Standard Life Plc · LSE:SDLF
Standard Life — Phoenix Group Holdings — Investor Day (June 2011)
46 slides from Standard Life's investor day presentation, Jun 24, 2011
Slide 1: Focus on Phoenix Life
Focus on Phoenix Life 24th June 2011
Slide 2: Disclaimer and other information
Disclaimer and other information • This presentation in relation to Phoenix Group Holdings and its subsidiaries (the ‘Group’) contains, and we may make other statements (verbal or otherwise) containing, forward-looking statements about the Group’s current plans, goals and expectations relating to fu
Slide 3: Agenda for today
Agenda for today 2.00 Introduction Jonathan Yates Group Finance Director 2.05 Overview of Phoenix Life Mike Merrick Chief Executive Phoenix Life 2.40 Financials Andy Moss Phoenix Life Finance Director 3:00 Business Lines Peter Mayes Chief Actuary 3:20 Operational Management & Tony Kassimiotis Outsou
Slide 4: Introduction
Introduction Jonathan Yates
Slide 5: Overview of Phoenix Life
Overview of Phoenix Life Mike Merrick
Slide 6: Phoenix Life – substantial part of overall Group by any metric
Phoenix Life – substantial part of overall Group by any metric Facts Figures (FY 10) • 7 life companies • £57bn assets (Group: £67.5bn) (1) • 13 with profit funds • £388m IFRS operating profit • 6 non profit funds Phoenix (Group £373m) • Over 6m policyholders Life • £3,592m MCEV (Group: £2,104m) • 5
Slide 7: What is Phoenix Life?
What is Phoenix Life? Life Company Phoenix Group Holdings Service Company Group Company Opal Reassurance Asset Management Company Limited Phoenix Life Other Company Holdings Limited Impala Holdings Pearl Group Holdings Limited (No. 2) Limited Ignis Asset Pearl Group Pearl Life Holdings London Life L
Slide 8: Value of assets by silo
Value of assets by silo Impala Pearl TOTAL FY 10 FY 10 FY 10 % % % £m £m £m Shareholder 1,611 4% 1,414 9% 3,025 5% Non profit Annuities 5,041 12% 935 6% 5,976 11% Unit linked 11,796 28% 336 2% 12,133 21% Protection & 763 2% 75 1% 837 1% other non profit With profit Standalone 16,021 38% 7,321 49% 23
Slide 9: Who is Phoenix Life?
Who is Phoenix Life? Chief Executive Phoenix Life Mike Merrick Chief MD Chief Head Customer Life Finance Director of Investment Operations Actuary of HR Director Director With Profit Officer Management Phil Clements Tony Kassimiotis Pete Mayes Kenny Graves Susan McInnes Andy Moss Kevin Arnott 183 ye
Slide 10: How we measure ourselves – customers and people
How we measure ourselves – customers and people Benefit Metric Customers Maximise estate distribution and Increased policyholder and • £898m of estate being shared increase policy payouts for shareholder value amongst policyholders customers Reduce complaint volumes • 1.16 complaints per 1000 Improv
Slide 11: How we manage risk
How we manage risk Risk How we manage it Economic • Monitor impact of economic conditions • Regular re-balancing of asset/liability positions • Take actions as necessary to protect cash and profits Insurance • Monitor experience and industry data as indicators of deviations from assumptions • Identi
Slide 12: Solvency II overview
Solvency II overview • Group is working on basis of an effective date of January 2013. Programme is on track to deliver to this timescale FSA’s Internal Model Approval Process QIS5 Exercise • Applying for a partial internal model • Useful part of technical preparations for Solvency II implementation
Slide 13: 2008 Phoenix Life Funds Structure
2008 Phoenix Life Funds Structure (post Resolution acquisition): 10 life companies Phoenix Life Holdings Limited Pearl Assurance LL NPIL Impala Holdings Limited WPF SHF NPF SHF NPF WPF SHF NPF PALAL SMA SPL SMI Phoenix Life Limited NPLL 100% Fund WPF WPF WPF 90% Fund SHF NPF SHF NPF SHF NPF SHF NPF
Slide 14: Current Phoenix Life Funds Structure
Current Phoenix Life Funds Structure: 7 life companies Phoenix Life Holdings Limited Pearl Assurance LL Impala Holdings Limited SERP WPF WPF SHF NPF SHF NPF Phoenix Life Limited 100% Fund 90% Fund Phoenix BA OB BA IB Alba SAL SHF NPF SPI SM NPLL WPF SHF PPL NPIL SMI 9 Reduced complexity SHF NPF NPF
Slide 15: Closed Life Fund fundamentals
Closed Life Fund fundamentals Basic Business Model Enhanced Business Model • Value in Force (‘VIF’) turns into cash over time • VIF and cashflows replenished through future • Capital is released as the risk profile reduces acquisitions • This run off process is continuous and inevitable • Value crea
Slide 16: Deploying the Phoenix Way
Deploying the Phoenix Way Challenge Operating environment • Delivering increased value for • Myriad of reporting bases and our shareholders and methodologies policyholders Phoenix • Book of business with varied – Adding value Life legacy heritage – Turning value into cash • Changing regulatory lands
Slide 17: Demonstration of the Phoenix Way
Demonstration of the Phoenix Way • Address historic legacy issues such as • Simplify and consolidate arrangements tax challenges • Transform model • Standardise approaches e.g. dealing • Improve customer experience with and providing for outstanding claims • Manage costs Operational Outsourcing Mana
Slide 18: What are we doing in 2011?
What areWay Phoenix we doing delivery in 2011? – 2011 focus Operational management Outsourcing • Continued development of AST • Improving customer experience • Permanent solutions for legacy issues • Further policy migrations to transformed • Establishing the standard with profit platform at our out
Slide 19: Financials
Financials Andy Moss Ms PHOENIX GROUP
Slide 20: How we measure ourselves – financial metrics
How we measure ourselves – financial metrics Metric Cash Cash generation target Embedded value Target specific management actions to enhance Capital strength Compliance with regulatory requirements and capital buffers Operating profits IFRS target Cost management Service company cost target On track
Slide 21: Clear view of cash generation
Clear view of cash generation Distribution of Cash generation Key sensitivities surplus cash WP shareholder bonuses • Regulatory capital NP fund surplus 9 Economic conditions • Capital buffer to withstand range 9 Experience on key of adverse events assumptions Shareholder fund returns • Excess capit
Slide 22: Significant embedded value within Phoenix Life
Significant embedded value within Phoenix Life FY 10 £m Net Worth VIF Total Life companies (subsidiaries consolidated) Phoenix Life Limited 760 1,437 2,197 Pearl Assurance Limited 739 280 1,019 London Life Limited 145 151 296 1,644 1,868 3,512 (1) Management services 80 - 80 1,724 1,868 3,592 (1) Th
Slide 23: Strong capital positions: significant free surplus across Phoenix Life
Strong capital positions: significant free surplus across Phoenix Life FY 10 £m Phoenix IFRS net assets Life London Sub- of management Limited PALAL Pearl Life Total services Total Pillar I – regulatory 514 350 747 246 1,857 - 1,857 excess capital Free surplus 168 133 369 - 670 80 750 • Free surplus
Slide 24: Underlying IFRS operating profits are relatively stable
Underlying IFRS operating profits are relatively stable FY 10 FY 09 Fund type £m £m Operating profit drivers With Profit – cost of bonus 55 49 Shareholders share of cost of bonus transfers from with profit funds With Profit – supported funds (7) 20 New business contribution Expected margin emergence
Slide 25: Controlled cost base, reflecting significant variable element and project completion
Controlled cost base, reflecting significant variable element and project completion Phoenix Life Management Expenses FY 10 BAU Outsourcer £144m • Passed on to life companies as guaranteed per policy costs • Costs managed in service companies. Better management gives profit benefits in these compani
Slide 26: Investment management expenses aligned to performance
Investment management expenses aligned to performance Phoenix Life investment management expenses paid to Ignis FY 10 Charged to with profit funds £89m • Benchmarked to other commercial providers • £20m relates to performance fees − Aligned interests between Ignis and Life business − Variable Charge
Slide 27: Case study: Resolving legacy issues
Operational Outsourcing Restructuring Management Risk Case study: Resolving legacy issues Restructuring Management Background • 1 of the acquired businesses for which administration had previously been outsourced • Weaknesses in controls over completion of premiums and claims accounting were identif
Slide 28: Case study: Funds merger
Operational Outsourcing Restructuring Management Risk Case study: Funds merger Restructuring Management Background • The life insurance businesses of Abbey National (now part of Santander) were acquired in 2007 • Part of the acquired business was transferred into PLL via a funds merger, effective fr
Slide 29: In summary
In summary 9 On track to meet 2011 financial targets 9 Resilient and reliable cash flows 9 Significant embedded value in the business 9 Strong capital position 9 Controlled cost base – reflecting significant variable element and reducing projects 29
Slide 30: Business Lines
• With profit • Annuities Business Lines • Unit linked Peter Mayes • Protection
Slide 31: With profit funds: standalone vs. supported
With profit funds: standalone vs. supported Phoenix Life Holdings Limited Pearl Assurance LL Impala Holdings Limited SERP WPF WPF SHF NPF NPF SHF Phoenix Life Limited 100% Fund 90% Fund Phoenix BA OB BA IB Alba SAL SHF NPF SPI SM NPLL WPF SHF PPL NPIL SMI NPF SHF SHF NPF NPF SHF Standalone with prof
Slide 32: With profit (standalone) are a core profit driver
With profit (standalone) are a core profit driver Dimensions Base Case Returns improved by Longer term objectives £23.3bn AUM Shareholders Accelerating estate • Harmonisation of typically get 10% distribution practices £17.2bn asset share of • Earlier payment to • Estate distribution policyholder sh
Slide 33: With profit (supported) still creates shareholder value
With profit (supported) still creates shareholder value Dimensions Base Case Returns improved by Longer term objectives £11.7bn AUM Normally no Optimising investment • Harmonisation policyholder strategy • Reducing unrewarded bonuses, but • Hypothecation risks £7.3bn asset shareholder shares value i
Slide 34: Annuities – attractive and growing
Annuities – attractive and growing Dimensions Base Case Returns improved by Longer term objectives £5.9bn AuM (1) Strong cash • Strong and steady stream of • Improve retirement generation from internal vestings at very low proposition £800m pa in force annuities cost – competitive annuity in non pro
Slide 35: Unit linked and Protection – low risk cash generation
Unit linked and Protection – low risk cash generation Dimensions Base Case Returns improved by Longer term objectives Unit Linked: £12.1bn AUM £447m VIF Profitable, • Cost efficiency • Increase sale of affinity valuable and • Customer retention and own products to cash generative customer base busin
Slide 36: In addition, the businesses are complementary
In addition, the businesses are complementary With profit With profit (stand-alone) (supported) Annuities Unit linked Protection Indirect benefits Profitable Ignis AuM Tax Synergies Servco cost Fund Merger vesting efficiency Diversification annuities Benefits 36
Slide 37: Case study: Restructuring of corporate loan portfolio
Operational Outsourcing Restructuring Management Risk Case study: Restructuring of corporate Restructuring Management loan portfolio Background • Opal Re held a leveraged portfolio of sub-investment grade corporate loans of typically five year term • Loan portfolio £1.2bn with £0.8bn of funding from
Slide 38: Operational Management & Outsourcing
Operational Management • Operational model & Outsourcing • Outsourcer transformation Tony Kassimiotis • Low cost and efficiency • Actuarial transformation
Slide 39: A well positioned operational model
A well positioned operational model Life • Multiple companies and processes companies • Limited scale in their own right 9 Improved customer • Price certainty service Company 1 • Improved services to policyholders Company 2 Company 3 • Operational risk transfer 9 Transformed outsourcing operations 9
Slide 40: Phoenix outsourcer landscape
Phoenix outsourcer landscape – sizeable operations, with know-how to transform into scalable platforms FY10 cost of £144m • As funds run off, fixed costs have an ever- increasing impact Policies % of book • Outsourcers have scale, common 4.3m 62.8% processes across multiple clients, multi Diligenta
Slide 41: Run off of transformation project costs
Run off of transformation project costs Outsourcer £ 144m Illustrative project costs £m Retained £84m 70 Projects £70m Total Phoenix Life management £298m expenses 2010 2011 2012 2013 2014 Actual Projected • Project costs increase in 2011 owing to Solvency II and AST • OSP transformation projects la
Slide 42: We are a low cost and efficient provider
We are a low cost and efficient provider Outsourcer £ 144m Outsourcer costs £m Retained £84m 250 Projects £70m 202 196 200 166 Total Phoenix Life management 158 £298m 144 expenses 150 100 2006 2007 2008 2009 2010 ‘Positive Jaws’ cost reductions exceed run-off profile Actual £m 205 194 191.6 189.3 18
Slide 43: Case study: Actuarial Systems Transformation
Operational Outsourcing Restructuring Management Risk Case study: Actuarial Systems Restructuring Management Transformation Background • Phoenix Group has grown through acquisition of closed fund businesses • Valuation models have been integrated on a “lift and shift” basis with some tactical improv
Slide 44: Wrap up and Q&A
Wrap up and Q&A Mike Merrick Ms PHOENIX GROUP
Slide 45: In Summary
In Summary 9 Risk management is a core activity 9 Phoenix Life has a simple business model with a successful outsourcing strategy 9 Within Phoenix, there are a number of value streams with significant synergy benefits 9 Very experienced and focused management team 9 Focused on the delivery of value
Slide 46: Q&A
Q&A 46