All amounts throughout the report marked with APM are Alternative Performance Measures� Read more on page 264�
We are committed to our purpose: To inspire confidence in the future.
Delivery of Cash, Resilience and Growth helps achieve our mission to improve outcomes for customers and deliver value for shareholders. Read more on pages 12 to 17.
We are driven by our vision to be Europe’s Leading Life Consolidator.
Transactions in the bulk purchase annuity market offer a complementary source of growth for the Group and the management actions we deliver help increase and accelerate cash flows�
OUR MISSION Improve outcomes for customers and deliver value for shareholders 2 PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
In order to drive value, the Group looks to identify and undertake management actions which increase and accelerate cash flow�
We continue to focus on the effective management of our risks and the efficient allocation of capital against those risks�
Difference Collaborating and finding strength through respecting and embracing new perspectives�
UK Heritage Our UK Heritage business comprises products that are no longer actively marketed to customers� Phoenix is a leader in the safe and efficient management of its UK Heritage business�
UK Open Our UK Open business comprises capitallight products that are actively marketed to customers� Phoenix is committed to growing its UK Open business�
We inspire confidence through our history and growth. Phoenix has been a recognised name in the insurance world since 1782. It has grown to become Europe’s largest life and pensions consolidator.
Resolution Life Group merges with Britannic Group plc and becomes Resolution plc
Successful completion of two acquisitions – AXA Wealth’s pension and protection businesses and Abbey Life Assurance Company Limited 10m POLICIES
Phoenix announces the acquisition of ReAssure Group plc for a total consideration of £3.2bn
2019 was a year of significant achievement for Phoenix in which the Group met all of its strategic objectives and took another major step forward in its growth journey by announcing the acquisition of ReAssure Group plc. The acquisition confirms Phoenix’s position as the largest life and pensions consolidator in Europe� The additional cash flows, skills and scale the acquisition brings will enhance Phoenix’s ability to benefit from a range of available growth opportunities and provide increased sustainability to the Group� The Group’s enhanced cashflow profile post the acquisition underpins the Board’s proposal to increase the final 2020 dividend per share by 3%� In line with the Group’s stable and sustainable dividend policy, the Board has recommended a 2019 final dividend per share of 23�4p�
During 2019 we have been increasingly focused on ensuring Phoenix integrates Environmental, Social, and Governance (‘ESG’) into our everyday operations� As a business we are uniting behind a new sustainability vision “Committing to a Sustainable Future” and have identified four areas of commitment for our sustainability strategy – deliver for our customers, foster responsible investment, reduce our environmental impact and be a good corporate citizen� These four commitments will be underpinned by our active approach to supply chain management and our strong governance framework�
However, the interaction of the Board with colleagues is not limited to this relationship, and in October the entire Board took part in engagement sessions with Phoenix colleagues across the business�
In 2020, Phoenix bids farewell to two great industry leaders, Clive Bannister, Group Chief Executive Officer, and Jim McConville, Group Finance Director, and Group Director, Scotland�
In November 2019, Clive announced that he will retire on 10 March 2020 after nine years with the business� Clive has led Phoenix in a period of sustained growth to its current position as the largest life and pensions consolidator in Europe�
Phoenix, its customers, colleagues and investors will benefit from a smooth succession and, with Andy as the Group’s CEO, we will be in the best position to leverage the broad, strategic platform that Clive has created�
Jim will be standing down on 16 May 2020 after eight years with the business�
His experience and authority have been a cornerstone of Phoenix’s success and the Group is fortunate to have had the benefit of his financial and strategic expertise�
Succession planning is a key focus for the Board and to that end we are delighted to appoint Rakesh Thakrar, the Group’s Deputy Finance Director since 2014, as Jim’s successor� The Board believes that Rakesh is a remarkable talent, with a deep and broad understanding of Phoenix and its potential�
Furthermore, in September 2019, we were pleased to welcome Mike Tumilty as one of the Standard Life Aberdeen nominees to our Board as a replacement for Barry O’Dwyer� I also look forward to welcoming to our Board a nominee from each of our new strategic partners, Swiss Re and MS&AD, on completion of the ReAssure acquisition�
Looking ahead At a Group level, we start 2020 as we ended 2019, focused on the acquisition of ReAssure which, subject to regulatory approvals, we hope to complete in the middle of the year�
Thank you All the successes of the past year are testament to a great team effort and I would like to thank the Board, my colleagues, our partners and stakeholders for their continued support�
We also made significant progress across our ESG agenda with the appointment of the Group’s first Head of Sustainability� I encourage you to read Phoenix’s inaugural Sustainability Report which sets out our new sustainability vision “Committing to a Sustainable Future”� This report outlines our progress to date and future aspirations across the sustainability issues that are most material to Phoenix and its stakeholders�
The successes of the year were made possible by the engagement and commitment of my colleagues, the strong governance framework embedded within the Group and leadership by the Group Board�
Clive Bannister Group Chief Executive Officer 2019 was a successful year for Phoenix. We delivered Cash, Resilience and Growth whilst meeting all of our strategic priorities. Phoenix achieved its financial targets, exceeded the 2019 cash generation target range and maintained a resilient capital position throughout a year of macro-economic volatility�
Growth through BPA and new Open business in the UK and Europe was strong in 2019, collectively delivering circa £0�5 billion of incremental long-term cash generation and bringing increased sustainability to our dividend�
On 6 December 2019 we announced the acquisition of ReAssure Group plc 8 PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
NEW BUSINESS In 2019, new business written across our three business segments – UK Heritage, UK Open and Europe – generated £475 million of incremental cash generation�
COMMITTING TO A SUSTAINABLE FUTURE Phoenix is uniting behind its new sustainability vision of “Committing to a Sustainable Future” and has identified four areas of commitment for its sustainability strategy which are critical to delivering Phoenix’s purpose of inspiring confidence in the future�
FINANCIAL TARGETS For the tenth consecutive year Phoenix delivered on all its publicly stated financial targets� With £707 million of cash generation in 2019, net of a £250 million capital injection into our Irish subsidiary to conclude our preparations for Brexit, we exceeded the upper end of our full year cash generation target range�
The Group’s financial strength was recognised by Fitch’s affirmation of Phoenix’s Insurer Financial Strength Rating of A+ as part of their annual review in June 2019 �
STANDARD LIFE ASSURANCE TRANSITION PROGRAMME The Group continued to make strong progress across the Standard Life Assurance transition programme which remains on track to meet its £1�2 billion total synergy target�
The transition programme comprises three phases: • Phase 1 is substantially complete and delivered the end state operating model for the Head Office functions�
• Phase 2 is on track to deliver an integrated multi-site Finance and Actuarial function by end 2020 and obtain regulatory approval for our harmonised internal model�
• Phase 3 will deliver a hybrid Customer Services and IT operating model that brings enhanced capabilities along with operational 01. DELIVER FOR OUR CUSTOMERS We aim to provide the right products, solutions and services to our customers to help them enjoy a secure financial future.
Europe The Irish and German markets continue to be difficult; naturally disturbed by recent Brexit uncertainty� Despite this backdrop, new business in Europe delivered £26 million of incremental long-term cash generation in 2019�
In addition, we distributed circa £250 million of with-profits estate to our customers in 2019, totalling circa £845 million over the past five years�
We grow our customer base through strong distribution and proposition offerings in our chosen markets, with the Workplace channel bringing circa 280,000 new scheme members each year�
We have focused on improving customer communication so that customers have a clear understanding of what they can do with the policy or plan they hold with us and make an informed decision should they want to take any action�
In 2019 the Digital proposition has continued to evolve to support our customers in managing their pensions when and how they want� We have grown the rate of engagement amongst our customers and surpassed our target, seeing over 12 million logins in 2019 across Phoenix Life and Standard Life Assurance sites� We have also seen a huge increase in the usage of our Standard Life mobile app which saw over 5�5 million sessions in 2019�
Online top-ups and consolidation of customer pensions also increased to over £560 million in 2019 using our online guidance journey which helps customers consider the key factors when transferring pensions�
UK Open The Open products we write are “capital-light” and therefore incur a de minimis capital strain� Growth across our Open business has been encouraging, delivering gross new business inflows of £6�0 billion, a new business contribution of £153 million and long-term cash generation of £214 million�
GROWTH THROUGH M&A On 6 December 2019, Phoenix announced the acquisition of ReAssure� This transaction represents another significant milestone, bringing considerable additional scale and skills to Phoenix’s Heritage business�
The deal adheres to Phoenix’s strict acquisition criteria of being value accretive, supportive of the dividend and maintaining the Group’s Fitch investment grade rating�
Phoenix’s cash generation profile will be significantly strengthened with an incremental £7�0 billion of cashflows which will bring the enlarged Group’s long-term cash generation to £19�0 billion�
In addition, we expect to deliver cost and capital synergies of £800 million by leveraging Phoenix’s industry-leading operating model and efficiency-focused approach to capital management�
The consideration payable of £3�2 billion represented 91% of ReAssure’s pro-forma Solvency II Own Funds of £3�5 billion as at 30 September 2019, a ratio that is broadly in line with previous acquisitions� The financing structure for the transaction is efficient and utilises existing debt capacity, ensuring that Phoenix remains within its target leverage range of 25 to 30%�
OUTLOOK In 2020, following completion of the acquisition of ReAssure, Phoenix will be the UK’s largest life and pensions provider with over 14 million customers and circa £330 billion of assets under administration� Whilst our size will have changed, our strategy remains consistent�
We are excited at the range of growth opportunities available to us including BPA, new Open Business in the UK and Europe and further M&A in the UK, Germany and Ireland�
We will continue to participate on a selective and proportionate basis in what we expect to be a buoyant BPA market and explore the opportunity to put additional surplus capital to work in this market�
The majority of our cash generation comes from the emergence of surplus as our in-force business runs off over time and capital unwinds� We call this ‘organic’ cash generation� However, at Phoenix we deliver management actions which increase free surplus and therefore enhance this organic cash generation�
The dependable nature of cash generation from our in-force business allows us to set both short term (1 year) and medium term (5 year) cash generation targets� We also provide guidance on the cash that will come from the business over its life-time�
DYNAMIC RISK MANAGEMENT Cash is remitted from Solvency II free surplus� By bringing resilience to our solvency balance sheet, we increase the certainty of meeting our cash generation targets�
Phoenix has a range of growth options across both Heritage and Open businesses that bring sustainability to long-term cash generation.
We also deliver growth through acquisitions� The £7 billion of cash generation from the proposed acquisition of ReAssure Group will support a 3% increase in our dividend and fund future growth of our BPA and Open businesses�
A CONTINUED DEMAND FOR CONSOLIDATION Market dynamics Changes in customer behaviour, market dynamics and the regulatory environment have resulted in many insurers closing their old style, capital-heavy insurance product lines to new business and replacing them with capital-light investment style products� Phoenix estimates there are additional opportunities in closed life funds of approximately £440 billion in the UK, increasing to over £600 billion including Germany and Ireland�
Phoenix response We continue to seek opportunities to acquire and manage closed life funds� The Group can generate capital efficiencies through the diversification of risks, and the wide range of product types that we currently manage provides a scalable platform for integrating further closed funds� In addition, the Group benefits from a variable cost model and an approved Solvency II Internal Model which provides greater clarity over capital requirements�
On 6 December 2019 we announced the acquisition of ReAssure Group plc� On completion of the acquisition, Phoenix will be reaffirmed as Europe’s largest life and pensions consolidator�
THE UK SAVINGS GAP Market dynamics According to research from the World Economic Forum, retired people in the UK will on average outlive their savings by more than 10 years� The strain on the State Pension created by the UK’s ageing population has resulted in an ever- increasing need for individuals to save more throughout their working lives to fund their lifestyle and well-being in retirement�
We remain committed to developing the Standard Life Assurance proposition, through which we offer pension savings solutions in the workplace and individual pensions markets, as well the SIPP offering provided to customers through Standard Life Aberdeen’s Wrap Platform�
Phoenix response Changes to the regulatory capital regime bring opportunities to maximise capital efficiency across our business� So whilst some companies may see regulatory change as a threat to their business model, we view change as a driver to deliver additional value from our in-force business� Regulatory change also has the ability to generate new back-book consolidation opportunities as companies’ strategic objectives evolve�
DIGITALISATION Market dynamics Across the Life and Pensions industry there is an increasing demand from customers for digital solutions for financial management� The right digital solutions can improve customer journeys and encourage individuals to actively engage in the management of their personal finances�
Phoenix response At Phoenix we are committed to minimising our impact on the environment�
We have created a responsible investment philosophy and we will foster the alignment of our investment portfolio with our customers’ evolving beliefs on environmental and social considerations�
We recognise that our customers’ needs are changing in a world facing ESG challenges, and we are developing our proposition to remain relevant to customers by understanding their needs�
Group Finance including Tax, Treasury and Investor Relations Corporate Communications Group Risk Group HR Group Customer Group Internal Audit Group Legal Strategy, Corporate Development and Group Actuarial Company Secretariat INVESTMENT MANAGEMENT AND DISTRIBUTION
Manage corporate and strategic activity and include the following: Provide life companies with management services
GROUP FUNCTIONS The Group operates centralised functions that provide Group-wide and corporate-level services and manage corporate and strategic activity�
LIFE COMPANIES We have three major life companies located in the UK and one in Ireland that are responsible for the management of the Group’s life funds in the UK and Europe (Germany and Ireland) across both Heritage and Open product lines�
Distribution Distribution of non-workplace Standard Life branded products is provided by Standard Life Aberdeen under the Client Service and Proposition Agreement� Distribution of the workplace product is managed in-house under the Standard Life brand� We have also retained the SunLife distribution business within the Open business segment of the Group with a management team based in Bristol focused on their key skills of marketing and sales�
Outsource partners have scale and common processes to benefit the Group, including reducing investment requirements, improving technology and reducing our operational risk� Finance, actuarial, information technology, risk and compliance and oversight of the outsource partners are retained inhouse, ensuring that we retain full control over the core capabilities necessary to manage and integrate closed life funds�
The Group’s operating structure has evolved to work across our business segments and the combined Group.
Excess assets created over time (‘estate’) provide a buffer to absorb cost of guarantees and capital requirements�
The bonuses are designed to distribute to policyholders a fair share of the return on the assets in the fund, together with other elements of experience in the fund�
In the ‘supported’ with-profit funds, the shareholders’ capital is exposed to all economic and non-economic movements until the estate is rebuilt to cover the required capital, at which point the fund becomes ‘unsupported’�
In the ‘unsupported’ with-profit funds, typically shareholders receive 10% of declared bonuses (90:10 structure) or nil (100:0 structure), including any estate distributed�
Policyholders buy units with their premiums which are invested in funds�
Policyholders receive regular payments which start immediately (immediate annuity) or at some time in the future (deferred annuity)�
Term assurance policies which pay a lump sum on death if death occurs within a specified period�
1 Total assets under administration for the Group is £248 billion� The product type analysis above excludes £1 billion held in shareholder funds�
Our UK Heritage business comprises products that are no longer actively marketed to customers. Phoenix is a leader in the safe and efficient management of UK Heritage business and has a strong track record of delivery.
£126bn 1� With-profit (unsupported) 32% 2� With-profit (supported) 3% 3� Unit linked 45% 4� Non-profit (annuities) 16% 5� Non-profit (protection, shareholder funds and other non-profit)
Vesting annuities We offer annuities to existing policyholders when their pension policies vest across both the Phoenix Life and Standard Life product ranges� The majority of our vesting annuities are from pension policies which include guaranteed annuity options on maturity�
£97bn 1� Workplace 43% 2� Retail pensions 29% 3� Wrap 28%
£25bn 1� Germany 49% 2� Ireland 23% 3� International Bond 28%
IN FORCE Our Open business mainly relates to our pension and long-term savings products being sold under the Standard Life brand, but also includes insurance products aimed at the over 50s market distributed by SunLife� Assets under administration in our Open business are held in three product lines: Workplace, Retail pensions and Wrap� These are predominantly unitised products which have no guarantees and where investment risk sits with the customer� Our Open business therefore comprises capital-light products�
IN FORCE Germany Germany closed its with-profits business to new business in 2015 and is predominately Heritage� The Heritage segment comprises a variety of pension, endowment and annuity products� Since the closure of with-profits, new business has focused on unit-linked life assurance products with no material guarantees� These are distributed through financial advisers and are administered from operations in Frankfurt and Graz, Austria�
International bond The international bond is completely open business� It is a unit-linked, tax efficient savings product with open architecture investment choice including Discretionary Fund Managers� The target market is high-net worth UK customers and it is administered from our Dublin office� Distribution is via financial advisers, banks and wealth managers and it is also available on Standard Life Aberdeen’s Wrap and Elevate platforms�
well-established Master Trust offering which is an important growth area of the workplace pension market�
Ireland Ireland is a predominately Open business and distributes capital-light unit-linked products through financial advisers� The open proposition includes investment bonds, pensions and drawdown products targeting both the pre and post retirement markets� The closed Irish business includes legacy pensions, bonds, life assurance, protection and annuity products no longer open to new business�
NEW BUSINESS New business is written across all open product lines of our European business�
The international bond is sold by Standard Life Aberdeen through the retail market and its Wrap and Elevate platforms� All other Open products are sold by the European units themselves�
SECURITY Strong balance sheet which generates long-term cash flows and provides security for all stakeholders
SKILLS Talented and experienced team� We will continue to invest in this expertise
ENGAGE COLLEAGUES Our people are at the heart of our business and key to the successful growth of Phoenix Group�
Our Business Model 26 PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Life Company Own Funds Life companies hold capital in accordance with Solvency II regulations, providing appropriate security for policyholders� This capital is known as Solvency II Own Funds�
Margins earned Life companies earn margins on different types of life and pensions products increasing Own Funds�
Less Solvency Capital Requirement The level of regulatory capital required is known as the Solvency Capital Requirement�
Less Capital Policy The life companies hold additional internal capital buffers above the regulatory capital requirement for prudence�
Impact of new business New business written across our Open product range is capital-light�
Mergers and acquisitions Transactions must be value accretive and cash flow generative, as well as support the dividend level and maintain the Group’s target leverage ratio�
We are committed to improving customer outcomes by consistently delivering fair treatment through clear and open communication, and offering options that meet customer needs�
We demonstrate our commitment to our customers and continue to add value by ensuring our customer proposition remains relevant, engaging and easy to deal with�
KEY INITIATIVES AND PROGRESS IN 2019 • In line with the Group’s appetite on value for money, we reduced the ongoing charges for c�200,000 of our Phoenix Life pension customers and removed exit charges for c�160,000 pension customers�
assist their registration, view their policy details, change their personal details, send and receive secure messages and transact online if they wish to surrender their policy�
• We focused on addressing adviser feedback� The launch of a new variant of the Offshore bond – featuring Capital Redemption has been well received due to the additional features it offers customers�
• Confirmation from the Pensions Regulator was received that both of our Master Trusts had received authorisation� This is significant given the importance of our Master Trust in participating in the growth in the Workplace market�
• A new default offering to the Workplace market was launched� This addressed specific feedback for a more passively managed offering, with a range of solutions reflecting different levels of sophistication and price points�
• Harmonise our customer facing standards and frameworks to ensure consistent experiences and good outcomes for all customers� We will support those customers accessing their pension savings through drawdown by offering the option to select from four investment solutions linked to the customer’s needs and plans for their retirement�
• Extend our Customer Community to ensure it is representative of our expanded customer base, giving customers the opportunity to have their say about what is important to them to inform the evolution of the customer proposition�
• Continue to explore innovative solutions for our customers by collaborating on the development of enhanced client analytics� This will inform actions by analysing trends, enabling improved member outcomes and supporting more effective governance and oversight�
Target To maintain a FOS overturn target of less than the industry average of 30%.
To maintain a customer satisfaction score which is consistently above 91%.
In order to drive value, the Group looks to identify organic and inorganic growth opportunities and deliver management actions which increase and accelerate cash flows.
Our Open business provides the opportunity to grow organically through the matching of products to new and existing customers as part of our Strategic Partnership with Standard Life Aberdeen and under the Group’s SunLife brand� Such growth brings additional scale to our business and dampens the run-off of our Heritage books�
KEY INITIATIVES AND PROGRESS IN 2019 • The Group delivered £707 million in cash generation in the year, exceeding the upper end of its £600 to £700 million target range� The cash generation is stated net of a £250 million capital injection into the Group’s Irish domiciled subsidiary, Standard Life International, as part of Brexit preparations�
• The remaining phases of the transition programme are proceeding to timetable� Phase 2 related to the delivery of integrated Finance and Actuarial functions is on track to deliver by the end of 2020� Phase 3 is scheduled to deliver the end state operating model for Customer Service and IT by the end of 2022� The Group announced an enlarged strategic partnership with the technology and service provider TCS in November to support the delivery of this model�
• New business written within the Open and Europe business segments during 2019 delivered expected incremental long-term cash generation of £240 million, and benefited from statutory auto-enrolment increases in the Workplace product�
• Four bulk purchase annuity market transactions were successfully completed with total contracted liabilities of £1�1 billion� The Group invested £98 million of capital to facilitate these transactions, reflecting the day 1 capital strain arising� The bulk purchase annuity investments are expected to increase the Group’s longer term cash generation by £235 million, to be delivered over the lifetime of the policies�
• The acquisition of ReAssure Group was announced in December, adding significant scale and supporting future cash generation� The Group expects to deliver £800 million of cost and capital synergies by integrating the two businesses� The transaction is expected to add £7 billion of future cash generation which supports a proposed 3% increase in the dividend and additional investment in future growth opportunities�
PRIORITIES FOR 2020 • Deliver Phase 2 and continue progressing Phase 3 of the Standard Life acquisition transition programme�
• Complete the ReAssure Group acquisition by mid-2020, subject to regulatory approval�
• Seek further investment opportunities in the bulk purchase annuity market�
Read more about the link to our executive remuneration on page 99
Operating companies’ cash generation represents cash remitted by the Group’s operating companies to the holding companies� Maintaining strong cash flow delivery underpins debt servicing and repayment as well as financing shareholder dividends and future growth opportunities�
Analysis Cash remitted reflects the generation of Free Surplus within the life companies and the benefit of management actions implemented in the period� Cash generation in 2019 was £707 million, net of a £250 million capital injection into Standard Life International in preparation for Brexit�
The Group is targeting completion of the pre-application submission to the regulator in April 2020, with the aim of receiving final approval in Q1 2021�
• In December, following the announcement of the acquisition of ReAssure Group, Fitch revised its rating outlooks of the Group and its main operating life companies to ‘Positive’ from ‘Stable’ and at the same time affirmed all the ratings of these entities�
PRIORITIES FOR 2020 • Implement further management actions to enhance the Group’s capital position�
• Continue progress towards the approval of a harmonised internal model for the Group, including completion of the pre-application submission in April 2020�
It is defined as the ratio of the Group Own Funds to Group SCR, after adjusting to exclude amounts relating to unsupported with-profit funds and unsupported Group Pension Schemes�
Our focus on engagement and colleague empowerment creates a rich and diverse working environment, reflected in our continued status as one of the UK’s top employers.
At Phoenix, we have built a hugely successful, well respected business by putting our colleagues first�
Phoenix Group’s ability to attract, retain and motivate colleagues was for the eighth year in succession, recognised by the Top Employers Institute as a Top Employer in the UK�
• Growing talent continues to deliver the Group’s most senior appointments and a new combined Group talent programme, Changing the Game, was launched in June 2019 to accelerate the next generation leadership development with 36 delegates participating�
• Employees were engaged through the colleague insight survey and networks to help develop and shape the introduction of new values for the Group: Passion, Responsibility, Growth, Courage and Difference� The values provide a common platform to further connect the business areas, and improve our understanding of what is required to be a high-performing organisation�
Volunteering and charity Colleagues within the UK came together in 2019 to support a common cause across the year, helping to fund valuable life-saving missions in the communities in which our offices are based�
• Collectively Phoenix Group colleagues donated over 6,000 hours across the year, supporting a variety of beneficiaries ranging from a hospital, schools, hospices, local parks, environmental-focused projects to groups supporting the homeless and vulnerably-housed�
• The Employee Assistance Programme was relaunched for all Phoenix Group colleagues during the year, offering free, independent and confidential advice on all matters affecting an individual’s wellbeing�
• Phoenix is a signatory to the Women in Finance Charter (‘WIFC’) and continues to strive for an inclusive culture which enables all colleagues to reach their full potential�
Our Strategy and KPIs continued 36 PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
2 Figures do not include workforce based in SunLife or Germany/Austria� BAME data is not currently recorded for 55% (1,735 colleagues)�
Reward • The Group continues to attract and retain talent by offering a competitive range of benefits and development opportunities�
• The Group has been paying at least the Real Living Wage since 2014 to colleagues and will continue to do so in the future as part of its long-term ethical investment in its people�
• Private medical insurance cover is available to all colleagues across the Group regardless of their status within the organisation�
• All Group employees participate in an Annual Incentive Plan and are able to become shareholders in the
• Statutory gender pay statistics are calculated based on data gathered on ‘Full Pay Relevant Employees’ in the payroll period covering 5 April 2019� Of the employing entities within the Group, Pearl Group Management Services Limited (‘PGMS’) and Standard Life Assets and Employee Services Limited (‘SLAESL’) have the required 250+ so are included in the regulatory reporting� This covers 90�5% of the total workforce�
Lower Quartile 61% 39% Lower Middle Quartile 44% 56% Upper Middle Quartile 34% 66% Upper Quartile 27% 73%
• Launch a revised Diversity and Inclusion strategy focusing on four pillars: Gender, Ethnicity, Disability and Mental Health, and Social Mobility�
• Shape the Diversity and Inclusion strategy to accelerate the rate of progress in areas where less tangible impact has been made, supporting our aspiration to reach our set targets, build a diverse talent pipeline and create a culture of fairness and inclusion across the Group�
• Maintain support of our communities across the Group through employee volunteering, fundraising and engagement�
“The Group performed strongly in 2019, meeting or exceeding all of its financial targets set for the year. These results demonstrate the continued management of our in-force book to deliver cash generation and resilience together with a focus on growth through new business.”
The Group’s cash generation of £707 million in the year allowed it to exceed the upper end of its £600 to £700 million target range for that period, and is stated net of a £250 million injection of capital into our European business to prepare it for Brexit�
Our solvency ratio of 161% (2018: 167%) remains comfortably in the middle of our target range of 140 to 180%�
Note: Presentation of financial information IFRS results for the year ended 31 December 2018 include the Standard Life Assurance businesses for the four month period from 1 September, post completion of the acquisition�
The Group’s strong financial position has been recognised by Fitch Ratings who revised its Insurer Financial Strength rating of A+ for Phoenix from a ‘stable’ to ‘positive’ outlook in December 2019, following announcement of the acquisition of ReAssure Group�
GROWTH Group Assets under Administration (‘AUA’) increased to £248�3 billion in the year (2018: £226�5 billion) benefiting from positive market movements, notably strong performance in global equity markets and net inflows from the Group’s UK Open business� This was partly offset by net outflows from the Group’s Heritage businesses� Gross in-flows for the UK Open business are down on the prior year, principally reflecting challenging market conditions for the Wrap product�
Long-term cash generation is expected to increase by £475 million as a result of new business transacted in the year (2018: £530 million)� This includes the impact of four BPA transactions executed in the period, together with new business from our UK Open and Europe segments�
Cash and cash equivalents at 1 January 346 535 Operating companies’ cash generation: Cash receipts from Phoenix Life 367 664 Cash receipts from Standard Life Assurance 565 – Cash receipts from Management Services companies 25 – Cash remittances to Standard Life International (250) – Total cash receipts1 707 664 Uses of cash: Operating expenses (43) (32) Pension scheme contributions (50) (49) Debt interest (112) (88) Non-operating cash outflows (137) (216) Uses of cash before debt repayments and shareholder dividend (342) (385) Shareholder dividend (338) (262) Total uses of cash (680) (647) Equity raise (net of fees) – 934 Debt issuance (net of fees) – 932 Cost of acquisitions – (1,971) Support of BPA activity (98) (101) Cash and cash equivalents at 31 December 275 346 1 Includes £58 million and £54 million received by the holding companies in respect of tax losses surrendered to Phoenix Life and Standard Life Assurance respectively (2018: £39 million – Phoenix Life)�
Operating companies’ cash generation represents cash remitted by the Group’s operating companies to the holding companies�
Maintaining strong cash flow delivery underpins debt servicing and repayments as well as shareholder dividends�
LOOKING AHEAD Phoenix continues to be on track to achieve its long-term cash generation target for the five-year period 2019 to 2023 which has been updated by £0�1 billion to £3�9 billion, reflecting new business written in 2019� The Group looks forward to the future from a position of financial strength�
The remainder of the balance includes £4 million of costs related to the separation of businesses from Standard Life Aberdeen plc and £19 million of net other items�
Shareholder dividend The shareholder dividend of £338 million represents the payment of £169 million in May for the 2018 final dividend and the payment of the 2019 interim dividend of £169 million in September� The final 2019 dividend per share proposed is 23�4 pence�
Debt issuance (net of fees) The £932 million debt issuance in 2018 comprises the net proceeds of the Tier 1 Notes of £500 million completed in April 2018 and the £445 million (€500 million) Tier 2 bond issuance in September 2018�
Support of BPA activity £98 million (2018: £101 million) of funding has been provided to the life companies to support BPA new business�
The Group’s cash generation target for the five year period 2019 to 2023 has been upgraded by £0�1 billion to £3�9 billion, to reflect new business written in the year� The resilience of the target is demonstrated by the illustrative stress testing in the table to the left�
Cash outflows The operating expenses of £43 million (2018: £32 million) principally comprise corporate office costs, net of income earned on holding company cash and investment balances�
Non-operating net cash outflows Non-operating net cash outflows of £137 million (2018: £216 million) principally comprises £69 million of recharged staff costs and Group expenses associated with corporate related projects, including £54 million of costs related to the transition of the acquired Standard Life Assurance businesses and £9 million of costs related to the acquisition of the ReAssure Group� It also includes £45 million of premium, collateral pledged and cash 40 PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
The Group’s AUA represent assets administered by or on behalf of the Group, covering both policyholder funds and shareholder assets� This includes assets recognised in the Group’s IFRS consolidated statement of financial position together with certain assets administered by the Group but for which beneficial ownership resides with customers�
A reconciliation from the Group’s IFRS consolidated statement of financial position to the Group’s AUA is provided on page 256� Please see the Alternative Performance Measure (‘APM’) section on page 264 for further details of this measure�
UK Open flows The UK Open segment experienced gross inflows of £9�8 billion (2018 pro forma1: £10�7 billion) during the year, of which £6�0 billion (2018 pro forma1: £7�4 billion) was received in respect of new contracts transacted in the period�
New business contribution In respect of our Open and Europe business segments, we monitor new business contribution as the Group’s measure of the future value delivered through the writing of new business�
1 The pro forma position assumes the acquisition of the Standard life Assurance businesses took place on 1 January 2018�
Model (‘Standard Life Internal Model’), which was in place prior to the acquisition of the Standard Life Assurance businesses� The one exception to this is Standard Life International, the Group’s Irish subsidiary, which remains on Standard Formula� As a result, the Group currently uses a Partial Internal Model to calculate Group SCR, aggregating outputs from the existing Phoenix Internal Model, the Standard Life Internal Model and Standard Life International’s Standard Formula, without further diversification� A harmonisation programme to combine the two Internal Models into a single Internal Model is ongoing�
2 The SCR reflects the risks and obligations to which Phoenix Group Holdings plc is exposed� 3 The surplus equates to a regulatory coverage ratio of 140% as at 31 December 2019
of ’Day 1’ acquisition costs and is calculated as the value of expected cash flows from new business sold, discounted at the risk-free rate�
Four BPA transactions were completed in the year, reflecting the Group’s selective and proportionate approach to its participation in this market�
The Group has approval from the PRA for the use of its Internal Model (‘Phoenix Internal Model’) to assess capital requirements, the scope of which was extended to include the acquired AXA Wealth and Abbey Life businesses in March 2017 and March 2018 respectively�
Change in Group Solvency II Surplus (estimated) The Group Solvency II surplus has decreased to £3�1 billion (2018: £3�2 billion)�
Management actions undertaken increased the surplus by £0�6 billion� This includes £0�1 billion in respect of capital synergies associated with the acquisition of the Standard Life Assurance businesses, primarily as a result of internal group restructuring activities� Other management actions of £0�5 billion include further investment in illiquid assets within annuity portfolios, the optimisation of matching adjustment portfolios and asset de-risking initiatives�
The impact of new business written during the year reduced the surplus by £0�2 billion� This primarily reflects the capital strain associated with BPA transactions executed in the period and vesting annuities in the Heritage business segment� The Open business continues to be capital light�
The Part VII transfer of Standard Life Assurance Limited’s Irish, German and Austrian policies to Standard Life International resulted in a £0�2 billion reduction in the surplus reflecting increases in the SCR and risk margin as a result of the more onerous capital requirements and a loss of diversification under Standard Formula compared to the Standard Life Internal Model, together with the recognition of counterparty default risk�
Group Own Funds have benefitted by circa £0�3 billion as a result of recognising the benefits (net of associated costs) that will be delivered by our Standard Life transition activities including the end state Customer Service and IT operating model� This is largely offset in Solvency II surplus by an increase in SCR associated with the risk of this transition�
In the calculation of the Solvency II surplus, the SCR of the unsupported with-profit funds and the unsupported Group Pension Schemes is included, but the related Own Funds are recognised only to a maximum of the SCR amount�
This approach suppresses the regulatory capital coverage ratio calculated as eligible own funds as a percentage of SCR�
The Group targets a shareholder capital coverage ratio in the range of 140% to 180%�
Please see the Alternative Performance Measures section on page 264 for further details of this measure�
The Group Shareholder Capital Coverage ratio is 161% as at 31 December 2019 (2018: 167%)�
Sensitivity and scenario analysis As part of the Group’s internal risk management processes, the regulatory capital requirements are tested against a number of financial scenarios� The results of that stress testing are provided opposite and demonstrate the resilience of the Group Solvency II surplus�
Cash remittances from holding companies relate to the £250 million capital injection into Standard Life International as part of the Group’s Brexit planning activities�
Operating profit Operating profit 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�
Basis of operating profit Operating profit generated by the UK Heritage, UK Open and Europe business segments is based on expected investment returns on financial investments backing shareholder and policyholder funds over the reporting period, with consistent allowance for the corresponding expected movements in liabilities (being the release of prudential margins and the interest cost of unwinding the discount on the liabilities)�
Operating profit includes the effect of variances in experience for noneconomic items, such as mortality and persistency, and the effect of changes in non-economic assumptions� Changes due to economic items, for example market value movements and interest rate changes, which give rise to variances between actual and expected investment returns, and the impact of changes in economic assumptions on liabilities, are accounted for outside of operating profit� Operating profit is net of policyholder finance charges and policyholder tax�
Management Services companies 26 25 Group costs (35) (20) Operating profit 810 708 Investment return variances and economic assumption changes on long term business (177) 283 Variance on owners’ funds 13 (193) Amortisation of acquired in-force business, customer relationships and other intangibles (395) (207) Other non-operating items (169) (38) Profit before finance costs and tax attributable to owners 82 553 Finance costs attributable to owners (127) (114) (Loss)/Profit before the tax attributable to owners of the parent (45) 439 Profit before tax attributable to non-controlling interests 31 31 (Loss)/profit before tax attributable to owners (14) 470 Tax credit/(charge) attributable to owners 130 (60) Profit after tax attributable to owners 116 410
The long-term return on owners’ funds of £(27) million (2018: £(5) million) reflects the return on owners’ assets, primarily cash-based assets and fixed interest securities, and the impact of expenses borne by the shareholder� The loss in the period principally reflects certain one-off project costs and the settlement of VAT on certain investment expenses that were borne on behalf of policyholders�
UK Open operating profit The Group’s UK Open business segment delivered an operating profit of £73 million (2018: £41 million)� This includes operating profits generated across the Workplace, Retail and Wrap product lines, including new business distributed through our Strategic Partnership with Standard Life Aberdeen plc and under the Group’s SunLife brand� The increase in operating profit compared to the prior year reflects the full 12 months contribution from the Standard Life Assurance businesses, partly offset by the adverse impact of updating mortality assumptions on the SunLife business to reflect latest experience�
Europe operating profit The Europe business segment which comprises business written in Ireland, Germany and Austria and a mix of Heritage and Open products, generated an operating profit of £52 million during the year (2018: £22 million)� Again, the increase principally reflects the inclusion of the 12 months contribution of the Standard Life Assurance businesses�
Management services companies operating profit The operating profit for management services of £26 million (2018: £25 million) comprises income from the life and holding companies in accordance with the respective management services agreements less fees related to the outsourcing of services and other operating costs� The increase compared to the prior period is principally driven by a revised management services agreement that was in place for the full period in respect of the acquired Abbey Life business, partly offset by the impacts of run-off� A management services agreement has been signed in respect of the Standard Life Assurance businesses and will be effective from 1 January 2020� See other non-operating items below for further detail�
Investment return variances and economic assumption changes on long-term business The net adverse investment return variances and economic assumption changes on long-term business of £177 million (2018: £283 million positive) primarily arise as a result of losses on hedging positions held by the life funds and reflect improving equity markets in the year� The Group’s exposure to equity movements arising from future profits in relation to with-profit bonuses and unit-linked charges is hedged to benefit the regulatory capital position� The impact of equity market movements on the value of the hedging instruments is reflected in the IFRS results, but the corresponding change in the value of future profits is not� These adverse impacts have been partly offset by the positive impacts of strategic asset allocation activities, including investment in higher yielding illiquid assets, and lower swap curve yields experienced during the period�
Variance on owners’ funds The positive variance on owners’ funds of £13 million (2018: £193 million negative) is principally driven by gains on foreign currency swaps held by the holding companies to hedge exposure of future life company profits to movements in exchange rates� The prior year result included realised losses on derivative instruments entered into by the holding companies to hedge exposure to equity risk arising from the Group’s acquisition of the Standard Life Assurance businesses� Losses of £143 million were incurred on these instruments, together with option premiums of £22 million�
Amortisation of acquired in-force business and other intangibles The acquired in-force business is being amortised in line with the expected run-off profile of the profits to which it relates� Amortisation of acquired in-force business during the year totalled £375 million (2018: £189 million) with the increase from the prior year driven by a full 12 months amortisation charge in respect of the acquired-in-force business
Also included in the net other nonoperating items are £5 million of costs associated with preparations to ready the business for Brexit, costs associated with other corporate related projects of £41 million, including the Group’s Internal Model harmonisation project and the acquisition of ReAssure Group and net other items totalling an expense of £13 million�
Finance costs Finance costs of £127 million (2018: £114 million) have increased by £13 million, reflecting the interest charges on the €500 million Tier 2 debt issuance in September 2018�
Tax credit attributable to owners 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� The Group’s tax affairs and tax controls are managed by an in-house tax team who report on them to the Board and the Audit Committee on a regular basis throughout the year� The Board believes that its Tax Strategy accords with the Group’s approach to its wider Corporate Social Responsibility� The tax strategy was refreshed in August 2019 and published in accordance with the relevant statutory requirements�
The Group tax credit for the period attributable to owners is £130 million (2018: £60 million tax charge) based on a loss (after policyholder tax) of £14 million (2018: £470 million profit)� The significant tax adjustments to the Owners’ loss before tax are primarily due to the impact of a deferred tax rate reduction relating primarily to AVIF of £(50) million, a prior year credit for shareholders of £(51) million, the impact of non-tax deductible costs of £22 million and profits taxed at a rate other than the statutory rate of £(13) million� See note C6 to the IFRS consolidated financial statements for further analysis�
Financial leverage The Group seeks to manage the level of debt on its balance sheet by monitoring its financial leverage ratio� This is to ensure the Group maintains its investment grade credit rating as issued by Fitch Ratings and optimises its funding costs and financial flexibility for future acquisitions� The financial leverage ratio as at 31 December 2019 (as calculated by the Group in accordance with Fitch Ratings’ stated methodology) is 22% (2018: 22%)� This is below the target range management considers to be associated with maintaining an investment grade rating of 25% to 30%�
Financial leverage is calculated as debt as a percentage of the sum of debt and equity� Debt is defined as the IFRS carrying value of shareholder borrowings� Equity is defined as the sum of equity attributable to the owners of the parent, the unallocated surplus, the Tier 1 Notes and non-controlling interests�
THE GROUP’S RISK MANAGEMENT FRAMEWORK The Group’s Risk Management Framework (‘RMF’) embeds proactive and effective risk management across the Group� It seeks to ensure that risks are identified and managed effectively and that the Group is appropriately rewarded for the risks it takes�
The nine components of the harmonised RMF are outlined in the diagram below, with further information given in the sections that follow�
In November the Group announced an enlarged partnership with TCS to drive growth in our UK Open workplace business and meet the future needs of our workplace clients, customers and their advisers� The Group’s Supplier Management Model will continue to provide the foundation for effective oversight of the increasing role that strategic partners play in the delivery of the Group’s strategy�
Risk Management Framework 48 PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
We achieve our risk strategy not by risk avoidance, but through the identification and management of an acceptable level of risk (our ‘risk appetite’) which ensures that the Group is appropriately rewarded for the risks that are taken�
RISK APPETITE Risk appetite is used to define the amount of risk that the Group is willing to accept in the pursuit of enhancing customer and shareholder value, and attaining our strategic objectives�
Conduct – The Group has no appetite for deliberate or negligent actions leading to unfair customer outcomes, poor market conduct or reputational damage� Where unfair outcomes arise, the Group has a low appetite for delays in rectification�
RISK UNIVERSE A key element of effective risk management is ensuring that the business has a complete understanding of the risks it faces� These risks are defined in the Group’s Risk Universe�
The Risk Universe allows the Group to deploy a common risk language, allowing for meaningful comparisons to be made across the business� There are three levels of Risk Universe categories� The highest Risk Universe category is Level 1 and includes: • Strategic Risk
GOVERNANCE AND ORGANISATION Governance The RMF sets out a three lines of defence model with clearly defined roles and responsibilities for all components� Risk accountability and ownership are embedded in Line 1� Overall responsibility for approving the RMF rests with the Board, with maintenance and review of the effective operation of the RMF delegated to the Group Board Risk Committee� This delegation also includes approval of the overall risk management strategy and the review and recommendation to the Board of the relevant risk policies, risk appetite statements, risk profile and any relevant emerging risks�
Second line: Risk Oversight Risk oversight is provided by the Group Risk Function compromising risk and compliance functions and the Board Risk Committee� Group Risk provides a Risk Management Toolkit to support Line 1 in their management of risks� The purpose and responsibilities of the Group Risk function are set out in its annual Risk Function Mission & Mandate�
FIRST LINE OF DEFENCE SECOND LINE OF DEFENCE THIRD LINE OF DEFENCE
Third line: Independent Assurance Independent verification of the adequacy and effectiveness of the internal controls and risk management is produced by the Board Audit Committee, supported by the Group Internal Audit function�
EMERGING RISK The Group defines an emerging risk (or opportunity) as an event that is perceived to be potentially significant but is not yet fully understood� Mitigating action may not be necessary until further information is known about the possible impact�
RISK AND CAPITAL MODELS A continuous process is followed for the identification and assessment of risks and the corresponding resilience of the Group’s capital position� The Group continually strives to enhance its internal risk and capital models to ensure appropriate management of risks�
Strategic priorities 1 Improve Customer Outcomes 2 Drive Value 3 Manage Capital 4 Engage Colleagues
PRINCIPAL RISKS AND UNCERTAINTIES FACING THE GROUP The Group’s principal risks and uncertainties are detailed in this section, together with their potential impact, mitigating actions in place, links to the Group’s strategic priorities and changes in the risk from the Group’s 2018 Annual Report and Accounts, published in March 2019.
Further details of the Group’s exposure to financial and insurance risks and how these are managed are provided in note E6 and F4 (to the IFRS consolidated financial statements)�
Risk Management continued 52 PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
The transition of acquired businesses into the Group could introduce structural or operational challenges that result in Phoenix failing to deliver the expected outcomes for customers or value for shareholders�
The financial and operational risks of target businesses are assessed in the acquisition phase and potential mitigants are identified�
Integration plans are developed and resourced with appropriately skilled staff to ensure target operating models are delivered in line with expectations�
The Group continues to actively manage operational capacity required to deliver its strategy; this includes transition activity� A Life Company operational capacity dashboard is regularly reviewed by both Life and Group Boards�
Execution of the Standard Life Assurance Limited transition into the Group is progressing well and remains on track to deliver our synergy targets�
Our recently enlarged partnership with TCS is also expected to support growth plans for our Workplace Open business, enabling further digital and technology capabilities to be developed to support enhanced customer outcomes�
The Joint Operating Forum (‘JOF’) between SLA plc and Phoenix continues to develop the partnership with SLA plc in existing areas, and to identify areas for future growth and partnership, for the benefit of customers and shareholders of each Group�
The JOF also oversees the operation of the Client Service and Proposition Agreement (‘CSPA’), ensuring that each of the parties to the CSPA is performing against their CSPA obligations�
The Group is currently engaged in ongoing discussions with members of the Standard Life Aberdeen group in respect of disagreements over the operation of certain aspects of the share purchase agreement with SLA plc relating to services and expenses, and the scope and cost of services provided pursuant to the TSA, the CSPA and certain other agreements between the Group and members of the Standard Life Aberdeen group� The Group and SLA plc are currently seeking a commercial resolution to this�
While the Group’s pre-existing, functional relationship with Diligenta and its parent TCS remains strong and both parties have significant experience working together, the heightened risk reflects the increased dependency that we now place on our partnerships, particularly TCS, to enable successful delivery of the Group’s strategy�
We actively review and invest in our propositions to ensure they remain competitive and meet expectations�
We also regularly seek customer feedback on our propositions, using this to inform future developments�
The Group fails to appropriately prepare for and manage the effects of climate change and wider ESG risks
This could also lead to reputational damage for the Group and/or financial losses�
We maintain a strong and open relationship with the FCA and other regulators, particularly on matters involving customer outcomes�
As part of RMF harmonisation, an enhanced Conduct Risk Framework is being rolled out across the Group� The Conduct Risk Framework provides a mechanism for enhanced oversight of customer outcomes across the Group�
Over the year, two external asset managers (Woodford and M&G) suspended funds that some of the Group’s customers invest in through our products� The Group has a small exposure to these funds in terms of both assets and customer numbers� As part of the suspensions we have followed our standard fund deferral process�
Changes in regulation could increase the Group’s costs, impact profitability or reduce demand for our propositions�
There remains uncertainty around the final outcome of Brexit; however, the ‘Improved’ rating was noted in our Interim Report and reflects actions the Group implemented in March 2019, through a Part VII transfer, to protect the interests of our non-UK European customers in the event of a ‘No Deal’ Brexit�
Risk Management continued 54 PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
The Group now relies on a wide range of IT systems, including those we provide to SLA plc through the terms of the Standard Life Assurance businesses acquisition� In addition, the Group is increasing its use of online functionality to meet customer preferences� This exposes us to the risk of failure of key systems and cyber-attacks�
The Group has a business continuity management framework that is subject to annual refresh and regular testing�
Following the FCA and PRA December 2019 update on Operational Resilience, the Group is working to ensure that we will be inside disruption tolerances within three years of the publication of final guidelines�
The Group continues to utilise cyber security tools and capabilities in order to mitigate Information Security and Cyber risk� Our specialist Line 2 Information Security & Cyber Risk Assurance team also provides independent oversight and challenge of Line 1 IT and information security controls; identifying trends, internal and external threats and advising on appropriate mitigation solutions�
Whilst cyber-attacks show no sign of decreasing in volume and sophistication, the Group continues to adapt its approach in order to keep up to date with the latest threats�
Delivery of the Group’s strategy is dependent on a talented and engaged workforce�
The Group continues to actively manage operational capacity required to deliver our strategy� This is particularly pertinent across the Life Companies given the increasing demands on our workforce in this part of the business� A Life Company operational capacity dashboard is regularly reviewed by both Life and Group Boards�
Organisational changes from across the Group as a result of the Standard Life Assurance Limited transition continue to progress as planned�
There are a number of drivers for market movements including government and central bank policies, geopolitical events, market sentiment, sectorspecific sentiment and financial risks of climate change including risks from the transition to a low carbon economy�
The Group’s excess capital position continues to be closely monitored and managed, particularly given the low interest rate environment, and potential for adverse market impacts arising from prospective Brexit outcomes�
The Group has guaranteed liabilities, annuities and other policies that are sensitive to future longevity, persistency and mortality rates� For example, if our annuity policyholders live for longer than expected, then the Group will need to pay their benefits for longer�
The Group regularly reviews assumptions to reflect the continued trend of reductions in future mortality improvements�
The Group secured over £1�1 billion of BPA liabilities in the year� Consistent with previous transactions, we continue to reinsure the vast majority of the longevity risk�
The Life Companies are exposed to deterioration in the actual or perceived creditworthiness or default of investment, reinsurance or banking counterparties� This could cause immediate financial loss or a reduction in future profits�
An increase in credit spreads (particularly if accompanied by a higher level of actual or expected issuer defaults) could adversely impact the value of the Group’s assets�
The Group regularly monitors its counterparty exposures and has specific limits relating to individual exposures, counterparty credit rating, sector and geography�
Where possible, exposures are diversified through the use of a range of counterparty providers� All material reinsurance and derivative positions are appropriately collateralised�
For mitigation of risks associated with stocklending, additional protection is provided through indemnity insurance�
As part of BPA deals, the Group continues to increase investment in illiquid credit assets� This is in line with our strategic asset allocation plan and within our risk appetite�
Investment counterparty exposures continue to be managed and monitored across the Group and remain within risk appetite�
For more information on the Group’s emerging risk process, see page 51.
In accordance with provision 31 of the 2018 UK Corporate Governance Code, the Board has completed an assessment of the prospects and viability of the Group over a five-year period to December 2024�
Progress against the financial plan is reviewed monthly by both the Group’s Executive Committee and the Board�
The Board has determined that the five-year period to December 2024 is an appropriate period for the assessment, being the period over which the Directors set internal and external targets, and the period covered by the Group’s Boardapproved AOP�
The Board has also made certain assumptions when making the assessment and these include the following: • no change in stated dividend policy until completion of the acquisition of ReAssure Group; • that corporate acquisitions are not relevant, as any acquisition would only be progressed on the basis it meets the Group’s stated criteria; and
ASSESSMENT OF VIABILITY In making the viability assessment, the Board has undertaken the following process: • It considered Group prospects, taking into account current position and the principal risks and uncertainties that it is facing as outlined above; • It defined that viability is maintaining the capability to satisfy mandatory liabilities and meet external targets; • It reviewed the AOP which considers profits, liquidity, solvency and strategic objectives and the impacts of management actions on the Group� The AOP was finalised in November 2019 and reaffirmed the Group’s strategy; • It completed stress testing to assess viability under severe but plausible scenarios, including two adverse stresses, with no recovery or contingent actions, which are deemed to be representative of the key financial risks to the Group as follows: 1� Market stress – a combined market stress broadly equivalent to a 1-in-10-year event, calibrated to the Phoenix internal model, incorporating a fall in equity, property values and yields, with a widening of credit spreads�
The results of the stress testing, including a combination of individual scenarios, as disclosed in the Business Review Section, demonstrated that due to the significant excess capital in the Life Companies, the Group’s high cash generation and access to additional funding, the Group is able to withstand the impact in each case with regards to meeting all mandatory liabilities as they fall due, and continue to track towards meeting external targets assuming a partial recovery from the stress
STATEMENT OF VIABILITY Based on the results of the procedures outlined above, the Board has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the five-year period of assessment�
TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (‘TCFD’) In March 2020, the Group became a signatory to the Task Force on Climate-related Financial Disclosures (‘TCFD’)� The disclosure included below outlines the Group’s progress to date in incorporating climate-related risks and opportunities within our governance, strategy, risk management and metrics and targets frameworks�
The Phoenix Group Holdings plc Board is committed to high standards of corporate governance and the Group’s corporate governance policy is aligned to compliance with the UK Corporate Governance Code which sets standards of good practice for UK listed companies� Details of the Group’s compliance with the Code can be found in the Corporate Governance section of this report from page 73 onwards�
The responsibility for ensuring the appropriate identification, assessment, management and reporting of climate-related financial risks that could impact the Group sits with the Group Finance Director, James McConville�
The Group’s overall risk management framework (which includes climate-related financial risks) is the responsibility of the Group’s Chief
Risk Officer, Jonathan Pears� This forms part of his role in ensuring that the Group’s Risk Management Framework appropriately supports the identification, assessment, management and reporting of financial risks that could impact the Group�
This committee meets at least every two weeks and is responsible for the oversight, delivery, management and reporting of the overall sustainability strategy and its underlying environmental commitment including initiatives which are climate-related�
As our response to the TCFD guidelines evolves, we will be reviewing our internal governance structures and position to ensure risks are managed and opportunities are seized�
The Group is currently developing its new sustainability strategic framework, led by its sustainability vision ‘Committing to a Sustainable Future’ and underpinned by four key commitments: deliver for our customers, foster responsible investment, reduce our environmental impact and be a good corporate citizen�
The ‘reduce our environmental impact’ commitment and the underlying ambitions being developed within, will consider the following climate-related risks of most material impact to our business: Material climate-related risks • Transition Risks – we believe that the primary impact for our business will be the transition to a low carbon economy�
• Physical Risks – we are exposed to the long-term market, insurance and operational implications of physical risks resulting from climate change (e�g� the impact of physical risks on the prospects of current and future investment holdings, along with potential impacts on future actuarial assumptions)�
The Group has made a number of enhancements to its Risk Management Framework (‘RMF’) to support the identification, assessment, management, monitoring and reporting of financial risks from climate change�
Risk Universe: Climate-related risks can manifest across the level 1 categories and the primary focus is to ensure that these (and sustainability risks more generally), are considered in all aspects of our strategy� Where there are material climate-related risks under management in other risk categories, these are highlighted through the relevant risk reporting�
Risk Policies: The existing set of Group Risk Policies is being enhanced through the addition of a Group
Sustainability Risk Policy which incorporates all material ESG risks for Phoenix, including climate change�
Risk Appetite: The Group is ensuring that its risk appetite statements appropriately reflect its appetite for climate change risks, and sustainability risks more broadly developed as part of its vision�
Scenario Testing: The Group participated in the PRA’s 2019 insurance stress test exercise and is supplementing this with additional quantitative analysis to consider the impacts across our risk universe�
The Group’s mission is to improve outcomes for customers, whilst delivering value for shareholders. However we have responsibilities and engage with a much wider group of stakeholders and positive engagement and outcomes for these stakeholders is key to the Group’s long-term success.
Read how we are integrating responsible Environmental, Social and Governance (‘ESG’) business practices into our everyday operations: www.thephoenixgroup.com/ sustainability2019 60 PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
• By using surveys, site-specific colleague presentations, intranet content, trade union representation, inclusion networks, works councils, feedback channels, networking, events and a range of continual professional development opportunities.
COMMUNITY A range of community partners including charities, schools, hospices and local community groups benefit from the Group’s support across the year.
• Through dedicated face-to-face quarterly meetings with ‘charity partners’ and partnership schools, and on a less regular basis with other community partners. Surveys and feedback is routinely captured.
• We have a comprehensive communications and engagement programme, which includes investor roadshows in several geographies, conferences, Capital Markets Days and sales team presentations.
GOVERNMENT, TRADE BODIES AND REGULATORS Actively contributing to policy developments impacting long-term savings. Collaboration with a range of trade associations relevant to sector. Ongoing regulatory engagement.
DIGITALISATION In 2019 the digital proposition continued to evolve across the Group, with further investment in online capabilities and connecting digitally with customers to increase engagement� This has enabled website access 24/7, whilst also reducing the volume of paperwork issued�
Security controls to protect the Company from cyber-related incidents have also been deployed and a dedicated security operations team is in place to effectively respond to emerging cyber threats� The Group has had no significant cyber-related incidents over the year�
LISTENING TO CUSTOMERS Feedback from customers is obtained through automated surveys, individual research projects and most recently through talking with the wider ‘customer community’ about their experiences and how they like to engage with the Group�
A number of initiatives were progressed during the year including providing opportunities to support people living with dementia, the launch of a unique initiative in conjunction with Living Streets charity to help tackle social isolation amongst the over 65s, through the delivery of regular community walks and work with Money Advice Trust, a charitable trust providing free debt advice�
PUTTING THINGS RIGHT FOR OUR CUSTOMERS Complaint activity including those referred to the Financial Ombudsman Service or the Pensions Ombudsman Service is monitored and a significant proportion of complaints are resolved across the Group, in less than three days� This is a key performance indicator for the complaints team and results in a better experience for customers�
The Group recognises the responsibility it has to all of its customers.
IMPROVED COMMUNICATIONS AND CONNECTIONS The Group’s Customer Treatment Risk policy covers risks arising from the design or management of products, or from the failure to meet or exceed reasonable customer expectations, taking account of regulatory requirements� Customer treatment risks are aligned to the areas of focus in Phoenix Group’s Customer strategy�
The Group’s Modern Slavery and Human Trafficking Statement is available at www.thephoenix group.com/mss
SUPPLY CHAIN MANAGEMENT Sourcing and procurement at Phoenix goes beyond the initial evaluation and selection processes and includes implementing and managing a good working relationship with all suppliers�
The Group’s Sourcing and Procurement policy sets the minimum operating standards relating to the management of sourcing and procurement risk throughout the Group and forms part of the sourcing and procurement control framework� The framework provides support through the sourcing lifecycle at all stages including supplier evaluation, risk-based due diligence and contract management�
The Group has c�1,000 suppliers of which c�19 are considered strategic or critical to business1�
In 2019 a single procurement function was implemented to operate across the enlarged business under a harmonised Sourcing and Procurement policy and framework� All Standard Life Assurance Limited suppliers are being segmented and will now operate within the Phoenix Supplier Management Model� This model is well established and allows experts from the business to engage with experts from their suppliers to manage their subject matter area, with support from relationship managers ensuring that services are overseen and delivered effectively�
MODERN SLAVERY Phoenix Group takes active steps to ensure its supply chain is not engaging in any form of modern slavery or human trafficking� In February 2019 a statement was published on the Group website pursuant to Section 54, Part 6 of the Modern Slavery and Human Trafficking Act 2015� The statement details the policies Phoenix has in place and the ongoing actions that will be taken to continue to support the combating of modern slavery and human trafficking in supply chains�
As a part of the Group’s Sourcing and Procurement policy, Phoenix will identify any supplier that supports the delivery of core services and will review their adherence to the Modern Slavery Act on an annual basis� To date there have been no issues raised with reviews conducted�
Courage We innovate by challenging ourselves and others to do better
Difference We collaborate and find strength through respecting and embracing new perspectives
Stakeholder Engagement continued leading, and now will reflect all entities within the Group. Progress on the Group’s targets is available on page 36.
COLLEAGUE ADVISORY FORUM In April, Group Board Member Karen Green was appointed as Director for Workforce Engagement, facilitating communication between colleagues and the Board. Read more on page 84.
DIVERSITY AND INCLUSION The Group’s Diversity and Inclusion strategy was refreshed during the year and commitment towards the published targets remains key. The targets are ambitious and sector
Read more about our colleague engagement activities in the Group’s Sustainability Report www.thephoenixgroup.com/ sustainability2019
The Group also provides the opportunity for employees to participate in the Company’s all-employee share schemes, which include Sharesave and the Share Incentive Plan, to encourage broader share ownership in the Company�
FINANCIAL CRIME PREVENTION In order to ensure that any financial crime matters or occurrences are effectively managed, the Group has a number of policies and practices in operation� The Group’s Anti-Bribery policy addresses bribery and corruption risks alongside the Financial Crime policy which addresses risks such as anti-money laundering and fraud� Both policies detail the minimum control standards and risks that are to be managed to mitigate any potential issues�
Adherence to the Anti-Bribery and Financial Crime policies is managed by the Financial Crime team via assessments of the minimum control standards that make up the policies, as well as themed Financial Crime Reviews and Assurance testing�
The Group has a zero tolerance towards bribery and corruption in all its forms and adheres to the 2010 Bribery Act� Service providers are advised of and engaged in the zero tolerance approach to bribery and corruption and are expected to comply with Phoenix’s minimum control standards�
HUMAN RIGHTS The Group is committed to ensuring that human rights are respected and processes are in place to remove any human rights issues both internally and externally via outsourced relationships�
In line with the Equality Act 2010 and in order to ensure that the Group is aligned to relevant Articles of the United Nations Universal Declaration of Human Rights, the Group has a Dignity at Work policy in place� The policy covers bullying and harassment of and by managers, employers, contractors, suppliers, agency staff and other individuals engaged with the Group�
Adherence to the policy is managed by the Group’s HR department via assessment of the minimum control standards� During the year the Group effectively resolved all employee disputes and as a result was involved in no employment tribunals�
HEALTH AND SAFETY The Group operates a Health and Safety policy which helps manage risks and adverse effects�
The Group has reported four reportable accidents during 2019 which were reported to the Health and Safety Executive under the Reporting of Incidents, Disease and Dangerous Occurrence Regulations (‘RIDDOR’)�
Onsite fundraising across all sites benefited charities by in excess of £32,000 and individual offsite fundraising including an element of staff-matching by the Group benefited local charities by a further £200,000�
COMMUNITY INVESTMENT The Group has worked closely with various community partners over the year, offering support in both financial and non-financial ways� Phoenix was premier sponsor of the ‘Wythall and Hollywood Fun Run’ which for this 10-year anniversary included a 10km, 5km and 1�5km run through the heart of Wythall’s community and entered the site’s grounds as part of the official distance�
Read more about our community initiatives in the Group’s Sustainability Report www.thephoenixgroup.com/ sustainability2019 66 PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
INSPIRING CONFIDENCE THROUGH OUR COMMUNITY PARTNERSHIPS The Group’s partnership with Midlands Air Ambulance Charity is all about providing mutually beneficial opportunities for our colleagues, the wider charity and those living within our local community�
This year colleagues were offered Cardiopulmonary Resuscitation (‘CPR’) training, equipping them with skills that could save a life� It is estimated that over 30,000 cardiac arrests take place outside of the hospital setting every year in the UK, but the survival rate is less than 1 in 10�
CPR sessions were held onsite across a threemonth period, promoting the ‘Restart a Heart Campaign’� The purpose was to raise awareness and impart valuable life-saving skills, which could help keep someone alive until medical attention arrives�
The Group was shortlisted at the Better Society Awards 2019 for the National Charity Partnership Award in conjunction with Midlands Air Ambulance Charity�
WASTE MANAGEMENT AND CONSUMABLES Operationally, the Group considers its internal practices and is focused on minimising waste and increasing recycling�
All core sites continue to divert 100% of their waste from landfill and new waste streams for compostable items and food waste have been introduced�
In 2019 at the Edinburgh and Wythall offices, various single-use plastic and non-recyclable items in use within the restaurant and coffee shop facilities were removed� The London office, which is shared tenancy, achieved an accolade for its achievements in waste management, waste minimisation and re-use in the form of the Clean City Awards Scheme�
Other initiatives in 2019 have included upgrading lighting systems, making use of LED technology to make site operations less energy intensive and having electric vehicle charging stations retro-fitted at the Wythall and Edinburgh sites�
In 2019 absolute emissions (locationbased Scope 1 and 2) have increased by 8% due to the inclusion of Standard Life premises for all of 2019 but only a third of 2018� This increase has outweighed the reduction in the emission factor for consumption of purchased electricity (Scope 2) and the reduced consumption of energy on a like-for-like basis� For the like-forlike set of occupied premises and investment portfolios, there has been a significant reduction of 15% in Scope 1 and 2 emissions�
Scope 1 and 2 Emissions from occupied premises per full-time equivalent employee (FTE) intensity 3�2 tonnes CO2e/FTE
The Group’s chosen intensity metrics detail carbon emissions per floor area and per full-time equivalent employees (‘FTE’) in occupied premises� The intensity by both floor area and FTE has decreased from 2018 to 2019 – largely driven by 15% reduction at the Wythall site�
Several operational premises have been excluded from intensity metrics to avoid skewing the intensity results� These premises were either not owned for the whole two-year period that is used to compare intensity or the metering arrangement between landlord and tenant does not currently allow precise allocation of consumption between parties�
ENERGY BENCHMARKING COMPARISON The chart below compares the 2019 energy intensity performance of some of the Group’s occupied offices and appropriate investment property offices against the most recent BBP REEB benchmarks�
REDUCING OUR ENERGY CONSUMPTION AND EMISSIONS The actions the Group is considering in order to reduce its carbon footprint are in line with the need to use energy efficiently, thus reducing consumption, and also drawing on decarbonised supplies of energy� These include: • taking forward energy consumption reduction measures – in particular from recent ESOS audits; • installing energy monitoring and sub-meters; • enhancing building management controls; • installing LED lighting; and
The chart shows that there is a significant range of performance, from better than ‘good’ to poorer than ‘typical’�
Phoenix operates a comprehensive investor relations programme and values an active dialogue with the Group’s financial audiences including institutional investors, private investors, rating agencies and research analysts. INSTITUTIONAL EQUITY INVESTORS Throughout the year members of the Executive Committee and the Investor Relations team held meetings with investors to provide updates on the Group’s strategy and operations� This involved 17 shareholder roadshows and a total of 204 meetings with 310 existing and prospective equity investors across the UK, North America and France�
CONFERENCES Conferences enable the Group to meet with a significant number of investors and are important platforms for presenting Phoenix’s investment proposition� This year, Phoenix attended six conferences in the UK and two in Paris organised by a number of investment banks, including Bank of America, J�P� Morgan Cazenove, Investec, KBW, Morgan Stanley and Natixis�
Senior management and Investor Relations held a total of 25 presentations to equity and debt sales teams to promote the Phoenix investment case� In addition, they participated in seven reverse roadshows�
CREDIT RATINGS AGENCIES AND BANKS Phoenix’s life companies and bonds in issue have credit ratings by Fitch Ratings� The Group meets with the rating agency at least once per year for the annual ratings review� The Group Treasury Team and management last provided Fitch with an update in December 2019 in relation to the announcement of the acquisition of ReAssure Group plc�
ANNUAL GENERAL MEETING (‘AGM’) The Group’s AGM is an opportunity to communicate with shareholders who are invited to ask questions during the meeting and then are able to meet with members of the management team and Directors� Business to be discussed at the meeting is notified to shareholders in advance through the Notice of Meeting� The Group will hold Extraordinary General Meetings (‘EGMs’) to address matters that arise in between AGMs such as for example asking shareholders for approval of certain corporate transactions that require a shareholder vote�
We communicate the views and concerns of customers to government and wider policymakers. The Group regularly engages with political stakeholders at Westminster and Holyrood, along with key trade bodies representing the industry, to communicate the views and concerns of its customers to government and wider policymakers�
Group Finance Director and Group Director, Scotland, James McConville, is a member of the Scottish Government’s Financial Services Advisory Board (‘FiSAB’), chaired by the First Minister, which advises Ministers on matters relating to the financial services industry�
Read more on the Group’s website: www.thephoenixgroup.com/ media/generation-vexed.aspx 72 PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
CORPORATE GOVERNANCE IN THIS SECTION Chairman’s Introduction �������������������74 Board Structure ��������������������������������77 Board of Directors ����������������������������78 Executive Management Team �������� 80 Corporate Governance Report ��������81 Board Leadership and Company Purpose ������������������������82 Division of Responsibilities ��������� 88 Composition, Succession and Evaluation ����������������������������� 90 Audit, Risk and Internal Control ���92 Directors’ Remuneration Report ���� 99 Directors’ Report ���������������������������131 Statement of Directors’ Responsibilities ������������������������������135
SECTION 172 Details of how the Board engaged with Phoenix’s various stakeholders in accordance with section 172 of the Companies Act 2006 are shown in the Corporate Governance Report on pages 81 to 130�
FAIR, BALANCED AND UNDERSTANDABLE In accordance with the UK Corporate Governance Code, the Directors confirm that they have reviewed the Annual Report and consider that it is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position, performance, business model and strategy�
Many of our shareholders have been with us on our upwards trajectory into the FTSE 100 index which we joined in March 2019� Our Board Evaluation Review was undertaken in the fourth quarter of 2019� This followed our two-day Board strategy offsite session in July 2019 and focused on how the Board could best drive the Group’s corporate strategy forward, underpinned by strong governance; to the continued benefit of customers and shareholders�
BOARD OF DIRECTORS AND SUCCESSION A major role for the Board, the Nomination Committee and me, as Chairman, was the orderly succession for our Group Chief Executive Officer� We focused on this in 2019 and I am pleased that we secured Andy Briggs as the successor to Clive Bannister after Clive’s superb nine years at the Phoenix helm� Andy was appointed as our top choice for the role after a robust process, considering both internal and external candidates�
In September 2019, we were pleased to welcome Mike Tumilty to our Board as one of the Standard Life Aberdeen nominees (in accordance with their shareholder rights)� Mike is a replacement to Barry O’Dwyer who left the Standard Life Aberdeen Group (‘SLA’) to become Chief Executive of Royal London� I wish to thank Barry for his insightful contribution during his short time on our Board� I look forward to welcoming to our Board a nominee from each of our new strategic partners, Swiss Re and MS&AD, on completion of the ReAssure acquisition later this year� As well as bringing a new geographical element, I am confident that the directors nominated to our Board by Swiss Re and MS&AD (who will each have rights attached to their shareholdings to nominate one director to the Phoenix Board) will bring strong additional skills to our Board�
At that point, SLA’s shareholding is expected to reduce to the level (between 10% and 15% of issued share capital) where they will have one nominee instead of two on our Board�
Given the Executive Directorship changes and continual rotation of non-executive Directors over the last few years (including my own appointment as Chairman in October 2018), the Board Evaluation Review concluded in 2019 that a period of Board stability would be preferable going forward� This excludes the changes from our strategic partnerships� This conclusion was reached after the review had considered the balance of skills and experience on the Board and that these were strong and appropriately diverse�
I am pleased that our Board complies (as at 10 March 2020) with the target of the Hampton-Alexander Review for the Board to be at least 33% female� With the proposed appointment to the Board of Rakesh Thakrar at our May 2020 AGM, we will comply with the target of the Parker Review for the Boards of FTSE 100 companies to contain at least one ethnic minority director by 2021�
GROWTH WITH ROBUST GOVERNANCE During the five years from 1 January 2015 to 31 December 2019, Phoenix’s market cap trebled from £1�8bn to £5�4bn� Its FTSE position rose from 167th to 91st� During that time, Phoenix remained fully compliant with the provisions of the UK Corporate Governance Code�
Market Cap £5.40bn £4�06bn FTSE position 91 97 AGM votes in favour of all resolutions May 2019
BOARD OF DIRECTORS • Biographical details and experience of the Directors 78
• Nomination Committee Report – Role of the Committee – Board Succession – Board recruitment process and recruitment of the new CEO – Board diversity policy – Board evaluation review
REMUNERATION • Role of the Committee • Remuneration Committee Chair’s letter • Director’s Remuneration Report
2. CLIVE BANNISTER Group Chief Executive Officer (Until 10 March 2020)
Experience: Clive Bannister joined the Group in February 2011 as Group Chief Executive Officer� Prior to this, Mr Bannister was Group Managing Director of Insurance and Asset Management at HSBC Holdings plc� He joined HSBC in 1994 and held various leadership roles in planning and strategy in the Investment Bank (USA) and was Group General Manager and CEO of HSBC Group Private Banking� He started his career at First National Bank of Boston and prior to working at HSBC was a partner in Booz Allen Hamilton in the Financial Services Practice providing strategic support to financial institutions including leading insurance companies, banks and investment banks� Mr Bannister is also Chairman of the Museum of London�
Experience: Between April 2010 and December 2011, Mr McConville was Chief Finance Officer of Northern Rock plc� Prior to that, between 1988 and 2010, he worked for Lloyds Banking Group plc (formerly Lloyds TSB Group plc) in a number of senior finance and strategy related roles, latterly as Finance Director of Scottish Widows Group and Director of Finance for the Insurance and Investments Division� During 2011 and 2012, Mr McConville was a Non-Executive Director of the life businesses of Aegon UK� In 2014, Mr McConville joined the board of Tesco Personal Finance plc as a Non-Executive Director� Mr McConville qualified as a Chartered Accountant whilst at Coopers and Lybrand�
Experience: Karen Green is the former Chief Executive of Aspen UK, which comprised the UK insurance companies’ of Aspen Insurance Holdings, and was a member of the Aspen Group Executive Committee for 12 years� She also held a number of other senior positions including Group Head of Corporate Development, Strategy, and Office of the Group CEO� Prior to that, she held various senior private equity and corporate finance roles from 1997 to 2005 at GE Capital and then MMC Capital, gaining substantial M&A experience, having worked previously at Baring Brothers and Schroders� Ms Green is a non-executive director at Admiral Group plc and is a Council Member of Lloyd’s of London� She is also a Vice President of the Insurance Institute of London�
Experience: John Pollock had a career in life assurance at the Legal & General Group from 1980 to 2015, including as an Executive Director of Legal & General Group plc from 2003 to 2015� Mr Pollock held numerous senior roles, gaining wide strategic and technical experience, finally as Chief Executive Officer of LGAS (L&G Assurance Society), one of Legal and General’s three primary business units� Prior to Mr Pollock’s retirement from Legal and General in 2015, he held positions as Deputy Chair of the FCA Practitioner Panel, Chairman of investment platform Cofunds, and as a Non-Executive Director of the Cala Homes Group�
Experience: Belinda Richards has held senior executive positions at KPMG, EY, and latterly Deloitte from 2000 to 2010 where she was a senior corporate finance Partner and the Global Head of Merger Integration and Separation Advisory Services� She is an experienced Non-Executive Director, currently on the Boards of WM Morrison Supermarkets plc, Avast plc, The Monks Investment Trust plc and Schroder Japan Growth Fund plc� Previously, she has also been on the Boards of Aviva UK Life & Pensions, Grainger plc, Balfour Beatty plc and Friends Life Group Plc�
Experience: Kory Sorenson is currently a NonExecutive Director and Chairman of the Audit Committee of SCOR SE, a Non-Executive Director and Chairman of the Remuneration Committee of Pernod Ricard SA, a Non-Executive Director and member of the Audit Committee of SGS SA and a member of the Supervisory Board of the privately-owned Bank Gutmann AG� Ms Sorenson has over 27 years of experience in the financial services sector, most of which has been focused on insurance and banking� She was a Member of the Supervisory Board of Uniqa Group (Austria), Non-Executive Director of Aviva Insurance Limited (UK), Member of the Supervisory Board of the Institut Pasteur (France), Managing Director, Head of Insurance Capital Markets of Barclays Capital and also held senior positions in the financial institutions divisions of Credit Suisse, Lehman Brothers and Morgan Stanley� She began her career in the finance department of Total SA�
Experience: Michael Tumilty is the Global Chief Operating Officer of Standard Life Aberdeen� He has worked in the financial services industry for 24 years, holding various senior positions, including Director of Operations at Aberdeen Standard Investments and Head of Investment Operations at Standard Life�
Roles and responsibilities • Leads the development of the Group’s strategy for agreement by the Board; • Leads and directs the Group’s businesses in delivery of the Group’s strategy and business plan; • Leads the Group to safeguard returns for policyholders and grow shareholder value; • Embeds a risk-conscious Group culture which recognises policyholder obligations in terms of service and security; and
Roles and responsibilities • Leads the implementation of the Group’s employee strategy in order to recruit, retain, motivate and develop high quality employees; • Provides guidance and support on all HR matters to the Group Chief Executive Officer, ExCo and the Group Board and Remuneration Committee; and
Roles and responsibilities • Develops and delivers the Group’s financial business plan in line with strategy; • Ensures the Group’s finances and capital are managed and controlled; • Develops and delivers the Group’s debt capital strategy and other treasury matters; • Ensures the Group has effective processes in place to enable all reporting obligations to be met; • Supports the Group Chief Executive Officer in managing the Group’s key external stakeholders; and • Enhances shareholder value through clear, rigorous assessment of business opportunities�
SUSAN MCINNES Chief Executive, Standard Life Assurance Limited, and Group Director, Open Business
Roles and responsibilities • Leads development and delivery of the Standard Life business strategy; • Ensures that the customer proposition is evolved and that it continues to meet the market need; • Focuses on a business model which ensures good outcomes for customers, shareholders and all other stakeholders; and
Roles and responsibilities • Leads the development and delivery of the Phoenix
Life business strategy, including the continued integration of life businesses; • Leads the Phoenix Life business to optimise outcomes for customers in terms of both value and security; and
• Ensures Phoenix Life deploys capital efficiently and effectively, with due regard to regulatory requirements, the Risk Universe and strategy�
Roles and responsibilities • Leads on the Group’s Annual Report and Accounts,
Roles and responsibilities • Leads provision of legal advice to the Group
These matters include: • Group strategy and business plans; • Major acquisitions, investments and capital expenditure; • Financial reporting and controls; • Dividend policy; • Capital structure; • The constitution of Board committees; • Appointments to the Board and Board committees; • Senior executive appointments; and • Key Group policies�
The schedule of matters reserved for the Board is available from the Company Secretary� Matters which are not reserved for the Board and also its committees under their terms of reference (which are available on the Group website), or for shareholders in general meetings, are delegated to the executive management under a schedule of delegated authorities approved by the Board�
Culture, Values and their link to Companies Act Section 172 During the year, the Board focused on deepening its understanding of and refining the Group’s culture The Group Culture Insight Survey undertaken in December 2018 helped inform a new set of Group values adopted across the business: Passion, Responsibility, Growth, Courage and Difference� During 2019, these values were further evolved through direct interaction with colleagues and subsequent feedback from Senior Management resulting in approval of the refined values by the Group’s Executive Committee in April 2019�
At a dedicated session in 2019, the Board then considered the Group’s Culture and Values and later in 2019 reviewed the outcomes of the Group’s Colleague Insight Survey�
• need to act fairly as between members of the company�
All Board papers follow a template which requires consideration of proposals on Treating Customers Fairly� The Capital Management Policy, approved by the Life Company Board, ensures that the regulated life companies in the Group retain a robust level of capital� In addition the Life Company Board consists of a majority of independent non-executive directors who are not on the Group Board� The Life Company Board is focused strongly on preserving value for customers and is supported by several Board committees including the With-Profits Committee and Independent Governance Committee, which have duties to particular classes of customers and include non-executive Chairs and other non-executive members who are not directors of any Phoenix Group companies�
In addition, the Phoenix Group and Life Company Boards have approved investing in assets with a positive social impact as follows, as disclosed at the Phoenix Capital Markets day on 28 November 2019: • City growth and regeneration – c£100 million funding to progress investment in public services, transport and urban infrastructure
• Equity release – c£1�1 billion Equity Release Mortgage origination, helping over 12,000 households unlock equity in their homes
• Clean energy – c£135 million investment across solar, wind, hydro-electric and smart meters technologies
The Board’s understanding of the views of colleagues is being increased significantly through the direct interface of Karen Green, the designated Director for workforce engagement appointed to engage with the workforce�
The Board appointed Karen Green in March 2019 to undertake the role of the designated NED to engage with the workforce in support of the following provision in the Code: The board should understand the views of the company’s other key stakeholders and describe in the annual report how their interests and the matters set out in section 172 of the Companies Act 2006 have been considered in board discussions and decisionmaking. The board should keep engagement mechanisms under review so that they remain effective. For engagement with the workforce, one or a combination of the following methods should be used: • A director appointed from the workforce • A formal workforce advisory panel • A designated non-executive director
Suppliers The Board is updated at every Board meeting on the relationship with Phoenix’s main Outsource Service Providers who are a vital part of the customer service proposition� This relationship was a key theme of the Board’s offsite strategy session in July 2019� The operational risk aspect of the relationship with Outsource Service Providers is monitored at the Board Risk Committee and more detailed reporting occurs at the Board meetings of the Phoenix Life subsidiaries�
At Phoenix, the Board is committed to ensuring effective two-way communication between themselves and colleagues. The Board regards culture as being integral to the effective execution of our strategy and achieving strong corporate performance. An informed Employee Voice is a key element of this.
Our Networks We have a strong group of colleague-led networks within Phoenix covering a wide range of different interest groups� I met with representatives from these networks and was able to obtain a good feel for the level of commitment and engagement across these groups, as we seek to create a more inclusive and diverse culture�
Above and Right Interactive sessions with colleagues at Forum meeting 84 PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
In addition, I spent time with colleagues who are engaged specifically in a number of initiatives launched by the Group during 2019, focusing on Mental Health and Employee Wellbeing�
Unions and Staff Associations Meetings also took place with colleagues from our staff association and union representatives, Vivo, Unite and the German Works Council to hear their views on creating a fair and engaging place to work�
The inaugural Colleague Advisory Forum The above visits were followed by the inaugural meeting of our newly established Group wide Colleague Advisory Forum (‘the Forum’) in October� The Forum currently comprises 16 colleagues from different locations, grades and functions as representatives from across the business� Topics covered included: • strategic updates; • progress on the Group’s Diversity and Inclusion initiatives; • the output of the Group’s bi-annual Colleague Insight Survey; • embedding our harmonised values across our enlarged Group; • steps towards aligning our People Proposition; and
• the role of the Phoenix Group Board and its Committees and a flavour of the themes and issues the Board discusses�
Key themes discussed with the Board Key themes from my visits and the Colleague Engagement Forum which I discussed with my Board colleagues included: • feedback on how the organisation communicates across the Group (given the volume of organisational change and various transformation projects); • how Phoenix’s strategic purpose is understood by our colleagues; • the progress in embedding a common set of values across different locations and
Left Karen Green, Stephen Jefford (Group HR Director) and colleagues at Forum meeting
Middle Edinburgh colleagues at Board Committee Interaction Session 86 PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
“Our Edinburgh risk function colleagues found it invaluable to hear from John Pollock, the Chair of the Risk Committee, on the type of assurance the Board looks for from a Risk function. It was also extremely useful to hear first-hand on the wealth of experience that John brings to the Group to help navigate the various challenges that lie ahead, and in particular his thoughts on the key risks facing the Group in the near future.”
THE CHAIRMAN, GROUP CHIEF EXECUTIVE OFFICER AND SENIOR INDEPENDENT DIRECTOR Nicholas Lyons is Chairman of the Board of Directors of the Company� There is a division of responsibility, approved by the Board, between the Chairman, who is responsible for the leadership and effective operation of the Board and the Group Chief Executive Officer, Clive Bannister, who is responsible to the Board for the overall management and operation of the Group�
The terms and conditions of appointment of Non-Executive Directors are on the Group’s website� The remuneration of the Directors is shown in the Directors’ Remuneration Report on pages 99 to 130�
The terms of appointment for the Directors state that they are expected to attend in person regular (at least six per year) and additional Board meetings and to devote appropriate preparation time ahead of each meeting� In January 2020, the Nomination Committee reviewed the time spent by Directors and concluded that the time required of (and given by) the Directors is considered to exceed the level expected in their appointment terms�
Total Board composition 1� Chairman 1 2� Executive Directors 2 3� Independent Non-Executive
The Nomination Committee has confirmed its absolute satisfaction with the time and commitment given to Phoenix by all Directors� The Board, Audit, Nomination and Remuneration Committee attendance records for Nicholas Shott were impacted by his missing one meeting of each on the same date due to ill health� His attendance record was otherwise at 100%� Mike Tumilty missed the first Board meeting following his Board appointment due to a pre-existing commitment� Belinda Richards missed two of seven Risk Committee meetings, one for a family bereavement and one for a transactional meeting called at short notice� Her commitment is demonstrated by her attendance record being at 100% for Board, Audit and Remuneration Committee meetings�
The composition of the Nomination Committee is in accordance with the requirements of the Code that a majority of its members should be independent Non-Executive Directors� The Nomination Committee is responsible for considering the size, composition and balance of the Board; the retirement and appointment of Directors; succession planning for the Board and senior management, focused on the development of a diverse succession pipeline; and making recommendations to the Board on these matters�
The Nomination Committee met three times in 2019� This was less than in prior years as there was no non-executive recruitment in 2019� This was driven by the outcome of the November 2018 Board Evaluation Review which concluded that given the overall relatively short tenure of the non-executive directors on the Board, there should be no non-executive recruitment in 2019� The focus was instead on the succession planning for the Executive Directors� This was undertaken first at the Nomination Committee and then at the Board and led to the announcement on 8 November 2019 of Andy Briggs as successor to Clive Bannister as Group CEO�
The standard process used by the Committee for Board appointments involves the use of an external search consultancy to source candidates external to the Group and, in the case of executive appointments, also considers internal candidates� Detailed assessments of short-listed candidates are undertaken by the search consultancy, followed by interviews with Committee members and other Directors and the sourcing of references before the Committee recommends the appointments to the Board�
KEY NOMINATION COMMITTEE ACTIVITIES IN 2019 • Group Chief Executive Officer
• Diversity and Inclusion Oversight 90 PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
The Board supports, and complies with (effective 10 March 2020), the HamptonAlexander guidance for FTSE 350 companies that the Board should be comprised of at least 33% female directors� The Board also intends to comply with the guidance of the Parker Review for FTSE 100 companies that there should be at least one ethnic minority director on the Board by 2021, and will do so through the proposed appointment to the Board of Rakesh Thakrar from the May 2020 AGM�
• The Board’s overriding aim is to appoint the right Directors to the Board to drive forward the Group’s strategy within a robustly compliant framework�
BOARD EVALUATION REVIEW In accordance with the Code, an evaluation of the performance of the Board and that of its Committees and individual Directors was undertaken in the latter part of 2019� The process was led by the Chairman and internally facilitated by the Company Secretary� The process involved completion by Directors of a questionnaire covering various aspects of Board, Committee and Director effectiveness followed by individual meetings between the Chairman and each Director, concluding in a Board report which was discussed by the Board in November 2019� The focus of the review was to consider ways for the Board to manage its time most effectively to drive strategy and monitor performance in a robustly compliant manner� The actions arising from the review were consistent with this theme, underlining the Board’s desire to continue to focus on strategy and the Group’s future as a growing heritage and open business� These process- centred actions are being taken forward in 2020�
To ensure that the Directors maintain up-to-date skills and knowledge of the Group, all Directors receive regular presentations on different aspects of the Group’s business and on financial, legal and regulatory issues� All Directors receive a tailored induction on joining the Board in accordance with a process approved by the Board� In 2019 the new SLA- nominated Director, Mike Tumilty, undertook a comprehensive induction, including detailed strategic and operational briefings and information, before and following his appointment�
In accordance with the provisions of the Articles and the Code, all Directors will submit themselves for election or re-election at the Company’s AGM on 15 May 2020�
• Provision of advice to the Board to enable the Board to report on whether the Annual 04. AUDIT, RISK AND INTERNAL CONTROL
• Reviewed and monitored the effectiveness and independence of the Company’s External Auditors
Report and Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group’s position, performance, business model and strategy�
• Responsible for making recommendations to the Board on the appointment of the external auditors and their terms of engagement including approval of external auditor fees and non-audit services and for reviewing the performance, objectivity and independence of the external auditors�
• Considering and approving the remit of the Internal Audit function and reviewing its effectiveness�
• Oversight of activities of subsidiary audit committees through receipt and review of minutes, discussions between the Chairs of the Audit Committee and subsidiary audit committees, and the Audit Committee Chair’s attendance at the Phoenix Life Audit Committee on an occasional basis, as well as his receipt of all papers going to the Phoenix Life Audit Committee� This oversight has been enhanced further through the attendance at the Audit Committee, on at least an annual basis, by the Chair of the Phoenix Life Audit Committee�
• Reviewed a number of significant matters in relation to the Group’s IFRS and Solvency II reporting as summarised in the table on page 96� These matters were considered by the Audit Committee to be areas subject to the most significant levels of judgement or estimation, and identified with regard to the key audit matters assessed by the Group’s external auditors as set out in their audit opinion on pages 137 to 146;�
• Received dedicated briefings on matters including Finance and Actuarial Transition activity and the Group’s implementation of the new insurance accounting standard, IFRS 17�
• Reviewed the final accounting adopted in the 2018 consolidated financial statements for the acquisition of the Standard Life Assurance businesses, including the valuation of tangible net assets, the valuation of intangibles and the gain on bargain purchase, supported by reports from management and the external auditor�
The external auditors' independence was reviewed and monitored against the Group’s External Auditor policy, including their provision of non-audit services and fees – see Auditor’s Independence and External Auditor Policy on page 95�
Internal audit During 2019, the Audit Committee continued to receive regular updates from the Head of Internal Audit on various internal audit related matters� This included the annual update of the Group Internal Audit Charter and the Group Internal Audit Plan which were approved and received regular reports to monitor progress against the plan� The Audit Committee also reviewed the internal audit control environment opinion which included Internal Audit’s view of the risk management framework across the Group�
In line with the requirements of the Internal Audit Charter, and to maintain compliance with the Chartered Institute of Internal Auditors (CII) standards and the Financial Services CIIA Code to undertake an independent external assurance review over the effectiveness of the Internal Audit function at least once every five years, an external effectiveness assessment was undertaken by PwC� From the review PwC concluded that Internal Audit was ‘An evolving function with a culture of development, which, in a period of challenge and rapid change, has set good foundations on which to build�’ It had also been recognised the work being undertaken in bringing the two legacy teams together and establishing the enlarged function in a challenging year� Positive steps taken by the team in 2019 included; the definition of the Internal Audit function’s target operating model, a new combined methodology, and the implementation of a new audit system (Teammate+)�
• Reviewed and approved updates to the Group Tax Policy, Group Tax Strategy, Group External Auditor Policy and the Group Liquidity & Funding Policy�
• The Committee considered the findings of external evaluations of EY, notably the Financial Reporting Council’s Annual Quality Review�
AUDITOR’S INDEPENDENCE AND EXTERNAL AUDITOR POLICY The Company has an external auditor policy which requires the Company and the external auditors to take measures to safeguard the objectivity and independence of the external auditors� These measures incluices in respect of specific areas, such as secondments to management positions, or those which could create a conflict or perceived conflict� It also includes details of the procedures for the rotation of the external engagement partner�
In 2019, total fees of £10�7 million were paid to EY� Of this amount £6�0 million related to statutory audit fees of the parent and its subsidiaries, with a further £1�4 million incurred in relation to services provided pursuant to legal or regulatory requirements�
The Audit Committee noted the release in December 2019 of the Financial Reporting Council ('FRC') Revised Ethical Standard, which will become effective on 15 March 2020� In particular the Committee has noted the changes the new Standard implements with regard to permissible non-audit services� Following issuance of the Revised Standard, potential new non-audit services engagements are being monitored by reference to the revised requirements and the Group’s External Auditor Policy will be updated in this regard in early 2020�
In light of the above, the Audit Committee is satisfied that the non-audit services performed during 2019 have not impaired the independence of EY in its role as external auditor� Further information on non-audit fees is provided in the Notes to the IFRS Consolidated Financial Statements on page 167�
Management presented papers to the Life Company Audit Committees detailing recommendations for the actuarial assumptions and methodologies to be used for the interim and year-end reporting periods with justification and benchmarking as appropriate� These assumptions and methodologies were debated and challenged by the Life Company Audit Committees, with focus on longevity, persistency and expenses, prior to their approval�
The Audit Committee received and considered detailed written and verbal reporting from the external auditors setting out their observations and conclusions in respect of the assumptions, methodologies and actuarial models�
Provisions Management presented papers detailing the basis of recognition and measurement of accounting provisions recognised by the Group� The Audit Committee considered the results of the analysis performed, the uncertainties surrounding measurement adopted and confirmed the appropriateness of the conclusions reached�
Operating Profit The Audit Committee reviewed the allocation of key items to operating profit to ensure the allocations were in line with the Group’s operating profit framework and consistent with previous practice�
The Audit Committee considered an analysis of the processes and conclusions in support of management’s conclusions that the Annual Report and Accounts are fair, balanced and understandable� As part of the year-end procedures, the Audit Committee discussed with management and EY the review processes that operated over the production of the Annual report and Accounts�
• A set of ‘Operating Principles’ are in place to define the responsibilities and accountabilities of the Risk Committees of Phoenix Group and its subsidiary company boards to avoid any overlap of focus or assurance activity�
• The Chairman of the Phoenix Life and Standard Life Investment Committees, Nick Poyntz-Wright, also periodically attends the Committee meetings to provide key updates which helps to facilitate discussions relating to investment risk�
Details of the Risk Management Framework ('RMF'), for which the Risk Committee has oversight, are provided in the Risk Management section on pages 48 to 57�
progress of the implementation of the harmonised RMF approach across the Group�
• Monitored compliance with the Group’s principal risk policies, satisfying itself that action plans to address significant breaches of those policies were sufficient�
• Informed the Remuneration Committee regarding the management of the Group’s material risks to support their consideration of executives' Annual Incentive Plan rewards�
REVIEW OF SYSTEM OF INTERNAL CONTROLS The Board has overall responsibility for the Group’s risk management and internal control systems and for reviewing their effectiveness in accordance with the Code� The Group’s systems of internal controls are designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss�
The Board (and its subsidiary company boards) monitor internal controls on a continual basis, in particular through the Audit and Risk Committees, which draw upon input from all three lines of defence� There is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group, which has been in place throughout the period covered by this report and up to the date of approval of the Annual Report and Accounts for 2019, in accordance with the ‘Guidance on Risk Management, Internal Control and Related Financial and Business Reporting’ published by the Financial Reporting Council� The assessment for 2019 was presented to the Board, following review by both Audit and Risk Committees, on 6 March 2020� Where any significant weaknesses were identified, corrective actions have been taken, or are being taken and monitored by both the business and the Committees accordingly�
“During the year the Committee considered a range of risks facing the Group which included the impact of Brexit and the acquisition of ReAssure Group plc. The Committee will continue to review and enhance key areas such as operational resilience and climate change risk.”
Brexit Planning • During the year the Committee monitored the ongoing Brexit negotations between the United Kingdom and the European Union and reviewed the Group’s operational readiness ahead of the UK departure on 31 January 2020�
Operational Resilience • The Committee's key focus during the year has been to enhance the existing operational resilience framework to strengthen the control environment�
Corporate Governance Report continued 98 PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
• A review of wider workforce policies in light of the integration of the SLA business�
• Regular monitoring of financial and non-financial outcomes against 2019 targets in the context of business strategy and risk appetite�
• Approving remuneration packages associated with the two Executive Director changes�
As part of the acquisition of the SLA businesses, Phoenix gained: • Additional assets under management of £166 billion, an increase of 225%�
ANNUAL INCENTIVE PLAN (‘AIP’) The first change is to add a new metric to the AIP, Net Flows (Workplace), to reflect the increased significance of the Open business following the acquisition of the SLA businesses� Net Flows (Workplace) replaces the previous Management Actions metric, and will function in a transparent and robust manner� See page 123 for further details�
Jim McConville will leave Phoenix on 15 May 2020� His departure arrangements will be in line with the remuneration policy� He will receive pay in lieu of notice for the period starting on this date and ending on 9 March 2021, comprising salary, pension allowance and insurance benefits� He will receive no compensation for loss of car allowance� Jim's 2019 AIP will be paid in the normal way and subject to 40% deferral in line with the current policy� Jim will be eligible for a 2020 AIP award for the portion of the year in which he remains employed by the Group, which will be payable in March 2021 and subject to 50% deferral in line with the proposed policy� Jim’s in-flight LTIP awards will be pro-rated to his end date�
Phoenix has advanced greatly during the mandates of Clive and Jim in terms of performance for shareholders, customers and employees alike� We are grateful to both Clive and Jim for their contributions�
In November, we announced that Clive Bannister would step down as CEO following the publication of our 2019 full year results, after nine very successful years with the business� His departure arrangements will be in line with the remuneration policy�
The third change is an increase in deferral from 40% to 50% in order to further increase the level of alignment between the Executive Directors and shareholders, reflecting best practice within the FTSE 100 index�
OTHER CHANGES Share Ownership Guidelines (‘SOG’) – The requirement for the Executive Directors’ SOG is increased from 200% of salary to 300% of salary for the CEO and to 250% of salary for the CFO� Unvested deferred bonus shares (net of tax) that are no longer subject to performance conditions will be included within shares counting towards the SOG� The Post Cessation Shareholding Requirement will align with in-employment SOG for a period of two years after departure�
Benefits – The maximum level of reimbursed expenses under the Relocation Policy is reduced to £50,000�
The 2017 LTIP award covering the years 2017–2019 will vest at 68�5% of the maximum opportunity for both Clive Bannister and Jim McConville�
These outcomes reflect the strategic achievements of the year in terms of financial, non-financial, and personal contributions�
The resulting single total figure of remuneration for Clive Bannister was £2,976k and for Jim McConville was £1,843k�
Kory Sorenson Remuneration Committee Chair *These metrics have been renamed simply to provide clarity� The calculations for these remain unchanged from last year�
ALIGNMENT TO STRATEGY This diagram demonstrates how each of our performance measures for AIP and LTIP align with the Company’s strategy�
Group performance measures Long Term Incentive Plan (‘LTIP’): Below we show outturn against the measures which applied for the 2017 LTIP awards which are reflected in the Single Figure Table on page 114� Cumulative cash generation and TSR performance are shown over the three-year performance period (financial years 2017, 2018 and 2019)� TSR is measured against the constituents of the FTSE 250 (excluding Investment Trusts), with median being the 50th percentile and upper quintile being the 80th percentile� Cash generation continues to be one of our key corporate strategic objectives, while TSR provides a direct linkage to shareholder interests�
Directors’ Remuneration Report continued 102 PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
SHAREHOLDING GUIDELINES (‘SOGS’) A significant proportion of executive remuneration is delivered in shares which are released over a period of five years� In combination with our shareholding guidelines, this aligns Executive Directors with shareholders over the long-term� As at 31 December 2019, both Clive Bannister and James McConville had exceeded their shareholding requirements, as set out in the chart below� Further details on shareholding guidelines are included in the Remuneration Policy in Section A under the Shareholding Guidelines section on page 110 and in Section B on page 125�
Pension New Executive Directors aligned with wider workforce� Contribution rate to be disclosed following review of company pension provision�
2019 performance measures: Deferral of 50% for a period of three years�
Financial performance measures will not be reduced below 60% of potential�
Executive Directors are expected to retain all shares which vest under the DBSS and the LTIP until a minimum holding of 200% of base salary is accumulated�
Share awards do not count prior to vesting (including DBSS awards)�
Post cessation of employment, Executive Directors retain the full requirement in the first year and half in the second year�
Executive Directors are expected to retain all shares which vest under the DBSS and the LTIP until a minimum holding of 300%/250% of base salary for CEO/CFO is accumulated�
Unvested share awards no longer subject to performance conditions (discounted for anticipated tax liabilities), may be counted for the purposes of the guidelines�
Post cessation of employment, Executive Directors are expected to retain this minimum level, or the level held at termination, for a period of two years�
The Company’s overall positioning on remuneration for Executive Directors has been updated to reflect the provisions of the new UK Corporate Governance Code, best practice and feedback received from shareholders during consultation�
An appropriate balance is maintained between fixed and variable components of remuneration�
Our updated Remuneration Policy benchmarks the total target remuneration for the Executive Directors using appropriate market data sets�
* This section does not form part of the Remuneration Policy and is for information only�
• We have included additional diagrams and charts in this year’s Remuneration Report to improve clarity for readers regarding the alignment of Executive remuneration with shareholders and our strategy�
• Malus and clawback operate in respect of the AIP and LTIPs (see page 111 for details on trigger events)�
• The Committee may apply discretion to override formulaic outcomes if they are considered inconsistent with the underlying performance of the Group�
POTENTIAL REWARDS UNDER VARIOUS SCENARIOS (£000) The charts below compare the maximum levels of Total Remuneration payable under the Directors’ Remuneration Policy (see page 108)�
Minimum, on-target and maximum represent the scenario charts required under the Directors’ Remuneration Policy – see the data assumptions below�
‘Maximum with growth’ is the maximum scenario, but with the LTIP element increased to reflect a 50% share price growth assumption over the three-year period until LTIP vesting� The element of the total representing the value from these assumptions on share price growth and dividends is shown separately�
Maximum • Salary levels are specific to the role and individual� • Maximum salary will be the median level of salaries for CEO's in the FTSE31-100 (currently £800,000), provided that this figure may be increased in line with UK RPI inflation for the duration of this policy� • However, when reviewing salaries for Executive Directors, the Remuneration Committee will also review the salaries, and salary increases, for senior management and employees in relevant countries to maintain consistency� Percentage increases for Executive Directors will not exceed that of the broader employee population, other than in specific circumstances identified by the Remuneration Committee (e�g� in response to a substantial change in responsibilities)�
The Remuneration Committee reserves discretion to introduce new benefits where it concludes that it is in the interests of the Group to do so, having regard to the particular circumstances and to market practice�
• Where appropriate, the Group will meet certain costs relating to Executive Director relocations and other exceptional expenses�
Policy and operation • The Group provides a competitive employer sponsored defined contribution pension plan� • All Executive Directors are eligible to participate in the Defined Pension Contribution plan available to all new joiners or they may opt to receive the contribution in cash if they are impacted by the relevant lifetime or annual limits� Any such cash payments are reduced for the effect of employers’ National Insurance Contributions�
Maximum • Pension contributions for Executive Directors are aligned with the wider workforce rate which is currently 12% of salary (reduced to 10�5% when taken as cash in lieu of contribution)�
Element and purpose in supporting strategic objectives Annual Incentive Plan (‘AIP’) and Deferred Bonus Share Scheme (‘DBSS’) To motivate employees and incentivise delivery of annual performance targets aligned to strategy
Performance measures • The performance measures applied to AIP will be set by the Remuneration Committee and may be financial or non-financial and corporate, divisional or individual and in such proportions as it considers appropriate� However, the weighting of financial performance measures will not be reduced below 60% of total AIP potential in any year for the duration of this policy�
• In respect of the financial and non-financial performance measures, attaining the threshold performance level produces a £nil annual incentive payment� • On-target performance on all measures produces an outcome of 50% of maximum annual incentive opportunity� However, the Remuneration
Committee reserves the right to adjust the threshold and target levels for future financial years in light of competitive practice�
Policy and operation • Awards under the LTIP may be in any of the forms of awards to receive shares for nil-cost (as described for DBSS above)� • LTIP awards are made automatically each year on the fourth dealing day following the announcement of annual results, using the average of the preceding three dealing days’ share prices to calculate the number of shares in awards� • The vesting period will be at least three years and run until the third anniversary of the award date (unless a longer vesting period is introduced)� • A holding period will apply so that Executive Directors may not normally exercise vested LTIP awards until the fifth anniversary of the award date� • Dividend entitlements will accrue until the end of the holding period in respect of performance vested shares and be delivered as additional vesting shares� • Malus/clawback provisions apply on a basis consistent with the equivalent provisions in the AIP and DBSS and as explained in the notes to this table� • The Group will honour the vesting of all awards granted under previous policies in accordance with the terms of such awards�
of up to 275% of the CEO’s annual base salary and 200% of the CFO’s annual base salary although discretion is reserved to make awards up to the maximum levels for the policy as stated above�
Performance measures • The Remuneration Committee may set such performance measures for LTIP awards as it considers appropriate (whether financial or non-financial and whether corporate, divisional or individual)� The measures for the 2020 LTIP are as set out below: Measure Weighting
• The Remuneration Committee retains discretion to adjust the weightings or substitute metrics but would expect to consult with its major shareholders regarding any material changes of the current performance measures applied for LTIP awards made to Executive Directors or the relative weightings between these performance measures�
• For every LTIP award, appropriate disclosures regarding the proposed performance conditions will be made in the annual Implementation Report� • Once set, performance measures and targets will generally remain unaltered unless events occur which, in the Remuneration Committee’s opinion, make it appropriate to make adjustments to the performance measures to ensure alignment with strategic objectives, provided that any adjusted performance measure is, in its opinion, neither materially more nor less difficult to satisfy than the original measure�
• For each part of an LTIP award subject to a specific performance condition, the threshold level of vesting will be no more than 25% of that part of the LTIP award�
Maximum • Sharesave – the Remuneration Committee has the facility to allow individuals to save up to a maximum of £500 each month (or such other level as permitted by HMRC legislation) for a fixed period of three or five years� At the end of the savings period, individuals may use their savings to buy ordinary shares in the Company at a discount of up to 20% of the market price set at the launch of each scheme�
Performance measures • Consistent with normal practice, such awards are not subject to performance conditions�
• Only beneficially owned shares, vested share awards, and unvested share awards not subject to performance conditions (discounted for anticipated tax liabilities), may be counted for the purposes of the guidelines� Share awards subject to performance conditions do not count prior to vesting�
• Once shareholding guidelines have been met, individuals are expected to retain these levels as a minimum� The Remuneration Committee will review shareholdings annually in the context of this policy�
• Post cessation of employment, Executive Directors are expected to retain the lower of their full level of employment shareholding guideline or their actual shareholding at termination for a period of two years�
Policy and operation • The fees paid to the Chairman and the fees of the other Non-Executive Directors are set to be competitive with other listed companies of equivalent size and complexity� • The Group does not adopt a quantitative approach to pay positioning and exercises judgement as to what it considers to be reasonable in all the circumstances as regards quantum� • Additional fees are paid to Non-Executive Directors who chair a Board committee, or sit on the board of a subsidiary company or on the Solvency II
• Fees are paid monthly in cash� • Fee levels for Non-Executive Directors are reviewed annually with any changes normally taking effect from 1 January� Additional reviews may take place in exceptional circumstances, such as following major corporate events, to ensure that fees remain appropriate in the context of the Group's size and complexity�
NOTES TO THE REMUNERATION POLICY TABLE 1. Differences between the Policy on Remuneration for Directors and the Policy on Remuneration of other employees When determining Executive Directors’ remuneration, the Committee takes into account pay throughout the Group to ensure that the arrangements in place remain appropriate�
• All-employee share plans – the Committee considers it is important for all employees to have the opportunity to become shareholders in the Company� The Company offers two HMRC tax advantaged arrangements in which all UK employees can participate and acquire shares on a discounted and tax advantaged basis (Sharesave and SIP), and equivalent arrangements in foreign jurisdictions (including on a tax advantaged basis permitted under local laws)� In addition, selected individuals may receive ad-hoc share awards under the Chairman’s Award programme in recognition of exceptional commercial outcomes and is contingent on continued employment�
3. Malus and clawback Malus (being the forfeiture of unvested awards) and clawback (being the ability of the Company to claim repayment of paid amounts as a debt) provisions apply to the AIP, DBSS and LTIP� These provisions may be applied where the Remuneration Committee considers it appropriate to do so following: • a review of the conduct, capability or performance of an individual; • a review of the performance of the Company or a Group member; • any material misstatement of the Company’s or a Group member’s financial results for any period; • any material failure of Risk Management by an individual, a Group member or the Company; or
4. Travel and hospitality While the Remuneration Committee does not consider this to form part of benefits in the normal usage of that term, it has been advised that corporate hospitality (whether paid for by the Company or another) and certain instances of business travel (including any related tax liabilities settled by the Company or another Group company) for Directors may technically be considered as benefits and so the Remuneration Committee expressly reserves the right to authorise such activities and reimbursement of associated expenses within its agreed policies�
5. Discretions reserved in operating incentive plans The Remuneration Committee will operate the AIP, DBSS and LTIP according to their respective rules and the above Remuneration Policy table� The Remuneration Committee retains certain discretions, consistent with market practice, in relation to the operation and administration of these plans including: • (as described in the Remuneration Policy table) the determination of performance measures and targets and resulting vesting and pay-out levels; • (as described in the Remuneration Policy table) the ability to adjust performance measures and targets to reflect events and/ or to ensure the performance measures and targets operate as originally intended; • (as described in the Termination Policy) determination of the treatment of individuals who leave employment, based on the rules of the incentive plans, and the treatment of the incentive plans on exceptional events, such as a change of control of the Company; and
• the ability to make adjustments to existing awards made under the incentive plans in certain circumstances (e�g� rights issues, corporate restructurings or special dividends)� Any exercise of discretion will be disclosed in the Implementation Report for the year�
The AIP and LTIP will operate (including the maximum award levels) as detailed in the general policy in relation to any newly appointed Executive Director�
For an internal appointment, any variable pay element awarded in respect of the prior role may either continue on its original terms or be adjusted to reflect the new appointment as appropriate�
For external candidates, it may be necessary to make awards in connection with the recruitment to buy out awards forfeited by the individual on leaving a previous employer� For such buy-out awards, Phoenix Group will not pay more than is, in the view of the Remuneration Committee, necessary and will in all cases seek, in the first instance, to deliver any such awards under the terms of the existing incentive pay structure� It may, however, be necessary in some cases to make such awards on terms that are more bespoke than the existing annual and equity-based pay structures in Phoenix Group in order to secure a candidate� Details of any buy-out awards will be appropriately disclosed�
All such buy-out awards, whether under the AIP, LTIP or otherwise (for example, specific arrangements made under Listing Rule 9�4�2), will take account of the service obligations and performance requirements for any remuneration relinquished by the individual when leaving a previous employer� The Remuneration Committee will seek to make buy-out awards subject to what are, in its opinion, comparable requirements in respect of service and performance� However, the Remuneration Committee may choose to relax this requirement in certain cases (such as where the service and/or performance requirements are materially completed), and where the Remuneration Committee considers it to be in the interests of shareholders and where such factors are, in the view of the Remuneration Committee, reflected in some other way, such as a significant discount to the face value of the awards forfeited� Exceptionally, where necessary, this may include a guaranteed or non pro-rated annual incentive in the year of joining�
Subject to Board approval, Executive Directors are permitted to accept outside appointments on external boards as long as these are not deemed to interfere with the business of the Group�
In the event of cessation of a Non-Executive Director’s appointment (excluding the Chairman) they would be entitled to a one month’s notice period� The Chairman, as detailed in his letter of appointment, would be entitled to a six months’ notice period�
No awards made Either the AIP will continue for the year or there will be a pro-rated annual incentive� Performance metrics determined by the Remuneration Committee
CONSIDERATION OF SHAREHOLDERS’ VIEWS Each year the Remuneration Committee takes into account the approval levels of remuneration-related matters at our AGM in determining that the current Remuneration Policy remains appropriate for the Company�
SECTION B: THIS SECTION CONTAINS THE ANNUAL REPORT ON REMUNERATION WHICH FORMS PART OF THE DIRECTORS’ REMUNERATION REPORT TO BE PROPOSED FOR APPROVAL BY THE COMPANY’S SHAREHOLDERS AT THE COMPANY’S 2020 AGM ON 15 MAY 2020
2 Benefits for Clive Bannister comprise car allowance and private medical insurance totalling £16,346� Benefits for James McConville comprise car allowance and private medical insurance totalling £16,076�
PAYMENTS FOR LOSS OF OFFICE AND PAYMENTS TO PAST DIRECTORS There were no payments made to former Directors and no payments for loss of office in the year�
AIP OUTCOMES FOR 2019 Against the specific Corporate measures, outturns were as follows: Performance measure
Operating Companies' Cash generation £600m £650m £700m £707m 30�00% 30�00% Solvency II Management Actions £120m £170m £250m £512m 15�00% 15�00% Adjusted Shareholder Solvency II Own Funds
Customer experience Customer satisfaction (Phoenix Life)1 90% 91% 93% 94�0% 3�75% 3�75% CAT B incident closures (Phoenix Life)2 ≥70% ≥72�5% ≥75% 83�0% 2�50% 2�50% Customer Service and Accessibility (SLAL)3
Origo timescales (all)4 ≤12 days ≤11 days ≤9�5 days 9�7 days 7�50% 7�00% Servicing complaint closure5 50% 55% 60% 56�0% 2�50% 1�50% FOS overturn rate6 ≤20% ≤19% ≤18% 17�0% 2�50% 2�50% Total 100�00% 93�50%
1 The rating is a customer satisfaction score based on the results of a satisfaction survey managed by Ipsos MORI (an external research firm)� Customers surveyed were asked to give a satisfaction rating of between 1 and 5 to a number of questions (with a rating of 4 or 5 regarded as satisfied)� 94% of all questions asked scored a rating of 4 or above�
All customer target ranges were set at the same level as the previous year with the exception of Servicing Complaints which was set at a lower level than in 2018� This measure was introduced into the AIP in 2018 and focused on the swift but appropriate resolution of complaints acknowledging the FCA requirement to close complaints within an 8 week period� In setting the 2019 target range, the Committee considered the historic outturns for Servicing Complaints at the SLA businesses and determined that the lower range was appropriate to incentivise improved performance across the combined business�
Prior to confirming the outcomes for the 2019 AIP, the Committee reviewed in detail the extent to which the Group had operated within its stated risk appetite during the year and determined that no moderation of the 2019 formulaic outcome was necessary�
Personal objectives were agreed by the Group Board and shared with the Remuneration Committee at the start of the year� A number of the personal objectives are considered commercially sensitive and, accordingly, are not disclosed below� However a number of achievements for the Executive Directors are shown below: Clive Bannister, Group Chief Executive Officer (‘Group CEO’)
Ensured the Group remained on track to deliver total cost and capital synergy target of £1�2 billion�
Deliver financial targets Ensured the Group remained on target to deliver 2019–2023 cash generation ≥ £3�9 billion� Oversaw the resilience of the Group shareholder capital coverage ratio at 31 December 2019 to 161%, in the middle of our target range of 140–180%� Ensured our current investment grade rating was maintained with a 'positive' outlook, upgraded from 'stable' following the announcement of the proposed acquisition of ReAssure Group plc� Ensured all internal targets were met in relation to persistency within our Workplace Pensions business for 2019�
Enhance BPA operation and deliver on the strategic asset allocation strategy
Oversaw continued development of on-line capabilities� Within Phoenix Life, the phoenixlife� co�uk website continues to accept c�50,000 visits per month, and MyPhoenix has digitally enabled over 80% of customers� Within Standard Life Assurance Limited ('SLAL'), logins to the mobile app and dashboard increased to over 1 million per month, 21% ahead of target� The expanded partnership with TCS announced in 2019 will enable further innovation and digital capability to build on the Group’s customer service excellence�
Integration of the Standard Life Assurance businesses continues on plan and we have shared appropriately with all stakeholders our intended engagement with strategic partners and associated outsourcing of technology and operations�
Deliver actions to distinguish Phoenix Group as a High Performing Organisation including salary/bonus conformity by end of 2019
In addition, whilst the performance measures for the AIP for 2020 have been disclosed (see Implementation of Remuneration Policy for 2020 on page 123), the actual performance targets for these measures are regarded as commercially sensitive at the current time and accordingly are not disclosed� However, as in previous years, the Company intends to disclose the performance targets for 2020’s AIP retrospectively in next year’s Remuneration Report on a similar basis to the disclosures made above in respect of 2019’s AIP�
TSR (50%) Target range between median performance against the constituents of the FTSE 250 (excluding Investment Trusts) rising on a pro rata basis until full vesting for upper quintile performance� In addition, the Committee must consider whether the TSR performance is reflective of the underlying financial performance of the Company�
NON-EXECUTIVE FEES – AUDITED INFORMATION The emoluments of the Non-Executive Directors for 2019 based on the current disclosure requirements were as follows: Name
1 The amounts within the benefits columns reflect the fact that the reimbursement of expenses to Non-Executive Directors for travel and accommodation costs incurred in attending Phoenix Group Holdings and Phoenix Group Holdings plc Board and associated meetings represent a taxable benefit� This position has been clarified with HMRC and the amounts shown are for reimbursed travel and accommodation expenses (and the related tax liability which is settled by the Group)�
James McConville 1 In addition to the shares awarded under the LTIP presented above, participants receive an additional number of shares (based on the number of LTIP awards which actually vest) to reflect the dividends paid during the vesting period (and which for awards made from 2015, will include dividends paid during any applicable holding period)�
2 Gains of Directors from share options exercised and vesting shares under the LTIP in 2019 were £nil (2018: £nil)� 3 The 2016 LTIP award vested at 49�5% of maximum� The 2017 LTIP award vested at 68�5% of maximum� 4 All LTIP awards are now subject to a holding period so that any LTIP awards for which the performance vesting requirements are satisfied will not be released for a further two years from the third anniversary of the original award date�
LTIP TARGETS The performance conditions for the 2017, 2018 and 2019 awards are set out below and include the adjustments made to the 2018 targets as described on page 94 in the 2018 DRR� For clarity no changes were made to the 2017 targets as the plan only consisted of two performance measures, Cumulative cash generation and TSR� No cash generation was expected to be released in 2018 or 2019 from Standard Life Assurance Limited following completion in August 2018�
Return on Adjusted Shareholder Solvency II Own Funds 25% of this part vests at threshold performance rising on a pro rata basis until 100% vests� Measured over three financial years commencing with the year of award�
TSR 25% of this part vests at threshold performance rising on a pro rata basis until 100% vests� In addition, the Committee must consider whether the TSR performance is reflective of the underlying financial performance of the Company, measured over three financial years commencing with the year of award�
Target range between median performance against the constituents of the FTSE 250 (excluding Investment Trusts) rising on a pro rata basis until full vesting for upper quintile performance�
The DBSS is the share scheme used for the deferral of AIP� No performance conditions apply therefore, other than being subject to continued employment�
The face value represents the maximum vesting of awards granted (but before any credit for dividends over the period to vesting) and is calculated using a share price of the average of the closing middle market prices of Phoenix shares for the three dealing days preceding the award date�
DIRECTORS’ INTERESTS – AUDITED INFORMATION The number of shares and share plan interests held by each Director and their connected persons are shown below: As at or date of appointment if later
Total share plan interests as at 31 December 2019 – Subject to performance measures
Total share plan interests as at 31 December 2019 – Vested but unexercised scheme interest
The extent to which Executive Directors have achieved the requirements by 31 December 2019 (using the share price of 749p as at 31 December 2019) can be summarised as follows: Position
The Executive Directors are required to sign a declaration that they have not and will not at any time during their employment with Phoenix, enter into any hedging contract in respect of their participation in the AIP, LTIP, Sharesave, SIP or any other incentive plan of the Company, or pledge awards in such plans as collateral, and additionally that they will neither enter into a hedging contract in respect of, nor pledge as collateral, any shares which are required to be held for the purposes of the Company’s Shareholding requirements or any vested LTIP award shares subject to a LTIP holding period�
Salary £800,000 Benefits Benefits in line with our new Unified People Proposition (see page 126 for further details) including car allowance of £10,000 (previous policy £15,000) and Private Medical Insurance cover for self only� Executive Directors are also entitled to receive benefits in accordance with our Directors’ Remuneration Policy which will be reported in the Single Figure Table each year�
Executive Directors are expected to retain the lower of their shareholding on termination or their full in-employment shareholding requirement for two years�
As per the announcement on 9 March 2020, the Committee also warmly welcomes Rakesh Thakrar to the Board as Group Chief Financial Officer ('CFO') subject to regulatory approval� The Committee is delighted with this appointment as an attestation to the succession plans within Phoenix Group, enabling this promotion from within the organisation� The table below details the remuneration package for the new CFO�
Salary £420,000 Benefits Benefits in line with our new Unified People Proposition (see page 126 for further details) including car allowance of £10,000 (previous policy £15,000) and Private Medical Insurance cover for self only� Executive Directors are also entitled to receive benefits in accordance with our Directors’ Remuneration Policy which will be reported in the Single Figure Table each year�
Annual bonus 150% of base salary at maximum� Details of the 2020 AIP are set out below� LTIP 200% of base salary� Details of the 2020 LTIP awards are set out below� Shareholding requirement 250% of base salary�
1 These metrics have been renamed simply to provide clarity� The calculations for these remain unchanged from last year� The Cash Generation and Shareholder Value metrics remain as they represent both the Open and the Heritage business�
Awards under the LTIP will be made automatically on the fourth dealing day following the announcement of the Group's 2019 annual results under a procedure similar to that described above for awards under the DBSS� The number of shares for LTIP awards will be calculated using the average share price for the three dealing days before the grant of the LTIP awards� The initial three-year vesting period will run to the three-year anniversary of the making of the LTIP awards� At this time, the performance conditions will be determined� All annual LTIP awards made to Executive Directors are subject to a holding period so that any LTIP awards for which the performance conditions are satisfied will not be released for a further two years from the third anniversary of the original award date� Dividend accrual for LTIP awards will continue until the end of the holding period� The weightings of the LTIP performance measures for 2020 have been revised to reflect the Open Business following the acquisition of the Standard Life Assurance businesses in 2018� A Persistency metric will be added as a fourth element of long-term value assessment� Persistency is a key metric for the Group’s long-term strategy, as it measures long-term customer retention� This is consistent with the New Workplace Flows metric in the AIP, which is focused on the shorter term�
Net Operating Cash Receipts 35% Return on Shareholder Value 25% Persistency 20% Total Shareholder Return 20% Total 100%
The fee levels as at 1 January 2020 are the same as for 2019: £325,000 for the Chairman, £105,000 for the role of Non-Executive Director with additional fees of: (i) £10,000 payable for the role of SID; and/or (ii) £20,000 payable where an individual also chairs the Audit, Remuneration or Risk Committee; and/or (iii) £20,000 payable where a Non-Executive Director also serves on the board of a subsidiary company or is the dedicated Workforce Director of Engagement; and/or (iv) £10,000 payable for service on the Solvency II Model Governance Committee� In line with the directors' remuneration policy, fee levels will be reviewed during the year to ensure that they remain competitive with other listed companies of equivalent size and complexity�
Share ownership guidelines • Requirement to hold shares worth 2x base salary continues to apply until one-year anniversary of departure and 1x base salary until two-year anniversary� See page 121 for current shareholding�
Termination payment • Balance of 12 months from date of departure to one-year anniversary of announcement of departure (9 March 2021)�
• Payment comprises salary plus certain benefits plus pension� • Paid monthly and subject to reduction in relation to payments for the periods from 10 March 2019 onwards if a new role found� 2019 AIP • Paid in the normal way including 40% deferral in line with the current policy� 2020 AIP • Eligible for payment to termination date�
• Paid in March 2021 with 50% deferral in line with new policy� DBSS • Deferred awards, including the deferred elements of the above 2019 and 2020 AIP awards, will be maintained until the third anniversary of grant� LTIP • Good leaver status�
• Awards only exercisable on fifth anniversary of grant� • No grant in 2020 for the 2020–22 performance years' LTIP�
• DBSS shares subject to deferral or LTIP shares subject to holding period count towards the requirement on a net of tax basis�
Profit distributed by way of dividend has been taken as the dividend paid and proposed in respect of the relevant financial year� For 2019 this is the interim dividend paid (£169 million) and the recommended final dividend of 23�4p per share multiplied by the total share capital issued at the date of the Annual Report and Accounts as set out in note D1 in the notes to the consolidated financial statements� No share buy-backs were made in either year�
To approve the Directors’ Remuneration Report for the year ended 31 December 2018 (2019 AGM) 544,206,471 99�78 1,187,255 0�22 36,734 To approve the Directors’ Remuneration Policy (2019 AGM) 543,758,443 99�70 1,637,633 0�30 34,384
DILUTION The Company monitors the number of shares issued under the Phoenix Group employee share plans and their impact on dilution limits� The Company’s practice is for all the executive share plans to use market purchase shares on exercise of any awards� For the Company’s all-employee Sharesave scheme only, new shares are issued� Therefore the usage of shares compared to the 10% dilution limits (in any rolling 10-year period) set by the Investment Association in respect of all share plans as at 31 December 2019 is 0�63%, and no shares count towards the dilution limit for executive plans only (5% in any rolling ten-year period)�
CONSIDERATION OF EMPLOYEE PAY During 2019, proposals were shared with the Committee on a new Unified People Proposition for transitioning heritage Phoenix Group and heritage SLAL colleagues onto a common grading structure and benefit offering, balancing competitiveness and cost while mindful of the impact to colleagues� The remuneration packages for the new Executive Directors are aligned to this new Unified People Proposition�
As explained in the Notes to the Remuneration Policy table: • when determining Executive Directors’ remuneration, the Committee takes into account pay throughout the Group to ensure that the arrangements in place remain appropriate; • the Group has one consistent reward policy for all levels of employees, and therefore the same reward principles guide reward decisions for all Group employees, including Executive Directors� Remuneration packages do however differ to take into account appropriate factors in different areas of the business� The Group offers all employees a choice of share schemes (Sharesave and Share Incentive Plan) on the same basis as those offered to Executive Directors�
The Group reviewed the pay of the three identified employees at LQ, M and UQ and concluded that they were a fair representation of pay at the relevant quartiles of the UK employee base� Each individual was a full time employee during 2019 and received remuneration in line with Group wide remuneration policies� None received exceptional pay�
Phoenix Group has calculated the CEO pay ratio using Option A which is the most statistically robust of the methodologies permitted by the regulation� Under this option, the full-time equivalent pay and benefits of all Group employees as at 31 December 2019 has been calculated using the same methodology as for the CEO and includes: • The full-time equivalent annualised salary data�
• The full-time equivalent value of taxable benefits and pension contributions�
PERFORMANCE GRAPH AND TABLE We have previously shown the value to 31 December 2019 on a TSR basis, of £100 invested in Phoenix Group Holdings plc on 5 July 2010 (the date of the Group's Premium Listing) compared with the value of £100 invested in the FTSE 250 Index (excluding Investment Trusts)� To reflect Phoenix’s entry to the FTSE 100 index in 2019 the graph below shows the value to 31 December 2019 on a TSR basis, of £100 invested in Phoenix Group Holdings plc on 5 July 2010 compared with the value of £100 invested in the FTSE 100 Index (excluding Investment Trusts)�
The FTSE 100 Index (excluding Investment Trusts) is considered to be an appropriate comparator for this purpose as it is a broad equity index of which the Company is a constituent�
TOTAL SHAREHOLDER RETURN Value of a 100 unit investment made on 5 July 2010
2 The long-term incentive vesting rate for 2013 is shown at 67% and for 2014 is shown as 57%� In both years the Group Chief Executive Officer decided to waive voluntarily any entitlement in excess of two-thirds of the shares which would otherwise have vested�
Group Chief Executive Officer 0�00% 0�82% 7�95 4�43% Staff 3�51% 3�60% 1�70% 3�21%
There has been minimal movement overall in the level of salary and benefits for the Group Chief Executive Officer; the small increase in taxable benefits is due to a rise in the cost of funding for Private Medical Insurance� There has been an increase in the annual Incentive figure as a result of the higher outcome under the Corporate element of the 2019 AIP resulting in a small increase in overall remuneration�
Staff more generally have seen a slight overall increase due to a number of factors: • The inclusion of the Standard Life Assurance businesses increased the population significantly and currently our two groups of colleagues have separate benefit provisions�
• The Standard Life Assurance businesses continued operating a performance related pay structure for 2019 and therefore annual salary increases varied, however the median salary increase across the overall Phoenix Group remained static at 2�5%�
• The increase in benefit value is largely due to Standard Life’s increase in the cost of funding for Private Medical Insurance�
• There has been a small increase in average annual incentive for employees due to the higher outcome under the Corporate element of the 2019 AIP, however this overall increase has also been moderated by a wider distribution of performance ratings following a change from a 5-scale to a 6-scale performance management system�
Alastair Barbour 1 November 2018 1 October 2013 15 May 2020 2 Campbell Fleming 1 November 2018 31 August 2018 31 August 2021 17 Karen Green 1 November 2018 1 July 2017 1 July 2020 3 Nicholas Lyons 1 November 2018 31 October 2018 31 October 2021 19 Wendy Mayall 1 November 2018 1 September 2016 15 May 2020 2 John Pollock 1 November 2018 1 September 2016 15 May 2020 2 Nicholas Shott 1 November 2018 1 September 2016 15 May 2020 2 Belinda Richards 1 November 2018 1 October 2017 1 October 2020 6 Kory Sorenson 1 November 2018 1 July 2014 15 May 2020 2 Mike Tumilty 14 August 2019 1 September 2019 1 September 2022 29 1 All Directors above, other than Mike Tumilty who joined the Board on 1 September 2019, joined the Phoenix Group Holdings plc Board on 15 October 2018 and services are considered to have commenced with effect from 13 December 2018�
REMUNERATION COMMITTEE GOVERNANCE The terms of reference of the Committee are available at www�thephoenixgroup�com� The main determinations of the Committee in 2019 in respect of the application of the Remuneration Policy are summarised in the Committee Chairman’s letter to shareholders at the start of the Remuneration Report�
The table below shows the independent Non-Executive Directors who served on the Committee during 2019 and their date of appointment: Member From To
Kory Sorenson (Committee Chair from 11 May 2017) 3 July 2014 To date Karen Green 1 July 2017 To date Belinda Richards 2 July 2019 To date Nicholas Shott 20 October 2016 To date
All employee remuneration All employee discretionary incentive schemes including sales incentives ✔ ✔ ✔ ✔ ✔
ADVICE During the year, the Committee received independent remuneration advice from its appointed adviser, PwC, who is a member of the Remuneration Consultants Group (the professional body for remuneration consultants) and adheres to its code of conduct� The Remuneration Committee was satisfied that the advice provided by PwC was objective and independent�
PwC’s fees for work relating to the Committee for 2019, including support regarding the triennial policy review, Executive Director succession, and business as usual as described in the table above, were £246,528� These were charged on the basis of the firm’s standard terms of business for advice provided�
The Committee assesses the performance of its advisers annually, the associated level of fees and reviews the quality of advice provided to ensure that it is independent of any support provided to management�
The Group Chief Executive Officer, Group HR Director and Group Finance Director and delegates, attend, by invitation, various Committee meetings during the year� No executive is ever permitted to participate in discussions or decisions regarding his or her own remuneration�
The Committee consults with the Chief Risk Officer (without management present) on a regular basis� The Chief Risk Officer is asked to detail the extent to which the company has operated within its stated risk appetite during the year and to keep the Committee informed of any risk-related concerns that required the Committee to consider using its judgement to moderate incentive plan outcomes�
APPROVAL This report in its entirety has been approved by the Remuneration Committee and the Board of Directors and signed on its behalf by: Kory Sorenson Remuneration Committee Chair 130 PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
The Directors present their report for the year ended 31 December 2019�
As a result of regulatory changes applicable to the Group under Solvency II, dividends declared in respect of the Company’s ordinary shares must be capable of being cancelled and withheld or deferred at any time prior to payment� This is in order that the Company’s ordinary shares can be counted towards Group capital� Accordingly, the final dividend will be declared on a conditional basis and the Directors reserve the right to cancel or defer the recommended dividend� The Directors do not expect to exercise this right other than where they believe that it may be necessary to do so as a result of legal or regulatory requirements�
SHARE CAPITAL The issued share capital of the Company was increased by 315,730 during 2019 which related to shares issued under the Company’s Sharesave Scheme�
Subject to obtaining shareholder approval for the renewal of this authority at the forthcoming AGM on 15 May 2020, the Company is authorised to make purchases of its own shares and make payment for the redemption or purchase of its own shares in any manner permitted by the Companies Act 2006 including without limitation, out of capital, profits, share premium or the proceeds of a new issue of shares� The Company held no treasury shares during the year or up to the date of this report�
Where the Phoenix Group Employee Benefit Trust (‘EBT’) holds shares for unvested awards, the voting rights for these shares are exercisable by the trustees of the EBT at their discretion, taking into account the recommendations of the Group�
Substantial shareholdings Information provided to the Company pursuant to the FCA’s Disclosure and Transparency Rules is published on a Regulatory Information Service and on the Company’s website� As at 4 March 2020, the Company had been notified of the following significant holdings of voting rights in its shares�
Annual General Meeting (‘AGM’) The AGM of the Company will be held at Saddlers Hall, 40 Gutter Lane, London, EC2V 6BR on Friday 15 May 2020 at 10�00am�
Details of related party transactions which took place during the year with Directors of the Company and consolidated entities where Directors are deemed to have significant influence, are provided in the Directors’ Remuneration Report and in note I4 to the IFRS consolidated financial statements�
The rules about the appointment and replacement of Directors are contained in the Company’s Articles� These state that a Director may be appointed by an ordinary resolution of the shareholders or by a resolution of the Directors� If appointed by a resolution of the Directors, the Director concerned holds office only until the conclusion of the next AGM following the appointment�
The Articles give details of the circumstances in which Directors will be treated as having automatically vacated their office and also state that the Company’s shareholders may remove a Director from office by passing an ordinary resolution�
The Directors have been authorised to allot and issue securities and grant options over or otherwise dispose of shares under the Company’s Articles�
Directors’ and Officers’ liability insurance The Company maintains Directors’ and Officers’ liability insurance cover which is renewed annually�
The Board has followed the requirements of the UK Financial Reporting Council’s ‘Guidance on Risk Management, Internal Control and Related Financial and Business Reporting (September 2014) when performing its going concern assessment� As part of its comprehensive assessment of whether the Group and the Company are a going concern, the Board has undertaken a review of the liquidity and solvency of the Group under both normal and stressed conditions as at the date of preparation of the statement of consolidated financial position�
Viability statement The Viability Statement, as required by the UK Corporate Governance Code, has been undertaken for a period of five years to align to the Group’s business planning and is contained in the Risk Management section on page 57�
Articles of Association Changes to the Company’s Articles require prior shareholder approval�
The Articles are available on the Company’s website at www�thephoenixgroup�com/about-us/corporategovernance /articles-of-association�aspx�
There is no cap on auditor liability in place in relation to audit work carried out on the IFRS consolidated financial statements and the Group’s UK subsidiaries’ individual financial statements�
Group Company Secretary The Group Company Secretary throughout the 2019 financial period was Gerald Watson�
Apart from the aforementioned, there are a number of agreements that take effect, alter or terminate upon a change of control of the Company, such as commercial contracts� None is considered to be significant in terms of their potential impact on the business of the Group�
Controlling shareholder agreements Not applicable 134 PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND ACCOUNTS OF PHOENIX GROUP HOLDINGS PLC The Directors are responsible for the preparation of the Annual Report and Accounts, the Strategic Report, the Directors’ Report, the Directors’ Remuneration Report, the consolidated financial statements and the Company financial statements in accordance with applicable law and regulations�
The Board has prepared a Strategic Report which provides an overview of the development and performance of the Group’s business for the year ended 31 December 2019, covers the future developments in the business of Phoenix Group Holdings plc and its consolidated subsidiaries and provides details of any important events affecting the Company and its subsidiaries after the year-end� For the purposes of compliance with DTR 4�1�5R(2) and DTR 4�1�8R, the required content of the ‘Management Report’ can be found in the Strategic Report and this Directors’ Report, including the sections of the Annual Report and Accounts incorporated by reference�
The Directors have prepared the consolidated financial statements and the Company financial statements in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the European Union (‘EU’)� The Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group and the Company for that period�
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s and the Company’s transactions and disclose, with reasonable accuracy at any time, the financial position of the Group and the Company and enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulations� They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities�
In addition, the Directors as at the date of this report consider that the Annual Report and Accounts, taken as a whole, provides users (who have a reasonable knowledge of business and economic activities) with the information necessary for shareholders to assess the Group’s position,performance, business model and strategy, and is fair, balanced and understandable�
IN THIS SECTION Independent Auditor’s Report ��������� 139 IFRS Consolidated Financial Statements ����������������������� 149 Notes to the Consolidated Financial Statements ����������������������� 154 Parent Company Accounts ��������������244 Notes to the Parent Financial Statements ��������������������������������������� 247 Additional Life Company Asset Disclosures ���������������������������������������255 Additional Capital Disclosures ���������262 Alternative Performance Measures �����������������������������������������264
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006, and, as regards the consolidated financial statements, Article 4 of the IAS Regulation�
The statement of consolidated changes in equity for the year then ended Related notes A1 to I7 to the consolidated financial statements (except for note I3 which is marked as unaudited), including a summary of significant accounting policies
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the EU and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006�
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion�
Conclusions relating to principal risks, going concern and viability statement We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs(UK) require us to report to you whether we have anything material to add or draw attention to: • the disclosures in the Annual Report set out on page 52 that describe the principal risks and explain how they are being managed or mitigated; • the Directors’ confirmation set out on page 135 in the Annual Report that they have carried out a robust assessment of the principal risks facing the entity, including those that would threaten its business model, future performance, solvency or liquidity; • the Directors’ statement set out on page 133 in the Annual Report about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements; • whether the Directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing Rule 9�8�6R(3) is materially inconsistent with our knowledge obtained in the audit; or
Key audit matters • Valuation of insurance contract liabilities, comprising the following risk areas: – actuarial assumptions; – actuarial modelling; and
• Recoverability of intangible assets arising from the acquisition of Standard Life Assurance Limited and other associated entities
• The components where we performed full or specific audit procedures accounted for more than 99% of the equity and profit before tax of the Group�
We considered the valuation of insurance contract liabilities to be a significant risk for the Group� Specifically, we considered the actuarial assumptions and modelling that are applied, as these involve complex and significant judgments about future events, both internal and external to the business for which small changes can result in a material impact to the resultant valuation� Additionally, the valuation process is conditional upon the accuracy and completeness of the data�
Independent Auditor’s Report continued 138 PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
To obtain sufficient audit evidence to conclude on the appropriateness of actuarial assumptions, using EY actuaries as part of our audit team, we performed the following procedures: • obtained an understanding and tested the design and operating effectiveness of key controls over management’s process for setting and updating key actuarial assumptions; • challenged and assessed whether the methodology and assumptions applied were appropriate based on our knowledge of the Group, industry standards and regulatory and financial reporting requirements; • reviewed and challenged the results of management’s experience analysis, including the base longevity and persistency, to assess whether these justified the adopted assumptions; • in respect of longevity improvements we have evaluated the use of the chosen industry standard Continuous Mortality Investigation (‘CMI’) model and the parameters used to validate that it was appropriate relative to the industry; • assessed the expense assumptions adopted by management with reference to the management service agreement (‘MSA’) between the Phoenix Life and Service companies; • Performed procedures to test that the assumptions used in the year end valuation were consistent with the approved basis; and
We determined that the actuarial assumptions used by management are reasonable based on the analysis of the experience to date, industry practice and the financial and regulatory requirements�
We consider the key risks to relate to i) model developments applied to the core actuarial models and ii) the appropriateness of the calculations that are applied outside of the core actuarial model�
To obtain sufficient audit evidence to conclude on core actuarial modelling systems and balances calculated outside these systems, using EY actuaries we performed the following procedures: • obtained an understanding of management’s process for model developments to the core actuarial system and tested the design, implementation and operating effectiveness of key controls over that process; • challenged and evaluated the methodology, inputs and assumptions applied to model changes made in the core actuarial modelling systems during the year; • reviewed the governance process around model changes by review of the relevant committee minutes; • assessed the results of management’s analysis of movements in insurance contract liabilities to corroborate that the actual impact of changes to models was consistent with that expected when the model change was implemented; and
Valuation of certain complex and illiquid financial investments (£4.9bn; 2018: £3.6bn) Whilst we consider the risk to be similar in nature, due to the combination of increased size of the modelled debt securities and level of judgment involved in valuation as well as the potential impact on the shareholders arising from any misstatements, we believe the identified risk to have a higher magnitude of potential misstatement than in the previous year.
• The extent of judgment applied by management in valuing the Group’s financial investments varies with the nature of securities held, the markets in which they are traded and the valuation methodology applied�
• We consider that the key risks related to valuation of modelled debt securities to be the (i) use of complex valuation methodologies as opposed to observable prices; ii) significant judgments involved in setting the spread above risk-free rate; and iii) most notably, the subjectivity surrounding the selection of the comparable bonds to derive that spread�
Using EY valuation specialists and actuaries we tested valuation of ERMs and modelled debt securities�
• engaged EY valuation specialists to calculate an independent range of reasonable values for a sample of investments using an independent valuation model and considering reasonable alternate assumptions�
Based on our procedures performed on the ERM financial investments and the modelled debt securities, we are satisfied that the valuation of these complex and illiquid assets is reasonable�
Refer to the Audit Committee Report (page 96); Critical accounting estimates (page 156); Accounting policies and note G2 of the consolidated financial statements (pages 214 to 216)
On 31 August 2018, the Group acquired Standard Life Assurance Limited, Standard Life International Designated Activity Company, Standard Life Assets and Employee Services Limited and other related entities (collectively ‘Standard Life’) from Standard Life Aberdeen plc (‘SLA plc’) for total consideration of £2,994 million� This gave rise to the recognition of intangible assets relating to acquired in force business (‘AVIF’) and the Client Service and Proposition Agreement (‘CSPA’) entered into between the Group and SLA plc�
In the prior year, our auditor’s report included a key audit matter in relation to accounting for the acquisition of Standard Life Assurance Limited and other associated entities as the acquisition transaction was completed in the 2018 financial year�
Independent Auditor’s Report continued 142 PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
AN OVERVIEW OF THE SCOPE OF OUR AUDIT Tailoring the scope Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each reporting unit (‘reporting component’) within the Group� Taken together, this enables us to form an opinion on the consolidated financial statements� We take into account size, risk profile, the organisation of the group and effectiveness of group-wide controls, changes in the business environment and other factors when assessing the level of work to be performed at each reporting component�
Details of the four reporting components which were audited by component teams are set out below: Component Scope Auditor
The reporting components where we performed audit procedures accounted for more than 99% (2018: 99%) of the Group’s equity and the Group’s profit before tax� For the current year, the full scope components contributed 87% (2018: 93%) of the Group’s equity and 90% (2018: 97%) of the Group’s profit before tax� The specific scope components contributed 12% (2018: 6%) of the Group’s equity and 9% (2018: 2%) of the Group’s profit before tax� The audit scope of these components may not have included testing of all significant accounts of the component but will have contributed to the coverage of significant accounts tested for the Group�
The charts below illustrate the coverage obtained from the work performed by our audit teams�
Changes from the prior year Management completed the Part VII transfer of the European business of SLAL into SLINTL� In response to the increased size of SLINTL, additional accounts were brought in scope for the purposes of Group reporting�
Involvement with component teams In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the components by us, as the primary audit engagement team, or by component auditors from other EY global network firms operating under our instruction�
For the specific scope component, the primary audit team have reviewed the audit procedures performed by the component team on the specific accounts�
The work performed on the components, together with the additional procedures performed at Group level, gave us appropriate evidence for our opinion on the consolidated financial statements as a whole�
We determined materiality for the Group to be £100 million (2018: £100 million), which is 2�1% (2018: 1�9%) of Group equity� Whilst profit before tax or operating profit are common bases used across the life insurance industry and might be an appropriate measure for an open business, we believe that the use of equity as the basis for assessing materiality remains more appropriate given that the Group is primarily a closed life assurance consolidator and as such equity provides a more stable, long-term measure of value� We note also that equity more closely correlates with key Group performance metrics such as Solvency II capital requirements and Own Funds� However, as these measures are non-GAAP measures, we consider equity to be more appropriate�
We determined materiality for the parent company to be £109 million (2018: £82 million), which is 2% of the parent company equity attributable to owners� We have used a capital based measure for determining materiality for consistency with the approach taken for the Group where we consider equity to be the most appropriate basis when considering against other measures such as IFRS profit before tax with its inherent volatility considering the nature of the parent company as a holding company�
During the course of our audit, we reassessed initial materiality and concluded that materiality assessed at planning stages of our audit remained appropriate�
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgment was that performance materiality was 50% (2018: 50%) of our planning materiality, namely £50 million (2018: £50 million)�
Other information The other information comprises the information included in the Annual Report set out on pages 1 to 135 and 255 to 272, other than the financial statements and our auditor’s report thereon� The Directors are responsible for the other information�
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated� If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information� If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact�
material misstatements of the other information where we conclude that those items meet the following conditions: • Fair, balanced and understandable set out on page 135 – the statement given by the Directors that they consider the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
Opinions on other matters prescribed by the Companies Act 2006 In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006�
• the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements�
Our approach was as follows: • We obtained an understanding of the legal and regulatory frameworks that are applicable to the company and its subsidiaries and determined that the relevant laws and regulations related to elements of company law and tax legislation, and the financial reporting framework� Our considerations of other laws and regulations that may have a material effect on the financial statements included permissions and supervisory requirements of the Prudential Regulation Authority (‘PRA’) and the Financial Conduct Authority (‘FCA’) and UK Listing Authority (‘UKLA)� We obtained a general understanding of how Phoenix Group Holdings is complying with those frameworks by making enquiries of management and those responsible for legal and compliance matters� We also reviewed correspondence between the Company and UK regulatory bodies; reviewed minutes of the Board and Executive Committee; and gained an understanding of the Company’s approach to governance, demonstrated by the Board’s approval of the Company’s governance framework�
• For both direct and other laws and regulations, our procedures involved: making enquiry of those charged with governance and senior management for their awareness of any non-compliance of laws or regulations, inquiring about the policies that have been established to prevent non-compliance with laws and regulations by officers and employees, inquiring about the company’s methods of enforcing and monitoring compliance with such policies, inspecting significant correspondence with the FCA and PRA�
• The Company operates in the insurance industry which is a highly regulated environment� As such the Senior Statutory Auditor considered the experience and expertise of the engagement team to ensure that the team had the appropriate competence and capabilities, which included the use of specialists where appropriate�
• We assessed the susceptibility of the consolidated financial statements to material misstatement, including how fraud might occur by considering the controls that the Company has established to address risks identified by the entity, or that otherwise seek to prevent, deter or detect fraud� We also considered areas of significant judgment, including complex transactions, performance targets, external pressures and the impact these have on the control environment� Where this risk was considered to be higher, we performed audit procedures to address each identified fraud risk� These procedures included testing manual journals and were designed to provide reasonable assurance that the financial statements were free from fraud or error�
Other matters we are required to address • We were appointed by the Company Directors on 13 December 2018 and signed an engagement letter on 20 February 2019 to audit the financial statements for the period ending 31 December 2018 and subsequent financial periods� This is our second year as auditors to the Group�
• The audit opinion is consistent with the additional report to the Audit Committee�
Notes: 1 The maintenance and integrity of the Phoenix Group Holdings plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site�
Gross premiums written 4,038 2,645 Less: premiums ceded to reinsurers F3 (556) (481) Net premiums written 3,482 2,164
Policyholder claims (7,792) (5,295) Less: reinsurance recoveries 1,177 866 Change in insurance contract liabilities (5,229) 4,768 Change in reinsurers’ share of insurance contract liabilities (320) (20) Transfer from unallocated surplus F2 84 88 Net policyholder claims and benefits incurred (12,080) 407
Tax (charge)/credit attributable to policyholders’ returns C6 (365) 211 (Loss)/profit before the tax attributable to owners (14) 470
Earnings per ordinary share Basic (pence per share) B3.1 8.7p 66.8p Diluted (pence per share) B3.2 8.6p 66.7p
Other comprehensive (expense)/income: Items that are or may be reclassified to profit or loss: Cash flow hedges: Fair value (losses)/gains arising during the year (40) 31
Items that will not be reclassified to profit or loss: Remeasurements of net defined benefit asset/liability G1 (24) (54)
Tax charge relating to other comprehensive income items C6 (57) (10)
Equity attributable to owners of the parent Share capital D1 72 72 Share premium 2 3,077 Shares held by employee benefit trust D2 (7) (6) Foreign currency translation reserve 69 98 Owner-occupied property revaluation reserve 5 5 Cash flow hedging reserve (7) (8) Retained earnings 4,651 1,923 Total equity attributable to owners of the parent 4,785 5,161
Obligations for repayment of collateral received 3,671 2,645 E1 134,659 127,484
Total equity and liabilities 242,677 229,980 150 PHOENIX GROUP HOLDINGS PLC ANNUAL REPORT & ACCOUNTS 2019
Total comprehensive income for the year – – – (29) – 1 4 (24) – 31 7
Dividends paid on ordinary shares – – – – – – (338) (338) – – (338)
Shares acquired by the employee benefit trust – – (4) – – – – (4) – – (4)
Other comprehensive income/(expense) for the year – – – 2 – 3 (64) (59) – – (59)
Dividends paid on ordinary shares – (262) – – – – – (262) – – (262)
Shares distributed by employee benefit trust – – 4 – – – (4) – – – –
Shares acquired by employee benefit trust – – (8) – – – – (8) – – (8)
Non-controlling interests recognised on acquisition – – – – – – – – – 265 265
Issue of Tier 1 Notes – – – – – – – – 494 – 494
Proceeds from new shareholder borrowings, net of associated expenses E5.2 100 733
Cash and cash equivalents at the end of the year 4,466 4,926
A. SIGNIFICANT ACCOUNTING POLICIES A1. Basis of Preparation The consolidated financial statements for the year ended 31 December 2019 set out on pages 147 to 243 comprise the financial statements of Phoenix Group Holdings plc (‘the Company’) and its subsidiaries (together referred to as ‘the Group’), and were authorised by the Board of Directors for issue on 6 March 2020.
In applying the principles of reverse acquisition accounting, the consolidated financial statements were presented as a continuation of the Old PGH business and the Group is presented as if the Company had always been the ultimate parent company. The equity structure as at 1 January 2018 was restated to reflect the difference between the par value of shares issued by the Company (£39 million) and the shares issued by Old PGH (£nil) prior to the share for share exchange, with a corresponding adjustment to share premium. In addition, the presentation within the consolidated statement of changes in equity of the impact of shares issued during 2018 by Old PGH up to the date of the share for share exchange reflected the par value of the shares issued by the Company.
At 31 December 2018, the share premium reserve continued to reflect the position of Old PGH. During 2019, Old PGH, in accordance with Cayman Islands Companies Law, made a distribution of its entire share premium reserve to Phoenix Group Holdings plc. This has been reflected as a transfer of share premium in the statement of consolidated changes in equity in the year.
No other adjustments have been reflected in equity, and as a consequence, the carrying values of the components of equity recognised in the consolidated financial statements are different to the corresponding balances in the financial statements of the Company.
Restatement of prior period information Following the acquisition of the Standard Life Assurance businesses in 2018, the Group has revised the presentation of certain balances within the statement of consolidated financial position and consolidated income statement. These presentational changes have been made to ensure consistency of accounting treatment for all similar items across the Group’s subsidiaries.
Consolidated income statement: Change in investment contract liabilities 7,975 (143) 7,832