the third anniversary of his
appointment. Additionally, 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.
All incentive plans are subject to malus/clawback. See page 156 ‘Notes to the Remuneration Policy’ for details.
142
Phoenix Group Holdings plc Annual Report & Accounts 2020
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 +41%)
Overall expenditure on
pay (% change +30%)
475
433
338
334
2019
2020
2019
2020
Group excluding
ReAssure businesses 363
ReAssure businesses 70
Profit distributed by way of dividend has been taken as the dividend paid and proposed in respect of the relevant financial
year. For 2020 this is the interim dividend paid (£234 million) and the recommended final dividend of 24.1 pence 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 employee costs as set out in note C3 ‘Administrative expenses’ in the notes
to the consolidated financial statements. Expenditure on pay has increased by 30% in the period, and by 9% on a like-for-like
basis excluding the impact of the acquisition of the ReAssure businesses. The BAU increase of 9% was primarily driven by
the cost of the crystallisation of the SunLife four-year long-term equity plan in the year, the increased cost arising from the
implementation of the Unified People Proposition in July 2020 and from the impact from the crossover of the Executive
Directors in the year.
VOTING OUTCOMES ON REMUNERATION MATTERS
The table below shows the votes cast to approve the Directors’ remuneration report for the year ended 31 December 2019
and the Directors’ Remuneration Policy at the 2020 AGM held on 14 May 2020.
To approve the Directors’ remuneration report
for the year ended 31 December 2019 (2020 AGM)
To approve the Directors’ Remuneration Policy
(2020 AGM)
549,297,773
96.54
19,674,360
563,455,466
99.31
3,899,742
3.46
0.69
35,951
744,467
For
Against
Abstentions
Number % of votes cast
Number % of votes cast
Number
DILUTION
The Company monitors the number of shares issued under the Group’s 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 ten-year period) set by the Investment Association in respect of all share plans as at
31 December 2020 is 0.60% and no shares count towards the dilution limit for executive plans only (5% in any rolling
ten-year period).
Phoenix Group Holdings plc Annual Report & Accounts 2020
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CORPORATE GOVERNANCE Directors’ remuneration report continued
CONSIDERATION OF EMPLOYEE PAY
During 2020 a new Unified People Proposition was implemented to move heritage Phoenix Group and heritage SLAL
colleagues onto a common grading structure and benefit offering. This removed status enhancements from benefits such
as holiday, private medical insurance, and pension contribution, so all colleagues, irrespective of hierarchy, benefit from
a standard offering except where the external market drives differences such as car allowance, AIP and LTIP allocations.
The remuneration packages for Andy Briggs and Rakesh Thakrar are therefore aligned to the rest of the workforce.
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. 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.
Despite the challenges of remote working during 2020, Karen Green, our designated Non-Executive Director for workforce
engagement has continued her interaction with colleagues virtually. This included a full day session of the Colleague
Advisory Forum where a number of topics relating to the workforce were discussed including the remuneration framework,
fixed and variable pay, and core and voluntary benefits. Full details of Karen’s activities during the year are given on page 104
under the Corporate Governance Report.
CEO PAY RATIO
In accordance with the DRR regulations we have provided in the table below the ratio of the CEO single total figure of
remuneration for 2020 (as detailed on page 130) as a ratio of the equivalent single figure for the lower quartile, median and
upper quartile employee (calculated on a full-time equivalent basis).
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 including
ReAssure staff, as at 31 December 2020 has been calculated using the same methodology as for the Group 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.
The Group reviewed the pay of the three identified employees at 25th percentile, 50th percentile (median) and 75th
percentile 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 2020 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.
Salary1
Total remuneration (single figure)
2020 Ratio
2019 Ratio
Year
2020
2020
Methodology
Option A
Option A
CEO
850,000
2,027,000
25th percentile
21,387
25,970
78:1
94:1
50th
percentile
(median) 75th percentile
44,948
32,000
64,678
37,440
31:1
54:1
40:1
62:1
1 For the salary and single figure total remuneration for the CEO, the single figure table totals for Clive Bannister and Andy Briggs have been combined.
This ratio has decreased from 2019 as a result of Andy Briggs’s buyout award which vested at 0% in accordance with 2018
Aviva LTIP. We expect this ratio to change over forthcoming years as we integrate ReAssure colleagues into our pay
principles and remuneration framework and reflecting the CEO’s variable pay outcome each year.
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.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
PERFORMANCE GRAPH AND TABLE
As described in the 2019 Directors remuneration report, the graph below has been updated to reflect Phoenix’s entry to the
FTSE 100 index in 2019 and shows the value to 31 December 2020 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.
350
300
250
200
150
100
50
0
£3,500
£3,000
£2,500
£2,000
£1,500
£1,000
£500
0
Dec 2011
Dec 2011
Dec 2012
Dec 2013
Dec 2014
Dec 2015
Dec 2016
Dec 2017
Dec 2018
Dec 2019
Dec 2020
Dec 2020
Jonathan Moss
Phoenix Group Holdings
Phoenix Group Holdings
FTSE 100 Index
Clive Bannister Andy Briggs
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).
GROUP CHIEF EXECUTIVE OFFICER REMUNERATION
2020
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
Andy Briggs1
Clive Bannister1,3
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister
Clive Bannister8
Jonathan Moss8,9
Single figure
of total
\remuneration
(£000)
1,706
321
2,7155
2,567
2,888
2,878
2,867
3,104
2,737
1,583
1,333
704
Annual variable
element award
rates against
maximum
opportunity
(‘AIP’)
83%
81%
92%
86%
86%
84%
82%
68%
69%
69%
73%
n/a
Long-term
incentive vesting
rates against
maximum
opportunity
(‘LTIP’)
0%2
n/a4
68.5%
49.5%
64%
55%
57%
57%6
67%6
n/a7
n/a7
n/a
1
Clive Bannister left the role of Group Chief Executive Officer on 10 March 2020 and left Phoenix Group on the same date. Andy Briggs was appointed to the Board on 10 February
2020 and remained as CEO-designate until 10 March 2020.
2 See footnote 11 on page 130 for details of Andy Briggs’s LTIP vesting.
3 Clive Bannister’s 2020 single figure of total remuneration does not include compensation for loss of office.
4 Clive Bannister’s 2020 single figure of total remuneration does not include any value in respect of the 2018 LTIP. Final value on vesting will be disclosed in the 2021 DRR.
5
The single figure of total remuneration for 2019 has been restated and now reflects the actual price of shares on the day the 2017 LTIP vested (24 March 2020, 557.4p per share)
rather than the three-month average share price to 31 December 2019 (717.09p per share) which was required to be used last year for the single figure of total remuneration.
The long-term incentive vesting rate for 2013 is shown at 67% and for 2014 is shown as 57%. In both years the Group CEO decided to waive voluntarily any entitlement in excess
of two-thirds of the shares which would otherwise have vested.
6
7 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.
8
Jonathan Moss left the role of Group CEO 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.
9 Jonathan Moss’ 2011 single figure of total remuneration does not include compensation for loss of office.
Phoenix Group Holdings plc Annual Report & Accounts 2020
145
CORPORATE GOVERNANCE Directors’ remuneration report continued
PERCENTAGE CHANGE IN PAY OF THE GROUP CHIEF EXECUTIVE OFFICER 2019 TO 2020
In accordance with the DRR regulations, the table below provides a comparison of the percentage change in the prescribed
pay elements of each individual who was a Director during the year (salary, taxable benefits and annual incentive outcomes)
between financial years 2019 and 2020 and the equivalent percentage changes in the average of all staff employed by
Phoenix Group. As no staff are employed directly by Phoenix Group Holdings plc, we have disclosed information for an
appropriate group that is representative of the employees of Phoenix Group and its subsidiaries, in line with the regulatory
guidance for this disclosure). 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. Note that this group excludes ReAssure
employees who joined in July 2020.
Year-on-year % change
Executive Directors
Andy Briggs
Clive Bannister1
Rakesh Thakrar
James McConville2
Non-Executive Directors
Alastair Barbour
Campbell Fleming
Karen Green
Hiroyuki Iioka
Nicholas Lyons
Wendy Mayall
Chris Minter
John Pollock
Belinda Richards
Nicholas Shott
Kory Sorenson
Mike Tumilty
Wider Employee Population
Salary Taxable Benefits Annual incentive
–
0.0%
–
0.0%
0.0%
0.0%
6.8%
–
0.0%
0.0%
–
0.7%
0.0%
0.0%
0.0%
0.0%
3.94%
–
0.0%
–
0.0%
(60.0)%
0.0%
(100)%
–
(100)%
(100)%
–
(100)%
(100)%
(80)%
(100)%
(100)%
7.4%
–
(11.85)%
–
(6.80)%
–
–
–
–
–
–
–
–
–
–
–
5.2%
1 Clive Bannister left the role of Group Chief Executive Officer on 10 March 2020 therefore the above information has been annualised as per his time in the role.
2 James McConville left the role of Group Chief Financial Officer on 15 May 2020 therefore the above information has been annualised as per his time in the role.
As Andy Briggs and Rakesh Thakrar are new Executive Directors in 2020, there is no year-on-year change included in the
table above. With regard to the departing Executive Directors, Clive Bannister and James McConville, there has been no
movement in the level of salary and benefits; there has been a decrease in the Annual Incentive figure as the outcome under
the strategic scorecard was lower than the 2019 outcome under the previous element related to personal objectives.
Staff more generally have seen an increase due to a number of factors:
• As explained in the 2019 DRR, a common benefits offering was introduced to all legacy Phoenix and legacy Standard Life
Assurance business colleagues which has resulted in a number of employees receiving a higher benefits package, and a
number receiving a higher target bonus range under the AIP as we continue to integrate the two businesses.
• The distribution of performance ratings was more skewed towards the higher end in 2020, in part in recognition of the
challenges people have endured throughout 2020 in light of COVID-19.
• The Standard Life Assurance businesses continued operating a performance related pay structure for 2020 and therefore
annual salary increases varied, however the median salary increase across the overall Phoenix Group was 2.3%.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
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
Andy Briggs
Rakesh Thakrar
Clive Bannister
James McConville
Date of
appointment
Date of
contract
1 January 2020 7 November 2019
6 March 2020
7 February 2011
28 May 2012
15 May 2020
28 March 2011
28 June 2012
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 his employment with Phoenix in 2020, Clive Bannister did not receive any fees from external directorships.
James McConville received £42,222 from Tesco Personal Finance plc during his employment with Phoenix in 2020. Rakesh
Thakrar is a director of Mythili Megha Limited for which he receives no payment. Andy Briggs has no external directorships.
Non-Executive Directors’ contracts
Name
Alastair Barbour
Karen Green
Hiroyuki Iioka
Nicholas Lyons
Wendy Mayall
Chris Minter
John Pollock
Nicholas Shott
Belinda Richards
Kory Sorenson
Mike Tumilty
Date of
joining the
Phoenix Group
Date of letter
Holdings Plc Board1
of appointment
1 October 2013
1 November 2018
1 July 2017
1 November 2018
23 July 2020
23 July 2020
1 November 2018
31 October 2018
1 November 2018 1 September 2016
23 July 2020
1 November 2018 1 September 2016
1 November 2018 1 September 2016
1 October 2017
1 November 2018
1 July 2014
1 November 2018
Appointment
end date
15 May 2021
15 May 2021
23 July 2023
31 October 2021
15 May 2021
23 July 2023
15 May 2021
15 May 2021
15 May 2021
15 May 2021
14 August 2019 1 September 2019 1 September 2022
23 July 2020
Unexpired term
(months)
2
2
28
7
2
28
2
2
2
2
17
1
All Directors above, other than Chris Minter, Hiroyuki Iioka and Mike Tumilty, 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.
Phoenix Group Holdings plc Annual Report & Accounts 2020
147
CORPORATE GOVERNANCE Directors’ remuneration report continued
REMUNERATION COMMITTEE GOVERNANCE
The terms of reference of the Committee are available at www.thephoenixgroup.com. The main determinations of the
Committee in 2020 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 2020 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 2020, eight Committee meetings were held and details of attendance at meetings are set out in the Corporate
Governance Report on page 112.
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.
REMUNERATION COMMITTEE ACTIVITIES IN 2020
20
January
13
February
5
March
23
March
14
May
4
August
22
October
1
December
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
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Phoenix Group Holdings plc Annual Report & Accounts 2020
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 2020 were £97,870. 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 regularly, 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 CEO, Group HR Director, Executive Reward Director and Group Financial Controller 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 Group 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. The Chair of the Remuneration Committee also sits on the Risk Committee to enable
additional linkage between risk matters and remuneration 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
Approved by the Board on 7 March 2021
Phoenix Group Holdings plc Annual Report & Accounts 2020
149
CORPORATE GOVERNANCE Directors’ remuneration report continued
APPENDIX –
REMUNERATION POLICY
This appendix contains the Directors’ remuneration policy approved 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 and simplicity • 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.
Risk
• 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 156 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.
Predictability
• The range of potential award levels to individual Executive Directors are set out in the scenario chart on page 151
which also demonstrates the impact of potential share price growth by 50% over the three-year performance
period until LTIP vesting.
Proportionality
• 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 page 44 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.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
POTENTIAL REWARDS UNDER VARIOUS SCENARIOS (£000)
The charts below compare the maximum levels of Total Remuneration payable under the Directors’ Remuneration Policy
(see page 150).
CEO – Andy Briggs
£’000
CFO – Rakesh Thakrar
£’000
5,400
20%
4,298
51%
41%
1,898
21%
32%
47%
895
100%
28%
22%
21%
17%
1,027
21%
31%
48%
486
100%
2,426
18%
1,994
43%
35%
32%
27%
25%
20%
Total fixed pay
AIP
LTIP
Share price growth
and dividends
Minimum On-target Maximum Maximum
with growth
Minimum On-target Maximum Maximum
with growth
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
Minimum
On-target
Base salary
£000
Benefits
£000
Pension
£000
Total fixed
£000
800
430
11
11
84
44
895
486
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).
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 for CEO and CFO). The threshold level of vesting
for the CEO was previously 68.75% of salary but following shareholder feedback, a cap to the threshold vesting was
introduced which the Remuneration Committee has agreed will be 50% of salary. 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 2020
151
CORPORATE GOVERNANCE Directors’ remuneration report continued
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
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Phoenix Group Holdings plc Annual Report & Accounts 2020
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.
Phoenix Group Holdings plc Annual Report & Accounts 2020
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CORPORATE GOVERNANCE Directors’ remuneration report continued
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.
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.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
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
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
Phoenix Group Holdings plc Annual Report & Accounts 2020
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CORPORATE GOVERNANCE Directors’ remuneration report continued
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.
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 150 and 153).
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Phoenix Group Holdings plc Annual Report & Accounts 2020
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.
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.
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.
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.
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.
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.
Phoenix Group Holdings plc Annual Report & Accounts 2020
157
CORPORATE GOVERNANCE 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.
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.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
Directors’ report
DIRECTORS’
REPORT
The Directors present their report for the year ended 31 December 2020
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
(2019: 23.4 per share)
24.1p per share
(2019: 23.4p per share)
47.5p per share
(2019: 46.8p 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 277,717,200 during 2020 which related to:
• shares issued in relation to the acquisition of ReAssure
Group plc; and
• shares issued under the Company’s Sharesave Scheme.
At 31 December 2020, the issued ordinary share capital
totalled 999,232,144. Subsequently, 2,029 ordinary shares
have been issued in 2021 in connection with the Group’s
Sharesave Scheme to bring the total in issue to 999,234,173
at the date of this Directors’ Report.
Full details of the issued and fully paid share capital as at 31
December 2020 and movements in share capital during the
period are presented in note D1 to the IFRS consolidated
financial statements.
limitation, out of capital, profits, share premium or the
proceeds of a new issue of shares. The authority was not
used and none of the Company’s ordinary shares were
purchased by the Company during 2020. The authority will
expire at the 2021 AGM. A resolution to renew this authority
shall be proposed in the 2021 AGM Notice of Meeting. The
Company held no treasury shares during the year or up to
the date of this Directors’ 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 2021, the Company had been
notified of the following significant holdings of voting rights
in its shares.
At the Company’s 2020 AGM, shareholders approved the
renewal of the Company’s authority to make purchases of
up to 72,152,329 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
Standard Life Aberdeen plc
MS&AD Insurance Group
Holdings Inc.
Swiss Re Finance Midco
(Jersey) Limited
BlackRock, Inc.
Number of
voting rights
in shares
168,460,349
Percentage
of shares
in issue
16.85%
144,877,304
14.49%
132,399,834
51,251,518
13.25%
5.12%
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Phoenix Group Holdings plc Annual Report & Accounts 2020
CORPORATE GOVERNANCE Directors’ report continued
Annual General Meeting (‘AGM’)
The AGM of the Company will be held at Juxon House, 100
St Paul’s Churchyard, London, EC4M 8BU on Friday 14 May
2021 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.
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 2020 is
given within the Corporate Governance Report on pages 98
to 100, which is incorporated by reference into this Directors’
Report. During 2020 and up to the date of this Directors’
Report, the following changes to the Board took place:
During the year, the following Board resignations and
appointments occurred:
• Clive Bannister, Group Chief Executive resigned from
the Board on 10 March 2020
• Jim McConville, Group Finance Director resigned from
the Board on 15 May 2020
• Campbell Fleming, SLA Nominated Director resigned
from the Board on 23 July 2020
• Andy Briggs, Group Chief Executive was appointed to
the Board on 10 February 2020
• Rakesh Thakrar, Group Chief Financial Officer was
appointed to the Board on 15 May 2020
• Hiro Iioka, MS&AD Nominated Director was appointed
to the Board on 23 July 2020
• Christopher Minter, Swiss Re Nominated Director was
appointed to the Board on 23 July 2020
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 on pages 124 to 158 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 should be put forward for election/
re-election at the forthcoming AGM to be held on 14 May
2021.
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.
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.
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.
160
Phoenix Group Holdings plc Annual Report & Accounts 2020
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 83 to 89. 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 1 to 91) 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 (‘FRC’) ‘Guidance on Risk Management,
Internal Control and Related Financial and Business
Reporting (September 2014)’ and taken into account the
requirements of the recent pronouncement from the FRC’s
Financial Reporting Lab, ‘COVID-19 – Going concern, risk
and viability’, 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 considered financial projections over the
period to 31 March 2022, which demonstrate the ability of
the Group to withstand market shocks in a range of
scenarios, under severe but plausible scenarios. Further
details of these stress scenarios are included in the viability
statement on pages 90 to 91.
In assessing the appropriateness of the going concern basis,
the Board considered base case liquidity and solvency
projections that incorporated an estimated view of the
potential economic downturn that is anticipated to be
experienced due to the impacts of COVID-19. In addition,
a more onerous economic downturn was also modelled.
These scenarios have been validated against latest available
external benchmarks, including International Monetary Fund
and Bank of England forecasts. The projections demonstrate
that appropriate levels of capital would remain in the Life
Companies under both the base and more onerous
economic downturn scenarios, thus supporting cash
generation in the going concern period, and note the Group’s
access to additional funding through it’s undrawn £1.25
billion Revolving Credit Facility.
The Directors have a reasonable expectation that the Group
and the Company have adequate resources to continue in
operational existence over the period to 31 March 2022, the
period covered by the going concern assessment. 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 2020.
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 pages 90 to 91.
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 94 to 123 which is
incorporated by reference into this Directors’ Report and
comprises the Company’s Corporate Governance Statement.
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 on pages 94 to 123. The Code is available on the
website of the Financial Reporting Council – www.frc.org.uk.
The disclosures required by the Companies Act 2006 in
respect of the following matters are set out in the Strategic
Report, as below:
• Our strategy and future developments – the
Company’s strategy and priorities for 2021 are highlighted
in the Strategy and KPIs section of the Strategic Report on
pages 26 to 45.
• Our people and diversity – the Company’s policy and
strategy for diversity and inclusion is highlighted in the
Strategic Report on pages 16, 42 to 45 and 62.
• Disability – The Group has an Equal Opportunities and
Diversity Framework which ensures full and fair
consideration is given to applications from, and the
continuing employment and training of, disabled people.
Reasonable adjustments, as required under the Equality
Act 2010, are made for disabled employees, including
seeking redeployment in the event that reasonable
adjustments are not possible. During 2020 we extended
our colleague inclusion networks to include a new group
‘Enable’ promoting the interests of colleagues with
disabilities and other long-term health conditions.
• Our people and engagement – details of how the
Company has engaged with employees during the year
can be found in the Stakeholder Engagement section of
the Strategic Report on pages 58 to 65. In addition, details
of how the Board has considered the interests of
employees in key decision making can be found in the
section 172 statement included in the Strategic Report on
page 60 and the Corporate Governance Report on pages
109 to 111. Information about how the Board has engaged
with the workforce can also be found in the Corporate
Governance Report on pages 104 to 105.
• Our business relationships – details of how the Company
has engaged with its customers, suppliers and others can
be found in the Stakeholder Engagement section of the
Strategic Report on pages 58 to 65. In addition, details of
how the Board has considered the need to foster the
Company’s business relationships with suppliers,
customers and others can be found in the section 172
statement included in the Strategic Report on page 60 and
Corporate Governance Report on pages 109 to 111.
• 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 67 and 76 to 78.
Phoenix Group Holdings plc Annual Report & Accounts 2020
161
CORPORATE GOVERNANCE Directors’ report continued
Task Force on Climate-related Financial Disclosures
(‘TCFD’)
In accordance with LR 9.8.6R, all climate-related financial
disclosures consistent with the TCFD Recommendations
and Recommended Disclosures are contained in the TCFD
report forming part of the Strategic Report on pages 67 to
78. Such disclosures have been included in the Strategic
Report due to their strategic importance.
Energy usage and Carbon Emissions under
the Companies (Directors’ Report) and Limited
Liability Partnerships (Energy and Carbon Report)
Regulations 2018 (SI 2018/1155)
All disclosures relating to the Group’s energy usage and
carbon emissions are contained in the TCFD report forming
part of the Strategic Report on pages 67 and 78.
Political Donations
During 2020, the Company made no political donations.
Articles of Association
Changes to the Company’s Articles require prior shareholder
approval by special resolution.
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 14 May 2021.
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 2020 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 2020
financial period was Gerald Watson.
Fair, balance 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.
CONTRACTUAL/OTHER
Significant agreements impacted by a change of
control of the Company
The £1.25 billion revolving credit facility has 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.
Important post balance sheet events
Details of important events affecting the Company which
have occurred since the end of the financial year are
contained in note I7 to the IFRS consolidated financial
statements.
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
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Location
Note E5 to the Consolidated
Financial Statements
Not applicable
Not applicable
Directors’
Remuneration Report
Directors’
Remuneration Report
Directors’
Remuneration Report
Requirement
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
Not applicable
placing of a subsidiary
Contracts of significance Not applicable
Controlling shareholder
provision of services
Shareholder dividend
waiver
Shareholder dividend
waiver – future periods
Controlling shareholder
agreements
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
162
Phoenix Group Holdings plc Annual Report & Accounts 2020
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 corporate
governance statement, the consolidated financial statements
and the Company financial statements in accordance with
applicable United Kingdom 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 2020,
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 accounting standards in
conformity with the requirements of the Companies Act
2006. 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.
Under the Financial Conduct Authority’s Disclosure
Guidance and Transparency Rules, the consolidated financial
statements are required to be prepared in accordance with
international financial reporting standards (‘IFRSs’) adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union.
In preparing these financial statements the Directors are
required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are
reasonable and prudent;
• in respect of the consolidated financial statements, state
whether international accounting standards in conformity
with the requirements of the Companies Act 2006 and
IFRSs adopted pursuant to Regulation (EC) No 1606/2002
as it applies in the European Union have been followed,
subject to any material departures disclosed and explained
in the financial statements;
• in respect of the Company financial statements, state
whether international accounting standards in conformity
with the requirements of the Companies Act 2006, have
been followed, subject to any material departures
disclosed and explained in the financial statements; and
• prepare 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. They are also responsible for safeguarding the assets
of the Group and the Company and hence for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.
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 Directors’ Report, whose
names and functions are listed in the Board of Directors
section on pages 98 to 100, confirm that, to the best of their
knowledge:
• the consolidated financial statements, which have been
prepared in accordance with international accounting
standards in conformity with the requirements of the
Companies Act 2006 and IFRSs adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European
Union, give a true and fair view of the assets, liabilities,
financial position and profit and loss of the Company and its
consolidated subsidiaries taken as a whole; and
• 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 Directors’
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.
The Strategic Report and the Directors’ Report were
approved by the Board of Directors on 7 March 2021.
By order of the Board
Andy Briggs
Group Chief
Executive Officer
7 March 2021
Rakesh Thakrar
Group Chief
Financial Officer
Phoenix Group Holdings plc Annual Report & Accounts 2020
163
CORPORATE GOVERNANCE Independent auditor’s report
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 2020 and of the Group’s profit for the
year then ended;
• the consolidated financial statements have been properly
prepared in accordance with International Accounting
Standards in conformity with the requirements of the
Companies Act 2006 and International Financial Reporting
Standards adopted pursuant to Regulation (EC)
No.1606/2002 as it applies in the European Union;
• the parent company financial statements have been
properly prepared in accordance with International
Accounting Standards in conformity with the requirements
of the Companies Act 2006 as applied in accordance with
section 408 of the Companies Act 2006; and
• the financial statements have been prepared in
accordance with the requirements of the Companies
Act 2006.
We have audited the financial statements of Phoenix Group
Holdings plc (the ‘parent company’) and its subsidiaries
(the ‘Group’) for the year ended 31 December 2020
which comprise:
Group
Parent company
The consolidated income
statement for the year ended
31 December 2020
The statement of financial
position as at 31 December
2020
The statement of changes in
equity for the year then ended
The statement of cash flows
for the year then ended
Related notes 1 to 20 to the
financial statements
The statement of
comprehensive income for the
year then ended
The statement of consolidated
financial position as at
31 December 2020
The statement of consolidated
changes in equity for the year
then ended
The statement of consolidated
cash flows for the year then
ended
Related notes A1 to I7 to
the consolidated financial
statements (except for
note I3 where it 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 International
Accounting Standards in conformity with the requirements
of the Companies Act 2006 and, as regards to the
consolidated financial statements, International Financial
Reporting Standards adopted pursuant to Regulation (EC)
No. 1606/2002 as it applies in the European Union and as
regards the parent company financial statements, as applied
in accordance with section 408 of the Companies Act 2006.
BASIS FOR OPINION
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) 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. We are
independent of the Group 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 GOING CONCERN
In auditing the financial statements, we have concluded that
the Directors’ use of the going concern basis of accounting
in the preparation of the financial statements is appropriate.
To evaluate management’s assessment of the Group and
parent company’s ability to continue to adopt the going
concern basis of accounting, we have:
• confirmed our understanding of management’s going
concern assessment process and obtained management’s
assessment which covers the period to 31 March 2022;
• with support from our actuarial team, challenged the key
actuarial assumptions used in management’s five-year
Annual Operating Plan (‘AOP’) and determined that the
models are appropriate to enable management to make an
assessment on the going concern of the Group. We have
observed that assumptions used in the five-year AOP
form the basis for management’s going concern
projections;
• assessed the accuracy of management’s analysis by
testing the inputs and the clerical accuracy of the models
used;
• evaluated the liquidity and solvency position of the Group
by reviewing base case liquidity and solvency projections
that incorporate an estimated view of the potential future
economic downturn that is anticipated to be experienced
due to the impacts of COVID-19;
• challenged the key assumptions, such as expense
assumptions underlying mandatory obligations of the
Group and property market forecasts up to 31 March
2022, used in management’s stress scenarios based on
our understanding of the Group and the available external
data, respectively;
• evaluated management’s forecast analysis to understand
how severe the downside scenarios would have to be to
result in the elimination of solvency headroom and
concluded it to be remote;
164
Phoenix Group Holdings plc Annual Report & Accounts 2020
OVERVIEW OF OUR AUDIT APPROACH
Audit scope
• We performed an audit of the complete
financial information of the Group
Function, Phoenix Life Division, Standard
Life Assurance Limited and ReAssure
Limited and audit procedures on specific
balances for Other Companies (the
‘reporting components’). Our scope is
explained further on pages 166 to 167.
• 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.
• Valuation of insurance contract liabilities,
comprising the following risk areas:
– actuarial assumptions;
– actuarial modelling; and
– data.
• Valuation of certain complex and illiquid
financial investments.
• Accounting for the acquisition of
ReAssure Limited and other associated
entities.
• Recoverability of intangible assets arising
from the acquisition of Standard Life
Assurance Limited and other associated
entities.
Overall Group materiality of £140 million
(2019: £100 million) which represents 2%
(2019: 2.1%) of total equity attributable to
owners of the parent (‘Group equity’).
Key audit
matters
Materiality
• assessed management’s considerations of operational
risks, including those related to Outsourced Service
Providers (‘OSPs’) and its impact on the going concern
assessment;
• assessed the plausibility of available management actions
to mitigate the impact of the key risks by comparing them
to our understanding of the Group;
• checked that all mandatory debt and interest payments are
forecast to be met under the base case and adverse
stress scenarios and that, the Group is able to maintain
target debt repayments throughout the going concern
period;
• performed enquiries of management and those charged
with governance to identify risks or events that may
impact the Group’s ability to continue as a going concern.
We also reviewed management’s assessment approved
by the Board, minutes of meetings of the Board and its
committees, and made enquiries as to the impact of
COVID-19 on the business; and
• assessed the appropriateness of the going concern
disclosures by comparing the disclosures with
management’s assessment and for compliance with the
relevant reporting requirements.
We have observed that in testing the Group’s going concern
status, a reasonably foreseeable stress has historically been
modelled using a 1 in 10 market stress scenario. However,
due to the current economic volatility that is anticipated due
to the impacts of COVID-19, this stress is not considered to
be appropriate and has been replaced with a more onerous
economic downturn scenario for the current year
assessment. Based on management’s assessment, we
have observed that the Group is able to continue to have
surplus cash and solvency above its Solvency Coverage
Ratio in a number of extreme downside scenarios and the
Group has continued to service customers and meet its
commitments in the current environment.
Based on the work we have performed, we have not
identified any material uncertainties relating to events or
conditions that, individually or collectively, may cast
significant doubt on the Group and parent company’s
ability to continue as a going concern for the period to
31 March 2022.
In relation to the Group and parent company’s reporting on
how they have applied the UK Corporate Governance Code,
we have nothing material to add or draw attention to in
relation to the Directors’ statement in the financial
statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report. However, because not all future
events or conditions can be predicted, this statement is
not a guarantee as to the Group and Parent Company’s
ability to continue as a going concern.
Phoenix Group Holdings plc Annual Report & Accounts 2020
165
FINANCIALS Independent auditor’s report continued
AN OVERVIEW OF THE SCOPE OF THE PARENT
COMPANY AND GROUP AUDITS
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 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. As
disclosed in the Risk Management section of the Annual
Report and Accounts, integration of ReAssure Group plc into
the wider Group is underway, with completion expected at
the end of 2022. In our current year assessment of audit risk
and the level of work to be performed at the ReAssure
component, we considered its risk profile and effectiveness
of entity-level controls.
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 five reporting
components of the Group. The Group reporting components
consist of Phoenix Life Division, Standard Life Assurance
Limited, ReAssure Limited, 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
and ReAssure Limited are the most significant companies of
those respective components. The Group Function consists
of Group entities that primarily hold external debt and the
pension schemes of the Group. The Other Companies
include the Phoenix Life and Standard Life service
companies, ReAssure Life Limited, ReAssure UK Services
Limited, ReAssure MidCo Limited, Ark Life Assurance
Company, ERIP Limited Partnership and Standard Life
International Designated Activity Company (‘SLIDAC’).
Four of the reporting components were audited by
component teams as set out below:
Component
Phoenix Life
Division
Standard Life
Assurance
Limited (‘SLAL’)
ReAssure
Limited (‘RAL’)
Scope
Full
Full
Full
Auditor
EY component
team
EY component
team
EY component
team
Group Function
Full
EY primary team
Other Companies Specific (including
specified
procedures)
EY component
team
Of the five reporting components selected, we performed
an audit of the complete financial information of four
components (‘full scope components’) which were selected
based on their size or risk characteristics. For the remaining
Other Companies, we performed audit procedures on
specific accounts of Phoenix Life and Standard Life service
companies (provisions, accruals and deferred income,
administrative expenses excluding acquisition costs),
ReAssure Life Limited (collective investment schemes),
ReAssure MidCo Limited (pension scheme surplus),
ReAssure UK Services Limited (administrative expenses
excluding acquisition costs), Ark Life Assurance Company
(reinsurers’ share of insurance contract liabilities) and ERIP
Limited Partnership (derivative liabilities). We also instructed
the SLIDAC component audit team to perform specified
procedures over insurance contract liabilities relating to the
contracts in the entity prior to the business transfer from
SLAL in 2019.
The reporting components where we performed audit
procedures accounted for more than 99% (2019: 99%) of
the Group’s equity and the Group’s profit before tax. For the
current year, the full scope components contributed 84%
(2019: 87%) of the Group’s equity and 88% (2019: 90%) of
the Group’s profit before tax. The specific scope
components, including the component with specified
procedures contributed 15% (2019: 12%) of the Group’s
equity and 11% (2019: 9%) 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.
166
Phoenix Group Holdings plc Annual Report & Accounts 2020
The charts below illustrate the coverage obtained from the
work performed by our audit teams.
Equity
29% Phoenix Life
Division (full scope)
10% SLAL (full scope)
29% RAL (full scope)
16%Group Function
(full scope)
15%Other Companies
(specific scope)
1% Out of scope
88% Full scope
11% Specific scope
1% Out of scope
Profit before tax
Changes from the prior year
ReAssure Limited is a new reporting component of the
Group in 2020 following the acquisition completed on 22 July
2020. Due to the size and risk inherent in the component,
we have designated it as a full scope component. ReAssure
Life Limited, ReAssure UK Services Limited, ReAssure
MidCo Limited, Ark Life Assurance Company and ERIP
Limited Partnership, acquired as part of the ReAssure
acquisition, are within the ‘Other Companies’ reporting
component and are designated as a specific scope
component. Ark Life Assurance Company is audited by
EY Ireland.
In the prior year, we identified SLIDAC as a specific scope
component of the Group. In the 2020 financial year, the size
of SLIDAC’s specific accounts decreased relative to the
overall Group and, therefore, we instructed the SLIDAC
component audit team to perform specified procedures over
insurance contract liabilities relating to the contracts in the
entity prior to the business transfer from SLAL in 2019.
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 four full scope components, audit procedures were
performed on one of these directly by the primary audit
team whilst the remaining three 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.
Due to travel restrictions in place as a result of the COVID-19
global health pandemic, although no site visits were
performed, the primary audit team followed a programme
of planned virtual meetings and maintained oversight of
component teams by using remote collaboration platforms
and through regular meetings. This allowed the primary audit
team to gain a greater understanding of the business issues
faced in each component, discuss the audit approach with
the component teams and any issues arising from their
work, virtually attend meetings with component
management, and review key audit working papers.
For all full scope components, 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 virtually attended the closing meetings with the
management of the Phoenix Life Division, Standard Life
Assurance Limited and ReAssure Limited and the 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 the Group level, gave us
appropriate evidence for our opinion on the consolidated
financial statements as a whole.
Phoenix Group Holdings plc Annual Report & Accounts 2020
167
FINANCIALS Independent auditor’s report continued
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.
In the current year, our Auditor’s Report includes an additional key audit matter in relation to accounting for the acquisition of
ReAssure Limited and other associated entities as the acquisition transaction was completed in the 2020 financial year.
Risk
Valuation of insurance contract liabilities (£135.7bn; 2019: £97.0bn)
Refer to the Audit Committee Report (page 116); Critical accounting estimates (page 185); Accounting policies and note F1
of the consolidated financial statements (pages 227 to 230)
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 reliant 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.
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.
Risk area
Our response to the risk
Actuarial assumptions
We consider the COVID-19 pandemic
to have increased the risk associated
with the longevity and assured
mortality assumptions.
Economic assumptions are set by
management taking into account market
conditions as at the valuation date
and require minimal judgment. Non-
economic assumptions are set based
on the Group’s past experience, market
experience and 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,
assured mortality and expenses.
As stated in note F4 of the consolidated
financial statements, some allowance
has been made in the valuation and
capital calculations for the potential
short-term effects of COVID-19 on
timing of cash flows relating to the
insurance risks to which the Group is
exposed. However, management has
not adjusted the assumptions to reflect
the impact of COVID-19 on the basis
that the longer term impact on mortality
and morbidity is uncertain at the current
time.
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:
• 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, persistency
and assured mortality, to assess whether these justified the
adopted assumptions. This has incorporated specific challenge of
management’s consideration of COVID-19 in the setting of these
assumptions and whether it was appropriate for management
not to adjust the key assumptions for the longer term impact of
COVID-19 and provide an allowance for the potential short-term
effects of COVID-19;
• in respect of longevity improvements, we evaluated the results
of management’s analysis on longevity trend, challenged the
judgments applied by management in setting the parameters
and benchmarked the output against other industry participants
and the results from the industry standard Continuous Mortality
Investigation (‘CMI’);
• assessed the expense assumptions adopted by management with
reference to the management service agreement (‘MSA’) with the
Service companies;
• assessed the assumptions applied for ReAssure and benchmarked
them against the existing Phoenix Group;
• 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 four
components representing 99% of the risk amount.
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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
(including specific
consideration
of the impact
of COVID-19),
industry practice
and the financial
and regulatory
requirements.
We consider it
appropriate that
assumptions have
not been adjusted
to reflect the impact
of COVID-19 as
the longer term
impact on morbidity
and mortality in
particular is not
yet clear, and the
position adopted
by management
is consistent with
that taken by
most companies
operating in the life
insurance sector.
Key observations
communicated to
the Audit Committee
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
using the core
actuarial modelling
systems were
operating effectively.
We also determined
that liabilities
modelled outside
these core actuarial
modelling systems
are reasonable.
Risk area
Our response to the risk
Actuarial modelling
There has been no change in our
assessment of this risk from the
prior year.
We consider the integrity and
appropriateness of models to be critical
to the overall valuation of insurance
contract liabilities.
Over £126bn of the £135.7bn (2019:
over £92.0bn of £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
models.
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.
To obtain sufficient audit evidence to conclude on core actuarial
modelling systems and balances calculated outside these systems,
using EY actuaries as part of our audit team we performed the
following procedures:
• obtained an understanding of management’s process for model
changes to the core actuarial system and tested the design,
implementation and operating effectiveness of key controls over
that process, including an assessment of the operational impacts
of COVID-19 on those controls;
• challenged and evaluated the methodology, inputs and
assumptions applied to model changes made in the core actuarial
modelling systems over the year;
• reviewed the governance process around model changes by
review of the relevant committee minutes;
• being the first year of our appointment as auditors of ReAssure
Limited, performed independent model testing procedures on:
– Immediate annuity liabilities – we used policy terms and
conditions from product literature and management’s reserving
methodology and assumptions to create our own independent
model to assess the appropriateness of management’s model.
– With-profits asset shares – we tested the roll forward of
asset shares between time periods that was performed by
management and evaluated the appropriateness of inputs
against source data. In addition, we compared the rolled forward
asset shares to management’s modelled asset shares to assess
reasonableness of the model.
• obtained the outputs of the Standard Life Assurance Limited
model migration programme. For each of the modelling differences
identified as part of this programme we challenged management’s
assessment of whether they represented an error in the current
approach or a refinement leading to a change in estimate;
• 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 as at balance sheet date 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 four
components representing 99% of the risk amount.
Phoenix Group Holdings plc Annual Report & Accounts 2020
169
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 reliant 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 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, including an assessment of the operational
impacts of COVID-19 on the applicable controls;
• 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;
• confirmed that the actuarial data extracted from policy
administration systems and those 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;
• through the use of our data visualisation and analytics techniques,
performed focussed substantive testing over the completeness
and accuracy of the policyholder data and the appropriateness of
management’s data cleansing rules; and
• performed the comparison of policy level data between data in the
actuarial models and that contained within the policy administration
systems. Evaluated the accuracy of policyholder data by testing a
sample to the policyholder documents.
We performed full scope audit procedures over this risk area in four
components representing 99% of the risk amount.
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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
(Equity release mortgages £3.5bn;
2019: £2.8bn); (Modelled debt
securities £5.7bn; 2019: £1.9bn)
We used EY valuation specialists and actuaries to test the 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
We consider the risk associated with
valuation of certain complex and
illiquid financial investments to have
increased as a result of increased
uncertainty due to the COVID-19
pandemic.
Refer to the Audit Committee Report
(page 116); Critical accounting estimates
(page 185); Accounting policies and
notes E1 and E2 of the consolidated
financial statements (pages 200 to 211).
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.
Observable inputs are not readily
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; iii) the subjectivity
surrounding the selection of the
comparable bonds to derive that spread;
and iv) reasonableness of credit ratings
considering the impact of COVID-19.
Additionally, the valuation of the
modelled debt securities for the
Phoenix Life Division and Standard Life
Assurance Limited components has
been outsourced by its OSP to a third
party during the year which increases
the risk of management’s oversight
over the valuation processes for these
financial investments.
over management’s assumption setting processes for valuing these
instruments;
• 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 including relevant COVID-19
considerations 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
• developed our own independent model to value the ERM loans
and 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 OSPs covering the period to
30 September 2020, including those controls over the valuation
of modelled debt securities outsourced to the third party, and
determined the impact of any identified control exceptions. This
included an assessment of the operational impacts of COVID-19
on the applicable controls;
• obtained the bridging letter for the period 1 October 2020 to 31
December 2020 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;
• inspected evidence of the operation of management’s oversight
controls over the OSPs, including an assessment of the operational
impacts of COVID-19 on the applicable oversight controls;
• understood the valuation process of modelled debt securities applied
by the OSP of the Phoenix Life Division and Standard Life Assurance
Limited components and assessed the appropriateness of any
methodology and assumption changes during the year;
• for modelled debt securities overseen by in-house Independent
Pricing Valuation (‘IPV’) and Credit and Valuation Committee, we
have obtained an understanding of the valuation methodology and
tested the design and operating effectiveness of the key controls;
• engaged EY valuation specialists to evaluate the appropriateness
of valuation methodology, calculate an independent range of
comparable values for a sample of modelled debt securities using an
independent valuation model and considered reasonable alternative
key assumptions based on comparable securities. Our valuation
procedures were designed to take into account the impact of the
COVID-19 pandemic.
• validated the accuracy of security related inputs to the valuation
of modelled debt securities by tracing a sample of inputs to the
underlying agreements and documentation.
• performed independent calibration based on securities implied rate
and sector credit spreads to validate the reasonableness of credit
ratings used in the comparable values assessment; and
• considered the downgrade of credit ratings or changes of spread
in management’s credit watchlist and known market risks in our
independent comparable values assessment.
We performed full scope audit procedures over this risk area in three
components, which covered 100% of the risk amount.
Phoenix Group Holdings plc Annual Report & Accounts 2020
171
FINANCIALS
Key observations
communicated to
the Audit Committee
Based on our
procedures
performed on
the acquisition of
ReAssure, we are
satisfied that, on
an overall basis,
the fair value of the
assets and liabilities
acquired lies within
a reasonable range
of what a market
participant in an
orderly transaction
would pay for the
identifiable assets
and liabilities
and there is a
justification for the
gain on acquisition.
In addition, we
are satisfied that
the acquisition
accounting and
disclosures are in
compliance with
the applicable
accounting
framework.
Independent auditor’s report continued
Risk area
Our response to the risk
To obtain sufficient audit evidence to conclude on the
appropriateness of accounting for the acquisition of ReAssure,
we performed the following procedures:
• being the first year of our appointment as auditors of ReAssure,
performed on-site review of the predecessor auditor working
papers and discussed the significant risk and judgmental areas
with them;
• performed additional first year audit procedures on the model
testing and data integrity as discussed in the key audit matter
sections above;
• ensured appropriate recognition of all identifiable intangible
assets by understanding the transaction and comparing it
to other acquisitions of similar businesses;
• assessed the methodology and assumptions adopted by
management for calculating the fair values of intangible assets
arising on acquisition and considered how market participants
would value identifiable assets and liabilities in an orderly
transaction;
• with the support of our EY actuarial team and valuation specialists,
assessed the appropriateness of the fair value adjustments
to the insurance contract liabilities recognised on a best estimate
basis within the acquired business, including assessment of
the appropriate choice of discount rate;
• ensured that the acquisition accounting and disclosure of the
acquisition are in compliance with IFRS 3 Business Combinations;
and
• read relevant agreements and board minutes which supported
the final conclusions in respect of the acquisition accounting.
Accounting for the acquisition
of ReAssure Limited and other
associated entities
This is a new significant risk for the
current year.
Refer to the Audit Committee Report
(page 116); Critical accounting
estimates (page 186); Accounting
policies and notes H2.1 of the
consolidated financial statements
(pages 267 to 268).
On 22 July 2020, the Group acquired
ReAssure Limited, ReAssure Life
Limited, ReAssure UK Services Limited,
Ark Life Assurance Company and other
related entities (collectively ‘ReAssure’)
from Swiss Re Finance Midco (Jersey)
Limited for total consideration of £3.1bn.
We consider the identification and
valuation of identifiable intangible assets,
such as acquired in-force business
(‘AVIF’) and other intangibles, and the
gain arising from the acquisition of the
ReAssure businesses to be significant
risks due to the nature of judgments and
estimates involved. We also recognise a
risk of disclosure non-compliance with
the applicable reporting framework.
Under the Group’s accounting policy,
acquired value of in-force insurance
contracts is measured as the difference
between the Generally Accepted
Accounting Practice (‘GAAP’) value of
the insurance contract liabilities and the
determined fair value.
As a result, we focused on significant
judgments in respect of the identification
of the intangible assets acquired, GAAP
valuation of the ReAssure Limited
insurance contract liabilities as at the
date of acquisition, and the fair value
adjustments required in the insurance
contract liabilities and their impact on the
calculation of goodwill and AVIF.
The primary element of the valuation
exercise assessed the fair value of the
identifiable intangible asset in the form
of AVIF (£1,831 million), gross of tax.
This resulted in a gain on acquisition of
£372 million that was recognised in the
Group’s income statement for the year
ended 31 December 2020, reflecting the
excess of the fair value of the net assets
acquired over the consideration paid for
the acquisition of ReAssure.
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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 is
no impairment
necessary as at 31
December 2020.
Risk area
Our response to the risk
Recoverability of intangible assets
arising from the acquisition of
Standard Life Assurance Limited
and other associated entities
(AVIF £2,262m; 2019: £2,538m);
(CSPA intangible asset £30m; 2019:
£33m)
To obtain sufficient audit evidence to assess recoverability of
intangible assets arising from the acquisition of Standard Life, using
EY actuaries as part of the audit team 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 value as at
31 December 2020;
• 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; and
• understood the terms and conditions of the Group and SLA plc
agreement and considered all aspects of the transaction to
assess whether it was an indication of an impairment as at
31 December 2020.
There has been no change in our
assessment of this risk from the
prior year.
Refer to the Audit Committee Report
(page 116); Accounting policies and
note G2 of the consolidated financial
statements (pages 253 to 255).
On 31 August 2018, the Group acquired
Standard Life Assurance Limited and
other associated entities (collectively
‘Standard Life’) from Standard Life
Aberdeen plc (‘SLA plc’) for total
consideration of £2.994 billion. 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.
Each reporting period management is
required to perform an assessment on
the acquired intangible assets to identify
any indicators of impairment. Where
such indicators exist, management
performs a recoverability assessment.
This entails the application of a number
of assumptions and judgments.
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 the assessment of AVIF
and CSPA intangible asset value in
use as a result of the Group and SLA
plc agreement signed in February
2021 (as stated in note I7 of the
consolidated financial statements).
As a result, we consider valuation of
the acquired intangible assets to have a
higher risk of material misstatement.
Phoenix Group Holdings plc Annual Report & Accounts 2020
173
FINANCIALS
Independent auditor’s report continued
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
An omission or misstatement in the financial statements
could reasonably be expected to influence the economic
decisions of the users of the financial statements,
depending on its magnitude. Materiality provides a basis for
determining the nature and extent of our audit procedures.
• We determined materiality for the Group to be £140
million (2019: £100 million), which is 2% (2019: 2.1%) of
Group equity. COVID-19 has not impacted significantly
the Group equity and therefore, our consideration of
materiality calculation. 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
£143 million (2019: £109 million), which is 2% (2019: 2%)
of the parent company equity attributable to owners.
We have used a capital based measure for determining
materiality considering the nature of the parent company
as a holding company. This is also consistent 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. For the
Group audit purposes, we performed our audit procedures
to the lower of the parent company and the Group
allocated performance materiality.
During the course of our audit, we reassessed initial
materiality of £130 million and updated it to £140 million
due to an increase in the Group equity between the interim
and year end period.
Performance materiality
Performance materiality is 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.
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% (2019:
50%) of our planning materiality, namely £70 million (2019:
£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 £14 million to £38 million (2019: £13
million to £30 million).
Reporting threshold
Reporting threshold is 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 £7
million (2019: £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 163 and 303 to 318,
other than the financial statements and our Auditor’s Report
thereon. The Directors are responsible for the other
information contained within the annual report.
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.
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 course of 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 themselves. 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.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
OPINIONS ON OTHER MATTERS PRESCRIBED BY
THE COMPANIES ACT 2006
In our opinion, the part of the Directors’Rremuneration
Report to be audited has been properly prepared in
accordance with the Companies Act 2006.
• The section of the Annual Report that describes the
review of effectiveness of risk management and internal
control systems set out on page 117; and
• The section describing the work of the Audit Committee
set out on pages 116 to 121.
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.
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the Directors’ responsibilities
statement set out on page 163, 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
Irregularities, including fraud, are instances of non-
compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above,
to detect irregularities, including fraud. The risk of not
detecting a material misstatement due to fraud is higher
than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example,
forgery or intentional misrepresentations, or through
collusion. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed below.
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
CORPORATE GOVERNANCE STATEMENT
The Listing Rules require us to review the directors’
statement in relation to going concern, longer-term viability
and that part of the Corporate Governance Statement
relating to the Group and Company’s compliance with the
provisions of the UK Corporate Governance Code specified
for our review.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the
Corporate Governance Statement is materially consistent
with the financial statements or our knowledge obtained
during the audit:
• Directors’ statement with regards to the appropriateness
of adopting the going concern basis of accounting and any
material uncertainties identified set out on page 161;
• Directors’ explanation as to its assessment of the
Company’s prospects, the period this assessment covers
and why the period is appropriate set out on page 90;
• Directors’ statement on fair, balanced and understandable
set out on page 162;
• Board’s confirmation that it has carried out a robust
assessment of the emerging and principal risks set out
on page 83;
Phoenix Group Holdings plc Annual Report & Accounts 2020
175
FINANCIALS Independent auditor’s report continued
However, the primary responsibility for the prevention and
detection of fraud rests with both those charged with
governance of the company and management.
• We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Group 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’), the Financial Conduct Authority (‘FCA’)
and the UK Listing Authority (‘UKLA’).
• We understood how Phoenix Group Holdings plc 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 Group Board and Executive
Committee; and gained an understanding of the Group’s
approach to governance, demonstrated by the Board’s
approval of the Group’s governance framework.
• 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 the impact of COVID-19
on the Group’s control environment. Our procedures over
the Group’s control environment included assessment of
the consistency of operations and controls in place within
the Group and the OSPs as they transitioned to operating
remotely for a significant proportion of 2020.
• The fraud risk was considered to be higher within the
valuation of insurance contract liabilities and accounting for
the acquisition of ReAssure Limited and other associated
entities. We considered management override risk to be
higher in these areas due to the significant judgments and
estimates involved. Our procedures, as detailed in the key
audit matters above, included:
– Reviewing accounting estimates for evidence of
management bias. Supported by our actuarial team and
valuation specialists, we assessed if there were any
indicators of management bias in the valuation of
insurance contract liabilities.
– Testing the appropriateness of journal entries recorded
in the general ledger, with a focus on manual journals
and evaluating the business rationale for significant and/
or unusual transactions.
• We designed our audit procedures to identify non-
compliance with both direct and other laws and
regulations including those at the components impacting
the Group. Our procedures involved: making enquiries of
those charged with governance and senior management
for their awareness of any non-compliance of laws or
regulations, enquiring about the policies that have been
established to prevent non-compliance with laws and
regulations by officers and employees, enquiring 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.
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.
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.
The period of total uninterrupted engagement including
previous renewals and reappointments is three years,
covering the years ending 31 December 2018 to 2020.
• The non-audit services prohibited by the FRC’s Ethical
Standard were not provided to the Group or the parent
company and we remain independent of the Group and
the parent company in conducting the audit.
• 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
7 March 2021
1
2
The maintenance and integrity of the Phoenix Group Holdings plc website 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 website.
Legislation in the United Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
176
Phoenix Group Holdings plc Annual Report & Accounts 2020
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2020
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
Gain on Part VII portfolio transfer
Net income
Policyholder claims
Less: reinsurance recoveries
Change in insurance contract liabilities
Change in reinsurers’ share of insurance contract liabilities
Transfer (to)/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 under arrangements with reinsurers
Net income attributable to unitholders
Total operating expenses
Profit before finance costs and tax
Finance costs
Profit for the year before tax
Tax charge attributable to policyholders’ returns
Profit/(loss) before the tax attributable to owners
Tax charge
Add: tax attributable to policyholders’ returns
Tax (charge)/credit 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
H2.1
H2.2
F2
G2
G2
G2
C3
F3.3
C5
C6
C6
C6
C6
D5
B3
B3
2020
£m
4,706
(796)
3,910
794
4,704
16,935
121
372
85
2019
£m
4,038
(556)
3,482
700
4,182
24,876
106
–
–
22,217
29,164
(7,808)
1,613
(3,249)
(568)
(113)
(7,792)
1,177
(5,229)
(320)
84
(10,125)
(12,080)
(7,991)
(14,080)
–
(469)
(18)
70
(382)
(20)
(1,674)
(1,549)
(219)
(217)
(274)
(336)
(20,713)
(28,651)
1,504
513
(234)
1,270
(326)
944
(436)
326
(110)
834
798
36
834
91.8p
91.5p
(162)
351
(365)
(14)
(235)
365
130
116
85
31
116
8.7p
8.6p
Phoenix Group Holdings plc Annual Report & Accounts 2020
177
177
FINANCIALS
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2020
Profit for the year
Other comprehensive income/(expense):
Items that are or may be reclassified to profit or loss:
Cash flow hedges:
Fair value gains/(losses) 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
2020
£m
834
2019
£m
116
129
(79)
33
(21)
(37)
25
(40)
41
(29)
(24)
(57)
(109)
859
7
823
36
859
(24)
31
7
G1
C6
D5
178
178
Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
2020
£m
2019
£m
2019
£m
2020
£m
Notes
G1
11
314
314
11
G1
57
5,013
171
5,241
57
3,651
271
3,979
57
3,651
271
3,979
57
5,013
171
5,241
119
109
109
119
Property, plant and equipment
G2
G3
G4
7,128
5,943
5,943
7,128
G4
E3
647
6,880
516
4,454
82,634
58,979
400
109,455
89,248
9,559
513
76,113
69,415
8,881
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
E1
298,823
218,871
218,871
298,823
E1
G2
G3
E3
Reinsurers’ share of insurance contract liabilities
F1
9,542
7,324
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
141
94
50
54
50
54
141
94
9,777
7,428
7,428
9,777
G8
G5
G6
263
343
1,622
10,998
75
259
1,233
4,466
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
334,325
242,677
242,677
334,325
ASSETS
Pension scheme asset
Intangible assets
Goodwill
Acquired in-force business
Other intangibles
Investment property
Financial assets
Loans and deposits
Derivatives
Equities
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
Phoenix Group Holdings plc Annual Report & Accounts 2020
179
179
179
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
Merger relief reserve
Other reserves
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
Lease liabilities
Accruals and deferred income
Other payables
Total liabilities
Total equity and liabilities
180
180
Phoenix Group Holdings plc Annual Report & Accounts 2020
Notes
2020
£m
2019
£m
D1
D2
D1
D3
D4
D5
100
4
(6)
102
1,819
48
4,970
7,037
494
341
72
2
(7)
69
–
(2)
4,651
4,785
494
314
7,872
5,593
G1
2,036
1,712
F1
F2
E5
E3
133,907
1,768
135,675
95,643
1,367
97,010
165,106
120,773
4,567
4,080
1,001
3,791
5,205
2,119
4,213
734
3,149
3,671
E1
183,750
134,659
G7
G8
G9
G10
G11
G12
282
1,036
134
1,669
84
521
328
873
101
890
84
384
1,266
1,043
326,453
237,084
334,325
242,677
STATEMENT OF CONSOLIDATED
CHANGES IN EQUITY
For the year ended 31 December 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Merger
relief
reserve
(note D1)
£m
Other
reserves
(note D3)
£m
Retained
earnings
£m
Tier 1
Notes
(note D4)
£m
Non-
controlling
interests
(note D5)
£m
Total
£m
Total
equity
£m
2019
£m
2020
£m
Notes
314
11
G1
(7)
69
At 1 January 2020
72
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
Dividends paid on
ordinary shares
Dividends paid to non-
controlling interests
Credit to equity for
equity-settled share-
based payments
Shares distributed by
the employee benefit
trust
Shares acquired by the
employee benefit trust
Coupon paid on Tier 1
Notes, net of tax relief
–
–
–
28
–
–
–
–
–
–
At 31 December 2020
100
2
–
–
–
2
–
–
–
–
–
–
4
–
–
–
–
–
–
–
8
(7)
–
(6)
–
–
–
–
1,819
–
–
–
–
–
–
(2)
4,651
4,785
494
314
5,593
–
798
798
50
50
(58)
25
740
823
–
–
–
–
–
–
–
–
1,849
(403)
(403)
–
–
13
13
(8)
–
–
(7)
(23)
(23)
–
–
–
–
–
–
–
–
–
–
36
834
–
25
36
859
–
–
1,849
(403)
(9)
(9)
–
–
–
–
13
–
(7)
(23)
–
33
33
–
–
–
–
–
–
–
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
102
1,819
48
4,970
7,037
494
341
7,872
Phoenix Group Holdings plc Annual Report & Accounts 2020
181
181
179
FINANCIALS
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
employee
benefit trust
(note D2)
£m
Foreign
currency
translation
reserve
£m
Other
reserves
(note D3)
£m
Retained
earnings
£m
Tier 1
Notes
(note D4)
£m
Non-
controlling
interests
(note D5)
£m
Total
£m
Total
equity
£m
At 1 January 2019
72
3,077
(6)
98
(3)
1,923
5,161
494
294
5,949
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
Dividends paid on ordinary shares
Dividends paid to non-controlling
interests
Credit to equity for equity-settled
share based payments
Shares distributed by employee
benefit trust
Shares acquired by employee
benefit trust
Transfer of reserve (note A1)
Coupon paid on Tier 1 Notes,
net of tax relief
–
–
–
–
–
–
–
–
–
–
–
At 31 December 2019
72
–
–
–
2
–
–
–
–
–
(3,077)
–
2
–
–
–
–
–
–
–
3
(4)
–
–
(7)
–
(29)
(29)
–
–
–
–
–
–
–
–
–
1
1
–
–
–
–
–
–
–
–
85
85
(81)
(109)
4
(24)
–
2
(338)
(338)
–
11
(3)
–
3,077
–
11
–
(4)
–
(23)
(23)
–
–
–
–
–
–
–
–
–
–
–
31
116
–
(109)
31
7
–
–
2
(338)
(11)
(11)
–
–
–
–
–
11
–
(4)
–
(23)
69
(2)
4,651
4,785
494
314
5,593
182
182
Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CONSOLIDATED
CASH FLOWS
For the year ended 31 December 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
Cash flows from operating activities
Cash generated by operations
Taxation paid
Net cash flows from operating activities
Cash flows from Investing activities
Acquisition of ReAssure businesses, 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
Coupon paid on Tier 1 Notes
Interest paid on policyholder borrowings
Interest paid on shareholder borrowings
Net cash flows from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Notes
I2
H2.1
B4
D5
E5.2
E5.2
G10
E5.2
2020
£m
7,316
(562)
6,754
(979)
(979)
2
(403)
(9)
(55)
–
(18)
1,445
(29)
(5)
(171)
757
6,532
4,466
2019
£m
273
(205)
68
–
–
2
(338)
(11)
(34)
(100)
(15)
100
(29)
(4)
(99)
(528)
(460)
4,926
Cash and cash equivalents at the end of the year
10,998
4,466
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
Phoenix Group Holdings plc Annual Report & Accounts 2020
183
183
179
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 2020 set out on pages 177 to 289 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 7 March 2021.
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.
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 was reflected as a transfer of share premium in the statement
of consolidated changes in equity during 2019.
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
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
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 International Accounting Standards in conformity
with the requirements of the Companies Act 2006 and also in
accordance with International Financial Reporting Standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union.
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.
Going concern
The consolidated financial statements have been prepared on a going
concern basis. In assessing whether the Group is a going concern
the Directors have taken into account the guidance issued by the
Financial Reporting Council (‘FRC’), Guidance for Directors of UK
Companies Going Concern and Liquidity, in October 2009. The
considerations and approach are consistent with FRC provisions
issued in September 2014 and the assessment has taken into
account the requirements of the recent pronouncement from
the Financial Reporting Lab, ‘COVID-19 – Going concern, risk and
viability’. Further details of the going concern assessment for the
period to 31 March 2022 are included in the Directors’ Report on
page 161.
The Directors have, at the time of approving the consolidated
financial statements, a reasonable expectation that the Company
and the Group have adequate resources to continue in operational
existence over the period covered by the assessment.
184
184
Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
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.
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 231 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 where
valuation techniques are based on observable market data at the
period end are categorised as Level 2 financial instruments.
Financial instruments valued where valuation techniques are 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.
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 details of these estimates and the sensitivity of the defined
benefit obligation to key assumptions are provided in note G1.
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
Phoenix Group Holdings plc Annual Report & Accounts 2020
185
185
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
A. SIGNIFICANT ACCOUNTING POLICIES continued
A3 Critical Accounting Estimates and Judgements continued
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 based on risk-free
yields at the start of the financial year, 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 ReAssure businesses
The identification and valuation of identifiable intangible assets, such
as acquired in-force business, arising from the Group’s acquisition
of the ReAssure businesses during the year, 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 2020. 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 2020
In preparing the consolidated financial statements, the Group has
adopted the following standards, interpretations and amendments
effective from 1 January 2020:
• Amendments to IFRS 3 Business Combinations: The amendments
have revised the definition of a business and aim to assist
companies to determine whether an acquisition 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 have not impacted the
Group’s accounting treatment of business combinations.
• Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39
and IFRS 7) Phase 1: 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. The Group terminated its hedge accounting
relationships at the start of the period and consequently the Group
has not needed to use the relief provided in these amendments.
• Amendments to IAS 1 Presentation of Financial Statements and
IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors: Amendments clarify the definition of material and how it
should be applied; and
• Amendments to the References to the Conceptual Framework in
IFRS Standards.
A5. New Accounting Pronouncements not yet Effective
The IASB has issued the following standards 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.
• Amendment to IFRS 16 Leases COVID-19-Related Rent
Concessions (1 June 2020): The amendment permits lessees,
as a practical expedient, not to assess whether particular rent
concessions occurring as a direct consequence of the COVID-19
pandemic are lease modifications and instead to account for those
rent concessions as if they are not lease modifications. The Group
does not expect to make use of this practical expedient.
• Interest Rate Benchmark Reform – Phase 2 (Amendments to
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) (1 January 2021).
The changes introduced in Phase 2 of the Interest Rate
Benchmark Reform project relate to the modification of financial
assets, financial liabilities and lease liabilities (introducing a
practical expedient for modifications required by the IBOR
reform), specific hedge accounting requirements to ensure
hedge accounting is not discontinued solely because of the
IBOR reform, and disclosure requirements applying IFRS 7 to
accompany the amendments regarding modifications and hedge
accounting. The IASB also amended IFRS 4 to require insurers
that apply the temporary exemption from IFRS 9 to apply the
amendments in accounting for modifications directly required by
IBOR reform. There is not expected to be an impact for the Group
from implementing these amendments but a review will be
undertaken in 2021 to confirm this.
186
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Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
• Amendments to IFRS 4 Insurance Contracts – deferral of IFRS 9
Financial Instruments (1 January 2021): Following the issue of
IFRS 17 Insurance Contracts (Revised) in June 2020, the end date
for applying the two options under the IFRS 4 amendments
(including the temporary exemption from IFRS 9) was extended to
1 January 2023, aligning the date with the revised effective date of
IFRS 17. The Group expects to take advantage of this extension to
align the implementation of IFRS 9 and IFRS 17.
• IFRS 9 Financial Instruments (1 January 2023): 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: Recognition and Measurement. 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 2023 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 ReAssure businesses on 22 July 2020, 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 2023. During the year, the Group
continued its implementation activities in respect of IFRS 9 and
expects to continue to value the majority of its financial assets as
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. 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.
• IFRS 3 Business Combinations (1 January 2022): The
amendments update a reference in IFRS 3 to the Conceptual
Framework for Financial Reporting without changing the
accounting requirements for business combinations. There are
no impacts from this amendment.
• IAS 16 Property, Plant and Equipment (1 January 2022):
The amendments prohibit the Group from deducting from the cost
of property, plant and equipment amounts received from selling
items produced while the Group is preparing the asset for its
intended use. Instead, such sales proceeds and related costs
should be recognised in profit or loss. These amendments do not
currently have any impact on the Group.
• IAS 37 Provisions, Contingent Liabilities and Contingent Assets
(1 January 2022): The amendments specify which costs a
company includes when assessing whether a contract will be loss-
making. These amendments are not expected to have any impact
on the Group.
• Annual Improvements Cycle 2018 – 2020 (1 January 2022): Minor
amendments to IFRS 1 First-time Adoption of International
Financial Reporting Standards, IFRS 9 Financial Instruments, IAS
41 Agriculture and the Illustrative Examples accompanying IFRS
16 Leases. These amendments do not currently have any impact
on the Group.
• IFRS 17 Insurance Contracts (1 January 2023). 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 implementation project continued through 2020
with an increasing focus on implementation activities alongside
ongoing financial and operational impact assessments and
methodology development.
In June 2020, the IASB issued its narrow-scope amendments
to IFRS 17 to address a number of the concerns and issues
identified in the original version of the standard. Whilst the
changes have given clarity in some areas there remain a number
of implementation challenges which the Group will need to
address. Development of the Group’s methodologies and
accounting policies continues to progress with increasing focus
on the application of these methodologies. Progress has been
made in data and systems implementations, with development of
business processes running in parallel. Following the acquisition
of ReAssure Group plc in July 2020 work is progressing to align
the IFRS 17 processes. During 2021 the focus is on completing
systems build and preparing for the transition date, including
business readiness activities.
• Classification of Liabilities as Current and Non-current
(Amendments to IAS 1 Presentation of Financial Statements)
(1 January 2023). 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. These amendments are not expected to have any impact
on the Group.
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
Phoenix Group Holdings plc Annual Report & Accounts 2020
187
187
179
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 ReAssure businesses in 2020, the
Group reassessed its operating segments to reflect the way the
business was subsequently being managed. The Group now has
five reportable segments comprising UK Heritage, UK Open, Europe,
ReAssure 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.
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’), products
sold under the SunLife brand, and annuities, including Bulk Purchase
Annuity contracts.
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.
A. SIGNIFICANT ACCOUNTING POLICIES continued
A5. New Accounting Pronouncements not yet Effective continued
The following amendments to standards listed above have been
endorsed by the EU:
• Amendment to IFRS 16 Leases COVID-19-Related Rent
Concessions; and
• IFRS 9 Financial Instruments.
On 31 January 2020, the UK left the EU and effective from 1 January
2021, the European Commission will no longer endorse IFRSs for
use in the UK. Legislation is in place to onshore and freeze EU-
adopted IFRSs and from 1 January 2021 the Group will apply UK-
adopted International Accounting Standards. The powers to endorse
and adopt IFRSs will be delegated by the Secretary of State to the
UK Endorsement Board once the draft statutory instrument, which
was laid before Parliament on 1 February 2020, is approved. The
following amendments to standards listed above have been
endorsed for use in the UK by the Secretary of State:
• Interest Rate Benchmark Reform – Phase 2 (Amendments to
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16); and
• Amendments to IFRS 4 Insurance Contracts – deferral of IFRS 9
Financial Instruments.
A6. Impacts of COVID-19 during the year
The ‘Group Chief Executive Officer’s Report’, ‘Business Review’,
‘Risk Management’, ‘Viability Statement’ and ‘Directors’ Report:
Going Concern’ sections of this Annual Report and Accounts provide
information as to the broader effects of COVID-19 on the Group’s
financial results, its operations and prospects. The Group has given
due consideration as to the impact of uncertainty arising from
COVID-19 related factors on the production of the consolidated
financial statements. This has included an assessment as to the
impact of weak economic conditions, market volatility, demographic
experience, and government and regulatory intervention on the
valuation, recognition and disclosure of the Group’s assets
and liabilities.
Considerations as to valuation uncertainty and other specific impacts
of COVID-19 have been included within the notes to the consolidated
financial statements that provide further detail on pension schemes,
investment property, liabilities under insurance contracts and
financial instruments.
Disclosures have been included in the following notes to the
consolidated financial statements to provide additional information
as to the impacts of COVID-19 during the year ended 31 December
2020:
Pension schemes
Investment property
Liabilities under insurance contracts – assumptions and
insurance risk management
Financial assets & liabilities – Fair value hierarchy
Financial risk management
Note
G1
G4
F4
E2
E6
188
188
Phoenix Group Holdings plc Annual Report & Accounts 2020
Following the acquisition of the ReAssure businesses during the
year the acquired business is included in a separate segment.
This reflects the way that the ReAssure business is currently
reported for management purposes.
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 Group 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
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 Group’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 Group’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 Group’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 Group 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.
Restatement of prior period information
During the year, the Group reassessed its operating segments as a
result of strategic developments. Specifically, the categorisation of
the provision of annuities to existing policyholders with vesting
products and from Bulk Purchase Annuity contracts has been revised
such that this business is now included within the UK Open segment
instead of within the UK Heritage segment.
Comparative segmental performance information has been restated
to reflect this new presentation. UK Heritage operating profit has
been reduced by £344 million to £350 million and the UK Open
operating profit has been increased by the same amount to
£417 million. UK Heritage segmental revenue has been reduced by
£1,628 million to £729 million and the UK Open segmental revenue
has been increased by the same amount to £2,135 million.
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Phoenix Group Holdings plc Annual Report & Accounts 2020
189
189
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
B. EARNINGS PERFORMANCE continued
B1. Segmental Analysis continued
B1.1 Segmental Result
Notes
2020
£m
2019
restated
£m
Other non-operating items in respect of 2020 include:
• a gain on acquisition of £372 million reflecting the excess of the
fair value of the net assets acquired over the consideration paid
for the acquisition of ReAssure Group plc (see note H2.1 for
further details);
Operating profit
UK Heritage
UK Open
Europe
ReAssure
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
Amortisation of other
intangibles
Other non-operating items
Finance costs on borrowing
attributable to owners
Profit/(loss) before the tax
attributable to owners of
the parent
Profit before tax attributable to
non-controlling interests
Profit/(loss) before the tax
attributable to owners
278
472
44
444
6
(45)
1,199
350
417
52
–
26
(35)
810
• a gain of £85 million arising on completion of the Part VII transfer
of the mature savings liabilities and associated assets from the
L&G Group (see note H2.2 for further details);
• a net £43 million of additional costs associated with the delivery
of the Group Target Operating Model for IT and Operations,
comprising a £74 million increase in expenses recognised within
liabilities under insurance contracts and partly offset by a £31
million release within the Transition and Transformation
restructuring provision;
• costs of £37 million associated with the acquisition of ReAssure
Group plc, and £19 million incurred under the subsequent
integration programme;
B2.2
B2.3
(47)
148
(177)
13
(464)
(375)
G2
(18)
281
(20)
(169)
(191)
(127)
• costs of £20 million associated with the on-going integration of the
Old Mutual Wealth business acquired by ReAssure Group plc
in December 2019, incurred since the Group’s acquisition of
ReAssure Group plc in July 2020;
• costs of £16 million associated with the transfer and integration
of the L&G mature savings business;
• £34 million of other corporate project costs; and
• net other one-off items totalling a cost of £7 million.
Other non-operating items in respect of 2019 include:
908
(45)
36
31
944
(14)
• 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.
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.
190
190
Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
UK
Heritage
£m
602
(210)
392
296
–
688
B1.2 Segmental revenue
2020
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
2019 restated
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
Open
£m
2,662
(367)
2,295
303
–
Europe
£m
ReAssure
£m
Management
Services
£m
Unallocated
Group
£m
1,215
(29)
1,186
50
–
227
(190)
37
145
–
182
–
–
–
–
737
737
–
–
–
–
(737)
(737)
2,598
1,236
UK
Heritage
£m
UK
Open
£m
Europe
£m
Management
Services
£m
Unallocated
Group
£m
634
(225)
409
320
–
729
2,120
(303)
1,817
318
–
1,284
(28)
1,256
62
–
2,135
1,318
–
–
–
–
894
894
–
–
–
–
(894)
(894)
Total
£m
4,706
(796)
3,910
794
–
4,704
Total
£m
4,038
(556)
3,482
700
-–
4,182
Of the revenue from external customers presented in the table above, £3,818 million (2019: £3,131 million) is attributable to customers in the
United Kingdom (‘UK’) and £886 million (2019: £1,051 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 £7,042 million (2019: £6,005 million) located in the UK and £433 million (2019: £375 million) located in the rest of the world.
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Phoenix Group Holdings plc Annual Report & Accounts 2020
191
191
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
B. EARNINGS PERFORMANCE continued
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.
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
349bps is added to the risk-free yield for equities (2019: 350bps),
249bps for properties (2019: 250bps), 55bps for corporate bonds
(2019: 120bps) and 15bps for gilts (2019: 50bps).
The principal assumptions underlying the calculation of the long-term
investment return are:
Equities
Properties
Gilts
Corporate bonds
2020
%
4.7
3.7
1.4
1.8
2019
%
5.2
4.2
2.2
2.9
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.
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:
Investment return variances and
economic assumption changes on
long-term business
2020
£m
2019
£m
(47)
(177)
The net adverse investment return variances and economic
assumption changes on long-term business of £47 million (2019:
£177 million adverse) primarily arise as a result of movements in
credit spreads, the impact of credit downgrades in the Group’s
investment portfolio and a net adverse impact from equity
movements. Equity movements arising from future profits in relation
to with-profit bonuses and unit-linked charges are 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. Losses have been experienced on hedging positions
held by the Life companies in respect of rises in certain overseas
equity markets in 2020, and on positions held by the ReAssure
businesses as a result of improving UK equity markets in the post-
acquisition period. These losses have been partly offset by gains
on UK equity market hedges that the Group has had in place since
1 January 2020. Falling yields and strategic asset allocation activities
undertaken by the Group, including investment in higher yielding
illiquid assets, also gave rise to positive investment return variances
in the year. The prior year result included losses arising on hedging
positions held by the life funds reflecting improving equity markets
in 2019.
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
2020
£m
148
2019
£m
13
192
192
Phoenix Group Holdings plc Annual Report & Accounts 2020
The net positive variance on owners’ funds of £148 million (2019:
£13 million positive) is principally driven by gains on interest rate
hedging positions held within the shareholder funds of the life
companies, together with gains arising on the hedge entered into on
announcement of the ReAssure acquisition to protect the Group’s
exposure to equity risk in the period prior to completion. The net
positive variance also includes gains on the close out of foreign
currency swaps held by the holding companies to hedge exposure of
future life company profits and non-sterling denominated shareholder
borrowings to foreign currency movements. The prior year result
included gains on foreign currency swaps held by the holding
companies to hedge exposure of future life company profits to
movements in exchange rates.
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.
The basic and diluted earnings per share calculations are also
presented based on the Group’s operating profit net of financing
costs. Operating profit is a non-GAAP performance measure that
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.
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.
2020
Profit/(loss) before the tax attributable to owners
Tax (charge)/credit attributable to owners
Profit/(loss) for the year attributable to owners
Coupon paid on Tier 1 notes, net of tax relief
Deduct: Share of result attributable to non-controlling interests
Profit/(loss) for the year attributable to ordinary equity holders
of the parent
2019
Profit/(loss) before the tax attributable to owners
Tax (charge)/credit attributable to owners
Profit/(loss) for the year attributable to owners
Coupon paid on Tier 1 notes, net of tax relief
Deduct: Share of result attributable to non-controlling interests
Profit/(loss) for the year attributable to ordinary equity holders
of the parent
Operating
profit
£m
Financing
costs
£m
Operating
earnings net
of financing
costs
£m
Other non-
operating
items
£m
1,199
(199)
1,000
–
–
(191)
1,008
48
(143)
(23)
–
(151)
857
(23)
–
(64)
41
(23)
–
(36)
Total
£m
944
(110)
834
(23)
(36)
1,000
(166)
834
(59)
775
Operating
profit
£m
Financing
costs
£m
Operating
earnings net
of financing
costs
£m
Other non-
operating
items
£m
810
(163)
647
–
–
(127)
35
(92)
(23)
–
683
(128)
555
(23)
–
(697)
258
(439)
–
(31)
Total
£m
(14)
130
116
(23)
(31)
647
(115)
532
(470)
62
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Phoenix Group Holdings plc Annual Report & Accounts 2020
193
193
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
B. EARNINGS PERFORMANCE continued
B3. Earnings Per Share continued
The weighted average number of ordinary shares outstanding during
the period is calculated as follows:
Issued ordinary shares at beginning of
the year
Effect of ordinary shares issued
Own shares held by the employee
benefit trust
Weighted average number of
ordinary shares
2020
Number
million
2019
Number
million
722
123
721
–
844
720
The diluted weighted average number of ordinary shares outstanding
during the period is 846 million (2019: 722 million). The Group’s long-
term incentive plan, deferred bonus share scheme and sharesave
schemes increased the weighted average number of shares on a
diluted basis by 2,316,109 shares for the year ended 31 December
2020 (2019: 1,474,170 shares).
Earnings per share disclosures are as follows:
Basic earnings per share
Diluted earnings per share
Basic operating earnings net of
financing costs per share
Diluted operating earnings net of
financing costs per share
2020
pence
91.8
91.5
2019
pence
8.7
8.6
98.8
73.8
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.
The table below details the ‘Disaggregation of Revenue’ disclosures
required by IFRS15 Revenue from contracts with customers.
(1)
(1)
2020
UK
Heritage
£m
UK
Open
£m
Europe
£m
ReAssure
£m
Total
£m
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
292
293
58
137
780
–
–
(8)
–
(8)
292
293
50
137
772
4
10
–
8
22
296
303
50
145
794
UK
Heritage
£m
UK
Open
£m
Europe
£m
Total
£m
98.5
73.7
2019 restated
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.
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.
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
314
308
70
692
–
–
(8)
(8)
314
308
62
684
6
320
10
318
–
62
16
700
Dividends declared and
paid in the year
2020
£m
403
2019
£m
338
The comparative information for fee income from investments
without DPF has been restated. UK Heritage fee income has been
reduced by £40 million to £314 million and the UK Open fee income
has been increased by the same amount to £308 million. For further
details of the restatement see note B1.
On 6 March 2020, the Board recommended a final dividend of
23.4p per share in respect of the year ended 31 December 2019.
The dividend was approved at the Group’s Annual General Meeting,
which was held on 15 May 2020. The dividend amounted to
£169 million and was paid on 19 May 2020.
On 5 August 2020, the Board declared an interim dividend of
23.4p per share for the half year ended 30 June 2020. The dividend
amounted to £234 million and was paid on 4 September 2020.
194
194
Phoenix Group Holdings plc Annual Report & Accounts 2020
Investment income
Interest income on loans and
deposits at amortised cost
Interest income on financial assets
designated at FVTPL on initial
recognition
Dividend income
Rental income
Net interest expense on Group
defined benefit (liability)/asset
Fair value gains/(losses)
Financial assets and financial liabilities
at FVTPL:
Designated upon initial recognition
Held for trading – derivatives
Investment property
Net investment income
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.
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.
Interest income is recognised in the consolidated income statement
as it accrues using the effective interest method.
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.
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.
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.
2020
£m
2019
£m
2019
£m
2020
£m
Notes
8
6
314
11
G1
2,313
3,525
325
(29)
6,142
2,113
3,712
298
(29)
6,100
8,021
2,824
(52)
10,793
16,935
17,574
1,257
(55)
18,776
24,876
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Phoenix Group Holdings plc Annual Report & Accounts 2020
195
195
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
C. OTHER CONSOLIDATED INCOME
STATEMENT NOTES continued
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
ReAssure businesses
Other
Acquisition costs deferred during the
year
Amortisation of deferred acquisition
costs
2020
£m
433
175
(31)
230
152
124
437
4
25
28
2
5
58
16
45
2019
£m
334
141
159
135
135
116
415
4
18
18
–
4
64
–
36
1,703
1,579
(34)
(33)
5
3
Total administrative expenses
1,674
1,549
Employee costs comprise:
Wages and salaries
Social security contributions
Average number of
persons employed
2020
£m
390
43
433
2019
£m
304
30
334
2020
Number
2019
Number
5,752
4,403
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
2020
£m
2.1
9.6
11.7
2.3
0.1
14.1
–
–
0.4
0.4
2019
£m
0.9
5.1
6.0
1.0
0.4
7.4
3.3
–
–
3.3
Total auditor’s remuneration
14.5
10.7
No services were provided by the Company’s auditors to the Group’s
pension schemes in either 2020 or 2019.
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 2020 and 2019. The 2020 balance also
includes amounts in respect of the audit of the acquisition balance
sheet of the acquired ReAssure 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 both
2020 and 2019, this includes public reporting associated with the
acquisition of the ReAssure businesses.
196
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Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Corporate finance services fees were £nil (2019: £3.3 million).
The 2019 fees principally related 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
related to the provision of assurance services to the Board and the
sponsoring banks in support of disclosures made in the public
transaction documents.
Other non-audit services were £0.4 million (2019: £nil). The 2020
fees related to services provided to the ReAssure businesses 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 116 to 121.
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
2020
£m
2019
£m
230
–
4
234
10
224
234
156
3
3
162
12
150
162
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
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 UK corporation
tax
Write-down/(up) of deferred tax
assets
Total deferred tax charge/(credit)
Total tax charge
Attributable to:
• policyholders
• owners
Total tax charge
2020
£m
306
59
365
(4)
361
111
(37)
1
75
436
326
110
436
2019
£m
210
62
272
(11)
261
52
(50)
(28)
(26)
235
365
(130)
235
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 £326 million
(2019: £365 million).
C6.2 Tax charged to other Comprehensive Income
2020
£m
Current tax charge
Deferred tax charge on defined benefit
schemes
12
25
37
2019
£m
1
56
57
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
Phoenix Group Holdings plc Annual Report & Accounts 2020
197
197
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
C. OTHER CONSOLIDATED INCOME
STATEMENT NOTES continued
C6. Tax charge continued
C6.3 Tax Credited to Equity
2019
£m
2020
£m
Current
tax
credit
on Tier
1
Notes
(6)
(6)
C6.4 Reconciliation of Tax Charge
Profit for the year before tax
Policyholder tax charge
Profit/(loss) before the tax
attributable to owners
Tax charge/(credit) 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 rates other than 19%5
Profits taxed at rates other than 19%6
Recognition of previously unrecognised
deferred tax assets7
Deferred tax rate change8
Current year losses not valued9
Other
Owners’ tax charge/(credit)
Policyholder tax charge
Total tax charge for the year
2020
£m
1,270
(326)
944
179
(78)
9
(17)
77
(10)
(25)
(37)
9
3
110
326
436
1 The Phoenix operating segments are predominantly in the UK. The reconciliation of tax
charge has, therefore, been completed by reference to the standard rate of UK tax.
2 £(71) million relates to the non-taxable gain on acquisition of the ReAssure businesses.
The balance primarily relates to non-taxable dividends, gains and non-taxable pension
scheme items.
3 Disallowable expense deductions are primarily in relation to the acquisition of the
ReAssure businesses.
4 The 2020 prior year credit primarily relates to overseas deferred acquisition costs
in Standard Life International Designated Activity Company of £(8) million and a 2019
tax provision true-up in Standard Life Assurance Limited of £(5) million.
5 £65 million charge arising from the movement on acquired in-force amortisation
following the L&G Part VII transfer.
6 The 2020 profits taxed at rates other than 19% relates to overseas profits and UK life
company profits subject to marginal shareholder tax rates.
7 The 2020 tax credit represents the recognition of tax losses in the Group companies
of £(3) million, intangible assets in Standard Life International Designated Activity
Company of £(6) million and capital losses within ReAssure businesses of £(16) million.
8 The 2020 deferred tax rate change relates to the impact of retaining the 19%
corporation tax rate and impact of the L&G Part VII transfer.
9 The 2020 charge for current year tax losses not valued relates to Standard Life
International Designated Activity Company.
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:
999.2 million ordinary shares of £0.10
each (2019: 721.5 million)
2020
£m
2019
£m
100
72
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.
2019
£m
351
(365)
Movements in issued share capital during the year:
2020
(14)
Number
£
(3)
3
22
(51)
9
(13)
(47)
(50)
–
–
(130)
365
235
Shares in issue at 1 January
721,514,944 72,151,494
Ordinary shares issued to Swiss Re and
MS&AD
Other ordinary shares issued in the
period
277,277,138 27,727,714
440,062
44,006
Shares in issue at 31 December
999,232,144 99,923,214
On 22 July 2020, the Group acquired 100% of the issued share
capital of ReAssure Group plc from Swiss Re Finance Midco (Jersey)
Limited, an indirect subsidiary of Swiss Re Limited, for total
consideration of £3.1 billion. The consideration consisted of
£1.3 billion of cash, funded through the issuance of debt and own
resources, and the issue of 277,277,138 shares (‘the Acquisition
Shares’) to Swiss Re Group on 23 July 2020.
Pursuant to an agreement between Swiss Re Group and MS&AD
Insurance Group Holdings (‘MS&AD’), MS&AD transferred its entire
shareholding in ReAssure Group plc to the Swiss Re Group prior to
22 July 2020 in consideration for the transfer of 144,877,304 of the
Acquisition Shares at completion. The equity stake in the Group held
by Swiss Re Group and MS&AD was valued at £1,847 million, based
on the share price at that date.
The Group has applied the relief in section 612 of the Companies Act
2006 to present the difference between the consideration received
and the nominal value of the shares issued of £1,819 million in a
merger reserve as opposed to in share premium. A merger reserve
is required to be used as a result of the Group having issued equity
shares as part consideration for the shares of ReAssure Group plc
and securing at least a 90% holding in that entity.
During the year, 440,062 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).
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
198
198
Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
In April 2020, the Group terminated the derivative instruments which
had been designated as hedging instruments in its cash flow hedging
relationships. Hedge accounting was discontinued from the point of
termination of the derivative instruments. The remaining cash flow
hedging reserve will be reclassified to profit or loss over the
remaining term of the hedged items.
Further details of the Group’s hedge accounting policy are included in
note E1.
During 2019, 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).
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.
The EBT holds shares to satisfy awards granted to employees under
the Group’s share-based payment schemes.
At 1 January
Shares acquired by the EBT
Shares awarded to employees by the
EBT
At 31 December
2020
£m
2019
£m
7
7
(8)
6
6
4
(3)
7
2020
At 1 January 2020
Other comprehensive
income for the year
At 31 December 2020
During the year 1,230,763 (2019: 508,639) shares were awarded to
employees by the EBT and 1,087,410 (2019: 614,193) shares were
purchased. The number of shares held by the EBT at 31 December 2020
was 953,003 (2019: 1,096,356).
The Company provided the EBT with an interest-free facility arrangement
to enable it to purchase the shares.
2019
At 1 January 2019
Other comprehensive
income for the year
At 31 December 2019
Owner-
occupied
property
revaluation
reserve
£m
5
–
5
Owner-
occupied
property
revaluation
reserve
£m
5
–
5
Cash flow
hedging
reserve
£m
Total other
reserves
£m
(7)
50
43
(2)
50
48
Cash flow
hedging reserve
£m
Total other
reserves
£m
(8)
1
(7)
(3)
1
(2)
D3. Other reserves
The other reserves comprises the owner-occupied property
revaluation reserve and the cash flow hedging reserve.
Owner-occupied property revaluation reserve
This reserve comprises the revaluation surplus arising on revaluation
of owner-occupied property. When a revaluation loss arises on a
previously revalued asset it should be deducted first against the
previous revaluation gain. Any excess impairment will then be
recorded as an impairment expense in the consolidated income
statement.
Cash flow hedging reserve
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 consolidated income statement, and is
reported 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.
D4. Tier 1 Notes
The Fixed Rate Reset Perpetual Restricted Tier 1 Contingent
Convertible 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.
2020
£m
2019
£m
Tier 1
Notes 494 494
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. The coupon paid in the year was £29 million
(2019: £29 million).
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.
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
Phoenix Group Holdings plc Annual Report & Accounts 2020
199
199
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
interest payment is not made, it is cancelled and it shall not accumulate
or be payable at any time thereafter.
Summary financial information showing the interest that non-
controlling interests have in the Group’s activities and cash flows
is shown below:
D. EQUITY continued
D4. Tier 1 Notes continued
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 to do so from the PRA.
On 27 October 2020, the terms of the Tier 1 Notes were amended and
the consequence of a trigger event, linked to the Solvency II capital
position, was changed. Previously, the Tier 1 Notes were subject to a
permanent write-down in value to zero. The amended terms require that
the Tier 1 Notes would automatically be subject to conversion to ordinary
shares of the Company at the conversion price of £1,000 per share,
subject to adjustment in accordance with the terms and conditions of the
notes and all accrued and unpaid interest would be cancelled. Following
any such conversion there would be no reinstatement of any part of the
principal amount of, or interest on, the Tier 1 Notes at any time.
D5. 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 2020
Profit for the year
Dividends paid
At 31 December 2020
At 1 January 2019
Profit for the year
Dividends paid
At 31 December 2019
SLPET
£m
314
36
(9)
341
SLPET
£m
294
31
(11)
314
The non-controlling interests of £341 million (2019: £314 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 2020, the Group held 55.2% of the issued share
capital of SLPET (2019: 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.
SLPET
Statement of financial position:
Investments
Other assets
Total assets
Total liabilities
Income statement:
Revenue
Profit after tax
Comprehensive income
Cash flows:
2020
£m
335
9
344
3
41
36
36
2019
£m
286
40
326
12
34
31
31
Net (decrease)/increase in cash
equivalents
(19)
4
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.
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.
200
200
Phoenix Group Holdings plc Annual Report & Accounts 2020
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.
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.
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 are no investments 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.
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.
Phoenix Group Holdings plc Annual Report & Accounts 2020
201
201
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
Hedge accounting
In 2019 the Group previously designated 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.
E. FINANCIAL ASSETS & LIABILITIES continued
E1. Fair Values continued
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.
202
202
Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
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 2020:
2019
£m
2020
£m
Notes
2020
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 assets
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
6,880
6,429
6,880
82,634
400
109,455
89,248
9,559
647
298,823
–
–
82,634
400
94,070
109,455
–
–
60
89,248
9,559
647
298,823
Fair value
£m
Carrying value
Amounts
due for
settlement
after 12 months
£m
Total
£m
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
1,001
727
1,001
84
3,791
165,106
4,483
4,080
5,205
183,750
84
–
–
4,161
3,381
–
84
3,791
165,106
5,016
4,080
5,205
184,283
Phoenix Group Holdings plc Annual Report & Accounts 2020
203
203
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
E. FINANCIAL ASSETS & LIABILITIES continued
E1. Fair values analysis continued
E1.1 Fair Values Analysis continued
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 assets
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
204
204
Phoenix Group Holdings plc Annual Report & Accounts 2020
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.
2020
£m
2019
£m
647
10,998
251
1,541
516
4,466
160
1,199
298,176
218,355
2 The change in fair value during 2020 of all other financial assets that are measured at fair value through profit or loss is a £11,087 million gain (2019: £20,231 million gain).
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:
BBB
£m
BB and below
£m
Non-rated1
£m
Unit-linked
£m
–
–
–
–
–
368
10
251
1,541
2,170
Total
£m
647
78
2,008
10,998
–
–
251
1,541
2,086
13,437
2020
Carrying value
Loans and deposits
Cash and cash equivalents
Accrued income
Other receivables
2019
Carrying value
Loans and deposits
Cash and cash equivalents
Accrued income
Other receivables
AAA
£m
–
30
–
–
30
AAA
£m
–
295
–
–
AA
£m
6
A
£m
195
1,728
7,049
–
–
–
–
AA
£m
21
733
–
–
A
£m
47
3,105
–
–
–
173
–
–
164
23
–
–
1,734
7,244
173
1 The Group has assessed its non-rated assets as having a low credit risk.
.
295
754
3,152
187
BBB
£m
BB and below
£m
Non-rated1
£m
Unit-linked
£m
–
–
–
–
–
284
270
160
1,199
1,913
–
40
–
–
40
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Total
£m
516
4,466
160
1,199
6,341
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
Phoenix Group Holdings plc Annual Report & Accounts 2020
205
205
179
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.
2020
Financial assets measured
at fair value
Level 1
£m
Level 2
£m
Level 3
£m
Total fair
value
£m
Derivatives
320
6,362
198
6,880
Financial assets designated at
FVTPL upon initial recognition:
Equities
81,024
47
1,563 82,634
Investment in associate
400
–
–
400
Debt securities
74,043 25,248 10,164 109,455
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
2020
Financial liabilities
measured at fair value
86,677
2,170
401 89,248
8,962
597
–
9,559
251,106 28,062 12,128 291,296
251,426 34,424 12,326 298,176
–
632
15
647
251,426 35,056 12,341 298,823
Level 1
£m
Level 2
£m
Level 3
£m
Total fair
value
£m
Derivatives
119
720
162
1,001
Financial liabilities designated
at FVTPL upon initial
recognition:
Borrowings
Net asset value attributable
to unit-holders
Investment contract
liabilities
Total financial liabilities
measured at fair value
Financial liabilities for which
fair values are disclosed
–
3,791
–
–
84
84
–
3,791
– 165,106
– 165,106
3,791 165,106
84 168,981
3,910 165,826
246 169,982
Borrowings at amortised cost
–
4,812
204
5,016
Deposits received from
reinsurers
Total financial liabilities for
which fair values are disclosed
–
3,983
97
4,080
–
8,795
301
9,096
3,910 174,621
547 179,078
206
206
Phoenix Group Holdings plc Annual Report & Accounts 2020
2019
Financial assets measured
at fair value
Level 1
£m
Level 2
£m
Level 3
£m
Total fair
value
£m
2019
Level 1
£m
Level 2
£m
Level 3
£m
Total fair
value
£m
2019
£m
2020
£m
Notes
Financial liabilities
measured at fair value
Derivatives
284
3,995
175
4,454
Derivatives
76
584
74
734
Financial assets designated
at FVTPL upon initial
recognition:
Equities
Investment in associate
57,383
513
–
–
Financial liabilities
designated at FVTPL upon
initial recognition:
1,596
58,979
Borrowings
–
–
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
172,725
37,187
8,443 218,355
–
516
–
516
172,725
37,703
8,443 218,871
Net asset value
attributable to
unitholders
Investment contract
liabilities
Total financial liabilities
measured at fair value
Financial liabilities
for which fair values
are disclosed
Borrowings at amortised
cost
Deposits received from
reinsurers
Total financial liabilities for
which fair values are
disclosed
–
–
99
99
–
3,149
3,149
– 120,773
– 120,773
3,149 120,773
99 124,021
3,225 121,357
173 124,755
–
–
1,974
249
2,223
4,213
–
4,213
–
6,187
249
6,436
3,225 127,544
422 131,191
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Phoenix Group Holdings plc Annual Report & Accounts 2020
207
207
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
E. FINANCIAL ASSETS & LIABILITIES continued
E2. Fair Value Hierarchy continued
E2.3 Level 3 Financial instrument sensitivities
As explained in note A6, weak economic conditions from COVID-19
and market volatility have resulted in the fair valuation of all Level 3
assets being subject to increased uncertainty. In response to this,
additional analysis has been performed to confirm that the fair value of
financial instruments included in the consolidated financial statements
is reasonable.
A proportion of the Group’s level 3 financial assets are held to back
unit linked business and unsupported with-profit funds. As such,
movements in the fair value of those assets will typically be offset
by corresponding movements in insurance and investment contract
liabilities. From a financial reporting perspective, valuation risk is
centered on those assets held in the shareholder funds or to back
liabilities in the non-profit or supported with-profit funds. The table
below shows the shareholder exposure to Level 3 assets as at
31 December 2020:
Shareholder,
NPF &
Supported
WPF
£m
Unit linked &
Unsupported
WPF
£m
Total fair
value
£m
Financial assets measured at
fair value
Derivatives
198
–
198
Financial assets designated at
FVTPL upon initial recognition:
Equities
Debt securities
Collective investment
schemes
761
9,299
802
865
1,563
10,164
11
390
401
Total financial assets measured
at fair value
10,269
2,057
12,326
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
Private placements
Infrastructure loans
Equity release mortgages
Commercial real estate loans
Income strips
Bridging loans to private equity
funds
Corporate transactions
(see E2.3.3)
Other
2020
£m
2019
£m
646
2,351
1,564
3,484
1,075
692
262
1,147
341
2,781
388
690
320
320
29
3
43
54
The Group holds unquoted corporate bonds comprising investments
in local authority loans, private placements and infrastructure loans
with a total value of £4,561 million (2019: £1,750 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 £246 million (2019: £81 million) and a decrease of 35bps
would increase the value by £190 million (2019: £87 million).
As at 31 December 2020, following the effects of the COVID-19
crisis, the credit ratings for a small number of unquoted corporate
bonds have been downgraded and the impacts of this have been
reflected in the fair values at 31 December 2020. There remains
some ongoing uncertainty in respect of the credit ratings for
unquoted corporate bonds and commercial real estate loans in light
of the continuing economic volatility. Internal review processes
are in place to closely monitor credit ratings and additional reviews
are carried out as required, for example when triggered by credit
performance or market factors. The financial impact of reasonable
movements in spreads has been quantified above.
Included within debt securities are investments in equity release
mortgages with a value of £3,484 million (2019: £2,781 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.
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 an RPI based assumption.
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, house prices, mortality and voluntary redemption rate.
An increase of 100bps in the yield curve would decrease the value
by £351 million (2019: £265 million) and a decrease of 100bps would
increase the value by £397 million (2019: £296 million). An increase
of 1% in the inflation rate would increase the value by £29 million
(2019: £26 million) and a decrease of 1% would decrease the value
by £48 million (2019: £43 million).
Total Level 3 debt securities
10,164
6,026
208
208
Phoenix Group Holdings plc Annual Report & Accounts 2020
An increase of 10% in house prices would increase the value by
£16 million (2019: £15 million) and a decrease of 10% would
decrease the value by £26 million (2019: £25 million). An increase
of 5% in mortality would decrease the value by £11 million (2019:
£8 million) and a decrease of 5% in mortality would increase the
value by £7 million (2019: £5 million). An increase of 15% in the
voluntary redemption rate would decrease the value by £24 million
(2019: £17 million) and a decrease of 15% in the voluntary
redemption rate would increase the value by £22 million (2019:
£15 million).
The Group also holds investments in commercial real estate loans
with a value of £1,075 million (2019: £388 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 £15 million (2019: £7 million) and a decrease
of 35bps would increase the value by £16 million (2019: £7 million).
Also included within debt securities are income strips with a value
of £692 million (2019: £690 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
decrease the value by £68 million (2019: £66 million) and a decrease
of 35bps would increase the value by £86 million (2019: £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 £84 million (2019: £99 million), measured using an internally
developed model. The valuation is sensitive to key assumption of the
discount rate. An increase in the discount rate of 1% would decrease
the value by £1 million (2019: £1 million) and a decrease of 1%
would increase the value by £1 million (2019: £1 million).
E2.3.3 Corporate transactions
Included within financial assets and liabilities are related debt
securities of £29 million (2019: £43 million) and derivative liabilities
of £2 million (2019: £4 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 2020, the net
of these balances was an asset of £27 million (2019: asset of
£39 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 £1 million (2019: £2 million) and a
decrease of 100bps would increase the aggregate value by £1 million
(2019: £2 million).
Included within derivative assets and derivative liabilities are
longevity swap contracts with corporate pension schemes with
a fair value of £155 million (2019: £134 million) and £85 million
(2019: £70 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 £15 million (2019: £13 million) and a decrease of 100bps
would increase the net value by £17 million (2019: £17 million).
An increase of 1% in the RPI and CPI inflation rates would increase
the value by £11 million (2019: £10 million) and a decrease of 1%
would decrease the value by £12 million (2019: £10 million).
E2.3.4 Derivatives
Included within derivative assets are forward local authority loans,
forward private placements and forward infrastructure loans with
a value of £43 million (2019: £41 million). 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 £19 million
(2019: £25 million) and a decrease of 35bps would increase the value
by £20 million (2019: £28 million).
Also included within derivative liabilities is the Equity Release Income
Plan (‘ERIP’) total return swap with a value of £75 million, under
which a share of the disposal proceeds arising on a portfolio of
property reversions is payable to a third party (see note E.3.3 for
further details). The carrying value of the financial liability is the
discounted present value of all future property sales that will be
passed to the counterparty as part of the swap arrangement.
The valuation is sensitive to the discount rate applied. An increase
of 1% in the discount rate would decrease the value by £3 million
and a decrease of 1% in the discount rate would increase the value
by £3 million.
E2.3.3 Corporate transactions
An increase of 10% in house prices would increase the value by
Included within financial assets and liabilities are related debt
£16 million (2019: £15 million) and a decrease of 10% would
securities of £29 million (2019: £43 million) and derivative liabilities
decrease the value by £26 million (2019: £25 million). An increase
of £2 million (2019: £4 million) pertaining to a reinsurance and
of 5% in mortality would decrease the value by £11 million (2019:
retrocession arrangement (see note E3.2 for further information on
£8 million) and a decrease of 5% in mortality would increase the
these arrangements). These assets and liabilities are valued using a
value by £7 million (2019: £5 million). An increase of 15% in the
discounted cash flow model that includes valuation adjustments in
voluntary redemption rate would decrease the value by £24 million
respect of liquidity and credit risk. At 31 December 2020, the net
(2019: £17 million) and a decrease of 15% in the voluntary
of these balances was an asset of £27 million (2019: asset of
redemption rate would increase the value by £22 million (2019:
£39 million). The valuation is sensitive to movements in the euro
swap curve. An increase of 100bps in the swap curve would
£15 million).
decrease the aggregate value by £1 million (2019: £2 million) and a
The Group also holds investments in commercial real estate loans
decrease of 100bps would increase the aggregate value by £1 million
with a value of £1,075 million (2019: £388 million). The loans are
(2019: £2 million).
valued using a model which discounts the expected projected future
cash flows at the risk-free rate plus a spread derived from a basket
Included within derivative assets and derivative liabilities are
of comparable securities. The valuation is sensitive to changes in
longevity swap contracts with corporate pension schemes with
the discount rate. An increase of 35bps in the discount rate would
a fair value of £155 million (2019: £134 million) and £85 million
decrease the value by £15 million (2019: £7 million) and a decrease
(2019: £70 million) respectively. These derivatives are valued on
of 35bps would increase the value by £16 million (2019: £7 million).
a discounted cash flow basis, key inputs to which are the EIOPA
interest rate swap curve and RPI and CPI inflation rates.
Also included within debt securities are income strips with a value
of £692 million (2019: £690 million). Income strips are transactions
An increase of 100bps in the swap curve would decrease the net
where an owner-occupier of a property has sold a freehold or long
value by £15 million (2019: £13 million) and a decrease of 100bps
leasehold interest to the Group, and has signed a long lease (typically
would increase the net value by £17 million (2019: £17 million).
30-45 years) or a ground lease (typically 45-175 years) and retains the
An increase of 1% in the RPI and CPI inflation rates would increase
right to repurchase the property at the end of the lease for a nominal
the value by £11 million (2019: £10 million) and a decrease of 1%
sum (usually £1). The income strips are valued using an income
would decrease the value by £12 million (2019: £10 million).
capitalisation approach, where the annual rental income is capitalised
Included within derivative assets are forward local authority loans,
sensitive to movements in yield. An increase of 35bps would
forward private placements and forward infrastructure loans with
decrease the value by £68 million (2019: £66 million) and a decrease
a value of £43 million (2019: £41 million). These investments
of 35bps would increase the value by £86 million (2019: £79 million).
E2.3.4 Derivatives
recent transactions involving similar income strips. The valuation is
using an appropriate yield. The yield is determined by considering
include a commitment to acquire or provide funding for fixed rate
debt instruments at specified future dates. These investments are
E2.3.2 Borrowings
valued using a discounted cash flow model that takes a comparable
Included within borrowings measured at fair value and categorised
UK Treasury stock and applies a credit spread to reflect reduced
as Level 3 financial liabilities are property reversion loans with a
liquidity. The credit spreads are derived from a basket of comparable
value of £84 million (2019: £99 million), measured using an internally
securities. The valuations are sensitive to movements in this spread.
developed model. The valuation is sensitive to key assumption of the
An increase of 35bps would decrease the value by £19 million
discount rate. An increase in the discount rate of 1% would decrease
(2019: £25 million) and a decrease of 35bps would increase the value
the value by £1 million (2019: £1 million) and a decrease of 1%
by £20 million (2019: £28 million).
would increase the value by £1 million (2019: £1 million).
Also included within derivative liabilities is the Equity Release Income
Plan (‘ERIP’) total return swap with a value of £75 million, under
which a share of the disposal proceeds arising on a portfolio of
property reversions is payable to a third party (see note E.3.3 for
further details). The carrying value of the financial liability is the
discounted present value of all future property sales that will be
passed to the counterparty as part of the swap arrangement.
The valuation is sensitive to the discount rate applied. An increase
of 1% in the discount rate would decrease the value by £3 million
and a decrease of 1% in the discount rate would increase the value
by £3 million.
Phoenix Group Holdings plc Annual Report & Accounts 2020
209
209
209
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
E. FINANCIAL ASSETS & LIABILITIES continued
E2. Fair Value Hierarchy continued
E2.4 Transfers of financial instruments between Level 1 and Level 2
2020
Financial assets measured at fair value
Financial assets designated at FVTPL upon initial recognition:
Collective investment schemes
Debt securities
2019
Financial assets measured at fair value
Financial assets designated at FVTPL upon initial recognition:
Collective investment schemes
Debt securities
From
Level 1 to
Level 2
£m
From
Level 2 to
Level 1
£m
1
492
From
Level 1 to
Level 2
£m
–
10,174
From
Level 2 to
Level 1
£m
19
349
16
25
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 for debt securities resulted in assets being moved from Level 2 to Level 1, and from
Level 1 to Level 2.
E2.5 Movement in Level 3 financial instruments measured at fair value
At 1 January
2020
£m
Net
gains/(losses)
in income
statement
£m
Effect of
acquisitions/
purchases
£m
Transfers
from Level 1
and Level 2
£m
Transfers to
Level 1
and Level 2
£m
At
31 December
2020
£m
Sales
£m
Unrealised
gains/
(losses) on
assets held at
end
of period
£m
175
23
–
–
–
198
36
1,596
6,026
646
8,268
113
432
(161)
384
213
(361)
6,301
(2,635)
1
(85)
6,515
(3,081)
1,563
(23)
10,164
–
401
(23)
12,128
44
471
(100)
415
–
–
2
63
–
65
65
Total financial assets
8,443
407
6,515
(3,081)
(23)
12,326
451
2020
Financial liabilities
Derivatives
Financial liabilities designated at
FVTPL upon initial recognition:
Borrowings
Total financial liabilities
At 1 January
2020
£m
Net losses
in income
statement
£m
Effect of
acquisitions/
purchases
£m
Sales/
repayments
£m
Transfers
from
Level 1 and
Level 2
£m
Transfers to
Level 1 and
Level 2
£m
At
31 December
2020
£m
Unrealised
losses on
liabilities
held at end
of period
£m
74
17
78
(7)
99
173
4
21
–
78
(19)
(26)
–
–
–
–
–
–
162
13
84
246
4
17
210
210
Phoenix Group Holdings plc Annual Report & Accounts 2020
2020
Financial assets
Derivatives
Financial assets designated at
FVTPL upon initial recognition:
Equities
Debt securities
Collective investment schemes
2019
Financial assets
Derivatives
Financial assets designated at FVTPL
upon initial recognition:
Equities
Debt securities
Collective investment schemes
At
1 January
2019
£m
Net gains/
(losses) in
income
statement
£m
Effect of
purchases
£m
Transfers from
Level 1
and Level 2
£m
Sales
£m
Transfers to
Level 1 and
Level 2
£m
At
31 December
2019
£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
Total financial assets
6,734
321
2,269
(1,121)
243
(3)
8,443
231
2019
Financial liabilities
Derivatives
Financial liabilities designated at
FVTPL upon initial recognition:
Borrowings
Total financial liabilities
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)
(41)
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.
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
Phoenix Group Holdings plc Annual Report & Accounts 2020
211
211
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
E. FINANCIAL ASSETS & LIABILITIES continued
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
Cross-currency swaps
Equity Release Income Plan total return swap
Assets
2020
£m
286
108
7
2,754
52
2,643
59
543
53
63
–
155
1
156
–
Liabilities
2020
£m
134
13
4
98
–
27
132
322
90
20
1
85
–
–
75
Assets
2019
£m
138
138
1
1,738
33
1,800
46
344
10
70
–
134
2
–
–
Liabilities
2019
£m
90
33
–
143
–
16
111
161
52
54
4
70
–
–
–
6,880
1,001
4,454
734
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 £155 million and derivative liabilities of £85 million have been recognised as at 31 December 2020 (2019: £134 million
and £70 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 £1 million at 31 December 2020 (2019: £4 million).
E3.3 Equity Release Income Plan ('ERIP') total return swap
ERIP contracts are an equity release product under which the Group holds a reversionary interest in the residential property of policyholders
who have been provided with a lifetime annuity in return for the legal title to their property (see note G4). The Group is party to an ERIP total
return swap under which a share of the future generated cash flows arising under the ERIP contracts is payable to a third party. Over time, as
the property reversions are realised, the relevant share of disposal proceeds is transferred to a third party who also holds a beneficial interest
in these residential properties. The carrying amount of the derivative liability is the present value of all future cash flows due to the third party
under the total return swap.
212
212
Phoenix Group Holdings plc Annual Report & Accounts 2020
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 2020 (2019: 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.
2020
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
6,523
357
2,435
9,315
5,389
9
2,435
7,833
Derivative
liabilities
£m
219
17
–
236
Net
amount
£m
915
331
–
1,246
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
886
115
1,001
328
31
359
219
17
236
339
67
406
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Phoenix Group Holdings plc Annual Report & Accounts 2020
213
213
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
E. FINANCIAL ASSETS & LIABILITIES continued
E4. Collateral Arrangements continued
E4.1 Financial instrument collateral arrangements continued
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
43
–
43
Net
amount
£m
294
74
368
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 £885 million (2019: £437 million).
The amounts recognised as financial assets and liabilities from cash collateral received at 31 December 2020 are set out below.
Financial assets
Financial liabilities
OTC derivatives
2020
£m
5,205
(5,205)
2019
£m
3,671
(3,671)
The maximum exposure to credit risk in respect of OTC derivative assets is £6,523 million (2019: £3,908 million) of which credit risk of
£5,608 million (2019: £3,585 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 £357 million (2019: £546 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 2020 in respect of OTC
derivative liabilities of £886 million (2019: £650 million) amounted to £1,216 million (2019: £692 million).
214
214
Phoenix Group Holdings plc Annual Report & Accounts 2020
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 £2,686 million (2019: £3,306 million).
The maximum exposure to credit risk in respect of stock lending transactions is £2,435 million (2019: £3,050 million) of which credit risk of
£2,435 million (2019: £3,050 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.
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Phoenix Group Holdings plc Annual Report & Accounts 2020
215
215
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
E. FINANCIAL ASSETS & LIABILITIES continued
E5. Borrowings continued
E5.1 Analysis of borrowings
Limited recourse bonds 2022 7.59% (note a)
Property reversions loan (note b)
Total policyholder borrowings
£200 million 7.25% unsecured subordinated loan (note c)
£300 million senior unsecured bond (note d)
£428 million Tier 2 subordinated notes (note e)
£450 million Tier 3 subordinated notes (note f)
US $500 million Tier 2 bonds (note g)
€500 million Tier 2 bonds (note h)
US $750 million Contingent Convertible Tier 1 notes (note i)
£500 million Tier 2 notes (note j)
US $500 million Fixed Rate Reset Tier 2 notes (note k)
£500 million 5.867% Tier 2 subordinated notes (note l)
£250 million Fixed Rate Reset Callable Tier 2 subordinated notes (note m)
£250 million 4.016% Tier 3 subordinated notes (note n)
Total shareholder borrowings
Carrying value
2020
£m
–
84
84
200
122
426
449
364
442
545
484
364
556
272
259
2019
£m
35
99
134
196
121
426
449
376
417
–
–
–
–
–
–
Fair value
2020
£m
–
84
84
204
125
517
470
416
516
585
622
395
620
280
266
2019
£m
38
99
137
211
130
503
473
396
472
–
–
–
–
–
–
4,483
1,985
5,016
2,185
Total borrowings
4,567
2,119
5,100
2,322
Amount due for settlement after 12 months
4,245
2,107
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 as at 31 December 2019 were due to
mature in 2022. During 2019, repayments totalling £12 million were made. As at 31 December 2019, Phoenix Life Assurance Limited (‘PLAL’)
had provided collateral of £14 million to provide security to the holders of the recourse bonds in issue. On 4 August 2020, Mutual Securitisation
plc redeemed all the outstanding class A2 limited recourse bonds in issue.
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 2020,
repayments totalling £19 million were made (2019: £22 million). Note G4 contains details of the assets that support this loan.
c. 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.
On 8 February 2021, the Group provided notice that it would repay the loan notes on their first call date in March 2021 and accordingly they are
presented as due within 12 months.
216
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Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
d. 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.
e. 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.
f. 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.
g. 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.
h. 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.
i. On 29 January 2020, the Company issued US $750 million fixed rate reset perpetual restricted Tier 1 contingent convertible notes (the
‘Contingent Convertible Tier 1 Notes’) which are unsecured and subordinated. The Contingent Convertible Tier 1 Notes have no fixed maturity
date and interest is payable only at the sole and absolute discretion of the Company. The Contingent Convertible Tier 1 Notes bear interest
on their principal amount at a fixed rate of 5.625% per annum up to the ‘First Reset Date’ of 26 April 2025. Thereafter the fixed rate of interest
will be reset on the First Reset Date and on each fifth anniversary of this date by reference to the sum of the yield of the Constant Maturity
Treasury (‘CMT’) rate (based on the prevailing five year US Treasury yield) plus a margin of 4.035%, being the initial credit spread used in pricing
the notes. Interest is payable on the Contingent Convertible Tier 1 Notes semi-annually in arrears on 26 April and 26 October. If an interest
payment is not made it is cancelled and it shall not accumulate or be payable at any time thereafter.
The terms of the Contingent Convertible Tier 1 Notes contain a contingent settlement provision which is linked to the occurrence of a
‘Capital Disqualification Event’. Such an event is deemed to have taken place where, as a result of a change to the Solvency II regulations,
the Contingent Convertible Tier 1 Notes are fully excluded from counting as own funds. On the occurrence of such an event and where the
Company has chosen not to use its corresponding right to redeem the notes the Company shall no longer be able to exercise its discretion
to cancel any interest payments due on such Contingent Convertible Tier 1 Notes on any interest payment date following the occurrence
of this event. Accordingly the Contingent Convertible Tier 1 Notes are considered to meet the definition of a financial liability for financial
reporting purposes.
The Contingent Convertible Tier 1 Notes may be redeemed at par on the First Reset 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 Contingent Convertible Tier 1 Notes. In respect of any redemption or purchase of the Contingent Convertible Tier 1 Notes, such
redemption or purchase is subject to the receipt of permission 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 Contingent Convertible Tier 1 Notes, the Contingent Convertible Tier 1
Notes will automatically be subject to conversion to ordinary shares of the Company at the conversion price of US $1,000 per share, subject
to adjustment in accordance with the terms and conditions of the notes and all accrued and unpaid interest will be cancelled. Following such
conversion there shall be no reinstatement of any part of the principal amount of, or interest on, the Contingent Convertible Tier 1 Notes at any
time.
j. On 28 April 2020, the Company issued £500 million fixed rate Tier 2 Notes (the ‘Tier 2 Notes’) which are unsecured and subordinated. The Tier
2 Notes have a maturity date of 28 April 2031 and include an issuer par call right for the three month period prior to maturity. The Tier 2 Notes
bear interest on the principal amount at a fixed rate of 5.625% per annum payable annually in arrears on 28 April each year.
k. On 4 June 2020, the Company issued US $500 million fixed rate reset callable Tier 2 notes (the ‘Fixed Rate Reset Tier 2 Notes’) which are
unsecured and subordinated. The Fixed Rate Reset Tier 2 notes have a maturity date of 4 September 2031 with an optional issuer par call right
on any day in the three month period up to and including 4 September 2026. The Fixed Rate Reset Tier 2 Notes bear interest on the principal
amount at a fixed rate of 4.75% per annum up to the interest rate reset date of 4 September 2026. If the Fixed Rate Reset Tier 2 Notes are not
redeemed before that date, the interest rate resets to the sum of the applicable CMT rate (based on the prevailing five year US Treasury yield)
plus a margin of 4.276%, being the initial credit spread used in pricing the notes. Interest is payable on the Fixed Rate Reset Tier 2 Notes semi-
annually in arrears on 4 March and 4 September each year.
Phoenix Group Holdings plc Annual Report & Accounts 2020
217
217
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
E. FINANCIAL ASSETS & LIABILITIES continued
E5. Borrowings continued
E5.1 Analysis of borrowings continued
l. On 22 July 2020, as part of the acquisition of ReAssure Group plc, the Group assumed the £500 million 5.867% Tier 2 subordinated notes.
On the same date, the Company was substituted in place of ReAssure Group plc as issuer of the notes. The £500 million 5.867% Tier 2
subordinated notes have a maturity date of 13 June 2029 and were initially recognised at their fair value as at the date of acquisition of
£559 million. The fair value adjustment will be amortised over the remaining life of the notes. Interest is payable semi-annually in arrears
on 13 June and 13 December.
m. On 22 July 2020, as part of the acquisition of ReAssure Group plc, the Group assumed the £250 million fixed rate reset callable Tier 2
subordinated notes. On the same date, the Company was substituted in place of ReAssure Group plc as issuer of the notes. The £250 million
fixed rate reset callable Tier 2 subordinated notes have a maturity date of 13 June 2029 and were initially recognised at their fair value as at the
date of acquisition of £275 million. The fair value adjustment will be amortised over the remaining life of the notes. The notes include an issuer
par call right exercisable on 13 June 2024. Interest is payable semi-annually in arrears on 13 June and 13 December. These notes initially bear
interest at a rate of 5.766% on the principal amount and the rate of interest will reset on 13 June 2024, and on each interest payment date
thereafter, to a margin of 5.17% plus the yield of a UK Treasury Bill of similar term.
n. On 22 July 2020, as part of the acquisition of ReAssure Group plc, the Group assumed the £250 million 4.016% Tier 3 subordinated notes.
On the same date, the Company was substituted in place of ReAssure Group plc as issuer of the notes. The £250 million 4.016% Tier 3
subordinated notes have a maturity date of 13 June 2026 and were initially recognised at their fair value as at the date of acquisition of
£259 million. The fair value adjustment is being amortised over the remaining life of the notes. Interest is payable semi-annually in arrears
on 13 June and 13 December.
o. The Group has in place a £1.25 billion unsecured revolving credit facility, maturing in June 2025. 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. The facility remains undrawn as at
31 December 2020.
E5.2 Reconciliation of liabilities arising from financing activities
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.
Cash movements
Non-cash movements
At
1 January
2020
£m
New
borrowings,
net of costs
£m
Repayments
£m
Acquisition of
ReAssure
£m
Changes in
fair value
£m
Movement
in foreign
exchange
£m
Other
movements1
£m
At
31 December
2020
£m
Limited recourse bonds 2022 7.59%
Property Reversions loan
£200 million 7.25% unsecured
subordinated loan
£300 million senior unsecured bond
£428 million Tier 2 subordinated
notes
£450 million Tier 3 subordinated
notes
US $500 million Tier 2 bonds
€500 million Tier 2 notes
US $750 million Contingent
Convertible Tier 1 notes
£500 million Tier 2 notes
US $500 million Fixed Rate Reset
Tier 2 notes
£500 million 5.867% Tier 2
subordinated notes
£250 million Fixed Rate Reset
Callable Tier 2 subordinated notes
£250 million 4.016% Tier 3
subordinated notes
35
99
196
121
426
449
376
417
–
–
–
–
–
–
–
–
–
–
–
–
–
–
566
483
396
–
–
–
(36)
(19)
–
–
–
–
–
–
–
–
–
–
–
–
2,119
1,445
(55)
–
–
–
–
–
–
–
–
–
–
–
559
275
259
1,093
–
4
–
–
–
–
–
–
–
–
–
–
–
–
4
–
–
–
–
–
–
(12)
24
(23)
–
(32)
–
–
–
(43)
1
–
4
1
–
–
–
1
2
1
–
(3)
(3)
–
4
–
84
200
122
426
449
364
442
545
484
364
556
272
259
4,567
218
218
Phoenix Group Holdings plc Annual Report & Accounts 2020
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
Other
movements1
£m
At
31 December
2019
£m
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 subordinated notes
£450 million Tier 3 subordinated notes
US $500 million Tier 2 bonds
€500 million Tier 2 notes
45
114
13
186
121
–
426
448
390
443
–
–
–
–
–
(12)
(22)
–
–
–
100
(100)
–
–
–
–
–
–
–
–
–
7
(13)
–
–
–
–
–
–
–
1 Comprises amortisation under the effective interest method applied to borrowings held at amortised cost.
2,186
100
(134)
(6)
–
–
–
–
–
–
–
–
(14)
(27)
(41)
2
–
–
10
–
–
–
1
–
1
35
99
–
196
121
–
426
449
376
417
14
2,119
E6. Risk Management – Financial and Other Risks
This note forms one part of the risk management disclosures in the consolidated financial statements. An overview of the Group’s approach
to risk management is outlined in note I3 and 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 deliver
fair customer outcomes.
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.
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Phoenix Group Holdings plc Annual Report & Accounts 2020
219
219
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
E. FINANCIAL ASSETS & LIABILITIES continued
E6. Risk Management – Financial and Other Risks continued
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.
A Group-wide project is underway to enhance our approach to managing the financial risks of climate change, including embedding climate
risk considerations within the Group’s Risk Management Framework, which will meet the requirements of Supervisory Statement 3/19.
The Group’s disclosures in line with the Task Force for Climate-related Financial Disclosures (TCFD), including planned future activity across
each of the TCFD focus areas, are outlined on page 67 of the Annual Report and Accounts.
E6.2.1 Credit risk
Credit risk is defined as the risk of reductions in earnings and/or value, through financial or reputational loss, as a result of the default of
a counterparty or an associate of such a counterparty to a financial transaction (i.e. failure to honour their financial obligations, or failing
to perform them in a timely manner), whether on or off balance sheet
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, hedge funds 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
(where risks and rewards fall wholly to shareholders), non-profit funds and shareholders’ funds.
The Group holds £23,799 million (2019: £10,800 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 £1,156 million (2019: £583 million) to fund against the risk of default.
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 £5 million (2019: £70 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 £2 million (2019: £26 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.
220
220
Phoenix Group Holdings plc Annual Report & Accounts 2020
Credit quality of 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.
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2020
2020
Loans and deposits
Derivatives
Debt securities1,2
Reinsurers’ share of
insurance contract liabilities
Reinsurers’ share of
investment contract liabilities
Cash and cash equivalents
AAA
£m
–
–
9,041
–
–
30
9,071
AA
£m
6
1,220
35,184
A
£m
195
2,263
24,747
6,524
2,966
16
1,728
44,678
–
7,049
37,220
Non-rated
£m
Unit-linked
£m
Total
£m
647
6,880
78
199
BBB
£m
–
1,967
14,960
–
1
173
BB and
below
£m
–
–
2,497
–
–
–
368
1,231
6,658
52
–
10
16,368
109,455
–
9,542
9,542
2,008
9,559
10,998
24,876
16,935
C2
29,164
22,217
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.
£117 million of AAA, £963 million of AA, £2,446 million of A, £1,741 million of BBB and £219 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 £3,484 million (further details are set out in note E2.3) and non-rated bonds.
17,101
2,497
8,319
28,195
147,081
2019
Loans and deposits
Derivatives
Debt securities1,2
Reinsurers’ share of
insurance contract liabilities
Reinsurers’ share of
investment contract liabilities
Cash and cash equivalents
AAA
£m
–
–
AA
£m
21
11
9,630
32,188
A
£m
47
2,194
15,778
BBB
£m
164
1,484
10,947
–
–
295
9,925
5,913
1,366
–
733
38,866
–
3,105
22,490
–
–
23
Non-rated
£m
Unit-linked
£m
BB and
below
£m
–
–
284
759
2,252
5,317
–
–
–
45
–
270
Total
£m
516
4,454
76,113
7,324
8,881
4,466
–
6
1
–
8,881
40
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 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) and non-rated bonds.
Credit ratings have not been disclosed in the above tables for the
directly held assets of the unit-linked funds since the shareholder
is not directly exposed to credit risks from these assets. Included in
unit-linked funds are assets which are held as reinsured external fund
links. Under certain circumstances, the shareholder may be exposed
to losses relating to the default of the reinsured external fund link.
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 risk of unexpected downgrades and defaults within the Group’s
credit risk portfolio is heightened as a result of market volatility
and wider economic and social impacts arising from COVID-19.
Throughout 2020, the Group took de-risking action to increase the
overall credit quality of the portfolio and mitigate the impact of future
downgrades on risk capital.
The Group has increased exposure to illiquid credit assets such as
equity release mortgages, private placements and commercial real
estate loans) with the aim of achieving greater diversification and
investment returns, consistent with the Strategic Asset Allocation
approved by the Board.
Phoenix Group Holdings plc Annual Report & Accounts 2020
221
221
177
(12,080)
(10,125)
(14,080)
(7,991)
(1,549)
(1,674)
(28,651)
(20,713)
513
1,504
2019
£m
4,038
(556)
3,482
700
4,182
106
–
–
(7,792)
1,177
(5,229)
(320)
84
70
(382)
(20)
(274)
(336)
(162)
351
(365)
(14)
(235)
365
130
116
85
31
116
8.7p
8.6p
2020
£m
4,706
(796)
3,910
794
4,704
121
372
85
(7,808)
1,613
(3,249)
(568)
(113)
–
(469)
(18)
(219)
(217)
(234)
1,270
(326)
944
(436)
326
(110)
834
798
36
834
91.8p
91.5p
Notes
F3
C1
H2.1
H2.2
F2
G2
G2
G2
C3
F3.3
C5
C6
C6
C6
C6
D5
B3
B3
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
Gain on Part VII portfolio transfer
Net income
Policyholder claims
Less: reinsurance recoveries
Change in insurance contract liabilities
Change in reinsurers’ share of insurance contract liabilities
Transfer (to)/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 under arrangements with reinsurers
Net income attributable to unitholders
Total operating expenses
Profit before finance costs and tax
Finance costs
Profit for the year before tax
Tax charge attributable to policyholders’ returns
Profit/(loss) before the tax attributable to owners
Tax charge
Add: tax attributable to policyholders’ returns
Tax (charge)/credit 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)
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
E. FINANCIAL ASSETS & LIABILITIES continued
E6. Risk Management – Financial and Other Risks continued
E6.2 Financial risk analysis continued
E6.2.1 Credit risk continued
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 303 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. The additional life company asset disclosures also include the
Group’s market exposure analysed by credit rating for the
shareholder debt portfolio.
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 obtained 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 defined as the risk of reductions in earnings and/or
value, through financial or reputational loss, from unfavourable
market movements. The risk typically arises from exposure to equity,
property and fixed income asset classes and the impact of changes
in interest rates, inflation rates and currency exchange rates.
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.
The potential for adverse market risk is heightened in 2020 due to
the prolonged period of low interest rates and ongoing uncertainty
regarding the external environment, particularly COVID-19. Details
of how the Group has managed this heightened market risk are
included on page 88 of the Risk Management section of the
Annual Report.
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.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract 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 £287 million (2019: £114 million).
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).
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 £461 million (2019: £233 million).
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 £281 million (2019: £254 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.
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 £263 million (2019: £200 million).
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
Phoenix Group Holdings plc Annual Report & Accounts 2020
223
223
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
E. FINANCIAL ASSETS & LIABILITIES continued
E6. Risk Management – Financial and Other Risks continued
E6.2 Financial risk analysis continued
E6.2.2 Market risk continued
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 £25 million (2019: £26 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 (2019: £16 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, some historic business written in the latter,
and Ark Life domiciled in the Republic of Ireland, 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. Over the course of
2020 the Matching Adjustment Portfolios (MAPs) have increased
investment in overseas investment grade credit (primarily US) again
with the purpose of increasing returns whilst reducing overall risk
through diversification. The currency risk arising from these
investments is hedged back into sterling, therefore not increasing
the Group’s currency exposure.
Sensitivity of profit after tax and equity to fluctuations in currency
exchange rates is not considered significant at 31 December 2020,
since unhedged exposure to foreign currency was relatively low
(2019: not considered significant).
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.
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 failure, reputation damage,
loss of earnings/value arising from a lack of liquidity, funding or
capital, and/or the inappropriate recording, reporting, understanding
of tax legislation and disclosure of financial, taxation and regulatory
information. 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. In addition, 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.
Liquidity risk is defined as failure to maintain adequate levels of
financial resources to meet short-term obligations as they fall due.
Funding risk relates to the potential inability to raise additional capital
or liquidity when required in order to maintain the resilience of the
balance sheet. 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.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
The Group’s liquidity risk management strategy is based on a very
low risk appetite of having insufficient liquid or tangible assets
to meet financial obligations as they fall due and is supported by:
• Holding appropriate assets to meet liquidity buffers;
• Holding high quality liquid assets to support day to day operations;
• An effective stress testing framework to ensure survival horizons
are met under different plausible scenarios;
• Effective liquidity portfolio management; and
• Liquidity risk contingency planning.
The Group’s funding strategy aims to maintain the appropriate
level of debt and equity in order to support the Group’s acquisition
ambitions, while maintaining sufficient headroom for hybrid capital
under Solvency II rules.
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. These forecasts
incorporate an estimated view of the potential economic downturn
that is anticipated to be experienced due to the impacts of COVID-
19. Further details are included within the Viability Statement
on page 90.
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 March 2020, property
collective investment schemes were suspended due to Material
Valuation Uncertainty clauses being applied by independent property
valuers immediately prior to the COVID-19 lockdown. In line with
contractual terms, certain transactions, including transfers-out,
surrenders and switches were not permitted while funds were in
deferral. However, claims in respect of retirement transactions,
policy maturities, deaths and regular maturities are deemed ‘non-
discretionary’ and were paid based on available daily prices. All funds
have since had suspensions lifted and no further restrictions apply.
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
contract 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:
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Phoenix Group Holdings plc Annual Report & Accounts 2020
225
225
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
E. FINANCIAL ASSETS & LIABILITIES continued
E6. Risk Management – Financial and Other Risks continued
E6.2 Financial risk analysis continued
E6.2.3 Financial soundness risk continued
2020
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
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
1 year or
less or on
demand
£m
1–5 years
£m
20,027
32,703
165,106
551
699
274
3,791
5,205
134
1,669
12
509
1,265
–
1,661
832
526
–
–
–
–
36
4
–
Greater
than
5 years
£m
81,177
–
3,145
2,569
224
–
–
–
–
84
8
1
No fixed
term
£m
–
–
84
–
–
–
–
–
–
–
–
–
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
–
–
99
–
–
–
–
–
–
–
–
–
Total
£m
133,907
165,106
5,441
4,100
1,024
3,791
5,205
134
1,669
132
521
1,266
Total
£m
95,643
120,773
2,722
4,256
796
3,149
3,671
101
890
123
384
1,043
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.
The Group’s strategy and business plan are exposed to external
events that could prevent or impact the achievement of the strategy;
events relating to how the strategy and business plan are executed;
and events that arise as a consequence of following the specific
strategy chosen. The identification and assessment of strategic risks
is an integrated part of the RMF. Strategic Risk should be considered
in parallel with the Risk Universe as each of the risks within the
Risk Universe can impact the Group’s strategy.
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.
A Strategic Risk Policy is maintained and reported against
regularly, with a particular focus on risk management, stakeholder
management, corporate activity and overall reporting against the
Group’s strategic ambitions.
E6.2.4 Strategic risk
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. However, the Group
seeks to proactively review, manage and control these exposures.
226
226
Phoenix Group Holdings plc Annual Report & Accounts 2020
E6.2.5 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. Operational risk arises due to failures in one or more of the
following aspects of our business:
• indirect exposures through outsourcing service providers (OSPs)
and suppliers;
• direct exposures through internal practices, actions or omissions;
• external threats from individuals or groups focused on malicious or
criminal activities, or on external events occurring which are not
within the Group’s control; and
• negligence, mal-practice or failure of employees, or suppliers to
follow good practice in delivering operational processes and
practices.
It is accepted that it is neither possible, appropriate nor cost effective
to eliminate operational risks from the business as operational risk
is inherent in any operating environment particularly given the
regulatory framework under which the Group operates. As such the
Group will tolerate a degree of operational risk subject to appropriate
and proportionate levels of control around the identification,
management and reporting of such risks.
E6.2.6 Customer risk
Customer risk is the risk of reductions in earnings and/or value
through inappropriate or poor customer treatment (including poor
advice). It can arise as a result of:
• Customer Treatment: Failure to have a customer centric culture
which drives appropriate behaviours and decisions leading to
customer interactions and outcomes which meet or exceed
reasonable customer and regulator expectations and which take
account of potential customer vulnerability.
• Customer Transformation: The design, governance and oversight
of Strategic Customer Transformation Activity in retained functions
and service providers, fails to deliver on reasonable customer
expectations, taking account of the Group’s customer treatment
risk appetites and regulatory requirements.
• Product and Propositions: Failure to design and/or manage
products/propositions appropriately, or failure of the manufacturer
to ensure that products/ propositions are distributed to the
appropriate target market, perform as intended and in line with
the expectations set.
• Sales and Distribution: Inappropriate (unclear, unfair or misleading)
financial promotions, sales practices and/or distribution
agreements resulting in poor customer outcomes leading
to reputational, financial and/or operational detriment.
Risk capital requirement for customer risk is assessed using
the Group’s PRA approved Internal Model which is calibrated to
withstand a stress event to a 99.5% confidence level over a one-year
period. The methodology is based on scenarios assessed by
experts within the business. From a qualitative perspective, the
customer risks for the Group are regularly reported to management
oversight committees.
The Group’s Conduct Risk Appetite, sets the boundaries within
which the Group expect customer outcomes to be managed.
In addition, the Group Conduct Risk Framework, which overarches
our Risk Universe and all risk policies, consists of a set of outcomes,
intents and standards for all staff to follow to ensure that we have
embedded and effective controls in place across our business
activities to detect where our customers are at risk of poor outcome,
minimise conduct risks, and respond with timely and appropriate
mitigating actions.
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 Discretionary
Participation Feature (‘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:
Risk capital requirement for customer risk is assessed using
E6.2.5 Operational risk
the Group’s PRA approved Internal Model which is calibrated to
Operational risk is the risk of reductions in earnings and/or value,
withstand a stress event to a 99.5% confidence level over a one-year
through financial or reputational loss, from inadequate or failed
period. The methodology is based on scenarios assessed by
internal processes and systems, or from people related or external
experts within the business. From a qualitative perspective, the
events. Operational risk arises due to failures in one or more of the
customer risks for the Group are regularly reported to management
following aspects of our business:
oversight committees.
The Group’s Conduct Risk Appetite, sets the boundaries within
which the Group expect customer outcomes to be managed.
In addition, the Group Conduct Risk Framework, which overarches
• indirect exposures through outsourcing service providers (OSPs)
and suppliers;
• direct exposures through internal practices, actions or omissions;
our Risk Universe and all risk policies, consists of a set of outcomes,
• external threats from individuals or groups focused on malicious or
intents and standards for all staff to follow to ensure that we have
criminal activities, or on external events occurring which are not
embedded and effective controls in place across our business
activities to detect where our customers are at risk of poor outcome,
minimise conduct risks, and respond with timely and appropriate
mitigating actions.
within the Group’s control; and
• negligence, mal-practice or failure of employees, or suppliers to
follow good practice in delivering operational processes and
practices.
F. INSURANCE CONTRACTS, INVESTMENT CONTRACTS
It is accepted that it is neither possible, appropriate nor cost effective
WITH DPF AND REINSURANCE
to eliminate operational risks from the business as operational risk
F1. Liabilities Under Insurance Contracts
is inherent in any operating environment particularly given the
Classification of contracts
regulatory framework under which the Group operates. As such the
Contracts are classified as insurance contracts where the Group
Group will tolerate a degree of operational risk subject to appropriate
accepts significant insurance risk from the policyholder by agreeing
and proportionate levels of control around the identification,
to compensate the policyholder if a specified uncertain event
management and reporting of such risks.
adversely affects the policyholder.
Contracts under which the transfer of insurance risk to the Group
Customer risk is the risk of reductions in earnings and/or value
from the policyholder is not significant are classified as investment
through inappropriate or poor customer treatment (including poor
contracts or derivatives and accounted for as financial liabilities (see
advice). It can arise as a result of:
notes E1 and E3 respectively).
Some insurance and investment contracts contain a Discretionary
which drives appropriate behaviours and decisions leading to
Participation Feature (‘DPF’). This feature entitles the policyholder to
customer interactions and outcomes which meet or exceed
additional discretionary benefits as a supplement to guaranteed
reasonable customer and regulator expectations and which take
benefits. Investment contracts with a DPF are recognised, measured
account of potential customer vulnerability.
• Customer Treatment: Failure to have a customer centric culture
and presented as insurance contracts.
E6.2.6 Customer risk
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
• Customer Transformation: The design, governance and oversight
of Strategic Customer Transformation Activity in retained functions
and service providers, fails to deliver on reasonable customer
expectations, taking account of the Group’s customer treatment
risk appetites and regulatory requirements.
or loss.
• Product and Propositions: Failure to design and/or manage
products/propositions appropriately, or failure of the manufacturer
Insurance contracts and investment contracts with DPF
to ensure that products/ propositions are distributed to the
Insurance liabilities
appropriate target market, perform as intended and in line with
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:
the expectations set.
• Sales and Distribution: Inappropriate (unclear, unfair or misleading)
financial promotions, sales practices and/or distribution
agreements resulting in poor customer outcomes leading
to reputational, financial and/or operational detriment.
• where there are no guaranteed surrender values; or
• 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.
• 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.
Phoenix Group Holdings plc Annual Report & Accounts 2020
227
227
227
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
F. INSURANCE CONTRACTS, INVESTMENT CONTRACTS
WITH DPF AND REINSURANCE continued
F1. Liabilities Under Insurance Contracts continued
For participating business, the liabilities under insurance contracts
and investment contracts with DPF are calculated in accordance with
the following methodology:
• liabilities to policyholders arising from the with-profit business are
stated at the amount of the realistic value of the liabilities, adjusted
to exclude the owners’ share of projected future bonuses;
• acquisition costs are not deferred; and
• 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.
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 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:
• The value of participating investment contract liabilities on
the consolidated statement of financial position is reduced
by future expected (net positive) cash flows arising on
participating contracts.
• Future expected cash flows on non-participating contracts are
not 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 consolidated statement of 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.
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.
228
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Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
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.
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
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.
Phoenix Group Holdings plc Annual Report & Accounts 2020
229
229
179
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
2020
£m
Reinsurers’
share
2020
£m
Gross
liabilities
2019
£m
Reinsurers’
share
2019
£m
103,012
30,895
133,907
9,542
–
9,542
70,685
24,958
95,643
7,324
–
7,324
Amounts due for settlement after 12 months
113,880
8,546
79,508
6,532
At 1 January
Premiums
Claims
Foreign exchange adjustments
Acquisition of ReAssure businesses (see note H2.1)
L&G Part VII transfer (see note H2.2)
Other changes in liabilities1
At 31 December
Gross
liabilities
2020
£m
95,643
4,706
Reinsurers’
share
2020
£m
7,324
796
(7,808)
(1,613)
851
4
24,606
2,782
9,558
6,351
–
249
Gross
liabilities
2019
£m
91,211
4,038
(7,792)
(841)
–
–
9,027
133,907
9,542
95,643
Reinsurers’
share
2019
£m
7,564
556
(1,177)
(3)
–
–
384
7,324
1 Other changes in liabilities principally comprise changes in economic and non-economic assumptions and experience. Other changes in liabilities in 2019 also included the recognition
of an additional £44 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 from/(to) consolidated
income statement
Acquisition of ReAssure businesses
(see note H2.1)
L&G Part VII transfer (see note H2.2)
Foreign exchange movements
At 31 December
2020
£m
1,367
113
136
261
(109)
1,768
2019
£m
1,358
(84)
–
–
93
1,367
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 £796 million
(2019: £556 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.
230
230
Phoenix Group Holdings plc Annual Report & Accounts 2020
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 £4,324 million (2019: £3,217 million).
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 expense under arrangements with reinsurers’
(see note F3.3). The amounts recognised as financial assets and
liabilities from cash collateral received at 31 December 2020 are
set out below
Financial assets
Financial liabilities
Reinsurance transactions
2020
£m
427
427
2019
£m
333
333
F4. Risk Management – Insurance Risk
This note forms one part of the risk management disclosures in
the consolidated financial statements. An overview of the Group’s
approach to risk management is outlined in note I3 and the Group’s
management of financial and other risks is detailed 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 Life businesses are exposed to the following elements
of insurance risk:
Mortality
higher than expected death claims on assurance
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 inceptions on
critical illness or income protection policies and
lower than expected termination rates on income
protection policies;
Expenses unexpected timing or value of expenses incurred;
Expenses unexpected timing or value of expenses incurred;
Persistency adverse movement in surrender rates, premium
Persistency adverse movement in surrender rates, premium
F3.3 Net expense 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 £3.7 billion as at 31 December
2020 (31 December 2019: £3.9 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 within net investment return in the consolidated
income statement is equal to an equivalent amount recognised in
net expense under arrangements with reinsurers.
Interest payable on deposits
from reinsurers
Premium adjustments
Net expense under arrangements
with reinsurers
2020
£m
(13)
(206)
2019
£m
(33)
(241)
(219)
(274)
paying rates, premium indexation rates, cash
withdrawal/drawdown 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.
New
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. Assumptions that are deemed
to be financially significant are reviewed at least annually for pricing
and reporting purposes.
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.
F4. Risk Management – Insurance Risk
Where the Group receives collateral in the form of marketable
This note forms one part of the risk management disclosures in
financial instruments which it is not permitted to sell or re-pledge
the consolidated financial statements. An overview of the Group’s
except in the case of default, it is not recognised in the statement
approach to risk management is outlined in note I3 and the Group’s
of consolidated financial position. The fair value of financial
management of financial and other risks is detailed in note E6.
assets accepted as collateral for reinsurance transactions but not
recognised in the statement of consolidated financial position
amounts to £4,324 million (2019: £3,217 million).
Insurance risk refers to the risk that the frequency or severity of
insured events may be worse than expected and includes expense
risk. The Life businesses are exposed to the following elements
Where the Group receives collateral on reinsurance transactions in
of insurance risk:
the form of cash it is recognised in the statement of consolidated
higher than expected death claims on assurance
Mortality
products or lower than expected improvements
in mortality;
lower than expected number of deaths experienced
Longevity
on annuity products or greater than expected
improvements in annuitant mortality;
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 expense under arrangements with reinsurers’
(see note F3.3). The amounts recognised as financial assets and
liabilities from cash collateral received at 31 December 2020 are
set out below
Morbidity higher than expected number of inceptions on
Reinsurance transactions
critical illness or income protection policies and
lower than expected termination rates on income
protection policies;
2019
£m
333
333
2020
£m
427
427
Financial assets
Financial liabilities
paying rates, premium indexation rates, cash
withdrawal/drawdown 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
New
with the underlying risk factors for that business.
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. Assumptions that are deemed
to be financially significant are reviewed at least annually for pricing
and reporting purposes.
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.
F3.3 Net expense 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 £3.7 billion as at 31 December
2020 (31 December 2019: £3.9 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 within net investment return in the consolidated
income statement is equal to an equivalent amount recognised in
net expense under arrangements with reinsurers.
2019
£m
(33)
(241)
2020
£m
(13)
(206)
(274)
(219)
Interest payable on deposits
from reinsurers
Premium adjustments
Net expense under arrangements
with reinsurers
Phoenix Group Holdings plc Annual Report & Accounts 2020
231
231
231
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
F. INSURANCE CONTRACTS, INVESTMENT CONTRACTS
WITH DPF AND REINSURANCE continued
F4. Risk Management – Insurance Risk continued
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. This longevity exposure has further been increased
following the acquisition of the ReAssure businesses and also due to
the fall in yields during the year.
Insurance risk and COVID—19
There is currently increased uncertainty around future demographic
experience as a result of COVID-19 impacts, particularly mortality,
longevity and persistency risk. Some allowance has been made in the
valuation and capital calculations for the potential short term effects
of COVID-19 on timing of cash flows relating to the insurance risks
to which the Group is exposed. The impact over the longer term
continues to be monitored on a regular basis however given the
uncertainty no adjustments have been deemed necessary to date.
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 £70 million
(2019: £58 million).
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 £70 million
(2019: £58 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 £619 million (2019:
£288 million).
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 £627 million (2019:
£298 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 £40 million (2019:
£20 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 £44 million (2019:
£20 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:
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
(e.g annuities), the Group makes a further explicit adjustment
to the risk-free rate to reflect illiquidity in respect of the assets
backing those liabilities.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
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 or 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.
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.
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 funds.
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 and the value of guaranteed benefits.
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.
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
£2,590 million (2019: £1,986 million) and £131 million (2019:
£109 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
£374 million (2019: £225 million) and £6 million (2019: £6 million)
respectively.
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.
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 funds, the assumptions about future demographic
trends represent ‘best estimates’.
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Phoenix Group Holdings plc Annual Report & Accounts 2020
233
233
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
F. INSURANCE CONTRACTS, INVESTMENT CONTRACTS WITH
DPF AND REINSURANCE continued
F4. Risk Management – Insurance Risk continued
F4.1 Assumptions continued
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:
Following the ‘second wave’ of COVID-19 deaths at the end of 2020,
the Group has recognised a short-term actuarial provision of
£10 million in anticipation of excess deaths relative to valuation
assumptions at 31 December 2020.
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.
(Decrease)/
increase in
insurance
liabilities
2020
£m
(Decrease)/
increase in
insurance
liabilities
2019
£m
The £19 million and £17 million negative impact of changes in
persistency and mortality assumptions respectively reflects the
results of the latest experience investigations.
Change in longevity assumptions
(369)
(186)
Change in persistency assumptions
Change in mortality assumptions
Change in expenses assumptions
6
31
(36)
19
17
(68)
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.
2020:
The £369 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 2019 projection tables.
The £6 million and £31 million negative impact of changes in
persistency and mortality assumptions respectively reflects the
results of the latest experience investigations.
The £36 million positive impact of changes in expense assumptions
principally reflects synergies generated upon the completion of the
Part VII transfer of the L&G Mature Savings business, partially offset
by an increase in reserves in respect of expected costs associated
with the delivery of the Group Target Operating Model for IT and
Operations and updates to investment expense assumptions,
principally reflecting changes to asset mix.
Factors related to the COVID-19 pandemic are expected to have
impacted policyholder behaviour (including persistency) and
demographic experience in the period and are likely to continue to do
so in the future. The Group’s results have been impacted during the
period by adverse mortality experience on the protection business,
but this has been offset by positive longevity experience on the
annuity business. The impact over the longer-term continues to be
monitored on a regular basis, however given the uncertainty no
adjustments to assumptions as a result of the impacts of COVID-19
have been deemed necessary to date.
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Phoenix Group Holdings plc Annual Report & Accounts 2020
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.
The following sections give an assessment of the risks associated with the Group’s main life assurance products and the ways in which the
F4.2 Managing product risk
Group manages those risks.
2020
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 – with guarantees
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
Reinsurance
Gross1
Investment
contracts
with DPF
£m
Insurance
contracts
£m
Investment
contracts
with DPF
£m
Insurance
contracts
£m
10,095
1,835
7,478
14,375
33,783
365
9,869
2,445
12,679
1,348
636
1,966
35,641
3,012
14,062
(115)
62
340
–
28,210
28,612
–
1,210
–
1,210
–
–
–
–
–
1,064
9
917
–
4,377
–
5,294
2
–
7
9
212
–
(115)
2,459
1,713
31
(61)
103,012
30,895
9,542
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
917
4,377
5,294
–
–
2
–
7
9
212
–
(115)
2,459
1,713
31
(61)
62
340
–
28,210
28,612
1,210
–
–
–
–
–
–
–
9
1,064
10,095
1,835
7,478
14,375
33,783
365
9,869
2,445
1,348
636
1,966
35,641
3,012
14,062
(115)
1,210
12,679
9,542
30,895
103,012
Deferred annuities – with guarantees
Deferred annuities – without guarantees
2020
With-profit funds:
Pensions:
Immediate annuities
Unitised with-profit
Total pensions
Life:
Immediate annuities
Unitised with-profit
Life with-profit
Total life
Other
Non-profit funds:
Deferred annuities – with guarantees
Deferred annuities – without guarantees
Immediate annuities
Protection
Unit-linked
Other
1 £7,883 million (2019: £5,320 million) of liabilities are subject to longevity swap arrangements.
1 £7,883 million (2019: £5,320 million) of liabilities are subject to longevity swap arrangements.
Phoenix Group Holdings plc Annual Report & Accounts 2020
235
235
235
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
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
Gross
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)
70,685
24,958
7,324
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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.
236
236
Phoenix Group Holdings plc Annual Report & Accounts 2020
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.
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Phoenix Group Holdings plc Annual Report & Accounts 2020
237
237
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED
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 benefit asset/liability (recognised in other comprehensive
income) and employer contributions.
This note describes the Group’s four main staff pension schemes
for its employees, the Pearl Group Staff Pension Scheme (‘Pearl
Scheme’), the PGL Pension Scheme, the Abbey Life Staff Pension
Scheme (‘Abbey Life Scheme’) and the ReAssure Staff Pension
Scheme (‘ReAssure Scheme’) and explains how the pension
asset/liability is calculated.
An analysis of the defined benefit (liability)/asset for each pension
scheme is set out in the table below and also includes the net
pension liability in respect of the Group operated unfunded
unapproved retirement benefit scheme (‘ReAssure Private
Retirement Trust’):
Pearl Group Staff Pension Scheme
Economic surplus
Adjustment for insurance policies
eliminated on consolidation
Net economic (deficit)/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 pension scheme (liability)/asset
PGL Pension Scheme
Economic surplus
Adjustment for amounts due to
subsidiary eliminated on consolidation
Adjustment for insurance policies
eliminated on consolidation
Net pension scheme liability
2020
£m
527
(596)
(69)
2019
£m
521
–
521
–
(24)
(185)
(254)
(183)
314
30
–
37
13
(1,749)
(1,719)
(1,687)
(1,637)
Abbey Life Staff Pension Scheme
Net pension scheme liability
(61)
(75)
ReAssure Staff Pension Scheme
Economic surplus
Provision for tax on that part of the
economic surplus available as a refund
on a winding-up of the Scheme
Net pension scheme asset
ReAssure Private Retirement Trust
Net pension scheme liability1
16
(5)
11
(2)
–
–
–
–
1 The balance includes plan assets of £382,000 which are primarily held within equities.
The Pearl Scheme and the PGL Pension Scheme have both
executed buy-in transactions with a Group life company and
subsequently assets supporting the actuarial liabilities are recognised
on a line by line basis within financial assets in the statement of
consolidated financial position. Further details are included in notes
G1.1 and G1.2 below.
238
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Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
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 Pearl
and PGL schemes, 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 sections G1.1 and G1.2 for further details).
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 needed to be
equalised. In 2018, the Group undertook an initial assessment, and
included an allowance for the potential cost of equalising GMP for
the impact between males and females in its IAS 19 actuarial
liabilities at 31 December 2018, pending further discussions with the
scheme Trustees and the issuance of guidance as to how
equalisation should be achieved. During the year, following a review
of the current methodology and assumptions the allowance for the
potential cost of equalising GMP has been updated and the resulting
reductions in the defined benefit obligation of £26 million for the
Pearl Scheme, £16 million for the PGL Scheme and £4 million for the
Abbey Life Scheme have been recognised in other comprehensive
income as an experience gain.
In 2018, the ReAssure Scheme made allowance for the estimated
impact of GMP equalisation and a provision of 0.1% of the defined
benefit obligation was made to allow for the cost of GMP
equalisation. The methodology and assumptions used to calculate
this impact remain appropriate as at 31 December 2020.
On 25 November 2020, the GMP equalisation ruling covering
transfers out was released and this confirmed that pension schemes
are required to equalise all transfers with 17 May 1990 to 5 April
1997 GMPs even if they were taken as far back as 1990. A further
exercise was undertaken to estimate the additional costs of allowing
for GMP equalisation on transfers out and during the year a further
cost of £1 million for the Pearl Scheme and £1 million for the PGL
Scheme was recognised as a past service cost in the consolidated
income statement. No adjustments were required for either the
Abbey Life Scheme or the ReAssure Scheme.
Impacts of COVID-19
The market volatility experienced as a result of COVID-19 has
contributed towards the movement in the pension scheme IAS 19
valuations for the year ended 31 December 2020. Discount rates
used to calculate the IAS 19 defined benefit obligations have fallen
by 60bps since 31 December 2019 to 1.4% and this has resulted in a
significant increase in the value of the defined benefit obligations at
31 December 2020. This impact has been partially offset in relation
to the Pearl Scheme, the Abbey Scheme and the ReAssure Scheme
by an increase in the fair value of the plan assets. Falling yields in the
period have resulted in an increase to the value of government bonds
and corporate bonds which form a substantial part of the plan assets
for these Schemes. There is a similar offset in respect of the PGL
Pension Scheme as the impact of the increase in the discount rate
has been offset by an increase in the fair value of the collateral
assets which primarily consist of government bonds.
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 Pearl Scheme is closed to new members,
and has no active members.
Defined benefit scheme
The Pearl Scheme is established under, and governed by, the trust
deeds and rules and has been 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
four 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.
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
Phoenix Group Holdings plc Annual Report & Accounts 2020
239
239
179
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
The valuation has been based on an assessment of the liabilities
of the Pearl Scheme as at 31 December 2020, 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 reflect the latest data available from the 30 June 2018
funding valuation. 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.
Pension Scheme Commitment Agreement and buy-in
On 17 November 2020, the Pearl Scheme entered into a
Commitment Agreement with PGH2 to complete a series of buy-ins
that are scheduled to be executed by 31 December 2023. At the
same time, the Pearl Scheme completed the first buy-in with
Phoenix Life Limited (‘PLL’) covering 25% of the Scheme’s
pensioner in-payment and deferred member liabilities, transferring
the associated risks of longevity improvement to PLL effective from
30 September 2020.
The Scheme transferred £731 million of plan assets to PLL which
constituted the payment of £735 million of premium to PLL and was
net of a £4 million payment by PLL to the scheme in respect of
benefits for October and November 2020. The assets transferred to
PLL are recognised in the relevant line within financial assets in the
consolidated statement of financial position. 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 subsequently eliminated on consolidation. The value of this
insurance policy at 30 September 2020 was £604 million and at 31
December 2020 was £596 million.
The Commitment Agreement replaced the 2012 Pensions
Agreement, which had previously included provisions covering
contribution payments, additional contributions payable should
agreed funding targets not be met, share charge over certain Group
entities and covenant tests. The main terms of the Commitment
Agreement are outlined below.
The new agreement contains provisions under which payments by
PGH2 to the Scheme are required in the event that the Group does
not meet the minimum buy-in completion schedule. There are two
different types of payments as follows:
• Gilts Deficit Recovery Contributions: These operate in a similar
way to the security under the 2012 Pension Agreement.
Contributions calculated as amounts required to reach full funding
on a gilts-basis by 30 June 2027.
• Contingent Contributions: These represent a new form of security
for the Trustee. The amount of these contributions is initially
capped at £200 million, with the cap running off in line with
completion of the buy-ins.
The new agreement also introduces a new form of security provided
by PGH2 to the Trustee which will be in place until the final buy-in is
completed. The share charges over certain Group entities have been
replaced by a new surety bond arrangement. The Surety Bond has
been written by two external third-party insurers, each providing
£100 million of cover payable to the Scheme following any one of the
following trigger events:
• Insolvency of the Company, PGH2, PGS, Standard Life Assurance
Limited, PLL, or Phoenix Life Assurance Limited; and
• Failure to pay any contributions to the Scheme due under the
terms of the Commitment Agreement.
The cover provided by the surety bonds will be reduced from £200
million to £100 million (in aggregate) once the completed aggregate
buy-in proportion exceeds 75%. The agreements between the
Trustee and the surety providers are backed by a guarantee and an
indemnity from the Company, PGH2 and PGS to the surety providers
to repay them in the event of a claim under the surety bond. A
liability would only be recognised upon the occurrence of one of the
above trigger events.
Contributions totalling £70 million were paid into the Pearl Scheme
in 2020 (2019: £40 million). Following the signing of the new
Commitment Agreement PGH2 paid the balance of the remaining
contributions under the 2012 Pensions Agreement (£37 million) in
addition to the monthly instalments paid up to this date. No further
contributions are expected to be paid to the Pearl Scheme however,
PGH2 will continue to meet the administrative and non-investment
running expenses of the Scheme as set out in the schedule of
contributions.
Following the revisions to the schedule of contributions, no
additional liability has been recognised at 31 December 2020
(2019: £24 million), to reflect a charge on any refund of the resultant
IAS 19 surplus that arises after adjustment for discounted future
contributions (2019: £69 million) in accordance with the minimum
funding requirement. At 31 December 2019, a deferred tax asset of
£12 million was also recognised to reflect tax relief at a rate of 17%
that was expected to be available on the contributions, once paid into
the Scheme.
240
240
Phoenix Group Holdings plc Annual Report & Accounts 2020
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
2,834
(2,313)
(183)
(24)
2020
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
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
53
–
53
198
–
–
–
–
–
(45)
(1)
(46)
–
51
(205)
19
–
–
Included in other comprehensive income
198
(135)
Employer’s contributions
Income received from insurance policies
Benefit payments
Assets transferred as premium for Scheme buy-in
70
5
(110)
(735)
–
–
110
–
At 31 December
2,315
(2,384)
(185)
(4)
–
(4)
–
–
–
–
2
–
2
–
–
–
–
(1)
–
(1)
–
–
–
–
–
25
25
–
–
–
–
–
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
Total
£m
314
3
(1)
2
198
51
(205)
19
2
25
90
70
5
–
(735)
(254)
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Phoenix Group Holdings plc Annual Report & Accounts 2020
241
241
179
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
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
(60)
(60)
202
–
–
–
–
–
–
12
(206)
11
–
–
Included in other comprehensive income
202
(183)
Employer’s contributions
Benefit payments
At 31 December
40
(112)
2,834
Scheme assets
The distribution of the scheme assets at the end of the year was as follows:
–
112
Hedging portfolio
Fixed interest gilts
Other debt securities
Properties
Private equities
Hedge funds
Cash and other
Obligations for repayment of stock lending collateral received
Reported scheme assets
Add back:
Insurance policies eliminated on consolidation
Economic value of assets
Total
£m
1,505
50
1,301
140
5
5
98
(789)
2,315
596
2,911
242
242
Phoenix Group Holdings plc Annual Report & Accounts 2020
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)
Total
£m
255
8
8
202
12
(206)
11
(22)
14
11
40
–
314
Of which not
quoted in an
active market
£m
(18)
–
–
266
19
6
–
–
–
–
(4)
(4)
–
–
–
–
(22)
–
(22)
–
–
(1)
(1)
–
–
–
–
–
14
14
–
–
(2,313)
(183)
(24)
2020
2019
Of which not
quoted in an
active market
£m
(30)
–
–
140
5
5
–
–
Total
£m
1,569
56
1,329
266
19
6
111
(522)
120
2,834
596
716
–
2,834
273
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 37% of the scheme assets is invested in collateral for
interest rate and inflation rate hedging where the intention is to
hedge greater than 100% of the interest rate and inflation rate risk
measured on a gilts-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% (2019: 40%); and
• Pensioners: 60% (2019: 60%)
The weighted average duration of the defined benefit obligation at
31 December 2020 is 16 years (2019: 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
2020
%
2019
%
2.85
2.90
2.10
1.40
2.90
2.10
2.20
2.00
3.00
2.20
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 2019
Core Projections (2019: CMI 2018 Core Projections) and a long-term
rate of improvement of 1.70% (2019: 1.60%) per annum for males
and 1.20% (2019: 1.30%) per annum for females. Under these
assumptions, the average life expectancy from retirement for a
member currently aged 40 retiring at age 60 is 30.1 years and
31.0 years for male and female members respectively (2019:
29.8 years and 32.2 years respectively).
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Phoenix Group Holdings plc Annual Report & Accounts 2020
243
243
179
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:
2020
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)
2,384
(95)
98
76
(87)
86
(86)
2019
Assumptions
Sensitivity level
Impact on the defined benefit obligation (£m)
2,313
(85)
93
Base
Discount rate
RPI
25bps
increase
25bps
decrease
25bps
increase
71
25bps
decrease
(65)
Life expectancy
1 year
increase
1 year
decrease
84
(84)
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 consolidated
financial position.
G1.2 PGL Pension Scheme
The PGL Pension Scheme comprises a final salary section and a defined
contribution section.
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.
Scheme details
Defined contribution scheme
On 1 July 2020 the Group closed the defined contribution section of
the PGL Scheme and ceased making contributions from this date.
Contributions in the period to 1 July 2020 were £5 million (2019:
£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 to future
accrual for active members.
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 the day to day administration of the benefits.
There are no further committed contributions to pay in respect of the
defined benefit section of the Scheme.
Insurance policies with Group entities
In March 2019, the PGL Pension Scheme entered into a ‘buy-in’
agreement with PLL which covered the remaining pensioner and
deferred members of the Scheme not covered by the first such
agreement concluded in December 2016. 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 was 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 valuation has been based on an assessment of the liabilities
of the PGL Pension Scheme as at 31 December 2020, undertaken
by independent qualified actuaries.
The value of the insurance policies with Group entities at
31 December 2020 is £1,749 million (2019: £1,687 million).
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.
244
244
Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Summary of amounts recognised in the consolidated financial statements
The amounts recognised in the consolidated financial statements are as follows:
2020
At 1 January
Interest income/(expense)
Administrative expenses
Past service cost
Included in profit or loss
Remeasurements:
Return on plan assets excluding amounts included
in interest income
Experience gains
Loss from changes in financial assumptions
Gain from changes in demographic assumptions
Included in other comprehensive income
Benefit payments
Income received from insurance policies
Assets transferred as premium for 2019 scheme buy-in
At 31 December
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
Fair value of
scheme
assets
£m
Defined
benefit
obligation
£m
Total
£m
54
(1,691)
(1,637)
1
(3)
–
(2)
(4)
–
–
–
(4)
(75)
75
(13)
35
(31)
–
(1)
(32)
–
41
(154)
7
(106)
75
–
–
(30)
(3)
(1)
(34)
(4)
41
(154)
7
(110)
–
75
(13)
(1,754)
(1,719)
Fair value of
scheme
assets
£m
Provision for
tax on the
economic
surplus available
as a refund
£m
Defined
benefit
obligation
£m
1,157
(1,528)
(151)
10
(3)
7
(39)
–
(39)
10
–
–
–
–
–
(34)
(175)
11
–
10
(198)
(74)
69
(1,115)
74
–
54
(1,691)
(5)
–
(5)
–
–
–
–
156
156
–
–
–
Total
£m
(522)
(34)
(3)
(37)
10
(34)
(175)
11
156
(32)
–
69
(1,115)
(1,637)
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
Phoenix Group Holdings plc Annual Report & Accounts 2020
245
245
179
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:
Cash and other
Reported scheme assets
Add back:
2020
2019
Of which not
quoted in an
active market
£m
–
–
Total
£m
35
35
Of which not
quoted in an
active market
£m
–
–
Total
£m
54
54
Insurance policies eliminated on consolidation
1,749
1,749
1,687
1,687
Adjustment for amounts due to subsidiary eliminated on consolidation
–
–
(13)
–
Economic value of assets
1,784
1,749
1,728
1,687
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 based on modified CMI 2019 Core Projections
(2019: CMI 2018 Core Projections) and a long-term rate of
improvement of 1.70% (2019: 1.60%) per annum for males and 1.20%
(2019: 1.30%) per annum for females. Under these assumptions, the
average life expectancy from retirement for a member currently aged
40 retiring at age 62 is 28.4 years (2019: 28.3 years) and 29.3 years
(2019: 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% (2019: 36%); and
• Pensioners: 64% (2019: 64%)
The weighted average duration of the defined benefit obligation at
31 December 2020 is 16 years (2019: 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
2020
%
2019
%
2.90
3.00
2.10
1.40
2.90
2.10
2.20
2.00
3.00
2.20
246
246
Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
A quantitative sensitivity analysis for significant actuarial assumptions is shown below:
2020
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)
1,754
(67)
70
55
(53)
65
(65)
2019
Assumptions
Sensitivity level
Base
Discount rate
25bps
decrease
25bps
increase
25bps
increase
RPI
Life
expectancy
25bps
decrease
1 year
increase
1 year
decrease
Impact on the defined benefit obligation (£m)
1,691
(65)
67
53
(51)
63
(63)
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
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 2020 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.
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 2020
247
247
179
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:
2020
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
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
Fair value of
scheme
assets
£m
254
Defined
benefit
obligation
£m
(329)
5
(1)
4
28
–
–
–
28
6
(12)
280
(7)
–
(7)
–
8
(31)
6
(17)
–
12
(341)
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)
Total
£m
(75)
(2)
(1)
(3)
28
8
(31)
6
11
6
–
(61)
Total
£m
(74)
(3)
(1)
(4)
26
2
(33)
2
(3)
6
–
(75)
248
248
Phoenix Group Holdings plc Annual Report & Accounts 2020
Scheme assets
The distribution of the scheme assets at the end of the year was as follows:
The distribution of the scheme assets at the end of the year was as follows:
Scheme assets
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% (2019: 49%); and
• Pensioners: 51% (2019: 51%)
The weighted average duration of the defined benefit obligation at
31 December 2020 is 17 years (2019: 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
2020
%
2019
%
2.85
2.90
2.10
1.40
2.90
2.10
2.20
2.00
3.00
2.20
2020
2019
Of which not
quoted in an
active market
£m
–
–
–
2
–
2
Total
£m
118
70
86
2
4
280
Of which not
quoted in an
active market
£m
–
–
–
(10)
–
(10)
Total
£m
105
73
71
(10)
15
254
2019
Of which not
quoted in an
active market
£m
2020
Of which not
quoted in an
active market
Total
£m
Total
£m
105
73
71
(10)
15
254
–
–
–
2
–
2
–
–
–
–
(10)
(10)
£m
118
70
86
2
4
280
Diversified income fund
Fixed interest government bonds
Corporate bonds
Derivatives
Cash and cash equivalents
Pension scheme assets
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 2018, using the SAPS S2 ‘Light’ tables
for males and for females based on year of use. Future longevity
improvements are based on amended CMI 2019 Core Projections
(2019: CMI 2018 Core Projections) and a long-term rate of
improvement of 1.70% (2019: 1.60%) per annum for males and 1.20%
(2019: 1.30%) per annum for females. Under these assumptions the
average life expectancy from retirement for a member currently aged
45 retiring at age 65 is 25.4 years and 26.5 years for male and female
members respectively (2019: 25.7 years and 27.2 years respectively).
The discount rate and inflation assumptions have been determined by
Derivative values above include interest rate and inflation rate swaps
considering the shape of the appropriate yield curves and the duration
and foreign exchange forward contracts. The Abbey Life Scheme
of the Abbey Life Scheme liabilities. This method determines an
has hedged its inflation risk through an inflation swap. It is currently
equivalent single rate for each of the discount and inflation rates,
exposed to interest rate risk to the extent that the holdings in bonds
which is derived from the profile of projected benefit payments.
are mismatched to the scheme liabilities. The long-term intention is
It has been assumed that post-retirement mortality is in line with a
risks that will remain are longevity and credit spread exposures.
to fully hedge this risk through an interest rate swap. Further key
valuation as at 31 March 2018, using the SAPS S2 ‘Light’ tables
The calculation of the defined benefit obligation can be allocated
Defined benefit obligation
to the Abbey Life Scheme’s members as follows:
(2019: CMI 2018 Core Projections) and a long-term rate of
• Deferred scheme members: 49% (2019: 49%); and
scheme-specific table which was derived from the actual mortality
experience in recent years, performed as part of the actuarial funding
for males and for females based on year of use. Future longevity
improvements are based on amended CMI 2019 Core Projections
improvement of 1.70% (2019: 1.60%) per annum for males and 1.20%
(2019: 1.30%) per annum for females. Under these assumptions the
45 retiring at age 65 is 25.4 years and 26.5 years for male and female
members respectively (2019: 25.7 years and 27.2 years respectively).
average life expectancy from retirement for a member currently aged
The weighted average duration of the defined benefit obligation at
• Pensioners: 51% (2019: 51%)
31 December 2020 is 17 years (2019: 17 years).
The principal financial assumptions of the Abbey Life Scheme are set
Principal assumptions
out in the table below:
2.90
2.85
payment (5% per annum or RPI if lower)
Rate of increase for pensions in
Rate of increase for deferred pensions
(‘CPI’ subject to caps)
2019
%
2020
%
2.20
2.00
3.00
2.20
2.10
1.40
2.90
2.10
Discount rate
Inflation – RPI
Inflation – CPI
Phoenix Group Holdings plc Annual Report & Accounts 2020
249
249
249
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:
2020
Assumptions
Sensitivity level
Base
Discount rate
RPI
25bps
Life
expectancy
25bps
increase
25bps
decrease
increase
25bps
decrease
1 year
increase
1 year
decrease
Impact on the defined benefit obligation (£m)
341
(14)
15
10
(11)
13
(13)
2019
Assumptions
Sensitivity level
Base
Discount rate
RPI
25bps
Life
expectancy
25bps
increase
25bps
decrease
increase
25bps
decrease
1 year
increase
1 year
decrease
Impact on the defined benefit obligation (£m)
329
(13)
14
10
(9)
12
(12)
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.
G1.4 ReAssure Life Staff Pension Scheme
Scheme details
The ReAssure Scheme was consolidated within the Group financial
statements following the acquisition of the ReAssure businesses on
22 July 2020 (see note H2.1). The ReAssure Scheme is a registered
occupational pension scheme, set up under Trust, and legally
separate from the employer ReAssure Midco Limited (‘RML’).
The scheme is administered by ReAssure Pension Trustees Limited,
a corporate trustee. There are six Trustee Directors, two of whom
are nominated by the ReAssure Scheme members and four of
whom are appointed by RML. The Trustee is responsible for
administering the scheme in accordance with the Trust Deed and
rules and pensions laws and regulations. The ReAssure Scheme is
closed to future accrual.
The valuation has been based on an assessment of the liabilities
of the ReAssure Scheme as at 31 December 2020 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 ReAssure Scheme was carried out
by a qualified actuary as at 31 December 2017 and showed a deficit
of £59 million.
Following the completion of the last triennial funding valuation a
Recovery Plan was agreed between the Trustee and the Group in
order to make good the deficit. Under the Recovery Plan, a further
£17 million was paid into a Custody Account in 2019 and no further
amounts have since been paid. The amounts held in this account
do not form part of the Scheme’s plan assets and are instead
included within financial assets in the statement of consolidated
financial position.
The total amount held in the Custody Account will be assessed
at future valuations and additional payments will be made by the
Group if this is deemed insufficient to meet the balance of the
funding shortfall as at 31 December 2025. If the assumptions
documented in the Statement of Funding Principles are borne out in
practice, the amount expected to be held in the Custody Account as
at 31 December 2025 would be more than sufficient to remove any
remaining deficit at 31 December 2025.
There were no contributions made in respect of current service
for the current and prior years. The Group agrees to cover those
expenses incurred by the ReAssure Scheme and the cost of the
death-in-service benefits for those members of the scheme who are
entitled only to those benefits. Payments of £1 million were made
since 22 July 2020 to cover these costs.
250
250
Phoenix Group Holdings plc Annual Report & Accounts 2020
Summary of amounts recognised in the consolidated financial statements
The amounts recognised in the consolidated financial statements are as follows:
2020
At 1 January
Acquisition of ReAssure businesses (see note H2.1)
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
Loss from changes in demographic assumptions
Change in provision for tax on economic surplus available as a refund
Included in other comprehensive income
Employer’s contributions
Benefit payments
At 31 December
Scheme assets
The distribution of the scheme assets at the end of the year was as follows:
Fair value of
scheme assets
£m
Defined benefit
obligation
£m
Provision for tax
on the economic
surplus available
as a refund
£m
−
459
4
(1)
3
19
−
−
−
−
19
1
(5)
477
−
(424)
−
(12)
(4)
−
(4)
−
2
(25)
(15)
−
(38)
−
5
−
−
−
−
−
−
−
7
7
−
−
(461)
(5)
Total
£m
−
23
−
(1)
(1)
19
2
(25)
(15)
7
(12)
1
−
11
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
2020
Equities
Government bonds
Corporate bonds
Real Estate
Other Quoted Securities
Cash and cash equivalents
Pension scheme assets
Defined benefit obligation
The calculation of the defined benefit obligation can be allocated to the ReAssure Scheme’s members as follows:
• Deferred scheme members: 74%; and
• Pensioners: 26%.
The weighted average duration of the defined benefit obligation at 31 December 2020 is 21 years.
Of which not
quoted in an
active market
£m
50
54
141
94
7,428
9,777
–
–
–
–
–
–
–
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
Total
£m
56
121
181
41
70
8
477
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Phoenix Group Holdings plc Annual Report & Accounts 2020
251
251
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED
G. OTHER STATEMENT OF CONSOLIDATED FINANCIAL POSITION NOTES continued
G1. Pension Schemes continued
G1.4 ReAssure Life Staff Pension Scheme continued
Principal assumptions
The principal assumptions of the ReAssure 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
Rate of increase in salaries
Discount rate
Inflation – RPI
Inflation – CPI
2020
%
2.85
2.10
3.10
1.40
2.90
2.10
The discount rate and inflation assumptions have been determined by considering the shape of the appropriate yield curves and the duration
of the ReAssure 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.
The mortality base table is based on the SAPS Series 2 light tables with a 96% multiplier for males and a 92% multiplier for females, with
CMI 2014 projections in line with a 1.50% pa long term trend up to and including 2014. Improvements from 2015 onwards are in line with
CMI 2019 projections with a long term trend of 1.5% pa and an initial addition to improvements parameter of 0.25% p.a.
Under these assumptions the average life expectancy from retirement for a member currently aged 45 retiring at age 60 is 29.8 years and
31.4 years for male and female members respectively.
A quantitative sensitivity analysis for significant actuarial assumptions is shown below:
2020
Assumptions
Sensitivity level
Base
Discount rate
RPI
25bps
Life
expectancy
25bps
increase
25bps
decrease
increase
25bps
decrease
1 year
increase
1 year
decrease
Impact on the defined benefit obligation (£m)
461
(25)
25
21
(21)
18
(18)
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.
252
252
Phoenix Group Holdings plc Annual Report & Accounts 2020
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.
income statement. Acquired in-force business is also considered in
the liability adequacy test for each reporting period.
2019
£m
2020
£m
Notes
The acquired in-force business is allocated to relevant cash
generating units for the purposes of impairment testing.
Goodwill is measured on initial recognition at cost. Following initial
recognition, goodwill is stated at cost less any accumulated
impairment losses. Goodwill is not amortised but is tested for
impairment annually or when there is evidence of possible
impairment. For impairment testing, goodwill is allocated to relevant
cash generating units. Goodwill is impaired when the recoverable
amount is less than the carrying value.
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.
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.
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.
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
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.
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Phoenix Group Holdings plc Annual Report & Accounts 2020
253
253
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED
G. OTHER STATEMENT OF CONSOLIDATED FINANCIAL POSITION NOTES continued
G2. Intangible Assets continued
2020
Cost or valuation
At 1 January
Acquisition of ReAssure businesses
(see note H2.1)
Reclassification to investment contract liabilities
At 31 December
Amortisation and impairment
At 1 January
Amortisation charge for the year
At 31 December
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
5,197
297
82
57
–
–
57
–
–
–
1,831
–
7,028
(1,546)
(469)
(2,015)
–
–
297
(154)
(14)
(168)
56
–
–
56
(10)
(4)
(14)
42
10
435
5,689
–
(82)
353
1,831
(82)
7,438
(164)
(18)
(182)
(1,710)
(487)
(2,197)
171
5,241
125
4,639
–
(82)
–
–
–
–
–
–
Other intangibles
Customer
relationships
£m
Present value
of future profits
£m
Brands
and other
£m
Total
other
intangibles
£m
365
70
435
Total
£m
5,619
70
5,689
(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
Carrying amount at 31 December
57
5,013
129
Amount recoverable after 12 months
57
4,457
115
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
Goodwill
£m
57
–
57
–
–
–
Acquired
in-force
business
£m
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
254
254
Phoenix Group Holdings plc Annual Report & Accounts 2020
G2.1 Goodwill
The carrying value of goodwill has been tested for impairment at the
year end. No impairment has been recognised as the value in use of
this intangible continues to exceed its carrying value.
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 (‘PVFP’) are the same as those used in calculating the
insurance contract liabilities given in note F4.1.
The PVFP held in intangibles represented future profits on specific
blocks of business in the NPL with-profit fund that was partly
attributable to the holders of the limited recourse bonds (see note
E5). As a consequence, the value of future profits was not
attributable solely to policyholders and the PVFP was therefore
presented as a separate intangible asset.
Following the repayment of the limited recourse bonds during the
year, the PVFP can be shown as fully attributable to policyholders
and it has therefore been reclassified as investment contract
liabilities.
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.
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.
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 was being amortised over a period of 15 years.
This intangible was valued on a ‘multi-period excess earnings’ basis
and was being amortised over a period of 15 years.
On 23 February 2021, the Group entered into an agreement with
SLA plc to simplify the arrangements of the Strategic Partnership. As
part of the changes, the CSPA entered into following the acquisition
of the Standard Life Assurance businesses will be dissolved. As a
consequence, the carrying value of the CSPA as at 31 December
2020 is expected to be recoverable within 12 months. Further details
have been provided in Note I7.
On 23 February 2021, the Group entered into an agreement with
SLA plc to simplify the arrangements of the Strategic Partnership. As
part of the changes, the CSPA entered into following the acquisition
of the Standard Life Assurance businesses will be dissolved. As a
consequence, the carrying value of the CSPA as at 31 December
2020 is expected to be recoverable within 12 months. Further details
have been provided in Note I7.
£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 9.2% (2019: 8.3%) and are consistent with those adopted by
management in the Group’s operating plan and, for the period 2026
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 2026 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. Management does not believe
that a reasonably foreseeable change in key assumptions would
cause value in use to be materially lower than the carrying value.
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 £1,831 million was recognised
during the year upon acquisition of the ReAssure businesses
(see note H2.1).
G2.3 Customer Relationships
The customer relationships intangible at 31 December 2020 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
2020 of 8.9 years.
G2.4 Present value of future profits on non-participating
G2.1 Goodwill
business in the with-profit fund
The carrying value of goodwill has been tested for impairment at the
The principal assumptions used to calculate the present value of
year end. No impairment has been recognised as the value in use of
future profits (‘PVFP’) are the same as those used in calculating the
this intangible continues to exceed its carrying value.
insurance contract liabilities given in note F4.1.
£47 million of goodwill is attributable to the Management Services
The PVFP held in intangibles represented future profits on specific
segment including £8 million that arose on acquisition of Abbey Life.
blocks of business in the NPL with-profit fund that was partly
attributable to the holders of the limited recourse bonds (see note
E5). As a consequence, the value of future profits was not
attributable solely to policyholders and the PVFP was therefore
presented as a separate intangible asset.
Following the repayment of the limited recourse bonds during the
year, the PVFP can be shown as fully attributable to policyholders
and it has therefore been reclassified as investment contract
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 9.2% (2019: 8.3%) and are consistent with those adopted by
management in the Group’s operating plan and, for the period 2026
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.
liabilities.
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.
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 2026 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. Management does not believe
that a reasonably foreseeable change in key assumptions would
cause value in use to be materially lower than the carrying value.
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 £1,831 million was recognised
during the year upon acquisition of the ReAssure businesses
(see note H2.1).
G2.3 Customer Relationships
The customer relationships intangible at 31 December 2020 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
2020 of 8.9 years.
Phoenix Group Holdings plc Annual Report & Accounts 2020
255
255
255
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED
G. OTHER STATEMENT OF CONSOLIDATED FINANCIAL
POSITION NOTES continued
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.
2020
Cost or valuation
At 1 January 2020
Acquisition of ReAssure businesses (see note H2.1)
Additions
At 31 December 2020
Depreciation
At 1 January 2020
Depreciation
At 31 December 2020
2019
Cost or valuation
At 1 January 2019
Transition to IFRS 16
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
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.
Owner-
occupied
properties
£m
Right-of-use
assets –
property
£m
Right-of-use
assets –
equipment
£m
Equipment
£m
Total
£m
25
8
–
33
–
–
–
75
3
–
78
(11)
(12)
(23)
31
–
31
2
(1)
(7)
25
–
–
–
–
75
75
–
–
–
75
–
(11)
(11)
2
–
–
2
–
–
–
2
27
4
23
54
(9)
(16)
(25)
129
15
23
167
(20)
(28)
(48)
29
119
Total
£m
50
77
127
10
(1)
(7)
129
(2)
(18)
(20)
19
–
19
8
–
–
27
(2)
(7)
(9)
18
109
–
2
2
–
–
–
2
–
–
–
2
Carrying amount at 31 December 2020
33
55
Owner-
occupied
properties
£m
Right-of-use
assets –
property
£m
Right-of-use
assets –
equipment
£m
Equipment
£m
Carrying amount at 31 December 2019
25
64
256
256
Phoenix Group Holdings plc Annual Report & Accounts 2020
Owner-occupied properties have been valued by accredited
independent valuers at 31 December 2020 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 £33 million (2019: £25 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.
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).
G4. Investment property
Investment property, including right of use assets, is initially
recognised at cost, including any directly attributable transaction
costs. Subsequently investment property is measured 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. Fair value is determined without any deduction for transaction
costs that may be incurred on sale or disposal. Gains and losses
arising from the change in fair value are recognised as income or an
expense in the Statement of comprehensive income.
Investment property includes right-of-use assets, where the Group
acts as lessee. 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
Acquisition of ReAssure businesses (see
note H2.1)
L&G Part VII transfer (see note H2.2)
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 year
2020
£m
2019
£m
5,943
6,520
556
1,221
157
9
(709)
–
(1)
4
–
–
214
5
(722)
7
(15)
(11)
(52)
(55)
7,128
5,943
(43)
(124)
As at 31 December 2020, a property portfolio of £7,025 million (2019:
£5,824 million) is held by the life companies in a mix of commercial
sectors, spread geographically throughout the UK and Europe.
Investment properties also include £86 million (2019: £101 million) of
property reversions arising from sales of the NPI Extra Income Plan
(see note E5 for further details) and from the Group’s interest in the
residential property of policyholders who have previously entered into
an Equity Release Income Plan (‘ERIP’) policy.
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 value of the
ground rent right-of-use asset as at 31 December 2020 was £17 million
(2019: £18 million). The remeasurement gives rise to a reduction of
£1 million (2019: £15 million). There were no disposals of ground rent
right-of-use assets during the period (2019: £47 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 NPI 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 3.7% (2019: 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 ERIP residential property reversions, an interest in the residential
property of policyholders who have previously entered into an ERIP
policy and been provided with a lifetime annuity in return for the legal
title to their property, are valued using unobservable inputs and
management’s best estimates. As the inward cash flows on these
properties will not be received until the lifetime lease is no longer in
force, which is usually upon the death of the policyholder, these
interests are valued on a reversionary basis which is a discounted
current open market value.
The open market values of the properties are independently revalued
every two years by members of the Royal Institution of Chartered
Surveyors and in the intervening period are adjusted by reference to
the Nationwide Building Society regional indices of house prices. The
discount period is based on the best estimates of the likely date the
property will become available for sale and the discount rate applied
is determined by the general partner as its best estimate of the
appropriate discount rate. The mortality rates are projected using future
mortality improvements from the CMI Mortality Projection Model. No
explicit allowance is made for house price inflation in the year through
to their realisation.
G2.4 Present value of future profits on non-participating
G2.1 Goodwill
business in the with-profit fund
The carrying value of goodwill has been tested for impairment at the
The principal assumptions used to calculate the present value of
year end. No impairment has been recognised as the value in use of
future profits (‘PVFP’) are the same as those used in calculating the
this intangible continues to exceed its carrying value.
insurance contract liabilities given in note F4.1.
£47 million of goodwill is attributable to the Management Services
The PVFP held in intangibles represented future profits on specific
segment including £8 million that arose on acquisition of Abbey Life.
blocks of business in the NPL with-profit fund that was partly
attributable to the holders of the limited recourse bonds (see note
E5). As a consequence, the value of future profits was not
attributable solely to policyholders and the PVFP was therefore
presented as a separate intangible asset.
Following the repayment of the limited recourse bonds during the
year, the PVFP can be shown as fully attributable to policyholders
and it has therefore been reclassified as investment contract
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 9.2% (2019: 8.3%) and are consistent with those adopted by
management in the Group’s operating plan and, for the period 2026
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.
liabilities.
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 was being amortised over a period of 15 years.
On 23 February 2021, the Group entered into an agreement with
SLA plc to simplify the arrangements of the Strategic Partnership. As
part of the changes, the CSPA entered into following the acquisition
of the Standard Life Assurance businesses will be dissolved. As a
consequence, the carrying value of the CSPA as at 31 December
2020 is expected to be recoverable within 12 months. Further details
have been provided in Note I7.
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 2026 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. Management does not believe
that a reasonably foreseeable change in key assumptions would
cause value in use to be materially lower than the carrying value.
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 £1,831 million was recognised
during the year upon acquisition of the ReAssure businesses
(see note H2.1).
G2.3 Customer Relationships
The customer relationships intangible at 31 December 2020 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
2020 of 8.9 years.
Phoenix Group Holdings plc Annual Report & Accounts 2020
257
257
255
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED
G. OTHER STATEMENT OF CONSOLIDATED FINANCIAL
POSITION NOTES continued
G4. Investment property continued
Therefore, the key assumptions used in the valuation of the
reversionary interests are the interest discount rate and the mortality
assumption. The interest discount rate was 5%.
During the year, the valuation of investment properties reflected the
fall in market values that have been evidenced throughout the
property sector in the first half of the year as a result of the impacts
of COVID-19. A significant portion of the investment
property valuations at 30 June 2020 included standard valuation
uncertainty clauses from the independent RICS valuers, reflective of
the increased uncertainty in determining fair values in the market
environment. In the second half of the year, the uncertainty clauses
were removed by the valuers. At 31 December 2020, updated
valuations were obtained for the majority of investment properties
and movements in fair values were compared to property indices to
provide additional assurance that fair values had moved as expected
during the period.
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 2020
Weighted average 2019
restated
Commercial Investment
Property
RICS valuation
Expected income per sq. ft.
£22.55
£25.46
Estimated rental value per hotel
room1
Estimated rental value per parking
space
Capitalisation rate
£8,689
£8,894
£1,169
5.26%
£1,170
5.15%
1 Comparative figure has been restated which has increased the estimated rental value per hotel room by £595.
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 NPI residential property reversions
would increase (decrease) if:
• the deferred possession rate were to be lower (higher);
• the mortality rate were to be higher (lower).
The estimated fair value of the ERIP residential property reversions
would increase (decrease) if:
• the discount 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 £13
million (2019: £22 million). The direct operating expenses arising
from investment property that did not generate rental income during
the year amounted to £1 million (2019: £1 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
2020
£m
304
959
2,820
2019
£m
259
850
2,654
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 and initial
margins posted
Reimbursement assets (note G7)
Property related receivables
Deferred acquisition costs
Other debtors
2020
£m
362
608
–
139
81
432
1,622
2019
£m
167
538
15
99
34
380
1,233
Amount recoverable after 12 months
76
20
258
258
Phoenix Group Holdings plc Annual Report & Accounts 2020
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 balances1
Short-term deposits (including notice
accounts and term deposits)1
2020
£m
6,355
4,643
10,998
2019
restated
£m
3,267
1,199
4,466
1 Comparative figures have been restated to reclassify £561 million from short-term
deposits to bank and cash balances.
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 £10,584 million
(2019: £4,201 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.
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Phoenix Group Holdings plc Annual Report & Accounts 2020
259
259
179
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
Input
VAT
recovery
provision
£m
Customer
remediation
for
operational
tax
£m
Transition and
Transformation
provision
£m
Transfer of
policy
administration
provision
£m
ReAssure
provision
£m
Other
£m
Total
£m
4
16
32
7
6
7
3
159
59
–
35 328
2
–
–
–
17
–
–
6
–
–
1
12
11
–
–
–
1
–
(16)
(4)
(14)
(2)
–
(4)
(2)
(6)
–
8
–
–
6
–
3
–
–
–
–
–
–
11
2 38
–
12
–
– 12
7
19 68
(19)
(36)
(8) (18) (115)
(31)
–
(3)
(1) (49)
10
17
35
1
4
15
12
109
35
7
37 282
2020
At 1
January
Acquisition
of
ReAssure
businesses
(see note
H2.1)
L&G Part
VII transfer
(see note
H2.2)
Additions
in the year
Utilised
during
the year
Released
during
the year
At 31
December
Leasehold properties
The leasehold properties provision includes a £9 million (2019:
£3 million) dilapidations provision in respect of obligations under
leases and £1 million (2019: £1 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.
On 7 September 2020, following completion of the Part VII transfer
of the Legal & General business, a £12 million compensation
provision was recognised in respect of amounts owed to customers
due to various system and processing errors resulting in incorrect
rules being applied to policies. There has been no movement in this
provision since that date but it is expected to be fully utilised within
one year.
Staff related
Staff related provisions include provisions for unfunded pensions of
£13 million (2019: £13 million), and private medical and other
insurance costs for former employees of £4 million (2019: £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. These balances represent the best
estimates of costs payable to customers. As at 1 January 2020,
£3 million of the balance has been reclassified as a ‘customer
remediation for operational tax’ provision and a further £7 million as
an ‘input VAT recovery provision, see notes below for further details.
Additional information has been given below in respect of the
significant balances within this provision.
The balance also includes a provision of £10 million (2019:
£12 million) which reflects the Group’s exposure in relation to a
historical underpayment of guaranteed payments to certain pension
customers as a result of a systems error. £2 million was utilised in
the year and it is expected that the balance will be fully utilised within
one year.
The remaining provisions of £13 million as at 31 December are
expected to be utilised within one year.
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.
260
260
Phoenix Group Holdings plc Annual Report & Accounts 2020
The PA(GI) provision of £1 million (2019: £7 million) represents
the Group’s best estimate of the likely future costs. Following the
passing of the FCA deadline for submission of complaints the level
of uncertainty with respect to the remaining exposure has reduced.
At 31 December 2020, £nil (2019: £15 million) of reimbursement
asset 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 £11 million (2019: £10 million) have been received
during the year.
FCA thematic reviews provision – SLAL
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.
Standard Life Assurance Limited (‘SLAL’) was 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.
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. This was subsequently settled in 2019. During the
year, £3 million of the provision was utilised and the remaining £3
million provision was released.
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.
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 £68 million (2019:
£64 million) has been recognised within other payables at 31
December 2020 to reflect obligations to SLA plc in this regard.
FCA thematic reviews provision – ReAssure
On acquisition of the ReAssure businesses on 22 July 2020,
£17 million of obligations were recognised on a fair value basis.
In 2018, ReAssure Limited performed an internal thematic review
and consequently recognised a provision in respect of charges for
the attached benefits of paid-up policies. A provision for the
remaining expected costs of £8 million was recognised on 22 July
2020 which has since been utilised during the year. A further £9
million was recognised in respect of ReAssure Life Limited (‘RLL’)
to reflect the costs of voluntary remediation to customers of certain
legacy products. During the year, £3 million of this provision was
utilised, a further £3 million was released and there was an increase
of £1 million, resulting in a balance at 31 December 2020 of
£4 million.
Input VAT recovery provision
The provision of £15 million (2019: £7 million) reflects the potential
outcome of on-going negotiations to agree a new VAT partial
exemption method with HMRC in relation to the basis of the
recovery of input VAT on the Transitional Services Arrangement with
SLA plc. The provision is based upon a likely alternative basis for
recovery and was increased by £8 million in the year to reflect input
VAT recovered in the period. The provision is subject to uncertainty
as the final VAT recovery percentage agreed with HMRC may
change. It is currently expected that the provision will be utilised
within one to two years.
Customer remediation for operational tax provision
The customer remediation for operational tax provision relates to
tax penalties payable to HMRC following failure to notify certain
customers of changes to their lifetime allowance usage. The Group
is currently in discussion with HMRC in respect of these items and
the provision represents the Group’s best estimate of the likely
future costs.
On acquisition of the ReAssure businesses on 22 July 2020,
£6 million of obligations were recognised on a fair value basis and a
further £3 million was recognised in respect of other life companies.
The balance at 31 December 2020 of £12 million is expected to be
utilised within three years.
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Phoenix Group Holdings plc Annual Report & Accounts 2020
261
261
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED
ReAssure restructuring provision
On acquisition of the ReAssure businesses on 22 July 2020, an
£11 million restructuring provision was recognised on a fair value
basis and included severance costs for Legal & General employees
following completion of the Part VII transfer. During the year,
£8 million of the provision has been utilised and the remaining
£3 million released.
An additional £7 million restructuring provision was established
during the year in respect of the recently acquired Old Mutual Wealth
Life Assurance entity to cover severance costs. The majority of this
provision is expected to be utilised within one year.
Other provisions
Other provisions includes £6 million (2019: £10 million) of 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. A further £23 million (2019: £23 million) is
provided for in respect of indemnities and obligations arising under
agreements entered into in association with corporate activity
undertaken by the Group. The balance will be utilised within the next
12 months.
The remaining other provisions of £8 million (2019: £2 million) consist
of a number of small balances all of which are less than £2 million
in value.
The impact of discounting on all provisions during the year from
either the passage of time or from a change in the discount rate is
not material.
G. OTHER STATEMENT OF CONSOLIDATED FINANCIAL
POSITION NOTES continued
G7. Provisions continued
Restructuring provisions
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.
An initial provision of £76 million was recognised in 2018 for the
expected cost of the platform migration and for severance and
other costs associated with exiting from the current arrangements.
The migration elements of the provision are subject to limited
uncertainty as a consequence of the signed agreements that are
in place. There is a higher degree of uncertainty in relation to the
severance and associated exit costs which will be impacted by the
number of staff that ultimately transfer to Diligenta. During the year
the provision was increased by £12 million, £36 million of the balance
was utilised and the remaining £35 million is expected to be utilised
within one year.
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 2019,
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. An initial provision of £159 million was established in
2019 and included 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.
During the year, £19 million of the provision has been utilised,
£31 million released, and the remaining £109 million is expected
to be utilised within three years.
262
262
Phoenix Group Holdings plc Annual Report & Accounts 2020
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
Deferred tax:
Deferred tax liabilities
Movement in deferred tax liabilities
2020
Trading losses
Capital 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
2020
£m
2019
£m
263
75
(1,036)
(873)
Recognised in
consolidated
income
statement
£m
Recognised in
other
comprehensive
income
£m
Acquisition
of ReAssure
businesses
£m
L&G
Part VII
transfer
£m
1
January
£m
Other
movements
£m
31 December
£m
14
–
20
32
(68)
12
14
8
40
(691)
(33)
(199)
(24)
2
(873)
15
14
(90)
(27)
(36)
(13)
1
(1)
(3)
123
–
(65)
5
2
(75)
–
–
–
–
(24)
1
(2)
–
–
–
–
–
–
–
–
22
102
124
–
–
–
1
–
(230)
–
–
–
10
–
–
–
–
–
–
–
–
(72)
(28)
9
(3)
–
–
(25)
(47)
(18)
1
–
–
–
–
–
–
–
2
–
–
(1)
–
–
2
30
36
42
129
(128)
–
13
8
39
(798)
(33)
(365)
(10)
1
(1,036)
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Phoenix Group Holdings plc Annual Report & Accounts 2020
263
263
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED
G. OTHER STATEMENT OF CONSOLIDATED FINANCIAL POSITION NOTES continued
G8. Tax Assets and Liabilities continued
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
Recognised in
consolidated
income statement
£m
1 January
£m
Recognised in
other
comprehensive
income
£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
–
–
–
(57)
–
1
–
–
–
–
–
–
–
(56)
14
20
32
(68)
12
14
8
40
(691)
(33)
(199)
(24)
2
(873)
Following the cancellation of the planned tax rate reduction from
19% to 17% announced in the March 2020 Budget, UK deferred tax
assets and liabilities, where provided, are reflected at a rate of 19%.
Deferred income tax assets are recognised for tax losses carried
forward only to the extent that realisation of the related tax benefit
is probable.
Further details relating to the impact of the increase to the Corporation
Tax Rate announced in the March 2021 Budget are detailed in Note I7.
Deferred tax assets have not been
recognised in respect of:
Tax losses carried forward
Excess expenses and deferred
acquisition costs
Intangibles
Deferred tax assets not recognised on
capital losses1
2020
£m
2019
£m
52
7
14
42
30
–
13
2
1 These can only be recognised against future capital gains and have no expiry date.
There are two technical matters which are currently being discussed
with HMRC in relation to the insurance business transfer from
Legal and General Assurance Society where discussions are not
sufficiently progressed at this stage for recognition of any tax benefit
arising but where discussions could progress positively over the next
financial year.
There is an ongoing tax dispute with HMRC in relation to the tax
treatment of an asset formerly held by Guardian Assurance Limited
(before the business was transferred to ReAssure Limited). The
current tax liability includes an accrual for the total tax under dispute
on the basis that there is sufficient risk that the tax treatment will not
be accepted.
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.
In July 2018, the Supreme Court concluded in favour of the tax payer
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. As a result of the
insurance business transfer from Legal and General Assurance
Society during the year, the tax refund for the benefit of the Group’s
with-profit and unit linked funds increased to £45 million (2019: £11
million) and £23 million (2019: £2 million) respectively. In the case of
the with-profit funds there was an increase in unallocated surplus
and for the unit linked funds there was a corresponding increase in
investment contract liabilities as a result of the recognition of the tax
asset.
In January 2020, HMRC issued a communication to taxpayers who
are affected by the dividend GLO but are not direct participants of it,
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 they will be able to
deal with the various claims outstanding.
Some companies of the Group were late joiners or not members
of the GLO but have made statutory protective tax claims totalling
circa £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.
264
264
Phoenix Group Holdings plc Annual Report & Accounts 2020
G11. Accruals and Deferred Income
This note analyses the Group’s accruals and deferred income at the
end of the year.
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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.
2020
£m
2019
£m
Accruals
Deferred income
Payables related to direct insurance
contracts
1,669
890
Amount due for settlement after
12 months
2020
£m
452
69
521
2019
£m
315
69
384
12
9
Amount due for settlement after
12 months
–
–
G10. Lease Liabilities
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 ground rent 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.
At 1 January
Acquisition of ReAssure businesses
(see note H2.1)
Leases incepted during the year
Termination of leases following the
disposal of associated investment
properties
Interest expense
Lease payments
Remeasurement of leases
At 31 December
Amount due within 12 months
Amount due after 12 months
2020
£m
84
5
10
–
4
(18)
(1)
84
11
73
2019
£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 within administrative
expenses. The expense for the year was £1 million (2019: £1 million).
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
Amount due for settlement
after 12 months
2020
£m
746
37
3
68
412
2019
£m
616
35
8
64
320
1,266
1,043
1
42
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.
Phoenix Group Holdings plc Annual Report & Accounts 2020
265
265
179
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED
H. INTERESTS IN SUBSIDIARIES AND ASSOCIATES continued
H1. Subsidiaries continued
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 Investment 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 relevant national supervisory authority.
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:
• 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 2020,
PeLHL held £50 million (2019: £49 million) within debt securities
and £13 million (2019: £7 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.
• ReAssure Midco Limited (‘RML’) is required to make payments of
contributions into a ring-fenced account on behalf of the ReAssure
Staff Pension Scheme. These amounts do not form part of the
pension scheme assets and at 31 December 2020, RML held
£57 million within debt securities and £2 million within cash and
cash equivalents in respect of this account. Further details of
when these amounts may become payable to the pensions
scheme are included in note G1.4.
The Pearl Pension Scheme funding agreement included certain
covenants which restricted the transfer of funds within the Group.
As detailed further in note G1.1, these covenants were terminated
under the Commitment Agreement entered into with the Pearl
Pension Scheme in November 2020.
266
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Phoenix Group Holdings plc Annual Report & Accounts 2020
H2. Acquisitions and Portfolio Transfers
H2.1 Acquisition of ReAssure businesses
On 22 July 2020, the Group acquired 100% of the issued share
capital of ReAssure Group plc from Swiss Re Finance Midco (Jersey)
Limited, an indirect subsidiary of Swiss Re Limited, for total
consideration of £3.1 billion. The consideration consisted of
£1.3 billion of cash, funded through the issuance of debt and own
resources, and the issue of 277,277,138 shares (‘the Acquisition
Shares’) to Swiss Re Group on 23 July 2020.
Pursuant to an agreement between Swiss Re Group and MS&AD
Insurance Group Holdings (‘MS&AD’), MS&AD transferred its entire
shareholding in ReAssure Group plc prior to 22 July 2020 to the
Swiss Re Group in consideration for the transfer of 144,877,304 of
the Acquisition Shares at completion. The equity stake in the Group
held by Swiss Re Group and MS&AD was valued at £1,847 million,
based on the share price at that date.
The table below summarises the fair value of identifiable assets
acquired and liabilities assumed as at the date of acquisition.
Notes
Fair value
£m
Assets
Acquired in-force business
Pension scheme asset
Property, plant and equipment
Investment property
Financial assets
Reinsurers’ share of insurance contract
liabilities
Other insurance assets
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Liabilities
Pension scheme liabilities
Liabilities under insurance contracts
Investment contract liabilities
Unallocated surplus
Borrowings
Other financial liabilities
Provisions
Deferred tax liabilities
Reinsurance payables
Payables related to direct insurance
contracts
Current tax
Lease liabilities
Accruals and deferred income
Other payables
Total liabilities
Fair value of net assets acquired
Gain arising on acquisition
Purchase consideration transferred
Analysis of cash flows on acquisition:
Net cash acquired with the subsidiaries
(included in cash flow from investing
activities)
Cash paid
Net cash flow on acquisition
G2
G1
G3
G4
F1
G1
F1
F2
E5
G7
G8
G10
1,831
23
15
556
49,097
2,782
231
27
71
379
286
55,298
2
24,606
24,516
136
1,093
581
38
47
132
409
86
5
76
87
51,814
3,484
(372)
3,112
286
(1,265)
(979)
G2.4 Present value of future profits on non-participating
G2.1 Goodwill
business in the with-profit fund
The carrying value of goodwill has been tested for impairment at the
The principal assumptions used to calculate the present value of
year end. No impairment has been recognised as the value in use of
future profits (‘PVFP’) are the same as those used in calculating the
this intangible continues to exceed its carrying value.
insurance contract liabilities given in note F4.1.
£47 million of goodwill is attributable to the Management Services
The PVFP held in intangibles represented future profits on specific
segment including £8 million that arose on acquisition of Abbey Life.
blocks of business in the NPL with-profit fund that was partly
attributable to the holders of the limited recourse bonds (see note
E5). As a consequence, the value of future profits was not
attributable solely to policyholders and the PVFP was therefore
presented as a separate intangible asset.
Following the repayment of the limited recourse bonds during the
year, the PVFP can be shown as fully attributable to policyholders
and it has therefore been reclassified as investment contract
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 9.2% (2019: 8.3%) and are consistent with those adopted by
management in the Group’s operating plan and, for the period 2026
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.
liabilities.
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 was being amortised over a period of 15 years.
On 23 February 2021, the Group entered into an agreement with
SLA plc to simplify the arrangements of the Strategic Partnership. As
part of the changes, the CSPA entered into following the acquisition
of the Standard Life Assurance businesses will be dissolved. As a
consequence, the carrying value of the CSPA as at 31 December
2020 is expected to be recoverable within 12 months. Further details
have been provided in Note I7.
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 2026 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. Management does not believe
that a reasonably foreseeable change in key assumptions would
cause value in use to be materially lower than the carrying value.
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 £1,831 million was recognised
during the year upon acquisition of the ReAssure businesses
(see note H2.1).
G2.3 Customer Relationships
The customer relationships intangible at 31 December 2020 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
2020 of 8.9 years.
Phoenix Group Holdings plc Annual Report & Accounts 2020
267
267
255
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED
H. INTERESTS IN SUBSIDIARIES AND ASSOCIATES continued
H2. Acquisitions and Portfolio Transfers continued
H2.1 Acquisition of ReAssure businesses continued
Acquired Value in-Force (‘AVIF’)
An asset of £1,831 million arises reflecting the present value
of future profits associated with the acquired in-force business.
The AVIF has been determined by reference to the fair value of
insurance contract liabilities and investment contract rights acquired.
Under the Group’s accounting policy (see note G2), AVIF arising on
acquired insurance contracts and investment contracts with DPF is
measured as the difference between the fair value of contracted
rights acquired and obligations assumed and the liability measured in
accordance with the Group’s accounting policies for such contracts.
AVIF relating to investment contracts without DPF is recognised at
its fair value.
The valuation of the AVIF has been determined by reference to the
assumptions expected to be applied by a market participant in an
orderly transaction. The valuation approach uses present value
techniques applied to the best estimate cash flows expected to arise
from policies that were in-force at the acquisition date, adjusted to
reflect the price of bearing the uncertainty inherent in those cash
flows. This approach incorporates a number of judgments and
assumptions which have impacted on the resultant valuation, the
most significant of which include annuitant longevity, expected policy
lapses and surrender costs, and the expenses associated with
servicing the policies, together with economic assumptions such as
future investment returns and the discount rate allowing for an
appropriate illiquidity premium based on the assets existing at the
balance sheet date. The determination of the majority of these
assumptions is carried out on a consistent basis with that described
in note F4.1 with appropriate adjustments to reflect a market
participant’s view. The risk adjustment for the uncertainty in the
cashflows has been determined using a cost of capital approach.
Deferred acquisition costs of £483 million have been derecognised
on acquisition and replaced as part of the AVIF balance.
Other receivables
The financial assets acquired include other receivables with a fair
value of £379 million. The gross amount due under the contracts is
£379 million, of which no balances are expected to be uncollectible.
Tax
The tax impact of the fair value adjustments recognised on
acquisition has been reflected in the acquisition balance sheet.
Gain on acquisition
A gain on acquisition of £372 million has been recognised in the
Group’s consolidated income statement for the year ended
31 December 2020, reflecting the excess of the fair value of the net
assets acquired over the consideration paid for the acquisition of the
ReAssure businesses.
The consideration for the acquisition was fixed and determined using
a ‘locked box’ pricing mechanism as agreed on 6 December 2019,
with the number of consideration shares issued being determined on
the basis of the Company’s share price leading up to that date. As
the result of a decline in the Company’s share price between 6
December 2019 and the completion date, the value of the
consideration shares issued was lower than the ‘locked box’
position. Over the same period, the fair value of the net assets
acquired increased. This principally reflected the positive impact
associated with a decline in yields on fixed interest assets backing
capital requirements, management actions undertaken including
hedging and strategic asset allocation activity, together with
favourable demographic experience.
Additionally, in accordance with IFRS 3 Business Combinations, the
acquired defined benefit pension schemes have been measured on
acquisition in accordance with the Group’s accounting policies as
set out in note G1, as opposed to a fair value basis.
Transaction costs
Transaction costs of £37 million have been expensed and are
included in administrative expenses in the consolidated income
statement. All of these costs were paid during the year.
Impact of the acquisition on results
From the date of acquisition, the ReAssure businesses contributed
£182 million of total revenue, net of reinsurance payable, and
£108 million of the profit after the tax attributable to owners of
the parent. If the acquisition of the ReAssure group of companies
had taken place at the beginning of the year, total revenue net
of reinsurance payable, would have been £4,930 million and the
profit after the tax attributable to owners of the parent would have
been £1,316 million.
268
268
Phoenix Group Holdings plc Annual Report & Accounts 2020
H2.2 L&G Part VII Transfer
The Group applies the requirements of IFRS 3 Business
Combinations to the acquisition of a business. IFRS 3 does not apply
in circumstances where such an acquisition does not constitute a
business, and is instead a portfolio of assets and liabilities, including
insurance liabilities. In such cases, the Group’s policy is to recognise
and measure the assets acquired and insurance and other liabilities
assumed in accordance with the Group's accounting policies for
those assets and liabilities. The difference between the consideration
and the net assets or liabilities acquired is recognised in the
consolidated income statement.
On 6 December 2017, ReAssure Limited, a subsidiary of ReAssure
Group plc, entered into an agreement to acquire the mature
savings business of Legal and General Assurance Society ('LGAS').
The mature savings book consists of a block of unit linked and with-
profit business, predominantly comprising traditional insurance based
pensions, savings and protection products which are closed and in
run-off. On that date, ReAssure Limited entered into a risk transfer
agreement ('RTA') under which it assumed the risk and rewards
associated with the business for cash consideration of £650 million.
The RTA was in-force as at the date of the Group's acquisition of the
ReAssure businesses.
On 7 September 2020, the Group completed a Part VII transfer of the
mature savings liabilities and associated assets with LGAS, which
resulted in the cancellation of the RTA. No further consideration
was payable in respect of the Part VII transfer. This transfer was not
deemed to be an acquisition of a business and consequently the
requirements of IFRS 3 have not been applied.
The Part VII transfer directly resulted in an increase in net assets of
£85 million, which included £110 million associated with reduced
expense assumptions used for insurance contract liabilities arising
upon migration of the business to the Group's operating model
partially offset by the recognition of net liabilities transferred of £25
million. The gain arising upon the transfer has been recognised in the
consolidated income statement.
The following table summarises the net liabilities transferred to the
Group.
2019
£m
2020
£m
Notes
Assets
Investment property
Financial assets
Other insurance assets
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Liabilities
Liabilities under insurance contracts
Investment contract liabilities
Unallocated surplus
Other financial liabilities
Provisions
Deferred tax
Payables related to direct insurance
contracts
Other payables
Total liabilities
Net liabilities transferred
Notes
£m
G4
1,221
25,329
104
59
96
146
146
27,101
9,668
16,818
261
148
12
18
181
20
27,126
(25)
F1
F2
G7
G8
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.
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Phoenix Group Holdings plc Annual Report & Accounts 2020
269
269
179
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 2020, the Group held 44.6% (2019: 44.6%) of
the issued share capital of UKCPT and the value of this investment,
measured at fair value and included within financial assets, was
£400 million (2019: £513 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 voting is subject to certain restrictions in
accordance with the terms of an existing relationship agreement it
has with UKCPT.
The Group’s holdings in the investments listed above are susceptible
to market price risk arising from uncertainties about future values.
Holdings in investment funds are subject to the terms and
conditions of the respective fund’s prospectus and 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.
Summary financial information (at 100%) for UKCPT is shown below:
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Revenue
(Loss)/profit for the year after tax
2020
£m
1,183
170
(198)
(28)
2019
£m
1,309
128
(247)
(23)
1,127
1,167
65
(10)
29
2
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).
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:
• Unit trusts;
• OEICs;
• SICAVs;
• Private Equity Funds;
• Asset backed securities;
• Collateralised Debt Obligations (‘CDOs’);
• Other debt structures; and
• Phoenix Group EBT.
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.
During the year, the Group granted further loans to the EBT of
£7 million (2019: £4 million).
As at the reporting date, the Group has no intention to provide
financial or other support 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.
Equities
Collective investment schemes
Debt securities1
2020
Carrying value
of financial
assets
£m
2019
restated
Carrying value
of financial
assets
£m
467
89,248
8,068
97,783
528
69,415
6,991
76,934
1 Comparative figures have been restated to include £2,817 million asset backed
securities and £199 million infrastructure loans that have been classified as interests in
structured entities.
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.
270
270
Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
H5. Group Entities
The table below sets out the Group’s subsidiaries (including consolidated collective investment schemes), associates and significant holdings
in undertakings (including undertakings in which the 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)
ReAssure Limited (life assurance company)
ReAssure Life Limited (life assurance company)
Ark Life Assurance Company DAC (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)
ReAssure Companies Services Limited (management services
company)
ReAssure UK Services Limited (management services
company)
ReAssure FSH UK Limited (holding 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)
Phoenix ER3 Limited (finance company)
Phoenix ER4 Limited (finance company)
Phoenix ER6 Limited (finance company)
PGH Capital plc (finance company – directly owned by
the Company)
PGMS (Ireland) Limited (management services company)
Phoenix SL Direct Limited (non-trading company)1
Phoenix Unit Trust Managers Limited (unit trust manager)
Phoenix Wealth Services Limited (financial services company)
Phoenix Wealth Trustee Services Limited (trustee company)
Standard Life Lifetime Mortgages Limited (mortgage provider
company)
The Standard Life Assurance Company of Europe B.V.
(financial holding company)
Vebnet Limited (services company)
Axial Fundamental Strategies (US Investments) LLC
(investment company)
Britannic Money Investment Services Limited (investment
advice company)1
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
Edinburgh26
Telford41
Telford41
Dublin50
Wythall2
Wythall2
Ordinary Shares
Ordinary Shares
100.00%
100.00%
Ordinary Shares
100.00%
Ordinary Shares
Limited by Guarantee
Ordinary Shares
Ordinary Shares
Ordinary Shares
100.00%
100.00%
100.00%
100.00%
100.00%
Ordinary Shares
100.00%
Ordinary Shares
100.00%
Edinburgh26
Ordinary Shares
100.00%
Telford41
Telford41
Telford41
Wythall2
Wythall2
London3
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Dublin8
Dublin7
Wythall2
Wythall2
Wythall2
Wythall2
Edinburgh26
Amsterdam10
Wythall2
Wilmington18
Wythall2
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
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%
100.00%
Ordinary Shares
100.00%
Ordinary Shares
Ordinary Shares
Limited Liability
Company
100.00%
100.00%
100.00%
Ordinary Shares
100.00%
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
Phoenix Group Holdings plc Annual Report & Accounts 2020
271
271
179
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
Pearl (WP) Investments LLC (investment company)
Wilmington18
Pearl Assurance Group Holdings Limited
(investment company)
PGMS (Glasgow) Limited (investment company)1
PGS 2 Limited (investment company)
Phoenix SCP Limited (dormant 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)
103 Wardour Street Retail Investment Company Limited
(investment 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)
BL Telford Limited (dormant company)
Britannic Group Services Limited (dormant company)
Century Trustee Services Limited (dormant company)
Cityfourinc (dormant company)
Phoenix Advisers Limited (dormant company)
G Assurance & Pensions Services Limited
(non-trading company)
G Life H Limited (holding company)
G Financial Services Limited (dormant company)
G Park Management Company Limited
(property management company)
G Trustees Limited (dormant company)
Gallions Reach Shopping Park (Nominee) Limited
(dormant company)
Gresham Life Assurance Society Limited (dormant company)
Iceni Nominees (No. 2) Limited (dormant company)
IH (Jersey) Limited (dormant company)
Impala Holdings Limited (holding company)
Impala Loan Company 1 Limited (dormant company)1
Inesia SA (investment company)
Inhoco 3107 Limited (dormant company)
London Life Limited (non-trading company)
London Life Trustees Limited (dormant company)
Namulas Pension Trustees Limited (dormant company)
Wythall2
Edinburgh26
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Edinburgh25
Delaware19
Telford41
Wythall2
Wythall2
Wythall2
Glasgow11
Edinburgh26
Wythall2
Telford41
Wythall2
Wythall2
Wythall2
Wythall2
Telford41
Telford41
Telford41
London17
Telford41
London17
Telford41
London17
Jersey15
Wythall2
Edinburgh26
Luxembourg20
London17
Wythall2
Wythall2
Telford41
National Provident Institution (dormant company)
Wythall2
272
272
Phoenix Group Holdings plc Annual Report & Accounts 2020
Type of investment
(including class
of shares held)
Limited Liability
Company
Ordinary 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%
53.60%
100.00%
Ordinary Shares
100.00%
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Unlimited with Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Unlimited without
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%
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%
National Provident Life Limited (dormant company)
NM Life Trustees Limited (dormant company)
NM Pensions Limited (dormant company)
Northampton General Partner Limited (dormant company)
NP Life Holdings Limited (dormant 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 Life Assurance Europe DAC (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 (LC1) Limited (dormant company)
PGH (LC2) Limited (dormant company)
PGH (LCA) Limited (dormant company)1
PGH (LCB) Limited (dormant company)1
PGH (MC1) Limited (dormant company)1
PGH (MC2) Limited (dormant company)1
PGH (TC1) Limited (dormant company)
PGH (TC2) Limited (dormant company)
PGMS (Ireland) Holdings Unlimited Company
(holding company)
Phoenix & London Assurance Limited (dormant company)
Phoenix AW Limited (dormant company)1
Phoenix ER2 Limited (dormant company)
Phoenix ER5 Limited (finance company)
Phoenix Group Holdings (non-trading company)
Registered address
of incorporated
entities
Wythall2
Telford41
Telford41
Telford41
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Glasgow11
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Dublin9
Wythall2
Wythall2
Wythall2
Wythall2
London3
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Dublin7
Wythall2
Wythall2
Wythall2
Wythall2
Cayman Islands5
If unincorporated,
address of principal
place of business
Type of investment
(including class
of shares held)
% of shares /
units held
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Unlimited with Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Private Company
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%
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%
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%
100.00%
100.00%
G2.4 Present value of future profits on non-participating
G2.1 Goodwill
business in the with-profit fund
The carrying value of goodwill has been tested for impairment at the
The principal assumptions used to calculate the present value of
year end. No impairment has been recognised as the value in use of
future profits (‘PVFP’) are the same as those used in calculating the
this intangible continues to exceed its carrying value.
insurance contract liabilities given in note F4.1.
£47 million of goodwill is attributable to the Management Services
The PVFP held in intangibles represented future profits on specific
segment including £8 million that arose on acquisition of Abbey Life.
blocks of business in the NPL with-profit fund that was partly
attributable to the holders of the limited recourse bonds (see note
E5). As a consequence, the value of future profits was not
attributable solely to policyholders and the PVFP was therefore
presented as a separate intangible asset.
Following the repayment of the limited recourse bonds during the
year, the PVFP can be shown as fully attributable to policyholders
and it has therefore been reclassified as investment contract
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 9.2% (2019: 8.3%) and are consistent with those adopted by
management in the Group’s operating plan and, for the period 2026
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.
liabilities.
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 was being amortised over a period of 15 years.
On 23 February 2021, the Group entered into an agreement with
SLA plc to simplify the arrangements of the Strategic Partnership. As
part of the changes, the CSPA entered into following the acquisition
of the Standard Life Assurance businesses will be dissolved. As a
consequence, the carrying value of the CSPA as at 31 December
2020 is expected to be recoverable within 12 months. Further details
have been provided in Note I7.
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 2026 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. Management does not believe
that a reasonably foreseeable change in key assumptions would
cause value in use to be materially lower than the carrying value.
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 £1,831 million was recognised
during the year upon acquisition of the ReAssure businesses
(see note H2.1).
G2.3 Customer Relationships
The customer relationships intangible at 31 December 2020 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
2020 of 8.9 years.
Phoenix Group Holdings plc Annual Report & Accounts 2020
273
273
255
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
Type of investment
(including class
of shares held)
% of shares /
units held
Phoenix Life Holdings Limited (holding company –
directly owned by the Company)
Phoenix Pension Scheme (Trustees) Limited
(dormant company)
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
Pilangen Logistik AB (investment company)
Pilangen Logistik I AB (investment company)
ReAssure FS Limited (dormant company)
ReAssure Group plc (holding company −
directly owned by the Company)
ReAssure Life Pension Trustees Limited (dormant company)
ReAssure LL Limited (dormant company)
ReAssure Midco Limited (holding company)
ReAssure Nominees Limited (dormant company)
ReAssure Pension Trustees Limited (dormant company)
ReAssure PM Limited (dormant company)
ReAssure Trustees Limited (dormant company)
ReAssure Two Limited (dormant company)
ReAssure UK Life Assurance Company Limited
(dormant company)
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 (investment company)
SLA Denmark No.1 ApS (investment company)
SLA Denmark No.2 ApS (investment company)
SLA Germany No.1 S.à.r.l. (investment company)
SLA Germany No.2 S.à.r.l. (investment company)
SLA Germany No.3 S.à.r.l. (investment company)
SLA Ireland No.1 S.à.r.l. (investment company)
SLA Netherlands No.1 B.V. (investment company)
SLACOM (No. 8) Limited (dormant company)
SLACOM (No. 9) Limited (dormant company)
SLACOM (No. 10) Limited (dormant company)
ERIP Limited Partnership (Limited Partnership)
ERIP General Partner Limited (General Partner to ERIP
Limited Partnership)
SLIF Property Investment GP Limited (General Partner
to SLIF Property Investment)
SLIF Property Investment LP
Standard Life Agency Services Limited (dormant company)
Wythall2
Wythall2
Wythall2
Wythall2
Edinburgh26
Wythall2
Stockholm22
Stockholm22
Telford41
Telford41
Telford41
Telford41
Telford41
Telford41
Telford41
Telford41
Telford41
Telford41
Telford41
Edinburgh26
Edinburgh26
Edinburgh26
Edinburgh26
Wythall2
Belgium4
Denmark43
Denmark43
Luxembourg24
Luxembourg24
Luxembourg24
Luxembourg24
Amsterdam10
Edinburgh26
Edinburgh26
Edinburgh26
Telford41
Telford41
Edinburgh25
Edinburgh25
Edinburgh26
274
274
Phoenix Group Holdings plc Annual Report & Accounts 2020
Ordinary Shares
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
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Public Limited
Company
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Limited Partnership
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%
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%
100.00%
100.00%
100.00%
100.00%
Ordinary Shares
80.00%
Ordinary Shares
Limited Partnership
Ordinary Shares
100.00%
100.00%
100.00%
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
2019
£m
2020
£m
Notes
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
Luxembourg24
Edinburgh26
Wythall2
Edinburgh26
Edinburgh26
Wythall2
Edinburgh26
Wythall2
Telford41
Wythall2
Lynch Wood21
Edinburgh26
Glasgow11
Wythall2
London17
Edinburgh25
Edinburgh25
Edinburgh25
Jersey16
Edinburgh25
Madrid34
Standard Life Assurance (HWPF) Luxembourg S.à.r.l.
(investment company)
Standard Life Investment Funds Limited (dormant company)
Standard Life Master Trust Co. Ltd (dormant company)
Standard Life Property Company Limited (dormant company)
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 Pathe Building Management Company 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)
Vebnet (Holdings) Limited (holding company)
Welbrent Property Investment Company Limited
(dormant company)
Pearl Private Equity LP
Pearl Strategic Credit LP
European Strategic Partners LP
Phoenix Group Employee Benefit Trust
3 St Andrew Square Apartments Limited (property
management company)
330 Avenida de Aragon SL (property management company)
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 Strategic Investment Funds –
Janus Henderson Institutional Japan Index Opportunities Fund
PUTM European Unit Trust
PUTM Far Eastern 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
PUTM Bothwell Emerging Market Debt Unconstrained Fund
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Limited by Guarantee
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Ordinary Shares
100.00%
Limited Partnership
Limited Partnership
Limited by Guarantee
Limited by Guarantee
Ordinary Shares
Ordinary Shares
Limited Partnership
Limited Partnership
Limited Partnership
Trust
Ordinary Shares
Ordinary Shares
Unit Trust
Unit Trust
Unit Trust
Unit Trust
London28
London28
London28
London28
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
72.70%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
85.09%
London28
OEIC, sub fund
98.92%
London28
OEIC, sub fund
84.78%
London28
London28
London28
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
84.39%
72.64%
78.13%
99.36%
99.67%
100.00%
100.00%
99.90%
99.92%
99.51%
99.01%
100.00%
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
Phoenix Group Holdings plc Annual Report & Accounts 2020
275
275
179
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED
H. INTERESTS IN SUBSIDIARIES AND ASSOCIATES continued
H5. Group Entities continued
Registered address
of incorporated
entities
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 ACS UK All Share Listed Equity Fund
PUTM Bothwell Uk Equity Income Fund
PUTM Bothwell Sub-Sovereign A Fund
PUTM Bothwell Short Duration Credit Fund
PUTM Bothwell Ultra Short Duration Fund
PUTM ACS Lothian North American Equity Fund
PUTM ACS Lothian European Ex UK Fund
PUTM ACS Lothian UK Listed Equity Fund
PUTM ACS European ex UK Fund
PUTM ACS Japan Equity Fund
PUTM ACS North American Fund
ASI (SLI) Strategic Bond Fund
Standard Life Multi Asset Trust
Standard Life European Trust II
ASI Emerging Markets Income Equity Fund
ASI Emerging Markets Local Currency Bond Tracker Fund
ASI (SLI) Emerging Markets Equity Fund
ASI Japanese Growth Equity Fund
ASI Europe Europe ex UK Ethical Equity Fund
Standard Life European Trust
Standard Life Japanese Trust
Standard Life North American Trust
Standard Life Pacific Trust
Standard Life Standard Life Short Dated UK Government
Bond Trust
Standard Life Standard Life Global Equity Trust II
Standard Life UK Government Bond Trust
Standard Life UK Corporate Bond trust
Standard Life Standard Life Active Plus Bond Trust
Standard Life Standard Life International Trust
Standard Life UK Equity General Trust
ASI Short Dated Corporate Bond Fund
ASI MyFolio Managed I Fund
276
276
Phoenix Group Holdings plc Annual Report & Accounts 2020
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
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Wythall2
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
London17
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Type of investment
(including class
of shares held)
% of shares /
units held
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
Unit Trust
Unit Trust
Unit Trust
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
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
OEIC, sub fund
80.97%
99.97%
100.00%
100.00%
100.00%
99.57%
100.00%
99.93%
99.39%
99.57%
85.95%
99.89%
100.00%
99.17%
99.49%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
87.38%
100.00%
99.98%
80.03%
74.38%
96.56%
95.36%
79.22%
97.01%
79.79%
99.61%
98.17%
99.96%
100.00%
100.00%
100.00%
99.99%
99.98%
99.67%
76.92%
73.75%
ASI MyFolio Managed II Fund
ASI MyFolio Managed III Fund
ASI MyFolio Managed V Fund
ASI Dynamic Multi Asset Growth
ASI American Income Equity Fund
Standard Life Investments Global SICAV II Global Short
Duration Corporate Bond Fund
Standard Life Investments Global SICAV Absolute Return
Global Bond Strategies Fund
Standard Life Investments Global SICAV Global Equities Fund
Standard Life Investments Global SICAV European
Government All Stocks Fund
Standard Life Investments Global SICAV Japanese
Equities Fund
Standard Life Investments Global SICAV Global Bond Fund
Standard Life Investments Global SICAV Global High Yield
Bond Fund
Standard Life Investments Global SICAV Global REIT
Focus Fund
Standard Life Investments Global SICAV China Equities Fund
Standard Life Investments Global SICAV Global Emerging
Markets Unconstrained Fund
Standard Life Investments Global SICAV Global Emerging
Markets Local CCY Debt Fund
Standard Life Investments Global SICAV Emerging Market
Debt Fund
Standard Life Investments Global SICAV II Enhanced-
Diversification Multi Asset Fund
Standard Life Investments Global SICAV II −
MyFolio Multi-Manager II Fund
Standard Life Investments Global SICAV II −
MyFolio Multi-Manager III 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 −
European Equity Unconstrained Fund
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 Managed Trust − Standard Life Sterling
Intermediate Credit Fund
Aberdeen Standard Liquidity Fund (Lux) − Seabury Sterling
Liquidity 3 Fund
Aberdeen Standard Liquidity Fund (Lux) − Seabury Sterling
Liquidity 2 Fund
Registered address
of incorporated
entities
If unincorporated,
address of principal
place of business
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Type of investment
(including class
of shares held)
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
% of shares /
units held
71.94%
80.43%
72.96%
97.76%
70.41%
Luxembourg29
SICAV, sub fund
97.49%
Luxembourg29
Luxembourg29
SICAV, sub fund
SICAV, sub fund
77.47%
73.13%
Luxembourg29
SICAV, sub fund
99.99%
Luxembourg29
Luxembourg29
SICAV, sub fund
SICAV, sub fund
97.01%
93.53%
Luxembourg29
SICAV, sub fund
86.09%
Luxembourg29
Luxembourg29
SICAV, sub fund
SICAV, sub fund
86.52%
76.48%
Luxembourg29
SICAV, sub fund
99.86%
Luxembourg29
SICAV, sub fund
89.62%
Luxembourg29
SICAV, sub fund
93.71%
Luxembourg29
SICAV, sub fund
79.41%
Luxembourg29
SICAV, sub fund
72.54%
Luxembourg29
SICAV, sub fund
55.87%
Luxembourg29
SICAV, sub fund
60.49%
Luxembourg29
SICAV, sub fund
62.15%
Luxembourg29
SICAV, sub fund
99.15%
Luxembourg29
SICAV, sub fund
97.47%
Edinburgh25
Edinburgh25
Unit Trust
Unit Trust
76.42%
79.20%
Edinburgh25
Unit Trust
82.95%
Edinburgh25
Unit Trust
99.99%
Dublin27
UCITS, sub fund
100.00%
Dublin27
UCITS, sub fund
100.00%
G2.4 Present value of future profits on non-participating
G2.1 Goodwill
business in the with-profit fund
The carrying value of goodwill has been tested for impairment at the
The principal assumptions used to calculate the present value of
year end. No impairment has been recognised as the value in use of
future profits (‘PVFP’) are the same as those used in calculating the
this intangible continues to exceed its carrying value.
insurance contract liabilities given in note F4.1.
£47 million of goodwill is attributable to the Management Services
The PVFP held in intangibles represented future profits on specific
segment including £8 million that arose on acquisition of Abbey Life.
blocks of business in the NPL with-profit fund that was partly
attributable to the holders of the limited recourse bonds (see note
E5). As a consequence, the value of future profits was not
attributable solely to policyholders and the PVFP was therefore
presented as a separate intangible asset.
Following the repayment of the limited recourse bonds during the
year, the PVFP can be shown as fully attributable to policyholders
and it has therefore been reclassified as investment contract
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 9.2% (2019: 8.3%) and are consistent with those adopted by
management in the Group’s operating plan and, for the period 2026
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.
liabilities.
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 was being amortised over a period of 15 years.
On 23 February 2021, the Group entered into an agreement with
SLA plc to simplify the arrangements of the Strategic Partnership. As
part of the changes, the CSPA entered into following the acquisition
of the Standard Life Assurance businesses will be dissolved. As a
consequence, the carrying value of the CSPA as at 31 December
2020 is expected to be recoverable within 12 months. Further details
have been provided in Note I7.
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 2026 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. Management does not believe
that a reasonably foreseeable change in key assumptions would
cause value in use to be materially lower than the carrying value.
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 £1,831 million was recognised
during the year upon acquisition of the ReAssure businesses
(see note H2.1).
G2.3 Customer Relationships
The customer relationships intangible at 31 December 2020 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
2020 of 8.9 years.
Phoenix Group Holdings plc Annual Report & Accounts 2020
277
277
255
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
Type of investment
(including class
of shares held)
% of shares /
units held
Aberdeen Standard Liquidity Fund (Lux) − Seabury Euro
Liquidity 1 Fund
Ignis Private Equity Fund LP
Ignis Strategic Credit Fund LP
ASI Phoenix Fund Financing SCSp (PLFF)
North American Strategic Partners 2008 L.P.
North American Strategic Partners (Feeder) 2008 Limited
Partnership
North American Strategic Partners (Feeder) 2006
North American Strategic Partners 2006 L.P.
Crawley Unit Trust
Ignis Strategic Solutions Funds plc –
Fundamental Strategies Fund
Ignis Strategic Solutions Funds plc −
Systematic Strategies Fund
ASI Financial Equity Fund A Inc
ASI Phoenix Global Private Equity III LP
Beresford Funds ICAV − Indexed Emerging Market
Equity Fund
HSBC Investment Funds − Balanced Fund
IFSL AMR Diversified Portfolio
iShares 350 UK Equity Index Fund UK
Legal & General European Equity Income Fund
Legal & General European Trust
Legal & General Growth Trust
Legal & General Real Capital Builder Fund
Legal & General Real Income Builder Fund
Quilter Investors Diversified Portfolio
Quilter Investors High Yield Bond Fund
Quilter Investors UK Equity Large-Cap Value Fund
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)
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
Dublin27
Cayman Islands5
Cayman Islands5
UCITS, sub fund
Limited Partnership
Limited Partnership
Luxembourg32
Wilmington18
Special Limited
Partnership
Limited Partnership
100.00%
100.00%
100.00%
100.00%
100.00%
Wilmington18
Wilmington18
Wilmington18
Jersey12
Limited Partnership
100.00%
Limited Partnership
Limited Partnership
70.48%
70.48%
Unit Trust
100.00%
Dublin9
OEIC, sub fund
100.00%
Dublin9
London17
Edinburgh25
OEIC, sub fund
OEIC, sub fund
Limited Partnership
100.00%
80.74%
100.00%
Dublin48
London46
Bolton47
London37
London44
London44
London44
London44
London44
London49
London49
London49
ICAV, sub fund
100.00%
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
76.68%
79.42%
81.86%
85.36%
72.62%
86.43%
82.89%
89.41%
91.74%
89.74%
95.94%
Guernsey13
Guernsey13
Guernsey13
Guernsey13
London14
Guernsey13
Guernsey13
Guernsey13
Guernsey13
London17
London17
Ordinary Shares
Ordinary Shares
44.59%
44.59%
Ordinary Shares
44.59%
Ordinary Shares
Limited Partnership
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
44.59%
33.30%
44.59%
44.59%
44.59%
44.59%
44.59%
44.59%
London28
OEIC, sub fund
45.78%
278
278
Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Janus Henderson Institutional UK Index Opportunities Fund
Standard Life Capital Infrastructure I LP
ASI (SLI) Corporate Bond Fund
ASI Dynamic Distribution Fund
Standard Life Investments UK Real Estate Accumulation
Feeder Fund
Standard Life UK Investments Real Estate Income
Feeder Fund
ASI UK High Income Equity Fund
ASI Global Unconstrained Equity Fund
ASI High Yield Bond Fund
ASI UK Opportunities Equity Fund
ASI Investment Grade Corporate Bond Fund
ASI UK Smaller Companies Fund
ASI Europe ex UK Growth Equity Fund
ASI Short Duration Global Inflation-Linked Bond Fund
ASI UK Unconstrained Equity Fund
ASI Ethical Corporate Bond Fund
ASI Global Real Estate Share Fund
ASI Global Real Estate Fund
ASI MyFolio Market I Fund
ASI MyFolio Market II Fund
ASI MyFolio Market III Fund
ASI MyFolio Market IV Fund
ASI MyFolio Market V Fund
ASI MyFolio Multi-Manager I Fund
ASI MyFolio Multi-Manager II Fund
ASI MyFolio Multi-Manager III Fund
ASI MyFolio Multi-Manager IV Fund
ASI MyFolio Multi-Manager V Fund
ASI MyFolio Managed IV Fund
Standard Life Investments Global SICAV Euro Smaller
Companies Fund
Standard Life Investments Global SICAV European
Corporate Bond Fund
Standard Life Investments Global SICAV Global Absolute
Return Strategies Fund
Standard Life Investments Global SICAV Global Corporate
Bond Fund
Aberdeen Standard Liquidity Fund (Lux) Euro Fund
ASI Global Absolute Return Strategies Retail Acc
ASI Europe ex UK Income Equity Fund
ASI UK Income Unconstrained Equity 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
Registered address
of incorporated
entities
If unincorporated,
address of principal
place of business
London28
Edinburgh25
Edinburgh25
Edinburgh25
Type of investment
(including class
of shares held)
OEIC, sub fund
Limited Partnership
OEIC, sub fund
Unit Trust
% of shares /
units held
58.78%
26.30%
41.70%
57.50%
Edinburgh25
Unit Trust
60.47%
London17
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Edinburgh25
Unit Trust
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
Unit Trust
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
46.04%
52.78%
47.92%
39.65%
54.79%
31.89%
32.23%
26.67%
46.83%
54.28%
62.89%
38.01%
45.70%
44.78%
43.91%
55.18%
54.07%
61.41%
52.31%
53.28%
62.45%
57.75%
59.69%
66.13%
Luxembourg29
SICAV, sub fund
25.49%
Luxembourg29
SICAV, sub fund
31.52%
Luxembourg29
SICAV, sub fund
43.36%
Luxembourg29
Luxembourg33
Edinburgh25
Edinburgh25
Edinburgh25
London14
Birmingham36
Jersey12
Jersey35
Jersey35
London17
Edinburgh25
SICAV, sub fund
UCITS, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
Limited Partnership
Ordinary Shares
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Limited Partnership
73.16%
43.54%
66.76%
23.28%
47.52%
24.16%
34.81%
78.30%
56.60%
40.67%
78.30%
40.67%
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
Phoenix Group Holdings plc Annual Report & Accounts 2020
279
279
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED
H. INTERESTS IN SUBSIDIARIES AND ASSOCIATES continued
H5. Group Entities continued
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
ASI Emerging Markets Equity Enhanced Index Fund
iShares Bloomberg Roll Select Commodity Swap UCITS
ETF GBP (Acc)
Amundi UCITS Funds − Amundi Global Multi-Factor Equity
Fund C Cap
AQR UCITS Funds – AQR Global Risk Parity C5 GBP (Acc)
AB SICAV I − Emerging Markets Low Volatility Equity Portfolio
Aberdeen Standard SICAV I − GDP Weighted Global
Government Bond Fund
Aberdeen Standard SICAV I − Global Bond Fund
Aberdeen Standard SICAV I − Global Government Bond Fund
Aviva Investors UK Property Feeder Inc Fund 1
AXA Framlington FinTech Fund
AXA Sterling Index Linked Bond Fund
Beresford Funds − Indexed Euro Large Cap Corporate
Bond Fund
Fidelity Multi Asset Open Adventurous Fund
Goldman Sachs SICAV − Emerging Markets Total Return
Bond Portfolio
HSBC FTSE EPRA NAREIT Developed UCITS ETF
Invesco US Equity Fund
L&G Absolute Return Bond Plus Fund
L&G Emerging Markets Bond Fund
L&G Emerging Markets Short Duration Bond Fund
L&G Multi-Asset Target Return Fund
Legal & General Authorised Contractual Scheme −
L&G Real Income Builder Fund
Legal & General Asian Income Trust
Legal & General Dynamic Bond Fund
Legal & General Emerging Markets Government Bond
(Local Currency) Index Fund
Legal & General Emerging Markets Government Bond
USD Index Fund
Legal & General Ethical Trust
Legal & General European Index Trust
Legal & General Global Real Estate Dividend Index Fund
Legal & General High Income Trust
L&G Euro High Alpha Corporate Bond Fund
Legal & General UK Equity Income Fund
Legal & General UK Smaller Companies Trust
Legal & General UK Special Situations Trust
LGIM Sterling Liquidity Plus Fund
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
London30
Luxembourg29
Essex31
London37
London17
UCITS, sub fund
SICAV, sub fund
OEIC, sub fund
UCITS, sub fund
OEIC, sub fund
51.35%
38.65%
43.66%
49.35%
20.35%
Dublin38
UCITS, sub fund
31.16%
59.73%
45.63%
71.54%
81.29%
93.46%
22.71%
35.12%
21.38%
20.31%
82.89%
64.53%
94.48%
48.88%
25.16%
69.95%
53.50%
22.88%
28.22%
50.35%
40.32%
53.98%
Luxembourg39
USA23
Luxembourg29
Luxembourg33
Luxembourg33
Luxembourg33
London42
London30
London30
UCITS, sub fund
UCITS, sub fund
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
OEIC, sub fund
Unit Trust
OEIC, sub fund
Dublin48
Surrey45
ICAV, sub fund
OEIC, sub fund
Luxembourg32
London46
Luxembourg29
Luxembourg51
Luxembourg51
Luxembourg51
Luxembourg51
London44
London44
London44
London44
London44
London44
London44
London44
London44
Luxembourg51
London44
London44
London44
London44
SICAV, sub fund
UCITS, sub fund
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
SICAV, sub fund
UCITS, sub fund
Unit Trust
Unit Trust
Unit Trust
25.63%
Unit Trust
Unit Trust
Unit Trust
Unit Trust
Unit Trust
SICAV, sub fund
Unit Trust
Unit Trust
Unit Trust
OEIC, sub fund
29.81%
23.59%
23.76%
30.57%
45.31%
51.99%
25.50%
28.98%
47.97%
51.87%
280
280
Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Type of investment
(including class
of shares held)
% of shares /
units held
2019
£m
2020
£m
Notes
Unit Trust
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
Unit Trust
OEIC, sub fund
Unit Trust
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
OEIC, sub fund
Unit Trust
UCITS, sub fund
Unit Trust
40.45%
27.26%
23.82%
50.35%
49.72%
39.84%
22.59%
26.72%
31.54%
35.78%
36.24%
25.02%
22.18%
43.63%
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
Marks and Spencer Worldwide Managed Fund
Quilter Investors Bond 2 Fund
Quilter Investors China Equity Fund
Quilter Investors Cirilium Moderate Blend Portfolio
Quilter Investors Ethical Equity Fund
Quilter Investors Global Equity Growth Fund
Quilter Investors Global Equity Index Fund
Quilter Investors Monthly Income and Growth Portfolio Fund
Quilter Investors Sterling Corporate Bond Fund
Quilter Investors UK Equity Index Fund
ASI UK Responsible Equity Fund
Central Saint Giles Unit Trust
Merian Global Equity Income Fund (IRL)
Performance Retail Unit Trust
Registered address
of incorporated
entities
If unincorporated,
address of principal
place of business
London46
London49
London49
London49
London49
London49
London49
London49
London49
London49
Edinburgh25
Jersey52
Dublin40
Jersey53
1 Under s479a of the Companies Act 2006 these subsidiaries have been granted audit exemption by parental guarantee.
2 1 Wythall Green Way, Wythall, Birmingham, West Midlands, B47 6WG, United 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
15 22-24 New Street, St Pauls Gate, 4th Floor, JE1 4TR, Jersey
16 32 Commercial Street, St Helier, Jersey, Channel Islands, JE2 3RU, Jersey
17 Bow Bells House, 1 Bread Street, London, EC4M 9HH, United Kingdom
18 Corporation Service Company, 2711 Centerville Rd Suite 400, Wilmington, DE 19808, 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
22 Citco (Sweden) Ab Stureplan 4c 4 Tr 114 35 Stockholm
23 Aqr Capital Management LLC, Greenwich, 06830, United States
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 70 Sir Rogerson’s Quay, Dublin 2, Republic of Ireland
28 201 Bishopsgate, London, EC2M 3AE, United Kingdom
29 88 2-4, Rue Eugène Ruppert, L-2453 Luxembourg, Luxembourg
30 155 Bishopsgate, London, EX2M 3JX, United Kingdom
31 Springfield Lodge, Colchester Road, Chelmsford, Essex CM2 5PW, United Kingdom
32 49, Avenue J.F. Kennedy, L-1855 Luxembourg
33 35a Avenue J.F. Kennedy, L-1855, Luxembourg
34 Avenida de Aragon 330 – Building 5, 3rd Floor, Parque Empresarial Las Mercedes, 28022 – Madrid, Spain
35 Elizabeth House, 9 Castle Street, St Helier, JE4 2QP, Jersey
36 2 Snowhill, Birmingham, B4 6WR, United Kingdom
37 12 Throgmorton Avenue, London EC2N 2DL
38 1st Floor, 2 Ballsbridge Park, Ballsbridge, Dublin, D04 YW83, Ireland
39 5, Allée Scheffer, 2520 Luxembourg, Luxembourg
40 33 Sir John Rogerson’s Quay, Dublin 2, Ireland
Phoenix Group Holdings plc Annual Report & Accounts 2020
281
281
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED
H. INTERESTS IN SUBSIDIARIES AND ASSOCIATES continued
H5. Group Entities continued
41 Windsor House, Telford Centre, Telford, Shropshire, TF3 4NB
42 St Helen’s, 1 Undershaft, London EC3P 3DQ 8EJ
43 c/o Citco (Denmark) ApS, Holbergsgade 14, 2 .tv, 1057 København K Denmark
44 One Coleman Street, London, EC2R 5AA
45 Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey, England, KT20 6RP
46 8 Canada Square, London, E14 5HQ
47 Marlborough House, 59 Chorley New Road, Bolton, BL1 4QP
48 Beresford Court, Beresford Place, Dublin 1, Ireland
49 Millennium Bridge House, 2 Lambeth Hill, London, United Kingdom, EC4V 4AJ
50 3rd Floor, College Park House, Nassau Street, Dublin 2 Nassau Street, Ireland
51 6, rue Lou Hemmer, L-1748 Senningerberg, Grand Duchy of Luxembourg
52 Grove House, Green Street, St Helier, Jersey JE1 2ST
53 44-47 Esplanade, St Helier, Jersey. JE4 9WG
The following subsidiaries were dissolved during the period. The subsidiaries were deconsolidated from the date of dissolution:
• Phoenix Life Pension Trust Limited;
• Hundred S.à r.l.; and
• 28 Ribera del Loira SA.
The following subsidiaries were either fully disposed of or holdings became insignificant to the Group. The subsidiaries were deconsolidated
from either the date of disposal or from the date when the holdings became insignificant:
• Lake Meadows Management Company Limited;
• Mutual Securitisation plc;
• AB SICAV I − ESG Responsible Global Factor Portfolio SF1 GBP (Acc);
• BMO Barclays 1-3 Year Global Corporate Bond (GBP Hedged) UCITS ETF;
• PUTM Cautious Unit Trust;
• PUTM Growth Unit Trust;
• PUTM Opportunity Unit Trust;
• PUTM International Growth Unit Trust;
• PUTM Bothwell Institutional Credit Fund;
• Standard Life Trust Management Pan European Trust; and
• Standard Life Investment Company II Corporate Debt Fund.
The following associate was dissolved during the period. The investment in associate was derecognised from the date of dissolution:
• The Moor House Limited Partnership.
The Group no longer has significant holdings in the following undertakings:
• AXA Global High Income Fund;
• 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;
• Standard Life Investment Company UK Equity High Alpha Fund;
• Standard Life Investment Company Short Duration Credit Fund;
• Standard Life Investment Company UK Equity Recovery Fund;
• Standard Life Investment Company UK Equity Growth Fund;
• Aberdeen Liquidity Fund (Lux) Sterling Fund;
• Aberdeen Liquid (Lux) Ultra Short Duration Sterling Fund;
• Standard Life Investments Global SICAV Indian Equity Midcap Opportunities Fund; and
• Standard Life Investment Company III MyFolio Multi-Manager Inc III Fund.
282
282
Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
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 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
2020
£m
2019
£m
13
11
I1.2 Share-based payment expense
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.
Assuming no good leavers or other events which would trigger
early vesting rights, 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 Total Shareholder Return
(‘TSR’). The 2020 LTIP awards are subject to performance conditions
tied to the Company’s performance in respect of net operating cash
receipts, return on shareholder value, persistency 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.
2020 LTIP awards were granted on 13 March 2020 and are
expected to vest on 13 March 2023. The 2017 LTIP awards vested
on 24 March 2020. The 2018 awards will vest on 21 March 2021 and
the 2019 awards will vest on 11 March 2022. The number of shares
for all outstanding LTIP awards was increased in July 2018 to take
account of the impact of the 2018 Group rights issue.
The fair value of these awards is estimated at the average share
price in the three days preceding the date of grant, taking into
account the terms and conditions upon which the instruments
were granted. The fair value of the 2018, 2019 and 2020 LTIP awards
is adjusted in respect of the TSR performance condition which
is deemed to be a ‘market condition’. The fair value of the 2018,
2019 and 2020 TSR elements of the LTIP awards has been
calculated using a Monte Carlo model. The inputs to this model are
shown below:
2020 TSR
performance
condition
2019 TSR
performance
condition
2018 TSR
performance
condition
Share price (p)
586.3
694.0
709.5
Expected term (years)
Expected volatility (%)
Risk-free interest rate (%)
3.0
20
0.28
3.0
20
0.74
3.0
20
0.96
Expected dividend
yield (%)
Dividends are received by holders of
the awards therefore no adjustment
to fair value is required
LTIP Buy Out awards were granted to the Group Chief Executive
Officer in 2019, and finalised in 2020, following forfeiture of a
proportion of his long-term incentive awards held with Aviva plc that
had been awarded in March 2017 and May 2018. The Aviva March
2017 LTIP vested on 27 March 2020 with a performance outturn of
50%. The Aviva May 2018 LTIP is due to vest on 26 March 2021.
On 14 August 2020, LTIP awards were granted to certain senior
management employees. The vesting periods and performance
conditions for these awards are linked to the core 2018, 2019 and
2020 LTIP awards.
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 second tranche
of awards vested on 27 March 2020. The remaining awards vest on
28 March 2021. These grants of shares are conditional on the
employees remaining in employment with the Group for the vesting
period.
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 13 March 2020, awards were granted and are expected to vest
on 13 March 2023. The 2017 awards vested on 24 March 2020. The
2018 and 2019 awards are expected to vest on 21 March 2021 and
11 March 2022 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. Good leavers will be able to, at the discretion of the
Remuneration Committee, exercise their full award at vesting.
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
Phoenix Group Holdings plc Annual Report & Accounts 2020
283
283
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED
I. OTHER NOTES continued
I1. Share-Based Payment continued
I1.2 Share-based payment schemes continued
Deferred Bonus Share Scheme (‘DBSS’)
Each year, part of the annual incentive for certain executives is
deferred into shares of the parent company. 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.
Good leavers will be able to, at the discretion of the Remuneration
Committee, exercise their full award at vesting. Dividends will accrue
for DBSS awards over the three year deferral period. The number of
shares for all outstanding DBSS awards was increased in July 2018
to take account of the impact of the 2018 Group rights issue.
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 2020
sharesave options were granted on 8 April 2020.
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 prior to the end of their
three or five year period.
The 2020 DBSS was granted on 13 March 2020 and is expected to
vest on 13 March 2023. The 2017 DBSS awards vested during the
year. The 2018 awards are expected to vest on 15 March 2021
and the 2019 awards are expected to vest on 11 March 2022.
The fair value of these awards is estimated at the average share
price in the three days preceding the date of the grant, taking
into account the terms and conditions upon which the options
were granted.
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 and the exercise price of these
awards was also amended as a result of these issues.
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 2016 to 2020 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 (%)
2020
sharesave
5.664
4.970
2019
sharesave
6.800
5.610
2018
sharesave
7.685
5.629
2017
sharesave
7.470
5.674
2016
sharesave
8.890
5.746
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
0.5 (for 3.25 year
scheme) and 0.5
(for 5.25 year
scheme)
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)
30.0
8.2
30.0
6.8
30.0
6.5
30.0
6.3
30.0
6.0
284
284
Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
The information for determining the fair value of the 2020 Irish sharesave
options differed from that included in the table above as follows:
The weighted average share price at the date of exercise for the
rewards exercised is £6.74 (2019: £6.81).
2019
£m
2020
£m
Notes
• Share price (€): 6.462
• Exercise price (€) 5.650
• Risk-free rate (%): 0.3 (for 3.25 year scheme) and 0.2 (for 5.25 year
scheme).
Share Incentive Plan
The Group operates two Share Incentive Plan (‘SIP’) 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. In 2019 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 in 2019, 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 2020,
287,547 matching shares (including unrestricted shares) were
conditionally awarded to employees (2019: 146,769).
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:
Number of share options 2020
LTIP Sharesave
DBSS
Outstanding at the beginning
of the year
4,637,555 2,542,764 905,867
Granted during the year
2,634,386 2,233,597 588,925
Forfeited/cancelled during
the year
(1,030,017) (767,140)
–
Exercised during the year
(752,929) (440,062) (226,940)
Outstanding at the end
of the year
5,488,995 3,569,159 1,267,852
Number of share options 2019
LTIP Sharesave
DBSS
The weighted average remaining contractual life for the rewards
outstanding as at 31 December 2020 is 5.6 years (2019: 5.0 years).
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.
Profit for the year before tax
Non-cash movements in profit for the
period before tax
Gain on acquisition
Gain on Part VII portfolio transfer
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 liability/asset
Pension past service costs
Other costs of pension schemes
2020
£m
1,270
(372)
(85)
2019
£m
351
–
–
52
55
(10,806)
(18,784)
(39)
487
–
113
13
234
29
2
5
(47)
402
(70)
(84)
11
162
29
–
4
Decrease in investment assets
8,254
6,131
Decrease/(increase) in reinsurance
assets
Increase in insurance contract and
investment contract liabilities
Decrease in deposits received from
reinsurers
Increase in obligation for repayment
of collateral received
Outstanding at the beginning
of the year
Granted during the year
Forfeited/cancelled during
the year
Exercised during the year
Outstanding at the end
of the year
3,794,061 1,375,620
771,040
1,657,107 1,669,701
356,872
Net decrease/(increase) in
working capital
(588,747)
(186,878)
–
(224,866)
(315,679)
(222,045)
4,637,555 2,542,764
905,867
Other items:
Contributions to defined benefit
pension schemes
Cash transferred under Part VII
portfolio transfer
Cash generated by operations
708
(295)
6,261
11,792
(236)
(236)
1,146
1,026
211
(128)
(77)
(46)
146
7,316
–
273
The weighted average fair value of options granted during the year
was £3.88 (2019: £4.10).
Phoenix Group Holdings plc Annual Report & Accounts 2020
285
285
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED
I. OTHER NOTES continued
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 Group’s risk management framework is described in the risk
management commentary on pages 79 to 89 of the Annual Report
and Accounts and the risk universe component of this framework
summarises the comprehensive set of risks to which the Group is
exposed. These major risks (‘Level 1’ risks) that the Group’s
businesses are exposed to and the Group’s approach to managing
those risks are outlined in the following notes:
Capital Management Framework
The Group’s Capital Management Framework is designed to achieve
the following objectives:
• 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.
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
comprises 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.
• Note E6: Credit risk, market risk, financial soundness risk, strategic
risk, customer risk and operational risk; and
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.
• Note F4: Insurance risk.
The section on risk and capital management objectives is
included below.
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.
286
286
Phoenix Group Holdings plc Annual Report & Accounts 2020
In accordance with the approvals received from the PRA, the
Enlarged Group currently operates a partial Internal Model to
calculate Group SCR, aggregating outputs from the existing Phoenix
Internal Model, the Standard Life Internal Model and the Standard
Formula with no further diversification. A harmonisation programme
to combine the two models into a single Internal Model is expected
to be completed during 2021.
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
2020
£bn
16.8
(3.2)
13.6
2019
£bn
10.8
(2.5)
8.3
Solvency II surplus – unaudited
An analysis of the PGH plc Solvency II surplus as at 31 December 2020 is
provided in the business review section on page 52 to 54. 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 307 and 308.
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 availability 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 determine their
capital requirements in accordance with an approved partial Internal
Model. The Irish life entity, Standard Life International Designated
Activity Company, determines its capital requirements in accordance
with the Standard Formula.
The ReAssure businesses, acquired during 2020, also apply the
Standard Formula to determine capital requirements.
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Phoenix Group Holdings plc Annual Report & Accounts 2020
287
287
179
FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
CONTINUED
Details of the shareholdings and emoluments of individual Directors
are provided in the Remuneration report on pages 124 to 158.
During the year to 31 December 2020 key management personnel
and their close family members contributed £9,100 (2019: £16,395)
to Pensions and Savings products sold by the Group. At 31
December 2020, the total value of key management personnel’s
investments in Group Pensions and Savings products was
£2,842,300 (2019: £2,590,240).
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
2020
£m
565
89
26
2019
£m
396
161
6
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
In 2019, the Group noted that it was 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
Share Purchase Agreement relating to services and expenses, and
the scope and cost of services provided pursuant to the Transitional
Services agreement (‘TSA’), the Client Service and Proposition
Agreement (‘CSPA’), and certain other agreements between the
Group and members of the Standard Life Aberdeen group. On 23
February 2021, the Group announced that it had entered into a new
agreement with SLA which simplifies the arrangements of their
Strategic Partnership and resolves the legacy issues outlined above.
For further details of the new agreement see note I7.
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.
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. Following the acquisition of the Standard Life
Assurance businesses in 2018, SLA plc took a 19.98% equity stake
in the Enlarged Group, and as a result became a related party of
the Group. As at 31 December 2020 the SLA plc holding is 14.42%.
SLA plc is considered to have a significant influence over the Group
due to their equity stake, representation on the Board of Directors
and the existence of a strategic partnership between the two parties.
Transactions
2020
£m
Balances
outstanding
2020
£m
Transactions
2019
£m
Balances
outstanding
2019
£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)
13
–
–
–
–
(3)
21
(17)
–
–
–
(125)
(54)
(133)
(55)
(6)
(2)
(6)
(4)
64
19
75
10
16
36
18
23
6
(67)
(68)
–
(33)
(67)
(64)
–
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
2020
£m
5
5
2019
£m
5
2
288
288
Phoenix Group Holdings plc Annual Report & Accounts 2020
On 5 March 2021, the Board recommended a final dividend of 24.1p
per share (2019: 23.4p per share) for the year ended 31 December
2020. 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 financial statements for 2020 and will
be charged to the statement of changes in equity in 2021.
N LYONS
A BRIGGS
R THAKRAR
A BARBOUR
K GREEN
H IIOKA
W MAYALL
C MINTER
J POLLOCK
B RICHARDS
N SHOTT
K SORENSON
M TUMILITY
7 March 2021
I7. Events After the Reporting Period
The 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 financial statements are disclosed.
On 23 February 2021, the Group announced that it had entered into a
new agreement with SLA which simplifies the arrangements of their
Strategic Partnership, enabling the Group to control its own
distribution, marketing and brands, and focusing the Strategic
Partnership on using SLA’s asset management services in support
of Phoenix’s growth strategy. Under the terms of the transaction,
the Group will sell its UK investment and platform-related products,
comprising Wrap Self Invested Personal Pension (‘Wrap SIPP’),
Onshore Bond and UK Trustee Investment Plan (‘TIP’) to SLA,
and acquire ownership of the Standard Life brand. As part of the
acquisition of the brand, the relevant marketing, distribution and data
team members will transfer to the Group. As a result, the Client
Service and Proposition Agreement (‘CSPA’) entered into between
the two groups following the acquisition of the Standard Life
businesses in 2018, will be dissolved. In addition, Phoenix and SLA
resolved all legacy issues in relation to the Transitional Service
Agreement (‘TSA’) entered into at the time of the acquisition of the
Standard Life businesses and the CSPA.
The sale of the Wrap SIPP, Onshore Bond and TIP business currently
within Standard Life Assurance Limited, will be effected through a
Part VII transfer targeted for completion in late 2022. The economic
risk and rewards for this business will transfer to SLA effective from
1 January 2021 via a profit transfer arrangement. As at 31 December
2020, the Group held investment contracts liabilities, assets backing
the liabilities, acquired in-force intangible assets, a CSPA intangible
asset and related tax balances in its statement of consolidated
financial position in relation to this business.
The Group will receive cash consideration for the overall transaction
of £115 million, the majority of which has already been received.
When taking into account all aspects of the transaction the IFRS
financial impact in profit or loss and to net assets is not expected to
be material.
On 3 March 2021, an increase from the current 19% UK corporation
tax rate to 25%, effective from 1 April 2023, was announced in the
Budget. As a result of the rate increase, the net deferred tax liability
in existence at the end of 2020 is expected to increase in value by
approximately £162 million to £1,198 million.
G2.4 Present value of future profits on non-participating
G2.1 Goodwill
business in the with-profit fund
The carrying value of goodwill has been tested for impairment at the
The principal assumptions used to calculate the present value of
year end. No impairment has been recognised as the value in use of
future profits (‘PVFP’) are the same as those used in calculating the
this intangible continues to exceed its carrying value.
insurance contract liabilities given in note F4.1.
£47 million of goodwill is attributable to the Management Services
The PVFP held in intangibles represented future profits on specific
segment including £8 million that arose on acquisition of Abbey Life.
blocks of business in the NPL with-profit fund that was partly
attributable to the holders of the limited recourse bonds (see note
E5). As a consequence, the value of future profits was not
attributable solely to policyholders and the PVFP was therefore
presented as a separate intangible asset.
Following the repayment of the limited recourse bonds during the
year, the PVFP can be shown as fully attributable to policyholders
and it has therefore been reclassified as investment contract
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 9.2% (2019: 8.3%) and are consistent with those adopted by
management in the Group’s operating plan and, for the period 2026
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.
liabilities.
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 was being amortised over a period of 15 years.
On 23 February 2021, the Group entered into an agreement with
SLA plc to simplify the arrangements of the Strategic Partnership. As
part of the changes, the CSPA entered into following the acquisition
of the Standard Life Assurance businesses will be dissolved. As a
consequence, the carrying value of the CSPA as at 31 December
2020 is expected to be recoverable within 12 months. Further details
have been provided in Note I7.
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 2026 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. Management does not believe
that a reasonably foreseeable change in key assumptions would
cause value in use to be materially lower than the carrying value.
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 £1,831 million was recognised
during the year upon acquisition of the ReAssure businesses
(see note H2.1).
G2.3 Customer Relationships
The customer relationships intangible at 31 December 2020 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
2020 of 8.9 years.
Phoenix Group Holdings plc Annual Report & Accounts 2020
289
289
255
FINANCIALS
PARENT COMPANY
FINANCIAL STATEMENTS
STATEMENT OF FINANCIAL POSITION
As at 31 December 2020
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
Merger reserve
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
2020
£m
2019
£m
9
10,090
6,928
11
10
6
11
11
12
18
13
3
3
4
5
6
18
7
8
–
2
2,119
1,227
–
1
194
16
295
4
5
43
200
15
198
45
12,719
8,663
100
4
1,819
(4)
5,211
7,130
411
7,541
72
2
–
(4)
5,368
5,438
411
5,849
4,521
2,020
–
448
122
87
5,178
12,719
31
533
172
58
2,814
8,663
The notes identified numerically on pages 293 to 302 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 184 to 289.
290
290
Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Share capital
(note 3)
£m
Share
premium
(note 3)
£m
Merger
reserve
(note 3)
£m
Other reserve
(note 9)
£m
Retained
earnings
£m
–
(4)
5,368
Tier 1
Notes
(note 4)
£m
411
Total
£m
5,438
–
Total
equity
£m
5,849
256
1,849
(403)
(23)
–
–
–
–
256
256
–
1,849
(403)
(403)
(23)
(23)
–
–
–
–
–
(4)
13
5,211
13
7,130
–
411
13
7,541
At 1 January 2020
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 2020
72
–
28
–
–
–
100
2
–
2
–
–
–
4
For the year ended 31 December 2019
–
1,819
–
–
–
1,819
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
Other reserve
(note 9)
£m
–
–
2
–
–
–
2
(4)
–
–
–
–
–
(4)
Retained
earnings
£m
4,075
Total
£m
4,143
Tier 1
Notes
(note 4)
£m
411
1,643
1,643
–
(338)
2
(338)
(23)
(23)
11
5,368
11
5,438
–
–
–
–
–
411
Total
equity
£m
4,554
1,643
2
(338)
(23)
11
5,849
Phoenix Group Holdings plc Annual Report & Accounts 2020
291
291
179
FINANCIALS
STATEMENT OF CASH FLOWS
For the year ended 31 December 2020
Cash flows from operating activities
Cash (utilised)/generated by operations
Net cash flows from operating activities
Cash flows from investing activities
Acquisition of ReAssure subsidiaries
Investment income
Interest received from Group entities
Capital contribution to Group entity
Repayment of amounts due 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 (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
14
3
5
5
2020
£m
(71)
(71)
(1,265)
5
74
(50)
400
(836)
2
1,445
–
(403)
(149)
(29)
866
(41)
45
4
2019
£m
411
411
–
2
77
–
–
79
2
100
(100)
(338)
(81)
(29)
(446)
44
1
45
292
292
Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
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 2020 was £256 million
(2019: £1,643 million).
Statement of Compliance
The Company’s financial statements have been prepared in
accordance with International Accounting Standards in conformity
with the requirements of the Companies Act 2006 as applied in
accordance with section 408 of the Companies Act 2006.
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.
The financial statements are presented in sterling (£) rounded to the
nearest million except where otherwise stated.
Financial assets measured at amortised cost are included in notes 10
and 13.
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 177 to 289, 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.
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.
(c) Impacts of COVID-19 during the year
The ‘Group Chief Executive Officer's Report’, ‘Business Review’,
‘Risk Management’, ‘Viability Statement’ and ‘Directors’ Report:
Going Concern’ sections of this Annual Report provide information as
to the broader effects of COVID-19 on the Group’s financial results,
its operations and prospects. Further details of the specific impacts
of COVID-19 are detailed in note A6 to the consolidated financial
statements.
Phoenix Group Holdings plc Annual Report & Accounts 2020
293
293
179
FINANCIALS
NOTES TO THE PARENT COMPANY
FINANCIAL STATEMENTS
CONTINUED
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.
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 2023 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.
3. SHARE CAPITAL, SHARE PREMIUM AND MERGER RESERVE
On 22 July 2020, the Group acquired ReAssure Group plc and as part
consideration for the acquisition issued 277,277,138 new ordinary
shares to Swiss Re Group, 144,877,304 shares of which were
subsequently transferred to MS&AD Insurance Group Holdings
(‘MS&AD’). The equity stake in the Group held by Swiss Re Group
and MS&AD was valued at £1,847 million, based on the share price
at that date.
The Company has applied the relief in section 612 of the Companies
Act 2006 to present the difference between the consideration
received and the nominal value of the shares issued of £1,819 million
in a merger reserve as opposed to in share premium. A merger
reserve is required to be used as a result of the Company having
issued equity shares as part consideration for the shares of
ReAssure Group plc and securing at least a 90% holding in
that entity.
During 2020, the Company issued 440,062 shares (2019: 315,730
shares) at a premium of £2 million (2019: £2 million) in order
to satisfy its obligations to employees under the Group’s
sharesave schemes.
Issued and fully paid:
999.2 million ordinary shares of £0.10
each (2019: 721.5 million)
2020
£m
2019
£m
100
72
2020
Shares in issue at 1
January
Ordinary shares issued to
Swiss Re and MS&AD
Other ordinary shares
issued in the period
Ordinary shares in issue
at 31 December
Number
£
721,514,944
72,151,494
277,277,138
27,727,714
440,062
44,006
999,232,144
99,923,214
2019
Number
£
Shares in issue at 1 January
721,199,214 72,119,921
Ordinary shares issued
in the period
Ordinary shares in issue
at 31 December
315,730
31,573
721,514,944 72,151,494
4. TIER 1 NOTES
The accounting policy for the Tier 1 Notes is included in note D4
to the consolidated financial statements.
2020
£m
2019
£m
Tier 1
notes 411 411
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 intragroup loan that was received
as consideration. Details of the terms of the Tier 1 Notes can be
found in note D4 to the consolidated financial statements.
On 27 October 2020, the terms of the Tier 1 Notes were amended
and the consequences of a trigger event, linked to the Solvency II
capital position changed. Previously the Tier 1 Notes were subject
to a permanent write-down in value to zero. The amended terms
require that the Tier 1 Notes would automatically be subject to
conversion to ordinary shares of the Company at the conversion
price of £1,000 per share, subject to adjustment in accordance with
the terms and conditions of the notes and all accrued and unpaid
interest would be cancelled. Following any such conversion there
would be no reinstatement of any part of the principal amount of,
or interest on, the Tier 1 Notes at any time.
294
294
Phoenix Group Holdings plc Annual Report & Accounts 2020
5. BORROWINGS
The accounting policy for borrowings is included in note E5 to the
consolidated financial statements.
£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)
US $750 million Contingent
Convertible Tier 1 notes
(note g)
£500 million Tier 2 notes
(note h)
US $500 million Fixed Rate
Reset Tier 2 notes (note i)
£500 million 5.867% Tier 2
subordinated notes (note j)
£250 million Fixed Rate
Reset Callable Tier 2
subordinated notes (note k)
£250 million 4.016% Tier 3
subordinated notes (note l)
Carrying value
2020
£m
2019
£m
Fair value
2020
£m
2019
£m
436
437
517
503
449
448
470
473
329
334
416
396
410
385
516
473
123
128
125
130
294
288
294
288
545
484
364
556
272
259
–
–
–
–
–
–
585
622
395
620
280
266
–
–
–
–
–
–
Total borrowings
4,521
2,020
5,106
2,263
Amount due for
settlement after
12 months
4,398
2,020
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.
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 the
year £6 million (2019: £6 million) of interest was capitalised.
g. On 29 January 2020, the Company issued US $750 million fixed
rate reset perpetual restricted Tier 1 contingent convertible notes
(the ‘contingent convertible Tier 1 Notes’) which are unsecured
and subordinated. The contingent convertible Tier 1 Notes have
no fixed maturity date and interest is payable only at the sole and
absolute discretion of the Company. The contingent convertible
Tier 1 Notes bear interest on their principal amount at a fixed rate
of 5.625% per annum up to the ‘First Reset Date’ of 26 April
2025. Thereafter the fixed rate of interest will be reset on the First
Reset Date and on each fifth anniversary of this date by reference
to the sum of the yield of the Constant Maturity Treasury (‘CMT’)
rate (based on the prevailing five year US Treasury yield) plus a
margin of 4.035%, being the initial credit spread used in pricing
the notes. Interest is payable on the contingent convertible Tier 1
Notes semi-annually in arrears on 26 April and 26 October. If an
interest payment is not made it is cancelled and it shall not
accumulate or be payable at any time thereafter. Refer to note
E5(j) to the consolidated financial statements for further details.
h. On 28 April 2020, the Company issued £500 million fixed rate
Tier 2 Notes (the ‘Tier 2 Notes’) which are unsecured and
subordinated. The Tier 2 Notes have a maturity date of 28 April
2031 and include an issuer par call right for the three month
period prior to maturity. The Tier 2 Notes bear interest on the
principal amount at a fixed rate of 5.625% per annum payable
annually in arrears on 28 April each year.
i. On 4 June 2020, the Company issued US $500 million fixed rate
reset callable Tier 2 notes (the ‘Fixed Rate Reset Tier 2 Notes’)
which are unsecured and subordinated. The Fixed Rate Reset
Tier 2 notes have a maturity date of 4 September 2031 with an
optional issuer par call right on any day in the three month period
up to and including 4 September 2026. The Fixed Rate Reset
Tier 2 Notes bear interest on the principal amount at a fixed rate
of 4.75% per annum up to the interest rate reset date of 4
September 2026. If the Fixed Rate Reset Tier 2 Notes are not
redeemed before that date, the interest rate resets to the sum
of the applicable CMT rate (based on the prevailing five year US
Treasury yield) plus a margin of 4.276%, being the initial credit
spread used in pricing the notes. Interest is payable on the Fixed
Rate Reset Tier 2 Notes semi-annually in arrears on 4 March and
4 September each year.
j. On 22 July 2020, the Company was substituted in place of
ReAssure Group plc as issuer of the £500 million 5.867% Tier 2
Subordinated Notes. These notes have a maturity date of
13 June 2029 and were initially recognised at their fair value
of £559 million.
G2.4 Present value of future profits on non-participating
G2.1 Goodwill
business in the with-profit fund
The carrying value of goodwill has been tested for impairment at the
The principal assumptions used to calculate the present value of
year end. No impairment has been recognised as the value in use of
future profits (‘PVFP’) are the same as those used in calculating the
this intangible continues to exceed its carrying value.
insurance contract liabilities given in note F4.1.
£47 million of goodwill is attributable to the Management Services
The PVFP held in intangibles represented future profits on specific
segment including £8 million that arose on acquisition of Abbey Life.
blocks of business in the NPL with-profit fund that was partly
attributable to the holders of the limited recourse bonds (see note
E5). As a consequence, the value of future profits was not
attributable solely to policyholders and the PVFP was therefore
presented as a separate intangible asset.
Following the repayment of the limited recourse bonds during the
year, the PVFP can be shown as fully attributable to policyholders
and it has therefore been reclassified as investment contract
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 9.2% (2019: 8.3%) and are consistent with those adopted by
management in the Group’s operating plan and, for the period 2026
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.
liabilities.
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 was being amortised over a period of 15 years.
On 23 February 2021, the Group entered into an agreement with
SLA plc to simplify the arrangements of the Strategic Partnership. As
part of the changes, the CSPA entered into following the acquisition
of the Standard Life Assurance businesses will be dissolved. As a
consequence, the carrying value of the CSPA as at 31 December
2020 is expected to be recoverable within 12 months. Further details
have been provided in Note I7.
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 2026 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. Management does not believe
that a reasonably foreseeable change in key assumptions would
cause value in use to be materially lower than the carrying value.
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 £1,831 million was recognised
during the year upon acquisition of the ReAssure businesses
(see note H2.1).
G2.3 Customer Relationships
The customer relationships intangible at 31 December 2020 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
2020 of 8.9 years.
Phoenix Group Holdings plc Annual Report & Accounts 2020
295
295
255
FINANCIALS
NOTES TO THE PARENT COMPANY
FINANCIAL STATEMENTS
CONTINUED
5. BORROWINGS continued
k. On 22 July 2020, the Company was substituted in place of
ReAssure Group plc as issuer of the £250 million fixed rate
reset callable Tier 2 subordinated notes The £250 million fixed
rate reset callable Tier 2 subordinated notes have a maturity date
of 13 June 2029 and were initially recognised at their fair value of
£275 million. The fair value adjustment will be amortised over the
remaining life of the notes. The notes include an issuer par call
right exercisable on 13 June 2024. Interest is payable semi-
annually in arrears on 13 June and 13 December. These notes
initially bear interest at a rate of 5.766% on the principal amount
and the rate of interest will reset on 13 June 2024, and on each
interest payment date thereafter, to a margin of 5.17% plus the
yield of a UK Treasury Bill of similar term.
m. The Company has in place a £1.25 billion unsecured revolving
credit facility, maturing in June 2025. 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.
The facility remains undrawn as at 31 December 2020.
Borrowings initially recognised at fair value are being amortised to
par value over the life of the borrowings.
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.
l. On 22 July 2020, the Company was substituted in place of
ReAssure Group plc as issuer of the £250 million 4.016%
Tier 3 subordinated notes. The notes have a maturity date of
13 June 2026 and were initially recognised at their fair value
of £259 million. The fair value adjustment is being amortised
over the remaining life of the notes.
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
2020
£m
New
borrowings,
net of costs
£m
Loan issued
via
subsitution1
£m
Movement in
foreign
exchange
£m
Amortisation
£m
Capitalised
interest
£m
At 31
December
2020
£m
£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
Loan due to Standard Life Assurance Limited
US $750 million Contingent Convertible Tier 1 notes
£500 million Tier 2 notes
US $500 million Fixed Rate Reset Tier 2 notes
£500 million 5.867% Tier 2 subordinated notes
£250 million Fixed Rate Reset Callable Tier 2
subordinated notes
£250 million 4.016% Tier 3 subordinated notes
437
448
334
385
128
288
–
–
–
–
–
–
–
–
–
–
–
–
566
483
396
–
–
–
–
–
–
–
–
–
–
–
–
559
275
259
–
–
(10)
22
–
–
(23)
–
(32)
–
–
–
1 Loans issued via substitution are a non-cashflow item as consideration was the transfer of loans and deposits (refer to note 10).
2,020
1,445
1,093
(43)
(1)
1
5
3
(5)
–
2
1
–
(3)
(3)
–
–
–
–
–
–
–
6
–
–
–
–
–
–
6
436
449
329
410
123
294
545
484
364
556
272
259
4,521
296
296
Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Cash
At 1
January
2019
£m
New
borrowings,
net of costs
£m
Repayments
£m
Loan issued
via
subsitution1
£m
Non-Cashflow
New
borrowings
net of issue
costs2
£m
Movement
in foreign
exchange
£m
Amortisation
£m
Capitalised
interest
£m
At 31
December
2019
£m
£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
–
–
–
–
–
–
–
–
–
–
100
(100)
–
100
–
(100)
131
–
–
–
–
131
–
–
–
–
–
–
–
–
282
282
–
–
(13)
(24)
–
–
–
(37)
(2)
1
4
4
(3)
–
–
4
–
–
–
–
–
–
6
6
437
448
334
385
128
–
288
2,020
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.
6. DERIVATIVES
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.
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.
During 2020, the Company terminated the derivative instruments that
were entered into in 2018 and 2019 and as a result the Company
no longer hedges its currency risk exposure arising on foreign
denominated investments and borrowings.
The fair value of the derivative financial instruments are as follows:
Cross currency swap
Forward currency swap
Asset
Liability
2020
£m
2019
£m
2020
£m
2019
£m
–
–
–
–
5
5
–
–
–
31
–
31
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 £nil (2019: £5 million) of which credit risk of £nil (2019:
£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 2020 in
respect of OTC derivative liabilities of £nil (2019: £34 million)
amounted to £nil (2019: £3 million).
7. PROVISIONS
During 2019 the Company recognised two new provisions,
a Standard Life transition restructuring provision of £159 million
and £13 million in relation to amounts payable to SLA plc under the
terms of the Purchase Price Adjustment. During the year £19 million
of the restructuring provision was utilised and a further £31 million
was released resulting in a provision as at 31 December 2020 of
£109 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
Amount due for settlement
after 12 months
2020
£m
87
2019
£m
58
–
–
Phoenix Group Holdings plc Annual Report & Accounts 2020
297
297
179
FINANCIALS
NOTES TO THE PARENT COMPANY
FINANCIAL STATEMENTS
CONTINUED
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.
As at 31 December 2020, the market capitalisation of the Company
was lower than the net asset value, which was considered to be an
indicator that the Company’s investments in its subsidiaries may
have been impaired as at that date. Where such indicators are
identified, an impairment test is performed. In 2020, the recoverable
amount of the investments in subsidiaries was determined to be
greater than carrying value. In 2019, impairments of £4,146 million
were recognised to align the carrying value of certain investments to
their recoverable amount.
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 and the service companies. The cash flows used in this
calculation are consistent with those adopted by 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.
9. INVESTMENTS IN GROUP ENTITIES
Cost
At 1 January
Additions
At 31 December
Impairment
At 1 January
Charge for the year
At 31 December
Carrying amount
At 31 December
2020
£m
2019
£m
11,074
3,162
14,236
4,146
6,928
11,074
(4,146)
–
(4,146)
–
(4,146)
(4,146)
10,090
6,928
On 22 July 2020, the Company acquired ReAssure Group plc from
Swiss Re Finance Midco (Jersey) Limited, an indirect subsidiary
of Swiss Re Limited, for a total consideration of £3,112 million.
The consideration consisted of £1,265 million cash and the issue
of 277,277,138 shares to Swiss Re Group on 23 July 2020,
144,877,304 shares of which were subsequently transferred to
MS&AD Insurance Group Holdings (‘MS&AD’). The equity stake
in the Group held by Swiss Re Group and MS&AD was valued at
£1,847 million, based on the share price at that date.
During the year a £50 million capital contribution was paid into
SLIDAC which was provided in order to strengthen its capital
position following adverse market conditions experienced during
the year.
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
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 and also acquired
SLAL from Old PGH for a consideration of £2,994 million.
The consideration for the acquisition of SLAL was increased
by £46 million comprising of £33 million due to Standard Life
Aberdeen plc under the deed of indemnity and £13 million under
the terms of the Purchase Price Adjustment mechanism included in
the Sale and Purchase Agreement agreed as part of the acquisition
of the Standard Life Assurance businesses (see note G7 of the
consolidated financial statement).
298
298
Phoenix Group Holdings plc Annual Report & Accounts 2020
10. LOANS AND DEPOSITS
Loans due from PLHL
(note a)
Loans due from
Phoenix Group
Employee Benefit Trust
(note b)
Loan due from
ReAssure Group plc
(note c)
Loans and deposits
due from Group
entities
Fixed term deposits
(note d)
Total loans and
deposits
Amounts due after
12 months
Carrying value
2020
£m
2019
£m
Fair value
2020
£m
2019
£m
1,214
1,220
1,403
1,363
6
7
6
704
–
710
7
–
1,924
1,227
2,119
1,370
195
–
195
–
2,119
1,227
2,314
1,370
1,924
1,227
c) On 22 July 2020, the Company entered into a £1,099 million
loan agreement with ReAssure Group Plc, a Group subsidiary
as consideration for the transfer of subordinated loans notes into
the Company. The loan accrues interest at a rate of 6 month LIBOR
plus 1.30% and matures on 31 December 2025. During the year,
the Company received a partial repayment of £400 million. As at
31 December 2020, the carrying value of the loan was £704 million,
and also includes £5 million of interest that has been capitalised.
d) Fixed term deposits include holdings in bank deposits with an initial
maturity of more than 3 months at the date the deposit was made.
None of the loans are considered to be past due.
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.
Details of the factors considered in determination of fair value are
included in note E2 to the consolidated financial statements.
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 2020,
the carrying value of the loan was £437 million (2019: £438 million).
11. FINANCIAL ASSETS
Financial assets at fair value through
profit or loss
Derivatives
Equities
Debt securities
Collective investment schemes
2020
£m
2019
£m
–
–
1
194
195
5
2
43
200
250
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 2020, the carrying value of the loan
was £449 million (2019: £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 £10 million (2019: £13 million).
At 31 December 2020, the carrying value of the loan was £328 million
(2019: £334 million).
b) On 18 June 2019, the Company was assigned an interest free facility
arrangement with Phoenix Group Employee Benefit Trust (‘EBT’).
As at 31 December 2020, the carrying value of the loan was £6 million
(2019: £7 million). In 2020, an additional £7million (2018: £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
2020 £8million (2019: £3 million) of the loan has been written off.
Amounts due after 12 months
1
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 2020
Financial assets at fair value
through profit or loss:
Debt securities
Collective investment
schemes
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
–
194
194
–
–
–
1
–
1
1
194
195
G2.4 Present value of future profits on non-participating
G2.1 Goodwill
business in the with-profit fund
The carrying value of goodwill has been tested for impairment at the
The principal assumptions used to calculate the present value of
year end. No impairment has been recognised as the value in use of
future profits (‘PVFP’) are the same as those used in calculating the
this intangible continues to exceed its carrying value.
insurance contract liabilities given in note F4.1.
£47 million of goodwill is attributable to the Management Services
The PVFP held in intangibles represented future profits on specific
segment including £8 million that arose on acquisition of Abbey Life.
blocks of business in the NPL with-profit fund that was partly
attributable to the holders of the limited recourse bonds (see note
E5). As a consequence, the value of future profits was not
attributable solely to policyholders and the PVFP was therefore
presented as a separate intangible asset.
Following the repayment of the limited recourse bonds during the
year, the PVFP can be shown as fully attributable to policyholders
and it has therefore been reclassified as investment contract
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 9.2% (2019: 8.3%) and are consistent with those adopted by
management in the Group’s operating plan and, for the period 2026
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.
liabilities.
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 was being amortised over a period of 15 years.
On 23 February 2021, the Group entered into an agreement with
SLA plc to simplify the arrangements of the Strategic Partnership. As
part of the changes, the CSPA entered into following the acquisition
of the Standard Life Assurance businesses will be dissolved. As a
consequence, the carrying value of the CSPA as at 31 December
2020 is expected to be recoverable within 12 months. Further details
have been provided in Note I7.
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 2026 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. Management does not believe
that a reasonably foreseeable change in key assumptions would
cause value in use to be materially lower than the carrying value.
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 £1,831 million was recognised
during the year upon acquisition of the ReAssure businesses
(see note H2.1).
G2.3 Customer Relationships
The customer relationships intangible at 31 December 2020 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
2020 of 8.9 years.
Phoenix Group Holdings plc Annual Report & Accounts 2020
299
299
255
FINANCIALS
NOTES TO THE PARENT COMPANY
FINANCIAL STATEMENTS
CONTINUED
11. FINANCIAL ASSETS continued
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 both 2020 and 2019.
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 holding was disposed of during the year
however a balance of £1 million remains in respect of a potential
repayment of cash reserves that may be due to the Company.
The amount recognised has taken account of both the uncertain
nature of the value of the proceeds and when they will be received.
The structure was 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. In 2019, 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 2020
£m
Credit for
the year
£m
31 December 2020
£m
Provisions and other
temporary differences
15
1
16
1 January 2019
£m
Credit for the
year
£m
31 December 2019
£m
Provisions and other
temporary differences
–
15
15
The standard rate of UK corporation tax for the accounting period
is 19% (2019: 19%).
Following the cancellation of the planned tax rate reduction from
19% to 17% announced in the March 2020 Budget, deferred tax
assets, where provided, are reflected at the rate of 19%.
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
2020
£m
4
2019
£m
45
14. CASH FLOWS FROM OPERATING ACTIVITIES
Profit for the year before tax
Non-cash movements in profit
for the year 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 (gains)/losses on
financial assets
Foreign exchange movement on
borrowings at amortised cost
Share-based payment charge
Increase in investment assets
Net (increase)/decrease in working capital
Cash (utilised)/generated by operations
2020
£m
222
2019
£m
1,598
–
–
8
(78)
189
(5,640)
4,146
3
(79)
103
(45)
19
(43)
13
(116)
(221)
(71)
(37)
11
(236)
523
411
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 2020, total capital was £7,541 million (2019:
£5,849 million). The movement in capital in the period comprises
the total comprehensive income for the period attributable to
owners of £256million (2019: £1,643 million income), dividends
paid of £403 million (2019: £338 million), coupon paid on Tier 1
Notes, net of tax relief of £23 million (2019: £23 million), credit to
equity for equity-settled share-based payments of £13 million (2019:
£11 million), and issue of ordinary share capital of £1,849 million
(2019: £2 million).
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. During the
year, the Company terminated the hedges that were entered into
in 2018 and 2019. As a result, the Company no longer hedges its
currency risk exposure arising on foreign currency hybrid debt.
Details of the Group’s financial risk management policies are outlined
in note E6 to the consolidated financial statements.
300
300
Phoenix Group Holdings plc Annual Report & Accounts 2020
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
In default
Write-off
There has been a significant increase in credit risk since initial recognition
Lifetime ECL – not credit impaired
There is evidence indicating the asset is credit-impaired
Lifetime ECL – credit impaired
There is evidence indicating that the counterparty is in severe financial difficulty
and the Group has no realistic prospect of recovery
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:
2020
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
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
Gross
carrying
amount
£m
2,119
295
4
Gross
carrying
amount
£m
1,227
198
45
Loss
allowance
£m
−
−
−
Loss
allowance
£m
−
−
−
Net carrying
amount
£m
2,119
295
4
Net carrying
amount
£m
1,227
198
45
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 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.
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Phoenix Group Holdings plc Annual Report & Accounts 2020
301
301
179
FINANCIALS
NOTES TO THE PARENT COMPANY
FINANCIAL STATEMENTS
CONTINUED
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 the appendix to the Directors’
Remuneration Report on pages 124 to 158 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 Group.
As at 31 December 2020 the SLA plc holding is 14.42%. SLA plc is
considered to have a significant influence over the Group due to their
equity stake, representation on the Board of Directors and the
existence of a strategic partnership between the two parties.
During the year ended 31 December 2020 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
2020
£m
2019
£m
400
5,989
73
473
−
8
−
119
7
134
77
6,066
4,146
3
27
235
12
4,423
Dividends paid to SLA plc
67
67
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
2020
£m
1,924
−
295
2019
£m
1,227
3
198
2,219
1,428
1,924
1,227
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
2020
£m
294
−
448
742
2019
£m
288
31
533
852
Amount due for settlement after
12 months
294
288
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
A BRIGGS
R THAKRAR
A BARBOUR
K GREEN
H IIOKA
W MAYALL
C MINTER
J POLLOCK
B RICHARDS
N SHOTT
K SORENSON
M TUMILITY
7 March 2021
302
302
Phoenix Group Holdings plc Annual Report & Accounts 2020
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:
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
31 December 2020
Carrying value
Cash and cash equivalents
Debt securities − gilts and foreign government bonds
Debt securities − other government and supranational
Debt securities − infrastructure loans
Debt securities − UK local authority loans4
Debt securities − private placements5
Debt securities − other bonds
Equity securities
Property investments
Equity release mortgages
Commercial real estate loans
Income strips
Other investments6
At 31 December 2020
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
5,908
6,999
2,257
1,564
696
3,330
20,371
35,217
113
81
3,484
1,075
−
923
46,801
1,854
386
294
−
−
1
1,587
2,268
45
30
−
−
−
Participating
non-
supported2
£m
8,336
22,295
2,220
−
−
262
18,322
43,099
19,621
2,054
−
−
−
Unit-linked2
£m
10,246
14,458
7,815
−
−
51
Total3
£m
26,344
44,138
12,586
1,564
696
3,644
24,412
46,736
64,692
127,320
106,120
125,899
6,409
−
−
692
8,574
3,484
1,075
692
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
711
4,908
4,916
10,009
16,559
78,026
180,212
309,947
1,055
776
4,170
315,948
7,128
298,823
10,998
(1,001)
315,948
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
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 Total UK local authority loans of £696 million include £646 million classified as Level 3 debt securities in the fair value hierarchy.
5 Total private placements of £3,644 million include £2,351 million classified as Level 3 debt securities in the fair value hierarchy.
6 Includes policy loans of £10 million, other loans of £344 million, net derivative assets of £6,083 million, reinsurers’ share of investment contracts of £9,559 million and other
investments of £563 million.
Phoenix Group Holdings plc Annual Report & Accounts 2020
303
303
179
FINANCIALS
ADDITIONAL LIFE COMPANY
ASSET DISCLOSURES
CONTINUED
31 December 2019
Carrying value
Cash and cash equivalents
Debt securities − gilts and foreign government bonds
Debt securities − other government and supranational
Debt securities − infrastructure loans
Debt securities − UK local authority loans
Debt securities − private placements4
Debt securities − other bonds
Equity securities
Property investments
Equity release mortgages
Commercial real estate loans
Income strips
Other investments5
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
3,486
3,911
1,280
341
262
1,370
10,485
17,649
145
92
2,781
388
−
339
24,880
Participating
supported1
£m
2,009
342
297
−
−
−
1,582
2,221
48
37
−
−
−
386
4,701
Participating
non-
supported2
£m
4,788
20,644
3,252
−
−
131
14,314
38,341
15,962
1,890
−
−
−
3,738
Unit-linked2
£m
6,391
9,095
4,512
−
−
20
21,485
35,112
72,959
5,335
−
−
690
9,207
Total3
£m
16,674
33,992
9,341
341
262
1,521
47,866
93,323
89,114
7,354
2,781
388
690
13,670
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 Total private placements of £1,521 million include £1,147 million classified as Level 3 debt securities in the fair value hierarchy.
5 Includes 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.
304
304
Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
The following table provides a reconciliation of the total life company assets to the Assets under Administration (‘AUA’) as at 31 December
2020 detailed in the Business Review on page 50:
2019
£m
2020
£m
Notes
Total Life Company assets
Off-balance sheet AUA1
Less: Standard Life Trustee Investment Plan assets2
Assets Under Administration
2020
£bn
309.9
37.5
(9.7)
2019
£bn
224.0
35.1
(10.8)
337.7
248.3
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 statement of consolidated 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.
All of the life companies’ debt securities are held at fair value through profit or loss in accordance with IAS 39 Financial Instruments:
recognition and Measurement, 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.
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 table below shows the Group’s market exposure analysed by credit rating for the debt securities held in the shareholder and non-profit
funds.
BBB
£m
BB & below
£m
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
Total
£m
1,412
241
1,204
1,964
2,367
56
47
−
82
−
−
−
Sector analysis of shareholder bond portfolio
Industrials
Basic materials
Consumer, cyclical
Technology and telecoms
Consumer, non-cyclical
Structured finance
Banks1
Financial services
Diversified
Utilities
Sovereign, sub-sovereign and supranational2
Real estate
Investment companies
Insurance
Oil and gas
Collateralised debt obligations
Private equity loans
Infrastructure
At 31 December 2020
AAA
£m
−
−
12
175
270
−
857
92
−
28
AA
£m
81
−
484
288
309
−
805
279
7
130
1,421
8,149
37
33
−
−
−
−
−
171
193
573
212
8
−
25
A
£m
306
201
388
719
1,239
56
3,328
350
31
2,153
483
2,856
−
463
350
−
22
388
2,925
11,714
13,333
978
40
238
782
549
−
695
246
−
1,660
85
321
4
84
83
−
5
1,004
6,774
66
5,751
2
−
−
11
104
−
12
−
−
−
147
471
969
38
3,971
10,149
3,489
230
1,132
645
8
27
1,564
35,217
1 The £5,751 million total shareholder exposure to bank debt comprised £4,316 million senior debt and £1,435 million subordinated debt.
2 Includes £696 million reported as UK local authority loans and £197 million reported as private placements in the summary table on page 303.
Phoenix Group Holdings plc Annual Report & Accounts 2020
305
305
179
FINANCIALS
ADDITIONAL LIFE COMPANY
ASSET DISCLOSURES
CONTINUED
Sector analysis of shareholder bond portfolio
Industrials
Basic materials
Consumer, cyclical
Technology and telecoms
Consumer, non-cyclical
Structured finance
Banks
Financial services
Diversified
Utilities
Sovereign, sub-sovereign and supranational1
Real estate
Investment companies
Insurance
Oil and gas
Collateralised debt obligations
Infrastructure
At 31 December 2019
AAA
£m
−
−
−
38
59
−
367
147
−
26
811
44
10
−
−
−
−
AA
£m
141
−
206
111
174
−
477
415
7
−
4,383
109
80
269
110
9
−
A
£m
352
22
156
249
407
56
1,349
469
17
1,207
210
1,663
27
139
115
−
60
1,502
6,491
6,498
BBB
£m
BB & below
£m
Total
£m
784
89
537
787
939
56
2,630
1,144
29
1,843
5,453
2,117
121
473
297
9
341
18
8
35
37
42
−
13
12
5
70
28
57
−
22
16
−
−
363
17,649
273
59
140
352
257
−
424
101
−
540
21
244
4
43
56
−
281
2,795
1 Includes £262 million reported as UK local authority loans in the summary table on page 304.
The following table sets out the debt security exposure by country of the shareholder and non-profit funds of the life companies:
Analysis of shareholder debt security exposure by country
UK
Supranationals
USA
Germany
France
Netherlands
Italy
Ireland
Spain
Luxembourg
Belgium
Australia
Canada
Mexico
Sovereign,
sub-
sovereign
and
supranational
2020
£m
Corporate
and other
2020
£m
Sovereign,
sub-
sovereign
and
supranational
2019
£m
Total
2020
£m
Corporate
and other
2019
£m
Total
2019
£m
8,077
13,018
21,095
4,452
6,320
10,772
660
217
188
339
182
−
−
−
86
31
−
65
6
−
5,614
962
1,440
728
213
155
183
1
152
577
275
219
660
5,831
1,150
1,779
910
213
155
183
87
183
577
340
225
544
−
155
59
23
−
−
−
−
5
1
−
2
−
1,674
544
1,674
562
783
503
143
37
148
−
127
336
169
190
717
842
526
143
37
148
−
132
337
169
192
Other – non-Eurozone
Other – Eurozone
189
109
1,238
293
1,427
402
180
32
1,093
111
1,273
143
Total shareholder debt securities
10,149
25,068
35,217
5,453
12,196
17,649
306
306
Phoenix Group Holdings plc Annual Report & Accounts 2020
STATEMENT OF CONSOLIDATED
FINANCIAL POSITION
As at 31 December 2020
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
Insurance assets
Reinsurance receivables
Insurance contract receivables
Current tax
Prepayments and accrued income
Other receivables
Cash and cash equivalents
Total assets
Investment in associate
Debt securities
Collective investment schemes
Reinsurers’ share of investment contract liabilities
2019
£m
2020
£m
Notes
314
11
G1
57
3,651
271
3,979
57
5,013
171
5,241
109
119
G2
G3
E3
5,943
7,128
G4
516
4,454
647
6,880
58,979
82,634
513
76,113
69,415
8,881
400
109,455
89,248
9,559
218,871
298,823
E1
50
54
141
94
7,428
9,777
75
259
1,233
4,466
263
343
1,622
10,998
G8
G5
G6
242,677
334,325
7,324
9,542
F1
Reinsurers’ share of insurance contract liabilities
ADDITIONAL CAPITAL DISCLOSURES
Restricted Tier 1 capital comprises the contingent convertible Tier 1
Notes issued in January 2020 and the Tier 1 Notes issued in April
2018, the terms of which enable the instruments to qualify as
restricted Tier 1 capital for regulatory reporting purposes.
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 £0.7 billion
(2019: £0.4 billion) and the deferred tax asset of £0.1 billion
(2019: £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 Designated Activity Company (‘SLIDAC’). SLIDAC
and the acquired ReAssure businesses calculate their capital
requirements in accordance with the Standard Formula. An analysis
of the pre-diversified SCR of PGH plc is presented below:
31 December 2020
Estimated
31 December 2019
Phoenix
Internal
Model
%
Standard
Life
Internal
Model
%
27
23
12
7
4
3
10
3
11
18
12
25
6
8
1
1
16
13
ReAssure
and
SLIDAC
Standard
Formula
%
21
24
20
10
4
–
–
Phoenix
Internal
Model
%
Standard
Life
Internal
Model
%
SLIDAC
Standard
Formula
%
26
19
12
8
6
2
12
16
12
28
5
9
1
1
4
23
25
1
12
–
–
10
5
15
30
11
10
13
5
100
100
100
100
100
100
Longevity
Credit
Persistency
Interest
rates
Operational
Swap
spreads
Property
Other
market risks
Other non-
market risks
Total pre-
diversified
SCR
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 2020 is £5.3 billion
(2019: £3.1 billion).
Own Funds
SCR
Surplus
31 December
2020
Estimated
£bn
31 December
2019
£bn
16.8
(11.5)
5.3
10.8
(7.7)
3.1
The Eligible Own Funds reflects a dynamic recalculation of TMTP.
Had this not been performed, the surplus would have been
£0.1 billion lower.
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 in 2018 and
Method 1 is used for all other entities of the Group (including the
ReAssure entities acquired in 2020). 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
Total Own Funds
31 December
2020
Estimated
£bn
31 December
2019
£bn
11.7
1.1
3.2
0.8
16.8
8.3
0.5
1.5
0.5
10.8
PGH plc’s unrestricted Tier 1 capital accounts for 70% (2019: 77%)
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.
Phoenix Group Holdings plc Annual Report & Accounts 2020
307
307
179
FINANCIALS
ADDITIONAL CAPITAL DISCLOSURES
CONTINUED
MINIMUM CAPITAL REQUIREMENTS
Under the Solvency II regulations, the 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 2020 is £1.9 billion (2019:
£1.1 billion).
PGH plc’s Method 1 Eligible Own Funds to cover MGSCR is
£8.3 billion (2019: £4.3 billion) leaving an excess of Eligible Own
Funds over MGSCR of £6.4 billion (2019: £3.2 billion), which
translates to an MGSCR coverage ratio of 431% (2019: 386%).
The MCR for the Method 2 part of the Group is £1.4 billion
(2019: £1.2 billion), with Eligible Own Funds of £4.9 billion (2019:
£4.9 billion), leaving an excess of Eligible Own Funds over MCR of
£3.5 billion (2019: £3.7 billion), which translates to an MCR coverage
ratio of 359% (2019: 394%).
308
308
Phoenix Group Holdings plc Annual Report & Accounts 2020
Alternative performance measures
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 46 and the
definitions of all APMs are included in the glossary on pages
313 to 316.
APM
Definition
Why is this measure used
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.
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 305.
Assets under
Administration
Financial
leverage
ratio
Incremental
long-term cash
generation
Life Company
Free Surplus
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.
The Solvency II surplus of the Life
Companies that is in excess of their
Board approved capital management
policies.
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 179 and 180 and the
analysis of borrowings note
on page 216.
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 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 54 for further
analysis of the solvency
positions of the Life
Companies.
Phoenix Group Holdings plc Annual Report & Accounts 2020
309
FINANCIALS APM
Definition
Why is this measure used
Long-term Free
Cash (‘LTFC’)
Long-term Free Cash (‘LTFC’) is
comprised of long-term cash to
emerge from in-force business,
plus holding company cash, less an
allowance for costs associated with
in-flight mergers and acquisitions
and the related transition activities,
and a deduction for shareholder
debt outstanding.
LTFC provides a measure of the Group’s total
long-term cash available for operating costs,
interest, growth and shareholder returns.
Increases in LTFC will be driven by sources
of long-term cash i.e. new business and over-
delivery of management actions. Decreases in
LTFC will reflects the uses of cash at holding
company level, including expenses, interest,
investment in BPA and dividends.
New business
contribution
Operating
companies’
cash generation
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.
Cash remitted by the Group’s
operating companies to the Group’s
holding companies.
This measure provides an assessment of
the day one value arising on the writing of
new business in the UK Open and Europe
segments, and is stated after applicable
taxation and acquisition costs.
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.
Reconciliation to
financial statements
The individual components
of LTFC are disclosed in the
Business review, page 49.
The metric is not directly
reconcilable to the financial
statements as it includes a
significant component relating
to cash that is expected to
emerge in the future. Holding
company cash included within
LTFC is consistent with the
holding company cash and
cash equivalents as disclosed
in the cash section of the
business review. Shareholder
debt outstanding reflects the
face value of the shareholder
borrowings disclosed in
note E5 of the IFRS financial
statements.
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 51.
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 47 to 58 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 303.
Operating profit
Shareholder
Capital
Coverage Ratio
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.
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 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.
A reconciliation of operating
profit to the IFRS result before
tax attributable to owners is
included in the business review
on page 55 and in the notes
to the financial statements on
page 190.
It helps give stakeholders a better
understanding of the underlying performance
of the Group by identifying and analysing
non-operating items.
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 54.
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.
310
Phoenix Group Holdings plc Annual Report & Accounts 2020
SHAREHOLDER
INFORMATION
ANNUAL GENERAL MEETING
Our Annual General Meeting (‘AGM’) will be held on 14 May 2021 at 10am.
The voting results for our 2021 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)
900
800
700
600
500
400
300
Jan
2020
Feb
2020
Mar
2020
Apr
2020
Jun
2020
Jul
2020
Aug
2020
Sep
2020
Oct
2020
Nov
2020
Dec
2020
Phoenix Group
FTSE 350 Life Assurance
FTSE 100
SHAREHOLDER PROFILE AS AT 31 DECEMBER 2020
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
602
724
175
531
75
173
2,280
%
26.40
31.75
7.68
23.29
3.29
7.59
No. of
shares
282,426
1,780,834
1,235,108
36,781,383
27,039,157
932,113,236
999,232,144
%
0.03
0.18
0.12
3.68
2.71
93.28
Phoenix Group Holdings plc Annual Report & Accounts 2020
311
ADDITIONAL INFORMATION Shareholder Information continued
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.
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.
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
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 – 2020 FINAL DIVIDEND
Ex-dividend date
Record date
Payment date for the
recommended final dividend
1 April 2021
6 April 2021
18 May 2021
GROUP FINANCIAL CALENDAR FOR 2021
Annual General Meeting
Announcement of unaudited
six months’ Interim Results
14 May 2021
To be confirmed
312
Phoenix Group Holdings plc Annual Report & Accounts 2020
GLOSSARY
ABS
Acquired value
in force (‘AVIF’)
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
Climate-related
opportunities
The potential positive impacts of climate
change on an organisation. Efforts to adapt
to climate change can produce opportunities
for organisations, such as through resource
efficiency and cost savings and the
development of new products and services
Closed life fund
A fund that no longer accepts new business.
The fund continues to be managed for the
existing policyholders
ALM
Asset Liability Management – Management
of mismatches between assets and liabilities
within risk appetite
Customer
Alternative
Performance
Measure
Annuity policy
Asset
management
Assets under
administration
Brexit
CAGR
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 309
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)
EBT
Economic
assumptions
EEA
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
ESG
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
Experience
variances
Financial
leverage
Climate Biennial
Exploratory
Scenario
exercise (CBES)
The Bank of England’s exercise to test the
resilience of the current business models of
the largest banks, insurers and the financial
system to climate-related risks
Climate-related
risks
The potential negative impacts of climate
change on an organisation
Number of customers is measured as number
of lead policyholders. A customer could be
a lead policyholder on more than one policy
and some policies could have more than one
customer, therefore our customer number
is approximate
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
Assumptions related to future interest rates,
inflation, market value movements and tax
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
Environmental, social, and governance
criteria are a set of standards for a company’s
operations that investors use to screen
potential investments: how a company
performs as a steward of nature; how it
manages relationships with employees,
suppliers, customers, and the communities
where it operates; and a company’s
leadership, executive pay, audits, internal
controls and shareholder rights
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
Financial
Reporting
Council
The UK’s independent regulator responsible
for promoting high-quality corporate
governance and reporting to foster
investment
Phoenix Group Holdings plc Annual Report & Accounts 2020
313
ADDITIONAL INFORMATION Glossary continued
Free surplus
FCA
FOS
GAR
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
Inherited estate
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
Intergovernmental
Panel on
Climate Change
(IPCC)
The United Nations body created to
provide policymakers with regular scientific
assessments on climate change, its
implications and potential future risks, as well
as to put forward adaptation and mitigation
options
LIBOR
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
A measure of the Group’s long-term cash
available for operating costs, interest, growth
and shareholder returns. LTFC is comprised
of long-term cash to emerge from in-force
business plus holding company cash less
M&A and transition costs and shareholder
debt outstanding
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
MCR is the minimum amount of capital that
the Group needs to hold to cover its risks
under the Solvency II regulatory framework
Management Services Agreement –
Contracts that exist between Phoenix Life and
management services companies or between
management services companies and their
outsource partners
A state where no incremental greenhouse
gases are added to the atmosphere,
with remaining emissions output being
balanced by the removal of carbon from the
atmosphere
A group of central banks, supervisors
and observers committed to sharing best
practices, contributing to the development
of climate and environment-related risk
management in the financial sector and
mobilising mainstream finance to support the
transition towards a sustainable economy
Guaranteed Annuity Rate – A rate available
to certain pension policyholders to acquire
an annuity at a contractually guaranteed
conversion rate
Long-term Free
Cash (‘LTFC’)
Greenhouse Gas
(GHG) emissions
GHGs are atmospheric gases that absorb
and emit radiation within the thermal infrared
range and that contribute to the greenhouse
effect and global climate change
LTIP
HMRC
Heritage
Holding
companies
IASB
IFRS
HM Revenue and Customs
The Group’s business segment where
products are no longer marketed to
customers, for example with-profits and many
legacy unit linked life and pension products
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
Incremental
long-term cash
generation
Represents the increase in the expected
future operating companies’ cash generation
to arise as a result of new business transacted
in a period. It excludes ‘Day 1’ acquisition
costs and is stated on an undiscounted basis
In-force
Long-term business written before the period
end and which has not terminated before the
period end
Minimum
Capital
Requirements
(‘MCR’)
MSA
Net-zero carbon
Network for
Greening the
Financial
System (NGFS)
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Phoenix Group Holdings plc Annual Report & Accounts 2020
Paris Agreement A legally binding international treaty
New business
contribution
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
Partial internal
model
Non-profit fund
A fund which is not a with-profit fund, where
risks and rewards of the fund fall wholly to
shareholders
Part VII transfer
Open
The Group’s business segment where
products are actively marketed to new and
existing customers
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
Operations
intensity
metrics
Metrics based on Scopes 1 and 2 emissions
within Phoenix Group’s occupied premises
Participating
business
Peripheral
eurozone
Physical risks
Origo
An electronic pensions transfer system
PRA
Own funds
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
Own Risk and
Solvency
Assessment
(ORSA)
The processes undertaken to provide
a forward looking assessment of the
Group’s risk and capital profile, under
normal and stress scenarios, as a result
of its proposed business strategy and
Annual Operating Plan
Protection
policy
ReAssure
on climate change. It was adopted by
196 parties at COP 21 in Paris on 12
December 2015. Its goal is to limit global
warming to well below 2, preferably to
1.5 degrees celsius, compared to pre-
industrial levels
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
See with-profit fund
Refers to Portugal, Ireland, Italy, Greece
and Spain
Risks related to the physical impacts of
climate change which can either be acute or
chronic. Acute physical risks refer to those
that are event-driven, including increased
severity of extreme weather events, such
as cyclones, hurricanes, or floods. Chronic
physical risks refer to longer-term shifts
in climate patterns (e.g., sustained higher
temperatures) that may cause sea level rise or
chronic heatwaves
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 companies comprising ReAssure
Limited, ReAssure Life Limited and Ark Life
Assurance Company dac businesses which
were acquired on 22 July 2020
Phoenix Group Holdings plc Annual Report & Accounts 2020
315
ADDITIONAL INFORMATION Glossary continued
Representative
Concentration
Pathway (RCP)
Rights issue
Scope 1, 2 and 3
emissions
Shareholder
capital coverage
ratio
A GHG concentration trajectory adopted by
the IPCC. The pathways (RCP2.6, RCP4.5,
RCP6, and RCP8.5) describe different
climate futures, all of which are considered
possible depending on the volume of GHGs
emitted in the years to come. RCP 2.6 is a
very stringent” pathway. According to the
IPCC, RCP 2.6 requires that carbon dioxide
emissions start declining by 2020 and go to
zero by 2100. In RCP 8.5, emissions continue
to rise throughout the 21st century. It is
generally taken as the basis for worst-case
climate change scenario
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
Scope 1 covers direct GHG emissions from
owned or controlled sources. Scope 2 covers
indirect GHG emissions from the generation
of purchased electricity, steam, heating and
cooling consumed by the reporting company.
Scope 3 includes all other indirect GHG
emissions that occur in the value chain
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
Solvency II
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’)
Standard
formula
Standard Life
Assurance
businesses
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’
A set of calculations prescribed by the
Solvency II regulations for generating the SCR
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
Streamlined
Energy and
Carbon
Reporting
(SECR)
Tier 1 notes
Transitional
measures on
technical
provisions
Transition risks
TSR
Reporting of emissions sources required
under the Companies (Directors’ Report) and
Limited Liability Partnerships (Energy and
Carbon Report) Regulations 2018.
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
climate-related risks associated with the
transition to a low-carbon economy. They
include risks related to policy and legal
actions, market and economic responses,
technology changes and reputational
considerations
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)
UK corporate
governance
code
UKCPT
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
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
316
Phoenix Group Holdings plc Annual Report & Accounts 2020
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 2020
317
ADDITIONAL INFORMATION FORWARD-LOOKING STATEMENTS
The 2020 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.
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 the Group has 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, 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, social and economic effects of the COVID-19 pandemic and the UK’s exit from 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 future acquisitions or combinations within relevant industries;
• 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 2020 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 2020 Annual Report and Accounts.
The Group undertakes no obligation to update any of the forward-looking statements or data contained within the 2020
Annual Report and Accounts or any other forward-looking statements or data it may make or publish.
The 2020 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 2020 Annual Report and Accounts is or should be
construed as a profit forecast or estimate.
318
Phoenix Group Holdings plc Annual Report & Accounts 2020
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Registered address
Phoenix Group Holdings plc
Juxon House
100 St Paul’s Churchyard
London EC4M 8BU
Registered Number
11606773
thephoenixgroup.com