2023 Annual Financial Report

About this update from Standard Life Plc

[{"type":"text","content":"\n \n \n Phoenix Group Holdings plc: 2023 Full Year Results \n 22 March 2024 \n Phoenix announces strong full year 2023 results and new progressive dividend policy \n Commenting on the results announcement, Phoenix Group CEO, Andy Briggs said: \n \"Phoenix's vision is to be the UK's leading retirement savings and income business, and we are making great progress in delivering our strategy to achieve this, as our strong 2023 financial results demonstrate. \n We have achieved our 2025 growth target two years early with £1.5bn of new business cash delivered by our Standard Life business - a new record. We delivered over £2bn of cash generation and maintained our resilient balance sheet, and our strong performance has enabled the Board to recommend a 2.5% dividend increase. \n The next phase of our strategy will see us balance our investment across our strategic priorities to grow, optimise and enhance our business. This will support us in delivering the ambitious new 2026 targets we are announcing today. Our confidence in this strategy is demonstrated by the new progressive and sustainable dividend policy we will operate going forward.\" \n 2023 financial results highlights \n Cash: growing sustainable cash generation \n ·      £2,024m total cash generation 1 in 2023 (FY22: £1,504m) exceeded our upgraded target of c.£1.8bn for the year, including a c.£400m benefit from the Part VII transfer of Standard Life and Phoenix Life as announced in November. \n ·      £1,514m of incremental new business long-term cash generation (FY23: £1,233m), achieving our 2025 target of c.£1.5bn two years early. \n Includes strong growth from our capital-light Pensions and Savings business to £395m (FY22: £249m) and an increase in our Retirement Solutions business to £1,066m (FY22: £934m), supported by enhanced capital efficiency. \n   \n Capital: resilient balance sheet \n ·      £3.9bn 2 Solvency II ('SII') Surplus remains resilient (FY22: £4.4bn) and is inclusive of a prudent £70m Consumer Duty provision, following a comprehensive review of our back book products ahead of the July 2024 compliance deadline. \n ·      176% 2,3 SII Shareholder Capital Coverage Ratio ('SCCR') (FY22: 189% 3 ), towards top-end of 140-180% operating range. \n ·      36% SII leverage ratio (FY22: 34%) and 23% Fitch ratio 4 (FY22: 23% 4 ). \n   \n Earnings: driving improved profitability \n ·      IFRS adjusted operating profit before tax increased 13% year-on-year to £617m (FY22: £544m 5 ), driven by strong growth in our Pension and Savings business, which is up 27% year-on-year to £190m (FY22: £150m). \n ·      New business net fund flows of £6.7bn increased 72% year-on-year (FY22: £3.9bn), driven by strong Workplace flows. \n ·      Significantly reduced IFRS loss after tax of £(88)m (FY22: £(2,657)m 5 ) due to lower market volatility impacts in 2023. \n ·      Contractual Service Margin of £2.9bn (gross of tax), grew 10% driven by new business and Sun Life of Canada UK. \n   \n Attractive 2023 dividend growth supported by strong business performance \n ·      The Board is recommending a 2.5% increase in the Final 2023 dividend to 26.65p per share; Total dividend of 52.65p. \n   \n The next phase of our strategy delivers growing, sustainable cash generation and supports a new progressive dividend policy \n ·      In the next phase of our strategy we will build the remaining capabilities required to deliver a full-service customer proposition, through developing compelling Retail market propositions and innovative retirement income solutions. \n ·      We will also bring together our former Heritage and various Open businesses under a single Group-wide operating model, to offer a seamless journey for customers across their savings life cycle, and realise further cost efficiencies. \n ·      Operating Cash Generation is our new primary cash metric, which is the sustainable level of annual surplus generation in our life companies, that is then remitted to our Group HoldCo. It comprises our ongoing surplus emergence (£0.8bn in 2023) and the recurring management actions (£0.3bn in  2023) which we expect to deliver every year into the long term. \n ·      We expect to grow Operating Cash Generation by c.25% from £1.1bn in 2023 to £1.4bn in 2026, as we grow, optimise and enhance our business, after which it is expected to grow at a mid-single digit rate over the long term. \n ·      The Board's confidence in the delivery of growing Operating Cash Generation supports the move to a new progressive and sustainable ordinary dividend policy 6 . \n   \n An evolved financial framework that delivers cash, capital and earnings, with new targets and guidance \n ·      Cash: we will deliver growing Operating Cash Generation that more than covers our recurring uses and dividend, and generates excess cash. \n o  Operating Cash Generation target of £1.4bn in 2026. \n o  Total Cash Generation 1-year target range of £1.4bn-1.5bn in 2024 and 3-year target of £4.4bn across 2024-26. \n ·      Capital: we will maintain a resilient balance sheet and allocate surplus capital in accordance with our new capital allocation framework. \n o  Continue to operate within our 140-180% Shareholder Capital Coverage Ratio operating range. \n o  We intend to repay at least £500m 7 of debt by the end of 2026, targeting a SII leverage ratio of c.30% 8 by the end of 2026. \n ·      Earnings: drive strong growth in IFRS adjusted operating profit, through business growth and cost efficiencies. \n o  Targeting £900m of IFRS adjusted operating profit in 2026 (FY23: £617m). \n o  £250m of annual cost savings by the end of 2026. \n   \n New cash emergence profile disclosure demonstrates sustainability of cash generation \n ·      We are today providing new disclosure on the profile of cash emergence from both our 2023 in-force and new business (contained on page 43 of the appendix of our Full Year 2023 Results presentation that is available on our website). \n ·      This disclosure supports our cash targets and demonstrates the long-term sustainability of our cash generation. \n   \n All page references in this document refer to the Phoenix Group Holdings plc Annual Report and Accounts 2023. \n   \n \n \n Enquiries \n Investors/analysts: \n Claire Hawkins, Director of Corporate Affairs & Investor Relations, Phoenix Group \n +44 (0)20 4559 3161 \n Andrew Downey, Investor Relations Director, Phoenix Group \n +44 (0)20 4559 3145 \n Media: \n Douglas Campbell, Teneo \n +44 (0)7753 136 628 \n Shell ie Wells, Corporate Communications Director, Phoenix Group \n +44 (0) 20 4559 3031 \n \n \n Presentation and webcast details \n There will be a live virtual presentation for analysts and investors today starting at 09:30 (GMT). You can register for the live webcast at: Phoenix Group 2023 Full Year results \n A copy of the presentation is available at: \n https://www.thephoenixgroup.com/investor-relations/results-reports-and-presentations \n A replay of the presentation and transcript will also be available on our website following the event. \n \n \n Dividend details \n The recommended Final 2023 dividend of 26.65 pence per share is expected to be paid on 22 May 2024. \n The ordinary shares will be quoted ex-dividend on the London Stock Exchange as of 11 April 2024. The record date for eligibility for payment will be 12 April 2024. \n \n \n Footnotes \n 1.   Cash generation is a measure of cash and cash equivalents, remitted by Phoenix Group's operating subsidiaries to the holding companies and is available to cover dividends, debt interest, debt repayments and other items. \n 2.   31 December 2023 Solvency II capital position is an estimated position and reflects a regulator approved recalculation of transitionals as at 31 December 2023 and recognition of the foreseeable Final 2023 shareholder dividend of £267m. \n 3.   The Shareholder Capital Coverage Ratio excludes Solvency II Own Funds and Solvency Capital Requirements of unsupported With-Profit funds and unsupported pension schemes. \n 4.   Fitch leverage ratio is estimated by management based on Fitch's published methodology. Ratio allows for currency hedges over foreign currency denominated debt. \n 5.   2022 restated comparative to reflect adoption of IFRS 17 and incorporates changes to the Group's methodology for determining adjusted operating profit since HY 2023. \n 6.   The Board will continue to prioritise the sustainability of our dividend over the very long term. Future dividends and annual increases will continue to be subject to the discretion of the Board, following assessment of longer-term affordability. \n 7.   £500m of debt repayment includes the £250m Tier 2 Bond that is callable in June 2024, subject to regulatory approval. \n 8.   Assuming economic conditions in line with 31 December 2023. \n \n \n Legal Disclaimers \n This announcement in relation to Phoenix Group Holdings plc and its subsidiaries (the 'Group') contains, and the Group may make other statements (verbal or otherwise) containing, forward-looking statements and other financial and/or statistical data about the Group's current plans, goals, ambitions, outlook, guidance and expectations relating to future financial condition, performance, results, strategy and/or objectives. \n Statements containing the words: 'believes', 'intends', 'will', 'may', 'should', 'expects', 'plans', 'aims', 'seeks', 'targets', 'continues' and 'anticipates' or other words of similar meaning are forward looking.  Such forward-looking statements and other financial and/or statistical data involve risk and uncertainty because they relate to future events and circumstances that are beyond the Group's control. For example, certain insurance risk disclosures are dependent on the Group's choices about assumptions and models, which by their nature are estimates. As such, actual future gains and losses could differ materially from those that the Group has estimated. \n Other factors which could cause actual results to differ materially from those estimated by forward-looking statements include, but are not limited to: domestic and global economic, political, social, environmental and business conditions; asset prices; market-related risks such as fluctuations in investment yields, interest rates and exchange rates, the potential for a sustained low-interest rate or high interest rate environment, and the performance of financial or credit markets generally; the policies and actions of governmental and/or regulatory authorities including, for example, climate change and the effect of the UK's version of the 'Solvency II' regulations on the Group's capital maintenance requirements; developments in the UK's relationship with the European Union; the direct and indirect consequences for European and global macroeconomic conditions of the conflicts in Ukraine and the Middle East, and related or other geopolitical conflicts; political uncertainty and instability; the impact of changing inflation rates (including high inflation) and/or deflation; information technology or data security breaches (including the Group being subject to cyber-attacks); the development of standards and interpretations including evolving practices in ESG and climate reporting with regard to the interpretation and application of accounting; the limitation of climate scenario analysis and the models that analyse them; lack of transparency and comparability of climate-related forward-looking methodologies; climate change and a transition to a low-carbon economy (including the risk that the Group may not achieve its targets); the Group's ability along with governments and other stakeholders to measure, manage and mitigate the impacts of climate change effectively; market competition; changes in assumptions in pricing and reserving for insurance business (particularly with regard to mortality and morbidity trends, gender pricing and lapse rates); the timing, impact and other uncertainties of any acquisitions, disposals or other strategic transactions; risks associated with arrangements with third parties; inability of reinsurers to meet obligations or unavailability of reinsurance coverage; and the impact of changes in capital, and implementing changes in IFRS 17 or any other regulatory, solvency and/or accounting standards, and tax and other legislation and regulations in the jurisdictions in which members of the Group operate. \n As a result, the Group's actual future financial condition, performance and results may differ materially from the plans, goals, ambitions, outlook, guidance and expectations set out in the forward-looking statements and other financial and/or statistical data within this announcement. The Group undertakes no obligation to update any of the forward-looking statements or data contained within this announcement or any other forward-looking statements or data it may make or publish.  Nothing in this announcement constitutes, nor should it be construed as, a profit forecast or estimate. \n   \n   \n   \n Chair's statement \n   \n Delivering on our purpose \n We want to help people journey to and through retirement while investing in a better future for us all. Our approach focuses on two key areas: People and Planet. We are looking to address the UK pensions savings gap and manage the risk and opportunities of climate change. \n   \n At Phoenix our purpose is our North Star and it drives all that we do. I am delighted with the progress we have made this year to bring about better outcomes for all our stakeholders. \n Nicholas Lyons, Chair of the Group Board \n   \n Sabbatical reflections \n 1 December 2023 marked my return as Chair of Phoenix Group, following a 14-month sabbatical where I fulfilled the role of Lord Mayor of the City of London. I am delighted to be back and look forward to supporting the continued evolution of our business. \n   \n As Lord Mayor it was my great privilege and responsibility to represent and promote the UK financial services industry. In doing so, my sabbatical confirmed to me that this industry is an essential element of the UK economy, with a critical role to play in supporting both economic growth and the trajectory to net zero by 2050 through sustainable investment. The clear feedback from my international travels is that the UK financial services industry is perceived as market-leading and there is great optimism about its future. \n   \n I would like to thank Alastair Barbour who assumed the role of Chair in my absence. He has made an enormous contribution to Phoenix over his ten-year tenure as a Director, and I wish him well for the future now that he has stepped down from the Board. \n   \n Delivering on our purpose \n The pensions savings gap in the UK is a growing societal problem. As the UK's largest long-term savings and retirement business, we are striving to raise awareness of this problem and advocate for the changes needed to deliver the solutions and help people secure a life of possibilities. \n   \n We know that people can only save for their retirement if they have access to good work over their longer lives. That is why we are playing a role in promoting good work through Phoenix Insights, working in collaboration with others to influence government policy. \n   \n We are committed to innovating to develop the retirement income solutions of the future and we are advocating for the removal of policy barriers to enable us to support customers as they save for, journey to, and secure income in, retirement. More specifically we have recommended a framework to support an increase in auto-enrolment contributions from 8% to 12%, and we believe that guidance and advice should be available for everyone, not just those who can afford to pay for it. \n   \n We can drive good outcomes for our customers and manage the risks of climate change by delivering on our Net Zero Transition Plan commitments, outlined in our plan published in May, and by helping to unlock the barriers to allow capital to flow at scale into productive and sustainable investments. \n   \n I was delighted that we were a leading signatory and vocal proponent of the Mansion House Compact when it was unveiled i n July. This seeks to address some of the issues around investing in unlisted equity, and the growth of UK companies of the future. I have every confidence the Compact will accomplish the dual aim of securing a brighter future for retirees and helping to channel billions of pounds into the UK economy. \n   \n Strong cash generation provides opportunity to invest and realise our vision \n The team has delivered strong cash generation in 2023 with an acceleration in the organic growth story clearly evident, whilst at the same time maintaining a resilient balance sheet. \n   \n We are on a journey to deliver our vision of becoming the UK's leading retirement savings and income business. The clear strategic success in building the organic growth business over the last three years means we have reached a key milestone on our journey, as we evolve the business. The focus is now on investing to grow, optimise and enhance the business even further. \n   \n Strategic outcomes support a new dividend policy \n I am delighted to announce that the Board is recommending a 2.5% increase in the Group's 2023 Final dividend to 26.65 pence per share. This means the Group's Total dividend for 2023 will be 52.65 pence per share. \n   \n The Board is confident in the Group's ability to deliver the next phase of our strategic journey, as we transition to our vision of becoming the UK's leading retirement savings and income business. This has supported our decision to move to a progressive and sustainable ordinary dividend policy, which is underpinned by the sustainable growth in Operating Cash Generation we now expect to deliver. \n   \n Thank you \n Finally, I would like to take this opportunity to thank the Board, our colleagues, our partners and our wider stakeholders for their hard work, dedication and support in delivering another year of strong progress. \n   \n   \n Nicholas Lyons \n Chair of the Group Board \n   \n   \n   \n   \n Group Chief Executive Officer's report \n   \n Successfully delivering our strategy \n   \n 2023 has seen Phoenix Group deliver significant strategic progress and strong results, further supporting our track record of dividend growth. \n   \n We are on a journey from being a closed-book life consolidator to a purpose-led retirement savings and income business \n Strong 2023 results delivered through strategic execution \n We are balancing our investment to grow, optimise and enhance our business \n Our strategy delivers sustainable, growing Operating Cash Generation that more than covers our recurring uses and a growing dividend \n Phoenix will now operate a progressive and sustainable ordinary dividend policy \n   \n £2.0bn \n 2023 Total cash generation \n (2022: £1.5bn) REM APM \n   \n +2.5% \n  2023 Final dividend increase \n   \n   \n I am delighted that 2023 was another year of strong new business growth for Phoenix Group. Having now built the component parts of a sustainably growing business, the next stage on our journey will see us grow, optimise and enhance our business so we can meet more of our customers' retirement needs and deliver more value for our stakeholders. \n Andy Briggs, Group Chief Executive Officer \n   \n Delivering strong results \n 2023 has been another year of clear strategic delivery for Phoenix. \n   \n We're a highly cash generative business, as demonstrated by the delivery of £2.0 billion of total cash generation in 2023 (2022: £1.5 billion), exceeding our upgraded target of c.£1.8 billion target for the year. This was supported by the completion of one of the largest ever UK insurance Part VII transfers. \n   \n Executing against our strategic priorities enabled us to deliver another record year of new business long-term cash generation ('NB LTCG') of £1.5 billion (2022: £1.2 billion). This was supported by a c.70% increase in new business net fund flows in 2023 to £6.7 billion (2022: £3.9 billion). Performance in our Pensions and Savings business included the transfer of the Siemens workplace scheme, one of the largest workplace scheme transfers to have been tendered in the UK market in recent years. This clearly demonstrates the success we have had in re-establishing the Standard Life brand as a major workplace player. Growth in our Retirement Solutions business was also strong, driven by our Bulk Purchase Annuities ('BPA') business, which saw the Group write £6.2 billion of premiums during the year (FY22: £4.8 billion) at a reduced capital strain. \n   \n From a capital perspective, we saw a reduction in our Solvency II surplus to £3.9 billion (2022: £4.4 billion) and our Shareholder Capital Coverage Ratio ('SCCR') to 176% (2022: 189%) after allocating capital into growth opportunities. However, we continue to operate towards the upper-end of our 140-180% SCCR operating range. \n   \n In terms of our earnings, our IFRS adjusted operating profit increased by 13% to £617 million (2022: £544 million) supported by growth in our Pensions and Savings business. However, we reported an IFRS loss after tax of £(88) million, reflecting our investment into growth opportunities, as well as integration and transformation expenses in the period. However, this was significantly lower than the 2022 loss of £(2,657) million, benefiting from less accounting volatility from market movements. \n   \n As a result of this strong strategic and financial performance, the Board has recommended a 2.5% increase in the Final dividend of 26.65 pence per share, bringing the Total 2023 dividend to 52.65 pence per share, extending our strong track record of dividend growth. \n   \n A strategy supported by existing large and growing markets \n Phoenix Group is the UK's largest long-term savings and retirement business, managing c.£283 billion of assets for c.12 million customers. Our purpose of 'helping people secure a life of possibilities' is embedded in everything that we do and informs our single strategic focus, which is to help customers journey to and through retirement. \n   \n We have a diversified and balanced business mix, across the long-term savings and retirement market, which can be largely categorised as 'Pensions and Savings' and 'Retirement Solutions'. Around two-thirds of our business is Pensions and Savings, which principally consists of capital-light fee-based products. \n   \n The UK long-term savings and retirement market is already large, with c.£3 trillion of total stock, but it is also growing fast, with annual flows of c.£150-200 billion. The breadth of our product portfolio means we are able to take advantage of a number of growing market opportunities. See pages 18 to 19 for 'Our growth drivers'. \n   \n Embarking on the next stage of our journey \n Back in 2020, we had a single core capability, which was executing M&A and integrating those businesses. However, over the past three years we have built a number of sustainably growing organic businesses too. \n   \n This has seen us acquire and invest into the trusted Standard Life brand, and re-establish it amongst customers, corporates and advisers. \n   \n We have used that brand to help turbo-charge our growth as we built a competitive and capital efficient annuities business, followed by our now large and rapidly growing capital-light Workplace business. \n   \n In addition, we have built a highly-skilled in-house asset management capability, enabling us to efficiently manage our third-party asset managers, and to create long-term value through optimising our c.£38 billion shareholder credit portfolio. \n   \n We have an ongoing programme of initiatives to review our products and services and over the past seven years, we have invested significantly in focusing on good customer treatments and outcomes across our businesses. During that time, we have set aside over £200m on reducing charges and we are making planned investment to migrate customers to more modern technology. We are actively working to ensure we are well positioned to comply fully with the upcoming Consumer Duty requirements which come into effect on 31 July 2024, for which we have set aside £70 million of Solvency II capital. \n   \n Our successful execution has enabled us to prove \"the wedge\" hypothesis, with the new business cash from our Open businesses more than offsetting the Heritage run-off. That means we are today a sustainably growing business, and no longer reliant on M&A. \n   \n The next phase of our strategy is therefore about building on the strong foundations we have developed, and completing our full-service customer offering. \n   \n We will do this by building an innovative range of retirement income solutions and a compelling set of retail propositions, supported by a digital customer interface with personalised data, guidance and advice. \n   \n We are also now at the stage where we can further simplify our organisational structure, through integrating our Heritage and Open businesses onto a single Group-wide operating model. This will enable us to grow faster, by offering all of our customers, whether in an Open or Heritage product, a seamless journey across their savings life cycle. It will also further enhance our existing cost efficiency. \n   \n The successful execution of our strategy will enable us to win market share and grow our business sustainably over time as we journey towards our vision of becoming the UK's leading retirement savings and income business. \n   \n Balancing investment across our strategic priorities \n To support us on our journey we have a clear set of strategic priorities to 1) Grow 2) Optimise and 3) Enhance, which are informed by - and in support - of our ESG themes of Planet and People and are underpinned by robust investment programmes within our new capital allocation framework. See pages 24 to 29 for more detail on our strategic priorities. \n   \n Firstly, we will Grow through building an innovative range of retirement income solutions, and a compelling set of Retail propositions, supported by a digital customer interface, with personalised data, guidance and advice. We will also further strengthen our Workplace proposition and optimise our annuities business. This will require c.£100 million of investment into our growth propositions, alongside c.£200 million of capital per annum into annuities, the outcome of which is to support mid-single digit growth in Operating Cash Generation over the long term. \n   \n Our second priority is to Optimise. As part of this we plan to continue our approach of repaying M&A-related debt with surplus cash. We expect to repay at least £500 million of debt by the end of 2026, on top of the c.£800 million we have repaid since 2020. This will support us in getting to a c.30% Solvency II leverage ratio by the end of 2026, which we believe is an appropriate steady-state level for our business, absent M&A. \n   \n We will also invest c.£100 million to enhance our asset and liability optimisation capabilities. This, alongside strong business growth, will support us in delivering increased recurring management actions of c.£400 million by 2026. \n   \n Our Enhance priority is designed to support us in transforming our operating model and culture, to create a leading, cost efficient and modern organisation. \n   \n We continue to invest to complete our remaining customer migrations onto TCS Diligenta. In addition, we intend to invest to improve the support we give our customers throughout their lives and to drive scale cost efficiencies by integrating our business onto a single Group-wide operating model. Together, these migration, transformation and cost efficiency progammes will require c.£500 million of investment. \n   \n Our focus on driving cost efficiency will enable us to deliver c.£250 million of annual cost savings by the end of 2026, which will enhance all of our key reporting metrics. \n   \n We also continue to strive to make Phoenix Group 'the best place any of us have ever worked'; through providing a great colleague experience. We passionately believe that by being diverse and inclusive we'll be a better organisation, we'll make better decisions, and we'll do a better job of representing our customers and communities. \n   \n Our new simplified, diverse and inclusive organisational structure will better empower our colleagues to make the right decisions for our customers. \n   \n Demonstrating the long-term sustainability of our business \n Our strategy will support the delivery of sustainable, growing cash generation, a resilient capital position and improved earnings. \n   \n As part of our evolved financial framework we are introducing Operating Cash Generation ('OCG') as a new metric, to demonstrate the long-term sustainability of our business. \n   \n OCG is the sustainable level of surplus generation in our Life Companies, each and every year, that is also then remitted as cash to our Group Holding Company. See page 33 in our Business Review for more detail. \n   \n Executing against our strategic priorities will help us to grow OCG by c.25% over the next three years, from £1.1bn in 2023 to £1.4bn in 2026. After this time, we expect it to grow at a sustainable, mid-single digit growth rate over the long term. \n   \n Importantly, this OCG more than covers our recurring uses, and a growing dividend. Which generates excess cash that can support additional investment back into the business and/or additional shareholder returns. \n   \n M&A can add further scale to our business \n Our existing scale and the success of our organic growth strategy mean that we are no longer reliant on M&A to grow our business and dividend, in the way we were when I joined. \n   \n We continue to believe that M&A can generate significant shareholder value, as demonstrated by our strong track record, and we see it as a potential lever to add further scale to our business. \n   \n However, we now have a range of organic growth opportunities available, in which to deploy our excess cash at very attractive returns, and so the bar for acquisitions is now higher than it has ever been. \n Outlook \n The economic backdrop in the UK means our societal purpose of helping people secure a life of possibilities has never been more important. \n   \n As we continue to strive to meet the needs of our customers, colleagues and other key stakeholders, this will support us in achieving our vision of becoming the UK's leading retirement savings and income business. \n   \n We are investing to grow, optimise and enhance our business to deliver this vision, which will enable us to win market share and grow our business sustainably over time. \n   \n As a result, the Board believes it is now appropriate for us to move to a progressive and sustainable ordinary dividend policy, which is underpinned by the sustainable, growing OCG we expect to deliver over the long term. \n   \n We see this as a pivotal step in the evolution of Phoenix Group's investment case, and it is a reflection of the Board's confidence in our future strategy. \n   \n Thank you \n The fantastic progress Phoenix Group has made this year could not have been achieved without our exceptional people. I would therefore like to thank my colleagues throughout the Group for their continued contribution and dedication. \n   \n I look forward to our team delivering another year of significant progress in 2024. \n   \n   \n Andy Briggs \n Group Chief Executive Officer \n   \n   \n   \n Business review \n   \n Delivering sustainable cash generation \n   \n A strong performance in 2023 \n \n \n \n \n Key financial performance metrics: \n \n \n 2023 \n \n \n 2022 \n \n \n YOY change \n \n \n \n \n \n \n Cash \n \n \n Total cash generation \n \n \n £2,024m \n \n \n £1,504m \n \n \n +35% \n \n \n \n \n New business \n \n \n Incremental new business long-term cash generation \n \n \n £1,514m \n \n \n £1,233m \n \n \n +23% \n \n \n \n \n Net fund flows \n \n \n £6.7bn \n \n \n £3.9bn \n \n \n +72% \n \n \n \n \n Dividends \n \n \n Total dividend per share \n \n \n 52.65p \n \n \n 50.8p \n \n \n +3.6% \n \n \n \n \n Final dividend per share \n \n \n 26.65p \n \n \n 26.0p \n \n \n +2.5% \n \n \n \n \n IFRS \n \n \n Adjusted operating profit before tax 1,2 \n \n \n £617m \n \n \n  £544m \n \n \n +13% \n \n \n \n \n Loss after tax 1,2 \n \n \n £(88)m \n \n \n £(2,657)m \n \n \n N/A \n \n \n \n \n Solvency II capital \n \n \n PGH Solvency II surplus \n \n \n £3.9bn \n \n \n £4.4bn \n \n \n -11% \n \n \n \n \n PGH Shareholder Capital Coverage Ratio \n \n \n 176% \n \n \n 189% \n \n \n -13%pts \n \n \n \n \n Assets \n \n \n Assets under administration \n \n \n £283bn \n \n \n £259bn \n \n \n +9% \n \n \n \n \n Leverage \n \n \n Solvency II leverage ratio \n \n \n 36% \n \n \n 34% \n \n \n +2%pts \n \n \n \n \n   \n 1    2022 restated comparative to reflect adoption of IFRS 17 \n 2    Incorporates changes to the Group's methodology for determining adjusted operating profit since Half Year 2023 (see note B.1 to the consolidated financial statements for further details). \n   \n   \n In 2023 we have once again delivered a year of strong performance, as we execute on our strategy and fulfil our purpose. \n   \n We have delivered another year of resilient cash generation, with £2.0 billion of total cash generated in 2023, exceeding our upgraded target of c.£1.8 billion. With £5.2 billion delivered across 2021 to 2023, we have also therefore over-delivered our three-year cash generation target of £4.4 billion, by c.£0.8 billion. \n   \n We saw a strong performance in our growth businesses, which increased our incremental new business long-term cash generation ('NB LTCG') by 23% year-on-year to £1,514 million, and therefore have achieved our 2025 target two years early. This was supported by new business net fund flows that grew 72% to £6.7 billion (2022: £3.9 billion). \n   \n Our Shareholder Capital Coverage Ratio ('SCCR') of 176% remains towards the upper-end of our operating range of 140-180%, but reduced given our investment into growth, as well as our integration and transformation expenses. Similarly, our Solvency II ('SII') surplus reduced to £3.9 billion, but remains resilient. \n Our strong overall performance this year has therefore enabled the Board to recommend a dividend increase of 2.5% for the year. \n   \n In terms of our IFRS earnings, the Group's adjusted operating profit grew 13% to £617 million, supported by 27% growth in our Pensions and Savings business and an 8% increase in our Retirement Solutions business. While we reported an IFRS loss after tax of £88 million, this was a £2,569 million improvement on 2022. The loss in 2023 was primarily driven by £(781) million of non-operating items, as outlined on page 36. \n   \n The segmental information given reflects the Group's new operating segments, further information is provided in note B.1 on page 180. \n   \n Clear strategic progress \n We have made significant strategic progress in delivering sustainable organic growth. \n In Pensions and Savings, our Workplace business continues to see an attractive retention rate with existing clients but is also now winning new larger schemes. Our Retail business remains in net outflow, but we have a clear strategy to address this over the coming years, by investing to deliver compelling customer propositions. \n   \n In Retirement Solutions, we continue to adopt a disciplined approach to Bulk Purchase Annuities ('BPA') and have been successful in reducing our capital strain. In September, we also launched a new individual annuity product, our first that is available in the open market. \n   \n From an M&A perspective, we successfully completed the acquisition of Sun Life of Canada UK ('SLOC') in April with the integration progressing well. \n   \n In summary, 2023 has been another year of clear strategic progress, that has supported the delivery of a strong set of results. \n   \n We continue to deliver sustainable and resilient cash generation, which underpins our new progressive and sustainable ordinary dividend policy . Our Solvency capital position also remains highly resilient, and can support the investment to grow, optimise and enhance our business going forward. \n   \n An evolved financial framework for the next phase of our journey \n We are introducing our evolved financial framework that focuses on the three financial outcomes we deliver for our shareholders: cash, capital and earnings. \n   \n Phoenix has always managed its business for cash and capital, but our evolved key metrics provide clearer line of sight to the underlying business performance and more comparability with peers. We are also elevating the importance of IFRS earnings in our framework, following the transition to IFRS 17. \n   \n The key metrics we use can be seen here \n   \n   \n The progress we have made in executing our strategic priorities has enabled us to deliver a strong set of results in 2023, and supported the Board's decision to recommend a 2.5% increase in the Final 2023 dividend. \n Rakesh Thakrar, Group Chief Financial Officer \n   \n Our key performance indicators \n With our financial framework designed to deliver cash, capital and earnings, we recognise the need to use a broad range of metrics to measure and report the performance of the Group, some of which are not defined or specified in accordance with Generally Accepted Accounting Principles ('GAAP') or the statutory reporting framework. The IFRS results are discussed on pages 36 to 37 and the IFRS financial statements are set out from page 164 onwards. \n   \n Alternative performance measures \n In prioritising the generation of sustainable cash flows from our operating companies, performance metrics are monitored where they support this strategic purpose, which includes ensuring that the Solvency II capital strength of the Group is maintained. We use a range of Alternative Performance Measures ('APMs') to evaluate our business, including the below. Please see the APM \n section on page 312 for further details. \n   \n Total cash generation \n Cash generation represents the total cash remitted from the operating entities to the Group, supported by the Operating Cash Generation (see below) and the release of free surplus above capital requirements in the Life Companies, which is generated through margins earned on life and pension products and the release of capital requirements, and Group tax relief. This cash generation is used by the Group to fund expenses, interest costs and shareholder dividends, with any surplus then available to reinvest into organic and inorganic growth opportunities. \n   \n Operating Cash Generation \n Operating Cash Generation ('OCG') is a new reporting metric. It represents the sustainable level of cash generation in our life companies each and every year, that is remitted from our underlying business operations. It comprises the emergence of cash as in-force business runs off over time and capital unwinds, plus day one surplus from writing new business (net of day one strain for fee-based business), group tax relief and recurring management actions. In addition, it includes a small cash contribution from the release of the Capital Management Policy that we hold in our Life Companies. The measure provides the sources of recurring organic cash generated which can be used to support sustainable cash remittances from the Life Companies, which in turn supports the Group's dividend, group costs and debt interest as well as funding investment to generate sustainable growth. \n   \n Incremental new business long-term cash generation \n Incremental new business long-term cash generation is a key metric for measuring growth. It represents the operating companies' cash generation that is expected to arise in future years as a result of new business transacted in the period. \n   \n New business net fund flows \n Represents the aggregate net position of assets under administration inflows less outflows for new business. \n   \n Adjusted operating profit \n The Group uses adjusted operating profit as a measure of IFRS performance based on long-term assumptions. Adjusted operating profit is less affected by the short-term market volatility driven by Solvency II hedging (as illustrated on page 36) and non-recurring items than IFRS profit. A more detailed definition of adjusted operating profit is set out on page 312. \n   \n Solvency II \n Solvency II is a key metric by which the Group makes business decisions and measures capital resilience. It is a regulatory measure that prescribes the measurement of value on a Solvency II basis and the calculation of the solvency capital requirement ('SCR'). The excess value above the SCR is reported as both a financial amount, 'Solvency II surplus', and as a ratio 'Solvency II Shareholder Capital Coverage Ratio ('SCCR')'. \n   \n Solvency II leverage \n The Group seeks to manage the level of debt on its balance sheet by monitoring its financial leverage ratio. Solvency II leverage is calculated as the Solvency II value of debt divided by the value of Solvency II Regulatory Own Funds. Values for debt are adjusted to allow for the impact of currency hedges in place over foreign currency denominated debt. \n   \n   \n   \n Cash \n £2,024m \n Total cash generation REM APM \n   \n £1,514m \n  Incremental new business long-term cash generation REM APM \n   \n   \n Group cash flow analysis \n \n \n \n \n £m \n \n \n 2023 \n \n \n 2022 \n \n \n \n \n \n \n Cash and cash equivalents at 1 January \n \n \n 503 \n \n \n 963 \n \n \n \n \n Total cash generation 1 \n \n \n 2,024 \n \n \n 1,504 \n \n \n \n \n Uses of cash: \n \n \n \n \n \n \n \n \n \n \n Operating expenses \n \n \n (97) \n \n \n (78) \n \n \n \n \n Pension scheme contributions \n \n \n (16) \n \n \n (16) \n \n \n \n \n Debt interest \n \n \n (229) \n \n \n (244) \n \n \n \n \n Non-operating cash outflows \n \n \n (111) \n \n \n (395) \n \n \n \n \n Debt repayments \n \n \n (350) \n \n \n (450) \n \n \n \n \n Debt issuance \n \n \n 346 \n \n \n - \n \n \n \n \n Shareholder dividend \n \n \n (520) \n \n \n (496) \n \n \n \n \n Total uses of cash \n \n \n (977) \n \n \n (1,679) \n \n \n \n \n Support of BPA activity \n \n \n (288) \n \n \n (285) \n \n \n \n \n Cost of Sun Life of Canada UK acquisition \n \n \n (250) \n \n \n - \n \n \n \n \n Closing cash and cash equivalents at 31 December \n \n \n 1,012 \n \n \n 503 \n \n \n \n \n   \n   \n 1    Total cash receipts include £219 million received by the holding companies in respect of tax losses surrendered (2022: £55 million). \n   \n   \n Total cash generation \n Cash generation represents cash remitted by the Group's operating companies to the holding companies. Please see the APM section on page 312 for further details of this measure. \n   \n Cash generation is principally used to fund the Group's operating costs, debt interest and repayments, investment into growth and shareholder dividends. Excess cash is available for investment into the business and/or additional shareholder returns. \n   \n The cash flow analysis that follows reflects the cash paid by the operating companies to the Group's holding companies, as well as the uses of those cash receipts. \n   \n Cash receipts \n Total cash generated by the operating companies during 2023 was £2,024 million (2022: £1,504 million). This exceeded the Group's upgraded target of c.£1.8 billion for the year, due to additional management actions being delivered. \n   \n Uses of cash \n Operating expenses of £97 million (2022: £78 million) represent corporate office costs, net of income earned on holding company cash and investment balances. The increase compared to 2022 reflects the investment we have made in our Group capabilities to support our growth strategy, \n   \n Debt interest of £229 million (2022: £244 million) reflects interest paid in the period on the Group's debt instruments. The decrease year-on-year is due to the repayment of debt in July 2022. \n   \n Non-operating cash outflows were £111 million (2022: £395 million). This primarily comprises centrally funded projects and investments totalling £307 million. Of this, £129 million relates to Group project expenses for the transition activity in relation to legacy platform migrations, £18 million for other ongoing integration programmes including ReAssure and SLOC, £56 million of investment related to our growth propositions, and £12 million for our Finance Transformation. These costs were partially offset by a £196 million inflow in respect of net collateral cash and hedge close-outs. \n   \n Debt repayments and issuance in 2023 reflect the debt re-terming exercise we undertook in the fourth quarter. \n   \n The shareholder dividend of £520 million represents the payment of £260 million in May for the 2022 Final dividend and the payment of the 2023 Interim dividend of £260 million in September. \n   \n Funding of £288 million (2022: £285 million) has been provided to the Life Companies to support another strong year in BPA with £6.2 billion of premiums written (2022: £4.8 billion). The Group's success in further optimising its capital efficiency is reflected in the reduction of the Group's capital strain on BPA to 2.7% (2022: 3.2%) on a pre-Capital Management Policy ('CMP') basis, including the benefit of the Solvency II reform risk margin reduction. This enabled the Group to write increased NB LTCG but with a similar level of capital invested. \n   \n   \n Incremental new business long-term cash generation \n NB LTCG reflects the impact on the Group's future cash generation arising as a result of new business transacted in the year. It is stated on an undiscounted basis. \n   \n In 2023 we delivered another record year of organic new business growth including NB LTCG of £1,514 million (2022: £1,233 million), enabling us to achieve our 2025 target two years early. \n   \n Strong growth in our capital-light fee-based business, Pensions and Savings, led to a contribution of £395 million (2022: £249 million). Our disciplined approach in a buoyant BPA market drove an increase in NB LTCG in our Retirement Solutions business to £1,066 million (2022: £934 million). Europe and Other contributed £53 million (2022: £50 million). \n   \n   \n Strong incremental new business long-term cash generation \n   \n   \n Introducing Operating Cash Generation \n As part of our evolved financial framework we are introducing Operating Cash Generation ('OCG') as a new alternative performance metric to demonstrate the long-term sustainability of our cash generation. \n   \n OCG is the combination of the operating surplus emerging and recurring management actions. It represents the sustainable surplus generation remitted from our Life Companies to the Group Holding Company. OCG can be easily reconciled to operating surplus generation ('OSG'), with the bridge being the small release of the Capital Management Policy ('CMP') held in our Life Companies. \n   \n OCG totalled £1.1 billion in 2023, comprising £0.8 billion of surplus emergence and £0.3 billion of recurring management actions. \n   \n Outlook \n We will grow OCG sustainably over the long term through investing our surplus cash across our three strategic priorities of Grow, Optimise and Enhance. \n   \n We will Grow by investing c.£100 million into our growth propositions and by continuing to grow our annuities business with c.£200 million of capital invested annually. This will support strong growth across our Pensions and Savings and Retirement Solutions businesses. \n   \n As we Optimise, we will deliver recurring management actions of c.£400 million per annum by 2026, supported by c.£100 million investment in our asset and liability optimisation capabilities and as our business grows. \n   \n As we Enhance our business, we will continue to migrate customers and drive through cost efficiencies that will deliver c.£250 million of annual cost savings by the end of 2026. \n   \n Together these will increase OCG by c.25% from £1.1 billion in 2023 to £1.4 billion in 2026. After which we expect it to grow at a sustainable mid-single digit growth rate over the long term. \n   \n Future sources and uses of total cash generation \n While OCG is our new primary metric, total cash generation remains very important, as we invest across our strategic priorities. \n   \n We have set a new total cash generation target of £4.4 billion across 2024-2026, that will enable us to cover our recurring uses, pay our growing dividend and invest in our business. \n   \n We expect to generate c.£3.7 billion of OCG over this period, which will more than cover our recurring uses and our planned investment of capital into annuities each year. \n   \n In addition we expect to generate a further c.£0.7 billion of non-operating cash generation across 2024-2026 comprising other management actions and the release of historic excess capital that has built up in our Life Companies. That provides us with a significant amount of surplus cash that we can invest across our strategic priorities. \n   \n Our HoldCo cash position is a healthy £1 billion today, which we expect to remain broadly consistent over 2024 to 2026. \n   \n   \n We are introducing Operating Cash Generation as a new metric to demonstrate the long-term sustainability of our business model \n   \n Operating Cash Generation is expected to more than cover our recurring uses and generates surplus to invest into our business \n   \n   \n Capital \n £3.9bn \n Group Solvency II surplus (estimated) \n   \n 176% \n Group Solvency II shareholder capital Coverage Ratio (estimated) APM \n   \n   \n Capital management \n A Solvency II capital assessment involves a valuation in line with Solvency II principles of the Group's Own Funds and a risk-based assessment of the Group's Solvency Capital Requirement ('SCR'). \n   \n The Group's Own Funds differ materially from the Group's IFRS equity for a number of reasons, including the recognition of future shareholder transfers from the With-Profits funds and future management charges on investment contracts, the treatment of certain subordinated debt instruments as capital items, and a number of valuation differences, most notably in respect of insurance contract liabilities, taxation and intangible assets. \n   \n Group Solvency II capital position \n Our Solvency II capital position remains strong and resilient, with a surplus of £3.9 billion (2022: £4.4 billion), after the accrual for the deduction of our 2023 Final dividend of £267 million. Our SCCR reduced marginally to 176% (2022: 189%) but remains towards the upper-end of our 140-180% operating range, providing the capacity to continue investing to grow, optimise and enhance our business. \n   \n Change in Group Solvency II surplus and SCCR \n Operating surplus generation increased the SII surplus by £1.1 billion, contributing to an increase in the SCCR of 27%pts. This was comprised of our ongoing surplus emergence which increased the SII surplus by £0.8 billion during the year and recurring management actions of £0.3 billion. \n   \n Other management actions increased the SII surplus further by £0.4 billion and added 16%pts to the SCCR. \n   \n Operating costs, debt interest and dividend totalled £0.9 billion, reducing the SCCR by 19%pts. \n   \n We have also chosen to invest £0.4 billion of surplus capital into growth. This includes £0.3 billion of capital investment to fund £6.2 billion of BPA premiums written in the year, reducing the SCCR by 10%pts, and £0.1bn of investment into our organic growth propositions, reducing the SCCR by a further 3%pts. \n   \n Our comprehensive hedging strategy is designed to protect our capital position. In 2023 this led to a small adverse impact from economic variances of £(0.3) billion on our Solvency II surplus. This included a £(0.1) billion adverse impact from unhedged gilt-swap spread movements, as well as adverse currency movements and some other smaller adverse impacts. \n   \n We are on track for the effective date for Consumer Duty on back-book products in July. Our ongoing focus on ensuring good outcomes for Heritage customers means we have identified only a small number of products that we believe need addressing in advance of the compliance date. We have set aside a prudent c.£70 million of Solvency II capital to reflect the impact of the possibility of introducing further charging caps on certain products, reducing the SCCR by 2%pts. \n   \n Other movements include the benefit of the Solvency II risk margin reform and favourable longevity assumption changes. These were offset by the strengthening of expense provisions associated with our transformation projects, in addition to a net adverse impact arising on the completion of the SLOC acquisition. Overall, these movements decreased Solvency II surplus by £0.3 billion and the SCCR by 13%. \n   \n   \n £3.9 billion Group Regulatory Solvency II surplus \n   \n £3.9 billion Group Shareholder Solvency II surplus \n   \n 2023 change in Group Solvency II surplus \n   \n   \n \n \n \n \n Estimated impact on PGH Solvency II 1 \n \n \n Surplus £bn \n \n \n SCCR % \n \n \n \n \n \n \n Solvency II base \n \n \n 3.9 \n \n \n 176 \n \n \n \n \n Equities: 20% fall in markets \n \n \n 0.1 \n \n \n 5 \n \n \n \n \n Long-term rates: 100bps rise in interest rates 2 \n \n \n 0.1 \n \n \n 6 \n \n \n \n \n Long-term rates: 100bps fall in interest rates 2 \n \n \n (0.1) \n \n \n (5) \n \n \n \n \n Long-term inflation: 50bps rise in inflation 3 \n \n \n (0.1) \n \n \n (1) \n \n \n \n \n Property: 12% fall in values 4 \n \n \n (0.2) \n \n \n (5) \n \n \n \n \n Credit spreads: 135bps widening with no allowance for downgrades 5 \n \n \n (0.2) \n \n \n (4) \n \n \n \n \n Credit downgrade: immediate full letter downgrade on 20% of portfolio 6 \n \n \n (0.3) \n \n \n (9) \n \n \n \n \n Lapse: 10% increase/decrease in rates 7 \n \n \n (0.1) \n \n \n (1) \n \n \n \n \n Longevity: 6 months increase 8 \n \n \n (0.4) \n \n \n (8) \n \n \n \n \n 1    Illustrative impacts assume changing one assumption on 1 January 2024, while keeping others unchanged, and that there is no market recovery. They should not be used to predict the impact of future events as this will not fully capture the impact of economic or business changes. Given recent volatile markets, we caution against extrapolating results as exposures are not all linear. \n 2    Assumes the impact of a dynamic recalculation of transitionals and an element of dynamic hedging which is performed on a continuous basis to minimise exposure to the interaction of rates with other correlated risks including longevity. \n 3    Rise in Inflation: 15yr inflation +50bps. \n 4    Property stress represents an overall average fall in property values of 12%. \n 5    Credit stress varies by rating and term and is equivalent to an average 135bps spread widening. It assumes the impact of a dynamic recalculation of transitionals and makes no allowance for the cost of defaults/downgrades. \n 6    Impact of an immediate full letter downgrade across 20% of the shareholder exposure to the bond portfolio (e.g. from AAA to AA, AA to A, etc). This sensitivity assumes management actions are taken to rebalance the annuity portfolio back to the original average credit rating and makes no allowance for the spread widening which would be associated with a downgrade. \n 7    Assumes most onerous impact of a 10% increase/decrease in lapse rates across different product groups. \n 8    Only applied to the annuity portfolio. \n   \n Sensitivity and scenario analysis \n As part of the Group's internal risk management processes, the Own Funds and regulatory SCR are regularly tested against a number of financial scenarios. The table provides illustrative impacts of changing one assumption while keeping others unchanged and reflects the business mix at the balance sheet date. Extreme market movements outside of these sensitivities may not be linear. While there is no value captured in the Group stress scenarios for recovery management actions, the Group does proactively manage its risk exposure. Therefore in the event of a stress, we would expect to recover some of the loss reflected in the stress impacts shown. \n   \n Unrewarded market risk sensitivities \n We have a low appetite to equity, interest rate, inflation and currency risks, which we see as unrewarded, i.e. the return on capital for retaining the risk is lower than for hedging it. In order to stabilise our Solvency II surplus, we regularly monitor risk exposures and use a range of hedging instruments to remain within a Board-approved target range. Equity risk primarily arises from our exposure to a variation in future management fees on policyholder assets exposed to equities, while our currency exposure primarily arises from our foreign currency denominated debt. Our interest rate exposure principally relates to our shareholder credit portfolio, while our inflation exposures arises from both cost inflation expectations and inflation-linked policies. \n   \n Rewarded market risk sensitivities \n We do however retain the credit risk in our c.£38 billion shareholder credit portfolio, and property risk in equity release mortgages, where we see these risks as rewarded. The shareholder credit assets are primarily used to back the Group's annuity portfolio. Exposure to these risks is needed to back growth in the Group's annuity portfolio. Stress testing is used to inform the level of risk to accept and to monitor exposures against risk appetite. We actively manage our portfolio to ensure it remains high quality and diversified, and to maintain our sensitivities within risk appetite. Our portfolio is c.99% investment grade and we have suffered no defaults, testament to the proactive approach taken by our in-house asset management team. \n   \n We also remain conservative in our property exposure. We have c.£4.5 billion of our credit portfolio exposed to equity release mortgages, which are all UK-based with an average rating of AA and average loan-to-value ('LTV') of 33%, and c.£1.1 billion in commercial real estate which is high quality and all UK-based with an average LTV of 47%. The full sensitivity we focus on for credit is a full letter downgrade of 20% of our credit portfolio, which is £(0.3) billion and is therefore small relative to the Group's £3.9 billion Solvency II surplus. \n   \n Managing demographic risks \n We have three key demographic risks - lapse risk from early surrenders, longevity risk on our annuity portfolio and mortality risk on our protection book. We manage lapse risk through our strong customer proposition. Our longevity risk principally arises from our annuity book, but this is managed through reinsurance. We retain around half of this risk across our current in-force book, and reinsure most of this risk on new business. Mortality risk arises from our protection business and we seek to manage this as part of a well-diversified portfolio. \n   \n Life Company Free Surplus \n Life Company Free Surplus represents the Solvency II surplus for the Life Companies that is in excess of their Board-approved CMPs. It is this Free Surplus from which the Life Companies remit cash to Group. We retain a significant Life Company Free Surplus of £2.2 billion which provides resilience to the Group's long-term cash generation. \n   \n Solvency II capital outlook \n We maintain a 140-180% SCCR operating range, which reflects our low sensitivity to economic volatility due to our comprehensive hedging. \n   \n We have been at the top-end of our range for the past three years, but will invest some of this surplus as we transform our business, with the investment more front-end weighted across 2024-26. In addition, our intention to repay at least c.£500 million of debt by the end of 2026 will also reduce our SCCR over the coming years. \n   \n Leverage \n We manage our leverage position by considering a range of factors including our cash interest cover, the interplay of our balance sheet hedging, and our capital tiering headroom. It also includes a number of output metrics that we monitor, such as the Fitch leverage ratio and Solvency II leverage ratio. \n   \n Our approach to leverage has always been to increase leverage to support M&A and then pay down that debt with surplus cash as it emerges. Since 2020 the Group has repaid c.£800 million of debt through this approach. \n   \n As at 31 December 2023, our Solvency II leverage ratio was 36% (2022: 34%). This increased in 2023, largely due to our investment in growth, integration and transformation. The Group's Fitch leverage ratio was 23% compared to full year 2022 on a restated basis of 23%,and is favourably below Fitch's stated range of 25-30% for an investment grade credit rating. \n   \n We plan to continue our approach of repaying M&A-related debt with surplus cash, and subject to regulatory approval, we intend to repay at least £500 million of debt by the end of 2026, including the £250 million Tier 2 bond that is callable in June 2024. This will support us in achieving a c.30% 1 Solvency II leverage ratio by the end of 2026. This is a steady-state level of leverage that we will believe is the appropriate for our business, absent M&A. \n   \n 1    Assuming economic conditions in line with 31 December 2023. \n   \n Earnings \n £617m \n Adjusted operating profit before tax APM \n   \n £4.6bn \n Adjusted shareholders' equity APM \n   \n   \n \n \n \n \n IFRS profit and loss statement \n \n \n 2023 \n \n \n 2022 1,2 \n \n \n \n \n \n \n Pensions and Savings \n \n \n £190m \n \n \n £150m \n \n \n \n \n Retirement Solutions \n \n \n £378m \n \n \n £349m \n \n \n \n \n With-Profits \n \n \n £10m \n \n \n £54m \n \n \n \n \n Europe and Other \n \n \n £132m \n \n \n £60m \n \n \n \n \n Corporate Centre \n \n \n £(93)m \n \n \n £(69)]m \n \n \n \n \n Adjusted operating profit before tax \n \n \n £617m \n \n \n £544m \n \n \n \n \n Investment return variances and economic assumption changes \n \n \n £147m \n \n \n £(3,309)m \n \n \n \n \n Amortisation and impairment of intangibles \n \n \n £(322)m \n \n \n £(353)m \n \n \n \n \n Other non-operating items \n \n \n £(439)m \n \n \n £(262)m \n \n \n \n \n Finance costs \n \n \n £(195)m \n \n \n £(199)m \n \n \n \n \n Profit before tax attributable to non-controlling interest \n \n \n £28m \n \n \n £67m \n \n \n \n \n Loss before tax attributable to owners \n \n \n £(164)m \n \n \n £(3,512)m \n \n \n \n \n Tax credit attributable to owners \n \n \n £76m \n \n \n £855m \n \n \n \n \n Loss after tax attributable to owners \n \n \n £(88)m \n \n \n £(2,657)m \n \n \n \n \n   \n 1    2022 restated comparative to reflect adoption of IFRS 17 \n 2    Incorporates changes to the Group's methodology for determining adjusted operating profit since Half Year 2023 (see note B1 to the consolidated financial statements for further details). \n   \n   \n IFRS results \n IFRS (loss)/profit is a GAAP measure of financial performance and is reported in our statutory financial statements on page 164 onwards. Adjusted operating profit before tax is a non-GAAP financial performance measure based on expected long-term investment returns. It is stated before amortisation and impairment of intangibles, other non-operating items, finance costs and tax. Please see the APM section on page 312 for further details of this measure. \n On 1 January 2023, the Group adopted the new accounting standard, IFRS 17: 'Insurance Contracts', with comparatives restated from 1 January 2022. IFRS 17 requires a company to recognise profits as it delivers insurance services (rather than when it receives premiums) and to provide information about insurance contract profits the company expects to recognise in the future. The impact of the transition to IFRS 17 is set out in note A2.1. \n   \n IFRS loss after tax attributable to owners \n The Group generated an IFRS loss after tax attributable to owners of £88 million (2022: loss of £2,657 million). The improvement versus 2022, primarily reflects a £3,456 million improvement in economic variances due to a much lower level of market volatility in the period, particularly interest rates. This has been partially offset by an increase in non-operating items as a result of our investment into growth in the period and ongoing migrations and transformation. \n   \n Basis of adjusted operating profit \n Adjusted operating profit is based on expected investment returns on financial investments backing business where asset returns accrue to the shareholder and surplus assets over the reporting period, with allowance for the corresponding expected movements in liabilities (being the interest cost of unwinding the discount on the liabilities). Adjusted operating profit includes the unwind of the Contractual Service Margin ('CSM') and risk adjustment attributable to the shareholder. The principal assumptions underlying the calculation of the long-term investment return are set out in note B 2.1 to the IFRS consolidated financial statements. \n   \n Adjusted operating profit includes the effect of variances in experience relating to the current period for non-economic items, such as mortality and expenses. It also incorporates the impacts of asset trading optimisation and portfolio rebalancing where not reflected in the discount rate used in calculating expected return. Any difference between expected and actual investment return, along with other economic variances described further in note B1.1 are shown outside of adjusted operating profit. Adjusted operating profit is net of policyholder finance charges and policyholder tax. \n   \n Adjusted operating profit \n The Group increased adjusted operating profit by 13% to £617 million (2022: £544 million). This primarily reflects strong growth in our Pensions and Savings business, which delivered adjusted operating profit of £190 million, an increase of 27% year-on-year (2022: £150 million). This was largely driven by higher AUA resulting in increased charges, and an improved margin through operating leverage. \n   \n Our Retirement Solutions business delivered an adjusted operating profit of £378 million (2022: £349 million). The 8% increase year-on-year primarily reflects a higher expected investment margin as a result of higher risk-free rates. The positive impact of BPA new business on CSM amortisation has offset the run-off of the remaining annuity book despite the phasing of a significant proportion of new business in late 2023. \n   \n With-Profits adjusted operating profit declined to £10 million (2022: £54 million) principally as a result of the run-off of this business and the adverse impacts of modelling refinements in the period. \n   \n Europe and Other adjusted operating profit increased to £132 million (2022: £60 million). This segment includes the expected investment margin from surplus assets within shareholder funds, which has increased due to the significant increases in interest rates over 2022. This has been partially offset by a reduction in CSM amortisation following the strengthening of the mortality assumptions on our Protection business. \n   \n The Group's Corporate Centre includes net operating costs in the period of £93 million (2022: £69 million), which increased due to investment in central functions to support our growth ambitions in the first phase of our journey, partially offset by increased interest income on Holding Company cash. \n   \n Investment return variances and economic assumption changes \n The net positive economic variances of £147 million (2022: £3,309 million loss) results from a more stable market environment compared with the significant volatility experienced during 2022. The impact of positive changes to discount rates, primarily on annuities and including the impact of methodology refinements, more than offsets the losses arising from the impact of positive equity market movements on the hedges the Group holds to protect the Solvency II position. As the full value of future profits impacted by equity markets is not held on the IFRS balance sheet, this results in an 'over-hedged' position on an IFRS basis. \n   \n Amortisation and impairment of intangibles \n The previously acquired in-force business, relating to IFRS 9 accounted capital-light fee-based products, is being amortised in line with the expected run-off profile of the investment contract profits to which it relates. The amortisation and impairment of acquired in-force business during the period of £316 million (2022: £347 million) has decreased year-on-year reflecting the impact of the business run-off. Amortisation and impairment of other intangible assets totalled £6 million in the period (2022: £6 million). \n   \n Other non-operating items \n Other non-operating items in the period totalled a £439 million loss (2022: £262 million loss), inclusive of a £66 million gain recognised on the Sun Life of Canada UK acquisition. This includes £169 million expenditure to support our growth strategy and £36 million impact from setting up a new European subsidiary that was required post-Brexit to continue serving some of our overseas Heritage customers. \n   \n Other items include £217 million of costs relating to finance transformation activities, £111 million in respect of ongoing integration, transition and transformation projects, £12 million of other corporate project costs, and net other one-off items totalling £74 million, including costs associated with the Part VII transfer of three of the Group's Life insurance entities. \n   \n Lastly, finance costs of £195 million reflect interest borne on the Group debt instruments and were broadly stable year-on-year (2022: £199 million). \n   \n Tax charge attributable to owners \n The Group's approach to the management of its tax affairs is set out in its Tax Strategy document which is available in the corporate responsibility section of the Group's website. \n The Group tax credit for the period attributable to owners is £76 million (2022: £855 million tax credit) based on a loss (after policyholder tax) of £(164) million (2022: loss of £(3,512) million). A reconciliation of the tax charge is set out in note C8 to the Group financial statements. \n   \n Contractual Service Margin ('CSM') \n The CSM represents a stock of future profits that will unwind into the P&L in future years. \n   \n The Group had a CSM (gross of tax) of £2.9 billion as at 31 December 2023, which grew by 10% in 2023 (2022: £2.6 billion) primarily due to new BPA business written, the acquisition of the SLOC in 2023, interest accretion and assumption changes, which was partly offset by the CSM release into the income statement. \n   \n The CSM release in the period represents c.8% of the closing CSM (gross of tax) pre release of £3.1 billion. We expect the release of the CSM (gross of tax) to be c.5-7% over time, primarily driven by annuities. \n   \n Assets under administration \n AUA provides an indication of the potential earnings capability of the Group arising from its insurance and investment business, whilst AUA flows provide a measure of the Group's success in achieving growth from new business. \n   \n Group AUA as at 31 December 2023 was £282.5 billion (2022: £259.0 billion), an increase of 9% year-on-year. This increase was primarily driven by an £18.7 billion benefit from positive market and other movements and £8.0 billion relating to the SLOC acquisition. Net inflows in Workplace, Retirement Solutions, Europe and Other were £4.7 billion, £3.3 billion and £0.3 billion respectively, but these were offset by £1.6 billion of outflows in Retail and £9.9 billion of legacy outflows. \n   \n Outlook \n The investments we are making across our strategic priorities will support strong growth in our IFRS adjusted operating profit before tax over the next few years. \n   \n We are targeting £900 million of IFRS adjusted operating profit in 2026, up from £617 million in 2023, reflecting a c.50% increase. This includes the majority of the £250 million cost savings as well as the impact of our organic growth and management actions. \n   \n We have an elevated level of non-operating costs at present, but we expect these to normalise after we are through our three-year investment programme. We have also suffered significant headwinds to shareholders equity from adverse economics over the past two years, primarily related to the significant rise in long-term interest rates and rise in equities. While future economic impacts are hard to forecast, we would expect to see some unwind of this adverse impact if interest rates return to normalised levels. We would also earn higher revenue from higher asset values in our Pensions and Savings business. \n   \n The other below the line items are more predictable and while we expect our shareholders' equity to decline over the coming years, we expect it to remain positive over the long term. \n   \n Our adjusted shareholders' equity, inclusive of the CSM, will remain broadly stable near-term and then begin to grow. Supported by strong CSM growth from our annuities business and other management actions. \n   \n As a reminder, our Group consolidated shareholders' equity is not a constraint to the payment of our dividends. This is because our dividends are paid from the Phoenix Group Holding Company, which is not impacted by IFRS 17 and has c.£4.6 billion of distributable reserves. \n   \n   \n Movement of IFRS 17 adjusted shareholders' equity over 2023 \n   \n   \n Capital allocation \n 52.65p \n Total 2023 dividend per share \n   \n +2.5% \n Final 2023 dividend increase \n   \n   \n 2023 dividend increase \n Phoenix has demonstrated a strong dividend track record over the past 13 years, with a c.4% compound annual growth rate ('CAGR') since 2011. Our strong strategic and financial performance in 2023 has supported a 2.5% recommended increase in the Final 2023 dividend to 26.65p per share, taking the Total dividend to 52.65p per share. \n   \n New capital allocation framework for the next phase of our journey \n As we embark on the next stage of our journey, we are outlining a new capital allocation framework. \n   \n There are two key underpins to our framework. The first is that we will operate a progressive and sustainable ordinary dividend policy. The second is that we will maintain our strong and resilient balance sheet, by operating within a 140-180% Shareholder Capital Coverage Ratio range. \n   \n We will seek to balance the investment of our 2024-2026 surplus capital across our strategic priorities of grow, optimise and enhance. \n   \n In our Grow strategic priority, we will invest c.£100 million into developing our growth propositions and c.£200 million of capital per annum to grow our annuities. \n   \n In our Optimise strategic priority, we will continue our approach of repaying M&A-related debt using surplus cash, with an intention to repay at least £500 million of debt by the end of 2026. This will support a Solvency II leverage ratio of c.30% 1 by the end of 2026. We will also invest c.£100 million into our asset and liability optimisation capabilities to support recurring managements over the long term. \n   \n In our Enhance strategic priority, we will invest c.£500 million on migration, transformation and cost efficiency programmes bringing our businesses onto a single Group-wide operating model that will further enhance our cost efficiency. \n   \n Additional surplus capital, over and above these committed investments, will be allocated to the highest return opportunities. This could include additional investment into growth, further deleveraging, M&A, and/or additional capital return to shareholders. \n   \n 1    Assuming economic conditions in line with 31 December 2023. \n   \n New progressive dividend policy \n The Board has evolved Phoenix's dividend policy to reflect the confidence it has in the Group's strategy. The Group will now operate a progressive and sustainable ordinary dividend policy. \n   \n The Board will continue to announce any potential annual dividend increase alongside the Group's Full Year results and expects the Interim dividend to be in-line with the previous year's Final dividend. The Board will continue to prioritise the sustainability of our dividend over the very long term. Future dividends and annual increases will continue to be subject to the discretion of the Board, following assessment of longer-term affordability. \n   \n   \n Outlook \n Growing Operating Cash Generation that more than covers our recurring uses and supports our new progressive and sustainable ordinary dividend policy. \n Looking ahead \n Our purpose is to help people secure a life of possibilities. The continued execution against our three strategic priorities of Grow, Optimise and Enhance, will support us in delivering strong financial outcomes for our shareholders. \n   \n Clear financial outcomes for shareholders \n We have a new set of ambitious 2026 targets, across our evolved financial framework of cash, capital and earnings. \n   \n Starting with cash, Phoenix has set three new cash generation targets. The first is that we expect Operating Cash Generation to grow to £1.4 billion in 2026, a c.25% increase from 2023. This growth underpins our Total cash generation target, with a one-year target for 2024 of £1.4-1.5 billion, and a three-year target of £4.4 billion across 2024-2026. \n   \n Our cash targets demonstrate our confidence in our ability to deliver sustainable, growing cash generation over time. \n   \n I n terms of capital, we will continue to maintain a strong Solvency II balance sheet through our comprehensive hedging approach. This will see us continue to operate within our Solvency II SCCR operating range of 140-180% and continue to manage our key individual risk sensitivities on a Solvency II surplus basis. \n   \n   \n Our intention to repay at least £500 million of debt by the end of 2026. This will support us on our path towards a c.30% Solvency II leverage ratio by the end of 2026, which is an appropriate steady-state level for our business absent M&A . \n   \n Turning to earnings, we are targeting IFRS adjusted operating profit to grow c.50% to £900 million in 2026, as we grow, optimise and enhance our business. This will include the majority of the c.£250 million of annual cost savings we aim to deliver by the end of 2026. \n   \n We expect the improving macroeconomic outlook, with interest rates and inflation normalising, to support our future growth ambitions and targets. \n   \n Delivering against the targets across our evolved financial framework of cash, capital and earnings, in turn supports our new progressive and sustainable ordinary dividend policy. \n   \n 2024 will be another exciting year for Phoenix Group on our journey and as we continue to deliver on our purpose and our strategy. \n   \n   \n Rakesh Thakrar \n Group Chief Financial Officer \n   \n   \n Growing Operating Cash Generation supports our new progressive dividend policy \n   \n   \n We have a clear set of supporting targets: \n   \n Cash \n £1.4 billion Operating Cash Generation in 2026 \n £4.4 billion of Total cash generation across 2024-2026 \n £1.4-to-£1.5 billion of Total cash generation in 2024 \n   \n Capital \n 140-180% Shareholder Capital Coverage Ratio operating range \n Solvency II leverage ratio of c.30% by the end of 2026 \n   \n Earnings \n Targeting £900 million of IFRS adjusted operating profit in 2026 \n c.£250m of annual cost savings by 2026 \n   \n   \n   \n   \n   \n   \n Principal risks and uncertainties facing the Group \n The Group's principal risks and uncertainties are detailed in this section, together with their potential impact, mitigating actions in place and any change in risk exposure since the Group's 2022 Annual Report and Accounts, published in March 2023. \n   \n A principal risk is a risk or combination of risks that can seriously affect the performance, future prospects or reputation of the Group, including risks that would threaten its business model, solvency or liquidity. The Board Risk Committee has carried out a robust assessment of principal risks and emerging risks. As a result of this review, the 13 risks noted in the Group's 2022 Annual Report and Accounts have been retained. The articulation of the principal risks related to transitioning acquired businesses and Environmental, Social and Governance ('ESG') has been refined to reflect the evolution of how these risks could impact the Group. The overall level of risk exposure for ESG risks is now reported as 'Heightened' for the first time since introduction in 2019, in recognition of the external headwinds which could impact the Group's ability to effectively manage sustainability risks. \n   \n Both strategic and operational risk categories contain multiple principal risks; risks in these categories are broadly ordered for their relevance to enabling the Group to achieve its strategic priorities. \n   \n Further details of the Group's exposure to financial and insurance risks and how these are managed are provided in note E6 and F11 to the IFRS consolidated financial statements. \n   \n   \n Strategic priorities \n 1 Grow \n2 Optimise \n 3 Enhance \n   \n   \n \n \n \n \n Impact \n \n \n Mitigation \n \n \n Change from 2022 Annual Report and Accounts \n \n \n \n \n \n \n Strategic risk The Group fails to deliver long-term organic cash generation in line with its Annual Operating Plan         1 3 \n \n \n \n \n Confidence in the Group might be diminished if it fails to deliver organic cash generation in line with targets shared, particularly as the Group seeks to support people by offering a wide range of solutions to help customers journey to and through retirement. \n \n \n The Group's business unit structure brings focus and accountability. The key areas of growth are Pensions and Savings and Retirement Solutions. \n Each business unit holds an annual strategy setting exercise to consider the needs of potential and existing customers, the interests of shareholders, the competitive landscape and the Group's overall purpose and objectives. \n The Group's Annual Operating Plan commits it to making significant investment in its growth businesses, including propositional enhancements driven by customer insight. \n The Group is established in the Bulk Purchase Annuity ('BPA') market and continues to invest in its operating model to further strengthen its capability to support its growth plans. \n For new BPA business, the Group continues to be selective and proportionate, focusing on value not volume, by applying its rigorous Capital Allocation Framework. \n   \n \n \n Unchanged \n The Group viewed this risk as 'Improving' in the 2022 Annual Report and Accounts, reflecting the demonstrated success of the strategy to pursue organic cash generation; this view of the level of risk exposure is unchanged. \n The Group has delivered strong organic growth in 2023, with new business net fund flows of c. £7bn, compared to £3.9bn in 2022. This is in line with the Group's strategy to deliver a balanced business mix through leveraging its scale in the capital-light fee-based businesses and maintaining a disciplined level of growth in annuities. \n As a result of this strong performance, the Group has delivered c. £1.5bn of total new business long-term cash generation in 2023, achieving its 2025 target two years early. \n During 2023, the Group completed BPA transactions with a combined premium of c. £6bn, compared to £4.8bn in 2022. This continues to demonstrate that the Group has the ability to compete and win in the BPA market. \n In September, the Group launched the Standard Life Pension Annuity to the open market in the UK, becoming the first new provider to enter the annuity market since the introduction of Pension Freedoms legislation in 2015. \n The Pensions and Savings business, operating under the Standard Life brand, has developed its operating model to centre around three trading channels: Workplace, Retail Intermediated and Retail direct. \n The Workplace business continues to attract good flows in, delivering net fund flows of c. £4.5bn in 2023, nearly double the £2.4bn delivered in 2022. This is supported by c. £2bn of new scheme assets transferred in 2023, including the Siemens workplace scheme, which represents one of the largest scheme transfers to have been tendered in the UK market in recent years, demonstrating the strength of the Group's proposition. \n The operating model and organisational design are being developed and implemented for the Retail businesses, with the aim of maximising opportunities for growth, both directly and through advisers, from new and existing customers. During 2023, £1.079bn of assets were internally transferred to Retail direct to enable existing customers to access modern pension offerings to support them to and through retirement. \n The Group is looking to expand the current offering of financial guidance and advice to support customers in better preparing for their retirement. \n \n \n \n \n Strategic risk continued The Group's strategic partnerships fail to deliver the expected benefits     1 2 3 \n \n \n \n \n Strategic partnerships are a core enabler for delivery of the Group's strategy; they allow it to meet the needs of its customers and clients and deliver value for its shareholders. The Group's end state operating model will leverage the strengths of its strategic partners whilst retaining in-house key skills which differentiate it from the market. \n However, there is a risk that the Group's strategic partnerships do not deliver the expected benefits leading to adverse impacts to customer outcomes, strategic objectives, regulatory obligations and the Group's reputation and brand. \n Some of the Group's key strategic partnerships include: \n abrdn plc: Provides investment management services to the Group including the development of investment solutions for customers. abrdn plc manages c. £154bn of the Group's assets under administration, at December 2023. \n HSBC plc: Provides custody and fund accounting services to the Group to manage c. £165bn of its unit linked operations. \n TCS Diligenta: The Group's partnership covers a range of services including customer administration and digital and technology capabilities to support customer outcomes. \n \n \n The Group has in place established engagement processes and a rigorous governance structure to manage relationships with its strategic partners, in line with the Group's Supplier Management Model. \n The Group takes steps to monitor its supplier concentration risks and has business continuity plans to deploy should there be a significant failure of a strategic partner. \n \n \n Unchanged \n The Group assessed this risk as 'Heightened' in the 2019 Annual Report a nd Accounts due to the increased dependency it placed on its strategic partnerships, and then 'Improved' in 2020 due to strengthening controls around the operation of those partnerships. Whilst the Group has further strengthened and simplified its strategic partnerships since that time, its assessment of the level of risk exposure is unchanged from the 2020 position, reflecting the Group's ongoing reliance on its strategic partners to deliver the volume of change needed to advance the Group's strategic objectives. \n The Group continues to develop its partnership with TCS Diligenta to support its strategic deliverables. The successful migration of another 700,000 Phoenix Life customer policies to TCS Diligenta's BaNCS platform was completed in November 2023. Planning for further migrations in 2024 and beyond is underway. \n During 2023 the Group successfully transferred the custody and fund accounting services for £12.3bn of assets to HSBC plc. This is a key milestone in the Group's journey towards implementing harmonised investment administration processes, and boosts its strategic partnership with HSBC plc. \n   \n \n \n \n \n Strategic risk continued The Group fails to effectively transition acquired businesses      1 2 3 \n \n \n \n \n The Group is exposed to the risk of failing to transform, simplify and better integrate the component parts of our acquired businesses to deliver leading customer experiences and realise scale efficiencies successfully and efficiently. \n The transition of acquired businesses into the Group, including customer migrations, could introduce structural or operational challenges that, without sufficient controls, could result in the Group failing to deliver the expected outcomes for customers or achieve the efficiencies of its target operating model. \n \n \n Integration plans are developed and resourced with appropriately skilled staff to ensure target operating models are delivered in line with expectations. The Group's priority at all times is on delivering for its customers. Customer migrations are planned thoroughly with robust execution controls in place. Lessons learned from previous migrations ar e applied to future activity to continuously strengthen the Group's processes. \n The Group views future M&A activity as an optional strategy accelerant and will assess new inorganic growth opportunities against a clear set of criteria and seeks to execute those opportunities which score positively against these criteria. \n The Group's acquisition strategy is supported by the Group's financial strength and flexibility, strong regulatory relationships and its track record of generating shareholder value and delivering good customer outcomes. \n The financial and operational risks of target businesses are assessed in the acquisition phase and potential mitigants are identified which may include temporary capital or liquidity buffers. \n   \n \n \n Unchanged \n This risk was assessed as 'Heightened' in the Group's 2018 Annual Report and Accounts due to the transformational nature of the Standard Life acquisition. The assessment of the level of exposure to this risk is unchanged from the 2018 position due to the volume of ongoing transition and integration activity. \n The Group has worked to transform from a financial engineering business to a purpose-led, organically growing business. Focus is now on pivoting to transform and simplify the business in the next phase of our journey. \n The Group continues to develop its partnership with TCS Diligenta to support its target operating model. Further customer migrations to TCS Diligenta's BaNCS platform are planned in upcoming years, which will support delivery of the Group's target operating model and enable all Phoenix policies to benefit from a more advanced administration platform. The key risk in respect of migration activity is that the time, and associated cost, to deliver these whilst protecting customer outcomes is greater than expected and the Group regularly assesses its reserving basis as a result. \n In April 2023 the Group completed the acquisition of Sun Life of Canada UK, a closed book UK life insurance company, from Sun Life Assurance Company of Canada. The integration is progressing well, with the majority of functions due to complete activity in April 2024. \n The Group has now delivered c. 20% of the targeted c. £500m incremental long-term cash generation target from this acquisition, with the remainder due to emerge in 2025 and 2026. \n \n \n \n \n Strategic risk continued The Group does not have sufficient capacity and capability to fully deliver its significant change agenda which is required to execute the Group's strategic objectives            1 2 3 \n \n \n \n \n The Group's ability to deliver change on time and within budget could be adversely impacted by insufficient resource and capabilities as well as inefficient prioritisation, scheduling and oversight of projects. The risk could materialise within both the Group and its strategic partners. \n This could result in the benefits of change not being realised by the Group in the time frame assumed in its business plans and may result in the Group being unable to deliver its strategic objectives. Poor change delivery could affect the Group's ability to operate its core processes in a controlled and timely manner. \n \n \n The Group's Change Management Framework defines a clear set of prioritisation criteria and scheduling principles for new projects. This is to support the safe and controlled mobilisation of change in line with capacity and risk appetite and to strengthen business readiness processes to deliver change safely into the operational environment. These prioritisation principles are a core part of the Annual Operating Plan process, alongside a significant focus on the deliverability of the change portfolio in 2024. \n Information setting out the current and forecast levels of resource supply and demand continues to be provided to accountable Senior Management to enable informed decision-making. This aims to ensure that all material risks to project delivery are appropriately identified, assessed, managed, monitored and reported. \n \n \n Unchanged \n Whilst significant progress has been made on developing the change capability and capacity, there has been no change to the assessment of exposure to this risk since its introduction in the 2020 Annual Report and Accounts, which reflects the potential impact of failing to deliver the Group's significant strategic and regulatory change agenda. \n The Group has continued to strengthen its Change Management Framework during 2023 and expects to see an improving trend in this risk as those enhancements are seen in project delivery, noting that the Group has a number of multi-year change programmes so benefits will emerge in 2024 and beyond. The Group's Chief Operating Officer is driving further enhancements to evolve and mature the Group's change operating model. In 2023 this included significant effort being put into the recruitment of senior change professionals, alongside the assessment and further development of all internal change resources. \n \n \n \n \n Strategic risk continued The Group fails to appropriately prepare for and manage the effects of climate change and wider ESG risks                1 2 3 \n \n \n \n \n The Group is exposed to the risk of failing to respond adequately to ESG risks and delivering on its purpose; for example, failing to meet and make its sustainability commitments. \n A failure to manage ESG risk could result in adverse customer outcomes, reduced colleague engagement, reduced proposition attractiveness, reputational risks and litigation. \n The Group is exposed to risks arising from the transition to a lower-carbon economy, which could result in a loss in the value of policyholder and shareholder assets. \n In addition, physical risk can give rise to financial implications, such as direct damage to assets, operational impacts either direct or due to supply chain disruption, and impacts on policyholder health and wellbeing, impacting demographic experience. \n \n \n The Group has a clear sustainability s trategy in place which is updated annually to reflect the Group's latest plans and risk exposures, with key metrics on progress monitored throughout the year. \n Sustainability risk and climate risk are both embedded into the Group's RMF. \n Sustainability risk 'cross-cuts' the Group's Risk Universe. This means the consideration of material sustainability-related risks is embedded in the Group's risk policies, with regular reporting undertaken to ensure ongoing visibility of its exposure to these risks. Several sustainability-related risk policies are also in place to cover the main sources of sustainability risk. \n The Group is making good progress on integrating the management of climate change and wider ESG risks across the business, including in investment portfolios, with further work underway to embed its consideration fully across the business. \n The Group continues to engage with suppliers and asset managers on their progress and approach to managing climate change and wider ESG risks. \n The Group undertakes annual climate-related stress and scenario testing and continues to build its climate scenario modelling capabilities. \n The Group undertakes deep dives on emerging ESG risk areas (such as greenwashing and ESG litigation risk) to increase understanding and awareness for Boards and Management, and facilitate control improvements where required. \n \n \n Heightened \n This risk is considered 'Heightened' for the first time since its introduction as a principal risk in the 2019 Annual Report and Accounts. \n The key driver for this change is the rapidly evolving external ESG environment. In particular, the increasing politicalisation and weakening of government policies in relation to ESG risk (such as that of the UK Government) as this could delay the necessary actions to transition to a low carbon economy, making the potential future crystallisation of physical climate events increasingly likely. \n Anti-climate change and ESG sentiment, particularly in high c...

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