Standard Life Plc · LSE:SDLF
Standard Life — Phoenix Group — Debt Investor Presentation (October 2017)
41 slides from Standard Life's debt investor presentation, Oct 2, 2017
Slide 1: Phoenix Group Fixed Income investor lunch
Phoenix Group Fixed Income investor lunch 2 October 2017 1
Slide 2: Agenda
Agenda Business overview and financial highlights Jim McConville | Group Finance Director Debt and corporate structure Rashmin Shah | Group Treasurer Managing Phoenix’s market and longevity risks Simon True | Group Chief Actuary Closing remarks and Q&A Jim McConville | Group Finance Director 2
Slide 3: Business overview and financial highlights
Business overview and financial highlights Jim McConville 3
Slide 4: Phoenix is the UK's largest closed fund consolidator
Phoenix is the UK’s largest closed fund consolidator What we do We acquire and manage life insurance funds which no longer actively sell new life or pension policies and run-off over time (“closed funds”) Unlike open life businesses, this means that the capital requirements of our operating life com
Slide 5: Key highlights in HY17
Key highlights in HY17 • Strong cash generation of £360 million in HY17 Strong financial • PGH Solvency II surplus of £1.7 billion, 166% coverage ratio(1) performance • Interim 2017 dividend of 25.1p, a 5% increase on the 2016 Final dividend Integration • Expected capital and cost synergies from acq
Slide 6: Acquisition benefits ahead of plan
Acquisition benefits ahead of plan 1 2016 - 2020 2021+ Better than expected AXA Wealth £0.3bn £0.2bn with £282m by HY17 Cash flows 2016 - 2020 2021+ Abbey Life £0.5bn £1.1bn On track, with £74m by HY17 2 Cost AXA Wealth Increased target of £13m - £15m by FY17 On track synergies Abbey Life £7m
Slide 7: Predictable long-term cashflows: £2.8bn target
The Phoenix Group generates predictable long-term cashflows: £2.8bn long-term cashflow target with £1.0-£1.2bn expected in 2017-18 Illustrative future cash generation(1) £2.8bn target £4.5bn £1.0 – £1.2bn target £360m in HY17 £486m £265m £221m 2016 2017 2018 2019 2020 2021+ Organic cash generation M
Slide 8: The Group's cash generation supports its debt obligations
The Group’s cash generation supports its debt obligations Illustrative uses of cash from HY17 to 2020 (£bn) £0.1bn £0.2bn £0.3bn £0.2bn £2.0bn £0.7bn £1.2bn £0.7bn HY17 holding Cash generation Operating Pension Debt interest over Debt repayment Dividends over Illustrative holding company cash over 2
Slide 9: Beyond 2020, expected £4.5 billion of cash flows to emerge
Beyond 2020, there is an expected £4.5 billion of cash flows to emerge, before management actions Illustrative uses of cash from 2021 onwards £0.1bn £1.6bn £4.5bn £4.1bn £1.2bn Illustrative holding company 2021+ cash generation Payment of outstanding Outstanding shareholder Illustrative holding comp
Slide 10: PGH Solvency II surplus strengthened in HY17
PGH Solvency II surplus has been strengthened in HY17 Shareholder Capital Coverage Ratio(1) Solvency II Coverage Ratio(1) 166% 139% 137% 123% Surplus Surplus Surplus Surplus £1.7bn £1.7bn £1.1bn £1.1bn £4.4bn £6.5bn £4.0bn £6.0bn £4.8bn £4.9bn £2.7bn £2.9bn HY17 (pro forma) FY16 (pro forma) HY17 (pr
Slide 11: Debt and corporate structure
Debt and corporate structure Rashmin Shah 11
Slide 12: Refinancing of bank debt complete; balance sheet strengthened
Refinancing of bank debt now complete. Balance sheet strengthened Debt actions in 2017 Current debt structure Maturity of £900 million RCF extended to 2021 Quantum and type of debt(1) Subordinated Senior Bank debt £3.2bn 19% RCF repaid in August 2017 and currently fully undrawn £1.6bn 81% 92%
Slide 13: Fitch's confidence in Phoenix credit demonstrated
Fitch’s confidence in Phoenix credit demonstrated Fitch Ratings PLL and PLAL IFS rating A+ PGH A PGH £122m Senior Bond A- PGH £428m Subordinated Tier 2 Bond BBB PGH US$500m Subordinated Tier 2 Bond BBB PGH £450m Subordinated Tier 3 Bond BBB Outlook Stable Very strong capitalisation and Strong positi
Slide 14: Solvency II managed at Phoenix Group Holdings; onshoring progressing
Solvency II now managed at the level of Phoenix Group Holdings and onshoring process is progressing Solvency II structure is now simplified Next steps for onshoring Solvency II capital position HY17 reported at PGH level Group solvency (PGH) Phoenix Group • Partial Internal Model(1) Holdings • Group
Slide 15: Phoenix Group's funding strategy
Phoenix Group’s funding strategy Gearing • Maintain a gearing range of 25-30% based on Fitch methodology Rating • Maintain investment grade rating Future • To support growth issuance • Refinancing as existing debt matures Acquisition • £900 million RCF available for acquisition funding financing • S
Slide 16: Managing Phoenix's market and longevity risks
Managing Phoenix’s market and longevity risks Simon True 16
Slide 17: Hedging strategy to optimise Solvency II surplus
Phoenix hedging strategy is to optimise Solvency II surplus and manage volatility of cash generation SCR by risk type(1) (HY17) Longevity • Rewarded risk but around 50% is reinsured or protected through risk longevity swaps 9% 12% 31% • Largely unhedged: rewarded risk Credit risk which is difficult
Slide 18: Longevity risk: history of managing longevity risk
Longevity risk: History of managing longevity risk and impact of recent assumption changes Significant history of annuity transactions Risk reduction Risk acquisition 2012 Sale of £5bn annuity book to Guardian Acquisition of £2.5bn annuity book as part of 2016 Abbey Life transaction 2014 Sale of £2b
Slide 19: Credit risk: Asset portfolio is high quality
Credit risk: Asset portfolio is high quality Shareholder exposed assets (HY17)(1) Credit rating of debt securities (HY17) 1% 0.3% 2% 18% 16% 16% 19% 27% 6% 55% 38% 1% 1% Cash deposits Debt securities - gilts AAA AA A BBB Debt securities - bonds Equity securities BB B and below Property investments O
Slide 20: Optimising credit portfolios under Internal Model
Credit risk: Optimising credit portfolios under Phoenix’s Internal Model • The investment strategy is Net Spread Duration under Phoenix Internal Model based on a return on capital basis • This approach favours short 10.00% to medium dated higher quality credit vs longer-dated 5.00% bonds • In partic
Slide 21: Strategic asset allocation for annuity portfolios
Credit risk: Strategic asset allocation for annuity portfolios Strategic asset allocation Equity • £1.2bn portfolio of equity release mortgages (including release • Investment in long-term illiquid assets to back mortgages £600m portfolio acquired in annuity liabilities July) • Illiquid assets inclu
Slide 22: Solvency II surplus and cash generation resilient to market movements
Solvency II surplus and long term cash generation remains resilient to market movements PGH Solvency II surplus sensitivities(1) Cash generation sensitivities(1) HY17 Solvency II surplus £1.7bn 2016 - 2020 target £2.8bn Following a 20% fall in equity Following a 20% fall in equity markets £1.7bn mar
Slide 23: Closing remarks
Closing remarks Jim McConville 23
Slide 24: Wide range of further acquisition opportunities
There remains a wide range of further acquisition opportunities for Phoenix Key drivers for consolidation Phoenix strengths Market size is over £300bn Trapped shareholder capital Scale offers capital efficiencies Market opportunities by owner(1) within legacy books through diversification Bank owned
Slide 25: Annuity market offers incremental assets
The annuity market offers incremental assets to Phoenix’s existing £13 billion portfolio Vesting annuities Back books Bulk annuity market • Phoenix writes annuities for • Back books of annuities may • Projected demand of £350 existing policyholders be sold as part of a more billion over next 10 year
Slide 26: Clear set of strategic priorities
Phoenix has a clear set of strategic priorities • Updated long-term cash generation target of £2.8bn between Cash generation 2016 - 2020 • Between £1.0 – £1.2bn of cash between 2017 - 2018 Integration of • AXA Wealth synergies of £13-15m to be achieved by end 2017 acquisitions • Abbey Life Internal
Slide 27: Strong business and credit profile, repositioned for growth
Phoenix has a strong business and credit profile, repositioned for growth Attractive investment proposition High level of predictable long-term cash generation Focused set of strategic priorities Robust Group solvency, resilient to market movements Solvency II Internal Model provides more accurate M
Slide 28: Q&A
Q&A 28
Slide 29: Appendices
Appendices 29
Slide 30: Consistently generated predictable long-term cashflows
The Phoenix Group has consistently generated predictable long-term cashflows Annual cash generation (£m) 2010 – 2016: £4.7bn 957 810 817 734 390 690 359 332 242 209 486 180 265 225 492 451 481 485 20 387 205 221 2010 2011 2012 2013 2014 2015 2016 Organic cash generation Management actions Ignis sale
Slide 31: Current corporate structure
Current corporate structure £900m (undrawn) Unsecured £428m Tier 2 notes (2025) Revolving Credit Facility Phoenix Group Holdings £450m Tier 3 notes (2022) £122m senior notes (2021) US$500m Tier 2 notes (2027) Intermediate holdcos Phoenix Life Holdings (PLHL) Abbey Life Pearl Group Assurance Impala H
Slide 32: Outline of current debt structure
Outline of current debt structure Structure of £1,585 million of outstanding debt as at 8 August 2017 Instrument Issuer/borrower Maturity Face value Bank Debt Unsecured Revolving Credit Facility (L+110bps)(1) Phoenix Group Holdings June 2021 - (2) Unsecured Senior Bond Phoenix Group Holdings July 20
Slide 33: Hedging strategy implications for Solvency II and IFRS
Interest Rate and Equity risk: hedging strategy has opposite implications for Solvency II and IFRS Stress Solvency II Surplus IFRS Earnings Fitch Earnings Cash scenario leverage cover coverage Interest • Liabilities increase • Liabilities increase by less than rates fall Solvency II best estimate •
Slide 34: Asset mix of life companies
Asset mix of life companies Total shareholder, Policyholder funds(3) non-profit and Non-supported At 30 June 2017 supported with- with-profits Unit Total Total £m unless otherwise stated profits(2) % funds linked Policyholder assets(1) Cash deposits 3,727 19 3,955 1,755 5,710 9,437 Debt securities D
Slide 35: Total debt exposure by country
Total debt exposure by country Other Corporate: Government Financial Corporate: Asset backed Total debt At 30 June 2017 and Supranational Institutions Other securities securities Total £m Shareholder Policyholder Shareholder Policyholder Shareholder Policyholder Shareholder Policyholder Shareholder
Slide 36: Credit rating analysis of debt portfolio
Credit rating analysis of debt portfolio Policyholder funds Total shareholder, Non- non-profit and supported At 30 June 2017 supported with- with-profits Total £m profits funds Unit linked Policyholder Total assets AAA 2,270 1,570 589 2,159 4,429 AA 5,409 7,507 1,322 8,829 14,238 A 3,832 1,317 631 1
Slide 37: Wide range of products within Phoenix at FY16
Wide range of products within Phoenix at FY16 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 (£24.3bn) structure) • Indirect Lapse risk Supporte
Slide 38: 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 2016 • High quality corporate bond portfolio, with c.
Slide 39: Management of customer and regulatory issues
Management of customer and regulatory issues • Phoenix’s customer model and risk management framework are in place with oversight by established governance arrangements Abbey Life • Actions resulting from the Legacy Review are still ongoing and we continue to enforcement work with the FCA in support
Slide 40: 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 41: 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
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