Standard Life plc · LSE:SDLF
Standard Life — Phoenix Group — Debt Investor Presentation (January 2017)
40 slides from Standard Life's debt investor presentation, January 2017
Slide 1: Phoenix Group: Sterling Tier 3 bond offering
Phoenix Group The UK’s largest specialist closed life fund consolidator Sterling Tier 3 bond offering January 2017 1
Slide 2: Disclaimer and other information
Disclaimer and other information • This presentation in relation to Phoenix Group Holdings (the “Company”) 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
Slide 3: Disclaimer and other information
Disclaimer and other information • This presentation may not be reproduced, retransmitted or further distributed to the press or any other person or published, in whole or in part, for any purpose. Failure to comply with this restriction may constitute a violation of applicable securities laws. This
Slide 4: Agenda
Agenda Pages 1 Business overview and strategic growth opportunities 6 2 Cash and capital position 14 3 Credit considerations and details of the proposed offering 21 4 Q&A 26 5 Appendices 27 4
Slide 5: Executive summary
Executive summary • UK market leading closed life fund consolidator, with market cap c. £3bn and growth prospects • Two M&A transactions completed in 2016 – AXA Wealth’s pension and protection business Company (“AXA”) and Abbey Life • Total assets under management of £74bn • All public financial tar
Slide 6: 1. Business overview and strategic growth opportunities
1. Business overview and strategic growth opportunities 6
Slide 7: Phoenix is an attractive investment proposition
Phoenix is an attractive investment proposition Robust group solvency, resilient to High level of predictable long-term P cash generation, delivery of strong IFRS operating profits P market movements MCR (1) surplus of £4.4bn (2) SCR surplus(3) of £1.5bn (4) Consistent strategy, successfully The UK’
Slide 8: Overview of Phoenix Group
Overview of Phoenix Group • UK’s largest specialist closed life fund consolidator PHOENIX • Life companies have an Insurer Financial GROUP Strength Rating of ‘A’ • FTSE 250 and STOXX Europe 600 indices • Enhances economic value of closed life • Market cap £3bn as at 5 January 2017 portfolios • Impro
Slide 9: AXA and Abbey Life acquisitions created a £74 billion asset business
The AXA and Abbey Life acquisitions have created a business with £74 billion of assets, £7.2 billion of cash generation and over 6 million policyholders YoY change Phoenix AXA Abbey Life Combined % Cash generation £5.1bn £0.5bn £1.6bn £7.2bn +41% (2016+) Life company assets £52bn £12bn £10bn £74bn +
Slide 10: The Phoenix Group generates predictable long-term cashflows
The Phoenix Group generates predictable long-term cashflows Annual cash generation (£m) 2010 – 2016: £4.7 billion 957 390 6.7bn 486 810 817 117 734 690 567 369 225 2010 2011 2012 2013 2014 2015 2016 2017 + (1) Cash generation Ignis sale proceeds AXA cash generation Phoenix has met or exceeded all ca
Slide 11: How management actions add value to drive cash generation
How management actions add value to drive cash generation Increase overall cashflows Accelerate cashflows Increase Solvency II Own Funds Reduce Solvency II SCR • Investment in new asset classes • Matching Adjustment portfolios • Improved modelling / risk management • Longevity reinsurance • Reduced
Slide 12: The AXA and Abbey Life acquisitions met all M&A criteria
The AXA and Abbey Life acquisitions met all of Phoenix’s M&A criteria AXA had a significant backbook with over £12 billion of assets under management and over 910,000 policyholders UK closed life Abbey Life was a UK closed life fund business with £10 billion of assets and 735,000 focus policyhol
Slide 13: Significant future M&A growth opportunities exist
Significant future M&A growth opportunities exist – c.£300 billion of assets held in closed funds in the UK Key drivers for consolidation Market size is c.£300bn Market opportunities by owner Trapped capital within legacy books 17% Bank owned 35% Fixed cost pressure from policy run-off UK life 48% F
Slide 14: 2. Cash and capital position
2. Cash and capital position 14
Slide 15: Recent acquisitions provide a £2.1billion uplift to cashflows
The recent acquisitions provide a £2.1billion uplift to the Group’s cashflows Future cash generation £4.4bn £1.1bn • Additional cashflows of £2.1 billion £0.2bn £2.8bn expected to be generated from AXA and £0.5bn £0.3bn Abbey Life £3.1bn £2.0bn • Stable and sustainable cashflows post 2021, with scop
Slide 16: Debt servicing costs well supported by additional cashflows
Debt servicing costs well supported by additional cashflows up to 2020 and beyond - to meet known obligations, and new issue provides greater resilience Illustrative uses of cash from HY 2016 to 2020 (£bn) 0.1 0.2 0.3 0.3 2.7 0.8 0.8 0.3 0.7 0.8 HY16 holding Cash generation Operating Pension costs D
Slide 17: Beyond 2020 expected £4.4 billion of cashflows
Beyond 2020 there is an expected £4.4 billion of cashflows to emerge before management actions Illustrative uses of cash from 2021 onwards £4.4bn Abbey Life 0.0 £0.3bn £1.1bn £0.9bn AXA £0.2bn Phoenix stand-alone £3.1bn £4.3bn £0.3bn £0.8bn Illustrative holding company 2021+ cash generation Payment
Slide 18: Abbey Life acquisition will increase Solvency II surplus
Abbey Life acquisition will increase Solvency II surplus by £0.4 billion Capital position Shareholder Capital surplus(1) • Abbey Life currently on Standard Formula 144% 151% 122% 128% • Acquisition improves Solvency II surplus and ratios £1.5bn • Phoenix to apply for Internal Model approval and Tran
Slide 19: Robust Solvency II MCR ratio 473%
Robust Solvency II MCR ratio 473% provides significant resilience MCR coverage ratio • MCR coverage ratio is the relevant trigger for mandatory interest deferral 482% 473% on the proposed Tier 3 offering • Eligible own funds to cover MCR are Excess of Excess of own funds lower than eligible own fund
Slide 20: Solvency II surplus and cash generation sensitivities
Solvency II surplus and long term cash generation sensitivities PLHL Solvency II surplus sensitivities(1) Cash generation sensitivities(1) HY16 Solvency II surplus £1.1bn 2016 - 2020 target £2.0bn Following a 20% fall in equity Following a 20% fall in equity markets £1.1bn markets £2.0bn Following a
Slide 21: 3. Credit considerations and details of the proposed offering
3. Credit considerations and details of the proposed offering 21
Slide 22: New Tier 3 issue repaid before and senior to existing Tier 2
The new Tier 3 issue will be repaid before and rank senior to the existing PGHC Tier 2 Debt Structure Following AXA and Abbey Life acquisitions(5) P Strengthens capital surplus of the Group Face value Maturity £900m Unsecured Revolving Credit (£850m June 2020 Facility (L+175bps)(3) drawn) P Accelera
Slide 23: The new Tier 3 issue smooths maturity profile
The new Tier 3 issue smooths maturity profile Existing Debt Maturity Profile Perp Tier 2 bonds 1st call PGHC Tier 2 notes maturity Senior unsecured bond maturity Senior bank facility maturity 850 200 428 300 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Proposed Debt Maturity Profile Propos
Slide 24: Termsheet
Termsheet Metrics Tier 3 Issuer PGH Capital Public Limited Company (“PGHC”) Guarantor Phoenix Group Holdings Size Up to £300m – no upsizing Maturity 5.5 year bullet (subject to Solvency Condition and Regulatory Clearance Conditions) Senior Rating / Expected Issue Rating BBB+ / BBB- (Fitch) Step-up (
Slide 25: Phoenix is an attractive investment proposition
Phoenix is an attractive investment proposition Robust group solvency, resilient to High level of predictable long-term P cash generation, delivery of strong IFRS operating profits P market movements MCR (1) surplus of £4.4bn (2) SCR surplus (3) £1.5bn (4) Consistent strategy, successfully The UK’s
Slide 26: 4. Q&A
4. Q&A 26
Slide 27: Appendices
Appendices I Structural comparison VIII Product liabilities within Phoenix at HY16 II Current corporate structure IX Ongoing focus on maximising operational efficiencies III Capital management framework under SII X Asset mix of life companies at HY16 IV Impact of Brexit on Phoenix Group XI Credit ra
Slide 28: Structural comparison
Structural comparison PGH Tier 3 CNP Tier 3 Aviva Tier 3 PGH 2025 Notes Issuer PGH Capital Plc CNP Assurances Aviva Plc PGH Capital Plc Guarantor Phoenix Group Holdings - - Phoenix Group Holdings Issue Date [●] 2017 12 October 2016 27 April 2016 20 January 2015 Size Up to GBP 300m EUR 1,000m CAD 450
Slide 29: Current corporate structure
Current corporate structure £900m (£850m drawn) Unsecured Revolving Credit Phoenix Group Holdings Facility £300m senior PGH Capital notes (2021) Public Limited £428m Key: Company Intermediate subordinated notes (2025) Listed top company holdcos Holding companies New Tier 3 Phoenix Life Life companie
Slide 30: Capital management framework under Solvency II
Capital management framework under Solvency II Phoenix Group Debt interest and repayments Holdings Shareholder dividends Cash remittances Group solvency Phoenix Life Head office costs • Partial Internal Model (1) Holdings Limited Pension scheme contributions • Group capital position calculated at Ph
Slide 31: Impact of Brexit on Phoenix Group
Impact of Brexit on Phoenix Group • Significant fall in swap rates following EU Referendum impacted Impact on capital Solvency II position, in line with the sensitivities disclosed at position FY15 • Additional management actions delivered during the year • High quality corporate bond portfolio, wit
Slide 32: Impact of market movements partly mitigated by management actions
Impact of market movements partly mitigated by management actions Change in Solvency II surplus • Surplus has been negatively impacted by market movements, primarily lower swap rates £0.1bn £0.1bn £0.3bn • Impact has been partly mitigated £0.1bn by management actions and natural run-off of book £1.3
Slide 33: Estimated existing Solvency II surplus and SCR coverage ratio
Estimated existing Solvency II surplus and SCR coverage ratio Solvency II Coverage ratio Shareholder Capital ratio 130% 122% 154% 144% Surplus Surplus Surplus £1.1bn £1.3bn £1.1bn Surplus £1.3bn £3.8bn £3.7bn £6.1bn £5.7bn £5.0bn £2.5bn £2.6bn £4.4bn FY15 HY16 FY15 HY16 Own funds SCR Own funds SCR N
Slide 34: Run-off of transitional measures
Run-off of transitional measures partially mitigated by the reduction in the risk margin and other provisions Illustrative Solvency II evolution of liabilities Solvency II technical provisions (before transitionals) Other technical Solvency II technical provisions provisions Other technical Transiti
Slide 35: Wide range of products within Phoenix at HY16
Wide range of products within Phoenix at HY16 Product Shareholder exposure Principal shareholder risks Unsupported • Typically the shareholder receives • Indirect Market / ALM risk with-profits 10% of declared bonus (90:10 • Indirect Longevity risk (£24.7bn) structure) • Indirect Lapse risk Supporte
Slide 36: Ongoing focus on maximising operational efficiency
Ongoing focus on maximising operational efficiency Costs reductions track policy run-off Cumulative 2010 – 2011 2011 – 2012 2012 – 2013 2013 – 2014 2014 – 2015 since 2010 Policy 6.9% 6.7% 10.4%(2) 8.5% 4.5% 32.0% run-off Costs(1) 9.2% 7.2% 9.6% 9.8% 6.9% 36.1% run-off • Underpinned by outsourcer var
Slide 37: Asset mix of life companies at HY16
Asset mix of life companies at HY16 Total shareholder, Policyholder funds(3) non-profit and Non-supported At 30 June 2016 supported with- with-profits Unit Total Total £m unless otherwise stated profits(2) % funds linked Policyholder assets(1) Cash deposits 3,991 26 4,687 1,191 5,878 9,869 Debt secu
Slide 38: Credit rating analysis of debt portfolio at HY16
Credit rating analysis of debt portfolio at HY16 Policyholder funds Total shareholder, Non- non-profit and supported At 30 June 2016 supported with- with-profits Total £m profits funds Unit-linked Policyholder Total assets AAA 1,841 1,564 180 1,744 3,585 AA 3,626 8,523 713 9,236 12,862 A 2,357 1,126
Slide 39: Total debt exposure by country at HY16
Total debt exposure by country at HY16 Other Corporate: Government Financial Corporate: Asset backed Total debt At 30 June 2016 and Supranational Institutions Other securities securities Total £m1 Shareholder Policyholder Shareholder Policyholder Shareholder Policyholder Shareholder Policyholder Sha
Slide 40: Rating benchmarking vs UK peers
Rating benchmarking vs UK peers Rating Agency Fitch S&P Firm Name Phoenix Bupa Royal London Liverpool Victoria Insurance Financial A / Positive A+ / Stable A / Stable BBB+ / Stable Strength Rating Senior Unsecured Debt BBB+ A- - Subordinated Debt BBB- BBB BBB+ BBB- Potential benefits from Strong
Phoenix Group — Debt Investor Presentation (January 2017) on 6ix