Evolving Our BPA Franchise

Evolving our BPA Franchise

Justin Grainger Head of BPA, Phoenix Group

RBC 2020 Bulk Annuities Seminar

13 May 2020 1 Phoenix’s growth journey continues

2010 2013 2015 2018 Premium Listing on Debt re-terming Investment grade Acquisition of Standard Life London Stock and £250m credit rating from Assurance Limited (“SLAL”) Exchange equity raising Fitch Ratings

2011 2014 2016 2019 £5bn annuity liability Divestment of Ignis Asset Acquisition of AXA Wealth’s Announced acquisition transfer to Guardian Management pension and protection of ReAssure Group plc Assurance businesses and Abbey Life

Market capitalisation (£bn) Diversified inforce business

6.0 at 31 Dec 2019

5.0

4.0 3.0 £248bn 2.0

1.0 UK Heritage – 51% UK Open – 38% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Europe – 10%

2 Our Heritage business will grow through new annuity business

Our annuity book will continue to grow(1) Phoenix’s approach to BPA is:

Focus on value accretion not Selective £20bn volume

Allocation of c. £100 million Proportionate of surplus capital in 2019 £10bn

Funded from Capital strain funded by own resources surplus capital 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

BPA Vestings Backbook Over 90% of longevity risk Reinsured risk reinsured Provides long-term Incremental to our Annuity business is cash flows to cash generation value accretive support future Appropriate allocation to targets Asset allocation dividends illiquid assets

See Appendix VII for footnotes

3 We are at the beginning of our BPA journey

Market share Market segmentation

Scottish Canada Appetite by transaction size £50m- £100m- £500m- Widows Aviva Life Deferreds <£50m >£2bn £100m £500m £2bn £2.0bn £4.0bn £0.4bn 5% 9% 1% Aviva  ● ● ● ● ○ Just £1.2bn Canada Life  ● ● ● ○ ○ 3% Just ? ● ● ◐ ○ ○ Rothesay Legal & Life Legal & General General  ● ● ● ● ● £16.3bn £10.3bn 37% 23% Phoenix Life  ○ ◐ ● ◐ ○ Pension Insurance  ◐ ● ● ● ● Corporation PIC Phoenix £7.3bn Rothesay Life  17% Life ○ ○ ◐ ● ● £2.2bn 5% Scottish Widows  ○ ● ● ● ○

Source: Hymans Robertson

4 Our BPA franchise is growing to support business strategy

We have capitalised on both internal and external opportunities Key stats

Over £4 billion of new BPA March 2018 November April 2019 October 2019 business delivered over 3 years £470m 2018 £460m £140m pensioner £160m pensioner pensioner buy- buy-in pensioner buy-in in Our franchise delivers mix of M&S Pension buy-in M&S Pension Aegon UK internal and external buy-ins: Scheme Undisclosed Scheme Scheme Internal £2.3bn | External £1.9bn

£485 million of incremental long- March 2019 August November term cash generation from external £1.1bn 2019 2019 BPA transacted over 2018 and October 2018 pensioner and £240m £290m 2019 £170m pensioner deferred buy-in pensioner pensioner

buy-in PGL Pension buy-in buy-in Undisclosed Scheme Undisclosed Undisclosed BPA provides c. 1.5x coverage of shareholder dividend

5 BPA offers attractive returns and extends our long-term cash generation

2019 BPA deal economics 2019 activity

IRR on each BPA transaction must • Priced 27 transactions exceed hurdle rate of return • 5 BPA deals completed • c. 5% share of £44 billion market • Established participant in market

9% “Capital strain” includes the capital place 2.4x management policy £1,131m £235m 2020 plans

Group reimburses Life Co for “capital £98m strain” • c. £100 million capital allocated to external BPA • Supported by illiquid asset sourcing Liabilities Capital strain Cash generation Average payback period (excluding plans capital management policy) of 6-7 • Investing in developing our franchise years

6 Competitive advantages in BPA market and asset origination allow Phoenix to successfully compete in this market and deliver value accretive deals

 

Financial strength and Market leading OSP resilience administration capabilities

 Success in  delivering Prudent management value Appropriate terms for of longevity risk accretive Schemes and customers deals

  Bespoke Scheme structuring Ability to source and allocate and a solutions focused appropriate assets approach

7 Sourcing high quality assets which match liability duration is a key criteria for success in the BPA market

Illustrative asset and liability matching profile

sset and cash(£m) and flows sset liability A - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 Years

CRE debt Credit ERM Gilts Private placements Liabilities

8 Our Strategic Asset Allocation (“SAA”) for annuities has three key priorities

1 Appropriate duration 2 Credit discipline 3 Diversification

at 31 Dec 2019 at 31 Dec 2019 at 31 Dec 2019

16 years 2% 11%

14% 13 years

£20bn £20bn 17%

34%

AAA AA Average Traded / liquid assets Private placements A rating ERM CRE debt Back book BPA BBB A UK Local Authority Loans Infrastructure Average liability duration Non-rated

9 A diversified illiquid asset portfolio is an integral but proportionate part of our annuity strategic asset allocation

Illiquid asset portfolio Illiquid asset credit quality Key messages

at 31 Dec 2019 at 31 Dec 2019 £1.3 billion of illiquid asset origination 7% 2% 9% in 2019 delivered £140 million 8% Solvency II benefit

34% 2019 origination diversified by duration £5.3bn £5.3bn and spread with A+ average credit 25% 55% 32% rating

Illiquid assets comprise 26% of assets 5% 23% backing annuity business

ERM AAA UK Local Authority Loans AA Average Private Placements A rating Target 40% allocation to illiquid assets Commercial Real Estate BBB A+ by originating c. £1 billion p.a. Infrastructure Debt BB

10 2019 was another record-breaking year for BPA

Buy-in and buy-out volumes since 2008 Record-breaking deals

44 Pension scheme Deal size Insurer Premiums, £bn Telent £4.7bn Rothesay Life 25 25 Rolls Royce £4.6bn Legal & General 13 12 10 13 8 8 Allied Domecq £3.8bn Rothesay Life 4 4 5 4 Asda £3.8bn Rothesay Life

British American £3.4bn Pension Insurance

2020 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2008 Tobacco Corporation Source: LCP, Hymans Robertson

UK pension insurance deals jump to record $50 billion Bulk annuity market to quadruple by 2030 in 2019 UK pension schemes have transferred £135bn of liabilities The UK bulk annuity market … has soared to record levels to insurers over the last decade, and this is set to quadruple above 40 billion pounds ($51 billion) in 2019 and is over the next 10 years, Mercer has predicted. expected to stay strong as costs fall The Actuary Reuters

11 Phoenix is well placed to evolve its BPA franchise

Strategic priority to deliver selective and proportionate BPA to support long-term cash generation

Increased in-house expertise in BPA and illiquid asset sourcing to deliver bespoke products for clients

Resilient solvency balance sheet with low volatility to market risks relative to peers

Focus on proposition development to widen product offering to include deferred liabilities

Optimisation of capital and reinsurance through leverage of specialist teams and strong relationships

12 AppendicesAppendices I I LeverageDiversified ratio £5.3 billion illiquid asset portfolio XIII Total debt exposure by country II II MovementIlliquids assets:in assets Equity under Release administration Mortgage portfolio XIV Credit rating analysis of debt portfolio III III UKOther Open illiquids – movement assets in portfolio AUA by product type XV 2019 Illiquid asset origination IV IV Movements2019 illiquid in holdingasset origination company cash and cash equivalents XVI Illiquid assets: Equity Release Mortgage Portfolio V V ChangeShareholder in Life CompanyCapital Coverage Free Surplus Ratio sensitivities XVII ReAssure pro-forma shareholder own funds VI VI EstimatedShareholder PGH Capital Solvency Coverage II surplus sensitivities and coverage peer ratios comparisons XVIII Corporate structure as at 31 December 2019 VII Estimated shareholder SCR by risk type and PGH own funds XIX Outline of debt structure as at 31 December 2019 tiering XX Footnotes VIII Regulatory Capital Coverage Ratio sensitivities

IX Operating profit analysis X UK Heritage business operating profit drivers XI UK Open and Europe businesses operating profit drivers XII Asset mix of Life Companies 13 Appendix I: Diversified £5.3 billion illiquid asset portfolio

Equity Release Mortgages £2.9 billion at 31 Dec 2019 UK Local Authority Loans £0.3 billion

7% • Broad regional spread and average LTV • Unsecured but with implicit support of of 34% 8% UK Government • Average AA credit rating • Average A+ credit rating • Loans across 23 different local Private Placements £1.4 billion authorities with exposures ranging from £5.3bn £0.5 million - £85 million • Diverse portfolio of investment grade 25% 55% corporate loans and bonds Infrastructure Debt £0.3 billion • c70% of exposures are secured on assets 5% Commercial Real Estate £0.4 billion • Secured on cash flows from long-term ERM contracts with highly rated counterparties • Structured with robust covenant UK Local Authority Loans protection Private Placements • 62% of portfolio backed by UK Commercial Real Estate Government (directly or indirectly) • c. 75% of portfolio LTV ≤ 50% Infrastructure Debt

Classification: Restricted 14 Appendix II: Illiquids assets: Equity Release Mortgage portfolio

Credit rating determined through securitisation Key portfolio statistics

2% at 31 Dec 2019 10% Average Average Average AAA time to AA LTV age 27% £2.9bn Current redemption A 61% portfolio BB 34% 77 years 12 years

Regional distribution

at 31 Dec 2019 Average Average Average South East London time to South West Wales LTV age 2019 redemption East East Midlands origination Scotland North East North West Yorkshire and Humberside 28-30% 71 years 16 years West Midlands

15 Appendix III: Other illiquids assets portfolio

Commercial Real Estate £0.4 billion Private Placements £1.3 billion

• First-ranking security over the underlying property, transaction • c70% secured on a variety of assets bank accounts and other borrower assets • Diversified portfolio across 38 exposures (counterparties) • Structured with robust covenant protection, typically a • Average loan size of £21 million combination of loan-to-value and interest coverage ratio covenants • Average credit rating of A

Current LTV levels of CRE portfolio 5 largest Private Placements

at 31 December 2019 1 £140m Rated A Secured on portfolio of healthcare facilities 14% 16% 2 £109m Rated A Social housing provider (secured) 12% Secured on a portfolio of city centre student £0.4bn 3 £97m Rated A 0%-40% accommodation across the Midlands 41%-50% 4 £83m Rated A Secured loan to a major UK utility company 51%-60% 58% 61%+ Rated Unsecured loan to support sustainable 5 £71m AA development for a central London local authority

Classification: Restricted 16 Appendix IV: 2019 illiquid asset origination

2019 origination focused on longer maturities at attractive spreads Diversified portfolio

300

250 A A- AA A-

A+ 200 AA BBB A A+ A- A £1.3bn 150 BBB A A- A A AA BBB AA- AA- Spread Spread (bps) BBB- 100 A+ AA AA AA- 50 Social Housing Infrastructure 0 Student Accommodation Transport 0 5 10 15 20 25 30 35 40 45 50 55 60 65 Local Government Property Social Housing Financials Infrastructure Investment Trust Weighted average life (years) Financials Investment Trust Student Accomodation ERM Property Transport ERM Healthcare Local Government CRE debt Healthcare CRE debt

£1.3 billion Average deal Average credit Weighted average £250 million ESG Key statistics: originated size of £30 million rating of A+ life of 19 years investment

17 Appendix V: Shareholder Capital Coverage Ratio sensitivities

PGH Solvency II Shareholder Capital Coverage Ratio sensitivities(2) Impact on Target range Solvency II surplus Solvency II SCCR as at 24 April 2020 172% £4.0bn

Equities: 20% fall in markets 175% £0.1bn

Property: 12% fall in values(3) 167% £(0.2)bn

Rates: 73bps rise in interest rates(4) 180% £0.1bn

Rates: 88bps fall in interest rates(4) 163% £(0.2)bn

Credit spreads: 120bps widening(5) 173% £(0.2)bn

Credit downgrade: immediate full letter £(0.2)bn downgrade on 20% of portfolio(6) 166%

140% 180%

See Appendix VII for footnotes

18 Appendix VI: Phoenix’s resilience to market risks is strong relative to peers

FY19 Phoenix Shareholder Capital Coverage Ratio (SCCR) sensitivities relative to Life peers(7)

Impact on SII ratio 40%

30%

20%

10%

-10%

-20%

-30% Phoenix Peer A Peer B Peer C Peer D Peer E Peer F Peer G

United Kingdom Europe

Equity Market -25% Equity Market +25% Credit Spread +100 bps Interest Rates -50bps Interest Rates +50bps See Appendix VII for footnotes

19 Appendix VII: Footnotes

(1) Assumptions in graph: £750 million vesting annuities per annum, £1 billion BPA per annum (2) Sensitivity assumes stress occurs on Day1 and that there is no market recovery (3) Property stress represents an overall average fall in property values of 12% (4) Assumes the impact of a dynamic recalculation of transitionals and an element of dynamic hedging which is performed on a continuous basis to minimise exposure to the interaction of rates with other correlated risks including longevity (5) Credit stress varies by rating and term and is equivalent to an average 120bps spread widening (full range of spread widening is 49bps to 204bps). It assumes the impact of a dynamic recalculation of transitionals and makes no allowance for the cost of defaults/downgrades (6) Impact of an immediate full letter downgrade across 20% of the shareholder exposure to the bond portfolio (e.g. from AAA to AA, AA to A, etc). This sensitivity assumes no management actions are taken to rebalance the annuity portfolio back to the original average credit rating and makes no allowance for the spread widening which would be associated with a downgrade (7) All sensitivities as of 31 December 2019. Source: Company disclosure

20 Disclaimer and other information

• This announcement in relation to Phoenix Group Holdings plc and its subsidiaries (the ‘Group’) contains, and we 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 the Group has 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, initiatives related to the financial crisis, the COVID-19 pandemic and the effect of the European Union's "Solvency II” requirements on the Group’s capital maintenance requirements; the impact of inflation and deflation; the political, legal and economic effects of the COVID-19 pandemic and the UK’s vote to leave the European Union; 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 (including without limitation the acquisition of ReAssure Group plc) or combinations within relevant industries; risks associated with arrangements with third parties; 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 material from the plans, goals and expectations set out in the forward-looking statements and other financial and/or statistical data within this announcement. The Group undertakes no obligation to update any of the forward-looking statements or data contained within this announcement or any other forward-looking statements or data it may make or publish. Nothing in this announcement should be construed as a profit forecast or estimate.