REG - Phoenix Grp Hldgs - Phoenix Group Holdings - 2016 Annual Results <Origin Href="QuoteRef">PHNX.L</Origin> - Part 18
20/03/2017 07:07
- Part 18: For the preceding part double click ID:nRST8776Zq
The Group's capital management framework is designed to achieve the following objectives:
- to provide appropriate security for policyholders and meet all regulatory capital requirements under the Solvency II
regime while not retaining unnecessary excess capital;
- to ensure sufficient liquidity to meet obligations to policyholders and other creditors;
- to optimise the Fitch Rating's financial leverage ratio to maintain an investment grade credit rating; and
- to maintain a stable and sustainable 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.
Group capital
Following the implementation of the Solvency II Directive effective from 1 January 2016, Group capital is managed on a
Solvency II basis.
Under the Solvency II framework, the primary sources of capital managed by the Group comprise of the Group's Own Funds as
measured under the Solvency II principles, adjusted so as to exclude surplus funds attributable to the Group's unsupported
with-profit funds and unsupported pension schemes. The Group also considers its senior bond and revolving credit facility
to represent sources of capital, measured at their market value.
Prior to 1 January 2016 the primary sources of capital used by the Group comprised of equity shareholder funds as measured
on an MCEV basis, the Perpetual Reset Capital Securities and shareholder borrowings. Following the implementation of
Solvency II, the Group no longer reports financial information on an MCEV basis, and such an approach is no longer
considered relevant to the management of the Group's capital. In addition, the Perpetual Reset Capital Securities were
redeemed in April 2016 and therefore no longer represent a source of capital.
A Solvency II capital assessment involves a valuation in line with Solvency II principles of the Group's Own Funds and a
risk-based assessment of the Group's Solvency Capital Requirement ('SCR'). Solvency II surplus is the excess of Own Funds
over the SCR.
Each UK life company and the Group will hold an amount of 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, the Minimum Capital Requirement ('MCR').
The Group aims to maintain a Solvency II surplus at least equal to its Board-approved capital policy, which reflects board
risk appetite for meeting prevailing solvency 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.
The capital policy of each Group holding company is designed to ensure that there is sufficient liquidity to meet creditor
obligations through the combination of cash buffers and cash flows from the Group's operating companies.
Own Funds and SCR
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 are classified into three Tiers based on permanency and loss absorbency (Tier 1 being the highest
quality and Tier 3 the lowest). The Group's 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. Surplus funds in with-profit funds of
the life companies and in the pension schemes are restricted and can only be included in Eligible Own Funds up to the value
of the SCR they are used to support.
Eligible Own Funds to cover the SCR are obtained after applying the prescribed Tiering limits and transferability
restrictions to the Basic Own Funds.
The SCR is calibrated so that the likelihood of a loss exceeding the SCR is less than 0.5% over one year. This ensures that
capital is sufficient to withstand a broadly '1 in 200 year event'.
Group capital resources - unaudited
The Group capital resources is based on the Group's pro forma Own Funds adjusted for shareholder borrowings as analysed
below:
Unaudited 2016
Pro forma
£bn
PGH pro forma Own Funds1,2 6.0
Remove Own Funds pertaining to unsupported with-profit funds and the PGL pension scheme (2.0)
PGH pro forma Own Funds attributable to shareholders 4.0
Senior borrowings3:
Revolving credit facility 0.5
Senior unsecured bond 0.3
Group capital resources 4.8
1 Further information on the PGH pro forma Own Funds and SCR is included on page 31.
2 Further details on the pro forma basis are provided on page 23.
3 The senior borrowings are treated as liabilities within the PGH pro forma Own Funds as they do not qualify as Own
Funds under Solvency II principles. Other shareholder borrowings comprising the £200 million unsecured subordinated loan,
the £428 million subordinated loan and the £300 million Tier 3 bond issued in January 2017, qualify as capital under
Solvency II principles, and are included within Own Funds.
PLHL Solvency II surplus
The Group's Solvency II assessment and Group supervision is performed at the PLHL level as this is the highest EEA
insurance holding company. A waiver is currently in place which permits Group supervision to take place at the level of the
ultimate parent, PGH, via other methods as opposed to full Group supervision. This waiver is due to expire on 30 June 2017.
As part of the ongoing simplification of the Group structure, Phoenix intends to put in place a new UK-registered holding
company which will be the ultimate holding company and the highest EEA insurance Group holding company at which Group
supervision will be performed. From 1 July 2017 and pending completion of the simplification of the Group structure, Group
supervision and the Solvency II capital adequacy assessment are expected to be performed at the PLHL and PGH level.
An analysis of the PLHL Solvency II surplus as at 31 December 2016 is provided in the Business Review section on page 29 of
the Annual Report and Accounts.
Further information on the PLHL's pro forma Own Funds, SCR and MCR is included in the additional capital disclosures on
pages 211 to 213 of the Annual Report and Accounts.
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 scheme and associate
During the year, the Group entered into the following transactions with one of its pensions scheme and associate:
Transactions 2016 Balances outstanding 2016 Transactions Balances outstanding
£m £m 2015 2015
£m £m
Pearl Group Staff Pension Scheme
Payment of administrative expenses (2) - (2) -
UK Commercial Property Trust Limited
Dividend income 17 - - -
Reduction in investment 12 - - -
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:
2016 2015
£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 58 to
84.
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 £6 million (2015: £8 million).
The Group has commitments under non-cancellable operating leases as set out below:
2016 2015
£m £m
Not later than 1 year 7 7
Later than 1 year and not later than 5 years 16 22
The principal operating lease commitments for 2016 concern office space located at St Vincent Street, Glasgow and Juxon
House, London (2015: 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.
2016 2015
£m £m
To subscribe to private equity funds and other unlisted assets 646 443
To purchase, construct or develop investment property 7 6
For repairs, maintenance or enhancements of investment property 3 5
I8. Contingent liabilities
Where the Group has a possible future obligation as a result of a past event, or 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.
During 2016, the FCA published the findings of its thematic reviews into the fair treatment of long-standing customers and
into the practices of non-advised annuity sales. Following the acquisition of Abbey Life, a provision has been recognised
in respect of obligations identified as a result of past practices adopted by the entity in the areas covered by the two
reviews. As part of this exercise, other potential exposures were identified where it is not yet possible to conclude that
the Group has a present obligation that will require an outflow of economic benefits. The determination of any liability
arising remains dependent on the occurrence of uncertain future events, including finalisation of the FCA's enforcement
investigation into Abbey Life that commenced in response to the findings of the review into the fair treatment of
long-standing customers. Further detailed information on these exposures is included in note G1.
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.
On 20 January 2017, PGH Capital plc ('PGHC') issued £300 million of subordinated notes ('PGH Capital Tier 3 subordinated')
due 2022 at a coupon of 4.125%. The net proceeds from the bond issuance were used to repay the PGH Capital revolving credit
facility.
On 17 March 2017, documentation was entered into which will substitute PGH in place of PGHC as issuer of the PGH Capital
senior bond, PGH Capital subordinated notes and PGH Capital Tier 3 subordinated notes ('Substitutions'). The Substitutions
will become effective on 20 March 2017.
On 28 February 2017, PGH became an additional borrower under the PGH Capital revolving credit facility. On 17 March 2017,
PGH irrevocably committed to drawing down under this facility on 20 March 2017 and PGHC is due to repay its borrowings
under the PGH Capital revolving credit facility.
On 17 March 2017, the Board recommended a final dividend of 23.9p per share (2015: 26.7p per share) for the year ended 31
December 2016. 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 2016 and will be charged to the statement of
consolidated changes in equity in 2017.
H Staunton
C Bannister
J McConville
A Barbour
I Cormack
I Hudson
W Mayall
J Pollock
N Shott
K Sorenson
D Woods
St Helier, Jersey
17 March 2017
Parent Company Financial statements
Parent Company financial statements
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2016
Notes 2016 2015
£m £m
Net investment income 4 92 620
Net income 92 620
Administrative expenses 5 (54) (19)
Impairment of investment in subsidiaries 7 - (437)
Total operating expenses (54) (456)
Total comprehensive income for the year attributable to owners 38 164
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 2016 and 2015.
STATEMENT OF FINANCIAL POSITION
As at 31 December 2016
Notes 2016 2015
£m £m
EQUITY AND LIABILITIES
Equity attributable to owners
Share capital D1 - -
Share premium 1,640 858
Foreign currency translation reserve 89 89
Retained earnings 602 557
Total equity 2,331 1,504
Liabilities
Financial liabilities
Borrowings 6 - 3
Other amounts due to Group entities 14 98 123
Accruals and deferred income 1 -
Total equity and liabilities 2,430 1,630
ASSETS
Investments in Group entities 7 1,664 800
Financial assets
Collective investment schemes 8 25 11
Loans and receivables 9 737 819
Other amounts due from Group entities 14 4 -
Total assets 2,430 1,630
The notes identified numerically on pages 197 to 202 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 106 to 192.
STATEMENT OF cash flows
For the year ended 31 December 2016
Note 2016 2015
£m £m
Cash flows from operating activities
Cash utilised by operations 10 (78) (28)
Net cash flows from operating activities (78) (28)
Cash flows from investing activities
Dividends received from Group entities 8 40
Loan advance to Group entities (657) (6)
Capital contributions to Group entities (929) -
Repayment of loans from Group entities 775 -
Interest received from Group entities 25 19
Return of share capital from Opal ReAssurance Limited ('Opal Re') 77 90
Net cash flows from investing activities (701) 143
Cash flows from financing activities
Proceeds from issuing ordinary shares 908 2
Ordinary share dividends paid (126) (120)
Repayment of loan to Impala Holdings Limited (3) -
Net cash flows from financing activities 779 (118)
Net decrease in cash and cash equivalents - (3)
Cash and cash equivalents at the beginning of the year - 3
Cash and cash equivalents at the end of the year - -
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2016
Share capital Share Foreign Retained earnings Total
(note D1) premium currency translation reserve £m £m
£m £m £m
At 1 January 2016 - 858 89 557 1,504
Total comprehensive income for the year attributable to owners - - - 38 38
Issue of ordinary share capital (note D1) - 908 - - 908
Dividends paid on ordinary shares (note B4) - (126) - - (126)
Credit to equity for equity-settled share-based payments (note I2I2.1) - - - 7 7
At 31 December 2016 - 1,640 89 602 2,331
STATEMENT OF changes in equity
For the year ended 31 December 2015
Share capital Share Foreign Retained Total
(note D1) premium currency translation earnings £m
£m £m reserve £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 I2.1) - - - 4 4
At 31 December 2015 - 858 89 557 1,504
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, to a solvency test. The solvency test is broadly consistent with the
Group's going concern assessment criteria.
The notes identified numerically on pages 197 to 202 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 106 to 192.
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 consolidated financial
statements on pages 106 to 108, 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 to the
consolidated financial statements.
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 statement of comprehensive income.
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 2016 which have been issued by the IASB as detailed in note A4 to 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 to the consolidated financial statements.
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 194 to 196. The accounting policy for
segmental analysis is included in note B1 to the consolidated financial statements.
Predominantly, all revenues from external customers are 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 to the consolidated financial statements.
2016 2015
£m £m
Investment income
Dividend income from other Group entities 8 487
Interest income from other Group entities 72 58
80 545
Reversal of impairment losses on loans and receivables - 75
Gain on return of capital from Opal Re 12 -
Net investment income 91 620
5. ADMINISTRATIVE EXPENSES
The accounting policy for administrative expenses is included in note C2 to the consolidated financial statements.
2016 2015
£m £m
Employee costs1 1 1
Professional fees 25 1
Write down of loans due from other Group entities 11 8
Staff costs recharged from other Group entities 10 4
Other 7 5
Administrative expenses 54 19
1 In addition to the Non-Executive Directors, one employee was employed by Phoenix Group Holdings during the period
(2015: one). Other Group employees are employed by other Group entities.
6. BORROWINGS
The accounting policy for borrowings is included in note E5 to the consolidated financial statements.
Carrying value Fair value
2016 2015 2016 2015
£m £m £m £m
Loans due to Impala Holdings Limited - 3 - 3
All borrowings are due to Group entities and are measured at amortised cost using the effective interest method.
On 16 July 2010, the Company was granted a loan from Impala Holdings Limited of £3 million which matured on 31 December
2016. The loan accrued interest at six month LIBOR plus a margin of 3.25% which was capitalised semi-annually on 7 April
and 7 October. Interest of £0.2 million (2015: £0.1 million) was accrued during the year. The balance outstanding at the
maturity date was £3 million (2015: £3 million) and has been repaid.
All borrowings are categorised as Level 3 financial instruments. The fair value of borrowings with no external market is
determined by internally developed discounted cash flow models using a risk-adjusted discount rate corroborated with
external market data where possible.
Changes to the Company's borrowings since 31 December 2016 are detailed in note I9 to the consolidated financial
statements.
7. INVESTMENTS IN GROUP ENTITIES
2016 2015
£m £m
Cost
At 1 January 1,237 1,317
Additions 929 10
Return of share capital from Opal Re (65) (90)
At 31 December 2,101 1,237
Impairment
At 1 January (437) -
Charge for the year - (437)
At 31 December (437) (437)
Carrying amount at 31 December 1,664 800
During 2016, the Company made capital contributions totalling £929 million in an equal share to PGH (LCA) Limited and PGH
(LCB) Limited.
On 24 March 2016, the Company received £77 million (2015: £90 million) as a result of a return of share capital from Opal
Re. As the cost of the Company's investment in Opal Re was £65 million, a gain of £12 million was recognised on return of
the capital.
On 27 April 2015, the Company received a £10 million dividend from Opal Re in the form of preference shares.
During 2015, following a restructure of the Company's holdings in PGH (LCA) Limited, PGH (LCB) Limited, PGH (TC1) Limited
and PGH (TC2) Limited, the Company received dividends of £205 million and £232 million from PGH (TC1) Limited and PGH (TC2)
Limited respectively. The Company impaired its investments in PGH (TC1) Limited and PGH (TC2) Limited to the extent of
dividends received.
For a list of principal Group entities, refer to note H5 of the consolidated financial statements. The entities directly
held by Phoenix Group Holdings are separately identified.
8. COLLECTIVE INVESTMENT SCHEMES
The accounting policy for collective investment schemes is included in note E1 to the consolidated financial statements.
Carrying value Fair value
2016 2015 2016 2015
£m £m £m £m
Investment in collective investment schemes 25 11 25 11
Amount due for settlement after 12 months - -
All investments are categorised as Level 1 financial instruments. Details of the factors considered in determination of the
fair value are included in note E2 to the consolidated financial statements.
9. Loans and receivables
Carrying value Fair value
2016 2015 2016 2015
£m £m £m £m
Loans due from PGH (LCA) Limited and PGH (LCB) Limited 603 626 718 791
Loans due from PGH (MC1) Limited and PGH (MC2) Limited 128 113 235 262
Loans due from Employee Benefit Trust 6 5 6 5
Notes due from Phoenix Life Holdings Limited - 75 - 74
737 819 959 1,132
Amounts due after 12 months 731 814
The accounting policy for loans and receivables is included in note E1 to the consolidated financial statements.
All loans and receivables balances are due from Group entities and are measured at amortised cost using the effective
interest method. The fair value of these loans and receivables are also disclosed.
On 22 March 2010, the Company subscribed for £325 million of Eurobonds which were issued equally by PGH (LCA) Limited and
PGH (LCB) Limited. On 23 March 2010, the Eurobonds were listed on the Channel Islands Stock Exchange. Interest accrues on
these Eurobonds at a rate of LIBOR plus a margin of 2.5% and the final maturity date is 30 June 2025. The Eurobonds were
initially recognised at fair value and are accreted to par over the period to 2025. At 31 December 2016 £191 million was
due (2015: £175 million).
On 12 December 2011, the Company, PGH (LCA) Limited and PGH (LCB) Limited, became party to a joint £77 million loan
agreement to formalise an inter-company balance which had arisen in 2009 relating to fees payable to a syndicate of
external banks. The loan accrued interest at a rate of LIBOR plus a margin of 1.25% and matured on 30 June 2016. No
interest was capitalised during the year (2015: £0.1 million). On 22 March 2016, the outstanding balance of £5 million was
written off.
In June 2015, the Company was assigned loans of £436 million issued equally by PGH (LCA) Limited and PGH (LCB) Limited.
These loans accrue interest at a rate of LIBOR plus a margin of 2.9% and mature on 5 June 2020. During the year, interest
of £16 million was capitalised (2015: £10 million) and £50 million of repayments were received (2015: £nil). At 31 December
2016 £412 million was due (2015: £446 million).
On 22 March 2010, the Company subscribed for £250 million of Eurobonds which were issued equally by PGH (MC1) Limited and
PGH (MC2) Limited. On 23 March 2010, the Eurobonds were listed on the Channel Islands Stock Exchange. Interest accrues on
these Eurobonds at a rate of LIBOR plus a margin of 2.5% and the final maturity date is 30 June 2025. The Eurobonds were
initially recognised at fair value and are accreted to par over the period to 2025. At 31 December 2016 £128 million was
due (2015: £113 million).
On 16 July 2010, the Company entered into an interest free facility arrangement with Phoenix Group Holdings' Employee
Benefit Trust ('EBT'). In 2016, an additional £7 million was drawn down against this facility (2015: £6 million). The loan
is recoverable until the point the awards held by the EBT vest to the participants, at which point the loan is reviewed for
impairment. Any impairments are determined by comparing the carrying value to the estimated recoverable amount of the loan.
Following the vesting of awards in 2016 £6 million of the loan (2015: £8 million) has been written off. At 31 December 2016
£6 million was due (2015: £5 million).
On 22 April 2010, Pearl Group Holdings (No.1) Limited ('PGH1') issued a balancing instrument under which notes with a
principal of £75 million were issued to Phoenix Group Holdings. During January 2015 the notes were transferred from PGH1 to
Phoenix Life Holdings Limited ('PLHL'). The notes have no fixed maturity. Phoenix Group Holdings paid no consideration for
the notes and has waived its right to receive a coupon on the notes. At 31 December 2015, £75 million was due. On 25 April
2016, having obtained the necessary approvals PLHL repaid the notes in full.
On 9 November 2016, the Company entered into a joint loan agreement with PGH (LCA) Limited and PGH (LCB) Limited and
advanced payment of £650 million. The loan accrued interest at LIBOR plus a margin of 0.85% and was fully repaid on 28
December 2016.
No other loans are considered to be past due or impaired.
For the purposes of the additional fair value disclosures for assets recognised at amortised cost, all loans and
receivables are categorised as Level 3 financial instruments. The fair value of loans and receivables with no external
market is determined by internally developed discounted cash flow models using a risk-adjusted discount rate corroborated
with external market data where possible.
Details of the factors considered in determination of fair value are included in note E2 to the consolidated financial
statements.
10. CASH flows from operating activities
2016 2015
£m £m
Profit for the year before tax 38 164
Adjustments to reconcile profit for the year to cash flows from operating activities:
Interest income from other Group entities (72) (58)
Reversal of impairment losses on loans and receivables - (75)
Gain on return of capital from subsidiary (12) -
Dividends received (8) (487)
Write down of loans to Group entities 11 8
Impairment of investment in subsidiaries - 437
Share-based payment charge 7 4
Net increase in investment assets (14) (29)
Net (increase)/decrease in working capital (28) 8
Cash utilised by operations (78) (28)
11. CApital and risk managemenT
The Company's capital comprises share capital and all reserves. At 31 December 2016 total capital was £2,331 million (2015:
£1,504 million). The movement in capital in the year comprises the total comprehensive income for the year attributable to
owners of £38 million (2015: £164 million), proceeds from the issue of ordinary share capital of £908 million (2015: £2
million) and a credit to equity for equity-settled share-based payments of £7 million (2015: £4 million), partly offset by
payment of dividends of £126 million (2015: £120 million).
There are no externally imposed capital requirements on the Company. The Company's capital is monitored by the Directors
and managed on an ongoing basis via a monthly close process to ensure that it remains positive at all times.
Details of the Group risk management policies are outlined in notes E6 and F4 to the consolidated financial statements.
The primary operation of the Company is to manage its investment in subsidiaries. The Company's other assets and
liabilities mainly consist of receivables due from and borrowings owed to other Group entities.
The principal risks and uncertainties facing the Company are:
- interest rate risk, since the movement in interest rates will impact the value of interest receivable and payable by
the Company;
- liquidity risk, exposure to liquidity risk as a result of normal business activities, specifically the risk arising
from an inability to meet short-term cash flow requirements; and
- credit risk, arising from the default of the counterparty to a particular financial asset and is significantly
reduced as assets are primarily intercompany receivables from other Group entities.
The Company's exposure to all these risks is monitored by the Directors, who agree policies for managing each of these
risks on an ongoing basis.
12. Share-based payments
For detailed information on the long-term incentive plans, sharesave schemes and deferred bonus share schemes refer to note
I2 to the consolidated financial statements.
13. Directors' remuneration
Details of the remuneration of the Directors' of Phoenix Group Holdings are included in the Directors' remuneration report
on pages 58 to 84 of the Annual Report and Accounts.
14. Related party transactions
The Company has related party transactions with Group entities and its key management personnel. Details of 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 included in note I5 to
the consolidated financial statements.
During the year ended 31 December 2016 the Company entered into the following transactions with Group entities:
2016 2015
£m £m
Dividends received 8 487
Interest received on loans and receivables due from Group entities 72 58
78 545
Amounts due from related parties at the end of the year:
Loans due from Group entities 737 819
Other amounts due from Group entities 4 -
741 819
Amount due for settlement after 12 months 731 814
Amounts due to related parties at the end of the year:
Loans due to Group entities - 3
Other amounts due to Group entities 98 123
98 126
Amount due for settlement after 12 months - -
The Company guarantees certain borrowings of PGH Capital plc as detailed in note E5 to the consolidated financial
statements. These guarantees applied up to the date of the Substitutions of debt to PGH from PGH Capital plc as detailed in
note I9 to the consolidated financial statements.
15. Auditor's remuneration
Details of auditor's remuneration, for Phoenix Group Holdings subsidiaries, is included in note C3 to the consolidated
financial statements.
16. Events after the reporting period
Details of events after the reporting date are included in note I9 to the consolidated financial statements.
H Staunton
C Bannister
J McConville
A Barbour
I Cormack
I Hudson
W Mayall
J Pollock
N Shott
K Sorenson
D Woods
St Helier, Jersey
17 March 2017
ASSET DISCLOSURES
ASSET DISCLOSURES
ADDITIONAL LIFE COMPANY ASSET DISCLOSURES
The analysis of the asset portfolio provided below comprises the assets held by the Group's life companies, and is stated
net of derivative liabilities. It excludes other Group assets such as cash held in the holding and service companies and
the assets held by the non-controlling interests in consolidated collective investment schemes.
The following table provides an overview of the exposure by asset category of the Group's life companies' shareholder and
policyholder funds:
31 December 2016
Carrying value Shareholder and Participating Participating Unit-linked2 Total3
non-profit funds1 supported1 non-supported2 £m £m
£m £m £m
Cash and cash equivalents 1,239 2,457 4,342 1,858 9,896
Debt securities - gilts 3,121 425 6,724 2,163 12,433
Debt securities - bonds 8,645 1,878 6,427 2,926 19,876
Equity securities 182 53 5,699 15,747 21,681
Property investments 144 74 802 619 1,639
Other investments4 833 188 1,849 7,449 10,319
At 31 December 2016 14,164 5,075 25,843 30,762 75,844
Cash and cash equivalents in Group holding companies 570
Cash and financial assets in other Group companies 449
Financial assets held by the non-controlling interest in consolidated collective investment schemes 931
Total Group consolidated assets 77,794
Comprised of:
Investment property 646
Financial assets 77,049
Cash and cash equivalents 1,666
Derivative liabilities (1,567)
77,794
1 Includes assets where shareholders of the life companies bear the investment risk.
2 Includes assets where policyholders bear most of the investment risk.
3 This information is presented on a look through basis to underlying funds where available.
4 Includes equity release mortgages of £433 million, policy loans of £10 million, other loans of £308 million, net
derivative assets of £1,468 million, reinsurers' share of investment contracts of £6,808 million, and other investments of
£1,292 million.
31 December 2015
Carrying value Shareholder Participating supported1 Participating non-supported2 Unit-linked2 Total3
and £m £m £m £m
non-profit funds1
£m
Cash and cash equivalents 1,236 2,498 3,921 1,065 8,720
Debt securities - gilts 1,262 818 7,275 602 9,957
Debt securities - bonds 5,203 1,380 6,263 724 13,570
Equity securities 186 62 5,231 7,294 12,773
Property investments 140 74 821 336 1,371
Other investments5 266 (31) 767 (1) 1,001
At 31 December 2015 8,293 4,801 24,278 10,020 47,392
Cash and cash equivalents in Group holding companies 706
Cash and financial assets in other Group companies 328
Financial assets held by the non-controlling interest in the consolidated UKCPT 838
Financial assets held by the non-controlling interest in consolidated collective investment schemes 5,473
Total Group consolidated assets 54,737
Comprised of:
Investment property 1,942
Financial assets 50,066
Cash and cash equivalents 3,940
Assets held for sale 149
Derivative liabilities (1,360)
54,737
5 Includes equity release mortgages of £268 million, policy loans of £11 million, other loans of £15 million, net
derivative assets of £139 million and other investments of £568 million.
The following table analyses by type the debt securities of the life companies:
31 December 2016
Analysis by type of debt securities Shareholder and non-profit funds Participating supported Participating Unit-linked Total
£m £m non-supported £m £m
£m
Gilts 3,121 425 6,724 2,163 12,433
Other government and supranational6 1,195 474 2,103 328 4,100
Corporate - financial institutions 3,375 531 1,983 2,081 7,970
Corporate - other 3,219 184 1,700 401 5,504
Asset backed securities ('ABS') 856 689 641 116 2,302
At 31 December 2016 11,766 2,303 13,151 5,089 32,309
6 Includes debt issued by governments; public and statutory bodies; government backed institutions and
supranationals.
31 December 2015
Analysis by type of debt securities Shareholder and non-profit funds Participating supported Participating non-supported Unit-linked Total
£m £m £m £m £m
Gilts 1,262 818 7,275 602 9,957
Other government and supranational1 713 673 2,058 88 3,532
Corporate - financial institutions 1,859 367 1,588 153 3,967
Corporate - other 2,079 164 2,121 441 4,805
Asset backed securities ('ABS') 552 176 496 42 1,266
At 31 December 2015 6,465 2,198 13,538 1,326 23,527
1 Includes debt issued by governments; public and statutory bodies; government backed institutions and
supranationals.
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.
Sovereign and supranational debt represented 37% of the debt portfolio in respect of shareholder exposure, or £5.2 billion,
at 31 December 2016. The vast majority of the life companies' exposure to sovereign and supranational debt holdings is to
UK gilts.
The following table sets out a breakdown of the life companies' sovereign and supranational debt security holdings by
country:
31 December 2016
Analysis of sovereign and supranational debt security holdings by country Shareholder and non-profit funds Participating supported Participating Unit-linked Total
£m £m non-supported £m £m
£m
UK 3,369 494 7,051 2,173 13,087
Supranationals 673
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