Standard Life Plc · LSE:SDLF
Standard Life — Phoenix Group Holdings — Investor Day (November 2014)
41 slides from Standard Life's investor day presentation, Nov 25, 2014
Slide 1: Investor Day Presentation
Investor Day Presentation 25 November 2014
Slide 2: Welcome
Welcome Clive Bannister
Slide 3: Phoenix Group repositioned for future growth
Phoenix Group repositioned for future growth 2009 – mid 2014 H2 2014 and beyond Cumulative cash generation of £4.5bn(1) • Continued business simplification Incremental MCEV generated of £1.1bn • Enhance financial flexibility through - Further debt capital market Total debt repayments of £1.7bn
Slide 4: Agenda
Agenda The Evolving UK Life Sector Andy Moss | Chief Executive Executive, Phoenix Life Our Operating Model Tony Kassimiotis | Managing Director, Operations Our Customers Susan McInnes | Customer Director, Phoenix Life Opportunities for Growth Fiona Clutterbuck | Head of Strategy & Corporate Developm
Slide 5: The Evolving UK Life Sector
The Evolving UK Life Sector Andy Moss
Slide 6: The UK life sector is evolving…so what's happening?
The UK life sector is evolving…so what’s happening? • Solvency II Directive • Auto enrolment • FCA Retirement • RDR • Solvency II Income study • OFT Review preparation and feedback implementation Pre 2014 2014 2015 2016 Q1 Q2 Q3 Q1 Q2 Q3 • FCA thematic review of • Removal of Life Assurance treatment
Slide 7: A 'new world' is emerging for new business writers
A ‘new world’ is emerging for new business writers • Product innovation • Advice required given required more choices and more • Customer “wants” complex retirement uncertain products d b but expensive i • Customers still need for many income for their retirement New Advice & products guidance Incre
Slide 8: Closed funds are facing a significant uplift in complexity and cost
Closed funds are facing a significant uplift in complexity and d costt Regulation / legislation Challenges for closed funds Legacy products are complex to administer and • Long term political focus on accumulation / manage decumulation / support in old age Increased regulation may lead to requir
Slide 9: Phoenix position on key regulatory and legislative challenges
Phoenix position on key regulatory and legislative challenges h ll Annuities FCA thematic review Workplace pensions cap Volumes predicted to fall by between 20% - 90% Other country experience of Customer communications 0.75% for qualifying Industry annuity it take-up t k rates t Back end c
Slide 10: Phoenix's focus on legacy management starts with an effective and targeted operating model
Phoenix’s focus on legacy management starts with an effective ff ti and d targeted t t d operating ti model d l Life • Consolidation of multiple life companies with 1. Transformed companies separate processes customer, IT and Company 1 • Focus on improving customer outcomes and finance operations se
Slide 11: Customer service levels have also improved
Customer service levels have also improved Speed of pension transfer pay outs (days) FOS overturn rate (%) Target Target 12.2 <12 days 32% <33% 10.1 21% 2011 H1 2014 H2 2011 H1 2014 Note: Phoenix first joined the ABI-sponsored Origo service for pension transfers in 2010 Note: Consolidated FOS inform
Slide 12: Key requirements for success in the closed life market
Key requirements for success in the closed life market Variable cost Demonstrable base supported focus on product by outsourcers governance Ability to Abilit t migrate i t Operating Customer Improve customer legacy books model focus outcomes Ability to source Build and retain range of new specialist
Slide 13: Our Operating Model
Our Operating Model Tony Kassimiotis
Slide 14: Key operational challenges facing the UK life industry
Key operational challenges facing the UK life industry • More intrusive regulatory regime R Regulation l ti • Focus F on Solvency S l 2 iimplementation l t ti • Use of skilled person reports / more deep dives • Costs of regulatory change, with focus on investment in systems • Increasing fixed cost r
Slide 15: "Industrialising" effective closed fund management
“Industrialising” effective closed fund management Phoenix Customer Core Financial Investment STRONG GOVERNANCE Services & IT Management Performance • Skilled staff • Strategic • Scalable model that have partners with SUSTAINABLE PARTNERS demonstrated proven track AND LEADING VER • Investment by y t
Slide 16: How does our operating model help Phoenix meet the challenges facing closed life funds?
How does our operating model help Phoenix meet the challenges h ll facing f i closed l d life lif funds? f d ? O key Our k principles i i l Ad Advantages t • “Transformational” - at the core we deploy in- Converts fixed to variable costs – vital for policy run off house expertise, expert modelling
Slide 17: Phoenix's outsource model goes further than just policy administration
Phoenix’s outsource model goes further than just policy li administration d i i t ti Phoenix Operating Model Partnerships Established • Mature operating contracts contracts, with Diligenta Customer demonstrable risk and cost transfer Capita Services 2006 • Diligenta our largest partner, with HCL and
Slide 18: The administration outsourcing market is maturing
The administration outsourcing market is maturing Total policy administration market Outsourcer market share Other 4% Admin Re 17% Outsourced 41% In-house Diligenta Capita 59% 24% 55% Source: Company/Diligenta • UK outsourcing market has seen significant consolidation in recent years • Market is not
Slide 19: We have transformed our actuarial and finance systems
We have transformed our actuarial and finance systems t New Technology, Simplified Processes • Virtualised services • Cloud-based modelling technology gy MG- ALFA Target • Scalable finance systems Operating • Actuarial manual processes Model reduced from 900+ to 64 Phoenix Phoeni • ICA pproduction t
Slide 20: Phoenix's outsource model goes further than just policy administration
Phoenix’s outsource model goes further than just policy li administration d i i t ti • Asset management partners are Standard Supplier Management Model Life Investments Investments, Henderson and Castle Hill 1 2 The Operating Model Subject Matter Experts • Transition to SLI follows the same Phoenix
Slide 21: Financial benefits continue to be harvested
Financial benefits continue to be harvested Investment Costs (£m) Operational Efficiency 75 Policy run run-off off Costs(1) run run-off off 2010 - 2011 6.9% 9.2% 2011 - 2012 6.7% 7.2% 35 24 2012 - 2013 11.2%(2) 9.6% Cumulative 22.8% 23.8% since 2010 2011 2012 2013 • Multiple legacy environments have
Slide 22: Phoenix is well placed for the future
Phoenix is well placed for the future Improved Modern Increased Variable Retained operation is now centred in customer flexible scale and costs service platforms flexibility Wythall, with a small London operation covering i G Group functions f ti Strong Governance Actuarial efficiencies due to s
Slide 23: Our Customers
Our Customers Susan McInnes
Slide 24: We have a large and diverse customer base
We have a large and diverse customer base • We currently have c.5.5m customers Policy number by original brand • Originate from several hundred historic brands – now all closed to new business Pearl 1% other than contractual increments 1% Phoenix Life (Non Profit) 2% 2% g independently • Most are no
Slide 25: We manage a wide range of legacy products
We manage a wide range of legacy products • Full range of complexity of product structure Policy number by product type from simple savings through to income 3% 2% 2% protection and p p pensions drawdown p products Pensions 8% 5% Endowments • Largest categories are Pensions, 14% Whole of Life 36% En
Slide 26: Our customer agenda is complementary to the regulatory and political agenda
Our customer agenda is complementary to the regulatory and d political liti l agenda d Key challenges Actions we have taken to date • Customers are confused by the Enhanced tracing to keep in touch with “gone gone away away” customers extent of change in pensions Enhanced communications to • Need
Slide 27: Majority of Phoenix customers have smaller pension pots
Majority of Phoenix customers have smaller pension pots Vesting pension pots by policy number (‘000s) Vesting pension pots by asset size (£m) 14.8 14.2 262 227 197 180 4.9 2.9 1.2 65 < £10k £10-30k £30-50k £50-100k >£100k < £10k £10-30k £30-50k £50-100k >100k Note: Based on expected 38,000 38 000 po
Slide 28: Retirement Journey: Our experience of customer behaviour to date
Retirement Journey: Our experience of customer b h i behaviour to t date d t Current high levels of deferral Increased commutation of smaller pots (<£10k) 49% GAR annuitants 17% 50% Non-GAR 50% deferred annuitants vested 59% Non-GAR annuitants 25% Post budget 32% Pre Budget deferred GAR • Current Ph
Slide 29: New product offerings being explored by Phoenix Life
New product offerings being explored by Phoenix Life will ill satisfy ti f the th range off possible ibl customer t requirements i t Customer needs Phoenix solution In-house annuity or provision via partnership • Income for life • Tax efficient way to take full cash over time Existing products b
Slide 30: Our reaction to the change in pensions landscape
Our reaction to the change in pensions landscape Outlook Our expectation is that there remains a need for income for life and we will ill continue ti to t write it annuities iti for f both b th GAR and d non-GAR GAR customers t We expect the market and customer behaviour to evolve over the next
Slide 31: Opportunities for Growth
Opportunities for Growth Fiona Clutterbuck
Slide 32: The UK life sector is evolving
The UK life sector is evolving • Annuity writers Niche Individual annuity Pension insurance Closed fund operators impacted by recent insurers providers companies reforms – Potential to result in “effective” closure l ffor some Waterfront Open life insurers Mutuals providers • Back books could consol
Slide 33: What might things look like in 2020 for those without new business scale?
What might things look like in 2020 for those without new business b i scale? l ? • Loss of pprofitable income stream from writing annuities • Rising fixed cost ratio as back books Consolidation run-off run off through M&A • Focus of Regulator on customer outcomes limits ability to cut costs activit
Slide 34: Long term consolidation drivers impacted by short term unknowns
Long term consolidation drivers impacted by short term unknowns k Key drivers for consolidation Issues on timing Evolving regulatory regime, including impact of ? Ability of larger players to focus on driving value Basel III on bancassurers from back books internally Old world policies and back
Slide 35: Potential opportunities of up to £340 billion are held by various types of owners
Potential opportunities of up to £340 billion are held by various i types t off owners across a range off product d t types t Potential market opportunities by owner Potential market opportunities by product type 17% Bank owned life 27% companies 35% With profits UK life companies 59% Unit linked 15
Slide 36: Flexibility to finance transactions and potential to deliver significant value generation and cash
Flexibility to finance transactions and potential to d li deliver significant i ifi t value l generation ti and d cash h Acquisition financing and potential sources of cash acceleration and value generation1 Acquisition criteria Potential value and source of cash acceleration and Closed Life value
Slide 37: Phoenix is well positioned to capitalise on the inevitable consolidation of the closed life sector
Phoenix is well positioned to capitalise on the i inevitable it bl consolidation lid ti off the th closed l d life lif sector t • UK UK’s s leading specialist consolidator of closed life funds • Simple and scalable model, focused on improving policyholder and shareholder h h ld returns t • Eff
Slide 38: Wrap-up
Wrap-up Clive Bannister
Slide 39: Phoenix remains the solution for legacy book management
Phoenix remains the solution for legacy book managementt Phoenix’s key advantages 2015 and beyond Ability to manage wide range of products gives Size and scale across all product types significant economies in an acquisition environment Operating structure designed purely for closed life Special
Slide 40: Q&A
Q&A
Slide 41: 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 containing, forward-looking forward looking statements and other financial and/or statistical data
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