REG - Phoenix Grp Hldgs - Phoenix Group Holdings - 2016 Annual Results <Origin Href="QuoteRef">PHNX.L</Origin> - Part 19
20/03/2017 07:07
- Part 19: For the preceding part double click ID:nRST8776Zr
144 446 20 1,283
USA 16 5 25 107 153
Germany 143 103 526 45 817
France 40 25 90 11 166
Netherlands 16 12 112 6 146
Italy - - - 26 26
Spain - - - 10 10
Other - non-Eurozone 45 114 542 87 788
Other - Eurozone 14 2 35 6 57
At 31 December 2016 4,316 899 8,827 2,491 16,533
31 December 2015
Analysis of sovereign and supranational debt security holdings by country Shareholder and non-profit funds Participating supported Participating non-supported Unit-linked Total
£m £m £m £m £m
UK 1,400 905 7,560 609 10,474
Supranationals 310 195 553 17 1,075
USA 1 12 15 24 52
Germany 211 232 593 14 1,050
France 31 50 64 4 149
Netherlands - - 1 1 2
Italy - - - 5 5
Spain - - - 3 3
Other - non-Eurozone 22 87 511 13 633
Other - Eurozone - 10 36 - 46
At 31 December 2015 1,975 1,491 9,333 690 13,489
All of the life companies' debt securities are held at fair value through profit or loss under IAS 39, and therefore
already reflect any reduction in value between the date of purchase and the reporting date.
The life companies have in place a comprehensive database that consolidates credit exposures across counterparties,
geographies and business lines. This database is used for credit monitoring, stress testing and scenario planning. The life
companies continue to manage their balance sheets prudently and have taken extra measures to ensure their market exposures
remain within risk appetite.
The following table sets out a breakdown of the life companies' financial institution corporate debt security holdings by
country:
31 December 2016
Analysis of financial institution corporate Shareholder and non-profit funds Participating supported Participating Unit-linked Total
debt security holdings by country £m £m non-supported £m £m
£m
UK 1,607 65 736 924 3,332
USA 602 56 403 271 1,332
Germany 75 1 27 34 137
France 165 6 73 121 365
Netherlands 249 58 190 112 609
Italy 15 - 7 11 33
Ireland 30 - - 29 59
Spain 1 - 15 10 26
Other - non-Eurozone 550 328 499 516 1,893
Other - Eurozone 81 17 33 53 184
At 31 December 2016 3,375 531 1,983 2,081 7,970
31 December 2015
Analysis of financial institution corporate Shareholder and non-profit funds Participating supported Participating non-supported Unit-linked Total
debt security holdings by country £m £m £m £m £m
UK 845 151 566 71 1,633
USA 449 39 298 16 802
Germany 16 18 86 3 123
France 58 - 43 3 104
Netherlands 189 52 238 30 509
Italy 7 - 7 - 14
Ireland 28 1 12 - 41
Spain 3 - 12 - 15
Other - non-Eurozone 208 94 272 29 603
Other - Eurozone 56 12 54 1 123
At 31 December 2015 1,859 367 1,588 153 3,967
The life companies had £46 million (2015: £39 million) shareholder exposure to financial institution corporate debt of the
Peripheral Eurozone, defined as Portugal, Italy, Ireland, Greece, and Spain, at 31 December 2016. The £3,906 million (2015:
£2,226 million) total shareholder exposure to financial institution corporate debt comprised £2,125 million (2015: £1,742
million) senior debt, £2 million (2015: £4 million) Tier 1 debt and £1,779 million (2015: £480 million) Tier 2 debt.
The £3,906 million shareholder exposure to financial institution corporate debt comprised £2,170 million (2015: £1,281
million) bank debt and £1,736 million (2015: £945 million) non-bank debt.
For each of the life companies' significant financial institution counterparties, industry and other data has been used to
assess the exposure of the individual counterparties. As part of the Group's risk appetite framework and analysis of
shareholder exposure to a potential worsening of the economic situation, this assessment has been used to identify
counterparties considered to be most at risk from defaults. The financial impact on these counterparties, and the contagion
impact on the rest of the shareholder portfolio, is assessed under various scenarios and assumptions. This analysis is
regularly reviewed to reflect the latest economic outlook, economic data and changes to asset portfolios. The results are
used to inform the Group's views on whether any management actions are required.
The following table sets out a breakdown of the life companies' corporate - other debt security holdings by country:
31 December 2016
Analysis of corporate - other debt security holdings by country Shareholder and non-profit funds Participating supported Participating Unit-linked Total
£m £m non-supported £m £m
£m
UK 1,517 74 830 211 2,632
USA 567 33 303 83 986
Germany 256 38 128 25 447
France 276 17 127 28 448
Netherlands 69 - 17 4 90
Italy 62 1 35 5 103
Ireland 4 - 1 6 11
Spain 48 - 23 5 76
Other - non-Eurozone 381 7 217 31 636
Other - Eurozone 39 14 19 3 75
At 31 December 2016 3,219 184 1,700 401 5,504
31 December 2015
Analysis of corporate - other debt security holdings by country Shareholder Participating supported Participating non-supported Unit-linked Total
and non-profit funds £m £m £m £m
£m
UK 1,073 76 1,607 363 3,119
USA 288 33 115 15 451
Germany 142 24 93 15 274
France 173 15 113 20 321
Netherlands 39 - 19 3 61
Italy 56 2 27 3 88
Ireland 1 - 2 2 5
Spain 45 - 24 2 71
Other - non-Eurozone 190 13 77 11 291
Other - Eurozone 72 1 44 7 124
At 31 December 2015 2,079 164 2,121 441 4,805
The following table sets out a breakdown of the life companies' ABS holdings by country:
31 December 2016
Analysis of ABS holdings by country Shareholder and non-profit funds Participating supported Participating Unit-linked Total1
£m £m non-supported £m £m
£m
UK 729 488 551 108 1,876
USA 10 8 4 1 23
Germany - 74 29 - 103
France - 29 - - 29
Netherlands 9 84 32 1 126
Ireland 30 1 18 - 49
Other - non-Eurozone 78 2 7 3 90
Other - Eurozone - 3 - 3 6
At 31 December 2016 856 689 641 116 2,302
1 Improved look-through data received in respect of certain collective investment schemes has identified additional
holdings in ABS as at 31 December 2016.
31 December 2015
Analysis of ABS holdings by country Shareholder Participating supported Participating non-supported Unit-linked Total
and non-profit funds £m £m £m £m
£m
UK 499 172 399 41 1,111
USA 3 - 4 - 7
Germany - - 28 - 28
France - 1 - - 1
Netherlands 10 - 20 1 31
Italy - - 12 - 12
Spain - - 1 - 1
Other - non-Eurozone 40 - 10 - 50
Other - Eurozone - 3 22 - 25
At 31 December 2015 552 176 496 42 1,266
The following table sets out the credit rating analysis of the debt portfolio:
31 December 2016
Credit rating analysis of debt portfolio Shareholder and non-profit funds Participating supported Participating Unit-linked Total
£m £m non-supported £m £m
£m
AAA 1,333 935 1,626 519 4,413
AA 4,578 943 7,962 1,415 14,898
A 3,358 287 1,312 550 5,507
BBB 2,274 54 1,624 360 4,312
BB 132 4 167 47 350
B and below 16 2 117 11 146
Non-rated 75 78 343 2,187 2,683
At 31 December 2016 11,766 2,303 13,151 5,089 32,309
98% of rated securities were investment grade at 31 December 2016 (2015: 97%). The percentage of rated securities that were
investment grade in relation to the shareholder and policyholders' funds were 99% and 98% respectively (2015: 99% and 96%
respectively).
31 December 2015
Credit rating analysis of debt portfolio Shareholder Participating supported Participating non-supported Unit-linked Total
and non-profit funds £m £m £m £m
£m
AAA 746 625 1,740 72 3,183
AA 2,336 1,272 8,443 487 12,538
A 1,618 189 902 84 2,793
BBB 1,635 92 1,751 179 3,657
BB 100 11 205 21 337
B and below 1 - 327 - 328
Non-rated 29 9 170 483 691
At 31 December 2015 6,465 2,198 13,538 1,326 23,527
CAPITAL DISCLOSURES
CAPITAL DISCLOSURES
ADDITIONAL CAPITAL DISCLOSURES
The Group's capital management framework is described in the Business Review section on pages 28 to 31 of the Annual Report
and Accounts. The Group's capital policies and capital resources are set out on note I4 of the IFRS financial statements.
The Solvency II capital assessment and the Group's regulatory supervision is performed at the PLHL level as this is the
highest EEA insurance group holding company. This section provides additional analysis of PLHL's Solvency II Own Funds, SCR
and MCR.
PLHL Solvency II surplus
The pro forma PLHL's surplus at 31 December 2016 is £1.9 billion (2015: £1.3 billion, actual). The rationale for the use of
the pro forma metric is set out on page 23.
31 December 2016 31 December 2015
Pro forma Actual
£bn £bn
Own Funds 6.8 5.7
SCR (4.9) (4.4)
Surplus 1.9 1.3
Composition of own funds
Own funds items are classified into different Tiers based on the features of the specific items and the extent to which
they possess the following characteristics:
- availability to be called up on demand to fully absorb losses on a going-concern basis, as well as in the case of
winding-up ('permanent availability');
- in the case of winding-up, the total amount that is available to absorb loses before repayment to the holder until
all obligations to policyholders and other beneficiaries have been met ('subordination').
PLHL's pro forma Own Funds are analysed by Tier as follows:
31 December 2016 31 December 2016
Pro forma Actual
£bn £bn
Tier 1 5.8 5.0
Tier 2 0.6 0.6
Tier 3 0.4 0.1
Total Own Funds 6.8 5.7
PLHL's Tier 1 capital accounts for 83% (2015: 86%) of total Own Funds and comprise of ordinary share capital, surplus funds
of the unsupported with-profit funds which are recognised only to a maximum of the SCR, and the accumulated profits of the
remaining business.
Tier 2 capital comprise of subordinated notes whose terms enable them to qualify as Tier 2 capital for regulatory reporting
purposes.
Tier 3 items include the new Tier 3 bond issued in January 2017 of £0.3 billion on a pro forma basis (2015: nil) and
deferred tax asset of £0.1 billion (2015: £0.1 billion).
Breakdown of SCR
An analysis of the undiversified SCR of PLHL is presented below:
31 December 2016 31 December 2016
Pro forma Actual
% %
Longevity 33 30
Credit 16 21
Persistency 13 11
Interest rates 9 5
Operational 7 8
Swap spreads 4 6
Other market risks 10 13
Other non-market risks 8 6
100% 100%
The principal risks are described in detail in note E6 and F4 in the IFRS financial statements.
Minimum Capital Requirements
Minimum Capital Requirement ('MCR') is the minimum amount of capital an insurer is required to hold below which
policyholders and beneficiaries would become exposed to an unacceptable level of risk if an insurer was allowed to continue
its operations.
The MCR is calculated according to a formula prescribed by the Solvency II regulations and is subject to a floor of 25% of
the SCR or EUR 3.7 million, whichever is higher, and a cap of 45% of the SCR. The MCR formula is based on factors applied
to technical provisions and capital at risk.
PLHL's MCR at 31 December 2016 is £1.2 billion (2015: £1.1 billion) which is a sum of the underlying insurance companies'
MCRs.
PLHL's eligible Own Funds to cover MCR is £6.0 billion (2015: £5.2 billion) leaving an excess of eligible own funds over
MCR of £4.8 billion (2015: £4.1 billion), which translates to an MCR coverage ratio of 496% (2015: 482%).
The eligible Own Funds to cover the MCR is subject to quantitative limits as shown below:
- the eligible amounts of Tier 1 items should be at least 80% of the MCR; and
- the eligible amounts of Tier 2 items shall not exceed 20% of the MCR.
31 December 2016 31 December 2016
Pro forma Actual
£bn £bn
Eligible own funds to cover MCR
Tier 1 5.8 4.9
Tier 2 0.2 0.3
Total eligible own funds to cover MCR 6.0 5.2
Additional information
In this section
Shareholder information 215
Glossary 218
Shareholder information
ANNUAL GENERAL MEETING
Our Annual General Meeting ('AGM') will be held on 11 May 2017 at 12:30pm.
The voting results for our 2017 AGM, including proxy votes and votes withheld, will be available on the Group's website
shortly after the meeting.
SHARE PRICE PERFORMANCE
SHAREHOLDER PROFILE AS AT 31 DECEMBER 2016
Range of shareholdings No. of shareholders % No. of %
shares
1-1,000 487 29.3 229,682 0.1
1,001-5,000 559 33.7 1,287,888 0.3
5,001-10,000 129 7.8 934,583 0.2
10,001-250,000 319 19.2 21,857,365 5.6
250,001-500,000 55 3.3 18,715,782 4.8
500,001 and above 112 6.7 349,824,517 89.0
Total 1,661 100 392,849,817 100
SHAREHOLDER SERVICES
MANAGING YOUR SHAREHOLDING
Our registrar, Computershare, maintains the Company's register of members. Shareholders may request a hard copy of this
Annual Report from our registrar and if you have any further queries in respect of your shareholding, please contact
directly using the contact details set out below.
REGISTRAR DETAILS
Computershare Investor Services (Cayman) Limited
Queensway House
Hilgrove Street
St Helier
Jersey, JE1 1ES
Shareholder helpline number +44 (0) 370 702 0000
Fax number +44 (0) 370 703 6101
Shareholder helpline email address info@computershare.co.je
DIVIDEND MANDATES
Shareholders may find it convenient to have their dividends paid directly to their bank or building society account. If you
wish to take advantage of this facility please call Computershare and request a 'Dividend Mandate' form.
SCRIP DIVIDEND ALTERNATIVE
The Company does not currently offer a scrip dividend alternative.
WARNING TO SHAREHOLDERS
Over recent years, many companies have become aware that their shareholders have received unsolicited phone calls or
correspondence concerning investment matters. These are typically from overseas-based 'brokers' who target UK shareholders,
offering to sell them what often turn out to be worthless or high-risk shares in US or UK investments. These operations are
commonly known as 'boiler rooms'.
Shareholders are advised to be very wary of any unsolicited advice, offers to buy shares at a discount or offers of free
reports about the Company.
If you receive any unsolicited investment advice:
- make sure you get the correct name of the person and organisation;
- check that they are properly authorised by the Financial Conduct Authority ('FCA') before getting involved by
visiting www.fca.org.uk/firms/systems-reporting/register;
- report the matter to the FCA by calling the FCA Consumer Helpline on 0800 111 6768; and
- if the calls persist, hang up.
If you deal with an unauthorised firm, you will not be eligible to receive payment under the Financial Services
Compensation Scheme ('FSCS'). The FCA can also be contacted by completing an online form available at
www.fca.org.uk/consumers/scams/investment-scams/share-fraud-and-boiler-room-scams/reporting-form.
Details of any share dealing facilities that the Company endorses will be included in Company mailings.
More detailed information on this or similar activity can be found on the FCA website available at
www.fca.org.uk/consumers.
SHARE PRICE
You can access the current share price of Phoenix Group Holdings on the Group's website together with electronic copies of
the Group's financial reports and presentations at www.thephoenixgroup.com/investor-relations.aspx.
ORDINARY SHARES - 2016 FINAL DIVIDEND
Ex-dividend date 30 March 2017
Record date 31 March 2017
Payment date for the recommended final dividend 15 May 2017
GROUP FINANCIAL CALENDAR FOR 2017
Annual General Meeting 11 May 2017
Announcement of unaudited six months' Interim Results 24 August 2017
FORWARD-LOOKING STATEMENTS
The 2016 Annual Report and Accounts contains, and the Group may make other statements (verbal or otherwise) containing,
forward-looking statements and other financial and/or statistical data about the Group's current plans, goals and
expectations relating to future financial conditions, performance, results, strategy and/or objectives.
Statements containing the words: 'believes', 'intends', 'will', 'may', 'should', 'expects', 'plans', 'aims', 'seeks',
'targets', 'continues' and 'anticipates' or other words of similar meaning are forward-looking. Such forward-looking
statements and other financial and/or statistical data involve risk and uncertainty because they relate to future events
and circumstances that are beyond the Group's control. For example, certain insurance risk disclosures are dependent on the
Group's choices about assumptions and models, which by their nature are estimates. As such, actual future gains and losses
could differ materially from those that we have estimated. Other factors which could cause actual results to differ
materially from those estimated by forward-looking statements include but are not limited to:
- domestic and global economic and business conditions;
- asset prices;
- market-related risks such as fluctuations in interest rates and exchange rates, the potential for a sustained
low-interest rate environment, and the performance of financial markets generally;
- the policies and actions of governmental and/or regulatory authorities, including, for example, new government
initiatives related to the financial crisis and the effect of the European Union's 'Solvency II' requirements on the
Group's capital maintenance requirements;
- the political, legal and economic effects of the UK's vote to leave the European Union;
- the impact of inflation and deflation;
- market competition;
- changes in assumptions in pricing and reserving for insurance business (particularly with regard to mortality and
morbidity trends, gender pricing and lapse rates);
- the timing, impact and other uncertainties of future acquisitions or combinations within relevant industries;
- risks associated with arrangements with third parties;
- inability of reinsurers to meet obligations or unavailability of reinsurance coverage; and
- the impact of changes in capital, solvency or accounting standards, and tax and other legislation and regulations in
the jurisdictions in which members of the Group operate.
As a result, the Group's actual future financial condition, performance and results may differ materially from the plans,
goals and expectations set out in the forward-looking statements and other financial and/or statistical data within the
2016 Annual Report and Accounts.
The Group undertakes no obligation to update any of the forward-looking statements contained within the 2016 Annual Report
and Accounts or any other forward-looking statements it may make or publish.
The 2016 Annual Report and Accounts has been prepared for the members of the Company and no one else. The Company, its
Directors or agents do not accept or assume responsibility to any other person in connection with this document and any
such responsibility or liability is expressly disclaimed.
Nothing in the 2016 Annual Report and Accounts is or should be construed as a profit forecast or estimate.
Glossary
ABBEY LIFE The companies comprising of Abbey Life Assurance Company Limited, Abbey Life Trustee Services Limited and Abbey Life Trust Securities Limited
ABS Asset Backed Securities - A collateralised security whose value and income payments are derived from a specified pool of underlying assets
ALM Asset Liability Management - Management of mismatches between assets and liabilities within risk appetite
ALTERNATIVE PERFORMANCE MEASURE An Alternative Performance Measure ('APM') is a financial measure of historic or future financial performance, financial position,or cash flows, other than a financial measure defined under IFRS or under Solvency II regulations. The Group uses a range of these metrics to provide a better understanding of the underlying performance of the Group. Where appropriate, reconciliations of APMs to IFRS or Solvency II measures are provided in the Annual Report and Accounts. All
APMs are defined within this glossary.
ANNUITY POLICY A policy that pays out regular benefit amounts, either immediately and for the remainder of a policyholder's lifetime (immediate annuity), or deferred to commence at some future date (deferred annuity)
ASSET MANAGEMENT The management of assets using a structured approach to guide the act of acquiring and disposing of assets, with the objective of meeting defined investment goals and maximising value for investors,including policyholders
AVIF Acquired Value of In-Force business
BLACK-SCHOLES A mathematical model used to calculate the value of an option
BREXIT The vote by the people of the United Kingdom to leave the EU in the referendum held on 23 June 2016
CLOSED LIFE FUND A fund that no longer accepts new business. The fund continues to be managed for the existing policyholders
DPF Discretionary Participation Feature - A contractual right under an insurance contract to receive, as a supplement to guaranteed benefits, additional benefits whose amount or timing is contractually at the discretion of the issuer
EBT Employee Benefit Trust - A trust set up to enable its Trustee to purchase and hold shares to satisfy employee share-based incentive plan awards. The Company's EBT is the Phoenix Group Holdings Employee Benefit Trust
ECONOMIC ASSUMPTIONS Assumptions related to future interest rates, inflation, market value movements and tax
EEA European Economic Area - Established on 1 January 1994 and is an agreement between Norway, Iceland, Liechtenstein and the European Union. It allows these countries to participate in the EU's single market without joining the EU
EXPERIENCE VARIANCES Current period differences between the actual experience incurred and the assumptions used in the calculation of IFRS insurance liabilities
FINANCIAL REPORTING COUNCIL The UK's independent regulator responsible for promoting high-quality corporate governance and reporting to foster investment
FREE SURPLUS The amount of capital held in life companies in excess of that needed to support their minimum regulatory capital requirement, plus the capital required under the Group's capital management policy
FCA Financial Conduct Authority - The body responsible for supervising the conduct of all financial services firms and for the prudential regulation of those financial services firms not supervised by the Prudential Regulation Authority ('PRA'), such as asset managers and independent financial advisers
FOS Financial Ombudsman Service - An ombudsman established in 2000, and given statutory powers in 2001 by the Financial Services and Markets Act 2000, to help settle disputes between consumers and UK-based businesses providing financial services
GAR Guaranteed Annuity Rate - A rate available to certain pension policyholders to acquire an annuity at a contractually guaranteed conversion rate
HMRC HM Revenue and Customs
HOLDING COMPANIES Refers to Phoenix Group Holdings, PGH Capital plc, Phoenix Life Holdings Limited, Pearl Group Holdings (No. 2) Limited, Impala Holdings Limited, Pearl Group Holdings (No. 1) Limited, PGH (TC1) Limited, PGH (TC2) Limited, PGH (MC1) Limited, PGH (MC2) Limited, PGH (LCA) Limited, PGH (LCB) Limited, PGH (LC1) Limited, PGH (LC2) Limited and Pearl Life Holdings Limited
IFRS International Financial Reporting Standards - Accounting standards, interpretations and the framework adopted by the International Accounting Standards Board
IMC Investment Management Contract - A contract between an investor and an investment manager
IN-FORCE Long-term business written before the period end and which has not terminated before the period end
INHERITED ESTATE The assets of the long-term with-profit funds less the realistic reserves for non-profit policies written into the non-profit fund, less asset shares aggregated across the with-profit policies and any additional amounts expected at the valuation date to be paid to in-force policyholders in the future in respect of smoothing costs and guarantees
INTERNAL MODEL The agreed methodology and model, approved by the PRA, to calculate the Group Solvency Capital Requirement pursuant to Solvency II
LIBOR London Interbank Offer Rate - The average interbank interest rate at which a selection of banks on the London money market are prepared to lend to one another
LSE London Stock Exchange
LTIP Long-Term Incentive Plan - The part of an executive's remuneration designed to incentivise long-term value for shareholders through an award of shares with vesting contingent on employment and the satisfaction of stretching performance conditions linked to Group strategy
MSA Management Services Agreement - Contracts that exist between Phoenix Life and management services companies or between management services companies and their outsource partners
NON-ECONOMIC ASSUMPTIONS Assumptions related to future levels of mortality, morbidity, persistency and expenses
NON-PROFIT FUND A fund which is not a with-profit fund, where risks and rewards of the fund fall wholly to shareholders
OPEN ENDED INVESTMENT COMPANIES A type of company or a fund in the UK that is structured to invest in other companies with the ability to adjust its investment criteria and fund size
OPERATING Refers to the trading companies within Phoenix Life
COMPANIES
OPERATING COMPANIES' CASH GENERATION Operating companies' cash generation represents cash remitted by the Group's operating companies to the holding companies
OPERATING PROFIT Operating profit is a non-GAAP measure that is considered a more representative measure of performance than IFRS profit or loss after tax as it provides long-term performance information unaffected by short-term economic volatility
ORIGO An electronic pensions transfer system
OWN FUNDS Basic Own Funds comprise the excess of assets over liabilities valued in accordance with the Solvency II principles and subordinated liabilities which qualify to be included in Own Funds under the Solvency II rules.Eligible Own Funds are the amount of Own Funds that are available to cover the Solvency Capital Requirements after applying prescribed tiering limits and transferability restrictions to Basic Own Funds.
PART VII TRANSFER The transfer of insurance policies under Part VII of FSMA 2000. The insurers involved can be in the same corporate group or in different groups. Transfers require the consent of the High Court, which will consider the views of the PRA and FCA and of an Independent Expert
PARTICIPATING BUSINESS See with-profit fund
PERIPHERAL Refers to Portugal, Ireland, Italy, Greece and Spain
EUROZONE
PPFM Principles and Practices of Financial Management - A publicly available document which explains how a company's with-profit business is run. As part of demonstrating that customers are treated fairly, the Board certifies that the PPFM has been complied with
PRA Prudential Regulation Authority - The body responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms. The PRA and FCA use a Memorandum of Understanding to co-ordinate and carry out their respective responsibilities
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