The life companies’ debt portfolio was £32.3 billion at 31 December 2016. Shareholders had direct exposure to £14.1 billion of these assets (including supported participating funds), of which 99% of rated securities were investment grade. The shareholders’ credit risk exposure to the non-supported participating funds is primarily limited to the shareholders’ share of future bonuses. Shareholders’ credit risk exposure to the unit-linked funds is limited to the level of asset management fee, which is dependent on the underlying assets.
Participating non-supported £m Unit-linked £m Total1 £m 1 Improved look-through data received in respect of certain collective investment schemes has identified additional holdings in ABS as at 31 December 2016.
The Group’s capital management framework is described in the Business Review section on pages 28 to 31 of the Annual Report and Accounts. The Group’s capital policies and capital resources are set out on note I4 of the IFRS financial statements.
The Solvency II capital assessment and the Group’s regulatory supervision is performed at the PLHL level as this is the highest EEA insurance group holding company. This section provides additional analysis of PLHL’s Solvency II Own Funds, SCR and MCR.
PLHL SOLVENCY II SURPLUS The pro forma PLHL’s surplus at 31 December 2016 is £1.9 billion (2015: £1.3 billion, actual). The rationale for the use of the pro forma metric is set out on page 23.
COMPOSITION OF OWN FUNDS Own funds items are classified into different Tiers based on the features of the specific items and the extent to which they possess the following characteristics: – availability to be called up on demand to fully absorb losses on a going-concern basis, as well as in the case of winding-up (‘permanent availability’); – in the case of winding-up, the total amount that is available to absorb loses before repayment to the holder until all obligations to policyholders and other beneficiaries have been met (‘subordination’).
PLHL’s pro forma Own Funds are analysed by Tier as follows: Pro forma £bn
Tier 2 capital comprise of subordinated notes whose terms enable them to qualify as Tier 2 capital for regulatory reporting purposes.
MINIMUM CAPITAL REQUIREMENTS Minimum Capital Requirement (‘MCR’) is the minimum amount of capital an insurer is required to hold below which policyholders and beneficiaries would become exposed to an unacceptable level of risk if an insurer was allowed to continue its operations.
PLHL’s MCR at 31 December 2016 is £1.2 billion (2015: £1.1 billion) which is a sum of the underlying insurance companies’ MCRs.
ANNUAL GENERAL MEETING Our Annual General Meeting (‘AGM’) will be held on 11 May 2017 at 12:30pm.
SHAREHOLDER SERVICES MANAGING YOUR SHAREHOLDING Our registrar, Computershare, maintains the Company’s register of members. Shareholders may request a hard copy of this Annual Report from our registrar and if you have any further queries in respect of your shareholding, please contact directly using the contact details set out below.
FORWARD-LOOKING STATEMENTS The 2016 Annual Report and Accounts contains, and the Group may make other statements (verbal or otherwise) containing, forward-looking statements and other financial and/or statistical data about the Group’s current plans, goals and expectations relating to future financial conditions, performance, results, strategy and/or objectives.
Statements containing the words: ‘believes’, ‘intends’, ‘will’, ‘may’, ‘should’, ‘expects’, ‘plans’, ‘aims’, ‘seeks’, ‘targets’, ‘continues’ and ‘anticipates’ or other words of similar meaning are forward-looking. Such forward-looking statements and other financial and/or statistical data involve risk and uncertainty because they relate to future events and circumstances that are beyond the Group’s control. For example, certain insurance risk disclosures are dependent on the Group’s choices about assumptions and models, which by their nature are estimates. As such, actual future gains and losses could differ materially from those that we have estimated. Other factors which could cause actual results to differ materially from those estimated by forward-looking statements include but are not limited to: – domestic and global economic and business conditions; – asset prices; – market-related risks such as fluctuations in interest rates and exchange rates, the potential for a sustained low-interest rate environment, and the performance of financial markets generally; – the policies and actions of governmental and/or regulatory authorities, including, for example, new government initiatives related to the financial crisis and the effect of the European Union’s ‘Solvency II’ requirements on the Group’s capital maintenance requirements; – the political, legal and economic effects of the UK’s vote to leave the European Union; – the impact of inflation and deflation; – market competition; – changes in assumptions in pricing and reserving for insurance business (particularly with regard to mortality and morbidity trends, gender pricing and lapse rates); – the timing, impact and other uncertainties of future acquisitions or combinations within relevant industries; – risks associated with arrangements with third parties; – inability of reinsurers to meet obligations or unavailability of reinsurance coverage; and
The Group undertakes no obligation to update any of the forward-looking statements contained within the 2016 Annual Report and Accounts or any other forward-looking statements it may make or publish.
The 2016 Annual Report and Accounts has been prepared for the members of the Company and no one else. The Company, its Directors or agents do not accept or assume responsibility to any other person in connection with this document and any such responsibility or liability is expressly disclaimed.
ABBEY LIFE The companies comprising of Abbey Life Assurance Company Limited, Abbey Life Trustee Services Limited and Abbey Life Trust Securities Limited
An Alternative Performance Measure (‘APM’) is a financial measure of historic or future financial performance, financial position,or cash flows, other than a financial measure defined under IFRS or under Solvency II regulations. The Group uses a range of these metrics to provide a better understanding of the underlying performance of the Group. Where appropriate, reconciliations of APMs to IFRS or Solvency II measures are provided in the Annual Report and Accounts. All APMs are defined within this glossary.
ASSET MANAGEMENT The management of assets using a structured approach to guide the act of acquiring and disposing of assets, with the objective of meeting defined investment goals and maximising value for investors,including policyholders
BLACK-SCHOLES A mathematical model used to calculate the value of an option
ECONOMIC ASSUMPTIONS Assumptions related to future interest rates, inflation, market value movements and tax
EXPERIENCE VARIANCES Current period differences between the actual experience incurred and the assumptions used in the calculation of IFRS insurance liabilities
HOLDING COMPANIES Refers to Phoenix Group Holdings, PGH Capital plc, Phoenix Life Holdings Limited, Pearl Group Holdings (No. 2) Limited, Impala Holdings Limited, Pearl Group Holdings (No. 1) Limited, PGH (TC1) Limited, PGH (TC2) Limited, PGH (MC1) Limited, PGH (MC2) Limited, PGH (LCA) Limited, PGH (LCB) Limited, PGH (LC1) Limited, PGH (LC2) Limited and Pearl Life Holdings Limited
IMC Investment Management Contract – A contract between an investor and an investment manager
INTERNAL MODEL The agreed methodology and model, approved by the PRA, to calculate the Group Solvency Capital Requirement pursuant to Solvency II
OPERATING PROFIT Operating profit is a non-GAAP measure that is considered a more representative measure of performance than IFRS profit or loss after tax as it provides long-term performance information unaffected by short-term economic volatility
Eligible Own Funds are the amount of Own Funds that are available to cover the Solvency Capital Requirements after applying prescribed tiering limits and transferability restrictions to Basic Own Funds.
STANDARD FORMULA A set of calculations prescribed by the Solvency II regulations for generating the SCR
Transitional Measures to Technical Provisions (‘TMTP’) is an allowance, subject to the PRA’s approval, to apply a transitional deduction to technical provisions. The transitional deduction corresponds to the difference between net technical provisions calculated in accordance with Solvency II principals and net technical provisions calculated in accordance with the previous regime is expected to decrease linearly over a period of 16 years starting from 1 January 2016 to 1 January 2032
TSR Total Shareholder Return – The total return, over a fixed period, to an investor in terms of share price growth and dividends (assuming that dividends paid are re-invested, on the ex-dividend date, in acquiring further shares)
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