Cash Resilience Growth Phoenix Group Capital Markets Day 28 November 2019 1
Nicholas Lyons Chairman 2
Phoenix delivers cash, resilience and growth M&A IN-FORCE BUSINESS £12bn LT cash HERITAGE OPEN £245bn 10m GROWTH AUA policies GROWTH OPERATING MODEL 3
Phoenix continues to deliver against its 2019 strategic objectives Cash Resilience Growth (1) (1) £707 £3.0 £235 £205 156% million billion million million 2019 cash generation Q32019 Q32019 YTD2019 Q32019 Estimated PGH Estimated PGH Incremental long- Incremental long- This exceeds the upper end of the Group Solvency II Group term cash term cash (2) £600 - £700 million target range surplus Shareholder generation from generation from Capital Coverage Heritage business Open business Ratio growth growth See Appendix III for footnotes 4
Agenda Nicholas Lyons 1 Introduction Introduction Chairman Andy Moss Management of the in-force business 2 Managing our in-force business Chief Executive, Phoenix Life and Group Director, Heritage Business Susan McInnes 3 Growth of the Open business Growth of the Open business Chief Executive, Standard Life Assurance Limited and Group Director, Open Business Simon True 4 Growth of the Heritage business Growth of the Heritage business Group Corporate Development Director and Group Chief Actuary Transformation of the operating Tony Kassimiotis 5 Operating model model Group Chief Operating Officer Sustainable long-term cash Bringing stability to long-term cash Rakesh Thakrar 6 generation generation Deputy Group Finance Director Consolidation in the life insurance Consolidation in the life insurance Clive Bannister 7 industry industry Group Chief Executive 5
M&A MANAGEMENT OF THE IN-FORCE BUSINESS IN-FORCE BUSINESS Andy Moss HERITAGE OPEN GROWTH GROWTH Chief Executive, Phoenix Life and Group Director, Heritage Business OPERATING MODEL 6
We have a well diversified in-force business Diversified in-force business Strategy at 30 June 2019 • To deliver value to shareholders and customers; and • To improve customer outcomes Key attributes of in-force business £245bn Cash Resilience • • Organic cash emerges Strong capital position over time • Low risk appetite brings • Management actions resilience to free surplus enhance cash generation Unit linked – 64% UK Heritage – 52% With-profits – 25% UK Open – 38% Annuities – 9% Europe – 10% Other – 2% 7
Phoenix’s in -force business will deliver £12 billion of cash generation Illustrative future cash generation £12.0 billion guidance over life of business Includes cash generation from in-force business £8.2bn £3.8 billion 5-year target £600-700m Excludes new Open 1-year (2) target business, BPA and M&A Excludes management actions post 2023 2019 2020 2021 2022 2023 2024+ Cash generation targets Illustrative future cash generation See Appendix III for footnotes 8
Cash generation comes from Life Company free surplus Solvency II balance sheet Free surplus Free Own funds surplus • Capital available to distribute to Group as cash generation Capital • Own funds = assets less policy Capital policy liabilities • Assets are fair valued Own • Additional capital buffer set funds • Liabilities recognised on by management “best estimate” basis plus a risk margin Risk Risk capital capital • Regulatory capital requirement on a 1 in 200 year calibration 9
Management actions are focused on increasing free surplus Management actions either… …increase own funds… Or reduce risk capital… 3 Free surplus Free surplus 4 Capital Capital Free policy policy surplus Own OR funds Own Own funds funds Capital policy Risk Risk Risk capital capital capital …and increase cash flows. …and accelerate cash flows. 10
£2.5 billion of cash generated from management actions in the last decade Core competency of delivering management actions year on year £2,510m £286m £237m £380m £265m £20m Standard Life Assurance £180m acquisition Abbey acquisition £332m AXA acquisition £209m Solvency II effective £359m £242m 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total 11
We have a long track record of delivering a wide range of management actions Increase own funds Decrease risk capital Cost efficiencies Reducing risks Hedging of equity, currency and Improvements in outsourcer cost interest rate risk and reinsurance of per policy, internal costs or longevity risk investment fees Transitional benefits Diversification benefit Accessing transitional measures Accessed by internal reinsurance on acquired business and Part VII transfers Asset liability management Capital harmonisation Single internal capital framework, Investment of annuity backing internal model and approach to risk assets in illiquid asset classes management 12
And a strong pipeline of future management actions Cash generation Opportunities We will deliver £1.2 billion of management actions by 2023 target 2019-2023 £3.8bn 2020 2021 2022 2023 Operational Strategic Asset Allocation £1.2bn management Balance sheet optimisation Restructuring Transition cost synergies Transformation cost synergies Internal Model Risk Harmonisation £2.6bn management SL Intl Internal Model Single UK Life Co Effective Part VII partnerships Organic cash generation Fund restructuring Management actions 13
Our changing environment is a source of opportunities for further management actions Cash generation Regulatory change Digitalisation guidance 2024+ • Demand for digitalisation from • Changes to the regulatory capital • • Changes to the regulatory capital regime bring Demand for digitalisation from customers customers brings opportunities to regime bring opportunities to maximise opportunities to maximise capital efficiency brings opportunities to improve customer improve customer journeys and reduce capital efficiency journeys and reduce costs costs • Pensions dashboard may encourage pot • • consolidation Pensions dashboard may encourage Move to a single, modern administration • Move to a single, modern platform drives efficiency pot consolidation administration platform drives efficiency £8.2bn Future M&A Macro economic • • M&A provides opportunities for cost and capital Changes in the macro economic environment synergies as we migrate the acquired may lead to an evolution of how we categorise businesses onto our operating model and and manage unrewarded risks leverage the benefits of scale Organic cash generation Potential management actions 14
Our approach to risk management brings resilience to free surplus Solvency II balance sheet • Protect solvency • Principles Optimise free surplus • Deliver resilience Free surplus Capital policy • Board sets an appetite for the sensitivity of Approach free surplus to market and insurance risks Own funds Risk capital • Dynamic management of risk exposure to Application remain within risk appetite 15
Risk management is a continuous process • To gain insight into risks across a Risk plausible stress environment exposure • Informs understanding of risk and • Annual review of risk appetites and setting of risk appetite presented to the Board for appetite approval • 1 in 10 risk appetites are set with respect to impact on free surplus Stress Risk capital and scenario assessment testing • Risk capital monitored on a weekly basis whilst risk exposure monitored on a monthly basis, using • Risk capital calculated on a proxy models quarterly basis using actual model • Life Co regularly review exposures runs Risk and manage objectives through • This includes regulatory SCR management hedging requirement based on a 1 in 200 and year event and an additional monitoring capital policy set by management 16
We use stress and scenario testing to better understand risk exposures • 1 in 10 year events run semi-annually • All risks scenario used to set capital management policy • 1 in 20 and 1 in 50 year events are run annually • Additional scenarios to respond to recent • Used to inform risk appetite trends monitoring Univariate Combined • PRA and EIOPA stress testing performed • Daily solvency monitoring stress scenarios testing Reverse Qualitative stress • testing • Qualitative scenarios for tail risks Scenarios to test business model testing viability • Considers strategic, operational and • customer / conduct risk Used to validate mitigating actions and assess appetite to retaining residual • Performed annually and used to validate risks mitigating actions 17
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