Standard Life Plc · LSE:SDLF
Standard Life — Phoenix Group Holdings — Investor Day (June 2017)
52 slides from Standard Life's investor day presentation, Jun 14, 2017
Slide 1: Phoenix Group Investor Day
Phoenix Group Investor Day 14 June 2017 1
Slide 2: Agenda
Agenda Introduction Clive Bannister | Group Chief Executive Industrialising the integration process Andy Moss | Chief Executive, Phoenix Life Improving the customer journey Susan McInnes | Customer Director Solvency II – 2016 SFCR Rakesh Thakrar | Deputy Group Finance Director Creating value from an
Slide 3: Introduction
Introduction Clive Bannister 3
Slide 4: Phoenix is the UK's largest closed fund consolidator
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 Sust
Slide 5: Industrialising the integration process
Industrialising the integration process Andy Moss 5
Slide 6: Phoenix has a clear Target Operating Model for acquisitions
Phoenix has a clear Target Operating Model for acquisitions Customer Financial Investment Services Management Performance (Retained) LEADING • Skilled staff GOVERNANCE • Scalable model that have • Strategic transformation partners with • Investment by experience proven track CONTRACTUAL COVER SUSTAI
Slide 7: What do we mean by "integration"?
What do we mean by “integration”? Stage Connect Integrate Merge (up to 6 months) (up to 12 months) (up to c.18 months) • Stabilisation of business • Skilled teams to deliver • Aim to reach full Target • Governance and integration Operating Model management structures • Managed through the (merged go
Slide 8: AXA Wealth and Abbey Life have different challenges and risks
AXA Wealth and Abbey Life have different challenges and risks AXA Wealth Abbey Life Significant separation issues (3 FCA enforcement investigation separate sale processes) 2 locations, with 500 staff Replacement of senior management 19 Transitional Service Agreements Risk Management Framework requir
Slide 9: Integration plans are in place and delivery is ahead of schedule
Integration plans are in place and delivery is ahead of schedule 27 May: 1 Nov: March: Beginning AXA Wealth Transaction Internal Model 2018: announcement completion approval Integration complete AXA Wealth 2016 2017 2018 Abbey Life H2 2017: 28 Sep: 30 Dec: Application for Mid 2018: Abbey Life Transa
Slide 10: AXA Wealth: Integration progress is ahead of plan
AXA Wealth: Integration progress is ahead of plan Key achievements to date P New boards, governance and risk arrangements P TSAs operating, with all BAU deliverables achieved People & Process TOM design work P Actuarial valuation systems MG-ALFA successful test runs completed 15/6/17 P Internal Mode
Slide 11: Phoenix is applying its outsource model to realise AXA cost synergies
Phoenix is applying its outsource model to realise AXA cost synergies Benefits of outsource model Target end state Current End state AXA Wealth in-house policy Diligenta • Contracts deliver policy administration administration at a per policy cost and on an • Unit price per policy • Cost risk transf
Slide 12: Capital synergies from AXA Wealth consist of main steps
Capital synergies from AXA Wealth consist of 3 main steps Day 1 reassurance Internal Model approval Next step: Part VII transfer £227m £344m £160m £5m c.£20m Internal Internal Management Model model Actions Phoenix Reassurance AXA Phoenix AXA Phoenix AXA of risks Reassurance Legal transfer Life Weal
Slide 13: Sun Life: Significant progress on establishing as a distribution company
Sun Life: Significant progress on establishing as a distribution company Achievements to date Target Operating Model • Ring-fenced team established Establish ability for company to • Focused board and governance • Specific board to oversee distributor structure in place operate as a • IT services de
Slide 14: Abbey Life: Operational progress to date
Abbey Life: Operational progress to date Key achievements to date P New Board and Phoenix management team put in place P Phoenix risk management framework being rolled out P Enhanced oversight of outsourcer put in place – redefinition of roles and responsibilities People & Process TOM completed TSA
Slide 15: Management actions planned to deliver capital synergies from Abbey Life
Management actions planned to deliver capital synergies from Abbey Life Internal Model & reinsurance Matching Adjustment Hedging & asset strategy Include Abbey Life within the Matching Adjustment will be Protect unit-linked VIF through Management scope of the Phoenix Internal extended to all q
Slide 16: Indemnity protection with regards to the Abbey Life enforcement action
Indemnity protection with regards to the Abbey Life enforcement action operating within expectations Deed of Indemnity Latest position Thematic review relating to the treatment of long- • Phoenix’s customer model and standing customers governance oversight already in place Scope (Enforcement Inves
Slide 17: Acquisition integration will be tracked against five metrics
Acquisition integration will be tracked against five metrics 1 P 2016 - 2020 2021+ Better than expected AXA Wealth £0.3bn £0.2bn with £282m to date Cash flows 2016 - 2020 2021+ Abbey Life £0.5bn £1.1bn P On track 2 Cost AXA Wealth Targeting £13m - £15m by FY17 P Ahead of original plan synergies Abbe
Slide 18: Industrialising integration
Industrialising integration Phoenix has a scalable and clearly defined operating model to integrate acquisitions The integration approach is underpinned by key principles and a uniform approach The operating model and principles apply to different acquired operating models. The complexity to reach t
Slide 19: Improving the customer journey
Improving the customer journey Susan McInnes 19
Slide 20: We have extensive expertise in managing a wide range of products
We have extensive expertise in managing a wide range of products Policies by fund type (FY16) • We currently have 6.1 million Non profit policyholders • The majority of our policies are non profit Traditional with profit 43% 43% or unit linked 14% • The products originate from several Unit linked hu
Slide 21: Conduct regulation has changed significantly in recent years
Conduct regulation has changed significantly in recent years Product reviews 1% exit charge cap Customer Increased communication encashment 1. FCA legacy 2. Pensions review freedoms 4. Workplace 3. FCA pensions annuity sales Independent Governance review Increased focus on shopping around Committees
Slide 22: Operational and financial impacts from conduct regulation on Phoenix
There have been operational and financial impacts from conduct regulation on Phoenix • Final guidance issued in December 2016 • Part of BAU FCA legacy maintenance costs • Contact strategy and Communication reviews underway review • Abbey Life review • Product reviews continue in line with establishe
Slide 23: Pensions freedoms have led to a sharp increase in encashment of smaller pots
Pensions freedoms have led to a sharp increase in the encashment of smaller non-GAR pension pots Guaranteed Annuity Rates (GARS)(1) Non-GARS(1) Customers taking full encashment by pot size Customers taking full encashment by pot size 5% 11% Customers encashing Customers encashing below £10k below £1
Slide 24: Customer Strategy 2017 – customer security with enhanced outcomes
Customer Strategy 2017 – customer security with enhanced outcomes Customer Agenda for 2017 Continue to focus on improving customer outcomes 6. Customer Journey with a particular focus on bringing AXA and Abbey Life customers into the Phoenix Way 5. Product Governance 1. Security Focus on improving c
Slide 25: Opportunity for Digital to help with the "3 Cs"
Opportunity for Digital to help with the “3 Cs”: Customer, Costs and Conduct Risk 25
Slide 26: There are a range of benefits from improving existing processes
There are a range of benefits from improving existing processes Typical customer journey Most customers do Almost all contact a 225,000 pieces of so early and call us call centre for a paper to request 5-40 minute are issued every information conversation month £ c.4,500 customers All customers 56%
Slide 27: Digitally connecting with six million customers can improve the customer journey
Digitally connecting with six million customers can improve the customer journey GUIDANCE INFORMATION Provide suitable and appropriate Deliver rich, engaging and guidance to customers in order personalised content through to optimise their financial and tailored customer journeys retirement planning
Slide 28: Recent experience of online customer take-up has been encouraging
Recent experience of online customer take-up has been encouraging Recently tested online encashment 1,300 non-GAR customers with under £10k pots encash each month Majority before selected retirement date About 38% now do so online Better management of conduct risk for 38% of under £10k – c.11% of ou
Slide 29: Planning for the future and introduction of pensions dashboards
Planning for the future and introduction of pensions dashboards Future digitalisation Phoenix dashboard • Partnered with Diligenta to build a digital hub for Phoenix Customers (“MyPhoenix”) • Will allow our customers to transact online, source rich information to support decision making and products
Slide 30: Customer journey and outcomes remain a key focus for Phoenix Life
Customer journey and outcomes remain a key focus for Phoenix Life Regulatory and legislative agendas remain challenging and fast paced FCA agenda is very much aligned to our own in terms of doing the right thing for our customers Challenges remain around how to improve customer engagement with their
Slide 31: Solvency II – 2016 SFCR
Solvency II – 2016 SFCR Rakesh Thakrar 31
Slide 32: Phoenix's Solvency II capital position
Phoenix’s Solvency II capital position • PLHL Solvency II surplus of £2.0 billion and Shareholder Capital coverage ratio of 171% at 31 December 2016 on a proforma basis Capital • Focus on overall quantum of Solvency II surplus and resilience strength • Hedging strategy in place to minimise volatilit
Slide 33: Shareholder Capital coverage ratio of 171% at FY16
Shareholder Capital coverage ratio of 171% at FY16 Shareholder Capital position • FY16 position proforma for Tier 3 bond issuance in January 2017 171% 154% and impact of moving AXA businesses onto Phoenix’s Internal Model • FY16 position assumes Surplus “dynamic” recalculation of £2.0bn transitional
Slide 34: SFCR requirements and basis of preparation
SFCR requirements and basis of preparation Basis of preparation Summary • No allowance for proforma adjustments: • Phoenix Group Holdings (“PGH”) ultimate parent (Cayman registered, Jersey resident) • Recalculation of Transitionals at 31 • Waiver in place to apply “other methods” for December 2016 G
Slide 35: Solvency II annual reporting: PLHL capital position
Solvency II annual reporting: PLHL capital position Regulatory basis as per Regulatory basis after SFCR proforma adjustments 31 December 2016 (£m) SII excess of assets over liabilities 7,014 6,450 Subordinated debt 679 979 SII restrictions on Own Funds (613) (503) SII Own Funds 7,080 6,926 Group Sol
Slide 36: Shareholder Capital position excludes with profit funds and PGL pension scheme
Shareholder Capital position excludes strong with profit funds and PGL pension scheme Shareholder Capital Add back WPFs and Regulatory basis basis (proforma) PGL pension scheme (proforma) 31 December 2016 (£m) Tier 1 - unrestricted 4,253 2,075 6,328 Tier 2 679 - 679 Tier 3 422 - 422 Deductions / (re
Slide 37: Impact of Transitional Measures for Technical Provisions
Impact of Transitional Measures for Technical Provisions (“TMTP”) Regulatory basis as Regulatory basis as Impact of removing per SFCR without per SFCR TMTP TMTP 31 December 2016 (£m) Technical provisions 69,016 3,214 72,230 Eligible Own Funds 7,080 (2,768) 4,312 Solvency Capital Requirement 5,063 (4
Slide 38: Impact of Matching Adjustment
Impact of Matching Adjustment Regulatory basis as Impact of removing Without Matching per SFCR Matching Adjustment Adjustment 31 December 2016 (£m) Technical provisions 69,016 992 70,008 Eligible Own Funds 7,080 (938) 6,142 Solvency Capital Requirement 5,063 841 5,904 Surplus 2,017 (1,779) 238 Cover
Slide 39: Onshoring process is supported by the Tier 3 bond issue and tap
Onshoring process is supported by the recent Tier 3 bond issue and tap Surplus at PGH level includes senior debt(1) Onshoring process 171% PGH substituted as issuer of debt March previously issued from PGH 2017 Capital £0.6bn Tender for 144% senior bond May £150m tap of Tier 3 bond and Tier 3 tap 20
Slide 40: Creating value from annuities
Creating value from annuities Simon True 40
Slide 41: Closed life fund acquisitions are the key focus for Phoenix Group
Closed life fund acquisitions are the key focus for Phoenix Group Product types and critical success factors Market size is over £300bn Key elements Critical success factors Market opportunities by owner(1) • Sharing of returns between • Specialist actuarial expertise policyholders/shareholders Bank
Slide 42: Phoenix has a long track record of managing longevity risk
Phoenix has a long track record of managing longevity risk Significant history of annuity transactions Gross liabilities at 31 December 2016 Risk reduction Other £1bn 2012 Sale of £5bn annuity book to Guardian Annuities 2014 Sale of £2bn annuity book to Guardian With £12bn Profits 2014 £1bn longevit
Slide 43: Abbey Life acquisition included a £2.5 billion annuity portfolio
Abbey Life acquisition included a £2.5 billion annuity portfolio Abbey Life annuity portfolio Management actions Completed • £2.5 billion of assets under management and c.270,000 policyholders Expense synergy agreements in place • Predominantly annuities-in-payment Hedging of interest rate and i
Slide 44: Phoenix executed the largest pensions buy-in in 2016
Phoenix executed the largest pensions buy-in in 2016 Transaction with PGL Pension Scheme Key features Covers 4,400 pensioner members and dependants 1 Covers 9 sub-schemes with distinct benefit Phoenix Life PGL Pension structures Limited Scheme 2 Provides the Trustee with comprehensive “all ris
Slide 45: The bulk annuity market is a complementary source of annuity back books
The bulk annuity market is a complementary source of annuity back books Overall market and Phoenix position • Acquire portfolios of business to improve policyholder Consistent outcomes and generate shareholder value strategy • Additional source of value in addition to £300 • Delivers on our M&A crit
Slide 46: There are four key competencies for the bulk annuity market
There are four key competencies for the bulk annuity market Requirements Phoenix’s capabilities • Group Strategic Asset Allocation executed in Asset • Access to alternative/illiquid assets co-operation with partners allocation • Increased risk-adjusted returns • Investment in equity release mortgage
Slide 47: Future sources of growth in our annuity book
Future sources of growth in our annuity book Vesting annuities Acquiring annuity portfolios Bulk annuity market • Phoenix only writes annuities • Back books of annuities may • Projected demand of £350 for existing policyholders be sold by vendors as billion over next 10 years portfolios or as part o
Slide 48: Closing remarks
Closing remarks Clive Bannister 48
Slide 49: Phoenix is well positioned for future growth
Phoenix is well positioned for future growth 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 Sustainabili
Slide 50: Phoenix has a clear set of strategic priorities
Phoenix has a clear set of strategic priorities • Long-term cash generation target of £2.8 billion between 2016 - Cash generation 2020 • 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 Lif
Slide 51: Q&A
Q&A 51
Slide 52: 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 and other financial and/or statistical data about the Group’s current