Investor Day Presentation 25 November 2014
Welcome Clive Bannister Clive Bannister
Phoenix Group repositioned for future growth 2009 – mid 2014 H2 2014 and beyond Cumulative cash generation of £4.5bn (1) • Continued business simplification Incremental MCEV generated of £1.1bn • Enhance financial flexibility through - Further debt capital market Total debt repayments of £1.7bn issuance - I Investment grade credit rating t t d dit ti Accessed debt capital markets • Growth through accretive M&A Refinanced bank debt into single facility Refinanced bank debt into single facility and removed banking restrictions Notes: (1) Including Ignis divestment proceeds of £390m 3 3
Agenda The Evolving UK Life Sector The Evolving UK Life Sector Andy Moss | Chief Executive Phoenix Life Andy Moss | Chief Executive, Phoenix Life Our Operating Model Tony Kassimiotis | Managing Director, Operations Our Customers Susan McInnes | Customer Director, Phoenix Life Opportunities for Growth Fiona Clutterbuck | Head of Strategy & Corporate Development Wrap-up Clive Bannister | Group Chief Executive 4 4 4
The Evolving UK Life Sector Andy Moss Andy Moss
The UK life sector is evolving…so what’s happening? • Solvency II Directive • Auto enrolment • FCA Retirement • Solvency II • RDR Income study Income study preparation and • OFT Review feedback implementation Pre 2014 2015 2016 2014 Q1 Q2 Q3 Q1 Q2 Q3 • FCA thematic review of • Removal of Life Assurance treatment of legacy customers treatment of legacy customers Premium Relief Premium Relief • Workplace pensions fee cap • New pensions freedoms • Budget announcement on • FCA thematic review of fair annuities treatment of legacy • FCA Retirement Income study • FCA Retirement Income study customers feedback customers feedback Regulation has been the leading driver of change in the industry 6
A ‘new world’ is emerging for new business writers • Product innovation • Advice required given required more choices and more complex retirement • Customer “wants” products but expensive d b i uncertain for many • Customers still need income for their retirement New Advice & products guidance Increased Margin technology gy p pressure • Cheaper asset C management products • Advanced platforms to likely to emerge improve the customer experience through use • Downward pressure on of technology of technology charges charges 7
Closed funds are facing a significant uplift in complexity and cost d t Regulation / legislation Regulation / legislation Challenges for closed funds Challenges for closed funds Legacy products are complex to administer and • Long term political focus on accumulation / Long term political focus on accumulation / manage manage decumulation / support in old age Increased regulation may lead to requirement • Peers will be challenged by cross- for further system investment subsidisation of open and closed books subsidisation of open and closed books Legacy book migrations are complex and • Increased regulatory focus is here to stay expensive Fixed cost pressure as book runs-off Fixed cost pressure as book runs-off • • Most legacy customers are now orphaned Most legacy customers are now orphaned from advice – decline of direct sales forces Requirement to maintain specialist expertise • Focus on legacy products – customer Risks to persistency given new pension Risks to persistency given new pension outcomes and service levels outcomes and service levels freedoms Opportunities to deploy the Phoenix closed life operating model Opportunities to deploy the Phoenix closed life operating model 8
Phoenix position on key regulatory and legislative challenges h ll FCA thematic review Workplace pensions cap Annuities Volumes predicted to fall by between 20% - 90% Other country experience of 0.75% for qualifying Customer communications Industry Industry annuity take-up rates it t k t schemes h Back end charges between 10% - 80% impact Further downward pressure Allocation of expenses Full cash take-up predicted on charges between 24% - 56% Need for different products Need for different products Guidance Guarantee should Cap does not apply to support GARs but provided Strong product governance conventional with-profit for £17m MCEV impact framework schemes Phoenix Phoenix New business value from Back-end charges less than Approximately 90% of non-GARs was £7m in H1 response 1% of funds under membership non-premium management paying Continue to write annuities and provide access to No new business £40m MCEV impact alternative products alternative products assumed at HY14 assumed at HY14 Key industry challenges do impact but we predict are of a manageable scale Key industry challenges do impact but we predict are of a manageable scale 9
Phoenix’s focus on legacy management starts with an effective and targeted operating model ff ti d t t d ti d l Life • Consolidation of multiple life companies with 1. Transformed companies companies separate processes customer, IT and • Focus on improving customer outcomes and finance operations Company 1 service levels 2. Well controlled risks • Increasing regulation Increasing regulation Company Company 2 3 3. Repeatable, scalable and sustainable • Service Companies established to provide processes processes competitive advantage through scale competitive advantage through scale “One” One Service • Platforms and systems are optimised to 4. Leveraged lower cost extract synergy benefits Company offshore centres • Operational risk is transferred to partners 5. Future proofed • Financial strength to invest - multiple clients technology Service • Scalable and efficient operating platforms 6. 6 Reduced change Reduced change P Providers id • Enhanced risk and control environment cost • Enhanced customer services capability Phoenix has an effective operating model already in place Phoenix has an effective operating model already in place 10
Customer service levels have also improved Speed of pension transfer pay outs (days) FOS overturn rate (%) Target Target 12.2 <12 days 32% <33% 10.1 21% 2011 H1 2014 H2 2011 H1 2014 Note: Phoenix first joined the ABI-sponsored Origo service for pension transfers in 2010 Note: Consolidated FOS information only available from H2 2011 Customer satisfaction (%) Service complaints (as % of transactions) Target 0.25% 92.0% <0.5% Target g ≥ 90% 89.8% 0.22% 2011 H1 2014 2011 H1 2014 • In addition, Phoenix has increased the distributable estate by over £900 million between 2010 – 2013, h l i helping improve policyholder returns i li h ld t 11
Key requirements for success in the closed life market Variable cost Demonstrable base supported base supported focus on product focus on product by outsourcers governance Operating Operating Customer Customer Improve Improve Abilit Ability to migrate t i t customer model focus legacy books outcomes Ability to source Ability to source Build and retain range of new specialist products for expertise customers 12
Our Operating Model Tony Kassimiotis Tony Kassimiotis
Key operational challenges facing the UK life industry • More intrusive regulatory regime • Regulation R l ti F Focus on Solvency 2 implementation S l 2 i l t ti • Use of skilled person reports / more deep dives • Costs of regulatory change, with focus on investment in systems • Increasing fixed cost ratio as back books run off, with recent annuity Costs Costs changes accelerating long term cost issue changes accelerating long term cost issue • Requirement to retain specialist experts to manage legacy products e.g. with profits • FCA focus on treatment of legacy customers requires enhanced product governance Customer Customer • Challenge of low customer engagement, with knock-on impact of Challenge of low customer engagement with knock-on impact of poor customer service on persistency and customer retention service • Increased propensity to complain with increased Claims Management Company activity Company activity 14
“Industrialising” effective closed fund management Phoenix Customer Core Financial Investment STRONG GOVERNANCE Services & IT Management Performance • Skilled staff • Strategic SUSTAINABLE PARTNERS that have partners with • Scalable model AND LEADING demonstrated proven track VER • Investment by y CONTRACTUAL AGREEMENTS transformation transformation records records ACTUAL COV partners experience (Standard Life and Henderson) • Access to • New and PROCESS partner enhanced • Strong outcome SIMPLIFICATION workforce, , modelling and modelling and focussed focussed CONTRA skilled and warehouse oversight sustained tools (MG- • Access to ALFA) FUTURE PROOFED • Partner leading TECHNOLOGY AND SYSTEMS management g • Robust Robust investment investment governance thinking Scalability comes from common systems, simplified processes and market l leading partners di t 15 15
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