REG - Phoenix Grp Hldgs - Phoenix Group Holdings - 2014 Annual Results <Origin Href="QuoteRef">PHNX.L</Origin> - Part 15
18/03/2015 07:01
- Part 15: For the preceding part double click ID:nRSR7166Hn
operate with higher leverage than life companies that are still writing new business, as it does not
need to fund upfront capital requirements and new business acquisition expenses.
Further detail on the Group's gearing calculation (unaudited) is provided in the business review on page 34.
Regulatory capital requirements of the Group
Insurance Groups' Directive ('IGD')
PRA regulated insurance groups (including their holding companies) are also required to assess capital adequacy on a Group
wide basis to enable the PRA to assess both the level of insurance and financial risk within the Group and the capital
resources available to cover that risk. The assessment is known as the IGD.
The Group's IGD assessment is made at the ultimate insurance parent undertaking within the EEA, which is PLHL.
The capital statement shown below presents the total capital that the Group manages on a Pillar 1 basis in respect of its
life insurance companies. It is different from the total capital available in the IGD calculation on the basis that the IGD
is assessed at the PLHL level and is subject to different rules pertaining to its calculation. For example, due to the
Group's current corporate structure, certain of the Group's subsidiaries are only included in the IGD calculation at 75% of
their regulatory value, including capital requirements. The capital statement includes these subsidiaries in full. This
difference and other adjustments amount to a reduction of £739 million (2013: £905 million) in Phoenix Life available
capital resources of £6,317 million (estimated) (2013 (actual): £6,289 million) compared with PLHL Group Capital Resources
of £5,582 million (estimated) (2013 (actual): £5,384 million). Further detail of the PLHL IGD position (unaudited) is
provided in the business review on page 33.
PLHL ICA
The Group undertakes a further group solvency calculation, the 'PLHL ICA', at the same level at which the IGD calculation
is performed. This involves an assessment, on an economic basis, of the capital resources and requirements arising from the
obligations and risks which exist outside of the life companies.
For this measure the capital resources include the surplus over capital policy in the life companies and the net assets of
the holding companies, less the pension scheme obligations on an economic basis. The capital requirements relate to the
risks arising outside of the life companies including those in relation to the Group's staff pension schemes, offset by
Group diversification benefits. As agreed with the PRA the Group aims to ensure that PLHL maintains an ICA surplus of at
least £150 million. Further detail of the PLHL ICA position is provided in the business review (unaudited) on page 33.
Regulatory capital requirements of the life companies
Each UK life company and the Group must retain sufficient capital at all times to meet the regulatory capital requirements
mandated by the PRA. In addition to EU-directive-based 'Pillar 1' and group capital requirements, the PRA has also
stipulated a 'Pillar 2' of risk-based capital requirements that have been implemented in the UK. A life company's actual
capital requirement is based on whichever of the Pillar 1 or Pillar 2 requirement turns out to be more onerous for the
company. Each life company generally holds an amount of capital that is greater than the minimum required amount to allow
for adverse events in the future that may use capital and might otherwise cause the company to fail the minimum level of
regulatory capital test.
Pillar 1
With the exception of with-profit businesses, the regulatory capital requirement under Pillar 1 is the total amount held in
respect of investment, expense and insurance risks (the 'long-term insurance capital requirement' ('LTICR')) and any
additional amounts required to cover the more onerous of two specified stress tests (the 'resilience capital requirement'
('RCR')). The regulatory capital requirement is then deducted from the available capital resources to give the excess
capital on a regulatory basis.
An alternative test to the RCR is required under Pillar 1 in respect of with-profit funds which may result in an additional
capital requirement referred to as the 'with-profit insurance capital component' ('WPICC').
Pillar 2
The Pillar 2 capital requirements are based on a self-assessment methodology, called the 'Individual Capital Assessment'
('ICA'). This methodology determines the capital requirement to ensure that the life company's realistic liabilities can be
met in one year's time with a 99.5% confidence level, or in other words to be able to withstand a one in 200 year event.
The PRA reviews each life company's ICA and may impose additional capital requirements if necessary in the form of
'Individual Capital Guidance' ('ICG').
Regulatory capital position statement for the life companies
The purpose of the capital position statement is to set out the Pillar 1 capital resources of the Group's life companies
calculated in accordance with the regulatory rules applicable to individual life companies. It provides an analysis of the
disposition and constraints over the availability of capital to meet risks and regulatory requirements. The capital
position statement also provides a reconciliation of the life companies owners' funds to regulatory capital and an analysis
of the regulatory capital between the Group's with-profits funds, non-participating business and life business owners'
funds.
The Group has a number of internal loan arrangements in place, which allow the Group to provide capital support to other
areas of the business. Restrictions apply to certain of these arrangements which require the PRA to approve the repayment
of these loan arrangements. In addition to these internal loan arrangements, the Group has in place a number of internal
reinsurance contracts which are structured to manage the capital position between certain life funds.
The available capital resources in each part of the business are generally subject to restrictions as to their availability
to meet requirements that may arise elsewhere in the Group. The principal restrictions are:
With-profit funds - any available surplus held in each fund can only be used to meet the requirements of the fund itself or
be distributed to policyholders and owners. In 90:10 with-profit funds, policyholders are entitled to at least 90% of the
distributed profits while owners receive the balance. In 100:0 with-profit funds, policyholders are entitled to 100% of the
distributed profits. Any distribution to the owners would be subject to a tax charge which, for some funds, would be
deducted from the amount received by owners.
Non-participating funds - any available surplus held in these funds is attributable to owners. Capital within the
non-participating funds may be made available to meet capital requirements elsewhere in the Group subject to meeting
regulatory and legal requirements, and after consideration of the internal capital requirements of the relevant fund and
company. Any transfer of surplus may give rise to a tax charge subject to availability of tax relief elsewhere in the
Group.
The capital statement and movement analysis that follows presents information about the capital resources for the Group's
UK life businesses.
2014
With-profit Non-participating Phoenix Total Phoenix Life business Other Group total
(see below) £m Life owners' funds £m activities and consolidationadjustments4£m £m
£m £m
Owners' funds held outside long-term fund - - 1,590 1,590 476 2,066
Owners' funds held in long-term fund - 299 - 299 - 299
Total owners' funds - 299 1,590 1,889 476 2,365
Adjustments onto a regulatory basis:
Unallocated surplus 965 16 - 981
Adjustments to assets1 (34) (142) (703) (879)
Adjustments to liabilities2 3,945 (90) 37 3,892
Other qualifying capital:
Subordinated debt3 - - 434 434
Contingent loans 273 (13) (260) -
Total available capital resources 5,149 70 1,098 6,317
With-Profit
2014
Pearl WPF PLL PWP PLL BWP SMA WPF SPL WPF Other Total
£m £m £m £m £m £m £m
Owners' funds held outside long-term fund - - - - - - -
Owners' funds held in long-term fund - - - - - - -
Total owners' funds - - - - - - -
Adjustments onto a regulatory basis:
Unallocated surplus 335 142 252 47 63 126 965
Adjustments to assets1 - - (9) - - (24) (33)
Adjustments to liabilities2 1,282 391 1,209 221 483 359 3,945
Other qualifying capital:
Subordinated debt - - - - - - -
Contingent loans - - - - - 273 273
Total available capital resources 1,617 533 1,452 268 546 734 5,150
Notes
1 Regulatory adjustments to assets reflect adjustments to derecognise inadmissible assets such as intangibles and deferred
tax assets as well as those adjustments that are necessary where asset and counterparty exposures exceed the prescribed
regulatory limits.
2 Regulatory adjustments to liabilities primarily reflect differences between the realistic valuation basis for the
with-profit business used in calculating owners' funds on an IFRS basis, and the regulatory valuation basis used to
calculate the PRA peak 1 capital resources.
3 Of the £434 million ((2013: £450 million) subordinated debt attributed to the Phoenix Life segment of the Group, £234
million (2013: £250 million) is internal to the Group. The remaining £200 million (2013: £200 million) is external
subordinated debt, see note 23 for details.
4 'Other activities and consolidation adjustments' represent the consolidated owners' funds arising outside of the Phoenix
Life business. This includes the owners' funds of the holding companies of the Group plus the value of the acquired
in-force business net of the consolidation adjustments to eliminate the cost of the Group's investment in the Phoenix Life
business in the form of equity capital and subordinated loans.
2013
With-profit Non-participating Phoenix Total Phoenix Life business Other Group total
(see below) £m Life owners' funds £m activities and consolidationadjustments4£m £m
£m £m
Owners' funds held outside long-term fund - - 1,741 1,741 (171) 1,570
Owners' funds held in long-term fund - 339 - 339 - 339
Total owners' funds - 339 1,741 2,080 (171) 1,909
Adjustments onto a regulatory basis:
Unallocated surplus 953 17 - 970
Adjustments to assets1 (72) (203) (758) (1,033)
Adjustments to liabilities2 3,870 (94) 46 3,822
Other qualifying capital:
Subordinated debt3 - - 450 450
Contingent loans 272 - (272) -
Total available capital resources 5,023 59 1,207 6,289
With-Profit
2013
Pearl WPF PLL PWP PLL BWP SMA WPF SPL WPF Other Total
£m £m £m £m £m £m £m
Owners' funds held outside long-term fund - - - - - - -
Owners' funds held in long-term fund - - - - - - -
Total owners' funds - - - - - - -
Adjustments onto a regulatory basis:
Unallocated surplus 330 121 255 35 90 122 953
Adjustments to assets1 - (9) (12) (2) (7) (42) (72)
Adjustments to liabilities2 1,166 504 1,102 146 532 420 3,870
Other qualifying capital:
Contingent loans - - - - - 272 272
Total available capital resources 1,496 616 1,345 179 615 772 5,023
An analysis of the movement in available capital resources for the period 1 January 2014 to 31 December 2014 is shown
below:
With-profit
Pearl WPF PLL PWP PLL BWP SMA WPF SPL WPF Other Non- participating Phoenix Life owners' funds Total
£m £m £m £m £m £m £m £m Phoenix Life business
£m
Total available capital resources 1,496 616 1,345 179 615 772 59 1,207 6,289
at 1 January 2014
Regular surplus - - (5) 12 9 2 109 - 127
Investment return 366 64 288 176 94 84Recent news on Phoenix group
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