Transfer of ?5bn of annuity in-payment liabilities

RNS Number : 2123G

Phoenix Group Holdings

27 June 2012

 



Phoenix Group Holdings announces an agreement to transfer approximately £5 billion of annuity in-payment liabilities to Guardian Financial Services in a transaction which accelerates the release of capital and increases cash generation by approximately £200 million in 2012. This is incremental to the Group's existing cash generation target of £500-600 million for 2012

Summary

Today, Phoenix Group announces that it has entered into a re-insurance agreement to transfer approximately £5 billion of annuity in-payment liabilities to Guardian Financial Services ("Guardian"). This transaction accelerates the release of capital and increases cash generation by approximately £200 million in 2012.

Phoenix Group has an ongoing programme of management actions to accelerate cash flows, enhance MCEV and improve the Group's capital position. As part of this programme, Phoenix has examined a range of options with regard to its annuity portfolios, against which the Group is required to hold a significant amount of capital. This transaction significantly de-risks the Group's balance sheet through the transfer of longevity and investment risk and increases the financial flexibility of the Group.

Transaction highlights

·      Re-insurance of approximately £5 billion of annuity in-payment liabilities to Guardian, effective 1 July 2012

·      The transfer of annuity in-payment liabilities will be made from Phoenix Life Limited (£3.4 billion), National Provident Life Limited (£0.6 billion) and Pearl Assurance Limited (£1.0 billion)

·      The Group will make an associated transfer of £4.9 billion of assets to Guardian as the related re-insurance premium for the transferred annuity liabilities

·      It is expected that the re-insurance agreement will be replaced by a formal Part VII transfer of the annuity liabilities to Guardian in 2013

·      Phoenix Group and Guardian have agreed terms for Ignis Asset Management, Phoenix's asset management arm, to continue to provide investment management services to Guardian in respect of assets backing the transferred annuity in-payment liabilities

Financial impacts

Cash

·      Accelerated delivery of cash flows that would otherwise emerge over time

·      Expected increase in 2012 cash generation of approximately £200 million

·      The acceleration of cash resulting from this transaction was not contemplated at the time the Group's current cash generation targets were set. A further update will be provided on the Group's cash generation targets in due course

Capital

·      Release of regulatory capital backing the transferred annuity in-payment liabilities

·      Estimated £25 million increase in estimated IGD surplus and IGD headroom

·      Further capital benefits are expected to arise on successful completion of a Part VII transfer of the re-insured liabilities

MCEV and IFRS

·      Broadly neutral impact from an MCEV perspective

·      No material impact on 2012 recurring IFRS operating profit

Clive Bannister, Group Chief Executive, commented:

"We are very pleased to have concluded this agreement with Guardian for the transfer of a significant block of annuity liabilities. This transaction will generate a number of important benefits for the Group. Principally, it will accelerate the cash flows from our operating business and release regulatory capital, thereby strengthening our balance sheet."

Enquiries

Investors:

Katherine Jones, Head of Investor Relations, Phoenix Group

[phone]

Media:

Neil Bennett, Maitland

Peter Ogden, Maitland

+ 44 (0) 20 7379 5151

Further information

The financial information contained in this announcement has not been audited or reviewed by the Group's auditors.

Forward looking statements

This announcement in relation to Phoenix Group Holdings and its subsidiaries (the 'Group') contains, and we may make other statements (verbal or otherwise) containing, forward-looking statements 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', 'expects', 'plans', 'seeks', 'targets', 'continues' and 'anticipates' or other words of similar meaning are forward-looking.  Forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the Group's control. For example, certain insurance risk disclosures are dependent on the Group's choices about assumptions and models, which by their nature are estimates. As such, actual future gains and losses could differ materially from those that we have estimated.

Other factors which could cause actual results to differ materially from those estimated by forward-looking statements include but are not limited to:  domestic and global economic and business conditions; asset prices; market related risks such as fluctuations in interest rates and exchange rates, and the performance of financial markets generally; the policies and actions of governmental and/or regulatory authorities, including, for example, new government initiatives related to the financial crisis and the effect of the European Union's "Solvency II" requirements on the Group's capital maintenance requirements; the impact of inflation and deflation; market competition; changes in assumptions in pricing and reserving for insurance business (particularly with regard to mortality and morbidity trends, gender pricing and lapse rates); the timing, impact and other uncertainties of future acquisitions or combinations within relevant industries; risks associated with arrangements with third parties, including joint ventures; inability of reinsurers to meet obligations or unavailability of reinsurance coverage; the impact of changes in capital, solvency or accounting standards, and tax and other legislation and regulations in the jurisdictions in which members of the Group operate.

As a result, the Group's actual future financial condition, performance and results may differ materially from the plans, goals and expectations set out in the forward-looking statements within this announcement. The Group undertakes no obligation to update any of the forward-looking statements contained within this announcement or any other forward-looking statements it may make.  Nothing in this announcement should be construed as a profit forecast.

 

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