REG - Phoenix Grp Hldgs - Phoenix Group Holdings - 2015 Annual Results <Origin Href="QuoteRef">PHNX.L</Origin> - Part 17
23/03/2016 08:18
- Part 17: For the preceding part double click ID:nRSW9668Sp
Bothwell Emerging Market Debt Absolute Return Fund;
· Ignis Funds SICAV - Ignis Absolute Return Emerging Market Debt Fund;
· Ignis Funds SICAV - Global Emerging Markets Equity Fund; and
· Ignis Global Growth Fund.
The following subsidiary undertakings were reclassified as significant holdings due to the loss of effective control by the
Group during the period:
· Henderson Global Care Funds - Henderson Institutional Global Care Managed Fund.
I. OTHER NOTES
I1. DISCONTINUED OPERATIONS, ASSETS AND LIABILITIES HELD FOR SALE AND DISPOSALS
A discontinued operation is a component of the Group's business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which:· represents a separate major line of business; and· is part of a coordinated plan to dispose of a separate line of business.Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held for sale. When an operation is classified as a discontinued operation,
the comparative consolidated income statement and statement of comprehensive income is re-presented as if the operation had been discontinued from the start of the comparative year.Non-current assets or disposal groups are classified separately as held for sale in the statement of financial position when their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is met only when the sale is highly probable, the asset or disposal group is available
for immediate sale in its present condition, and management is committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Liabilities directly associated with the assets classified as held for sale and expected to be included as part of the sale transaction are correspondingly also classified separately. The net assets and liabilities of a disposal group classified as held for sale are measured at the lower of their
carrying amount and fair value less costs to sell.
I1.1 Discontinued operations
On 25 March 2014, the Group and Standard Life Investments (Holdings) Limited ('Standard Life Investments') signed a
disposal agreement under which Standard Life Investments agreed to acquire the entire issued share capital of Ignis in
return for gross cash consideration of £390 million. The divestment was completed on 1 July 2014 and the results for the
business have been included in the Ignis operating segment up to this date. A post completion payment of £6 million,
calculated in accordance with the sale and purchase agreement, was paid to Standard Life Investments on 24 September 2014.
As part of the divestment, the Group agreed to a purchase price adjustment for a period of 10 years from the date of the
divestment in the event that assets held by the life companies are withdrawn from management by Ignis Asset Management,
other than for specific reasons such as poor investment performance or for material breaches of investment management
contracts. In 2015 a liability of £2 million was recognised as due to Standard Life Investments in respect of assets no
longer managed by Ignis Asset Management following the recapture of annuity liabilities from Opal Re, a subsidiary
undertaking of the Company, and the subsequent reinsurance to RGA International. The expense has been recognised in the
consolidated income statement in administrative expenses.
I1.1.1 Results of discontinued operations
The results of Ignis are as follows:
2014
£m
Fees 26
Net investment income (6)
Total revenue 20
Administrative expenses (47)
Total operating expenses (47)
Loss before tax (27)
Attributable tax credit 9
(18)
Gain on disposal of discontinued operations 107
Attributable tax credit 3
110
Profit for the year from discontinued operations 92
The loss before tax for the year ended 31 December 2014 excludes intra-group fee income of £38 million. This intra-group
fee income represents the difference between the result before tax for the period from discontinued operations (excluding
the gain on disposal and attributable tax credit) and the Ignis segmental result before tax attributable to owners results
shown in note B1.1 and reflects the income earned by Ignis on managed assets of the Group's life companies.
The profit for the year ended 31 December 2014 from discontinued operations was entirely attributable to the owners of the
parent.
The gain on disposal of discontinued operations of £110 million recognised in the results for the year ended 31 December
2014, comprised net consideration received of £384 million less net assets and liabilities disposed of £254 million,
transaction costs and tax.
I1.1.2 Cash flows generated by discontinued operations
The net cash flows generated by Ignis (including cash flows relating to the divestment) are as follows:
2014
£m
Cash flows from operating activities 31
Cash flows from investing activities 311
Cash flows from financing activities (29)
Net cash inflow 313
Cash flows from investing activities of £311 million comprises net consideration received of £384 million less attributable
transaction costs of £5 million, less cash and cash equivalents disposed of £68 million.
I1.1.3 Effect of disposal on the financial position of the Group
2014
£m
Goodwill 57
Customer relationships and other intangibles 136
Financial assets 37
Property, plant and equipment 10
Cash and cash equivalents 68
Deferred tax assets 3
Other assets 53
Deferred tax liabilities (27)
Provisions (23)
Other liabilities (60)
Net assets and liabilities disposed of 254
I1.2 Assets and liabilities of operations classified as held for sale
The balances transferred to assets and liabilities classified as held for sale in the statement of consolidated financial
position as at 31 December 2015 relate to the anticipated Part VII transfer of a portfolio of annuity liabilities to
Guardian and to the sale of the Pearl Breakfast Unit Trust. The balances as at 31 December 2014 relate to the anticipated
Part VII transfer to Guardian.
2015 2014
£m £m
Assets classified as held for sale:
Reinsurer's share of insurance contract liabilities 1,521 1,713
Investment in joint venture 149 -
1,670 1,713
Liabilities classified as held for sale:
Liabilities under insurance contracts 1,587 1,776
1,587 1,776
I1.2.1 Annuity liabilities transfer
On 31 July 2014, the Group entered into a reinsurance agreement, effective from 1 January 2014, to reinsure certain
portfolios of the Group's annuity liabilities to Guardian in exchange for the transfer of financial assets of £1.7 billion.
The annuity in-payment liabilities are currently held in the Group's with-profit funds. It is highly probable that the
reinsurance agreement will be replaced by a formal scheme under Part VII of the Financial Services and Market Act 2000 to
transfer the annuity liabilities to Guardian or a member of its group. Management's expectations are that the necessary
approvals will be in place by the end of 2016. The parties remain committed to fulfilling their contractual obligations in
relation to the Part VII. Accordingly the assets and liabilities to be transferred have been classified as held for sale.
Liabilities classified as held for sale include the annuity liabilities reinsured to Guardian and directly attributable
expense reserves where they will be extinguished at the time of transfer. Assets classified as held for sale include the
associated reinsurers' share of insurance contract liabilities.
Under the terms of this reinsurance agreement Guardian holds assets in a collateral account over which the Group has a
fixed charge as disclosed in note F3.2.
I1.2.2 Sale of Pearl Breakfast Unit Trust
At 31 December 2015 the Group invested in an investment property joint venture which was held by the Pearl Breakfast Unit
Trust. In 2015 the Group committed to selling the Pearl Breakfast Unit Trust (and consequently its investment in the joint
venture) and on 25 February 2016 the units in the Pearl Breakfast Unit Trust were sold to Tesco Property Holdings (No.2)
Limited and Tesco Property Holdings Limited. As part of the sale agreement Tesco plc also purchased the Group's investment
in Tesco Property Partner (GP) Limited.
The Group's investment in the joint venture has therefore been classified as held for sale as at 31 December 2015.
I1.3 Scottish Mutual International ('SMI')
On 2 December 2015, the Group completed the sale of its entire interest in SMI for gross cash consideration of £14 million
following a pre-completion return of capital by SMI. The carrying value of the net assets transferred was £1 million which
excludes £11 million of recoverables under an intercompany reinsurance agreement that is eliminated on consolidation.
2015
£m
Cash consideration received (net of transaction costs) 12
Less: carrying value of net assets sold
Financial assets (181)
Cash and cash equivalents (12)
Other receivables (1)
Liabilities under insurance contracts 169
Unallocated surplus 20
Other liabilities 4
(1)
Intercompany liabilities under insurance contracts assumed on disposal (11)
Loss on sale (net of tax) -
I1.4 Castle Hill Credit Opportunities Holding Limited ('CHCOHL')
During the second half of 2015, the Group completed the disposal of its entire investment in the Sterling (Class A) loan
notes of CHCOHL. No gain or loss arose on the disposal of the investment as the net assets of the structure were carried at
fair value in the consolidated financial statements.
I1.5 BAGI
The Group completed the sale of its entire interest in BAGI to National Indemnity Company on 18 March 2014 for cash
consideration of £21 million. The carrying value of the net assets transferred was £17 million, resulting in a pre-tax gain
of £4 million.
I2. SHARE-BASED PAYMENT
Equity-settled share-based payments to employees and others providing services are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non-market-based vesting conditions. Further details regarding the determination of the fair value of equity-settled share-based transactions are set below.The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the
Group's estimate of equity instruments that will eventually vest. At each period end, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in the consolidated income statement such that the cumulative expense reflects the revised estimate with a corresponding adjustment to equity.
I2.1 Share-based payment expense
The expense recognised for employee services receivable during the year is as follows:
2015 2014
£m £m
Expense arising from equity-settled share-based payment transactions 4 7
I2.2 Share-based payment schemes in issue
Long-term incentive plan ('LTIP')
In 2009, the Group implemented a long-term incentive plan to retain and motivate its senior management group. The awards
under this plan are in the form of nil-cost options to acquire an allocated number of ordinary shares. Assuming no good
leavers or other events which would trigger early vesting rights, these awards will be subject to performance conditions
tied to the Company's financial performance in respect of growth in MCEV, cumulative cash generation over a three year
period and total shareholder return ('TSR'). For all LTIP awards made from 2015 onwards, a holding period applies 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. Dividends will accrue for LTIP awards until the end of the holding
period. There are no cash settlement alternatives.
The 2015 LTIP awards were granted on 28 September 2015. The 2012 LTIP awards vested during the year. The 2013 award will
vest on 15 November 2016, the 2014 award will vest on 26 March 2017 and the 2015 award will vest on 28 September 2018.
The fair value of these awards is estimated at the share price at the grant date, taking into account the terms and
conditions upon which the instruments were granted.
Sharesave scheme
The sharesave scheme allows participating employees to save up to £250 each month over a period of either three or five
years. This amount was increased to £500 each month with respect to the 2014 and 2015 sharesave schemes.
Under the sharesave arrangement, participants remaining in the Group's employment at the end of the three or five year
saving period are entitled to use their savings to purchase shares at an exercise price at a discount to the share price on
the date of grant. Employees leaving the Group for certain reasons are able to use their savings to purchase shares if they
leave less than six months before the end of their three or five year periods.
The fair value of the awards has been determined using a Black-Scholes valuation model. Key assumptions within this
valuation model include expected share price volatility and expected dividend yield.
The 2010, 2011 and 2012 sharesave awards were increased during 2013 as a result of the equity raising on 21 February 2013.
The exercise price of these awards were also amended as a result of the equity raising. The 2015 sharesave awards were
granted on 21 April 2015.
The following information was relevant in the determination of the fair value of the 2011 to 2015 sharesave awards in the
year:
2015 2014 2013 2012 2011
sharesave sharesave sharesave sharesave sharesave
Share price (p) 843.0 674.0 630.0 524.5 669.5
Exercise price (£) 7.40 6.04 5.60 4.66 5.58
Expected life (years) 3.25 and 5.25 3.25 and 5.25 3.25 and 5.25 3.25 and 5.25 3.25 and 5.25
Risk-free rate (%) - based on UK government gilts commensurate with the expected term of the award 0.8 (for 3.25 year scheme) and 1.3 (for 3.25 year scheme) and 0.4 (for 3.25 year scheme) and 0.6 (for 3.25 year scheme) and 1.8 (for 3.25 year scheme) and
1.2 (for 5.25 year scheme) 1.9 (for 5.25 year scheme) 0.8 (for 5.25 year scheme) 1.1 (for 5.25 year scheme) 2.6 (for 5.25 year scheme)
Expected volatility (%) based on the Company's share price volatility to date 30.0 30.0 30.0 30.0 30.0
Dividend yield (%) 6.33 7.9 8.5 8.0 6.3
Deferred bonus share scheme ('DBSS')
With effect from 31 December 2010, part of the annual incentive for certain executives, for any year, is deferred into
Phoenix Group Holdings' shares. This grant of shares is conditional on the employee remaining in employment with the Group
for a period of three years. For DBSS awards made in 2015 and for those to be made in subsequent years, the three year
deferral period will run to the dealing day following the three year anniversary of the announcement of the annual results.
Dividends will accrue for DBSS awards over the three year deferral period. The 2015 DBSS was granted on 28 September 2015
and is expected to vest on 19 March 2018. The 2012 DBSS awards vested during the year. The 2013 awards are expected to vest
on 27 March 2016 and the 2014 awards are expected to vest on 28 March 2017.
The fair value of these awards is estimated at the share price at the grant date, taking into account the terms and
conditions upon which the options were granted.
I2.3 Movements in the year
The following tables illustrate the number of, and movements in, share options during the year:
No. of share options 2015
LTIP SAYE DBSS
Outstanding at the beginning of the year 3,153,621 987,518 482,249
Granted during the year 867,817 253,757 171,441
Forfeited during the year (248,865) (43,738) (28,732)
Cancelled during the year - (21,585) -
Exercised during the year (993,902) (343,272) (95,874)
Waived during the year (84,498) - -
Outstanding at the end of the year 2,694,173 832,680 529,084
No. of share options 2014
LTIP SAYE DBSS
Outstanding at the beginning of the year 3,749,531 1,017,771 362,867
Granted during the year 1,154,260 503,544 212,898
Forfeited during the year (610,236) (241,221) (31,570)
Cancelled during the year - (34,703) -
Exercised during the year (1,139,934) (257,873) (61,946)
Outstanding at the end of the year 3,153,621 987,518 482,249
The weighted average fair value of options granted during the year was £6.93 (2014: £5.65).
The weighted average share price at the date of exercise for the rewards exercised is £8.36 (2014: £6.90).
The weighted average remaining contractual life for the rewards outstanding as at 31 December 2015 is 1.6 years (2014: 1.4
years).
I3. CASH FLOWS FROM OPERATING ACTIVITIES
The following analysis gives further detail behind the 'cash utilised operations' figure in the statement of consolidated
cash flows.
2015 2014
£m £m
Profit for the period before tax from continuing operations 152 465
Loss for the period before tax from discontinued operations (see note I1.1.1) - (27)
Profit for the period before tax 152 438
Non-cash movements in profit for the year before tax
Fair value (gains)/losses on:
Investment property (140) (200)
Financial assets 1,125 (3,494)
Change in fair value of borrowings 48 19
Amortisation and impairment of intangible assets 163 113
Change in present value of future profits 6 9
Change in unallocated surplus (84) 11
Share-based payment charge 4 7
Interest expense on borrowings 136 156
Net interest income on Group defined benefit pension scheme asset/liability (17) (4)
Other expenses and losses on pension schemes 3 3
Gain on sale of BAGI (see note I1.5) - (4)
Gain on divestment of Ignis (see note I1.1.1) - (107)
Decrease in investment assets 2,468 5,556
(Increase)/decrease in reinsurance assets (1,134) 43
(Decrease)/increase in insurance contract and investment contract liabilities (3,487) 37
(Decrease)/increase in deposits received from reinsurers (30) 23
Decrease in obligation for repayment of collateral received (229) (6,330)
Net decrease in working capital 440 8
Cash utilised by operations (576) (3,716)
Separate disclosure of the cash flows from operating activities generated by discontinued operations is provided in note
I1.1.1.
I4. CAPITAL MANAGEMENT
This note sets out the Group's approach to managing capital, provides an analysis of available capital resources and explains the different regulatory capital requirements of the Group and its life companies.
Risk and capital management objectives
The risk management objectives and policies of the Group are based on the requirement to protect the Group's regulatory
capital position, thereby safeguarding policyholders' guaranteed benefits whilst also ensuring the Group can meet its
various cash flow requirements. Subject to this, the Group seeks to use available capital to achieve increased returns,
balancing risk and reward, to generate additional value for policyholders and shareholders.
In pursuing these objectives, the Group deploys financial and other assets and incurs insurance contract liabilities and
financial and other liabilities. Financial and other assets principally comprise investments in equity securities, fixed
and variable rate income securities, collective investment schemes, property, derivatives, reinsurance, trade and other
receivables, and banking deposits. Financial liabilities principally comprise investment contracts, borrowings for
financing purposes, derivative liabilities and net asset value attributable to unit holders.
The risk management disclosures in the consolidated financial statements set out the major risks that the Group businesses
are exposed to and describe the Group's approach to managing these. The section on financial risk is included in note E6,
the section on insurance risk is included in note F4 and the sections on risk and capital management objectives and other
risks are included below. The Group's risk management framework is described in the risk management commentary on pages 34
to 39 of the Annual Report and Accounts.
Other risks
Customer risk
Customer risk is the risk of reductions in earnings and/or value, through inappropriate or poor customer treatment
(including poor advice).
Operational risk
Operational risk is the risk of reductions in earnings and/or value, through financial or reputational loss, from
inadequate or failed internal processes and systems, or from people related or external events.
Capital management framework
The Group's Capital Management Framework is designed to achieve the following objectives:
· provide appropriate security for policyholders and meet all regulatory capital requirements whilst not retaining
unnecessary excess capital;
· ensure sufficient liquidity to meet obligations to policyholders and other creditors;
· optimise the level of debt in the Group statement of consolidated financial position to maintain an investment grade
credit rating; and
· to meet the dividend expectations of shareholders as set by the Group's dividend policy.
The framework comprises a suite of capital management policies that govern the allocation of capital throughout the Group
to achieve the framework objectives under a range of stress conditions. The policy suite is defined with reference to
policyholder security, creditor obligations, owner dividend policy and regulatory capital requirements.
The capital policy of each life company is set and monitored by each life company Board. These policies ensure there is
sufficient capital within each life company to meet regulatory capital requirements under a range of stress conditions. The
capital policy of each life company varies according to the risk profile and financial strength of the company.
Regulatory capital adequacy at a Group level is calculated at the ultimate EEA insurance parent undertaking which is PLHL.
This continues to be the case after 1 January 2016 under the Solvency II regime.
Group capital
Capital resources
The primary sources of capital used by the Group prior to 1 January 2016 comprised equity shareholder funds as measured on
an MCEV basis, the Perpetual Reset Capital Securities and shareholder borrowings. This is analysed as follows:
Notes 2015£m 2014£m
Total IFRS equity attributable to owners of the parent1 2,434 2,365
Adjustments between IFRS equity attributable to owners of the parent and MCEV net worth2 (1,863) (1,899)
MCEV value of in-force business2 1,942 2,181
Group MCEV 2,513 2,647
Gross shareholder debt:
Perpetual Reset Capital Securities D3.1 6 408
Shareholder borrowings E5 1,491 1,275
Difference between IFRS and MCEV carrying values of shareholder borrowings 95 78
Gross MCEV 4,105 4,408
1 As shown in the consolidated statement of financial position.
2 As detailed in the reconciliation of Group IFRS equity to MCEV net worth in the MCEV financial statements.
From 1 January 2016, the primary sources of capital used by the Group comprise the Group Basic Own Funds calculated on a
Solvency II basis (see Solvency II regulatory capital measures below).
Leverage
In managing capital the Group seeks to optimise the level of debt on its balance sheet. The Group's closed book business
model allows it to 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 financial leverage calculation (unaudited) is provided in the business review on page 33.
Regulatory capital measures (applicable until 31 December 2015)
Under the regulatory rules applicable until 31 December 2015, each UK life company and PLHL was required to retain
sufficient capital at all times to meet the regulatory capital requirements mandated by the PRA. In addition to
EU-directive-based 'Pillar 1' individual and group capital requirements, the PRA also stipulated a 'Pillar 2' of risk-based
capital requirements that were implemented in the UK. The actual capital requirement for each UK life company and PLHL is
based on whichever of the Pillar 1 or Pillar 2 requirement turns out to be more onerous for the company and for PLHL. Each
UK 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.
UK Life companies
Capital resources of the UK life companies comprise capital arising within their long-term fund, i.e. within the
with-profit funds and non-participating funds; and capital arising outside their long-term fund. There are certain
restrictions that operate over the capital in these funds which are summarised as follows:
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.
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.
Pillar 1 capital requirements
The regulatory capital requirement under Pillar 1 for the Group's UK life companies applicable until 31 December 2015 was
the total amount held in respect of investment, expense and insurance risks (the 'long-term insurance capital requirement'
('LTICR')) and an additional amount 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 capital requirements
The Pillar 2 capital requirements applicable until 31 December 2015 were based on a self-assessment methodology, called the
'Individual Capital Assessment' ('ICA'). This methodology determined the capital requirement to ensure that the life
company's realistic liabilities could 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 reviewed each life company's ICA and could impose additional capital
requirements if necessary in the form of 'Individual Capital Guidance' ('ICG').
PLHL Group
Prior to 1 January 2016, PLHL maintained two separate measures of its regulatory capital resources and related capital
requirements. These were the Insurance Groups' Directive ('IGD') and PLHL ICA, which correspond to the Pillar 1 and Pillar
2 requirement respectively.
IGD
PRA regulated insurance groups (including their holding companies) are 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, and was in force until 31 December 2015.
The Group's IGD assessment was made at the ultimate insurance parent undertaking within the EEA, which is PLHL. The
assessment aggregated the capital resources of the UK life companies and insurance holding companies headquartered within
the EEA and made adjustments to remove internal holdings and apply regulatory rules pertaining to the calculation. The
result is compared with the aggregate regulatory Pillar 1 capital requirements (see below) to determine the overall surplus
for the IGD measure of regulatory capital.
As at 31 December 2015, the unaudited estimated PLHL Group Capital Resources were £5.9 billion (2014: £5.6 billion) and the
unaudited estimated PLHL Group IGD Surplus was £1.5 billion (2014: £1.2 billion).
Further detail of the PLHL IGD position (unaudited) is provided in the business review on page 31.
PLHL ICA
Prior to 1 January 2016, the Group undertook a further group solvency calculation, the 'PLHL ICA', at the same level at
which the IGD calculation was 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 included 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. Applicable until 31 December 2015 and as agreed with the PRA, the Group aimed to ensure
that PLHL maintains an ICA surplus of at least £150 million. As at 31 December 2015, the unaudited estimated PLHL Group ICA
position was £0.6 billion (2014: £0.7 billion).
Further detail of the PLHL ICA position is provided in the business review (unaudited) on page 31.
Solvency II regulatory capital measures (applicable from 1 January 2016)
The Solvency II Directive became effective from 1 January 2016. Under this regime, each UK life company and the PLHL Group
are required to retain sufficient capital (termed 'own funds') at all times to meet the Solvency Capital Requirements
('SCR') as determined by Phoenix's PRA approved Internal Model.
Basic Own Funds represents the excess of assets over liabilities from the Solvency II balance sheet adjusted to add back
any relevant subordinated liabilities that meet the criteria to be treated as capital items.
The Basic Own Funds can be classified into three tiers based on permanency and loss absorbency (tier 1 being the highest
quality and tier 3 the lowest). Limits are imposed on the amount of each tier that can be held to cover the SCR. Eligible
Own Funds at a Life company level are obtained after having applied these prescribed tiering limits to the Basic Own
Funds.
Phoenix has obtained PRA approval to calculate the SCR of its UK life companies using an Internal Model. This model has
been calibrated to ensure that the life company's liabilities could 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.
Surplus funds in with-profit funds of the life companies ('ring fenced funds') are restricted and can only be included in
Eligible Own Funds up to the value of the SCR they are used to support.
The Group's Solvency II assessment is made at the ultimate parent undertaking within the EEA, which is PLHL. Solvency at
the PGH Group level is regulated by the PRA through a series of 'other methods' as agreed in a PRA approved waiver
exempting the PGH Group from application of the full group requirements of the Solvency II Directive.
Group Own Funds are assessed for their eligibility to cover the Group SCR with reference to both the quality of capital and
its availability and transferability and restrictions are applied accordingly.
Each UK Life company and the PLHL Group generally hold an amount of Eligible Own Funds that is greater than the SCR 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 (termed the Minimum Capital Requirement).
The unaudited estimated PLHL Solvency II surplus position at 1 January 2016 is set out below:
Year ended31 December 2 015 £bn
Own funds1 5.8
Solvency capital requirement2 (4.5)
Estimated Solvency II surplus (unaudited) 1.3
1 Own funds includes the net assets of the life and holding companies calculated under Solvency II rules, pension scheme
surpluses calculated on an IAS19 basis not exceeding the holding companies' contribution to the Group SCR and qualifying
subordinated liabilities.
2 Solvency capital requirements relate to the risks and obligations, to which the Group is exposed, calculated using an
internal model, offset by Group diversification benefits.
Further details of the PLHL Solvency II excess (unaudited) is provided in the Financial performance section on page 32.
I5. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Group and its subsidiaries carry out transactions with related parties as defined
by IAS 24 Related party disclosures.
I5.1 Transactions with pension schemes
During the year, the Group entered into the following transactions with its pension schemes:
Transactions Balances outstanding Transactions Balances
2015 2015 2014 outstanding
£m £m £m 2014
£m
Pearl Group Staff Pension Scheme
Payment of administrative expenses (2) - (4) -
PGL Pension Scheme
Investment management fees - - 1 -
The Pearl Scheme has invested in collective investment schemes that are controlled by the Group. At 31 December 2015, the
Pearl Scheme held 44,354,178 units in the Castle Hill Enhanced Floating Rate Opportunities Limited Fund. The value of these
investments at 31 December 2015 was £74 million. At 31 December 2014, Castle Hill Enhanced Floating Rate Opportunities
Limited Fund was not a related party, and therefore no comparatives have been reported.
Information on other transactions with the pension schemes is included in note G6.
I5.2 Transactions with key management personnel
The total compensation of key management personnel, being those having authority and responsibility for planning, directing
and controlling the activities of the Group, including the Executive and Non-Executive Directors, are as follows:
2015 2014
£m £m
Salary and other short-term benefits 4 4
Equity compensation plans 2 2
Details of the shareholdings and emoluments of individual Directors are provided in the Remuneration report on pages 57 to
80.
I6. OPERATING LEASES
Leases, where a significant portion of the risks and rewards of ownership are retained by the lessor, are classified as operating leases. Where the Group is the lessee, payments made under operating leases, net of any incentives received from the lessor are charged to the consolidated income statement on a straight-line basis over the period of the lease.
Operating lease rentals charged within administrative expenses amounted to £8 million (2014: £10 million).
The Group has commitments under non-cancellable operating leases as set out below:
2015 2014
£m £m
Not later than 1 year 7 10
Later than 1 year and not later than 5 years 22 33
Later than 5 years - 7
The principal operating lease commitments for 2015 concern office space located at St Vincent Street, Glasgow and Juxon
House, London (2014: St Vincent Street, Glasgow and Juxon House, London).
Disclosures of future minimum lease rental receivables in respect of non-cancellable operating leases on investment
properties are included in note G9.
I7. COMMITMENTS
This note analyses the Group's other commitments.
2015 2014
£m £m
To subscribe to private equity funds and other unlisted assets 443 334
To purchase, construct or develop investment property 6 28
For repairs, maintenance or enhancements of investment property 5 2
I8. CONTINGENT LIABILITIES
Where the Group has a present legal or constructive obligation, but it is not probable that there will be an outflow of resources to settle the obligation or the amount cannot be reliably estimated, this is disclosed as a contingent liability.
In the normal course of business the Group is exposed to certain legal issues, which involve litigation and arbitration. At
the period end, the Group has a number of contingent liabilities in this regard, none of which are considered by the
Directors to be material.
I9. EVENTS AFTER THE REPORTING PERIOD
The financial statements are adjusted to reflect significant events that have a material effect on the financial results and that have occurred between the period end and the date when the financial statements are authorised for issue, provided they give evidence of conditions that existed at the period end. Events that are indicative of conditions that arise after the period end that do not result in an adjustment to the financial statements are disclosed.
In March 2016, the Group agreed an amendment of its £900 million 5 year unsecured bank facility into a £650 million
unsecured revolving credit facility, maturing in June 2020. There are no mandatory or target amortisation payments
associated with the facility but prepayments are permissible.
On 22 March 2016, the Board recommended a final dividend of 26.7p per share (2014: 26.7p per share) for the year ended 31
December 2015. Payment of the final dividend is subject to shareholder approval at the AGM. The cost of this dividend has
not been recognised as a liability in the financial statements for 2015 and will be charged to the statement of changes in
equity in 2016.
H Staunton
C Bannister
J McConville
A Barbour
I Cormack
T Cross Brown
I Hudson
D Woods
K Sorenson
St Helier, Jersey
22 March 2016
Parent Company Accounts
Parent Company Accounts
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2015
Notes 2015 2014
£m £m
Net investment income 4 620 147
Net income 620 147
Administrative expenses 5 (19) (22)
Impairment of investment in subsidiaries 7 (437) -
Total operating expenses (456) (22)
Total comprehensive income for the year attributable to owners 164 125
The Company is exempt from tax in the Cayman Islands on any profits, income, gains or appreciations for a period of 30
years from 11 May 2010.
There are no other comprehensive income items for 2015 and 2014.
STATEMENT OF FINANCIAL POSITION
As at 31 December 2015
Notes 2015 2014
£m £m
EQUITY AND LIABILITIES
Equity attributable to owners
Share capital D1 - -
Share premium 858 976
Foreign currency translation reserve 89 89
Retained earnings 557 389
Total equity 1,504 1,454
Liabilities
Financial liabilities
Borrowings 6 3 3
Other amounts due to Group entities 15 123 146
Total equity and liabilities 1,630 1,603
ASSETS
Investments in Group entities 7 800 1,317
Financial assets
Collective investment schemes 8 11 5
Loans and receivables 9 819 270
Other amounts due from Group entities 15 - 8
Cash and cash equivalents 10 - 3
Total assets 1,630 1,603
The notes identified numerically on pages 192 to 197 are an integral part of these Company financial statements. Where
items also appear in the consolidated financial statements, reference is made to the notes (identified alphanumerically) on
pages 102 to 187.
Parent Company Accounts
STATEMENT OF cash flows
For the year ended 31 December 2015
Notes 2015 2014
£m £m
Cash flows from operating activities
Cash (utilised)/generated by operations 11 (28) 15
Net cash flows from operating activities (28) 15
Cash flows from investing activities
Dividends received from Group entities 40 85
Loan advance to Group entities (6) (6)
Repayment of loan from a Group entity - 1
Interest received from Group entities 19 18
Return of share capital from Opal Re 90 -
Net cash flows from investing activities 143 98
Cash flows from financing activities
Proceeds from issuing ordinary shares 2 1
Ordinary share dividends paid (120) (120)
Net cash flows from financing activities (118) (119)
Net decrease in cash and cash equivalents (3) (6)
Cash and cash equivalents at the beginning of the year 3 9
Cash and cash equivalents at the end of the year 10 - 3
Parent Company Accounts
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2015
Share capital (note D1) Share premium £m Foreign currency translation reserve Retained earnings £m Total
£m £m £m
At 1 January 2015 - 976 89 389 1,454
Total comprehensive income for the year attributable to owners - - - 164 164
Issue of ordinary share capital (note D1) - 2 - - 2
Dividends paid on ordinary shares (note B4) - (120) - - (120)
Credit to equity for equity-settled share-based payments (note I2) - - - 4 4
At 31 December 2015 - 858 89 557 1,504
STATEMENT OF changes in equity
For the year ended 31 December 2014
Share capital Share premium £m Foreign currency translation reserve Retained earnings £m Total
(note D1) £m £m
£m
At 1 January 2014 - 1,095 89 257 1,441
Total comprehensive income for the year attributable to owners - - - 125 125
Issue of ordinary share capital (note D1) - 1 - - 1
Dividends paid on ordinary shares (note B4) - (120) - - (120)
Credit to equity for equity-settled share-based payments (note I2) - - - 7 7
At 31 December 2014 - 976 89 389 1,454
Phoenix Group Holdings is subject to Cayman Islands Companies Law. Under Cayman Islands Companies Law distributions can be
made out of profits or share premium subject, in each case, to a solvency test. The solvency test is broadly consistent
with the Group's going concern assessment criteria. The notes identified numerically on pages 192 to 197 are an integral
part of these Company financial statements. Where items also appear in the consolidated financial statements, reference is
made to the notes (identified alphanumerically) on pages 102 to 187.
Parent Company Accounts
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
(a) Basis of preparation
The financial statements have been prepared on an historical cost basis except for those financial assets and financial
liabilities that have been measured at fair value.
Statement of Compliance
The financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRSs') as
issued by the International Accounting Standards Board ('IASB').
The financial statements are presented in sterling (£) rounded to the nearest million unless otherwise stated.
Assets and liabilities are offset and the net amount reported in the statement of financial position only when there is a
legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to
realise the assets and settle the liabilities simultaneously.
Income and expenses are not offset in the statement of comprehensive income unless required or permitted by an IFRS or
interpretation, as specifically disclosed in the accounting policies of the Company.
(b) Accounting policies
The accounting policies in the separate financial statements are the same as those presented in the notes to the
consolidated financial statements on pages 102 to 187, except for the policy noted below. Where an accounting policy can be
directly attributed to a specific note to the consolidated financial statements, the policy is presented within that note.
Each note within the Company financial statements makes reference to the note to the consolidated financial statements
containing the applicable accounting policy. The accounting policy in relation to foreign currency transactions is included
within note A2.1.
Investments in Group entities
Investments in Group entities are carried in the statement of financial position at cost less impairment.
The Company assesses at each reporting date whether an investment is impaired. The Company first assesses whether objective
evidence of impairment exists. Evidence of impairment needs to be significant or prolonged to determine that objective
evidence of impairment exists. If objective evidence of impairment exists, the Company calculates the amount of impairment
as the difference between the recoverable amount of the Group entity and its carrying value and recognises the amount as an
expense in the income statement.
The recoverable amount is determined based on the cash flow projections of the underlying entities.
The assessment of whether an investment in a Group entity is impaired is considered to be a critical accounting judgement
for the Company.
2. FINANCIAL INFORMATION
In preparing the financial statements the Company has adopted the standards, interpretations and amendments effective 1
January 2015 which have been issued by the IASB as detailed in note A4 of the consolidated financial statements, none of
which have had a significant impact on the Company's financial statements. Details of standards, interpretations and
amendments to be adopted in future periods are also detailed in note A5.
3. SEGMENTAL ANALYSIS
The Company has one reportable segment, comprising its investment in and loans to/from its subsidiaries. Its revenue
principally comprises the dividend and interest income derived from these investments and loans. Information relating to
this segment is included in the Company's primary financial statements on pages 189 to 191. The accounting policy for
segmental analysis is included in note B1.
Predominantly, all revenues from external customers is sourced in the UK.
Predominantly, all assets are located in the UK.
4. NET INVESTMENT INCOME
The accounting policy for net investment income is included in note C1.
2015 2014
- More to follow, for following part double click ID:nRSW9668SrRecent news on Phoenix group
See all newsREG - Phoenix Group Hldgs - Result of AGM
AnnouncementREG - Phoenix Group Hldgs - Director/PDMR Shareholding
AnnouncementREG - Phoenix Group Hldgs - Total Voting Rights
AnnouncementREG - Phoenix Group Hldgs - Director/PDMR Shareholding
AnnouncementREG - Phoenix Group Hldgs - Director/PDMR Shareholding
Announcement