Standard Life Plc · LSE:SDLF
Standard Life — Phoenix Group — FY2020 Earnings Presentation
72 slides from Standard Life's earnings presentation, Mar 8, 2021
Slide 1: Phoenix Group Full Year 2020 Results
Phoenix Group Full Year 2020 Results CQ. PHOENIX GROUP 8 March 2021 nastier weet
Slide 2: Welcome and presentation overview
Good morning everybody, and welcome to Phoenix Group’s full year results presentation. I hope you are all keeping well during these challenging times. In line with the current Government guidance, we have opted for Rakesh and I both to present from home. I will start the presentation, with a look ba
Slide 3: 2020 review
2020 review Andy Briggs Group Chief Executive Officer
Slide 4: 2020 was a landmark year for Phoenix
2020 was a landmark year for Phoenix, with a number of significant achievements, delivered in a uniquely challenging environment. We completed the acquisition of ReAssure, to establish Phoenix as the UK’s largest long-term savings and retirement business. We delivered record cash generation, and rec
Slide 5: Delivered on cash, resilience and growth in 2020
As you would expect from Phoenix, we have, once again, delivered on our key attributes of cash, resilience and growth during 2020. Rakesh will cover these in more detail shortly, but in terms of the headlines… We delivered cash generation of £1.7 billion for the year, exceeding the upper end of our
Slide 6: Proving the wedge
towards proving ‘the wedge’.
Slide 7: Rock solid dividend funded for over 20 years
Dependable cash generation, and a resilient capital position, are the key to our “rock solid” dividend, which we have the resources to fund for over 20 years. We operate a “stable and sustainable” dividend policy, and historically, M&A has been the trigger for increases, as evidenced by the 50% incr
Slide 8: Purpose-led organisation with a pivotal role in society
As a purpose-led organisation, we believe that we have a pivotal role to play in society, as the UK navigates the shifting pension’s 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 suppor
Slide 9: Priorities throughout the pandemic
Our key priorities throughout the pandemic have been to protect our customers and colleagues, and to support the communities in which we operate. And what we have learnt during this time will drive a lasting change in our business. For our customers, the uptake of digital has been accelerated by nec
Slide 10: Tailored community investment
And, we will provide tailored community investment, driven by the key challenges in their location, rather than applying a one-size-fits all approach.
Slide 11: Focus on our customers
Critical to our success is our focus on our customers. That is why I am delighted that, despite the significant challenges posed by the pandemic, we have continued to meet or exceed all of our customer satisfaction targets, during 2020. Key to this was our decision to keep our call centres open, whi
Slide 12: Digital engagement by customers
better enables us to retain customers. Finally, the expansion of our digital functionality has supported a strong increase in digital engagement by our customers,. We now have over 50% of log-ins made via our enhanced mobile app, and online secure messaging volumes have more than doubled in 2020.
Slide 13: Standard Life branded offerings and simplified Strategic Partnership
A key part of our customer proposition is our Standard Life branded Workplace and Customer Savings & Investments offerings. These were previously operated through a fairly complex set of agreements with Standard Life Aberdeen, as you can see on the left of this diagram. As many of you will know, we
Slide 14: Simplified agreement with Standard Life Aberdeen
experience, and will allow us to accelerate the delivery of a broader set of propositions for customers. 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. Both the Transitional Serv
Slide 15: Making Phoenix the best place colleagues have worked
We want to make Phoenix the best place our colleagues have ever worked, and so we are investing in our people proposition. I was delighted that, despite what was clearly a challenging year for our colleagues, our recent annual engagement survey reported an increase of 10 percentage points in overall
Slide 16: Building a team of the best talent
some of our recent press releases. We’re building a team of the very best talent in the market.
Slide 17: Sustainability at the core of our purpose
We see sustainability as being at the core of our purpose, of helping people secure a life of possibilities, and a key enabler of our strategy. We outlined our comprehensive new Sustainability strategy, at our Capital Markets Day in December, which focuses on delivering for our 14 million customers.
Slide 18: Sustainable business actions and 2020 Sustainability Report
we will also be baselining and setting reduction plans. You can find out more about the actions we are taking to be a sustainable business, in our comprehensive 2020 Sustainability Report. And with that, I’ll hand you over to Rakesh.
Slide 19: Financial review
Thank you Andy and good morning.
Slide 20: Strong financial performance in 2020
As Andy said, Phoenix delivered a strong financial performance in 2020, with record cash generation of £1.7 billion and new business of £766 million up 59% year-on- year, as we executed on our strategy of managing our in-force business for cash and resilience, and delivered growth. Operating profit
Slide 21: Solvency and leverage within target ranges
This financial performance was delivered despite the volatility driven by the pandemic. Our solvency position has strengthened during the year to £5.3 billion, and continues to be resilient with a solvency ratio of 164% that remained comfortably within our target range throughout the year. Our lever
Slide 22: Cash generation of £1.7 billion
Turning first to cash. At our Capital Markets Day in December, we announced that we had exceeded the upper end of our 2020 target range, with £1.7 billion of cash generation in the year. This included £0.8 billion of organic cash generation as surplus emerged from our in- force business, and £0.9 bi
Slide 23: New cash generation targets
Today we have set a new 1 year cash generation target range of £1.5 billion to £1.6 billion for 2021. And we remain on track to deliver our 5 year target from 2019 to 2023, which has been “upgraded” today to £6.8 billion to reflect the ReAssure acquisition, together with new business and over-delive
Slide 24: Future cash generation estimate
given the enactment date. This estimate of future cash generation excludes the benefit of management actions from 2024 onwards.
Slide 25: Holdco uses of cash and dividend security
Focusing first on the next three years, this slide sets out the Holdco uses of cash generation and illustrates how secure our current dividend is over that period. It also highlights the significant amount of surplus cash that will be generated over this period which will be available for growth, su
Slide 26: Group long-term free cash
To improve the clarity of our reporting, we introduced a new metric called Group long-term free cash at our Capital Markets Day in December. The starting point is our £17.7bn of long-term cash generation, which includes 10 years of capitalised future acquisition costs. As a Group-wide metric it has
Slide 27: New business and management actions long-term cash
As a Group, we generate additional long term cash by writing new business and through the over-delivery of value accretive management actions. In 2020 we delivered £766 million of new business long term cash generation and are optimistic about growing this amount next year. We have also over deliver
Slide 28: Recurring sources and uses of cash
business and continuing to over-deliver on our management actions in the future, we will increase the net long-term free cash contribution over time. In 2020, our recurring sources of cash have therefore largely funded recurring Group uses of cash. However, we have also adjusted 2020 Group long-term
Slide 29: Group long-term free cash and dividend framework
Group long-term free cash is £13.4 billion. After the servicing of debt until maturity, this leaves £11.8 billion of cash available to shareholders. This level of Group cash supports our stable and sustainable dividend for over 20 years. And whilst historically the trigger for uplifts has been M&A,
Slide 30: IFRS operating profit
Before we move on to talk about Resilience, I will walk you through our IFRS results. We delivered operating profit of £1.2 billion in 2020, 48% higher than the prior year. This increase is driven by the inclusion of the post-acquisition results of ReAssure and the benefit of new business. Our Herit
Slide 31: Solvency II capital position
Maintaining Phoenix’s capital resilience has been my key priority during the economic turbulence of the year. As at 31 December 2020, the Group had an estimated Solvency II surplus of £5.3 billion and a shareholder capital coverage ratio of 164%. This ratio is comfortably in the middle of our target
Slide 32: Shareholder value proxy versus share price
This value proxy is effectively “ex-dividend”. It also places no value on future new business from vesting annuities, BPA and open channels or management actions. And I would note that this is significantly above our current share price of just over £7.30 per share.
Slide 33: Approach to managing risk and sensitivities
Phoenix has a unique approach to managing risk. We have a particularly low appetite to equity, currency and interest rate risks, which we see as unrewarded. We therefore have a comprehensive and dynamic hedging programme in place, which hedges 80 to 90% of the shareholders exposure to equity risk, a
Slide 34: Capital surplus drivers
Our focus on risk management and delivery of management actions has driven the significant increase in our capital surplus and solvency ratio during the year. Despite the market volatility experienced in the year, we have seen only a £0.2 billion strain from economics. This evidences both our hedgin
Slide 35: Shareholder debt portfolio quality
Phoenix has a diversified, high credit quality shareholder debt portfolio. Our £35 billion portfolio is proactively managed on a daily basis to respond to the changing macroeconomic environment, by a dedicated in-house team of market leading credit experts. The portfolio is defensively positioned, w
Slide 36: Illiquid asset portfolio
Long dated, or “illiquid” assets provide excellent cashflow matching for our £41 billion annuity book, and illiquid asset origination is a key management action. Our £10 billion illiquid asset portfolio comprises 25% of annuity backing assets and is high quality and well diversified. It includes equ
Slide 37: Management actions drive value
Management actions drive value and are a key strength of our business. During the year, delivery of management actions contributed £1.3 billion to surplus capital. Whilst the delivery of integration synergies from the Standard Life and ReAssure acquisitions is an important part of this year’s action
Slide 38: ReAssure integration and increased synergy targets
We are the market leader in the integration of Heritage businesses and the acquisition of ReAssure has significantly strengthened our capabilities in this regard. Having completed the ReAssure acquisition in July, we continue to progress with our plans to integrate the business into Phoenix. The str
Slide 39: Progress across integration programmes
We continue to make good progress across both integration programmes. We have already delivered our capital synergy target for the Standard Life transition programme. The next key milestone for us will be obtaining regulatory approval for our harmonised Internal Model. We expect to submit our applic
Slide 40: ReAssure transition progress
As I already mentioned, we have made strong progress in the first 6 months on the ReAssure transition, which is what has enabled us to upgrade our targets so quickly.
Slide 41: Record new business long-term cash
2020 was a record year for new business at Phoenix, delivering £766 million of incremental long-term cash generation; a 59% increase year on year. As I mentioned earlier, we expect £800 million of incremental cash generation per annum from new business will be sufficient, to offset the run off of ou
Slide 42: Retirement Solutions and BPA growth
Growth in our Retirement Solutions business is driven by BPA. In the year, we took an estimated 6% share of the external BPA market delivering £350 million of incremental long term cash generation. We have continued to see improvements in our external deal economics with average payback reducing to
Slide 43: Pearl Pension Scheme buy-in
We were also delighted to reach an agreement with the trustees of the Pearl Pension Scheme, of which Phoenix is the parent sponsor, for a buy-in of the full £3 billion of scheme liabilities. We will deliver this through a series of tranches over the next 2-to-3 years and it therefore provides a sign
Slide 44: Financial framework conclusion
To conclude, Phoenix has a clear financial framework which supports its strategy and delivers cash, resilience and growth. 2020 was a record year for Phoenix with £1.7 billion of cash generation and £766 million of incremental long-term cash generation from new business. Despite the many challenges
Slide 45: Slide 45
Slide 46: Strategy with three key priorities
Thanks Rakesh. We have a clear strategy, that is focused on three key priorities, and leverages the industry drivers of change. Our first priority is optimising what we already have, our in-force business, where our risk management framework, ensures we improve customer outcomes, and deliver resilie
Slide 47: Delivering the financial framework
The successful execution of this strategy will ensure we deliver against our financial framework, of cash, resilience and growth.
Slide 48: 2021 priorities for Heritage business
Phoenix is the market leader in managing Heritage businesses, and our priorities in 2021 are consistent with prior years. First, is ever improving customer outcomes – be that through delivering value for money, tracing and repatriating lost policies, or being proactive in preventing pensions fraud.
Slide 49: Managing multiple integrations
safely manage multiple integrations at once.
Slide 50: Open business growth momentum
We have built strong growth momentum in our Open business in 2020, and, as Rakesh has outlined, we came very close to proving ‘the wedge’ last year. We are focused on building on this success, and driving our growth strategy forward, in 2021. Our established BPA business was a major contributor duri
Slide 51: 2021 proposition developments
New proposition developments in 2021 include a Workplace ISA, and further expansion of our ESG offering. And an increased focus on digitisation, including using data and analytics, to provide a more personalised customer experience. In our Customer Savings and Investment business, we will be leverag
Slide 52: M&A as a core driver of growth
We also continue to see M&A as a core driver of our growth. As we outlined at our Capital Markets Day in December, we have three very clear criteria for assessing acquisitions, and we will remain disciplined in our approach. Alongside being a good strategic fit, any deal has to be: Value accretive;
Slide 53: Priorities for 2021 and beyond
So, let me conclude with our priorities for 2021 and beyond. Again, our story is simple… The key outcomes we deliver for our shareholders are cash, resilience and growth. In 2021, we will deliver those by continuing with the disciplined management of our balance sheet, delivering on our integrations
Slide 54: Q&A format
In terms of the format, for the sell side analysts who are joining the Zoom call please use the Raise Your Hand function and the operator will bring you into our presentation live via video and enable you to ask questions directly to the presenters. For anyone watching on the webcast, please use the
Slide 55: Q&A
Slide 56: Investor Relations activity and contacts
Investor Relations activity and contacts Virtual results roadshow 16 March Morgan Stanley European Financials Conference HSBC 6th Annual West Coast Financials Conference KBW European Financials Conference Annual General Meeting Autonomous European Insurers & Asset Managers Fins Forum ODDO BHF & Nati
Slide 57: Appendices
Appendices vill xill Leverage ratios Outline of debt maturity profile as at 31 December 2020 Movement in assets under administration Breakdown of Open business segments as at 31 December 2020 Change in Life Company Free Surplus Estimated PGH Solvency Il surplus and coverage ratios Estimated sharehol
Slide 58: Appendix I: Leverage ratios
Appendix |: Leverage ratios Fitch leverage rati FY20 leverage ratios % 35 ; Fitch basis 28% IFRS basis?) 41% 30 29% 4 “ 28% Fitch target range: 25-30% SIl leverage 31% 2s 4 + — IFRS leverage ratio classifies RT1 as debt + Weestimate a funding capacity for inorganic 2 FY16 FY17 FY18 FY19 FY20 growth
Slide 59: Appendix II: Outline of debt maturity profile
Appendix II: Outline of debt maturity profile as at 31 December 2020 le £450m --— HI H2 1 H2 HI H2 2021 2022 2027 2028 2030 2031 Wl Unsecured Senior Bond [RTI bond [MM Tier2bond [Ml Tier 3 bond (1) Bond called and due for repayment on 25 March 2021 (2) First call date. (3) First reset date. (4) All
Slide 60: Appendix III: Movement in assets under administration
Appendix III: Movement in assets under administration £16.7bn £(21.1)bn £18.6bn £337.7bn 25>) £(9.8)bn £75.2bn £14.2bn £(113)bn £59.0bn £16.2bn Net flows £100-tbn Heritage £(7.3)bn Open £2.9bn £148.2bn FY19 AUA'® ReAssure acquisition Gross inflows Gross outflows Market movements FY20 AUA Chart not t
Slide 61: Appendix IV: Breakdown of Open business segments
Appendix IV: Breakdown of Open business segments as at 31 December 2020 | UA New businessLTCG New business contribution £175bn Tl Retirement Solutions [Mj Workplace [J CS&I-Wrap SIPP, Onshore Bond & TIP + [—§ CS&!-Other — Europe [i SunLife do nconcwoe 47
Slide 62: Appendix V: Change in Life Company Free Surplus
Appendix V: Change in Life Company Free Surplus £1.3bn £(1.6)bn et £4.5bn Free surplus Surplus generation Management actions Economic, Free surplus before Cash Free surplus as at FY19"! and release of financing and other cashremittances remittances to Group?’ as at FY20° Capital requirements (1) The
Slide 63: Appendix VI: Estimated PGH Solvency II surplus and coverage ratios
Appendix VI: Estimated PGH Solvency II surplus and coverage ratios PGH Shareholder capital coverage ratio“ PGH Solvency ll coverage ratio £16.8bn £13.6bn £10.8bn £8.3bn £7.7bn £5.2bn FY19 FY20"" Fy19*! FY20"! HM Ownfunds M™ SCR £bn FY20 FY19 WM Ownfunds MH SCR PGH Solvency II own funds 16.8 10.8 Les
Slide 64: Appendix VII: Estimated shareholder SCR by risk type
Appendix VII: Estimated shareholder SCR by risk type and PGH own funds tiering Estimated FY20 SCR by risk type” FY20 PGH own funds by capital tier 9% of SCR 39% of SCR 116% of SCR Wl Longevity Il Property PGH tiering of own funds PGH SCR Wi Credit Hl Persistency A A El iteroct Retes Share of SII own
Slide 65: Appendix VIII: Regulatory Capital Coverage Ratio sensitivities
Appendix VIII: Regulatory Capital Coverage Ratio sensitivities PGH Solvency Il Regulatory Capital Coverage Ratio (RCR) sensitivities” Impact on Solvency Il surplus FY20 Solvency II RCR £5.3bn Equities: 20% fallin markets £(0.1)bn Property: 12% fall in values‘ £(0.2)bn Rates: 73bps rise in interestra
Slide 66: Appendix IX: 2020 operating profit drivers
Appendix IX: 2020 operating profit drivers Experience fe(52)rn Experience 20) Experience New business feo} New business NA New business Modelling & (20) Modelling & em) Modelling & fec29)r methodology methodology methodology Assumptions?! eam Assumptions?! Assumptions?! Operating (1) Operating earni
Slide 67: Appendix X: Credit quality by sector
Appendix X: Credit quality by sector for shareholder debt portfolio Average credit rating by sector (FY20 vs FY19) Industrials £1.4bn 4% e e v Consumer, cyclical £1.2bn 3% ee - Tech and Telecoms £2.0bn 6% e e * Consumer, non-cyclical £2.4bn 7% ee -_- Banks £5.7bn 16% ee - Financial Services £1.0bn 3
Slide 68: Appendix XI: Sustainability performance ratings
Appendix XI: Sustainability performance ratings MSCI ESG RATINGS ca OL come} Upgraded to ‘A’ from ‘BBB’ in August 2020 (Scale AAA to CCC) 0 SUSTAINALYTICS Ranked 68* out of 267 in the insurance industry in September 2020, with risk a rating of 23.3 Dow Jones Sustainability Indices In collaboration w
Slide 69: Appendix XII: Corporate structure
Appendix XII: Corporate structure as at 31 December 2020 Phoenix Group Holdings pic ReAssure UK Services Limited Pearl Group Management Services Key: Ml Listed top company HE Holding companies HM Life companies ME Management services Qaanconciow 55
Slide 70: Appendix XIII: Footnotes
Appendix XIll: Footnotes 1 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13) 14) 15) 16) 17) 31 December 2020 Solvency II capital position is an estimated position and reflects a dynamicrecalculation oftransitionalsfor the Group's Life companies. Hadthe dynamicrecalculation not been assumed, the Solvency Il s
Slide 71: Appendix XIII: Footnotes (continued)
Appendix XIll: Footnotes (continued) 18) 19) 20) 21) 22) 23) 24) 25) 26) 27) 28) 29) 30) Property stress represents an overall average fall in property values of 12%. Assumes the impact of a dynamic recalculation oftransitionals (subjectto PRA approval) and an element of dynamichedging which is perf
Slide 72: Disclaimer and other information
Disclaimer and other information * This presentation in relation to Phoenix Group Holdings pic andits subsidiaries (the ‘Group’) contains, and we may make other statements (verbal or otherwise) containing, forward-looking statements and other financial and/or statistical data about the Group's curre