Phoenix Group The UK’s largest specialist closed life fund consolidator Tier 2 bond offering June 2017 1
Agenda Pages 4 – 13 1 Business overview 14 – 22 2 Cash and capital position 23 – 27 3 Debt and proposed offering 28 – 29 4 Conclusion 30 – 46 5 Appendices 2
Executive summary • UK market leading closed life fund consolidator, with market cap c. £3bn Phoenix • Total assets under management of £76bn • Over 6 million policyholders • All public financial targets since 2010 met or exceeded • Two M&A transactions completed in 2016 – AXA Wealth’s pension and protection business (“AXA”) and Track record Abbey Life • Delivery of capital and financial synergies are well advanced • Integration plans are in place and delivery is ahead of schedule Future • Significant cash generation from existing business and the 2016 acquisitions • Potential for further growth via acquisitions prospects Bond offering • USD 300m – USD 500m Tier 2 bullet and use of • 10 years • Repay senior borrowings with no impact on leverage proceeds • Strengthens capital surplus of the Group Transaction • Supports on-shoring and Group’s simplification • Smooths and lengthens maturity profile rationale • Diversifies the investor base and replenishes bank capacity for acquisition financing 3
1. Business overview 4
Overview of Phoenix Group • UK’s largest specialist closed life fund consolidator PHOENIX • Acquisition of Abbey Life and AXA Wealth’s GROUP pensions and protection businesses both completed in Q4 2016 • FTSE 250 and STOXX Europe 600 indices • • Enhances economic value of closed life portfolios Market cap c.£3bn as at 19 June 2017 • Scalable operating model Phoenix • Improves customer services and policyholder outcomes Life • Phoenix is regulated by The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) • Over 6 million policyholders • • Phoenix’s Life companies have an Insurer Total assets under management of £76bn Financial Strength Rating of ‘A’ (positive outlook) 5
Phoenix is the UK’s largest closed fund consolidator Significant 6 growth A wealth of 5 Skills acquisition opportunities Phoenix exist in the 4 Stewardship employs a sector uniquely Providing an talented and 3 Specialism effective service experienced to our team Phoenix has a policyholders is 2 Sustainability specialist critical to our operating model strategy Phoenix has a focused on 1 Scale strong balance closed life funds sheet and A market experienced leading platform management and scale as team the largest UK consolidator of closed life funds 6
Phoenix is an attractive investment proposition High level of predictable long-term P P Robust group solvency, resilient to cash generation, delivery of strong market movements IFRS operating profits The UK’s largest specialist closed Consistent strategy, successfully P P life consolidator, well positioned for executed by a management team growth with a record of meeting targets Solvency II Internal Model provides Efficient administration platform with P P more accurate M&A pricing and a variable cost base, together with understanding of synergy and an effective outsourcer oversight diversification benefits model Financial flexibility to fund P P Diverse, high quality investment acquisitions, supported by portfolio Investment Grade rating 7
We have four areas of strategic focus which support the fulfilment of our mission and the realisation of our vision 1 2 DRIVE VALUE MANAGE CAPITAL Operating companies cash generation Solvency II surplus Maintaining strong cash flow underpins debt servicing Currently the Solvency II surplus is the regulatory assessment and repayment as well as shareholder dividends of the capital adequacy at the PLHL level. Following expiry of ‘other methods’ waiver on 30 June 2017, Targets Group supervision and capital position calculation will also be undertaken at the PGH level. Generate cash flows of £2.8bn between 2016-2020 Solvency II surplus of £1.3bn at PGH level represents a robust and resilient capital position. 3 4 IMPROVE CUSTOMER OUTCOMES ENGAGE PEOPLE Customers FOS overturn Speed of transfer Employee Engagement Index satisfaction score rate payouts Externally calculated Independent Recognised industry We aim to ensure employees understand the purpose of measure of how view of how measure for the speed of their role and feel that their contribution is valued. The satisfied customers firms are processing Pension index provides an indicator of how well we are performing are with Phoenix's handling Transfer, Open Market against these aims. servicing proposition complaints Options and Immediate Vesting Personal Pensions Targets Targets 90% < 30% 12 Days Employee engagement index >72% Group has since 2010 met or exceeded all publicly stated targets 8
Phoenix has a clear set of strategic priorities • Updated long-term cash generation target of £2.8 billion between 2016 - 2020 Cash generation • Between £1.0 - £1.2 billion of cash between 2017 - 2018 • AXA Wealth synergies of £13 -15 million to be achieved by end Integration of 2017 acquisitions • Abbey Life Internal Model application in H2 2017 Improve • Enhanced communications customer • Development of digital proposition outcomes Debt and Group • Onshoring process targeted to complete in H1 2018 structure • Continue to examine potential bond issuance simplification • Pursue further Group to seek further opportunities in 2017 M&A • Financing supported by Revolving Credit Facility (‘ RCF ’) opportunities capacity and generation of internal resources 9
Acquisition integration is tracked against five metrics 1 2016 - 2020 2021+ P Better than expected AXA Wealth with £282m to date £0.3bn £0.2bn Cash flows 2016 - 2020 2021+ P Abbey Life On track £0.5bn £1.1bn 2 P Ahead of AXA Wealth Targeting £13m - £15m by FY17 original plan Cost synergies P Abbey Life £7m by HY18 On track 3 Finance and P 3 at HY18 On track Actuarial 9 at FY16 systems 4 Core Life P Operation 1 in HY18 4 in FY16 On track locations 5 P Abbey Life £175m cap with risk sharing of between Indemnity On track 10-20% 10
The UK closed life sector is expected to undergo further consolidation over the next few years Market size is over £300bn Competitor analysis AUM Market opportunities by owner Company Competitive position The largest UK consolidator, Bank owned by AUM, actively seeking £76bn 13% further acquisition opportunities UK life 39% Foreign owned Large active consolidator, £48bn 48% acquired Guardian Assurance Active small-mid size Market opportunities by product consolidator. Recently acquired Reliance Mutual, their first £12bn consolidation activity in the UK, following other acquisitions in Non Ireland and offshore profit With profit 18% 27% Active consolidator at the smaller £4.9bn end of the market, not expected Unit linked to compete against Phoenix 55% 11
Closed life fund acquisitions are the key focus for Phoenix Group Product types and critical success factors Product types Key elements Critical success factors • Sharing of returns between • Specialist actuarial expertise policyholders/shareholders With-profits • Estate distribution needs to balance resilience • Complex to manage and administer with run-off of policies (£30bn) (1) • Supported funds expose shareholders to • Hedging of GAR (2) risks all risks • Investment returns • Persistency important for retention of Unit-linked funds • Operational economies of scale (£31bn) (1) • Charging structures / exit fees • Customer service levels and product reviews • Longevity exposure can be attractive at • Accurate pricing of risks the right price Annuities and Other • Skills in managing longevity exposure • Exposure to asset returns (£13bn) (1) • Expertise in alternative assets to maximise risk- • Knowledge of trustee requirements key adjusted returns for bulk annuities (1) Gross liabilities as at 31 December 2016 Guaranteed Annuity Return “GAR” (2) 12
Phoenix will continue to apply its M&A criteria as the market consolidates M&A criteria Key drivers for consolidation Phoenix strengths Trapped shareholder capital Scale offers capital efficiencies P Closed life focus within legacy books through diversification (UK and Ireland) Fixed cost pressure from policy Outsourced model offers run-off variable cost structure P Value accretive Regulatory pressure to invest in Strong customer proposition in customer service and systems place Specialist skill sets required e.g. Established teams of subject P with-profit funds or annuities matter experts Supports the dividend Low interest rate environment Hedging and ALM expertise Maintains P Capital requirements of Internal Model provides greater investment grade Solvency II regime clarity over capital requirements rating Source: PRA returns 13
2. Cash and capital position 14
The Phoenix Group has consistently generated predictable long-term cashflows Annual cash generation (£m) 2010 – 2016: £4.7 billion 957 817 810 734 390 690 332 359 242 209 486 180 265 225 492 485 481 451 20 387 221 205 2010 2011 2012 2013 2014 2015 2016 Ignis sale proceeds Organic cash generation Management actions Phoenix has met or exceeded all public cashflow targets 15
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