REG - Phoenix Grp Hldgs - 2015 Interim Results <Origin Href="QuoteRef">PHNX.L</Origin> - Part 7
20/08/2015 07:01
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1.31% 1.46%
10 years 2.29% 2.07% 2.97% 2.86% 1.97% 1.87%
15 years 2.67% 2.27% 3.40% 3.19% 2.38% 2.12%
20 years 2.87% 2.31% 3.62% 3.34% 2.62% 2.26%
Had the Group used the swap rate curve as set out in the CFO Forum principles, the MCEV would have been £274 million lower
(30 June 2014: £118 million lower; 31 December 2014: £218 million lower).
(b) Liquidity premiums
In October 2009, the CFO Forum published an amendment to the MCEV principles to reflect the inclusion of a liquidity
premium. The changes affirm that the reference rate may include a liquidity premium over and above the risk-free yield
curve for liabilities which are not liquid, given that the matching assets are able to be held to maturity.
The liabilities to which a liquidity premium is applied include immediate annuities, pensions policies with benefits
defined as an annuity or in-the-money guaranteed annuity options. The liquidity premium is determined by reference to the
yield on the bond portfolios held after allowing for credit risk by deducting margins for best estimate defaults and
unexpected default risk premiums. The additional yield above risk-free rates implied by the calculated liquidity premium is
as follows:
30 June 2015 30 June 2014 31 December 2014
Additional yield over risk-free rates 0.53% 0.35% 0.46%
INFLATION
For purposes of the MCEV calculation, the rate of increase in the UK Retail Price Index ('RPI') as at 30 June 2015, was
taken from the implied inflation curve at a term appropriate to the liabilities. The rate of increase in UK National
Average Earnings inflation is assumed to be RPI plus 100 basis points as at 30 June 2015 (30 June 2014: RPI plus 100 basis
points; 31 December 2014: RPI plus 100 basis points).
STOCHASTIC ECONOMIC ASSUMPTIONS
The time value of options and guarantees is calculated using an economic scenario generator. The model is calibrated to
market conditions as at 30 June 2015. The scenario generator and calibration are consistent with that used for realistic
balance sheet reporting.
A LIBOR Market Model with displaced diffusion and stochastic volatility (LMM-DDSV) is used to generate risk-free rates over
a complete yield curve, calibrated to the UK nominal spot curve plus 10 basis points, consistent with the deterministic
projections. Interest rate volatility is calibrated to swaption implied volatilities, as per the sample below.
Option term (years)
Interest rate volatility 5 10 15 20 25 30
30 June 2015 Swap term (years)
5 34.6% 30.6% 28.8% 27.9% 27.5% 27.2%
10 29.0% 27.0% 26.3% 26.0% 25.9% 25.6%
20 25.7% 25.3% 25.3% 25.3% 24.9% 24.3%
30 25.3% 25.3% 25.3% 24.8% 23.9% 23.0%
Option term (years)
Interest rate volatility 5 10 15 20 25 30
30 June 2014 Swap term (years)
5 23.3% 19.3% 17.0% 16.7% 16.3% 16.1%
10 20.7% 18.3% 16.7% 16.1% 15.6% 15.3%
20 18.2% 16.8% 15.2% 14.2% 13.5% 12.9%
30 17.1% 15.8% 14.1% 12.8% 11.8% 11.1%
Option term (years)
Interest rate volatility 5 10 15 20 25 30
31 December 2014 Swap term (years)
5 37.4% 32.1% 29.1% 27.4% 26.5% 25.7%
10 29.9% 27.0% 25.4% 24.6% 24.1% 23.2%
20 24.6% 23.8% 23.4% 22.9% 22.0% 21.0%
30 23.6% 23.3% 22.7% 21.9% 20.8% 19.8%
Real interest rates have been modelled using the two-factor Hull-White model, calibrated to index-linked gilts.
Equity volatility is calibrated to replicate the prices on a range of FTSE equity options with a range of terms and
strikes. The equity volatility model used allows volatility to vary with both term and strike of the options.
Term (years)
Equity implied volatility (ATM) 5 10 15 20 25 30
30 June 2015 19.9% 21.6% 22.7% 23.4% 23.9% 24.3%
30 June 2014 20.5% 20.4% 20.8% 21.3% 21.8% 22.3%
31 December 2014 20.8% 22.2% 23.0% 23.4% 23.7% 23.9%
Best estimate levels of volatility are assumed for directly held property. The model implied volatility for 30 June 2015 is
16% (30 June 2014: 15%).
The modelling of corporate bonds allows for credit transitions and defaults, calibrated to historic data, derived from
current markets.
OPERATING EARNINGS
The Group uses normalised investment returns in calculating the expected existing business contribution. The Group
considers that an average return over the remaining term of its in-force business is more appropriate than using a
short-term rate and is more consistent with the Group's expectation of longer-term rates of return. Therefore, the Group
calculates the expected contribution on existing business using a 15-year gilt rate at the beginning of the reporting
period plus 10 basis points and long-term expectations of excess investment returns.
The table below sets outs the asset risk premiums used:
Half year ended 30 June 2015 Half year ended 30 June 2014 Year ended 31 December 2014
Equities 3.0% 3.0% 3.0%
Property 2.0% 2.0% 2.0%
Gilts 0.0% 0.0% 0.0%
The return assumed on corporate bond portfolios is the redemption yield for the portfolio less an allowance for credit
risk.
EXPENSES
Each life company's projected per policy expenses are based on existing agreements with the Group's management service
companies, adjusted to allow for additional costs incurred directly by the life companies, including, for example,
regulatory fees and one-time expenses.
The life companies' projected investment expenses are based on the fees agreed with the Group's fund managers, allowing for
current and projected future asset mixes.
VALUATION OF DEBT AND NON-CONTROLLING INTERESTS
The Group's condensed statement of consolidated financial position as at 30 June 2015 includes Perpetual Reset Capital
Securities with principal outstanding of £6 million (30 June 2014: £394 million; 31 December 2014: £394 million), Phoenix
Life Limited subordinated debt with a face value of £200 million (30 June 2014: £200 million; 31 December 2014: £200
million), the PGH Capital Limited senior bond with a face value of £300 million (30 June 2014: nil; 31 December 2014: £300
million) and the PGH Capital Limited subordinated notes issued within the period, with principal outstanding of £396
million (net of internal holdings). These listed securities have been included within the MCEV at their market value quoted
at the reporting date.
The table below summarises the face and market values of these debt obligations after adjustment for internal holdings in
the Perpetual Reset Capital Securities and the PGH Capital subordinated notes:
Half year ended 30 June 2015 Half year ended 30 June 2014 Year ended 31 December 2014
Face value £m Market value £m Face value £m Market value £m Face value £m Market value £m
Listed debt and non-controlling interests
Perpetual Reset Capital Securities 6 6 394 390 394 387
Phoenix Life Limited subordinated debt 200 212 200 214 200 212
PGH Capital Limited senior bond 300 320 - - 300 324
PGH Capital Limited subordinated notes 396 403 - - - -
Unlisted debt has been included at face value:
Half year ended 30 June 2015 Face value £m Half year ended 30 June 2014 Face value £m Year ended 31 December 2014 Face value £m
Unlisted debt
PGH Capital Limited facility 780 - 840
Pearl and Impala facilities - 1,528 -
Royal London PIK notes and facility - 124 -
7. SENSITIVITY TO ASSUMPTIONS
The table below summarises the key sensitivities of the MCEV of covered business at 30 June 2015:
30 June 2015 Life MCEV £m 31 December 2014 Life MCEV £m
(1) Base 2,850 2,856
(2) 1% decrease in risk-free rates 94 59
(3) 1% increase in risk-free rates (107) (68)
(4) 10% decrease in equity market values (29) (46)
(5) 10% increase in equity market values 31 46
(6) 10% decrease in property market values (49) (46)
(7) 10% increase in property market values 45 45
(8) 100bps increase in credit spreads1 (176) (164)
(9) 100bps decrease in credit spreads1 161 157
(10) 25% increase in equity/property implied volatilities (15) (9)
(11) 25% increase in swaption implied volatilities (11) (9)
(12) 25% decrease in lapse rates and paid-up rates (35) (30)
(13) 5% decrease in annuitant mortality (137) (140)
(14) 5% decrease in non-annuitant mortality 17 15
(15) Required capital equal to the minimum regulatory capital2 6 16
1 25bps is assumed to relate to default risk.
2 Minimum regulatory capital is defined as the greater of Pillar 1 and Pillar 2 capital requirements without any allowance
for the Group's capital management policy.
No expense sensitivity has been shown as maintenance costs incurred by the covered business are largely fixed under the
terms of agreements with the management services companies.
ADDITIONAL INFORMATION
75
Shareholder information
76
Forward-looking statements
Shareholder information
ANNUAL GENERAL MEETING
Our Annual General Meeting ('AGM') was held on 23 April 2015 at 1pm.
The voting results for our 2015 AGM, including proxy votes and votes withheld are available on our website at
www.thephoenixgroup.com.
SHAREHOLDER SERVICES
MANAGING YOUR SHAREHOLDING
Our registrar, Computershare, maintains the Company's register of members. Shareholders may request a hard copy of this
Interim Report from our registrar and if you have any further queries in respect of your shareholding, please contact them
directly using the contact details set out below.
REGISTRAR DETAILS
Computershare Investor Services (Cayman) Limited
Queensway House
Hilgrove Street
St Helier
Jersey, JE1 1ES
Shareholder helpline number +44 (0) 870 707 4040
Fax number +44 (0) 870 873 5851
Shareholder helpline email address info@computershare.co.je
SHARE PRICE
You can access the current share price of Phoenix Group Holdings at www.thephoenixgroup.com
GROUP FINANCIAL CALENDAR FOR 2015
Announcement of unaudited six months' Interim Results 20 August 2015
Announcement of third quarter Interim Management Statement 22 October 2015
2015 INTERIM DIVIDEND
Ex-dividend date 27 August 2015
Record date 28 August 2015
Interim 2015 dividend payment date 1 October 2015
2015 ANNUAL RESULTS
Our financial results for the year ended 31 December 2015 will be announced on 23 March 2016.
FORWARD-LOOKING STATEMENTS
The Interim Report 2015 contains, and we 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', '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, 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 ultimate transition to the European Union's 'Solvency II' Directive on the
Group's capital maintenance requirements
- 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
- The impact of changes in capital, solvency or accounting standards, and tax and other legislation and regulations in
the jurisdictions in which members of the Group operate
As a result, the Group's actual future financial condition, performance and results may differ materially from the plans,
goals and expectations set out in the forward-looking statements within the Interim Report 2015.
The Group undertakes no obligation to update any of the forward-looking statements contained within the Interim Report 2015
or any other forward-looking statements it may make or publish.
The Interim Report 2015 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.
Nothing in the Interim Report 2015 is or should be construed as a profit forecast or estimate.
Reducing our environmental impact
In line with our Corporate Responsibility programme, and as part of our desire to reduce our environmental impact, you can
view key information on our website at www.thephoenixgroup.com.
Our Investor Relations section includes information such as our most recent news and announcements, results presentations,
annual and interim reports, share-price performance, AGM and EGM information, UK Regulatory Returns and contact
information.
To stay up-to-date with Phoenix Group news and other changes to our site's content, you can sign up for email alerts, which
will notify you when content is added. To sign up visit
http://www.thephoenixgroup.com/investor-relations/email-alerts.aspx.
For mobile phone users we also have a useful mini-site at http://m.thephoenixgroup.com which contains links to our latest
news items, share price, financial calendar and contact details.
Paper information
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www.thephoenixgroup.com
Phoenix group
holdings
Registered address
Phoenix Group Holdings
PO BOX 309
UGLAND HOUSE
GRAND CAYMAN KY1-1104
CAYMAN ISLANDS
CAYMAN ISLANDS REGISTRAR of companies number 202172
Principal Place of business
Phoenix Group Holdings
1st Floor
32 Commercial street
St helier JE2 3RU
Jersey
www.thephoenixgroup.com
This information is provided by RNS
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