Phoenix Group Holdings Regulatory News (PHNX)

Phoenix Group announces strong results after a transformational year. New cash generation targets set and synergy target increased by £500 million to £1.2 billion

Phoenix Group, Europe's largest life and pensions consolidator1, today announces a strong set of results for the year ended 31 December 2018.

2018 Highlights

· £664 million of cash generation2 in 2018 (2017: £653 million). The Group has delivered £1.3 billion cash generation in 2017 and 2018, exceeding the upper end of its cash generation target range of £1.0 billion - £1.2 billion for this period.

· Solvency II surplus of £3.2 billion3 as at 31 December 2018 (£2.5 billion pro-forma as at 31 December 2017).

· Shareholder Capital Coverage Ratio of 167%4 as at 31 December 2018 (147% pro-forma as at 31 December 2017).

· Proposed final dividend of 23.4p per share, a 3.5% increase on the 2017 final dividend.

· Group operating profit of £708 million (2017: £368 million).

· Assets under administration of £226 billion as at 31 December 2018 (31 December 2017 pro-forma: £240 billion). Net business inflows of £3.9 billion on UK Open and European businesses.

· New business contribution5 of £154 million (2018 pro-forma) demonstrates value accretive nature of Open new business in the UK and Europe.

· Fitch Ratings affirmed the Group's ratings at A+6; "stable" outlook. Leverage ratio 22%7.

New cash generation targets

· 2019 cash generation target of £600 - £700 million8.

· Long-term cash generation target for 2019 - 2023 of £3.8 billion.

Acquisition of the Standard Life Assurance businesses

· Acquisition of the Standard Life Assurance businesses completed on 31 August 2018.

· Total synergy target (net of £150 million transition costs) increased by £500 million from £720 million to £1,220 million:

- Capital synergies new target of £720 million (increased from £440 million); with £500 million delivered to date; and

- Capitalised cost synergies new target of £650 million (increased from £415 million); reflecting an increase from £50 million to £75 million per annum.

Delivering on strategic priorities

· Successfully entered bulk purchase annuity market contracting £0.8 billion of liabilities in 2018.

· AXA and Abbey Life integrations completed ahead of plan and targets, delivering cost synergy benefits of £27 million per annum and cumulative cash generation of £968 million.

· Diligenta selected as Phoenix's partner to deliver a single, digitally enhanced outsourcer platform to a further 2 million legacy-Phoenix policies.

· Brexit preparations complete.

· On-shoring project completed with UK plc in place.

Commenting on the results, Group CEO, Clive Bannister said:

"2018 was a very successful year for Phoenix in which we exceeded our cash generation targets, further improved our capital resilience and transformed the business through the acquisition of the Standard Life Assurance businesses.

These results show the strength of our Group and have enabled us to again increase our short and long term cash generation targets.

The transition of the Standard Life Assurance businesses continues to progress well and today we increase the total cost and capital synergy target by 70% from £720 million to £1.2 billion. Our end state operating model will incorporate the best of both legacy businesses and our management bench strength and strategic options as a combined Group have increased significantly.

Phoenix's substantial new business flows across both our Heritage and Open businesses through our Strategic Partnership with Standard Life Aberdeen bring increased sustainability to our long term cash generation. We are confident about our opportunities to grow in the future both organically and through BPA and acquisitions."

Presentation

There will be a presentation for analysts and investors today at 8.30am (GMT) at:

J.P. Morgan, 1 John Carpenter Street, London, EC4Y 0JP

A link to a live webcast of the presentation, with the facility to raise questions, and a copy of the presentation will be available at www.thephoenixgroup.com

Participants may also dial in as follows:

A replay of the presentation will also be available through the website.

Dividend

The recommended final dividend of 23.4p per share is expected to be paid on 7 May 2019, subject to shareholder approval at Phoenix Group Holdings plc's AGM on 2 May 2019.

The ordinary shares will be quoted ex-dividend on the London Stock Exchange as of 21 March 2019. The record date for eligibility for payment will be 22 March 2019.

Enquiries

Investors/analysts:Claire Hawkins, Head of Investor Relations, Phoenix Group+44 (0)20 3735 0575

Media:Andy Donald and Vikki Kosmalska, Maitland + 44 (0) 20 7379 5151

Shellie Wells, Head of Corporate Communications, Phoenix Group

+44 (0) 203 735 0922/ +44 7872 414137

Notes

1. Phoenix Group is the largest life and pensions consolidator in Europe with 10.0 million policies and £226 billion of assets under administration.

2. Cash generation is a measure of cash and cash equivalents, remitted by the Group's operating subsidiaries to the holding companies and is available to cover dividends, debt interest, debt repayments and other items.

3. The Solvency II capital position is an estimated position and includes the impact of a regulator approved recalculation of transitionals for Standard Life Assurance Limited only. Had a dynamic recalculation of transitionals been assumed for the Phoenix Life companies, the Solvency II Surplus and the Shareholder Capital Coverage ratio would increase by £0.1 billion and 3% respectively.

4. The Shareholder Capital Coverage Ratio of 167% excludes Solvency II Own Funds and Solvency Capital Requirements of unsupported with-profit funds and the PGL Pension Scheme.

5. New business contribution is the increase in Solvency II Own Funds arising from new business written in the period excluding risk margin and contract boundary restrictions.

6. Insurer Financial Strength rating of Phoenix Life Limited, Phoenix Life Assurance Limited and Standard Life Assurance Limited.

7. Current leverage ratio of 22% estimated by management.

8. 2019 cash generation target is net of the £250 million cost of capitalising Standard Life International Designated Activity Company for Brexit.

9. 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.

10. 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.

11. 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 impact of inflation and deflation; the political, legal and economic effects of 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 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.

12. 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 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.

Cash resilience growth

A sustainable phoenix

Annual report and accounts 2018

2018 was transformational for Phoenix as we delivered cash, resilience and growth.

With the restructuring of the life and pensions industry, we are in a position to take advantage of further opportunities.

The successful acquisition of the standard life assurance businesses has allowed us to evolve from being a heritage business to one that extends to open business and Europe.

This has enhanced the sustainability of the group and will propel us towards our new vision To become Europe's Leading Life Consolidator.

More information online at www.thephoenixgroup.com

PHOENIX GROUP AT A GLANCE

OUR VISION

Become Europe's Leading Life Consolidator.

OUR PURPOSE

Inspire confidence in the future.

OUR MISSION

Improve outcomes for customers and deliver value for shareholders.

WHAT WE DO

As the largest life and pensions consolidator in Europe, Phoenix specialises in the acquisition and management of closed life insurance and pension funds. We call this our Heritage business.

Transactions in the bulk purchase annuity market offer a complementary source of growth for the Group and the management actions we deliver help increase and accelerate cash flows.

Alongside this, we have an Open business which manufactures and underwrites new products and policies to support people saving for their future in areas such as workplace pensions and self-invested personal pensions. This Open business is supported by the Strategic Partnership with Standard Life Aberdeen plc following our acquisition of Standard Life Assurance Limited in 2018. We also have a market leading brand - SunLife - which sells a range of financial products specifically for the over 50's market

Read more on our operating structure and business model on P8 and 14

Read more on our marketplace on P12

OUR LOCATIONS

Key performance indicators

£664m

OPERATING COMPANIES' CASH GENERATION

APM REM

£3.2bn

PGH Solvency II SURPLUS (ESTIMATED)

167%

PGH Shareholder capital coverage ratio (estimated)

APM

23.4p

Final dividend per share

£708m

Operating profit

APM

93%

Customer satisfaction score1

OTHER PERFORMANCE INDICATORS

£410m

IFRS profit after tax

£226bn

ASSETS UNDER ADMINISTRATIONAPM

£154m

NEW BUSINESS CONTRIBUTION2 APM

22%

Financial lEVERAGE RATIO3APM

Read more on P28

All amounts throughout the report market with 'REM' are KPI's linked to Executive Remuneration.

See Directors' Remuneration Report P76

All amounts throughout the report marked with 'APM' are alternative performance measures.

1 Phoenix Life score only.

2 On a pro forma basis as if the Standard Life Assurance acquisition took place on 1 Jan 2018

3 As calculated by Phoenix on a Fitch Ratings basis.

OUR STRATEGIC PRIORITIES

01

IMPROVE CUSTOMER OUTCOMES

02

DRIVE VALUE

03

MANAGE CAPITAL

04

ENGAGE People

Read more on our strategic priorities P18

OUR THREE Main BUSINESS SEGMENTS

UK HERITAGE

With-profits

Unit linked

Annuities

Protection

UK OPEN

Unit linked:

Workplace

Retail pension

Wrap

Protection:

SunLife over 50s

EUROPE

Ireland:

Unit linked

With-profits

Annuities

Germany:

With-profit

Unit linked

OUR KEY PRODUCTS*

* Based on assets under administration.

Our main business segments*

* Based on assets under administration.

OUR BRANDS

All amounts throughout the report marked with 'APM' are alternative performance measures.

Read more on P230

All amounts throughout the report market with 'REM' are KPIs linked to Executive Remuneration

See Directors' Remuneration Report P76

CHAIRMAN'S STATEMENT

"The acquisition of the Standard Life Assurance businesses in 2018 was transformational for Phoenix. We are now Europe's largest life and pensions consolidator."

Nicholas Lyons

CHAIRMAN

DEAR SHAREHOLDERS,

I joined Phoenix as Chairman at a pivotal moment in the Group's history. 2018 was a defining year for the Group marked by outstanding strategic delivery and strong financial performance.

On 31 August, Phoenix completed the £2.9 billion acquisition of the Standard Life Assurance businesses and entered into a Strategic Partnership with Standard Life Aberdeen. This transaction established the Group as the largest life and pensions consolidator in Europe with £226 billion of assets under administration and 10 million policies as at 31 December 2018. Not only did the acquisition bring additional scale to the Group's Heritage business, but Phoenix also acquired a significant Open business in the form of Standard Life branded insurance products which the Group is committed to growing.

Our Strategic Partnership is underpinned by a 19.98% equity stake taken by Standard Life Aberdeen in Phoenix and our Board has been strengthened by the appointment of two Standard Life Aberdeen nominated Non-Executive Directors. We have a close and positive working relationship with Standard Life Aberdeen which extends through its management of c. 60% of our assets under administration and the distribution agreement generating new business. Our objectives are aligned as we seek to leverage our respective skill sets to grow our businesses.

Phoenix marked a number of additional significant achievements this year including the completion of the integration of the AXA Wealth and Abbey Life businesses ahead of plan and targets and successfully entering into the Bulk Purchase Annuity market.

Finally, the Group extended its track record of meeting and exceeding all of its publicly stated financial targets by surpassing the upper end of its two-year cash generation target range of £1.0 - £1.2 billion, delivering £1.3 billion of cash generation over 2017 and 2018.

Capital Markets Day

In November Phoenix held a very well-attended Capital Markets Day to provide an update on the Standard Life Assurance acquisition. The presentation illustrated how Phoenix has evolved from being a 'closed' business to a consolidator of both Open and Heritage life businesses.

Organic growth through the capital-light new business written as part of the Strategic Partnership with Standard Life Aberdeen represents a fundamental strengthening of the Group's business model, stemming the natural run-off of our Heritage business and bringing sustainability to the Group's cash generation profile.

Dividend policy

The additional cash flows acquired as part of the acquisition of the Standard Life Assurance businesses enhance the sustainability of our dividend. Therefore, in line with previously stated expectations the Board recommends raising the dividend to an annualised amount of £338 million from the time of the 2018 final dividend. This corresponds to a final 2018 dividend per share of 23.4p and constitutes a c. 3.5% uplift in dividend per share (rebased to take into account the bonus element of the rights issue completed in July 2018), resulting in a new annualised dividend per share level of 46.8p going forward.

Given the long-term run-off nature of the Group's Heritage business, the Board continues to consider it prudent to maintain a stable and sustainable dividend policy.

Recent board changes

Against a backdrop of macroeconomic uncertainty in light of Brexit, the Board aims to maintain the breadth and depth of experience required to continue delivering shareholder value and improving customer outcomes. Therefore, we were delighted to welcome Campbell Fleming and Barry O'Dwyer from Standard Life Aberdeen to the Board. Both bring with them substantial experience and executive skills complementary to those of our existing Directors and very related to our evolving strategy.

Looking ahead

Despite our expectation that market conditions will remain turbulent leading up to and beyond Brexit, we look ahead with optimism as Phoenix's hedging programme brings resilience to the Group' solvency position and cash generation. Additionally, the Group's capital-light new business capability brings added sustainability to Phoenix's cash generation.

Simultaneously, the drivers for consolidation in the life insurance sector are increasing and we believe institutions will look to divest their capital intensive closed business to consolidators such as Phoenix. Phoenix has a proven track record of delivering value accretive acquisitions and I am confident that the Group is well placed to take advantage of these growth opportunities as and when they arise.

Phoenix will enter the FTSE100 Index on 18 March 2019. Entry into this index is recognition of the progress Phoenix has made as an organisation.

I would like to take this opportunity to thank all my colleagues for their hard work and commitment in what has been another hugely successful year for Phoenix and our investors for their continuing support. I look forward to working with you all in 2019.

NICHOLAS LYONS

CHAIRMAN

4 March 2019

£226bn

Assets under administration

10.0m

Policies

GROUP CHIEF EXECUTIVE OFFICER'S REPORT

"Phoenix's business continues to be resilient. Our open business brings improved sustainability to cash generation and we are confident about our growth opportunities."

CLIVE BANNISTER

GROUP CHIEF EXECUTIVE OFFICER

The acquisition of the Standard Life Assurance businesses in 2018 was transformational for Phoenix. It allowed us to evolve from being a UK closed life consolidator into the largest life and pensions consolidator in Europe; with Heritage and Open businesses spanning the UK, Germany and Ireland.

Phoenix delivered strong financial performance during the year, generating £664 million of cash and increasing the resilience of the Group's capital position through the implementation of our hedging programme to the Standard Life Assurance businesses. Our leverage ratio remains below the target range and our credit ratings were affirmed by Fitch Ratings in September following completion of the acquisition.

Phoenix's substantial new business capabilities bring improved sustainability to our long-term cash generation. Our Open business is growing, driven by the success of the capital-light Standard Life branded products sold through the Strategic Partnership with Standard Life Aberdeen. This growth is augmented by our successful entry into the bulk purchase annuity market which, together with vesting annuities, keeps scale in our Heritage business.

Whilst the acquisition of the Standard Life Assurance businesses represents an important milestone in our consolidation journey, it is not our final destination and we remain confident in our ability to grow further through additional acquisitions.

ACQUISITION OF the STANDARD LIFE ASSURANCE businesses AND STRATEGIC PARTNERSHIP WITH STANDARD LIFE ABERDEEN

Phoenix completed the acquisition of the Standard Life Assurance businesses on 31 August 2018 with 99.98% of voting shareholders supporting the transaction. The acquisition was funded through a £950 million rights issue completed in July with a take-up rate of 96.25%, and the issuance of £500 million Tier 1 notes in April and a €500 million Tier 2 bond in September. I would like to thank our investors for their overwhelming support for this acquisition.

The acquisition has brought additional scale to Phoenix's pre-existing UK Heritage business which now has £118 billion of assets under administration. It has also brought a significant Open business to Phoenix in the form of Standard Life branded workplace pension, retail pension and Wrap products.

These products are predominantly capital-light unit linked products and will be delivered to the customer through the Strategic Partnership with Standard Life Aberdeen. Under this partnership, Standard Life Aberdeen will undertake sales, marketing and distribution for new business which Phoenix will underwrite and administer. In this way, both companies continue to provide the services that align to their key strengths and is built to work seamlessly for customers with the full proposition being delivered under the Standard Life Brand.

We also now have a European business which contains both Heritage and Open business. We are poised to complete our preparations to ready this business for Brexit with a Part VII transfer to an Irish domiciled subsidiary, Standard Life International Designated Activity Company ('SL Intl') due to complete in March. We have injected £250 million of capital into SL Intl prior to this Part VII and will report our 2019 cash generation figures net of this injection.

Cost and capital synergies

Upon announcement of the transaction in February 2018, we set a total cost and capital synergy target for the transition of the Standard Life Assurance business within Phoenix of £720 million.

Upon completion of the acquisition in August, we worked with our new colleagues from Standard Life Assurance to design the operating model of our combined organisation.

It is clear to me that Phoenix will be forever strengthened by the breadth of skills that our new colleagues bring. I am extremely grateful for the hard work across all locations in the Group that has ensured that our transition programme has 'the best of both'. As a result of this collaboration, I am pleased to announce an increase of 70% to a new total synergy target of £1,220 million.

Transition programme

Our transition programme is making good progress and will deliver an end state operating model over three phases. We are now targeting savings of £75 million per annum from our 2018 business as usual combined cost base of £600 million and have also set a £30 million target for one-off cost savings.

Actuarial harmonisation

In 2018 we delivered £500 million of capital synergies in respect of the Standard Life Assurance businesses. This principally consists of the benefits from capital synergies from implementing the Group's equity and currency hedging strategy but also includes capital synergies by internally restructuring indemnity benefits within the Group.

We have increased our capital synergy target to £720 million to reflect the estimated impact of moving towards Phoenix's strategic asset allocation for annuity backing assets and creating a single life company.

In addition, the programme will also bring together our two internal models. This has never been done before and the timeline we outline today targeting PRA approval by the end of 2020 remains indicative as we work through a number of key decisions and work with our regulators to assess achievability.

The end state operating model will be delivered in three phases over three years

Phase 1: Enabling Head Office Functions

Phase 2: Finance and Actuarial

Phase 3: Customer and Technology

2019

2020

2021

FINANCIAL PERFORMANCE

Cash generation is resilient and sustainable

Phoenix delivered £664 million cash generation in the year taking total cash generation in 2017 and 2018 to £1.3 billion and exceeding the upper end of the target range for this period of £1.0-£1.2 billion.

The Group has set new short and longer-term cash generation targets for the enlarged business. In 2019 we expect to generate £600 - £700 million of cash net of the cost of capitalising our Irish subsidiary for Brexit and our target for 2019 to 2023 is £3.8 billion. In addition we expect a further £8.2 billion of cash from 2024 on-wards.

The combined cash guidance of £12.0 billion reflects the cash for our in-force business only and does not include the additional cash flows that may be generated on new business. As our Open business grows, it will help to offset the run off of our Heritage business and bring improved sustainability to our cash generation which in turn supports our stable and sustainable dividend policy.

Phoenix Group capital position

During 2018, the Group strengthened the resilience of its capital position, increasing the Solvency II surplus from a pro forma of £2.5 billion as at 31 December 2017 to £3.2 billion as at 31 December 2018.

The Shareholder Capital coverage ratio also increased to 167% at 31 December 2018 from a 147% pro forma ratio at 31 December 2017, well within our target range of 140% to 180%.

Operating Profit

The Group delivered total operating profit of £708 million and reports for the first time operating profit across its three main business segments. The increase compared to the prior year is primarily driven by the inclusion of Standard Life Assurance for the four-month period post completion of the acquisition together with net positive impacts of management actions and experience and actuarial assumption changes during 2018.

Assets under administration

As at 31 December 2018, the Group had £226 billion of assets under administration, reduced from the £240 billion pro forma position at 31 December 2017. This fall is primarily driven by market movements experienced in the fourth quarter of 2018 when markets were particularly negative. During the year, strong net inflows on our UK Open and European businesses have partially offset net outflows on our UK Heritage business.

REGULATORY AND LEGISLATIVE CHANGES

In September we were informed by the Financial Conduct Authority ('FCA') that it had closed its investigation into Abbey Life Assurance Limited following the thematic review into the fair treatment of long standing customers in the life insurance sector. The FCA found that the conduct of Abbey Life Assurance Limited did not warrant enforcement action. Standard Life was referred to the FCA enforcement division to consider whether any of the issues identified in the thematic review on non-advised annuities sales warranted further intervention and we continue to work with the FCA on the ongoing investigation.

With regard to annuities sales, both Standard Life and Abbey Life agreed with the FCA to undertake a past business review and both programmes are well advanced. Both of these reviews were known issues at the time of acquisition and we expect the costs arising from these reviews to be covered by the indemnities agreed at the time of the acquisition.

CUSTOMERS

Phoenix places its customers at the heart of what it does and is committed to delivering a high level of customer service and to improving customer outcomes.

Phoenix invests in its online capabilities and we connect digitally with as many of our customers as possible.

For Phoenix Life, this digital journey is being shaped through our outsourcing arrangement with Diligenta. 80% of our Diligenta pension customers can now log on to our digital platform and during 2018 we saw over 40% of eligible customers taking advantage of our online encashment functionality. In absolute numbers this would be 80% of around 1 million customers.

In 2018, over 14,000 policies moved into drawdown with Standard Life and digital was the channel of choice for the majority of these customers. Furthermore, with more than three million logins last year, our mobile app is now the easiest way for Standard Life customers to interact with us when they want.

Since auto-enrolment we have supported 11,000 schemes into a qualifying workplace pension scheme with 1.7 million new joiners auto-enrolled into them by employers.

In August, I was delighted to announce that we would be introducing caps on ongoing charges across our Phoenix Life non-workplace unitised pensions business and removing exit charges on small unitised pensions policies. This change will benefit c. 250,000 policies and reduce the average Phoenix Life ongoing charge for unitised non-workplace pension policies to 1.1%.

We recognise the importance of customer service and monitor our performance through a number of metrics. We have exceeded all of our customer service targets in 2018.

Colleagues

Corporate responsibility plays a central role in the colleague experience at Phoenix. The three strands of physical, mental and financial wellbeing underpin our colleague and community initiatives, which now extend to the Standard Life Assurance businesses.

Volunteering is a priority across the Group with over 50% of Phoenix Group and Phoenix Life colleagues participating in volunteering activities over the year.

2018 saw Phoenix embark on a significant listening exercise to re-invigorate our commitment to our corporate values. 'The Big Conversation' brought these values to life and delivered an agreed set of behaviours - created by staff and championed by senior management sponsors.

2019 will see us engage colleagues in the creation of a combined set of values for the Group, building on previous work conducted at Standard Life Assurance and Phoenix.

This focus on engagement and colleague empowerment creates a rich and diverse working environment, reflected in our continued status as one of the UK's Top Employers.

CONCLUSION

In 2018, Phoenix delivered on its existing strategic priorities alongside a material acquisition. We completed the integration of both the AXA Wealth and Abbey Life during the year and to date have generated cash from both transactions of £968 million or over 70% of consideration. We also completed our on-shoring programme replacing the previous Cayman Islands registered holding company with a UK-incorporated one.

We look forward to 2019 with excitement. Whilst we will of course remain focused on the safe transition of our combined businesses, we have the management bandwidth to deliver on our growth strategy.

The drivers of consolidation in the life insurance industry are numerous: trapped capital, specialist skills shortages, stranded costs, and an increased regulatory burden. These drivers will generate future acquisition opportunities for Phoenix.

Phoenix has the skill set, scale and financial strength to be at the forefront of the UK and European life consolidation market. We remain optimistic about the opportunities that 2019 will bring and we are ready to move forward with transactions that add value to our investors.

I have been delighted to welcome former Standard Life colleagues to the Phoenix family and thank all of my colleagues throughout the Group for their hard work during a year that has seen Phoenix deliver its strategy for the benefit of both shareholders and policyholders.

CLIVE BANNISTER

GROUP CHIEF EXECUTIVE OFFICER

4 March 2019

"The drivers of consolidation are increasing and Phoenix is well placed to be the Leading Life Consolidator in Europe during this process."

CLIVE BANNISTER

GROUP CHIEF EXECUTIVE OFFICER

Illustrative cash generation profile over time

Cash generation

Management ActionsOPENHeritage

Management Actions

Management actions increase or accelerate cash generation across the Heritage and Open businesses.

Open

Growth of Open business at 2018 levels will offset Heritage run-off.

Heritage

Our Heritage business runs off at 5-7% per annum.

1 Pro forma assuming the acquisition of the Standard Life businesses took place on 31 December 2017.

2018 timeline

February

Announced proposed acquisition of the Standard Life Assurance businesses.

April

£500 million Tier 1 notes issued.

July

£950 million rights issue.

September

FCA closes Abbey Life enforcement investigation.

€500 million Tier 2 bond issued.

Fitch Ratings affirms ratings and places Phoenix on 'stable' outlook

March

Integration of AXA Wealth and Abbey Life complete.

May

First BPA transaction announced.

August

Acquisition of the Standard Life Assurance businesses completed.

December

New UK holding company in place. On-shoring complete. Abbey Life Part VII complete.

OUR OPERATING STRUCTURE

Phoenix Group's operating structure is evolving as we transition to a new end state operating model for the combined group.

Phoenix Group

Group functions

Manage corporate and strategic activity and include the following:

Group Finance including Tax, Treasury and Investor Relations

Corporate Communications

Group Risk

Group HR

Group Customer

Group Internal Audit

Group Legal

Strategy, Corporate Development and Group Actuarial

Company Secretariat

Phoenix Life

Standard Life

Manage the financial assets for policyholders across our UK Heritage; UK Open and European business segments

Life companies

Phoenix Life Limited

Phoenix Life Assurance Limited

Life companies

Standard Life Assurance Limited

Standard Life International Designated Activity Company

INVESTMENT MANAGEMENT AND DISTRIBUTION

Management services company

Provides life companies with management services

OUTSOURCE PARTNERS

GROUP FUNCTIONS

The Group operates centralised functions that provide Group-wide and corporate-level services and manage corporate and strategic activity. Based in Edinburgh, Wythall near Birmingham and Juxon House, London, the Group is led by the Group Chief Executive Officer, Clive Bannister.

PHOENIX LIFE and STANDARD LIFE

Phoenix Life and Standard Life are responsible for the management of the Group's life funds in the UK, Germany and Ireland across both Heritage and Open product lines. Phoenix Life is based in Wythall, Birmingham and is led by its Chief Executive Officer, Andy Moss. Susan McInnes is the Chief Executive of our Standard Life business which is primarily based in Edinburgh with significant operations in Frankfurt and Dublin.

Life companies

The life companies are regulated entities that hold the Group's policyholder assets. The Group simplifies its business model by bringing together separate life companies and funds, making more efficient use of the capital and liquidity in its life companies.

This results in administrative expense savings and increased consistency of management practices and principles across the Group.

Investment management

Investment management services are provided to the life companies by a number of external asset management companies, with the main partner being Aberdeen Standard Investments.

Distribution

Distribution of non-workplace Standard Life branded products is provided by Standard Life Aberdeen under the Client Service and Proposition Agreement. We have also retained the SunLife distribution business within the Open business segment of the Group with a management team based in Bristol focused on their key skills of marketing and sales.

Management services companies

The Group's management services companies are charged with the efficient provision of financial and risk management services, sourcing strategies and delivering all administrative services required by the Group's life companies. This benefits the life companies by providing price certainty and transferring some operational risks.

Outsource partners

The management services companies manage relationships with the outsource partners for our Phoenix Life business. Without further acquisitions, the number of policies in our Heritage business declines over time and the cost of our Heritage operations as a proportion of policies will increase. This risk is managed by paying a fixed price per policy to our outsource partners for policy administration services, which reduces this fixed cost element of our operations and converts it to a variable cost structure.

Outsource partners have scale and common processes to benefit the Group, including reducing investment requirements, improving technology and reducing our operational risk. Finance, actuarial, information technology, risk and compliance and oversight of the outsource partners are retained in-house, ensuring that Phoenix Life retains full control over the core capabilities necessary to manage and integrate closed life funds.

OUR KEY PRODUCTS

WE HAVE a wide range of products which are written across different funds.

The features of each policy influences whether it is the policyholders and/or the shareholders who are exposed to the risks and rewards of a policy.

OUR BUSINESS SEGMENTS

PHOENIX HAS THREE MAIN BUSINESS SEGMENTS FOR ITS LIFE AND PENSIONS BUSINESS: UK Heritage, UK Open and Europe.

The UK Heritage business segment comprises products that are no longer marketed to customers, for example with-profits, annuities and many legacy unit linked life and pension products. UK Open business comprises products that are actively marketed to new and existing customers and includes products sold under the Standard Life and SunLife brands. The European segment comprises both Heritage and Open business.

UK Heritage

Phoenix specialises in the safe and efficient management of UK Heritage business and has a strong track record of delivery.

Our UK Heritage business comprises products that are no longer actively marketed to customers and has £118 billion of assets under administration.

£118bn

UK Heritage*

*Based on assets under administration at 31 December 2018

In Force

The UK Heritage business has been built from two decades of consolidation and comprises over 100 legacy brands including Britannic, Pearl,Scottish Mutual, AXA, Abbey Life and Standard Life. It has a broad range of life and pensions products which provide Phoenix with natural diversification and includes business from both Phoenix Life and Standard Life.

The Group's strategy for our UK Heritage Business is simple - to deliver value to shareholders and customers and to improve customer outcomes.

Heritage business cash generation runs off at 5-7% per annum depending on the particular features of each legacy book. Organic cash emerges naturally from our UK Heritage business as it runs off over time and we enhance this organic cash generation through the delivery of management actions which either increase the overall cash flows from the business or accelerate the timing of these cash flows.

Integral to our efficient management of the UK Heritage business is ensuring that our cost base reduces more quickly than our policy count runs off.

New business

The Group generates new business in the Heritage business segment through vesting annuities and bulk purchase annuities, or from incremental contributions from existing pensions.

Vesting annuities

We offer annuities to existing policyholders when their pension policies vest across both the Phoenix Life and Standard Life product ranges. The majority of our vesting annuities are from pension policies which included guaranteed annuity options on maturity.

Bulk purchase annuities

In 2018 we successfully entered into the bulk purchase annuity market completing three transactions during the year. The bulk purchase annuity market is a potential source of value accretive annuity liabilities and we will continue to participate in this market in a proportionate and selective manner.

UK Open

Phoenix is committed to growing its capital-light UK Open business.

Our UK Open business comprises products that are actively marketed to customers and has £85 billion of assets under administration.

£85bn

UK OPEN*

*Based on assets under administration at 31 December 2018

In Force

Open business mainly relates to those products being sold under the Standard Life brand but also includes those aimed at the over 50's market distributed by SunLife.

Assets under administration in our open business are held in three product lines: Workplace, Retail pensions and Wrap. These are predominantly unitised products which have no guarantees and where investment risk sits with the customer. Our Open business therefore comprises capital-light products.

The Group's strategy for our Open business is shared with our Heritage book as we aim to deliver value to shareholders and customers alike. Our Strategic Partnership is important in supporting that strategy.

New business

Our Open business is growing through new business generated through the Client Service and Proposition Agreement with Standard Life Aberdeen and through an increase in pensions auto-enrolment.

Under this agreement, Standard Life Aberdeen is responsible for the distribution, branding and marketing of products. They do this through their existing networks of Retail and Independent Advisors and for some products using their successful investment platform. The exception to this are Workplace pensions products where distribution is performed by the Phoenix Group.

Responsibility for the Wrap Platform, which hosts some of our investment products such as Wrap SIPP and offshore bond also sits with Standard Life Aberdeen.

Where a customer needs or wants advice it can be delivered by Standard Life Aberdeen's in house advice arm.

Phoenix are responsible for providing the insurance product and the administration once the product is sold - this plays very much to our strengths given our existing expertise in product administration for our existing c. 5.5 million Phoenix Life customers. The relationship is built to work seamlessly for customers with the full proposition from distribution through to administration being done under the Standard Life brand.

Under the agreement, Phoenix collects product charges from customers and remits investment management fees to Standard Life Aberdeen. Where relevant, Standard Life Aberdeen may also collect a platform charges directly from the customer.

The SunLife business also generates new business across it's range of over 50's products.

EUROPE

Our European business provides a platform for potential future consolidation.

It contains both open and heritage products split across Germany and Ireland and has £23 billion of assets under administration.

£23bn

EUROPE*

*Based on assets under administration at 31 December 2018

In Force

Germany

Germany closed its with-profits business to new business in 2015 and now distributes only unit linked life assurance products which have no material guarantees. These products target the over 50's market and utilise the broker distribution channels through operations in Frankfurt and Graz, Austria.

International bond

This business is all open business managed from our Dublin office targeting customers in the UK. The international bonds are unit linked products distributed by retail advisers, banks and wealth managers.

Ireland

A unit linked investment proposition for both the pre and post retirement market, the Irish business is also capital-light in nature and is distributed through adviser channels.

New business

New business is written across all open product lines of our European business.

The international bond is sold by Standard Life Aberdeen through the retail market and the investment platform. All other open products are sold by the European units themselves.

THE MARKETPLACE

The UK Life and Pensions market remains competitive and a strong brand is the key to success in winning market share. THE PHOENIX BRAND IS DOMINANT IN the CONSOLIDATION OF THE LIFE AND PENSIONS INDUSTRY AND IS TAKING A FOOTHOLD IN THE BULK PURCHASE ANNUITY MARKET. Phoenix's open business is delivered under the brands of Standard Life and sunlife.

Phoenix has been a brand in the insurance industry since 1782. From its beginnings, more than 200 years ago, Phoenix has grown to become the largest life and pensions consolidator in Europe.

Closed life funds market

Phoenix estimates the size of the closed life funds market to be approximately £380 billion in the UK, increasing to £540 billion including Germany and Ireland.

Changes in customer behaviour, market dynamics and the regulatory environment resulted in insurers closing their old style capital-heavy insurance product lines to new business, replacing them with capital-light investment style products.

Opportunities and outlook

The Group expects to see continued consolidation in the closed life funds market in the future. This will be driven by the significant capital held within closed funds that owners may wish to redeploy, more intrusive regulation leading to pressure on owners and fixed cost pressures as closed funds decline in size over time.

Phoenix continues to seek opportunities to acquire and manage closed life funds. The Group's scale allows the generation of capital efficiencies through the diversification of risks and the wide range of product types that Phoenix currently manages provides a scalable platform for integrating further closed funds. In addition, Phoenix benefits from a variable cost model given the Group's outsourcing model and an approved Solvency II Internal Model which provides greater clarity over capital requirements.

Bulk purchase annuities market

Many Defined Benefit pension schemes are now closed to new members but have liabilities that will continue for many decades into the future. The BPA market offers employers the ability to mitigate the risk of their Defined Benefit pension liabilities whilst allowing the pension scheme trustees the ability to secure and protect their members' benefits.

The size of the BPA market is significant, with in excess of £20 billion of transactions completed in 2018 and a similar volume of transactions expected in 2019.

Opportunities and outlook

Having successfully completed three bulk purchase annuity transactions in 2018, Phoenix has the acquisition experience and proven skills set to compete in this market and is targeting winning BPA liabilities of £0.5 - 1.0 billion per annum.

Standard life

Phoenix will continue to write new business under the Standard Life Brand through the Strategic Partnership with Standard Life Aberdeen. Phoenix is committed to the development of the Standard Life proposition which holds a strong position across the following markets:

Workplace pensions

The introduction of auto-enrolment, which obliges employers to provide and contribute to a workplace scheme for all eligible members, has resulted in strong growth in the workplace pensions market with more than 9.5 million people automatically enrolled through the scheme since 2012. (Source ONS)

Recent trends have included scheme reviews and employers shifting from unbundled to bundled arrangements.

Opportunities and outlook

Continued growth is expected in the workplace pensions market. 280,000 policies joined existing employer schemes in 2018 and the increase in mandatory contribution rates from 5% to 8% from April 2019 will contribute to the growth of this business in the future.

Standard Life has built a strong proposition to compete in this market with 15,000 active schemes serving 1.9 million customers and harnessing the benefit of strong relationships with large employer benefit consultants and employers.

Retail pensions

The retail pensions book is in part built up by the Strategic Partnership with Standard Life Aberdeen selling retail pensions products via independent advisers and has 750,000 customers with 14,000 new drawdown customers in 2018.

Opportunities and outlook

The retail pensions products offering has a strong digital and service offering which is critically important in this marketplace.

By offering a solution for both accumulation and decumulation, customers can keep their assets in the decumulation phase of their life and consolidate pension pots with other providers into one vehicle.

This flexibility enables us to keep our customers in the longer term and retain assets under administration with the Group evidenced by the steady flow of customers moving from our workplace schemes to retail pensions when they change employer.

We support the introduction of the Pensions Dashboard and are engaging with the Department of Workplace Pensions with the rest of the industry. We believe our business will benefit from customers greater visibility of their retirement savings and increased engagement.

Wrap

The Wrap platform is owned and operated by Standard Life Aberdeen offering a range of Standard Life branded products provided by Phoenix to circa 100,000 customers. The Wrap platform offers a high level of functionality which differentiates it from other platforms and the strong and integrated relationship with advisers gives it a market-leading position.

Opportunities and outlook

Whilst the platform market is very crowded and highly competitive, the Wrap platform remains number one in the market based on both advised gross and net volumes and is well placed to grow in the future.

Europe

Our European businesses in Germany and Ireland sell unit linked investment style business and the International bond is sold by Standard Life Aberdeen through the retail market and investment platform.

Our European business is specifically targeted to the more affluent population via broker distribution channels.

Opportunities and outlook

The strong Standard Life brand recognition and a financially strong parent support new business growth.

Sunlife

Over 50s market

SunLife specialises in the distribution of insurance products to the over 50s. Phoenix underwrites and administers the life and pensions products within their range including life cover, equity release and funeral plans.

Opportunities and outlook

The SunLife brand holds a dominant position in the over 50s market with a 57.8% market share of all whole of life guaranteed acceptance plans bought directly. (Source: ABI statistics issued in November 2018 for 12 month period to 30 September 2018 based on new Phoenix Life policy sales trading as SunLife).

We will continue to invest in the SunLife brand and its service offering which was awarded the 2018 Feefo Gold Trusted Service Provider for the third year running.

UK MARKET OPPORTUNITIES BY OWNER

UK MARKET

OPPORTUNITIES BY PRODUCT TYPE

BUSINESS MODEL

HOW WE CREATE VALUE

OUR STRATEGIC PRIORITIES HELP ENHANCE THE VALUE WE CREATE THROUGH OUR BUSINESS MODEL.

01

IMPROVE CUSTOMER OUTCOMES

Improving customer outcomes is central to our vision of being Europe's Leading Life Consolidator, and to inspire confidence in the future.

Read more on P18

02

DRIVE VALUE

In order to drive value, the Group looks to identify and undertake management actions, which increase and accelerate cash flow.

Read more on P22

03

MANAGE CAPITAL

We continue to focus on the effective management of our risks and the efficient allocation of capital against those risks.

Read more on P24

04

ENGAGE PEOPLE

Our people are at the heart of our business and key to the successful growth of Phoenix Group.

Read more on P26

WE ARE SET APART BY OUR STRENGTHS WHICH UNDERPIN OUR BUSINESS MODEL

SCALE OF OUR PLATFORM

Largest Life and Pensions Consolidator in Europe

SECURITY

Strong balance sheet which generates long term cash flows and provides security for all stakeholders

SPECIALIST OPERATING MODEL

Specialist operating model enabling us to efficiently manage and integrate heritage books

Read more on P8

SERVICE

Quality service to our customers and their intermediaries is critical to our strategy

Read more from P18 to P21

Skills

Talented and experienced team. We will continue to invest in this expertise

Read more on P26

SIGNIFICANT GROWTH

A wealth of acquisitions opportunities across the UK and Europe and organic growth through new business is available to us

Read more on P12

OUR CASH GENERATION HELPS US REALISE OPPORTUNITIES FOR GROWTH

IN-FORCE BOOK CASH EMERGENCE

Capital requirements of operating life companies decline as policies mature, releasing capital in the form of cash

MANAGEMENT ACTIONS

Management track record of delivering incremental value

New BUSINESS

Capital-light new business under the Strategic Partnership with Standard Life Aberdeen

Vesting annuities

Mergers and acquisitions

Value accretive acquisitions generate increased cash flows and synergy opportunities through scale advantages

BULK PURCHASE ANNUITY TRANSACTIONS

The bulk purchase annuity market offers a complementary source of assets and growth

Resulting outcomes delivered are positive for all stakeholders

CUSTOMERS

Optimised customer outcomes

Read more on P48

93%

CUSTOMER SATISFACTION

REM

SHAREHOLDERS

Shareholder value created and stable and sustainable dividends delivered

Read more on P58

£664m

CASH GENERATION

APM

3.5%

INCREASE IN 2018 FINAL DIVIDEND

Colleagues

Challenged, motivated and rewarded colleagues

Read more on P51

COMMUNITY & ENVIRONMENT

Support for local communities and charity partners and reduced environmental impact

Read more on P54

£770k

DONATED TO MIDLANDS AND LONDON AIR AMBULANCE CHARITY PARTNERS

Read more about our cash generation on P16

OUR CASH GENERATION PROCESS

Any assets which the life companies hold in excess of overall capital buffers required is known as Free Surplus

Opening free surplus

Surplus generated in life companies

Reduction in capital requirements

Management actions

Cash remitted to holding companies

Closing free surplus

Opening cash at holding company level

Cash remitted from the life companies

Head office costs

Pensions

Debt interest and repayments

Dividends

Remaining cash at holding company level

Cash at the holding company level provides resources and resilience for the Group

Opening Free Surplus

What is the opening free surplus?

Life Company Own Funds

Life companies hold capital in accordance with Solvency II regulations, providing appropriate security for policyholders. This capital is known as Solvency II Own Funds.

Less Solvency Capital Requirement

The level of regulatory capital required is known as the Solvency Capital Requirement.

Less Capital Policy

The life companies hold additional internal capital buffers above the regulatory capital requirement for prudence.

sources of life company cash generation

How is Free Surplus generated?

Margins earned

Life companies earn margins on different types of life and pensions products increasing Own Funds.

Reduced capital requirements

As our heritage business runs off, the Solvency Capital Requirements reduce.

Management actions

These can either increase Own Funds or reduce capital requirements.

IMPACT OF NEW BUSINESS?

Capital light open business

New business written across our open product range is capital light.

uses of holding company cash generation

What is the cash remitted from the life companies used for?

Head office costs

Including salaries and other administration costs.

Pensions contributions

To Group's employee Defined Benefit schemes.

Debt interest and repayments

On outstanding Group shareholder debt.

Dividends

The Group maintains a stable and sustainable dividend.

Uses of remaining cash - GROWTH OPPORTUNITIES

What is the remaining cash used for?

Mergers and acquisitions

Transactions must be value accretive and cash flow generative and need to support the dividend level.

Bulk purchase annuity transactions

Generate increased cash flows over the longer term and are value accretive.

OUR STRATEGY AND KPIs

WE HAVE FOUR AREAS OF STRATEGIC FOCUS. OUR INITIATIVES AND KEY PERFORMANCE INDICATORS DEMONSTRATE HOW WE HAVE DELIVERED AGAINST THESE STRATEGIC AREAS.

01

Improve customer outcomes Phoenix Life

Improving customer outcomes is central to our vision of being Europe's Leading Life Consolidator.

We have seven key areas of focus related to our customer offering:

· Product Offering - Offering products based on customer needs using best solutions and value for money, from in-house or through external sourcing.

· Financial Security - Providing security to our customers including continuing to honour all policy guarantees.

· Improving Value and Effective With Profit fund run-off - Delivering improved value to customers and effectively managing With-Profit fund run-off.

· Effective Service Delivery - Delivering a fair, effective and value for money service to customers in a cost effective manner and having appropriate processes for identifying potential customer detriment.

· Clear and Effective Communications - Providing customers with clear, accurate and unbiased information and access to advice and guidance to support them in making informed choices.

· Product Outcomes - Ensuring that Phoenix product terms continue to deliver appropriate outcomes for customers and Phoenix.

· Customer Journey - Delivery of fair outcomes, appropriate quality and improvements in the customer journey

KEY INITIATIVES AND PROGRESS IN 2018 - PHOENIX LIFE

· Customers can now digitally access an annuity shopping around service which can shape and save their annuity quotes and options and provide marketplace comparisons. A full Customer Dashboard has been delivered and allows some customers to access their full policy details, view online documents and self-serve.

· In August we announced a cap on ongoing charges of our non-workplace pension contracts at 1.5% for funds in excess of £5,000 and at 3% for smaller pension pots. All exit charges will be removed on pension pots of less than £5,000. This ensures that our pension contracts offer good value for money and there is no perceived barrier to exit for customers with small pension pots wishing to consolidate their savings.

· We have refined the requirements under our death claims payment process for benefits valued at £10,000 or less, ensuring a more simplified customer journey.

· Our service offering has been aligned across Phoenix Wealth and Abbey Life, ensuring that all customers receive the same fair service.

· Good progress has been made to improve our key point and regular communications, ensuring letters are engaging, clear and provide all required information for customer.

· Our performance on complaint handling, as measured by the independent complaints adjudicator, the Financial Ombudsman Service ('FOS'), once again shows our commitment and focus on our complaint handling. For FOS decisions during this reporting period, the overturn rate of 17% is significantly below the industry average rate of 30%.1

· A positive customer satisfaction score based on the results of the satisfaction survey managed by Ipsos MORI (an external research firm) has been received. Customers surveyed were asked to give a satisfaction rating of between 1 and 5 to a number of questions asked (with a rating of 4 or 5 regarded as satisfied) and 93% of all questions scored a rating of 4 or above.

Read more about customer engagement activities undertaken during the year on P48

Note:

1 The most recent published industry average overturn rate across the industry in the Life and Pensions and Decumulation' category, in which the majority of our business sits was 22%.

 PRIORITIES FOR 2019

· Progress work on our Digital Operating Model for Customer Services, which will give full digital self-serve capability and increase the ability of customers to interact with us digitally. This will deliver straight through customer journeys for Pension Transfers, Policy Enquiries, Life Surrenders (Quotes and Payments) and Maturities and further strengthens our commitment to a continued positive customer experience. We will also be extending our digital operating model to IFAs allowing them to engage and interact through our on-line channels.

· Complete the implementation of our charge reductions on non-workplace pensions contracts.

HOW WE MEASURE DELIVERY - PHOENIX LIFE

CUSTOMER SATISFACTION SCORE1(%)

Why is it important?

This is an externally calculated measure of how satisfied customers are with Phoenix's servicing proposition.

Analysis

The Group achieved a satisfaction score of 93% reflecting our commitment to ensuring customers are satisfied with our products and services.

Target

To maintain a customer satisfaction score of 90%%.

FINANCIAL OMBUDSMAN SERVICE ('FOS') OVERTURN RATE(%)

Why is it important?

This is an independent view of how firms are handling complaints. It provides us with an opportunity to review and adjust our complaint handling proposition in line with best industry practice.

Analysis

The FOS overturn rate of 17% is significantly below the industry average of 34% and the 'Decumulation, Life and Pensions' category average of 27%.

Target

To maintain a FOS overturn target of less than the industry average of 30%.

SPEED OF PENSION TRANSFER PAYOUTS - ORIGO (DAYS)2

Why is it important?

This is a recognised industry measure for the speed of processing Pension Transfers, Open Market Options and Immediate Vesting Personal Pensions. It allows us to benchmark performance and our overall servicing and claims proposition against our peers.

Analysis

The Group's pension transfer times are better than the industry target.

Target

12 days in line with the industry stated target for Origo Pension Transfers.

93%

2017: 92%

REM

17.0%

2017: 17.0%

REM

11.00 days

2017: 11.03 days

REM

Notes:

1 The customer satisfaction score relates to Phoenix only.

2 Origo Timescales are Phoenix, Phoenix Wealth and Abbey - the overall timescale has been applied based on the way that timescales are calculated for each individual entity. These will be aligned from 2018.

01

IMPROVE CUSTOMER OUTCOMES STANDARD LIFE

KEY INITIATIVES AND PROGRESS IN 2018 - STANDARD LIFE

· Significant changes have been made to our online, app and telephony services in 2018 including extending our opening hours, implementing a new voice recognition system and extending our secure messaging facility which enables contact with us out of hours. We have implemented a new online registration process, making it easier to get registered, fingerprint, pin and facial recognition access to our mobile app and improvements to the investment switching journey online for trust schemes.

· Since Auto enrolment we have supported 11,000 schemes into a qualifying workplace pension scheme with 1.7 million new joiners auto enrolled into them by employers. We are continuing to enhance the administration experience we offer via our Workplace Hub platform.

· In 2018, we had 14,000 policies moving into drawdown with the majority using our digital platform, followed by our Telephony Guidance service. Of all cases processed via our retirement application we anticipate that we were able to process 60% 'straight-through'.

· Furthermore, with more than 3 million logins last year, our 24/7 mobile app is now the easiest way for our customers to interact with us when they want, time and time again.

· For customers in our non-advised Active Money Personal Pension drawdown plan, we have developed an online retirement review to help them assess if they are still on track and in the right investment based on their objectives. The timing of our pre-retirement communications has also been changed as feedback has shown that people start to think about major decisions in the run-up to milestone birthdays. Our communications now trigger at ages 49, 54, 59 and 64.

· Face-to-face retirement roadshows were run throughout 2018 to help our customers plan for their retirement. This year we have hosted 44 events in 19 locations, attended by around 2,000 customers and their guests. Following the success of the nationwide retirement roadshows we have introduced a digital option for retirement webinars.

· Our vulnerable customer policy and programme remains a key focus. An extensive training programme has taken place over 2018. This has been done through face-to-face training and via E-learning modules and 100% of our colleagues who have contact with customers have completed their training by the end of 2018. This training programme won 'Excellence in skills in Learning and Development' at the 2018 Contact Centre Association ('CCA') Awards.

· We continue to look for ways to improve the administration experience we offer financial advisers. In 2018 we enhanced our digital platform Adviser zone by delivering online portfolio analyser capabilities for an enhanced client experience and continued to provide live, online client valuations and contract enquiries through 15 of the top back office providers.

PRIORITIES FOR 2019

· Focus on improving the propositions we offer, the servicing and administration capabilities available and the overall experience we deliver to our clients, members and customers.

· Enhancing the proposition available for our workplace clients, listening and acting on the feedback they have given us on what is important to them. We will also be re-designing our Voice of Customer programme, to capture feedback more efficiently and demonstrate how we act on it.

· Helping workplace clients through auto enrolment phasing increases that take effect in April 2019.

· Investing in digital capability for financial advisers, as well as introducing save and replay functionality on our digital retirement journey. We will also be looking to make improvements to the investment switching journey online, for a majority of schemes.

HOW WE MEASURE DELIVERY - STANDARD LIFE Assurance

NET EASY CUSTOMER EFFORT SCORE (%)

72%

Why is it important?

This is an independent view of how firms are handling complaints. It provides us with an opportunity to review and adjust our complaint handling proposition in line with best industry practice.

Analysis

The FOS overturn rate of 17% is significantly below the industry average of 34% and the 'Decumulation, Life and Pensions' category average of 27%.

FINANCIAL OMBUDSMAN SERVICE ('FOS') OVERTURN RATE (%)

17%

Why is it important?

This is an independent view of how firms are handling complaints. It provides us with an opportunity to review and adjust our complaint handling proposition in line with best industry practice.

Analysis

The FOS overturn rate of 17% is significantly below the industry average of 34% and the 'Decumulation, Life and Pensions' category average of 27%.

SPEED OF PENSION TRANSFER PAYOUTS - ORIGO (DAYS)1

11 days

Why is it important?

This is a recognised industry measure for the speed of processing Pension Transfers, Open Market Options and Immediate Vesting Personal Pensions. It allows us to benchmark performance and our overall servicing and claims proposition against our peers.

Analysis

The pension transfer times are better than the industry target of 12 days.

Note:

1 The acquisition of the Standard Life businesses completed on 31 August 2018 but this measure has been calculated for the full year 2018

02

DRIVE VALUE

In order to drive value, the Group looks to identify organic and inorganic growth opportunities and deliver management actions which increase and accelerate cash flows.

The closed life funds within our Heritage business provide predictable fund maturity and liability profiles, creating stable long-term cash flows for distribution to shareholders and repayment of outstanding debt.

Our Open business provides the opportunity to grow organically through the matching of products to new and existing customers as part of our Strategic Partnership with Standard Life Aberdeen and under the Group's SunLife brand. Such growth brings additional scale to our business and dampens the run-off of our Heritage books.

Additional value can be generated from acquisitions of life and pension books of business and further investment in the bulk purchase annuity market.

Furthermore, there are significant opportunities to increase and accelerate cash flows through the delivery of management actions across four key areas: operational management, risk management, restructuring and effective partnerships.

KEY INITIATIVES AND PROGRESS IN 2018

· The Group delivered £664 million in cash generation in the year. With total cash generation in 2017 and 2018 of £1.3 billion, the Group exceeded the upper end of its £1.0 billion to £1.2 billion target range. 

· The acquisition of Standard Life Assurance and Strategic Partnership with Standard Life Aberdeen completed in August adding significant scale and supporting future cash generation. The Group expects to deliver cost synergies of £75 million per annum, to be delivered from a combined cost base of £600 million.

· The Open and European businesses delivered new business contribution of £154 million (net of tax on a pro forma basis assuming the acquisition of Standard Life Assurance took place on 1 January 2018). This measure provides a proxy for the expected future cash generation arising from the new business written in the year.

· £409 million of management actions were delivered in the year that increased Solvency II Own Funds. This includes anticipated cost savings arising from the planned move to a single, digitally enhanced outsourcer platform, together with the impact of strategic asset allocation actions such as investment in illiquid assets which offer improved matching adjustment benefits in the annuity portfolios. A total of £1.4 billion was invested in illiquid assets during the year, including equity release mortgage portfolios, commercial real estate and private placements. 

· The integration of the AXA Wealth and Abbey Life businesses completed ahead of plan delivering cost synergy benefits of £27 million per annum and cumulative cash generation of £986 million.

· The Group successfully entered the bulk purchase annuity market with three transactions completed in 2018 and total contracted liabilities of £800 million. The Group has invested c. £100 million of capital to facilitate these transactions, reflecting the day 1 capital strain arising from the assets received. The bulk purchase annuity investments increase the Group's expected longer term cash generation by c. £300 million, to be delivered over the lifetime of the policies.

PRIORITIES FOR 2019

· Deliver Phase 1 of the Standard Life acquisition transition programme and finalise the end state operating model for the HR, Legal and Risk functions.

· Commence Phase 2 and 3 of the Standard Life acquisition transition programme related to the operating model for the Finance and Actuarial, Customer and IT functions.

· Implement further management actions including progressing activity to begin applying the Group's strategic asset allocation to the Standard Life Assurance annuity book.

· Seek further investment opportunities in the bulk purchase annuity market.

· Seek further acquisition opportunities.

HOW WE MEASURE DELIVERY

OPERATING COMPANIES' CASH GENERATION(£m)

Why it is important?

Operating companies cash generation represents cash remitted by the Group's operating companies to the holding companies. Maintaining strong cash flow delivery underpins debt servicing and repayment as well as shareholder dividends.

Analysis

Cash remitted reflects the generation of Free Surplus within the life companies and the benefit of management actions implemented in the period. Cash generation in 2018 was £664 million.

Target

To generate cash flows of between £600 to £700 million in 2019 and £3.8 billion of cash between 2019 and 2023.

OPERATING PROFIT(£m)

Why it is important?

Operating profit is a non-GAAP measure used by management and 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.

A reconciliation of operating profit of £708 million to the IFRS profit after tax of £410 million (2017: £(27) million) is included in the Business Review section.

Analysis

Operating profit has increased by £340 million compared to prior year, principally reflecting the impact of including the four month contribution of Standard Life Assurance post completion of the acquisition together with the net positive impact of updates to actuarial assumptions.

FINAL DIVIDEND PER SHARE(PENCE)1

Why it is important?

The Group's dividend per share helps measure how the Group delivers value to shareholders in accordance with its stable and sustainable dividend policy.

Analysis

The final dividend per share of 23.4p is a 3.5% increase on the 2017 final dividend.

1  Historic dividends per share rebased to take into account the bonus element of the rights issue completed in November 2016 and the rights issue completed in July 2018.

£664m

2017: £653m

APM

REM

Read more about cash generation on P29 Read more about the link to our executive remuneration on P76

£708m

2017: £368m

APM

Read more about operating profit on P35

23.4p

FINAL DIVIDEND PER SHARE

03

MANAGE CAPITAL

We continue to focus on the effective management of our risks and the efficient allocation of capital against those risks.

The Group aims to optimise its capital structure while addressing the diverse needs of various stakeholders, including policyholders, shareholders, lending banks, bondholders and regulators.

To ensure that unrewarded exposure to market volatility is minimised or the risks from market movements are managed, we execute our hedging strategy.

In addition, regular re-balancing of asset and liability positions is required to ensure that only those assets which deliver appropriate risk-adjusted returns are held within life funds, taking into account any policyholder guarantees.

KEY INITIATIVES AND PROGRESS IN 2018

· Receipt of regulatory approval to incorporate the Abbey Life business into the Group's Internal Model in March and the subsequent Part VII transfer of that business into Phoenix Life Limited in December.

· The Group delivered £161 million of management actions that decreased SCR in the year, including the impacts of the Abbey Life actions detailed above and other activities such as interest rate hedging.

· Capital synergies associated with the acquisition of the Standard Life Assurance businesses benefited the PGH Solvency II surplus by £0.5 billion primarily as a result of implementing Phoenix's equity and currency hedging strategy.

· Issuance of the capital qualifying £500 million Tier 1 Notes in April and the €500 million Tier 2 bond in September 2018 facilitated the funding strategy for the acquisition of the Standard Life Assurance businesses and provided additional financial flexibility to the Group.

· In September, following completion of the acquisition, Fitch assigned Standard Life Assurance Limited an Insurer Financial Strength rating of A+ with a 'stable' outlook. It also affirmed its A+ rating for the other principal insurance subsidiaries of the Group with 'stable' outlooks.

· The on-shoring of the Group completed at the end of the year. PGH became UK resident for tax purposes in January 2018 and a new UK - registered holding company, Phoenix Group Holdings plc, was put in place for the Group in December 2018.

Read more about the Solvency II surplus and Shareholder Capital Coverage Ratio on P32

PRIORITIES FOR 2019

· Implement further management actions to enhance the Group's capital position.

· Progress activity to begin harmonisation of the Group's capital framework towards a single Group Internal Model.

HOW WE MEASURE DELIVERY

SOLVENCY II SURPLUS(£bn)

Why it is important?

The Solvency II surplus is the regulatory assessment of capital adequacy at PGH plc level.

It is the excess of Eligible Own Funds over the Solvency Capital Requirement.

Analysis

The Group's Solvency II surplus of £3.2 billion has increased from a pro forma position of £2.5 billion2 driven by capital synergies from the acquisition of the Standard Life Assurance businesses together with management actions and the issuance of additional subordinated debt compared to that assumed in the pro forma. The increase was partly offset by financing costs and dividend payments, including accrual of the 2018 final dividend.

SHAREHOLDER CAPITALCOVERAGE RATIO (%)

Why it is important?

The Shareholder Capital Coverage Ratio demonstrates the extent to which shareholders' Eligible Own Funds cover the Solvency Capital Requirements.

It is defined as the ratio of the Group Own Funds to Group SCR, after adjusting to exclude amounts relating to unsupported with - profit funds and PGL Pension Scheme.

Analysis

A coverage ratio of 167% reflects the increase in the Solvency II surplus in the period and represents a resilient capital position.

1 The position at 31 December 2016 included pro forma adjustments to illustrate the impacts of the issuance in January 2017 of the £300 million Solvency II qualifying Tier 3 bond and the receipt of the PRA's approval in March 2017 to include the acquired AXA Wealth businesses within the Group's Internal Model.

2 Pro forma assuming the acquisition of the Standard Life Assurance businesses took place on 31 December 2017.

£3.2bn

2017: £2.5bn(PRO FORMA ENLARGED GROUP)2

167%

2017: 147%(PROFORMA ENLARGED GROUP)2 APM

04

ENGAGE PEOPLE

Our focus on engagement and colleague empowerment creates a rich and diverse working environment, reflected in our continued status as one of the UK's Top Employers.

Phoenix Group's ability to attract, retain and motivate outstanding talent was, for the eighth year in succession, formally recognised in 2018 through our accreditation as one of the UK's Top Employers. We are proud to be recognised as a responsible, sustainable and inclusive employer, who values and rewards the contribution our colleagues make to our business.

KEY INITIATIVES AND PROGRESS IN 2018

Learning and Development

· In partnership with Moving Ahead, we launched the Phoenix Group internal mentoring programme. We are fully committed to providing effective support for our colleagues personal and professional development and have 100 pairs currently working together across the Group.

· A new online performance management system was launched increasing the efficiency of the performance management process at Phoenix.

Our Values

· The Big Conversation was a significant listening exercise that was undertaken within Phoenix Group and Phoenix Life at the start of the year to raise the level of dialogue around the Group's values, and provided greater clarity around associated behaviours. The outcomes were shared with colleagues, and provided a clear framework for how individuals are recognised, developed and recruited.

Cultural Survey

· In the absence of an all-staff employee engagement survey, Phoenix issued a cultural survey to colleagues across the Group in November. This insight will help the Group shape its values and understand more about what is required to create a high-performing organisation following our acquisition of the Standard Life Assurance businesses.

Volunteering and Charity

· 58% of colleagues participated in the 2018 volunteering programme contributing 3,547 hours.

· Now into its fifth year of the six-year partnership with Midlands Air Ambulance Charity and London's Air Ambulance, the Group has donated in excess of £770,000 between the two charities since 2014.

Wellbeing

· Corporate responsibility continues to play a central role in the colleague experience at Phoenix. The three strands of physical, mental and financial wellbeing continue to underpin our colleague and community initiatives, which now extend to the Standard Life Assurance businesses.

· We continued to utilise our Corporate Responsibility agenda to provide opportunities for skills development and team building.

Diversity and Inclusion

· The Group remains committed towards creating an inclusive and attractive environment for all potential employees.

· The Group values the power of its employee voice and through the acquisition of Standard Life Assurance now has further networks in operation across the Enlarged Group. Alongside the combination of the Phoenix and Standard Life Assurance networks, we continue to adopt a 'best of both' approach to fusing colleague groups across the enlarged organisation.

· Phoenix is a signatory to the Women in Finance ('WIF') Charter and continues to strive for an inclusive culture which enables all of our colleagues to reach their full potential.

· In line with the WIF Charter Targets previously set, which were due for completion by the end of 2018, the group currently has women in 20% of the top 100 roles (target 30%), 26% of the Group's green/amber successors are female (target 40%) and the Group-wide mean gender pay gap is 23.3% (target 22%). Targets set for completion in 2018 were impacted by changes in senior management through acquisitions, structural changes, resignation and retirement; and these are now carried forward to 2021.

· Phoenix statutory pay figures are published on the Group's website. The gender pay figure for the WIF Charter target is based on an internal calculation looking at base salary only; it is not based on the statutory gender pay gap calculations.

· Gender Pay statistics are calculated based on data gathered on 'Full Pay Relevant Employees' in the payroll period covering 5 April 2018. Of the employing entities within the Group, only Pearl Group Management Services Limited ('PGMS') has the required 250+ employees and so it is PGMS employees who are included in the regulatory reporting for 2018.

Reward

· The Group continues to attract and retain talented staff by offering a comprehensive range of benefits and development opportunities.

· Participation figures for the Phoenix Group flexible benefits scheme have increased to 95%.

· In 2018, private medical insurance was made available to all staff and their partner's regardless of status within the organisation.

Gender Pay and Bonus Gap (PGMS only)

PRIORITIES FOR 2019

· Remain an Employer of Choice, offering rewarding careers and opportunities across all sites within Phoenix.

· Provide a common incentive plan for all colleagues within the Enlarged Group, ensuring consistency of corporate goals and individual performance management.

· Enter into two further Corporate Charity Partnerships (Scotland's Charity Air Ambulance and Hampshire and Isle of Wight Air Ambulance), helping to unite the Enlarged Group by sharing common corporate charities.

· Expand the Diversity and Inclusion programme across the Enlarged Group, providing a wide range of development opportunities and embedding changes to existing practices to deliver a diverse, engaged and inclusive workforce.

· Engage colleagues in the creation of a combined set of values for the Group, building on previous work conducted at Standard Life Assurance and Phoenix.

· Creating one single platform for Talent Acquisition for the combined Group.

· Maintain support of our communities across the Enlarged Group through employee volunteering, fund raising and engagement.

HOW WE MEASURE DELIVERY

EMPLOYEE ENGAGEMENT INDEX (%)

Due to the Standard Life acquisition, no engagement survey was commissioned by the Group in 2018. There is an anticipated change to our engagement survey provider for 2019, to enable one engagement provision across the combined Group.

Why it is important?

We aim to ensure that employees understand the purpose of their role and feel that their contribution is valued. We need to understand how well we are performing against these aims.

2019 Target

To maintain an employee engagement index above 70%.

Notes:

1 The 2018 figure of 4,088 does not include workforce based in Germany/Austria.

2 The 2018 figure of 141 does not include workforce from the acquired Standard Life Assurance businesses or SunLife. Data relates to Phoenix Corporate and Phoenix Life companies only.

Read more about employee engagement activities undertaken during the year on P51

BUSINESS REVIEW

"2018 was another year of excellent progress WITH THE GROUP achieving ALL OF ITS FINANCIAL TARGETS SET FOR THE YEAR."

JAMES MCCONVILLE

GROUP FINANCE DIRECTOR and Group Director, Scotland

Cash generation in excess of target, enhanced scale and a resilient capital position

I am delighted to report that Phoenix has delivered a year of strong performance, achieving its financial targets and completing the transformational acquisition of the Standard Life Assurance businesses.

Cash generation remains our key reporting metric. The integration of the AXA Wealth and Abbey Life businesses were completed ahead of plan and this has supported the Group's cash generation of £664 million in the year. With total cash generation in 2017 and 2018 of £1.3 billion, the Group has exceeded the upper end of its £1.0 - £1.2 billion target range for that period.

The Group's Solvency II capital surplus position of £3.2 billion (2017: £2.5 billion pro forma1) has been positively impacted by the delivery of capital synergies following the acquisition of the Standard Life Assurance businesses, together with management actions delivered in the year and the issuance of capital qualifying subordinated debt. Implementation of the Group's hedging programme to the acquired business has ensured the surplus remains resilient to equity movements.

Our strong financial position has been recognised by Fitch Ratings who assigned Standard Life Assurance Limited an Insurer Financial Strength rating of A+ with a 'stable' outlook in September and reaffirmed its A+ rating for the other insurance subsidiaries of the Group.

The Group generated an IFRS profit after tax of £410 million for the year (2017: £27 million loss), reflecting the contribution of the Standard Life Assurance businesses for the four month period post completion of the acquisition and the positive impact of updates made to actuarial assumptions in the period, notably the continued slowdown of mortality improvements. As expected, the IFRS results continue to be impacted by investment variances arising from the Group's hedging programme, which is calibrated to protect the Group's Solvency II surplus. Declining equity markets in the second half of 2018 generated gains on these hedging instruments that have benefited the Group's IFRS results this year.

Following the acquisition of the Standard Life Assurance businesses, the Group now monitors additional performance metrics to reflect the Group's Open business capabilities. Assets under Administration ('AUA') provides a measure of the Group's future earnings capabilities and its success in attracting inflows from new business. AUA as at 31 December 2018 was £226 billion (2017: £240 billion pro forma1), with the reduction reflecting adverse equity movements in the year, together with net outflows on the Group's UK Heritage business. Net flows on the UK Open and European businesses were positive at £3.9 billion.

New business contribution reflects the increase in Solvency II shareholder Own Funds as a result of new business written by the Group's UK Open and European businesses. The measure excludes any risk margin and restrictions recognised under Solvency II for contract boundaries and is considered a prudent proxy for future cash generation from new business written. Assuming the acquisition of the Standard Life Assurance businesses took place on 31 December 2017, the Group delivered a new business contribution of £154 million (net of tax).

Phoenix has set two new cash targets; a long-term cash generation target of £3.8 billion for the 5-year period 2019 to 2023 and a short term target of £600 to £700 million for 2019. The Group looks forward to the future from a position of financial strength.

Note: Presentation of financial information

Following the acquisition of the Standard Life Assurance businesses, the Group now has three main business segments: UK Heritage, UK Open and Europe. Within the Group's IFRS results, operating profit for each business segment is now reported.

IFRS results for the year ended 31 December 2018 include the Standard Life Assurance businesses for the four month period from 1 September post completion of the acquisition.

1 Pro forma assuming the acquisition of the Standard Life Assurance businesses took place on 31 December 2017.

ALTERNATIVE PERFORMANCE MEASURES

The Group assesses its financial performance based on a number of measures, some of which are not defined or specified in accordance with Generally Accepted Accounting Principles ('GAAP'). These metrics are known as Alternative Performance Measures ('APMs').

The Group's strategic focus prioritises the generation of sustainable cash flows from its operating companies through the margins earned on different life and pension products and the release of capital requirements. Performance metrics are monitored where they support this strategic purpose, which includes ensuring the capital strength of the Group is maintained.

As a result, GAAP measures typically used to assess financial performance, such as IFRS profit after tax, are considered by the Board to be of limited value when assessing Phoenix's performance against its strategy. IFRS results exclude any changes to the capital requirements and therefore do not fully reflect the performance of the Group.

As such, the key performance indicators for the Group mainly focus on cash generation and capital strength. Further information on the Group's APMs can be found on page 230, including definitions, why the measure is used and if applicable, how the APM can be reconciled to the nearest GAAP measure.

Cash Generation

Operating companies' cash generation represents cash remitted by the Group's operating companies to the holding companies.

Please see the (APM) section on page 230 for further details of this measure.

Maintaining strong cash flow delivery underpins debt servicing and repayments as well as shareholder dividends.

The cash flow analysis that follows reflects the cash paid by the operating companies to the Group's holding companies, as well as the uses of those cash receipts.

Cash receipts

Cash remitted by the operating companies was £664 million (2017: £653 million).

Recurring cash outflows

The operating expenses of £32 million (2017: £36 million) principally comprise corporate office costs, net of income earned on holding company cash and investment balances.

Pension scheme contributions of £49 million (2017: £92 million) are made on a monthly basis and include total contributions of £40 million into the Pearl Group Scheme and £9 million into the Abbey Life Scheme, including £4 million paid into Charged Accounts and held in escrow.

The decrease in total contributions compared to prior year reflects the lump sum payment of £25 million paid as part of the transfer of the Abbey Life Scheme to the Group in 2017 and £10 million paid into the Pearl Group Scheme in respect of the final quarter of 2016 as part of the move from annual to monthly funding. In addition, no further contributions are expected to be paid into the PGL Staff Pension Scheme under the existing funding agreement (2017: £10 million).

Debt interest of £88 million (2017: £60 million) principally comprise coupon payments on the Tier 1 Notes issued in April and the Group's subordinated and senior bond instruments. The Group's £900 million unsecured revolving credit facility and £600 million acquisition facility are undrawn as at 31 December 2018. The increase compared to the prior year reflects the debt issued in 2018 to finance the acquisition of the Standard Life Assurance businesses.

Non-recurring net cash outflows

Non-recurring net cash outflows of £216 million include £22 million of option premiums and £143 million of cash paid to close out derivative instruments entered into by the holding companies to hedge the Group's exposure to equity and currency risk arising from the Group's acquisition of the Standard Life Assurance businesses. Standard Life Assurance Limited has subsequently applied the Group's hedging strategy and the derivative instruments are now held within this entity.

Non recurring cashflows also include a favourable collateral movement of £27 million on the Group's other hedging positions relating to the Group's debt. The remainder of the balance includes £43 million of expenses associated with the acquisition of the Standard Life Assurance businesses and £35 million of net other corporate costs, including integration costs.

Debt repayments and shareholder dividend

External debt repayments of £1,053 million in 2017 include the full settlement of the £850 million revolving credit facility balance outstanding at 31 December 2016 and repayment of £178 million of the £300 million senior bonds which were redeemed at a premium of £25 million.

The shareholder dividend of £262 million represents the payment of £99 million in May for the 2017 final dividend and the payment of the 2018 interim dividend of £163 million in September. The final 2018 dividend per share proposed is 23.4p, which is a 3.5% increase on the 2017 final dividend.

Equity raise (net of fees)

The £934 million equity issuance relates to proceeds, net of fees, from the rights issue associated with the financing of the acquisition of the Standard Life Assurance businesses.

Debt issuance (net of fees)

The £932 million debt issuance comprises the net proceeds of the Tier 1 Notes of £500 million completed in April and the £445 million (€500 million) Tier 2 bond issuance in September.

Cost of acquisitions

Cost of acquisitions of £1,971 million relates to the cash consideration settlement to finance the acquisition of the Standard Life Assurance businesses.

Support of BPA activity

£101 million of funding has been provided to the life companies to support the bulk purchase annuity new business (based on the assets received on day 1).

Target cash flows

The Group has previously announced a five-year cumulative target cash flow for 2016 to 2020 of £2.8 billion, of which £1.0 billion to £1.2 billion was expected to be achieved in 2017 and 2018. With £664 million of cash generation in 2018 taking total cash generation for 2017 to 2018 to £1.3 billion, the Group has exceeded its £1.0 to £1.2 billion target range for 2017 and 2018.

A new long-term £3.8 billion cash generation target has been set by the Group for the 5-year period 2019 to 2023. The resilience of the cash generation target is demonstrated by the illustrative stress testing in the table below. In addition the Group has set a new short-term target of £600 to £700 million for 2019 which is net of expected Brexit costs of £250 million.

Expected cash flows after 2024

There is an expected £8.2 billion of cash to emerge after 2024. This assumes no management actions after 2023 and no additional value from future new business from the Group's Open business.

£664m

Operating companies' cash generationAPMREM

Notes:

1 Includes amounts received by the holding companies in respect of tax losses surrendered to the operating companies of £39 million (2017: £20 million).

All amounts in the Business Review section marked with an 'APM' are alternative performance measures. See 'Alternative Performance Measures' section on page 230 for further details of these measures.

All amounts in the Business Review section marked with an 'REM' are KPIs linked to executive remuneration. See 'Directors Remuneration Report' on page 76 for further details of executive remuneration including the financial and non-financial performance measures on which is it based.

Notes:

1 Assumes stress occurs on 1 January 2019.

2 Assumes recalculation of transitionals (subject to PRA approval).

3 Credit stress equivalent to an average 120bps spread widening across ratings, 10% of which is due to defaults/downgrades.

4 Equivalent of six months increase in longevity applied to the annuity portfolio.

5 Assumes most onerous impact of a 10% increase/decrease in lapse rates across different product groups.

ASSETS UNDER ADMINISTRATION AND NEW BUSINESS

The Group's Assets under Administration ('AUA') represent assets administered by or on behalf of the Group, covering both policyholder funds and shareholder assets. This includes assets recognised in the Group's IFRS consolidated statement of financial position together with certain assets administered by the Group but for which beneficial ownership resides with customers.

AUA provides an indication of the potential earnings capability of the Group arising from its insurance and investment business, whilst AUA flows provide a measure of the Group's ability to deliver new business growth.

A reconciliation from the Group's IFRS consolidated statement of financial position to the Group's AUA is provided on page 222.

Please see the Alternative Performance Measure ('APM') section on page 230 for further details of this measure.

Opening proforma AUA

The analysis that follows includes a Group AUA opening figure of £239.8 billion on a pro forma basis (assuming the acquisition of Standard Life Assurance completed on 31 December 2017). Movements in the year therefore include those of the acquired Standard Life Assurance businesses for the full year rather than the four month period post completion.

The decrease in Group AUA in the year from £239.8 billion to £226.3 billion was driven by adverse market movements, notably falls in global equity markets and the run-off of the Group's UK Heritage business; partly offset by net inflows from the Group's UK Open and European businesses.

UK Heritage net flows

UK Heritage net outflows of £(7.1) billion comprise total premiums received in the year from inforce contracts, net of policyholder outflows on claims such as maturities, surrenders and annuities in payment. In addition, UK Heritage net flows include £1.5 billion of new business inflows arising from vesting annuities and the three bulk purchase annuity transactions completed in the year.

UK Open flows

The UK Open segment experienced gross inflows of £10.7 billion during 2018, of which £7.4 billion was received in respect of new contracts transacted in the year.

Outflows for the UK Open business were £7.0 billion, resulting in net inflows of £3.7 billion, reflecting AUA growth in the Group's Wrap and Workplace products.

New inflows of £3.7 billion equates to 4% of the opening AUA for the UK Open business.

Europe net flows

The European business contributed a small positive net inflow of £0.2 billion to the Group's AUA.

Other movements including markets

AUA reduced by £10.3 billion as a result of other movements, largely driven by the impact of adverse equity market movements in the last quarter of the year.

New business contribution

In respect of our Open and Europe business segments, we monitor new business contribution as the Group's measure of the future value delivered through the writing of new business.

New business contribution represents the increase in Solvency II shareholder Own Funds (net of tax) arising from new business written in the year, adjusted to exclude the associated risk margin and any restrictions recognised in respect of contract boundaries. It is stated net of 'Day 1' acquisition costs and is calculated as the value of expected cash flows from new business sold, discounted at the risk free rate. As such, it is considered a prudent proxy for the future cash generation that is expected to emerge over the life of the contract.

New business contribution for 2018 was £154 million (net of tax) and is stated on a pro forma basis, assuming the acquisition of the Standard Life Assurance businesses took place on 31 December 2017. This includes £137 million from the Group's UK Open business and £17 million from the Europe business.

MOVEMENT IN AUA (£bn)

£226bn

Assets under AdministrationAPM

£154m

NEW BUSINESS CONTRIBUTIONAPM

CAPITAL MANAGEMENT

PGH plc SOLVENCY II SURPLUS OVERVIEW

Following completion of the on-shoring of the Group, a new UK-registered holding company, PGH plc was put in place in December 2018. The new company is the ultimate parent company and the highest EEA insurance Group holding company and the Group's Solvency II capital assessment and Group supervision is now being managed at the PGH plc level only.

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'). PGH plc's Own Funds differ materially from the Group's IFRS equity for a number of reasons, including the recognition of future shareholder transfers from the with-profit funds and future management charges on investment contracts, the treatment of certain subordinated debt instruments as capital items, and a number of valuation differences, most notably in respect of insurance contract liabilities and intangible assets.

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'.

In December 2015, the Group was granted the PRA's approval for use of its Internal Model to assess capital requirements. Following the 2016 acquisitions of the AXA Wealth and Abbey Life businesses, the Group obtained the PRA's approval to incorporate the acquired AXA Wealth and Abbey Life businesses within the scope of the Group's Internal Model in March 2017 and March 2018 respectively.

The acquired Standard Life Assurance businesses determine their capital requirements in accordance with an approved partial Internal Model. As a result, the Enlarged Group currently uses a Partial Internal Model to calculate Group SCR, aggregating outputs from both the existing Phoenix Internal Model and the Standard Life Internal Model with no diversification between the two. A harmonisation programme to combine the two models into a single Internal Model has commenced.

The Solvency II surplus excludes the surpluses arising in the Group's unsupported with-profit funds and the PGL Pension Scheme of £2.1 billion (2017: £2.2 billion pro forma4). In the calculation of the Solvency II surplus, the SCR of the with-profit funds and the PGL Pension Scheme is included, but the related Own Funds are recognised only to a maximum of the SCR amount. Surpluses that arise in with-profit funds and the PGL Pension Scheme, whilst not included in the Solvency II surplus, are available to absorb economic shocks. This means that the headline surplus is resilient to economic stresses.

CHANGE IN PGH plc SOLVENCY II SURPLUS (ESTIMATED)

The PGH plc Solvency II surplus has increased to £3.2 billion (2017 proforma: £2.5 billion). In this section, we focus on an explanation of the movements in the PGH plc Solvency II surplus on a pro forma basis as if the acquisition of the Standard Life Assurance businesses took place on 31 December 2017. Further details regarding the comparative actual position as at 31 December 2017 are set out in the additional capital disclosures section of this report on page 228.

The pro forma position as at 31 December 2017 for the Enlarged Group (i.e. including the acquired Standard Life Assurance businesses) was £2.5 billion, as set out in the acquisition prospectus disclosures.

Surplus generation and the impact of the reduction in capital requirements for the Enlarged Group added £0.3 billion to the surplus during the year.

Management actions undertaken, including further investment in illiquid assets within annuity portfolios, reductions in investment expenses and anticipated cost savings associated with a move to a single outsourcer and continued investment in digitalisation increased the surplus by £0.6 billion.

Delivery of capital synergies associated with the acquisition of the Standard Life Assurance businesses increased the surplus by £0.5 billion, primarily as a result of implementing Phoenix's equity and currency hedging strategy in order to protect the economic value of the acquired businesses.

The pro forma surplus for the Enlarged Group included an assumed £0.6 billion of capital qualifying debt issued in relation to the acquisition of the Standard Life Assurance businesses. Following the issuances of the £500 million Tier 1 Notes in April 2018 and €500 million of Tier 2 bonds in September 2018, actual debt raised in the year was £0.9 billion, resulting in a £0.3 billion increase to the surplus compared to the pro forma position.

The impact of new business written during the year reduced the surplus by £0.2 billion. This primarily reflects the capital strain associated with the three BPA transactions executed in the year and the vesting annuities in the Heritage business segment.

Assumption, experience and modelling changes decreased the Solvency II surplus by £0.1 billion, reflecting the impact of strengthening lapse risk capital for the Standard Life businesses, together with expense impacts arising from separation of those businesses prior to the acquisition, customer proposition development and other project costs. These items have been offset by the positive impacts of changes to longevity assumptions.

The adverse impact of economic and other variances reduced the surplus by £0.2 billion. This includes a provision in respect of a commitment to reduce ongoing and exit charges for unitised non-workplace pensions. As detailed above, extending the Group's hedging strategy to Standard Life Assurance has ensured the Group remains resilient to equity market movements.

Financing costs, pension contributions and dividend payments (including accrual for the 2018 final dividend) amount to £0.5 billion and reduced the surplus in the period.

Standard Life Assurance Limited obtained regulatory approval to recalculate the benefits associated with Transitional Measures on Technical Provisions ('TMTP') as at 31 December 2018 and the impact of this recalculation is included within the PGH Solvency II surplus as at that date. The Phoenix Life entities will not undertake a mandatory recalculation of TMTP until 31 December 2019. Had a dynamic recalculation been assumed as at 31 December 2018 for Phoenix Life entities, the PGH Solvency II surplus would have been £0.1 billion higher.

SHAREHOLDER CAPITAL COVERAGE RATIO (ESTIMATED)

The Group focuses on a shareholder view of the capital coverage ratio which is considered to give a more accurate reflection of the capital strength of the Group. The Shareholder Capital Coverage Ratio is calculated as the ratio of Eligible Own Funds to SCR adjusted to exclude Own Funds and the associated SCR relating to the unsupported with-profit funds and the PGL Pension Scheme.

The Group targets a shareholder capital coverage ratio in the range of 140% to 180%.

Please see the Alternative Performance Measures section on page 230 or further details of this measure.

Unsupported with-profit funds and the PGL Pension Scheme consist of £4.4 billion of Own Funds and £2.3 billion of SCR. The related Own Funds are only recognised in the PGH plc Solvency II surplus up to the value of the SCR in respect of these funds. Of the £4.4 billion of Own Funds, £3.9 billion consists of estate within the unsupported with- profit funds and £0.5 billion of Own Funds within the PGL Pension Scheme.

Surpluses in these funds do not contribute to the PGH plc Solvency II surplus.

Excluding the SCR and Own Funds relating to the unsupported with-profit funds and the PGL Pension Scheme, the Solvency II Shareholder Capital Coverage ratio is 167% as at 31 December 2018 (2017: 147% on a pro forma basis for the Enlarged Group).

LIFE COMPANY FREE SURPLUS (ESTIMATED)

Life Company Free Surplus represents the Solvency II surplus of the Life Companies that is in excess of their Board approved capital management policies.

As at 31 December 2018, the Life Company Free Surplus is £1.0 billion (2017: £0.7 billion). The table opposite analyses the movement during the period.

SENSITIVITY AND SCENARIO ANALYSIS

As part of the Group's internal risk management processes, the regulatory capital requirements are tested against a number of financial scenarios. The results of that stress testing, are provided opposite and demonstrate the resilience of the PGH plc Solvency II surplus.

The PGH plc Solvency II surplus position at 31 December 2018 is set out in the table below:

£3.2bn

PGH SOLVENCY II SURPLUS (ESTIMATED)

167%

PGH SHAREHOLDER CAPITAL COVERAGE RATIO (ESTIMATED)APM

Notes:

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. It is stated net of restrictions for assets which are non-transferable and fungible between Group companies within a period of nine months.

2 The SCR reflects the risks and obligations to which Phoenix Group Holdings plc is exposed.

3 The surplus equates to a regulatory coverage ratio of 146% as at 31 December 2018 (2017: 132% pro forma for the Enlarged Group).

4 The pro forma position assumes the acquisition of the Standard Life Assurance businesses took place on 31 December 2017.

CHANGE IN PGH SOLVENCY II SURPLUS1(£bn)

SHAREHOLDER CAPITAL COVERAGE RATIO(£bn)

Notes:

1 Assumes the acquisition of the Standard Life Assurance businesses and the implementation of the Group's equity and currency hedging strategy by those acquired businesses took place on 31 December 2017.

2 Assumes stress occurs on 1 January 2019.

3 Assumes recalculation of transitionals (subject to PRA approval).

4 Credit stress equivalent to an average 120bps spread widening across ratings and includes allowance for defaults/downgrades.

5 Equivalent of six months increase in longevity applied to the annuity portfolio.

6 Assumes most onerous impact of a 10% increase/decrease in lapse rates across different product groups.

IFRS RESULTS

OPERATING PROFIT

Operating profit is a non-GAAP financial performance measure based on expected long-term investment returns. It is stated before amortisation and impairment of intangibles, other non-operating items, finance costs and tax.

Please see the APM section on page 230 for further details of this measure.

The Group has generated an operating profit of £708 million (2017: £368 million). The increase compared to the prior year is primarily driven by the inclusion of the Standard Life Assurance businesses for the four month period post completion of the acquisition together with net positive impacts of management actions, experience and actuarial assumption changes during 2018.

IFRS Profit AFTER TAX

The IFRS profit after tax attributable to owners is £410 million (2017: £(27) million). The increase primarily reflects the improved operating profit together with net positive economic variances arising on hedging positions held by the life companies to protect the Group's Solvency II surplus position and a gain recognised on acquisition of the Standard Life Assurance businesses of £141 million.

The positive items have been partly offset by the recognition of certain one-off cost provisions including a commitment to reduce charges on non-workplace pension policies and expenses associated with the acquisition.

Operating profit for the life companies is based on expected investment returns on financial investments backing shareholder and policyholder funds over the reporting period, with consistent allowance for the corresponding expected movements in liabilities (being the release of prudential margins and the interest cost of unwinding the discount on the liabilities).

The principal assumptions underlying the calculation of the long-term investment return are set out in note B2 to the IFRS consolidated financial statements.

Operating profit includes the effect of variances in experience for non-economic items, such as mortality and persistency, and the effect of changes in non-economic assumptions. Changes due to economic items, for example market value movements and interest rate changes, which give rise to variances between actual and expected investment returns, and the impact of changes in economic assumptions on liabilities, are accounted for outside of operating profit. Life company operating profit is net of policyholder finance charges and policyholder tax.

UK HERITAGE OPERATING PROFIT

The Group's UK Heritage business segment does not actively sell new life or pension policies and runs-off gradually over time.

The with-profit operating profit of £101 million (2017: £84 million) represents the shareholders' one-ninth share of the policyholder bonuses. The increase on prior year primarily reflects the contribution from the Standard Life Assurance businesses.

The with-profit funds where internal capital support has been provided generated an operating profit of £20 million (2017: £108 million loss). The profit is principally driven by the positive impact of updating actuarial assumptions related to longevity and expenses. The loss in the prior year was due to the adverse impact of updating actuarial assumptions related to persistency of products with valuable guarantees.

The non-profit and unit-linked funds operating profit increased to £524 million (2017: £386 million), which includes a contribution of £42 million from the Standard Life Assurance businesses, excluding actuarial assumption changes. Updating actuarial assumptions had a net positive impact of £205 million on the result for the year (2017: £166 million) and included the impact of updating longevity base and improvement assumptions to reflect latest experience analyses and the most recent Continuous Mortality Investigation 2017 core projection tables.

The long-term return on owners' funds of £(5) million (2017: £5 million) reflects the asset mix of owners' funds, primarily cash-based assets and fixed interest securities. The loss in the period reflects certain one-off project costs which have been borne by the shareholder.

UK OPEN OPERATING PROFIT

The Group's UK Open business segment delivered an operating profit of £41 million, including a £31 million contribution from the Standard Life Assurance businesses. This includes operating profits generated across the Workplace, Retail and SIPP product lines, including new business distributed through our Strategic Partnership with Standard Life Aberdeen plc.

The Group's SunLife business generated an operating profit of £10 million during the year.

EUROPE OPERATING PROFIT

The European business which comprises business written in Ireland, Germany and Austria and a mix of Heritage and Open products, generated an operating profit of £22 million during the year.

management services companies operating profit

The operating profit for management services of £25 million (2017: £21 million) comprises income from the life and holding companies in accordance with the respective management services companies agreements less fees related to the outsourcing of services and other operating costs.

GROUP COSTS

Group costs in the period were £20 million (2017: £20 million) in line with prior year. They mainly comprise project recharges from the service companies offset by returns on the scheme surplus of the Group staff pension schemes.

INVESTMENT RETURN VARIANCES AND ECONOMIC ASSUMPTION CHANGES ON LONG-TERM BUSINESS

The net positive investment return variances and economic assumption changes on long-term business of £283 million (2017: £6 million negative) primarily arise due to the positive impact of strategic asset allocation activities, including investment in higher yielding illiquid assets, together with the impact of gains on hedging positions held by the life funds as a result of declining equity markets in the year. The Group's exposure to equity movements arising from future profits in relation to with-profit bonuses and unit-linked charges is hedged to benefit the regulatory capital position. The impact of equity market movements on the value of the hedging instruments is reflected in the IFRS results, but the corresponding change in the value of future profits is not.

VARIANCE ON OWNERS' FUNDS

The adverse variance on owners' funds of £193 million (2017: £87 million negative) is principally driven by realised losses on derivative instruments entered into by the holding companies to hedge exposure to equity risk arising from the Group's acquisition of the Standard Life Assurance businesses. Losses of £143 million were incurred on these instruments, together with option premiums of £22 million.

AMORTISATION OF ACQUIRED IN-FORCE BUSINESS AND OTHER INTANGIBLES

The carrying amount of the Group's acquired in-force business and other intangibles was £4.3 billion at the end of the year (gross of deferred tax), of which £2.8 billion relates to the Standard Life Assurance businesses.

The acquired in-force business is being amortised in line with the expected run-off profile of the profits to which it relates. Amortisation of acquired in-force business during the year totalled £189 million (2017: £102 million) with the increase from the prior year driven by the additional acquired-in-force business for the Standard Life Assurance businesses noted above. Amortisation of other intangible assets totalled £18 million in the year (2017: £17 million).

OTHER NON-OPERATING ITEMS

Other non-operating items of £38 million negative (2017: £80 million negative) includes a gain on acquisition of £141 million reflecting the excess of the fair value of the net assets acquired over the consideration paid for the acquisition of the Standard Life Assurance businesses and a net benefit of £45 million reflecting anticipated costs savings associated with the move to a single, digitally enhanced outsourcer platform. These amounts have been more than offset by a provision for £68 million in respect of a commitment to reduce ongoing and exit charges for non-workplace pension products, costs of £59 million associated with the equalisation of accrued Guaranteed Minimum Pension benefits within the Group's pension schemes, costs of £43 million associated with the acquisition of the Standard Life Assurance businesses and £7 million incurred under the ongoing transition programme. It also includes net other one-off items totalling £47 million, including other corporate project costs.

The prior period result included a premium of £25 million paid on redemption of £178 million principal of the senior unsecured bond, costs of £21 million in respect of integration and restructuring of the Abbey Life and AXA Wealth businesses, costs of £20 million in respect of short-term expense overruns arising from the AXA Wealth businesses prior to the completion of the implementation of the Phoenix operating model, a provision of £27 million in respect of a commitment to the reduction of ongoing charges for workplace pension products, a £21 million increase in the provision for costs for claims relating to historic creditor insurance underwritten by a subsidiary of the Group, PA (GI) Limited, offset by the recognition of reimbursements of £39 million in respect of recoveries due or received from third parties under contractual arrangements; and net other one-off items totalling a cost of £5 million, including corporate project costs.

FINANCE COSTS

Finance costs have increased by £10 million, comprising a £5 million decrease in bank finance costs driven by the repayment of bank debt and a £15 million increase in other finance costs reflecting debt issuances during the year.

TAX CREDIT ATTRIBUTABLE TO OWNERS

The Group's approach to the management of its tax affairs is set out in its Tax Strategy document which is available in the corporate responsibility section of the Group's website. The Group's tax affairs and tax controls are managed by an in-house tax team who report on them to the Board and the Audit Committee on a regular basis throughout the year. The Board believes that its Tax Strategy accords with the Group's approach to its wider Corporate Social Responsibility. In the first half of 2018, the Tax Strategy was refreshed and published in accordance with the relevant statutory requirements.

Implicit in the Group's Tax Strategy and the management of its tax affairs is a desire for greater transparency and openness that will help the Group's stakeholders better understand the published tax numbers. In this way the Group aims to participate in a substantive manner with HMRC and other insurance industry stakeholders on consultative documents and tax law changes that potentially impact on the insurance sector.

The Group's insurance operations are primarily based in the UK and are liable to tax in accordance with applicable UK legislation. Following the acquisition of the Standard Life Assurance businesses, the Group's overseas operations have increased, in Ireland and Germany in particular. The Group complies with the local tax obligations in the jurisdictions in which it operates. Phoenix Group Holdings was a Jersey resident holding company until 31 January 2018 when it became tax resident in the UK.

The Group tax charge for the period attributable to owners is £60 million (2017: £1 million tax credit) based on a profit (after policyholder tax) of £470 million (2017: loss of £(28) million). The significant tax adjustments to the Owners' profit before tax are primarily due to the impact of non-taxable income which reduces the tax charge by £(31) million, the impact of non-tax deductible costs of £21 million, a prior year credit for shareholders £(5) million and profits taxed at a rate other than the statutory rate of £(14) million. See note C6 to the IFRS consolidated financial statements for further analysis.

Financial leverage

The Group seeks to manage the level of debt on its balance sheet by monitoring its financial leverage ratio. This is to ensure the Group maintains its investment grade credit rating as issued by Fitch Ratings and optimises its funding costs and financial flexibility for future acquisitions. The financial leverage ratio as at 31 December 2018 (as calculated by the Group in accordance with Fitch Ratings' stated methodology) is 22% (2017: 27%). This is below the target range management considers to be associated with maintaining an investment grade rating of 25% to 30%.

Financial leverage is calculated as debt as a percentage of the sum of debt and equity. Debt is defined as the IFRS carrying value of shareholder borrowings. Equity is defined as the sum of equity attributable to the owners of the parent (excluding goodwill), the unallocated surplus and the Tier 1 Notes.

Finance costs attributable to owners

£708m

OPERATING PROFITAPM

£410m

IFRS PROFIT AFTER TAX

RISK MANAGEMENT

THE GROUP'S RISK MANAGEMENT FRAMEWORK

The Group's Risk Management Framework ('RMF') embeds proactive and effective risk management across the Group. It seeks to ensure that all risks are identified and managed effectively and that the Group is appropriately rewarded for the risks it takes.

Further detail on the ten components of our RMF and the principal risks facing the Group are provided below. This includes consideration of how the Enterprise Risk Management (ERM) Framework operated by the acquired Standard Life Assurance businesses aligns with the Phoenix RMF.

Work is well advanced to finalise implementation plans for the harmonised RMF for the Enlarged Group which combines the best of both from the respective frameworks.

BUSINESS AND RISK ENVIRONMENT

The acquisition of Standard Life was completed on 31 August and is transformational for the Group. Whilst significant progress has been made with the transition activity the Group must continue to ensure that it operates a robust risk and control environment in the delivery of all objectives across the Heritage, Open and European businesses.

After announcing its intention to enter the bulk annuity market, the Group successfully executed three deals over 2018 totalling £0.8 billion. The Group generates value through the use of reinsurance and its illiquid asset sourcing capabilities.

There remains great uncertainty about the timing and terms of the UK's withdrawal from the EU. The Group continues to closely monitor developments to understand any potential financial or operational implications. The Group identified contingency actions to ensure it could service EU-based customers in the event of a 'Hard Brexit' and has continued to progress these.

Announcement of Diligenta as the Group's preferred outsource partner will involve a major system and data migration to transfer c. 2 million of legacy Phoenix Life policies to a digitally enhanced customer platform.

The regulatory actions in respect of the acquired Abbey Life business were addressed through the implementation of Phoenix's robust control environment, product governance and oversight model to improve customer outcomes.

RISK CULTURE

The Group seeks to embed a culture that is forward-looking and competent in its assessment and management of risk, a culture where everyone in the Group is aligned in their goals to deliver better risk-based decisions.

To support this goal, the Group defined a Risk Culture Statement which sets out the Group's aspirations for Risk Management:

At its core are the Group's values and behaviours, clarity of accountability and a healthy tension between the first and second lines of defence.

Collectively this means our people understand the Group's approach to risk, take personal responsibility to manage risk in everything they do and encourage others to follow their example.

Risk culture has been one of the five elements of the ERM framework for Standard Life Assurance.

During 2018, Group Risk conducted its annual Risk Culture survey. The results of this survey enable us to assess and measure the Group's Risk Culture over time as well as being able to tailor training programmes to ensure the continued engagement and development of our employees.

OWN RISK AND SOLVENCY ASSESSMENT (ORSA)

The Group carries out an ORSA process to assess its risk profile on an ongoing basis. The ORSA considers risk, capital and return within the context of the business strategy on a forward-looking basis.

The ORSA is a fundamental part of the strategic risk and capital management processes of the business to prompt consideration of management actions and help shape strategic decision-making.

RISK MANAGEMENT FRAMEWORK

Risk strategy

Risk appetite

Risk universe

External communication and stakeholder management

Governance, organisation and policies

Business performance and capital management

Risk and capital assessment (including internal models)

People and reward

Management information

Technology and infrastructure

"The Group has a balanced risk culture, supportive of commercial risk‑taking coupled with strong execution in line with its risk appetite."

RISK STRATEGY

The Group's risk strategy provides an overarching view of how risk management is incorporated consistently across all levels of the business, from decision-making to strategy implementation.

It assists the business achieve its strategic objectives by supporting a more stable, well managed business with improved customer and shareholder outcomes.

This is achieved not by risk avoidance, but through the identification and management of an acceptable level of risk (its 'risk appetite') and by ensuring that the Group is appropriately rewarded for the risks it takes.

To ensure that all risks are managed effectively the Group is committed to:

· embedding a risk aware culture;

· maintaining a strong system of internal controls;

· enhancing and protecting customer and shareholder value by continuous and proactive risk management;

· maintaining an efficient capital structure; and

· ensuring that risk management is embedded into day-to-day management and decision- making processes.

Strategic risk management is one of the five components of the ERM framework in Standard Life Assurance.

RISK APPETITE

The Group's risk appetite is the level of risk the Group is willing to accept in pursuit of its strategic objectives. The statements below encapsulate our risk appetite for policyholder security and conduct, earnings volatility, liquidity and our control environment:

Capital - The Group and each Life Company will hold sufficient capital to meet regulatory requirements in a number of asset and liability stress scenarios.

Cash flow - The Group will seek to ensure that it has sufficient cash flow to meet its financial obligations and will continue to do this in a volatile business environment.

Shareholder Value - The Group will take action to protect its shareholder value.

Regulation - The Group and each Life Company will, at all times, operate a strong control environment to ensure compliance with all internal policies and applicable laws and regulations, in a commercially effective manner.

Conduct - Phoenix has no appetite for deliberate acts of misconduct or omissions that result in poor customer outcomes, reputational damage and/or pose a risk to the Financial Conduct Authority ('FCA') statutory objectives.

The risk appetite and control framework supports the Group in operating within the boundaries of these statements by limiting the volatility of key parameters under adverse scenarios. Risk appetite limits are chosen which specify the maximum acceptable likelihood for breaching the agreed limits. Assessment against these limits is undertaken through extensive scenario and reverse stress testing.

Standard Life Assurance has operated its own framework of quantitative and qualitative risk appetite metrics supported by stress and scenario testing. Work is underway to align these to the Group statements.

RISK UNIVERSE

A key element of effective risk management is ensuring that the business has a complete understanding of the risks it faces. These risks are defined in the Group's risk universe.

The risk universe allows the Group to deploy a common risk language, allowing for meaningful comparisons to be made across the business. There are three levels of risk universe categories. The highest risk universe category is Level 1 and includes:

· strategic risk;

· customer risk;

· financial soundness risk;

· market risk;

· credit risk;

· insurance risk; and

· operational risk.

Embedded within these categories, and Customer risk in particular, are the conduct risks faced by the Group and its customers. These risks are separately monitored and reported on across the organisation to ensure that conduct risk receives appropriate emphasis and oversight.

The risk universe operated within Standard Life Assurance is very closely aligned to this which enables an efficient adoption of the Group's risk universe.

EXTERNAL COMMUNICATION AND STAKEHOLDER MANAGEMENT

The Group has a number of internal and external stakeholders, each of whom has an active interest in the Group's performance, including how risks are managed. Significant effort is made to ensure that our stakeholders have appropriate, timely and accurate information to support them in forming views of the Group.

GOVERNANCE, ORGANISATION AND POLICIES

Governance

Overall responsibility for approving, establishing and embedding the RMF rests with the Board. The Board recognises the critical importance of having an efficient and effective RMF and appropriate oversight of its operation. There is a clear organisational structure in place with documented, delegated authorities and responsibilities from the Group Board to the Life Company Boards and the Executive Committee.

The RMF is underpinned by the operation of a three lines of defence model with clearly defined roles and responsibilities for statutory boards and their committees, management oversight committees, Group Risk and Group Internal Audit.

First line: Management

Management of risk is delegated from the Board to the Group Chief Executive Officer, Executive Committee members and through to business managers. A series of business unit management oversight committees operate within the Group. They are responsible for implementation of the RMF, ensuring the risks associated with the business activities are identified, assessed, controlled, monitored and reported.

Second line: Risk Oversight

Risk oversight is provided by the Group Risk function and the Board Risk Committee. The Board Risk Committee comprises four independent Non-Executive Directors. It is supported by the Group Chief Risk Officer and met six times during 2018. During 2018, the Risk Committee of the Phoenix Life Board met five times and provided additional Board Committee focus on risk matters at Phoenix Life. The existing Standard Life Assurance Risk Committee has been brought alongside that of Phoenix Life to enable consideration of common matters.

Third line: Independent Assurance

Independent verification of the adequacy and effectiveness of the internal controls and risk management is provided by the Group Internal Audit function, which is supported by the Board Audit Committee.

The governance framework in operation throughout the Group can be found in the chart below.

Organisation

The Group Chief Risk Officer manages the Group Risk function and has responsibility for the implementation and oversight of the Group's RMF. The Group Risk function has responsibility for oversight over financial, operational and regulatory risk. The PRA/FCA relationship team manages the relationship and interactions with our primary regulators and reports to the Group Chief Risk Officer.

"THE GROUP'S RISK MANAGEMENT FRAMEWORK HAS SUPPORTED THE ACQUISITION OF STANDARD LIFE AND WILL EVOLVE TO MANAGE THE RISKS THAT THE ENLARGED GROUP WILL FACE."

JONATHAN PEARS

GROUP CHIEF RISK OFFICER

Governance framework

Board

PGH Board

PGH Board Nomaination Committee

PGH Board Remuneration Committee

PGH Board Risk Committee

PGH Board Audit Committee

FIRST LINE OF DEFENCE

SECOND LINE OF DEFENCE

THIRD LINE OF DEFENCE

Executives

Group Chief Executive Officer

PGH Board Nomination Committee

Chief Risk Officer

Management

Group Functions

Life Companies

Group Risk and Compliance

Group Internal Audit

Policies

The Group policy framework comprises a set of policies that supports the delivery of the Group's strategy by establishing operating principles and expectations for managing the key risks to our business. The policy set contains the minimum control standards to which each business unit must adhere to and against which they report compliance.

The policies define:

· the individual risks the policy is intended to manage;

· the degree of risk the Group is willing to accept, which is set out in the policy risk appetite statements;

· the minimum controls required in order to manage the risk to an acceptable level; and

· the frequency of the control's operation.

Each policy is the responsibility of a member of the Executive Committee who is charged with overseeing compliance throughout the Group.

Standard Life Assurance has operated a set of risk policies and the scope of these is very closely aligned to Phoenix's. Activity is underway to finalise and implement a harmonised set of policies across the combined Group.

BUSINESS PERFORMANCE AND CAPITAL MANAGEMENT

The Annual Operating Plan is assessed to ensure that the Group operates within our stated risk appetite. Business performance is routinely monitored with consolidated reporting against performance targets.

The Group operates a Capital Management Policy where capital is allocated across risks where capital is held as a mitigant and the amount of risk capital required is reviewed regularly.

RISK AND CAPITAL ASSESSMENT

The Group operates a standardised assessment framework for the identification and assessment of the risks to which it may be exposed and how much capital should be held in relation to those exposures. This framework is applicable across the Group and establishes a basis, not only for the approach to risk assessment, management and reporting but also for determining and embedding capital management at all levels of the Group in line with Solvency II requirements.

Risk assessment activity is a continuous process and is performed on the basis of identifying and managing the significant risks to the achievement of the Group's objectives.

Stress and scenario tests are used extensively to support the assessment of risk and provide analysis of their financial impact.

Independent reviews conducted by Group Risk provide further assurance to management and the Board that individual risk exposures and changes to our risk profile are being effectively managed.

MANAGEMENT INFORMATION

Overall monitoring and reporting against the risk universe takes place in business unit management committees and Boards. This is then reported to the Executive Committee and the Group Board via regular risk reporting.

The Board Risk Committee receives a consolidated risk report on a quarterly basis, detailing the risks facing the Group and the overall position against risk appetite limits. The Board Risk Committee is also provided with regular reports on the activities of the Group Risk function.

PEOPLE AND REWARD

Effective risk management is central to the Group's culture and its values. Processes are operated that seek to measure both individual and collective performance and discourage incentive mechanisms which could lead to undue risk taking. Training and development programmes are in place to support employees in their understanding of the RMF.

TECHNOLOGY AND INFRASTRUCTURE

The Group employs a number of risk systems to support the assessment and reporting of the risks it faces. This enables management to document key risks and controls and evidence the assessment of them at a frequency appropriate to the operation of the control.

RISK MANAGEMENT EFFECTIVENESS

The provisions of the UK Corporate Governance Code require an annual review of the effectiveness of Risk Management.

This assessment provides assurance to management and the Boards that the RMF has been implemented consistently and is operating effectively across the Group.

PRINCIPAL RISKS AND UNCERTAINTIES FACING THE GROUP

he Group's principal risks and uncertainties are detailed in the table below, together with their potential impact, mitigating actions which are in place, links to the Group's strategic objectives and changes in the risk profile from last year.

The number of principal risks has increased from six to ten as a result of the transformational Standard Life acquisition which introduces new strategic risks given our substantial new business capabilities. As economic changes occur and the industry and regulatory environment evolves, the Group will continue to monitor their potential impact. During the year we have reviewed our principal risks and consolidated the 'Concentration in the policy administration outsource industry' risk into a broader operational resilience risk. Further details of the Group's exposure to financial and insurance risks and how these are managed are provided in note E6 of the IFRS consolidated financial statements.

The current assessment of the residual risk in respect of each of the Group's principal risk categories is illustrated in the chart opposite.

The residual risk is the remaining risk after controls and mitigating actions have been taken into account.

Principal risks

Key

EMERGING RISKS

The Group's senior management and Board also take emerging risks into account when considering potentially adverse outcomes and appropriate management actions prior to the risk crystallising.

Some of the current emerging risks the Group considers are listed in the table opposite.

VIABILITY STATEMENT

In accordance with the provision of section C.2.2 of the 2014 revision of the UK Corporate Governance Code, the Board has completed an assessment of the prospects and viability of the Group over a five-year period to December 2023.

Assessment Process & Key Assumptions

The Group's prospects are assessed primarily through its strategic and financial planning process, which included a detailed annual review of the Group's strategy following the acquisition of the Standard Life Assurance businesses. This strategy is outlined within the Strategic Report of this Annual Report and Accounts. The Board fully participates in the annual strategic planning process by means of a Board meeting to review and approve the annual operating plan ('AOP').

The output of the AOP is a set of Group objectives, detailed financial forecasts, and risks and contingent actions to be considered when agreeing the plan. The latest AOP was approved by the Board in November 2018. This considered the Group's current position and its prospects over a medium-term horizon, reflecting the Group's stated strategy.

Progress against the financial plan is reviewed monthly by both the Group's executive committee and the Board.

The Board has determined that the five-year period to December 2023 is an appropriate period for the assessment, this being the period over which the Directors have reasonable confidence and set internal and external targets, and the period covered by the Group's Board-approved AOP.

The Board has also made certain assumptions when making the assessment and these include the following:

· no change in stated dividend policy;

· that corporate acquisitions are not relevant, as any acquisition would only be progressed on the basis it meets the Group's stated criteria;

· that whilst the actual impacts of Brexit on the Group are still unknown, the Group has plans in place to ensure it is able to service all policyholders in the event of a hard Brexit. These management actions are reflected in the AOP; and

· the stresses calculated occur on 1 January 2019 with no allowance for any recovery or contingent actions available, but do take into account the impact of any appropriate Solvency II transitionals recalculation.

Assessment of Viability

In making the viability assessment, the Board has undertaken the following process:

· It considered Group prospects, taking into account current position and the principal risks and uncertainties that it is facing as outlined above;

· It defined that viability is maintaining the capability to satisfy mandatory liabilities and meet external targets and confirmed this was still appropriate following the acquisition of the Standard Life Assurance businesses;

· It reviewed the AOP which considers profits, liquidity, solvency and strategic objectives and the impacts of management actions on the Group. The AOP was finalised in November 2018 and reaffirmed the Group's strategy;

· It completed stress testing to assess viability under severe but plausible scenarios, including two adverse stresses, with no recovery or contingent actions, which are deemed to be representative of the key financial risks to the Group as follows:

1. Market stress - a combined market stress broadly equivalent to a 1 in 10-year event, calibrated to the Phoenix internal model, incorporating a fall in equity, property values and yields, with a widening of credit spreads.

2. Longevity stress -longevity and yield stress broadly equivalent to a 1 in 10-year event, which implies a 1.2 year increase in life expectancy for a 65 year old male and 1.0 year increase for a 65 year old female, alongside a fall in yields.

· It completed reverse stress testing for the pre-acquisition Group and the Standard Life Assurance businesses by reference to the Group's current and expected levels of solvency and liquidity;

· It performed Brexit stress testing including additional analysis under a no deal Brexit and considered the implications of a range of Brexit outcomes as regularly monitored and presented to the Board and risk committees;

· It considered the principal medium to long term risks facing the Group which have the potential to impact on viability as discussed in the Risk report above; and

· It completed a qualitative assessment of all strategic risks to the Group and contingent actions available that could be implemented should any risk materialise that threatens the Group's resilience.

The results of the stress testing, including a combination of individual scenarios, as disclosed in the Business Review Section, demonstrated that due to the significant excess capital in the life companies, the Group's high cash generation and access to additional funding, the Group is able to withstand the impact in each case with regards to meeting all mandatory liabilities as they fall due, and continue to track towards meeting external targets assuming a partial recovery from the stress.

Statement of Viability

Based on the results of the procedures outlined above, the Board has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the five-year period of assessment.

STAKEHOLDER ENGAGEMENT

The Group's mission is to improve outcomes for customers, whilst delivering value for shareholders. The Group has responsibilities to a number of other stakeholders including its suppliers, colleagues, community partners and the environment. The management of stakeholder engagement is therefore considered key to long-term success.

OVERVIEW

The Group has four areas of strategic focus which support the fulfilment of our mission, including improving customer outcomes, driving value, managing capital and engaging our people. Further detail can be viewed within 'Our Strategy and Key Performance Indicators' from page 18.

By continuing to engage with our key stakeholders on a regular basis, the Group is able to balance the needs of all, taking into account different perspectives, whilst delivering against the Group's strategic priorities. Policies are in place to provide a clear risk and governance framework, as outlined in more detail for each stakeholder group. 

Positive stakeholder engagement remains of paramount importance to the Group's Corporate Responsibility agenda.

Our Customers

10 million policies with £226 billion of assets under administration. Key products and services include with-profit, unit-linked, non-profit (annuities), non-profit (protection) and workplace pensions.

Read more on

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Our Suppliers

Following the acquisition of Standard Life Assurance Limited, the Group now has c. 1,000 suppliers of which c. 70 are considered Material Service Providers.

Read more on

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Our COLLEAGUES

Over 4,000 colleagues based across Europe supporting Phoenix Group, Phoenix Life, Standard Life Assurance and SunLife, and within its operational sites: Wythall, London, Basingstoke, Bristol, Edinburgh, Glasgow, Dublin and Frankfurt.

Read more on

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Our Community Partners

A range of community partners including charities, schools, hospices and local community groups have benefited from the Group's support during the year.

Read more on

P54

Our Environment

The Group is committed to managing and reducing its environmental impact and considers the ongoing effects of climate change on its operations.

Read more on

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Our investors

The Group maintains an active dialogue with its investors throughout the year.

Read more on

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Go online for the full Corporate

and Social Responsibility Report

www.thephoenixgroup.com/CRreport2018

OUR CUSTOMERS

The Group recognises the responsibility it has to all of its customers, as both custodian of their financial assets and supplier of their pension needs or life cover. Treating Customers Fairly is at the heart of the business, and we aim to provide a responsible, fair and helpful service.

The Phoenix Life website can be accessed at

www.phoenixlife.co.uk

Read more about key customer engagement activities undertaken during the year on

P18 and 20

The Group's Customer Treatment Risk policy covers risks arising from the design or management of products, or from the failure to meet or exceed reasonable customer expectations, taking account of regulatory requirements. Customer treatment risks are aligned to the areas of focus in the Phoenix Group Customer Strategy. 

"Policyholders have diligently saved for many years in their policies, and it is unfortunate that the benefits may have been left unclaimed. We are delighted to have been able to repatriate so many of these lost policies with their rightful owners."

david woollett

Customer director, phoenix life

Listening to customers

Listening to the needs and wants of customers is helpful in delivering good customer outcomes. Feedback is gathered through automated telephone surveys, individual research projects and most recently through talking with the wider 'customer community' about their experiences and how they like to engage with the Group. These interactions help to shape communications and future propositions that may be of interest.

Within Phoenix Life improvements included an online facility for some customers within the retirement process, the launch of secure e-mail as an alternative communication channel, and improvements to the presentation of annual statements and communications.

Within Standard Life Assurance improvements for workplace members and clients included extended opening hours, implementation of a new voice recognition system, a new online registration process and amendments to the investment switching journey online for trust schemes. Face-to-face retirement roadshows were held nationwide, reaching c. 2,000 individuals in 19 locations. Following the roadshow success, retirement webinars were launched.

DIGITAL PROPOSITION

During the year the Group has continued to develop its digital offering for customers. The Phoenix Life website allows visitors 24/7 access to policy information, whilst reducing the volume of paperwork routinely issued. Selected customers can access a secure website where they can review and update their personal information, view policy details and contact Phoenix.

Operationally, Phoenix has selected Diligenta, the FCA regulated subsidiary of Tata Consultancy Services, as its preferred outsource partner to deliver a single, digitally enhanced outsourcer platform that will improve customer outcomes and deliver cost savings for legacy-Phoenix Life policies (c. 5.5 million customers).

Within Standard Life Assurance over 11,000 customers moved into drawdown in the year. Digital was the channel of choice for the majority of these customers, followed by telephony service. Over 3 million logins were recorded across 2018, with the 24/7 mobile app being the easiest way for customers to interact. For customers in non-advised Active Money Pension Plan drawdowns, the Group developed an online retirement review to help customers assess their investment choices based on objectives.

Customer complaints

The Group acknowledges that mistakes can happen, but where they do it aims to put things right as soon as it can. A robust oversight model is in place to continually monitor complaint activity including those complaints that are referred to the independent services of the Financial Ombudsman Service or the Pensions Ombudsman Service. Best practice is shared with colleagues across the industry to improve complaint-handling services. Work is carried out with internal teams to ensure that causes of complaints are addressed in a timely manner. A significant proportion of complaints are resolved across the Group, in less than three days, which is a key performance indicator for the complaints team and results in a better experience for customers.

Over 80% of cases referred to the Financial Ombudsman Service from Phoenix Life were found to be in agreement with the decision made, giving the Group useful insight and assurance into how well complaints are being handled. 

PROTECTING CUSTOMERS FROM PENSION SCAMS

The Group is dedicated to protecting its customers from financial crime, including pension scams. The Group continues to engage with Regulatory Authorities and Industry Working Groups on pension scams and looks at ways to better protect customers from becoming victims of pension scams. The Group continues to raise awareness of scams and warns its policyholders to remain vigilant of the evolving methods of fraudsters.

REUNITING CUSTOMERS WITH LOST POLICIES

Phoenix Life reunited 2,380 unclaimed policies with their rightful owner or next of kin following an extensive tracing exercise. The work commenced in September 2016 and to date has reunited policies amounting £12.7 million. 

The Group introduced a proactive campaign to ensure the customer or their estate benefited. They enlisted the help of external tracing companies and obtained copies of death certificates, probate and wills in the process. Phoenix Life has also recently implemented an enhanced 'gone-away' process across its outsource partners to allow the Group to re-engage and communicate with more Phoenix Life customers.

LONG-TERM SAVINGS COMMITTEE APPOINTMENT

The Association of British Insurers ('ABI') has appointed Susan McInnes, CEO of Standard Life Assurance Limited and Director of Open Business as chair to its Long-term Savings Committee. In addition she has taken a seat on the ABI Board and previously held the role of chair to the Long-Standing Customers Committee. The Long-term Savings Committee oversees the direction of all the ABI policy work in relation to pension savings and retirement. Current priorities include the delivery of the pension dashboard and supporting customers to make the most of their new choices at retirement.

2,380

UNCLAIMED POLICIES REUNITED WITH RIGHTFUL OWNERS FOLLOWING EXTENSIVE TRACING EXERCISES

£12.7m

REUNITED POLICIES VALUE

CUSTOMERS IN VULNERABLE CIRCUMSTANCES

Phoenix's vulnerable customer strategy aims to address vulnerability to the extent that the right outcomes for customers are achieved regardless of whether they are living in vulnerable circumstances. 

The Group's key objective is to be able to recognise vulnerability and then be equipped to take the appropriate action to address it. This is being achieved by having frameworks and practical guidance in place to support the strategy, whilst ensuring there is an appropriate awareness and positive culture instilled throughout the Group in respect of vulnerability.

Within Phoenix Group/Phoenix Life an online training module on customer vulnerability was designed and delivered by Money Advice Trust. Alongside this, colleagues have become dementia friends, with awareness sessions delivered by Phoenix's inhouse dementia champions, helping the Group work towards becoming a dementia-friendly business. The digital team is currently working on a proposal which will look to enhance online accessibility catering for varying customer needs. 

Within Standard Life Assurance the Customer Operations team has been working in partnership with Age Scotland and Alzheimer Scotland to deliver training to help colleagues better understand how to handle calls with vulnerable customers. An extensive training programme took place across 2018 which involved face-to-face and e-learning modules. This training programme won 'Excellence in Skills in Learning and Development' at the 2018 Contact Centre Association Awards.

OUR SUPPLIERS

The Group has c. 1,000 suppliers of which c. 70 are considered Material Service Providers1.

Following the acquisition of Standard Life Assurance Limited in August 2018, Aberdeen Standard Investments has become one of the Group's key strategic partners.

The Group's Modern Slavery and Human Trafficking Statement is available at

www.thephoenixgroup.com/mss

The Group's Anti-Bribery Statement is available on the Group's website at

www.thephoenixgroup.com/abs

SUPPLY CHAIN MANAGEMENT

Phoenix relies heavily on its service providers to support the delivery of its corporate objectives and management actions, whilst satisfying the outcomes required for all stakeholder groups. A key part of ensuring this takes place is managing the Group's supply chain in a sustainable and ethical manner. 

Sourcing and Procurement at Phoenix is far broader than the initial evaluation and selection process in that it ensures that a beneficial relationship for key stakeholders is implemented and managed. The Group works closely with its partners in order to closely monitor the operational and financial performance from Material Service Providers for any indications of instability and steps are taken where necessary and appropriate to mitigate risks to Phoenix or its stakeholders. 

For Material Service Providers, Phoenix has a dedicated professional relationship manager assigned. Their role is to govern the relationship, measure and monitor performance and work to continually improve outcomes for all stakeholders.

The Group's Sourcing and Procurement policy sets the minimum operating standards relating to the management of sourcing and procurement risk throughout the Group and forms part of the sourcing and procurement control framework. 

Phoenix is organised so that the Commercial Partnerships team manages a decentralised procurement model for low value/low volume spend, to enable the business to operate flexibly but within the controls of the Sourcing and Procurement policy. This has a robust oversight and governance model, administered and managed by the Commercial Partnerships team. 

PROMPT PAYMENT CODE

The Group's culture is to meet its obligations including paying suppliers promptly. The Group voluntarily signed the Government's Prompt Payment Code in 2012 and from January 2018 has been submitting relevant statements under the Small Business, Enterprise and Employment Act 2015 for the duty to report payment practices. The Group is committed to supply chain sustainability and supports the culture of prompt payment in the business community.

MODERN SLAVERY

Phoenix Group takes active steps to ensure its supply chain is not engaging in any form of modern slavery or human trafficking. In March 2018 a statement was published on the Group website pursuant to Section 54, Part 6 of the Modern Slavery and Human Trafficking Act 2015. The statement details the policies Phoenix has in place and the ongoing actions that will be taken to continue to support the combating of modern slavery and human trafficking in supply chains.

Financial crime prevention

In order to ensure that any financial crime matters or occurrences are effectively managed, the Group has a number of policies and practices in operation. The Group's Anti-Bribery policy addresses bribery and corruption risks alongside the Financial Crime policy which addresses risks such as anti-money laundering and fraud. Both policies detail the minimum control standards and risks that are to be managed to mitigate any potential issues. 

Adherence to the Anti-Bribery and Financial Crime policies is managed by the Financial Crime team via assessments of the minimum control standards that make up the policies, as well as themed Financial Crime Reviews and Assurance testing.

Colleagues are required to complete annual computer-based training around both financial crime prevention and adherence with the Code of Business Ethics and Ethical Conduct. Colleagues are also required to complete a Gifts and Hospitality Register which is overseen and managed by the Financial Crime team. 

The Group has a zero tolerance towards bribery and corruption in all its forms and adheres to the 2010 Bribery Act. Service providers are advised of and engaged in the zero tolerance approach to bribery and corruption and are expected to comply with Phoenix's minimum control standards. 

No instances or breaches were recorded during the year.

c. 1,000

SUPPLIERS

Note:

1 A Material Service Provider has been identified by the Group as a key supplier due to the nature of the services they provide.

OUR COLLEAGUES

We are an employer of choice offering rewarding careers and opportunities, promoting physical, financial and mental wellbeing in the workplace and empowering a wholly inclusive workforce.

Read more about key employee engagement activities undertaken during the year on

P26

Read more about diversity and inclusion on our website at

www.thephoenixgroup.com/diversity

The Group's Human Resources ('HR') policy defines people risk, which, if unmanaged, could result in a reduction in earnings or value, through financial or reputational loss. 

The minimum control standards in place enable effective management around the attraction, recruitment, development and engagement of colleagues, whilst ensuring compliance with any legislation and external regulatory requirements. 

Adherence to this policy is managed by the Group HR department via quarterly assessment of the minimum control standards. There were no material issues raised during the year.

This section details the actions taken and outcomes achieved across the year. 

EMPLOYEE CONSULTATION

The Big Conversation was a significant listening exercise that was undertaken within Phoenix Group and Phoenix Life at the start of the year to raise the level of dialogue around the Group's values, and provided greater clarity around associated behaviours. Through a series of facilitated workshops and online channels, colleagues were given the opportunity to voice their opinions on what they perceived as positive or negative behaviours, with a view to developing a common understanding across all levels of the business. 

The outcomes were shared with colleagues and provided a clear framework for how individuals are recognised, developed and recruited. The values were continually reinforced throughout the year and culminated in an employee-led recognition awards process, whereby colleagues were asked to nominate individuals who they believed displayed particular values across the year. 

The Group operates a Whistleblowing policy, prompting colleagues to disclose information where they believe wrongdoing, malpractice or risk exists across any of Phoenix's operations. Colleagues are encouraged to speak up about matters that concern them, with the understanding that confidentiality will be maintained.

Colleagues within Standard Life Assurance have access to Vivo, an employee consultation group based onsite. Championing the employee voice, it provides support and advice when employees need it most, and is actively engaged in any decisions affecting working life.

Learning and development

The Talent and Development team designs and delivers a varied programme of learning and development activities including leadership development, talent programmes, skills training, online learning, coaching and mentoring. 

As part of the Group's HR processes, there is an established succession plan which tracks internal succession across all material roles and enables appropriate assessment of skills gaps. 

The plan identifies talent across the broader organisation. Growing talent continues to deliver the Group's most senior appointments and talent programmes in Accounting, Actuarial and Change help to identify future leaders. 

The Group also selects key partners to provide a wide range of learning and continual professional development opportunities including the Chartered Management Institute, Corndell, Moving Ahead and the ACCA. Relationships continue with business schools and executive coaches to develop the Group's most senior talent pipeline.

The Professional Women's Network launched a mentoring scheme with Moving Ahead which is available to colleagues across the Group and at any level. Over 100 mentoring pairs are currently working together, breaking down silos and developing a culture of mentoring, learning and knowledge sharing. 

In addition, the Group participated for a second year in the Actuarial Mentoring Programme, providing support and guidance to newly qualified female actuaries.

As part of the Early Careers proposition, Standard Life Assurance currently has 24 graduates who form part of the Graduate Development Programme based in Edinburgh, in cohorts from 2017 and 2018. In addition 10 mentors are actively engaged in providing monthly mentoring sessions to young people across the Edinburgh area, through the Career Ready development programme.

The Group has fully utilised the Apprenticeship levy funding working in partnership with Corndell and has over 100 programmes underway including Project Management, Leadership, Data analytics and Accountancy enabling skill development across the Phoenix management population.

CULTURAL SURVEY

In the absence of an engagement survey for 2018, the Group issued a cultural survey to colleagues across the Enlarged Group. A series of questions were asked concerning what individuals would like to see in the future. This insight will help the Group shape its values and understand more about what is required to create a high-performing organisation.

DIVERSITY AND INCLUSION

Phoenix was one of the first companies to sign HM Treasury's Women in Finance Charter. The Charter is a commitment for signatory firms to work together to build a more balanced and fair industry. Targets for gender diversity are published annually on the Group's website. Targets set for completion by end of 2018 were not met, as they were largely impacted by changes in senior management through acquisition, structural changes, resignation and retirement. From 2019, the Group will report progress based on the combined entities, with a commitment to achieve targets by end of 2021. The Group remains committed to creating an inclusive and positive environment for all employees.

EMPLOYEE NETWORKS

The Group values the power of its employee voice. Various networks are in operation across the Enlarged Group, with a common goal of collaboration. Work has commenced to merge and replicate some of the networks, creating a common focus and support network across sites.

The 'Engagement Forum' is the longest standing network, which welcomes members from all functions and levels of seniority. 

This group is invited to meet with the management team on a quarterly basis to share views and shape future engagement activity. A similar network called Ignite operates within Standard Life Assurance, encouraging colleagues to be involved and positively influences everyday engagement activity.

Various other employee-driven networks exist which have a common aim of creating a more supportive and inclusive working environment.

Balance - which incorporates the former 'Professional Women's Network' aims to raise awareness of gender diversity, promoting an inclusive environment where everyone can thrive.

The 'Young Person's Development Network' aims to connect individuals across the organisation, providing a platform for individuals to learn, share and develop as they start out in their career journey.

The Group has a 'Lesbian, Gay, Bi-sexual and Transgender Network' - Affinity in operation, encouraging connections and a safe place to share common experiences, issues or challenges. 

A Black, Asian and Minority Ethnic ('BAME') Network - Mosaic exists to identify and address any barriers to development and career progression. The network enhances cultural awareness and creates a more inclusive and diverse workforce.

The 'Armed Forces Network' supports the recruitment of Armed Forces personnel into the business. In October 2018, the Armed Forces Covenant was signed by the Group. 

'Carers Network' and 'Working Parents' Network' are two groups providing education and support to colleagues with varying caring responsibilities outside of the workplace.

A new mental health network, Mind Matters was launched initially within Standard Life Assurance. Its purpose is to generate healthy conversation in the workplace around mental health issues. This network will be rolled out to other colleagues in 2019.

REWARD

The Group continues to attract, develop and retain talented individuals by offering a comprehensive range of benefits and development opportunities. All employees are paid at least the Living Wage as set by the Living Wage Foundation.

95% of colleagues within Phoenix Group and Phoenix Life participate in the flexible benefits scheme, which allows benefits to be selected that meet personal circumstances. Examples include cycle to work schemes, home technology and smart phones, critical illness cover through to health assessments and enhanced life cover. For 2018 buying and selling annual leave remained the most utilised, followed by childcare vouchers and insurance-related products. 

Private medical insurance cover is available to all colleagues across the Group regardless of their status within the organisation.

All Group employees participate in an Annual Incentive Plan and are able to become shareholders in the Company. Over half of the Phoenix Group and Phoenix Life population are voluntarily participating in one or more of the share-save or share incentive plans, benefiting in the Group's increased share performance. 

95%

OF PHOENIX GROUP/PHOENIX LIFE COLLEAGUES PARTICIPATE IN THE FLEXIBLE BENEFITS SCHEME

"Over half of the Phoenix Group and Phoenix Life population are voluntarily participating in one or more of the share-save or share incentive plans, benefiting in the Group's increased share performance."

STEPHEN JEFFORD

GROUP HR DIRECTOR

EMPLOYEE WELLBEING

The Group's wellbeing programme covers physical, mental and financial matters, offering colleagues and their dependants information, tools and resources covering a range of topics. A programme of wellbeing activity took place during the year which included onsite health-checks, flu vaccinations, self-care workshops and awareness of musculoskeletal issues. A programme of Mental Health First Aid training and bespoke mentally healthy workplace workshops were offered across the year. 

Four dementia champions have been trained by Alzheimer's Society to deliver awareness sessions to colleagues onsite. During 2018, 278 dementia friends were created. In addition colleagues can benefit from subsidised onsite massage, discounted gym membership and fitness classes at the larger sites.

Building on the success of the previous year's wellbeing partnership with Living Streets charity, the Group joined forces to offer additional cultural led-walks for colleagues in London and Basingstoke. The Group's efforts were featured in the City of London's Active Travel - Best Practice Guide for 2018. Launched in National Walking Month 2018, Wythall colleagues were trained to deliver weekly walks targeted at individuals aged over 65. 

'Wythall Walking Friends' was a six-month pilot which improved the physical and mental wellbeing of colleagues and members of the local community. This wellbeing initiative will be replicated in 2019 and expanded to reach additional beneficiaries.

Colleagues across the Group have access to an Employee Assistance Programme which provides free, independent and confidential advice on all matters affecting an individual's wellbeing. 

The Group was named as National and Regional Winner in the Chamber Business Awards 2018 for 'Workplace Wellbeing' and finalists in Herefordshire and Worcestershire Chamber of Commerce annual awards. 

HUMAN RIGHTS

The Group is committed to ensuring that human rights are respected and processes are in place to remove any human rights issues both internally and externally via outsourced relationships. 

In line with the Equality Act 2010 and in order to ensure that the Group is aligned to relevant Articles of the United Nations Universal Declaration of Human Rights, the Group has a Dignity at Work policy in place. The policy covers bullying and harassment of and by managers, employers, contractors, suppliers, agency staff and other individuals engaged with the Group. 

All colleagues are required to comply with the policy and take appropriate measures to ensure harassment and bullying does not occur. 

Adherence to the policy is managed by the Group HR department via assessments of the minimum control standards, which ensure effective resolution of employee disputes.

In addition all colleagues are required to complete annual computer-based training in Business Ethics and Ethical Conduct. 

During the year the Group effectively resolved all employee disputes and as a result was involved in no employment tribunals. 

HEALTH AND SAFETY

The Group operates a Health and Safety policy which helps the organisation to effectively manage risks and any adverse effects. Health and Safety risks that are not properly managed could lead to a reduction in earnings and/or value through financial or reputation loss associated with adverse impacts on the health and safety of employees, customers and third parties in the workplace. 

The Group had three reportable accidents during 2018 which were reported to the Health and Safety Executive under the Reporting of Incidents, Disease and Dangerous Occurrence Regulations ('RIDDOR'). 

All colleagues are required to complete annual computer-based Health and Safety training.

Arrangements are in place to manage onsite facilities across all sites, ensuring the working environment is kept clean and secure.

WELLBEING ACCOLADE

Phoenix Group WINs National workplace wellbeing award (image source: 2018 chamber business awards)

OUR COMMUNITY PARTNERS

We contribute to our local communities - providing donations, skills, time and resources to the cause. 

PHOENIX GROUP'S CHARITY PARTNERS OF THE YEAR

It is recognised that the true value of a corporate charity partnership allows the Company and employees to explore opportunities beyond just monetary value, often leaving a lasting legacy with those involved. Now into its fifth year of the six-year partnership with Midlands Air Ambulance Charity and London's Air Ambulance Charity, the Group is continuing to use this collaboration to engage colleagues in fundraising, skills-based volunteering and events.

The Group has donated in excess of £770,000 between these two air ambulance charities since 2014. A festive fundraising 'Reindeer Run' through the streets of London, raised over £21,000 (including matching) for the combined charities. 

For 2019, the Group will enter into two further corporate charity partnerships, helping to unite the Enlarged Group with fundraising for a common cause. Colleagues in Scotland will be supporting Scotland's Charity Air Ambulance and colleagues in Basingstoke will support Hampshire and Isle of Wight Air Ambulance. A donation of over £31,000 was presented to Scotland's Charity Air Ambulance in recognition for colleague participation in onsite lottery, Give as you Earn and a raffle for the period September to December 2018.

SunLife commenced a two-year partnership at the start of the year with Alive Activities Limited, enriching the lives of older people in care and providing training resources for carers. Colleagues at the Bristol office exceeded their fundraising target for the year by raising over £6,000 for the charity.

Further afield the German charity partner for 2018 was Hilfe für krebskranke Kinder Frankfurt e.V who received a donation of €13,486.30 to aid children with cancer and the Austrian charity partner was Oesterreichische Krebshilfe Wien who received €6,000, to support individuals living with cancer.

Colleagues in Ireland have reviewed partnership opportunities and from February 2019 will be partnering with Irish charity, ALONE, which helps older individuals in the community.

OTHER CHARITABLE DONATIONS

Colleagues based in the UK can fundraise for any UK-registered charity through the 'Our Community, Your Choice' programme and apply for matching. All applications must meet the Group's charity criteria, and not be deemed political or religious.

Over £17,000 was donated across the year through onsite fundraising, primarily benefiting causes in the local area. Beneficiaries included: Macmillan Cancer Support, Alzheimer's Society, Street Support Network Limited, St Michael's Hospice in Basingstoke and the City's Lord Mayor's Appeal. 

To welcome Standard Life Assurance colleagues to the Phoenix family, a charity vote was held onsite in September 2018. St Columba's Hospice in Edinburgh received the most votes and was awarded a community donation of £10,000, and runner-up donations of £6,000 and £4,000 was awarded to Scotland's Charity Air Ambulance and Streetwork in Edinburgh. In addition, for Dublin colleagues €4,000 were donated to The Peter McVerry Trust, to help reduce homelessness and the harm caused by substance misuse and social disadvantage. 

Through the staff-matched fundraising scheme, individuals are able to participate in charitable activity in their own time, and request matching of the amount raised. This also includes an element of 'payment in lieu of volunteering' whereby colleagues may regularly support UK-registered charities outside of business hours. Over £52,000 was donated across the year.

COMMUNITY WELLBEING

The Group extended its focus on wellbeing to members of the Wythall community, where Phoenix is considered one of the largest employers in the area. A unique initiative named 'Wythall Walking Friends' was launched in conjunction withLiving Streets charity to help tackle social isolation in individuals aged over 65, through the delivery of regular community led-walks. Volunteers were trained to lead the walks, helping to reduce loneliness, encourage new friendship groups and increase the exercise potential within the group, thus helping to reduce the risk of depression and dementia.

The Group has been assisting Alzheimer's Society with raising awareness of dementia onsite and in the community. Four colleagues are trained as dementia champions and have run awareness sessions to over 160 members of the community, reaching NHS dieticians at Moseley Hall Hospital and pupils within Ark Kings Academy. In addition colleagues attended the Bromsgrove Pensioners Advice and Information Fair, showcasing Phoenix engagement activity that directly improves community wellbeing, for example Age UK's Men in Sheds project.

COMMUNITY INVESTMENT

The Group has worked closely with various community partners over the year, offering support in both financial and non-financial ways.

Phoenix was premier sponsor of the 'Wythall and Hollywood Fun Run' which included a 10km, 5km and 1.5km run through the heart of Wythall's community and entered the site's grounds as part of the official distance. 

Standard Life Assurance sponsored a team for the annual Social Bite sleep in the park, which 22 colleagues participated, helping to raise awareness of homelessness in Scotland.

Meeting room facilities at the Wythall site were freely available to Acorns Children's Charity and Coppice School who provided times-table training to 39 school representatives, benefiting the education of over 11,000 pupils within the Midlands area. In addition the grounds have been loaned to Wythall Transport Museum and Kings Norton Marching Band.

The Group signed the Literacy Pledge for 2018, helping to raise literacy levels and increase social mobility within the UK. Volunteers currently support Ark Kings Academy in Birmingham and St Joseph's Primary School in London with reading programmes. In Dublin, a volunteering in schools programme, arranged in conjunction with Junior Achievement Ireland, works to keep children in education, therefore improving employment and life outcomes. Whilst this programme commenced before the Standard Life Assurance acquisition, the year's achievements included motivating 412 students across 15 schools. Four Career Ready interns were offered a paid placement, enabling valuable work experience and the Nigel Monaghan Apprenticeship for school leavers was launched, providing a six-month paid work experience placement.

Within the Edinburgh office, 10 young people are engaged with the Career Ready programme, receiving regular mentoring sessions with colleagues, helping to expand their educational opportunities.

The Group has supported Citizens Advice Solihull Borough with the creation of a new charity shop in Chelmsley Wood, Birmingham. The premises were equipped with furniture donations and wares from the Group.

VOLUNTEERING

Employees regularly volunteer on either an individual basis or with their team to make a difference in their local community.

Employees within Phoenix Group and Phoenix Life are permitted 14 hours per year during working hours to support a variety of causes. 58% of colleagues participated in this year's volunteering programme contributing 3,547 hours. There has been a shift in more colleagues wishing to participate in skills-based volunteering, offering their time to be mentors, reading buddies and number partners at local schools. 

At the SunLife operations in Bristol, volunteering is also a key part of their culture, with 87% of colleagues contributing 700 hours across the year to causes within their local community.

Within Standard Life Assurance colleagues are permitted up to three days community volunteering lieu time for activities they are engaged with inside and outside of working hours. In the period since September 2018, 1,533 hours were donated to community causes. The Armed Forces Network organised a day for volunteers to help collect donations for Poppy Scotland in Edinburgh.

Phoenix Group was a finalist in the Chartered Institute of Personnel and Development ('CIPD') annual awards, for Best Skills-based Volunteering Initiative. This accolade recognised the contribution that volunteers made in supporting Midlands Air Ambulance Charity with its Practical Quality Assurance System for Small Organisations ('PQASSO') Level 2 accreditation. 

SCHOOL PARTNERSHIPS

The Group continues its partnership with Ark Kings Academy in Kings Norton, working on a variety of mutually- beneficial initiatives across the year. The Group part-funded the 2018 - 2019 academic year Place2Be mental health service onsite, assisting pupils, their families and teaching staff with wellbeing and enrichment support.

Volunteers provide weekly financial literacy and reading skills support to pupils. The music department was the focus for this year, inspiring the youth in creative arts. Donations from the Group included staging and lighting towers, branded t-shirts and end-of-year concert support. The school was awarded a Gold Standard by the Incorporated Society of Musicians, recognising the high level of uptake and attainment in GCSE music, and commitment to the subject. The school's choir 'Phoenix Singers' performed to colleagues onsite at Wythall during their festive lunch celebrations.

In London our colleagues have supported St Joseph's Primary School, where pupils are visited on a weekly basis, helping to develop reading skills. In addition, the Group's CEO and management team visited Draper's Academy in Harold Hill, to share their experiences of working life and routes into the profession. They also took time to read with pupils with Special Educational Needs. 

"The support of Phoenix Group has very much helped with the development of music onsite."

ROGER PUNTON

PRINCIPAL AT ARK KINGS ACADEMY

OUR ENVIRONMENT

Our Corporate Responsibility programme supports our commitment to monitoring and reducing our environmental footprint. Having awareness of the potential impacts of climate change is of global importance, however is not considered a material risk to the working practices of the Group.

The Group's environmental aim is to 'put back' what it takes out. As a financial services organisation, the Group's impact on the environment is minimal when compared with other industries.

Various employee-led initiatives continue to take place each year, focusing largely on internal resource-use, and the 3 R's - reduce, re-use and recycle. From an energy contract point, the Group now uses only 100% renewable resources in its owned properties.

The Corporate Responsibility Steering Committee reviews environmental progress and agrees activity for future implementation such as the installation of electric vehicle charging facilities, scheduled for April 2019 at the Wythall site.

INTERNAL PRINT RESOURCE

Reducing print and paper consumption onsite remained one of the Group's primary environmental focuses across 2018. Phoenix Group and Phoenix Life colleagues now receive quarterly personalised dashboards detailing print usage and ratio of colour print, so they can directly manage what impact their print habits have on the wider environment.

With technological advances in Information Technology and greater availability to online content the Group's print and paper consumption is moving in the right direction. 

WASTE MANAGEMENT

All core sites continue to divert 100% of their waste from landfill with a detailed monthly report outlining the volume of waste and method of disposal or recycle. The London office, which is shared tenancy, achieved an accolade for its achievements in waste management, waste minimisation and re-use in the form of the Clean City Awards Scheme. Donations of old furniture, carpet tiles and electrical equipment were distributed to various community partners in the Wythall area, reducing the requirement for waste removal, but adding value by creating a new lease of life for the items being donated. In addition, LED lighting has been installed in three core staircases and other common areas within the Wythall site. The aim was to make the building more energy-efficient, whilst reducing ongoing energy usage.

Colleagues across the Enlarged Group were given a re-usable cup to mark the start of a new chapter in Phoenix Group's journey with Standard Life Assurance. At the Wythall site, colleagues have reduced one-use paper-cup consumption by an estimated 30% since go live. Plans are underway to move to a more sustainable biodegradable cup in 2019, with a view to eliminating other forms of one-use plastic onsite.

RESPONSIBLE INVESTMENT

The Group has completed several green investment deals across the year, signifying the importance it places on the wider environment. This signified a new area of investment for the Group, helping to diversify the overall investment portfolio.

The first was a £27 million investment in renewable energy at the Walney Extension Project, assisting with the construction and operation of the enlarged offshore wind farm, situated 45 miles north of Liverpool. This project now provides clean energy to a large number of UK homes. Phoenix participated in providing debt-financing for the acquisition of a 50% share in the project.

A further investment was £50 million in Anglian Water's green projects. The proceeds are to be used to help finance projects that will mitigate climate change impacts and the conservation of water resources.

CLIMATE CHANGE

Phoenix's vision is to be Europe's leading life consolidator and although it continues to be a predominantly Heritage business, it now also has a substantial Open business element. As the Group is a consolidator of life insurance funds, rather than general insurance, it does not currently consider climate risk as a principal risk. Climate change is one of the risks considered in the Group's horizon scanning activity and the Group continues to focus on the potential impacts of this risk, for example:

· The Group uses external managers for the vast majority of its assets who consider a broad range of environmental, social and governance ('ESG') factors in their selection and management of our investments. With the view that ESG and social impact investing can deliver better risk adjusted returns, Phoenix is developing its own ESG policy in support of this. Over 2018, Phoenix has invested in a number of ESG-related opportunities, including renewable energy and green initiatives.

· Expanding the Group's programme of qualitative and quantitative scenario analysis to take account of the potential impact of climate change scenarios; and to ensure this is appropriately reflected in the Group's risk management framework.

· Continuing to engage with our regulators on the impact on the Group of near term physical and transition risks associated with climate change.

· Continue to consider the requirements of consultations associated with the risks of climate change and engage with industry bodies on the Group's response where appropriate.

CONSERVATION

Working with Bromsgrove District and Redditch Borough Councils, colleagues have donated 750 volunteering hours to improving the various parklands within the Midlands area. Their efforts have assisted with creating a bark path, building dead hedging and a wildlife hibernaculum, thinning woodland, painting benches, planting floral displays and removing the invasive Himalayan balsam from the waterways. 

The Group continues to partner with the Heart of England Forest, planting in excess of 6,000 broadleaf trees since 2013. Pupils from partner school Ark Kings Academy were invited to the education centre at the Forest, to spend a day exploring the greater outdoors. The SunLife operation in Bristol is also a member of the Woodland Trust.

There has been a shift in 2018, with colleagues wishing to support more outdoor environmental-based volunteering projects. The Group has also supported the Canal and River Trust, Warwickshire Wildlife Trust and National Trust across the year.

This volunteering encouraged healthy exercise whilst taking part in environmentally-focused activities which will benefit future generations. At one of the Edinburgh sites the roof space is home to a colony of bees. Colleagues are able to meet the beekeeper and attend awareness sessions.

ENVIRONMENTAL REPORTING

This section includes an update on the Group's annual greenhouse gas emissions. Emissions disclosed relate to facilities and activities where the Group has operational control within the UK. 

As of September 2018, the vast majority of Standard Life business (part of Standard Life Aberdeen Plc) was sold to Phoenix Group. As a result, two operational properties were acquired - Standard Life House and Standard Life Data Centre. These two properties have therefore been included in the Group's carbon footprint (absolute GHG emissions) for the 2018 calendar year. However, as these two properties were not owned for the whole two-year period that is used for intensity measurement calculations, they have been excluded from these metrics to avoid skewed intensity results. 

The emissions reported are based on the main requirements of the ISO14064 Part 1 and the GHG Protocol Corporate Standard (revised edition). Data was gathered at meter level to compile the carbon footprint. The Government's 2018 Conversion Factors for GHG Company Reporting have been used to convert energy data into carbon dioxide equivalent (CO2e) emissions.

The Group reports Scope 2 emissions using the GHG Protocol dual-reporting methodology, stating two figures to reflect the GHG emissions from purchased electricity, using both:

· A location-based method that reflects the average emissions intensity of the UK electricity grids from which consumption is drawn; and

· A market-based method that reflects emissions from electricity specific to each supply/contract. Currently, the Group has used residual mix factors in the absence of contractual instruments.

In 2018 absolute emissions have increased by 11% due to the inclusion of the two ex-Standard Life acquired properties. This increase has outweighed the reduction in the emission factor for consumption of purchased electricity (Scope 2) and the reduced consumption of energy at a number of properties throughout 2018. 

Approximately 14% of 2018 emissions are estimated as full-year data is not available for all facilities. A sample of emissions from fuel use for company-owned transport, backup generation and fugitive emissions from refrigerants were calculated in previous years and were determined to be non-material to the overall footprint, so have not been included.

The Group's chosen intensity metrics detail carbon emissions per floor area and per full-time equivalent employees (FTE). The intensity by floor area has decreased slightly as a larger number of properties have been included within the analysis this year and these properties have largely reduced their energy use in 2018 compared to 2017. The intensity by FTE shows a slight increase from 2017 to 2018 as the number of people employed has reduced.

GREENHOUSE GAS EMISSIONS

Absolute GHG emissions data in tonnes of CO2e

Phoenix Group's chosen intensity measurement1

1 Our intensity measurement calculations exclude former Standard Life Assurance Limited properties to avoid skewed intensity results over the two-year period.

The Group's full Corporate and Social Responsibility Report is available at

www.thephoenixgroup.com/CRreport2018

The Group's complete Economic, Social and Governance measures are available to download at

www.thephoenixgroup.com/esg

£27m

INVESTMENT IN RENEWABLE ENERGY AT THE WALNEY EXTENSION PROJECT

£50m

INVESTMENT IN ANGLIAN WATER'S GREEN PROJECTS

"These investments mark an important first step for the Group in renewable energy and is particularly suited to our ambitions. We hope to see further projects of this nature in the future."

SCOTT ROBERTSON

HEAD OF FINANCIAL management group, PHOENIX GROUP

OUR Investors

We value an active dialogue with the Group's financial audiences including institutional investors, private investors, buy and sell-side analysts and prospective investors. Phoenix therefore conducts a comprehensive investor relations programme.

MEETINGS WITH INSTITUTIONAL EQUITY INVESTORS

Throughout the year members of the Executive Committee and the Investor Relations department held meetings with investors to provide updates on the Group's strategy and operations. This involved 20 shareholder roadshow days and a total of 246 meetings with existing and prospective equity investors.

The Chairman and Non-Executive Directors are available for investor meetings to discuss subjects such as strategy, corporate governance and Director's remuneration as required. 

RESULTS PRESENTATIONS AND Capital markets DAYS

Full year and interim results were presented to analysts and investors by the Group. The presentations were webcast live on Phoenix's website and presentation materials were also made available. 

Phoenix held a Capital Markets Day on 29 November 2018 in London which was attended by 120 investors and analysts and provided an update on the Standard Life Assurance acquisition. The event also provided attendees with the opportunity to meet with management. 

Investor presentations are generally filmed and the videos as well as the presentation materials and transcript are made available on the Group's website.

CONFERENCES

Conferences enable the Group to meet with a significant number of investors and at the same time are important platforms for presenting on Phoenix's investment proposition. This year, Phoenix attended nine conferences in the UK, including conferences organised by ABN AMRO, Bank of America Merrill Lynch, Deutsche Bank, J.P. Morgan Cazenove, Investec, Lloyds, Morgan Stanley and Natixis. 

ANALYSTS AND EQUITY SALES FORCES

Phoenix maintains an active dialogue with its equity and debt research analysts who, in addition to results presentations, are invited to attend investor events such as the Capital Markets Day. The Executive Directors also held nine presentations to the sales teams at major investment banks to promote the Phoenix investment case.

DEBT INVESTORS

The Debt Investor Relations programme is managed by the Group Treasury department and supported by the Investor Relations department.

Senior management conducted 13 deal and non-deal related debt investor roadshow days in the UK, Continental Europe and Asia, meeting 168 debt investors overall. 

CREDIT RATINGS AGENCIES AND BANKS

Phoenix's life companies and outstanding bonds have credit ratings by Fitch Ratings. The Group meets with the rating agency at least once per year for the annual ratings review. The Group Treasury Team and management last provided Fitch with an update in June 2018. The Group Treasury department and senior management also keep a constant dialogue with the Group's relationship banks. 

PRIVATE SHAREHOLDERS

Private shareholders are encouraged to engage with the Group through the Investor Relations department and Company Secretariat.

ANNUAL GENERAL MEETING ('AGM')

The Group uses its AGM as an opportunity to communicate with shareholders. Business to be discussed at the meeting is notified to shareholders in advance through the Notice of Meeting and comprises topics such as the annual election of Directors, the appointment of the Auditor and the dividend declaration. 

414

TOTAL NUMBER OF debt and equity investors met in 2018

33

Total NUMBER OF debt and equity investor roadshows 

CORPORATE GOVERNANCE

IN THIS SECTION

CHAIRMAN'S INTRODUCTION

Shareholders

I would like to start my introduction to this Governance section by expressing my pleasure and gratitude for the tremendous support from our shareholders in 2018, both through the 96% take-up in July 2018 of our £1bn rights issue to finance the acquisition of Standard Life Assurance and through their strong support of all proposals at the three shareholder meetings we held in 2018 as follows:

· May 2018 Annual General Meeting - All 21 resolutions passed with a majority of at least 93% of votes cast.

· June 2018 General Meeting to approve the acquisition of Standard Life Assurance businesses, the associated £1bn rights issue and the issue of shares to Standard Life Aberdeen plc ('SLA') as part consideration for the acquisition - All 7 resolutions passed with a majority of at least 91% of votes cast (including 99% for the resolution approving the acquisition).

· November 2018 General Meeting to approve the Scheme of Arrangement and associated capital reduction in connection with the establishment of the Group's new UK-registered and listed holding company, Phoenix Group Holdings plc - All 8 resolutions passed with a majority of at least 99% of votes cast.

Our three general meetings in 2018 were held in London. Following the acquisition of Standard Life Assurance, our 2019 Annual General Meeting will be held on 2 May 2019 in Edinburgh, which is now our largest operational centre.

The UK listing of Phoenix Group Holdings plc as a UK-registered company in place of our former Cayman Islands registration was the final stage of regularising our legacy residency and incorporation status and followed the movement of central management and control for Phoenix Group Holdings from Jersey to the UK in January 2018.

BOARD OF DIRECTORS

Our Board has been through a period of renewal over the past three years and our Board Evaluation Review, undertaken in November 2018, concluded that we should now aim for a period of Board stability, following the appointment of eight new non-executive directors out of a total of ten since September 2016.

The relatively high amount of recent Board recruitment has enabled us to focus on the skills required for a growing business and the Group's M&A agenda, which in 2018 delivered the successful acquisition of Standard Life Assurance. Apart from my own appointment in 2018, the new appointees to the Board in 2018 were nominees from SLA, our strategic partner, exercising their rights in line with their c20% shareholding to appoint two directors to our Board. The November 2018 Board evaluation concluded that the Board had a strong and appropriate skillset which had been enhanced by our two new appointees from SLA, Campbell Fleming, who brings asset management skills and expertise, and Barry O'Dwyer, who brings experience as a CEO of a large open life assurance business and the associated customer-focused skills. 

I am pleased that several members of our Board have current or recent FTSE 100 financial services Board experience - Alastair Barbour (our Senior Independent Director and Audit Committee Chair), John Pollock (our Risk Committee Chair), Barry O'Dwyer, Karen Green and Belinda Richards as well as myself. 

I am also pleased that our Board complies with the target of the Hampton-Alexander Review for the Board to be at least 33% female. 

UK Corporate Governance Code

As detailed in the Corporate Governance Report on pages 65 to 75, we complied in 2018 with all the principles and provisions of the UK Corporate Governance Code ('the Code'), such that in the last six years we have had only one matter of non-compliance with the Code.

We have been considering the new requirements of the Code effective from 2019. We have been taking steps to comply with the new provisions and will, as required, report on our compliance with those provisions in our 2019 Annual Report.

However, I am very pleased to report now that, in respect of the provision to enhance the Board's engagement with the workforce, the Board has appointed Karen Green as our nominated non-executive director who will liaise with the workforce through a Workers' Advisory Council. 

The following sections provide more detail on our Board of Directors, Executive Management team, operation of governance and remuneration practices as follows:

· Board and Committee Structure

· Board of Directors

· Executive Management Team

· Corporate Governance Report

· Directors' Remuneration Report

· Directors' Report.

 "Since joining the Phoenix Board as Chairman, I have been impressed by the attention from the Board and management on robust governance, with the aims of both protecting our shareholders and customers and enhancing our performance."

Nicholas Lyons

CHAIRMAN

BOARD STRUCTURE

Phoenix Group Holdings Board and Committees

The main focus of the Phoenix Group Holdings Board is on Group strategy and performance, with input from Board committees. The chart below sets out the composition and main activities of the Phoenix Group Holdings Board and its committees. More detailed operational and customer-focused matters are addressed at the subsidiary board and committee level.

Phoenix Group Holdings Board

Audit Committee

Alastair Barbour (Chair)

Karen Green

John Pollock

Belinda Richards

Financial Reporting

Internal Controls

External Audit

Internal Audit

Risk Committee

John Pollock (Chair)

Alastair Barbour

Wendy Mayall

Belinda Richards

Risk Appetite and high-level Risk Matters

The Group's Risk Management Framework

Nicholas Lyons (Chair)

Alastair Barbour - SID

Clive Bannister

James McConville

Campbell Fleming

Karen Green

Wendy Mayall

Barry O'Dwyer

John Pollock

Belinda Richards

Nicholas Shott

Kory Sorenson

Group Strategy

Major Transactions 

Group Budget

Group Risk Appetite

Performance Monitoring

External/Shareholder Reporting

External Debt

Nomination Committee

Nicholas Lyons (Chair)

Alastair Barbour

Nicholas Shott

Kory Sorenson

Board Appointments

Senior Executive Appointments

Diversity and Inclusion

Board and Senior Executive Succession Planning 

Remuneration Committee

Kory Sorenson (Chair)

Karen Green

Nicholas Shott

Group Remuneration Framework

Executive Director Remuneration

Employee Share Schemes

Further details regarding the Board are contained on

P62-63

BOARD OF DIRECTORS

THE GROUP IS GOVERNED BY OUR BOARD OF DIRECTORS. BIOGRAPHICAL DETAILS ARE SHOWN BELOW.

NICHOLAS LYONS

Chairman

Committee membership

Nomination Committee (Chairman)

Appointed to the Board

31 October 2018

Experience

Nicholas Lyons was appointed Chairman of the board of directors of Phoenix Group Holdings and Chairman of the Nomination Committee of Phoenix Group Holdings with effect from 31 October 2018. Nicholas Lyons joined JP Morgan in 1982, where he worked for 12 years in debt and equity capital markets and mergers and acquisitions. He spent eight years at Lehman Brothers, as a Managing Director in their European financial institutions group, ending his executive career in 2003 as Global Co-Head of Recruitment. Mr Lyons has held a number of positions on the boards of other financial institutions including the Pension Insurance Corporation, where he was the Senior Independent Director from 2016 until July 2018. He also held positions on the boards of the Temple Bar Investment Trust, Catlin Group Limited, Friends Life Group Limited and Friends Life Holdings plc. Mr Lyons has recently joined the Board of the British United Provident Association Limited (BUPA) and is also Chairman of Clipstone Industrial REIT plc. He is an Alderman in the City of London Corporation.

CLIVE BANNISTER

Group Chief Executive Officer

Appointed to the Board

28 March 2011

Experience

Clive Bannister joined the Group in February 2011 as Group Chief Executive Officer. Prior to this, Mr Bannister was Group Managing Director of Insurance and Asset Management at HSBC Holdings plc. He joined HSBC in 1994 and held various leadership roles in planning and strategy in the Investment Bank (USA) and was Group General Manager and CEO of HSBC Group Private Banking. He started his career at First National Bank of Boston and prior to working at HSBC was a partner in Booz Allen Hamilton in the Financial Services Practice providing strategic support to financial institutions including leading insurance companies, banks and investment banks. Mr Bannister is also Chairman of the Museum of London.

JAMES MCCONVILLE

Group Finance Director and group director, scotland

Appointed to the Board

28 June 2012

Experience

Between April 2010 and December 2011, Mr McConville was Chief Finance Officer of Northern Rock plc. Prior to that, between 1988 and 2010, he worked for Lloyds Banking Group plc (formerly Lloyds TSB Group plc) in a number of senior finance and strategy related roles, latterly as Finance Director of Scottish Widows Group and Director of Finance for the Insurance and Investments Division. During 2011 and 2012, Mr McConville was a Non-Executive Director of the life businesses of Aegon UK. In 2014, Mr McConville joined the board of Tesco Personal Finance plc as a Non-Executive Director. Mr McConville qualified as a Chartered Accountant whilst at Coopers and Lybrand.

WENDY MAYALL

Independent Non-Executive Director

Committee membership

Risk Committee

Appointed to the Board

1 September 2016

Experience

Wendy Mayall has over 30 years of asset management experience, including as Group Chief Investment Officer and later consultant at Liverpool Victoria from 2012 to 2015, having previously been Chief Investment Officer for Unilever's UK pension fund from 1996 to 2011 and holding management responsibility for Unilever's pension funds globally. From 2006 to 2009, Ms Mayall was the Chair of the Investment Committee of the Mineworkers Pension Scheme, a British government appointment to one of the largest government backed pension schemes in the UK. Ms Mayall is a Non-Executive Director of Old Mutual Wealth Oversight Council. She is also the Senior Independent Director and Audit Committee Chair of Fidelity Investments Life Insurance Company and Chair of the Funding Committee for TPT Retirement Solutions.

BARRY O'DWYER

NON-EXECUTIVE DIRECTOR

Appointed to the Board

31 August 2018 

Experience

Barry O'Dwyer is the Head of UK for Standard Life Aberdeen. Prior to the sale of Standard Life Assurance to Phoenix, he was the CEO of Standard Life Aberdeen's Pensions & Savings businesses. Mr O'Dwyer initially worked at Standard Life between 1988 and 2008 and held several senior roles at Standard Life after re-joining the company in 2013. A Fellow of the Institute of Actuaries, Mr O'Dwyer has 30 years of experience in the insurance industry, in a career which has also included senior roles at Prudential and HBOS. 

JOHN POLLOCK

Independent Non-Executive Director

Committee membership

Risk Committee (Chairman), Audit Committee

Appointed to the Board

1 September 2016

Experience

John Pollock had a career in life assurance at the Legal & General Group from 1980 to 2015, including as an Executive Director of Legal & General Group plc from 2003 to 2015. Mr Pollock held numerous senior roles, gaining wide strategic and technical experience, finally as Chief Executive Officer of LGAS (L&G Assurance Society), one of Legal and Generals' three primary business units. Prior to Mr Pollock's retirement from Legal and General in 2015, he held positions as Deputy Chair of the FCA Practitioner Panel, Chairman of investment platform Cofunds, and as a Non-Executive Director of the Cala Homes Group. 

ALASTAIR BARBOUR

SENIOR INDEPENDENT DIRECTOR

Committee membership

Audit Committee (Chairman), Nomination Committee, Risk Committee

Appointed to the Board

1 October 2013

Experience

Alastair Barbour has over 30 years audit experience with KPMG where he worked across the full spectrum of financial services clients from large general insurers and reinsurers to the life insurance and investment management sector, working on a range of operational and strategic issues. Mr Barbour is the former Head of Financial Services, Scotland for KPMG. He retired from KPMG in 2011 to build a Non-Executive career. He is a Director and Audit Committee Chairman of RSA Insurance Group plc and Liontrust Asset Management plc (both London Stock Exchange listed companies). He is also a Director and Audit Committee Chairman of CATCo Reinsurance Opportunities Fund Ltd, a Bermuda-based investment company listed on the Specialist Funds Segment of the London Stock Exchange and of The Bank of N. T. Butterfield & Son Limited, a group listed on the New York Stock Exchange and in Bermuda. Mr Barbour was appointed Senior Non-Executive Independent Director on 2 May 2018. 

CAMPBELL FLEMING

NON-EXECUTIVE DIRECTOR

Appointed to the Board

31 August 2018 

Experience

Campbell Fleming is the Global Head of Distribution at Aberdeen Standard Investments, the asset management business of Standard Life Aberdeen. He joined Aberdeen Asset Management in August 2016 from Columbia Threadneedle Investments where he was the Chief Executive - EMEA and Global COO for four years. Mr Fleming is the Chair of the Investment Association Trade Committee and previously held senior positions at JP Morgan Asset Management. 

KAREN GREEN

Independent Non-Executive Director

Committee membership

Audit Committee, Remuneration Committee

Appointed to the Board

1 July 2017

Experience

Karen Green is the former Chief Executive of Aspen UK, which comprised the UK insurance companies of the global US-listed insurer and reinsurer, Aspen Insurance Holdings and was a member of the Aspen Group Executive Committee for 12 years. She also held a number of other senior positions including as Group Head of Corporate Development, Strategy, and Office of the Group CEO. Prior to that, she held various senior private equity and corporate finance roles from 1997 to 2005 at GE Capital and then MMC Capital, gaining substantial M&A experience, having worked previously at Baring Brothers and Schroders. Ms Green is Non-Executive Director of Admiral Group plc and is a Council Member of Lloyd's of London. She is Deputy Chair and Acting Chair of Aspen Managing Agency Limited and is also a Vice President of the Insurance Institute of London. 

BELINDA RICHARDS

Independent Non-Executive Director

Committee membership

Risk Committee, Audit Committee

Appointed to the Board

1 October 2017

Experience

Belinda Richards has held senior executive positions at KPMG, EY, and latterly Deloitte from 2000 to 2010 where she was a senior corporate finance Partner and the Global Head of Merger Integration and Separation Advisory Services. She is an experienced Non-Executive Director, currently on the Boards of WM Morrison Supermarkets plc, Avast plc, The Monks Investment Trust plc and Schroder Japan Growth Fund plc. Previously, she has also been on the Boards of Aviva UK Life & Pensions, Grainger plc and Balfour Beatty plc. 

NICHOLAS SHOTT

Independent Non-Executive Director

Committee membership

Nomination Committee, Remuneration Committee

Appointed to the Board

1 September 2016

Experience

Nicholas Shott is an investment banker, who has been European Vice Chairman of Lazard since 2007 and Head of UK Investment Banking at Lazard since 2009. Mr Shott joined Lazard in 1991 and became a partner in 1997. He is also a Non-Executive Director on the Board of the Home Office.

KORY SORENSON

Independent Non-Executive Director

Committee membership

Remuneration Committee (Chair), Nomination Committee

Appointed to the Board

1 July 2014

Experience

Kory Sorenson is currently a Non-Executive Director and Chairman of the Audit Committee of SCOR SE, a Non-Executive Director of Pernod Ricard SA, a Non-Executive Director of Prometic Life Sciences Inc, a member of the Supervisory Board of Uniqa Insurance Group AG, and a member of the Supervisory Board of the privately-owned Bank Gutmann AG. Ms Sorenson is currently on the Supervisory Board of Uniqa Insurance Group AG, although will not be seeking renewal of her mandate in May 2019. She has been nominated to join the Board of SGS SA in March 2019. Ms Sorenson has over 25 years of experience in the financial services sector, most of which has been focused on insurance and banking. She was a Non-Executive Director of Aviva Insurance Limited, Managing Director, Head of Insurance Capital Markets of Barclays Capital and also held senior positions in the financial institutions divisions of Credit Suisse, Lehman Brothers and Morgan Stanley. She began her career in the finance department of Total SA. 

EXECUTIVE MANAGEMENT TEAM

Executive management of the Group is led by the Group Chief Executive Officer, Clive Bannister, who is supported by the Executive Committee ('ExCo').

CLIVE BANNISTER

GROUP CHIEF EXECUTIVE OFFICER

ROLES AND RESPONSIBILITIES

· Leads the development of the Group's strategy for agreement by the Board;

· Leads and directs the Group's businesses in delivery of the Group's strategy and business plan;

· Leads the Group to safeguard returns for policyholders and grow shareholder value;

· Embeds a risk-conscious Group culture which recognises policyholder obligations in terms of service and security; and 

· Manages the Group's key external stakeholders.

STEPHEN JEFFORD

GROUP HUMAN RESOURCES DIRECTOR

ROLES AND RESPONSIBILITIES

· Leads the implementation of the Group's employee strategy in order to recruit, retain, motivate and develop high quality employees;

· Provides guidance and support on all HR matters to the Group Chief Executive Officer, ExCo and the Group Board and Remuneration Committee; and 

· Delivers HR services to the Group. 

TONY KASSIMIOTIS 

GROUP CHIEF OPERATING OFFICER

ROLES AND RESPONSIBILITIES

· Leads development and delivery of the Group's operating platforms in line with regulatory requirements, the Risk Universe and strategy;

· Ensures the delivery of the Group's information technology strategy;

· Leads the management of the Group's long-term outsourcing arrangements; and

· Ensures that the Group's procurement activities and shared services are efficient and effective.

JAMES MCCONVILLE

GROUP FINANCE DIRECTOR And Group Director, Scotland

ROLES AND RESPONSIBILITIES

· Develops and delivers the Group's financial business plan in line with strategy;

· Ensures the Group's finances and capital are managed and controlled;

· Develops and delivers the Group's debt capital strategy and other treasury matters;

· Ensures the Group has effective processes in place to enable all reporting obligations to be met;

· Supports the Group Chief Executive Officer in managing the Group's key external stakeholders; and

· Enhances shareholder value through clear, rigorous assessment of business opportunities.

SUSAN MCINNES

Chief Executive, Standard Life assurance Limited, AND GROUP DIRECTOR, OPEN BUSINESS

ROLES AND RESPONSIBILITIES

· Leads development and delivery of the Standard Life business strategy including ensuring;

· Customer proposition is evolved to ensure it continues to meet the market need;

· Focusses on a business model which ensures good outcomes for customers, shareholders and all other stakeholders; and

· Ensures that Standard Life deploys capital efficiently and effectively, with due regard to regulatory requirements, the Risk Universe and strategy.

JOHN MCGUIGAN

GROUP HEAD OF CUSTOMER

ROLES AND RESPONSIBILITIES

· Leads the Group's Customer Function to drive operational and experience delivery for the Group's customer base;

· Sets standards and policies for customer management and interaction; and

· Provides customer oversight, complaint handling and remediation activity.

ANDY MOSS

CHIEF EXECUTIVE, PHOENIX LIFE AND GROUP DIRECTOR, HERITAGE BUSINESS

ROLES AND RESPONSIBILITIES

· Leads the development and delivery of the Phoenix Life business strategy, including the continued integration of life businesses;

· Leads the Phoenix Life business to optimise outcomes for customers in terms of both value and security; and 

· Ensures Phoenix Life deploys capital efficiently and effectively, with due regard to regulatory requirements, the Risk Universe and strategy.

JONATHAN PEARS

CHIEF RISK OFFICER

ROLES AND RESPONSIBILITIES

· Leads the Group's risk management function, embracing changes in best practice and regulation including Solvency II; 

· Oversees and manages the Group's relationship with the FCA and PRA; and

· Supports the Group Board Risk Committee in the oversight of the Group's risk framework, in line with risk strategy and appetite.

RAKESH THAKRAR

DEPUTY GROUP FINANCE DIRECTOR

ROLES AND RESPONSIBILITIES

· Leads on the Group's Annual Report and Accounts, ORSA and Pillar 3 reporting;

· Manages the Group's financial plans and management information in line with strategy;

· Contributes to the effective management of the Group's balance sheet and financial plan (including M&A); and

· Leads on all financial aspects of any M&A.

SIMON TRUE 

GROUP CORPORATE DEVELOPMENT DIRECTOR AND GROUP CHIEF ACTUARY

ROLES AND RESPONSIBILITIES

· Supports the Group Chief Executive Officer in the formulation of the strategy for the Group;

· Leads implementation of the Group's strategy as regards any potential acquisition or disposal;

· Ensures capital is managed efficiently across the Group;

· Manages the Group's solvency position;

· Leads the development of the Group's investment strategy; and 

· Identifies and delivers opportunities to enhance shareholder value across the Group.

QUENTIN ZENTNER 

GENERAL COUNSEL

ROLES AND RESPONSIBILITIES

· Leads provision of legal advice to the Group Board, other Group company Boards, ExCo and senior management;

· Oversees and co-ordinates maintenance of, and adherence to, appropriate corporate governance procedures across the Group; 

· Designs and implements a framework to manage legal risk within the Group, including compliance by Group companies and staff with relevant legal obligations; and 

· Designs and implements a whistleblowing framework within the Group.

Corporate governance report

The Board is committed to high standards of corporate governance and the Group's Corporate Governance policy is aligned to compliance with the UK Corporate Governance Code ('the Code') which sets standards of good practice for UK listed companies. It is the Board's view that the Company has been fully compliant during 2018 with the Principles and provisions set down in the Code. 

THE BOARD

The Board comprises the Non-Executive Chairman, the Group Chief Executive Officer, the Group Finance Director, two SLA nominated Directors and seven independent Non-Executive Directors. Biographical details of all Directors are provided on pages 62 to 63.

The Board considers that the following Directors are independent: Alastair Barbour, Karen Green, Wendy Mayall, John Pollock, Belinda Richards, Nicholas Shott and Kory Sorenson. The Board has considered the criteria proposed by the Code in assessing the independence of the Directors. 

THE CHAIRMAN, GROUP CHIEF EXECUTIVE OFFICER AND SENIOR INDEPENDENT DIRECTOR

Nicholas Lyons is Chairman of the Board of Directors of the Company, having joined the Board as Chairman on 31 October 2018. There is a division of responsibility, approved by the Board, between the Chairman, who is responsible for the leadership and effective operation of the Board and the Group Chief Executive Officer, Clive Bannister, who is responsible to the Board for the overall management and operation of the Group. 

The Chairman's other commitments are set out in his biographical details on page 62. The Chairman was appointed on the basis of committing two days per week to Phoenix. 

The Senior Independent Director, appointed by the Board, is Alastair Barbour. His role is to be available to shareholders whose concerns are not resolved through the normal channels or when such channels are inappropriate. He is also responsible for leading the annual appraisal of the Chairman's performance by the Non-Executive Directors.

BOARD SUCCESSION PLANNING

The Board undertakes regular reviews of executive and non-executive succession planning, as it did in 2018, to ensure that robust plans are in place. Succession planning for executive directors and other senior management takes consideration of both external and internal markets. The Board concluded in its November 2018 Board Evaluation Review that a period of Board stability would now be desirable, following the successful succession planning programme resulting in regular changes in the Board's composition over the last three years, during which eight non-executive directors were appointed. 

BOARD EFFECTIVENESS

In accordance with the Code, an evaluation of the performance of the Board and that of its Committees and individual Directors was undertaken in the latter part of 2018. The process was led by the Chairman and internally facilitated by the Company Secretary. The process involved completion by Directors of a questionnaire covering various aspects of Board, Committee and Director effectiveness followed by individual meetings between the Chairman and each Director, concluding in a Board report which was discussed by the Board in November 2018. 

A strong theme from the review was the desire to continue to focus on strategy and the Group's future as a heritage and open business. Various process-focused recommendations to support the Board in successfully driving forward the Group's strategy are being actioned. 

BOARD COMPOSITION

GROUP BOARD (%)

BOARD GENDER DIVERSITY (%)

Key statistics

To ensure that the Directors maintain up-to-date skills and knowledge of the Group, all Directors receive regular presentations on different aspects of the Group's business and on financial, legal and regulatory issues. All Directors receive a tailored induction on joining the Board in accordance with a process approved by the Board. In 2018 the new Chairman, Nicholas Lyons and SLA nominated Directors, Campbell Fleming and Barry O'Dwyer, undertook a comprehensive induction, including detailed strategic and operational briefings and information, before and following their appointments. Comments on their induction process are shown below.

OPERATION OF THE BOARD

The Board is responsible to the shareholders for the overall performance of the Group. The Board's role is to provide entrepreneurial leadership within a framework of prudent and effective controls, which enables risk to be assessed and managed. The Board has a schedule of matters reserved for its consideration and approval supported by a set of operating principles. 

These matters include:

· Group strategy and business plans;

· Major acquisitions, investments and capital expenditure;

· Financial reporting and controls;

· Dividend policy;

· Capital structure;

· The constitution of Board committees;

· Appointments to the Board and Board committees;

· Senior executive appointments; and

· Key Group policies.

The schedule of matters reserved for the Board is available from the Company Secretary. Matters which are not reserved for the Board and also its committees under their terms of reference (which are available on the Group website), or for shareholders in general meetings, are delegated to the executive management under a schedule of delegated authorities approved by the Board.

The terms of appointment for the Directors state that they are expected to attend in person regular (at least six per year) and additional Board meetings and to devote appropriate preparation time ahead of each meeting. In February 2019, the Nomination Committee reviewed the time spent by Directors and concluded that the time required of (and given by) the Directors is considered at least at the level expected in their appointment terms and is believed to be high in comparison with other FTSE 250 companies.

The Nomination Committee has confirmed its absolute satisfaction with the time and overall commitment given to Phoenix by all Directors. During 2018, several unscheduled meetings called at short notice impacted directors' attendance. 

INDUCTION INSIGHTS

Two new Directors, who joined the Board in 2018, share their insights on their induction.

This included Alastair Barbour and Belinda Richards, who each missed three of twelve Board meetings in 2018. All three meetings missed by Mr Barbour were ad-hoc meetings called at short notice. His Board attendance record in the prior year (2017) was 100%. Two of the three meetings missed by Belinda Richards in 2018 were ad-hoc meetings called at short notice.

Since her appointment in 2017, she has attended all other Board meetings, so has attended twelve out of fifteen to date.

The remuneration of the Directors is shown in the Directors' Remuneration Report on pages 88 to 105. The terms and conditions of appointment of Non-Executive Directors are on the Group's website. In accordance with the provisions of the Articles and the Code, all Directors will submit themselves for election at the Company's AGM on 2 May 2019. 

The Board met twelve times during 2018 and is scheduled to meet seven times in 2019 including for a two-day strategy setting meeting. Additional meetings will be held as required, and the Non-Executive Directors will hold meetings with the Chairman, without the Executive Directors being present, as they did on several occasions in 2018.

BOARD and COMMITTEE ATTENDANCE 2018

Notes:

1 Henry Staunton resigned from the Board on 31 October 2018.

2 Nicholas Lyons was appointed to the Board on 31 October 2018.

3 Ian Cormack resigned from the Board on 2 May 2018.

4 Campbell Fleming and Barry O'Dwyer were appointed to the Board on 31 August 2018.

5 In addition, the following attended meetings of the specially constituted Chair Selection Committee: Kory Sorenson (Chair) - 3 meetings; Karen Green - 3 meetings; Wendy Mayall - 3 meetings; John Pollock - 2 meetings; Belinda Richards - 2 meetings.

6 All three Board meetings missed by Alastair Barbour were ad-hoc meetings called at short notice. His Board attendance record in the prior year (2017) was 100%.Two of the three Board meetings missed by Belinda Richards were ad-hoc meetings called at short notice. Since her appointment in 2017, she has attended allother Board meetings, so has attended twelve out of fifteen to date.

BOARD ALLOCATION OF AGENDA TIME (%)

BOARD COMMITTEES

The Board has delegated specific responsibilities to four standing committees of the Board. The terms of reference of the committees can be found on the Company's website.

AUDIT COMMITTEE

The composition of the Audit Committee is in accordance with the requirements of the Code and also with DTR 7.1.1AR in that all four members are independent Non-Executive Directors, that at least one member of the Committee has recent and relevant financial experience and the members of the Committee as a whole have competence relevant to the sector in which the Company is operating. 

The Audit Committee met seven times during 2018. Its meetings are attended by the Chair of the Risk Committee (who is also a member of the Audit Committee), the Group Finance Director, the Deputy Group Finance Director, the Group Head of Internal Audit, the external auditors and usually also by the Group Board Chair and the Group Chief Executive Officer. The Audit Committee holds private meetings at least annually with each of the Group Finance Director, the Group Head of Internal Audit and the external auditors, without management present.

AUDIT COMMITTEE'S ROLE

· Receiving and reviewing the Annual Report and Accounts and other financial results, statements and disclosures, although the ultimate responsibility for these matters remains with the Board.

· Monitoring the overall integrity of the financial reporting by the Company and its subsidiaries and the effectiveness of the Group's internal controls.

· Provision of advice to the Board to enable the Board to report on whether the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's performance, business model and strategy.

· Responsible for making recommendations to the Board on the appointment of the external auditors and their terms of engagement including approval of external auditor fees and non-audit services and for reviewing the performance, objectivity and independence of the external auditors.

· Considering and approving the remit of the Internal Audit function and reviewing its effectiveness.

· Oversight of activities of subsidiary audit committees through receipt and review of minutes, discussions between the Chairs of the Audit Committee and subsidiary audit committees, and the Audit Committee Chair's attendance at the Phoenix Life Audit Committee on an occasional basis, as well as his receipt of all papers going to the Phoenix Life Audit Committee (and from 1 September 2018, the Standard Life Audit Committee papers). This oversight has been enhanced further through the attendance at the Audit Committee, on at least an annual basis, by the Chair of the Phoenix Life and Standard Life Audit Committee. 

AUDIT COMMITTEE'S PRINCIPAL ACTIVITIES DURING 2018

External reporting and controls

· Reviewed the Company's 2017 Annual Report and Accounts and 2018 Interim Financial Statements, recommending their approval to the Board, as well as related disclosures and the financial reporting process, supported by reports from management and the external auditors.

· Considered and addressed a number of significant matters in relation to the IFRS consolidated financial statements for 2017 (annual), 2018 (interim) and 2018 (annual) as summarised in the table on page 71. These matters were considered by the Audit Committee to be areas subject to the most significant levels of judgement or estimation, and identified with regard to the significant risks assessed by the Group's external auditors as set out in their audit opinion on pages 112 to 120.

· Reviewed the financial forecasts prepared by management, supported by the sensitivity analysis on the key assumptions underpinning the forecasts, in support of the assumption that the Group will continue as a going concern, the Group's ongoing viability and in support of dividend payments.

· Reviewed the Line 1 risk and controls report from management, the Line 2 internal control assessment from Group Risk, and the annual Line 3 internal control environment opinion report (and the half year update) prior to its consideration by the Board and received reports regarding consequential actions; and received a dedicated briefing on acquisition accounting and continued consideration of the future impact of IFRS17. 

· Considered various financial disclosures included within the transaction documents pertaining to the acquisition of Standard Life Assurance.

· Reviewed reports from Internal Audit on the control environment in the Group's outsource service providers and on the effectiveness of the internal audit work undertaken within the outsource service providers, noting that this was addressed in more detail at the Phoenix Life Audit Committee.

External audit

· Undertook a review of the effectiveness, engagement and remuneration of the current external auditors. This culminated in the re-appointment of Erns & Young ('EY'), which was approved by the Board and subsequently approved by shareholders at the May 2018 AGM - see 'Assessment of the effectiveness of the external audit process' and 'Auditor's Appointment' on page 70.

· Reviewed and monitored the independence of the external auditors including their provision of non-audit services and fees and their appointment as external auditors to the Standard Life Assurance entities - see Auditor's Independence and External Auditor Policy on page 70.

Internal audit

· Assessed the effectiveness of Internal Audit, noting the positive responses received from Management.

· Approved the annual update of the Group Internal Audit Charter and the Group Internal Audit Plan (including its link to the Risk Management Framework), receiving regular reports to monitor progress against the plan. 

· Reviewed the internal audit control environment opinion which included Internal Audit's view of the risk management framework across the Group.

Audit committee's performance

· The Committee's performance was reviewed by the Board in November 2018 as part of its overall Board Evaluation Review. 

General

· Reviewed arrangements for whistleblowing (and whistleblowing activity) should an employee wish to raise concerns, in confidence, about any possible improprieties; and approved an updated whistleblowing policy which complied with the FCA and PRA's whistleblowing rules and the appointment of the Phoenix Life Audit Committee Chair as Whistleblowing Champion under the Senior Insurance Managers Regime. 

· Reviewed and approved updates to the Group Tax Policy, Group External Auditor Policy and the Group Liquidity & Funding Policy.

"THE ACQUISITION OF STANDARD LIFE IN 2018 WAS SIGNIFICANT FOR THE GROUP, AND FOR THE AUDIT COMMITTEE THERE WILL BE ADDITIONAL FOCUS ON ENSURING THAT ROBUST CONTROLS ARE IN PLACE AND ARE APPLIED ACROSS THE WHOLE ENLARGED GROUP."

ALASTAIR BARBOUR

CHAIR OF AUDIT COMMITTEE

AUDITOR'S APPOINTMENT 

In accordance with the requirements of The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014, the Audit Committee undertook a competitive audit tender in 2016 to take effect for the 2017 statutory audit, which it considered to be in the best interests of its shareholders in light of the length of association with the current auditors. 

The tender process in 2016 was overseen by the Audit Committee. The Audit Committee concluded, and recommended to the Board, that the incumbent audit firm, EY, should be retained as the external auditor of the Group from 2017 and supported the recommendation for the re-appointment of the external auditor for the 2018 statutory audit. 

The Committee also reviewed the appointment of EY as auditor to Standard Life Assurance Limited and its subsidiaries in 2018 following the acquisition of those entities by the Group.

Following completion of the onshoring of the Group, a new UK-registered holding company, PGH plc was put in place in December 2018. Effective from December 2018, EY has been appointed as auditor of the Group by the Directors of PGH plc. 

EY has been appointed as auditor of the Group by the Directors of PGH plc. EY has indicated its willingness to continue in office and shareholders' approval will be sought at the AGM on 2 May 2019.

The current audit partner is Ed Jervis, who has held that role from the 2014 statutory audit and will rotate off after completion of the 2018 statutory audit responsibilities.

ASSESSMENT OF THE EFFECTIVENESS OF THE EXTERNAL AUDIT PROCESS

The effectiveness of the external audit process was assessed through the completion of a questionnaire by the key divisions and Group functions within Phoenix Group covering EY's performance during the 2017 financial reporting cycle. 

AUDITOR'S INDEPENDENCE AND EXTERNAL AUDITOR POLICY

The Company has an external auditor policy which requires the Company and the external auditors to take measures to safeguard the objectivity and independence of the external auditors. These measures include a prohibition regarding non-audit services in respect of specific areas, such as secondments to management positions, or those which could create a conflict or perceived conflict. It also includes details of the procedures for the rotation of the external engagement partner. 

The engagement of EY to perform any non-audit service is subject to a process of pre-approval by the Audit Committee. Furthermore, the Group's external auditor policy prescribes a limit for fees associated with non-audit services of 70% of the average statutory audit fee for the three preceding years. This aligns with requirements introduced by the EU Audit Directive and Regulations in 2016. 

In 2018, total fees of £12.2 million were paid to EY. Of this amount £7.2 million related to statutory audit fees of the parent and its subsidiaries, with a further £0.9 million incurred in relation to services provided pursuant to legal or regulatory requirements. 

The remaining fees of £4.1 million are classified as non-audit services under the EU Directive and Regulations, and give rise to a non-audit to audit fee ratio of 66% in 2018 within the limits prescribed in the Group's policy. 

The engagement of EY to perform any non-audit service is subject to a process of pre-approval by the Audit Committee. £1.6 million of the non-audit fees related to actuarial and finance due diligence procedures conducted in relation to the acquisition of Standard Life Assurance. The Audit Committee considers that the engagement of the external auditors in the performance of such diligence procedures provides synergies with audit work post-completion of the transaction and enhanced insight as to the quality of the control environment operated in the target company by comparison to Group standards. Of the remaining balance, a further £2.0 million relates to the provision of assurance services to the Board and the sponsoring banks in support of disclosures made in the public transaction documents relating to the acquisition and debt issuances undertaken in the year. The engagement of the Group's independent external auditor for the provision of such services is consistent with market practice in transactions of this nature.

In relation to their appointment as auditors of the Standard Life Assurance entities, the Committee reviewed the independence of EY in accordance with the requirements of the Financial Reporting Committee's Ethical Standards on independence ("the Ethical Standards"). This included ensuring that any material business relationships between EY and the acquired entities and any prohibited professional services provided by EY to those entities, were terminated within a period of three months from completion of the acquisition as permitted under the Ethical Standards.

The Audit Committee is satisfied that the non-audit services performed during 2018 have not impaired the independence of EY in its role as external auditor. Further information on non-audit fees is provided in Auditor's Remuneration in Notes to the IFRS Consolidated Financial Statements on page 139.

SIGNIFICANT MATTERS CONSIDERED BY THE AUDIT COMMITTEE IN RELATION TO THE FINANCIAL STATEMENTS

Note

Please note that references in this table to Life Company Audit Committees include Audit Committees for the acquired Standard Life Assurance entities in respect of post-acquisition activity.

RISK COMMITTEE

The role of the Risk Committee is to advise the Board on risk appetite and tolerance in setting the future strategy, taking account of the Board's overall degree of risk aversion, the current financial situation of the Group and the Group's capacity to manage and control risks within the agreed strategy. It advises the Board on all high-level risk matters. 

The performance of the Committee during 2018 was assessed as part of both an overall internal annual Board effectiveness review and a Committee-specific effectiveness review. The conclusions demonstrate that the Committee continues to operate effectively.

Details of the Risk Management Framework, for which the Risk Committee has oversight, are provided in the Risk Management section on pages 39 to 46.

RISK COMMITTEe's Role

· The Committee is comprised of four Independent Non-Executive Directors. 

·  A set of 'Operating Principles' are in place to define the responsibilities and accountabilities of the Risk Committees of Phoenix Group Holdings and its subsidiary company boards to avoid any overlap of focus or assurance activity.

· The Committee's meetings are attended by the Chair of the Audit Committee, Alastair Barbour, which allows the review of internal control effectiveness to be managed through collaborative working and oversight.

· The Chairman of the Phoenix Life and Standard Life Risk Committees and Model Governance Committee, John Lister, is a regular attendee to the Committee and provides members with a regular update on the risk matters pertinent to these key subsidiaries and the matters being dealt with at the Model Governance Committee (which is a Board Committee of the Group's Life Companies). 

· Other regular attendees to the Committee include the Group Chief Actuary, Deputy Group Finance Director, the Chief Executives of the subsidiary company boards, the Group General Counsel and the Group Head of Internal Audit. 

· The Committee met a total of seven times in 2018 to including two out of cycle meetings by telephone.

· A joint briefing session was held between the Phoenix Group and Phoenix Life Risk Committee members to review Emerging Risks and Forward Looking Scenarios, the Counterparty Concentration Exposures Process and a deep dive into Credit and Illiquid Assets.

· The Chief Risk Officer, Jonathan Pears, who joined from Standard Life Assurance on 31 August 2018, has full access to the Chair and the Committee and attends all meetings. 

· The Committee receives frequent reporting from the Chief Risk Officer and the Group Risk function on consolidated risk matters affecting the Group to including risk profile assessments and emerging risks.

Significant matters discussed in 2018

Standard Life Assurance acquisition

· To ensure the safe delivery of the Group's acquisition strategy in line with risk appetite, the Committee evaluated the acquisition and provided a recommendation to the Board based on the risk profile, execution risks and overall risk appetite. In doing so, the Committee considered the financing and capital structure of the acquisition, reverse stress testing, acquiring risk infrastructure and regulatory engagement.

· Throughout the acquisition, the Risk Committee continued to be informed on any risk matters including review of the Risk Factors included in the acquisition prospectus, the capital policy framework in operation at Standard Life and the execution risks presented at the time of transfer.

Consequences/Implications of a 'Hard Brexit'

· Due to the ongoing uncertainty of the UK's exit from the European Union, the Committee reviewed and considered the preparations in place for a 'Hard Brexit' and the potential financial and operational impacts on the Group. This continued to be reflected within the top risk reporting to the Committee during the course of 2018 and 2019 to date.

Implementation of a single, digitally enhanced outsourcer platform

· The Committee considered the estimated impact that delivery of this platform would have on the risk profile of Phoenix Life. 

Building the UK Financial Sector's Operational Resilience

· Following the issue of a tripartite discussion paper from the Bank of England, PRA and FCA, the Committee discussed the drive to move the industry toward a more comprehensive risk-based view of operational resilience which is more visible to boards. The Committee considered and supported the prepared response by the Risk function on behalf of the Company. 

RISK COMMITTEE'S PRINCIPAL ACTIVITIES DURING 2018

In addition to the significant matters discussed in 2018, the Committee also:

· Reviewed adherence to the Group Risk Management Framework and approved its harmonisation following the acquisition of Standard Life Assurance Limited, to include consideration of the appropriateness of the Group's overall Risk Appetite Statements.

· Monitored progress against the 2018 Group Risk function plan. 

· Approved the Group Market Risk Appetite Targets.

· Considered the refresh of the Group's capital risk appetite.

· Monitored compliance with the Group's principal risk policies, satisfying itself that action plans to address significant breaches of those policies were sufficient.

· Reviewed the Group's risk profile, monitoring it against the risk categories of Market, Insurance, Credit, Financial Soundness, Customer and Operational with particular attention to risk appetite, risk trends, risk concentrations, provisions, experience against budget and key performance indicators for risk as well as contingency planning.

· Received regular updates on Cyber Security.

· Reviewed Reverse Stress Testing analysis, completed and provided oversight of, and challenge to, the design and execution of the Group's stress and scenario testing, including any changes of assumptions.

· Informed the Remuneration Committee regarding the management of the Group's material risks to support their consideration of executive's Annual Incentive Plan rewards. 

· Considered a Line 2 review of the 2019 Annual Operating Plan.

REVIEW OF SYSTEM OF INTERNAL CONTROLS

The Board has overall responsibility for the Group's risk management and internal control systems and for reviewing their effectiveness in accordance with the Code. The Group's systems of internal controls are designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss. 

The Board (and its subsidiary company boards) monitor internal controls on a continual basis, in particular through the Audit and Risk Committees, which draw upon input from all three lines of defence. There is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group, which has been in place throughout the period covered by this report and up to the date of approval of the Annual Report and Accounts for 2018, in accordance with the 'Guidance on Risk Management, Internal Control and Related Financial and Business Reporting' published by the Financial Reporting Council. The assessment for 2018 was presented to the Board, following review by both Audit and Risk Committees, on 4 March 2019. Where any significant weaknesses were identified, corrective actions have been taken, or are being taken and monitored by both the business and the Committees accordingly.

"DURING 2018, IN ADDITION TO ITS EXISTING PRINCIPAL ACTIVITIES, the COMMITTEE HAS REVIEWED AND CHALLENGED MATTERS RELATING TO THE STANDARD LIFE ACQUISITION AND THE IMPACT OF EXTERNAL POLITICAL AND ECONOMIC UNCERTAINTIES IN ORDER TO ENSURE THE COMPANY IS IN A STRONG POSITION TO DRIVE ITS STRATEGIC OBJECTIVES FORWARD."

JOHN POLLOCK

CHAIR OF RISK COMMITTEE

NOMINATION COMMITTEE

The composition of the Nomination Committee is in accordance with the requirements of the Code that a majority of its members should be independent Non-Executive Directors. The Nomination Committee is responsible for considering the size, composition and balance of the Board; the retirement and appointment of Directors; succession planning for the Board and senior management; and making recommendations to the Board on these matters. 

The Nomination Committee met five times in 2018.

The Nomination Committee also met three times in 2018 as the Chair Selection Committee, chaired by Kory Sorenson, with other members being Karen Green, Wendy Mayall, John Pollock and Belinda Richards. 

The standard process used by the Committee for Board appointments involves the use of an external search consultancy to source candidates external to the Group and, in the case of executive appointments, also considers internal candidates. Detailed assessments of short-listed candidates are undertaken by the search consultancy, followed by interviews with Committee members and other Directors and the sourcing of references before the Committee recommends the appointments to the Board. 

This process was used for the appointment of the new Chairman, Nicholas Lyons, in 2018. The search consultancy used in 2018 for Director appointments was Russell Reynolds which has no other connection with the Company.

NOMINATION COMMITTEE'S PRINCIPAL ACTIVITIES DURING 2018

· As the Chair Selection Committee, delivered a recommendation to the Board for the appointment of Nicholas Lyons as Chairman following a comprehensive search process led by the Chair Selection Committee with Russell Reynolds search consultancy.

· Delivered a recommendation to the Board for Alastair Barbour to succeed Ian Cormack as Senior Independent Director.

· Taking account of the Board Evaluation Review, reviewed the balance of skills, diversity, experience, independence and knowledge on the Board.

· Taking account of the Board Evaluation Review, reviewed the structure, size and composition of the Board.

· Reviewed the time spent by Directors in fulfilling their duties, concluding that the time spent appeared to be high in comparison with other FTSE 250 companies.

· Reviewed the succession plans for Executive and Non-Executive Directors and recommended their approval to the Board.

· Reviewed progress updates on Diversity and Inclusion, supporting initiatives being undertaken to accelerate and enhance management diversity.

The Board's policy on diversity is as follows:

· The Board supports the enhancement of diversity, including gender, as a consideration when recruiting new Directors.

· The Board's overriding aim is to appoint the right Directors to the Board to drive forward the Group's strategy within a robustly compliant framework.

· The Board will undertake regular skills audits to ensure the Board's skills remain appropriate for its strategy and providing diversity where possible.

"THE NOMINATION COMMITTEE HAS PERFORMED ITS ROLE SUCCESSFULLY OVER THE LAST THREE YEARS OF BOARD RENEWAL, WITH EIGHT NEW NON-EXECUTIVE DIRECTORS APPOINTED OVER 2016, 2017 AND 2018, REFLECTING THE SKILLS AND EXPERIENCE Required TO DRIVE THE GROUP FORWARD."

NIChOLAS LYONS

CHAIRMAN

Note

Henry Staunton (Chair until 31 October 2018, when he was succeeded by Nicholas Lyons). 

REMUNERATION COMMITTEE

The composition of the Remuneration Committee accords with the requirements of the Code that the Remuneration Committee should consist of at least three independent Non-Executive Directors. The Remuneration Committee met seven times during 2018.

The Remuneration Committee is responsible for making recommendations to the Board on the Company's remuneration and compensation plans, policies and practices and for determining, within agreed terms of reference, specific remuneration packages for the Executive Directors, Executive Committee members (and other Solvency II identified staff) and the Chairman. Other than in relation to the Chairman, these include pension rights and executive incentive schemes to encourage superior performance. Details of the remuneration structure and the Remuneration Committee's activities in 2018 are provided in the Directors' Remuneration Report on pages 76 to 105.

Our Remuneration Committee terms of reference were updated during the course of this year to reflect the expectations of the new Corporate Governance Code, of which we are fully supportive.

FIT Remuneration Consultants provided advice to the Remuneration Committee until March 2018. PwC provided advice from May 2018 onwards. Both organisations are independent of the Group.

"The Committee believes that Phoenix Group Holdings' approach to remuneration plays a key part in supporting the Group's strategic priorities and alignment with shareholders' and customers' interests."

KORY SORENSON

REMUNERATION COMMITTEE CHAIR

Note

There were no changes to the composition of the Committee during 2018.

DIRECTORS' REMUNERATION REPORT

REMUNERATION COMMITTEE CHAIR'S LETTER

DEAR SHAREHOLDER

On behalf of the Board and its Remuneration Committee ('Committee'), I am pleased to present the Directors' Remuneration Report for the year ended 31 December 2018. This report covers remuneration for Executive Directors and Non-Executive Directors of the Company, operated in line with the Remuneration Policy approved by shareholders at the 2017 AGM.

2018 was a transformational year for Phoenix with the acquisition of the Standard Life Assurance businesses, as set out in the Group Chief Executive Officer's report at the beginning of this Annual Report and Accounts. This and other achievements, in line with our strategic objectives, reflect the strong performance, commitment and leadership shown by the Group's management team. 

Particular operational and financial highlights for the year included: 

Highlights 

· Cash generation of £664 million in 2018 taking the total cash generation in 2017 and 2018 to £1.3 billion and exceeding the upper end of the target range for this period of £1.0 billion to £1.2 billion.

· Completion of the acquisition of the Standard Life Assurance businesses financed in part by a £950 million rights issue and a £945 million debt issuance.

· Strategic Partnership with Standard Life Aberdeen plc.

· Completion of AXA Wealth and Abbey Life integrations. 

· Completion of three Bulk Purchase Annuity ('BPA') transactions. 

· Successful on-shoring of the Group.

· Strong Customer Satisfaction scores of 93%.

INCENTIVE OUTCOMES FOR 2018

The Committee believes that Phoenix's approach to remuneration plays a key part in supporting the Group's strategic priorities and alignment with shareholders' and customers' interests. As indicated in last year's report, following the acquisition of the Standard Life Assurance businesses, the Committee reviewed the business targets within our variable pay plans and made the necessary adjustments to ensure that the plans operated as originally intended and properly reflected our aim to reward long-term value generation. 

Specifically: 

· 2018 Annual Incentive Plan ('AIP'):

· Solvency II Management Action targets have been increased by £260 million to reflect the equity hedging action announced to the market.

· Solvency II Own Funds targets have been increased by £1,837 million to reflect equity raised as part of the acquisition.

· No changes were made to other AIP metrics.

· 2016 Long Term Incentive Plan ('LTIP'):

· No changes were made to the targets, recognising that no net cash is expected from the Standard Life Assurance businesses over the performance period ending December 2018.

For completeness. the targets relating to the 2017 and 2018 LTIP awards were also reviewed and the adjustments are described on page 94.

The Committee evaluated the performance of each Executive Director against both business objectives and individual personal objectives and decided the overall outturns of the AIP and LTIP are appropriate, specifically: 

· 2018 AIP: Clive Bannister and James McConville should receive 85.5% and 88.0% of their maximum bonus opportunity, respectively. 

· 2016 LTIP: Awards will vest at 49.5% of maximum opportunity for both Clive Bannister and James McConville.

Further details of the performance assessment are provided in this report.

REMUNERATION POLICY APPROVAL FOR 2019

The current Directors' Remuneration Policy was approved by shareholders at the 2017 AGM, with a 99% vote in favour. While this policy was put in place for three years, the recent establishment of Phoenix Group Holdings plc as the ultimate parent company of the Group means that the Directors' Remuneration Policy will need to be submitted for a formal binding shareholder approval at this year's AGM before an updated Remuneration Policy is put to shareholders at the 2020 AGM. 

This will largely be a roll forward of the previously approved Phoenix Group Holdings policy. However, in recognition of the 2018 update to the UK Corporate Governance Code, we propose the following two changes to our current Policy: 

· Alignment of pension contributions for new Executive Directors with those provided to the wider workforce, with a review of the policy for current Executive Directors as part of the full policy review later this year.

· Introduction of post-cessation shareholding requirements for both new and current Executive Directors. 

AIP and ltip for 2019

The Committee reviewed the AIP and LTIP metrics in light of the acquisition of the Standard Life Assurance businesses and concluded that they continue to reflect the Group's evolving business focus and are aligned to the success of the Enlarged Group. Therefore, we propose no changes for the 2019 performance measures.

AIP 2019 (metrics unchanged from 2018)

LTIP 2019 (metrics unchanged from 2018)

BOARD CHANGES

During the year, Henry Staunton announced his retirement from the Phoenix Group Holdings Board. Following an intensive search process, Henry was succeeded by Nicholas Lyons from 31 October 2018. Nicholas brings a wealth of experience in life insurance as well as the broader financial services sector. The Board is delighted to welcome Nicholas and looks forward to working with him in the future. The new Chairman's annual fee is the same as that paid to his predecessor.

LOOKING FORWARD

During 2019 the Committee will conduct a full review of the Remuneration Policy to ensure that it continues to align with the Group's strategy, motivates and incentivises management, and promotes alignment with shareholders' and customers' interests. This review will incorporate the new requirements of the UK Corporate Governance Code, which we have already started to embrace through the early adoption of certain aspects of the Code and expanded remit of the Committee as set out in the Terms of Reference. An updated Remuneration Policy will be put to shareholders at the 2020 AGM.

As part of the review process, I will be formally reaching out to engage with and seek the views of the Group's major shareholders. As ever, I welcome the views of all stakeholders, look forward to these meetings, and am very grateful for your time taken and valuable feedback.

KORY SORENSON

REMUNERATION COMMITTEE CHAIR

4 March 2019

DIRECTORS' REMUNERATION REPORT 

AT A GLANCE

HOW WE PERFORMED IN 2018

Group performance measures

Annual Incentive Plan ('AIP'):

Below we show the target ranges and outturn against the metrics within the 2018 AIP. More details of the 2018 AIP can be found on page 89. AIP metrics that are stated Group KPIs are flagged below and evidences the direct link between Company strategy and remuneration outcomes.

OPERATING CASH GENERATION (£m)

KPI

SOLVENCY II MANAGEMENT ACTIONS (£m)

ADJUSTED SHAREHOLDER SOLVENCY II OWN FUNDS (£m)

CUSTOMER SATISFACTION (%)

KPI

ORIGO TIMESCALES (DAYS)

KPI

CAT. B INCIDENT CLOSURES (%)

SERVICING COMPLAINTS (%)

FOS OVERTURNS (%)1

KPI

1 See note 5 on page 89 for detail of the FOS Overturn Rate used in the AIP.

Long Term Incentive Plan ('LTIP'):

Below we show outturn against the measures which applied for the 2016 LTIP awards which are reflected in the Single Figure Table on page 88. Cumulative cash generation and TSR performance are shown over the three-year performance period (financial years 2016, 2017 and 2018). TSR is measured against the constituents of the FTSE 250 (excluding Investment Trusts), with median being the 50th percentile and upper quintile being the 80th percentile. Cash generation continues to be one of our key corporate strategic objectives, while TSR provides a direct linkage to shareholder interests. 

CUMULATIVE CASH GENERATION (£bn)

TOTAL SHAREHOLDER RETURN (percentile)

Shareholding Guidelines ('SOGs')

The charts below show the shares and vested LTIP awards held by the Executive Directors as a percentage of salary as at 31 December 2018. The figures are based on a share price of £5.63 as at 31 December 2018. LTIPs which have vested but are subject to a holding period have counted towards the SOGs figure. The LTIP vested figure reflects performance outturn, dividend accrual, and the expected impact of income tax and National Insurance that will be payable on exercise. Further details on shareholding requirements are included in the Remuneration Policy under the Shareholding Guidelines section on page 84.

SHAREHOLDING GUIDELINES (% OF SALARY)

INTRODUCTION

This report contains the material required to be set out as the Directors' Remuneration Report ('Remuneration Report') for the purposes of Part 4 of The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, which amended The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 ('the DRR regulations').

Phoenix Group Holdings previously voluntarily complied with the DRR regulations as a matter of good practice although it was not strictly required to do so as a non-UK incorporated quoted company. Subsequent to the completion of Phoenix Group Holdings' re-domicile to the UK and following the completion of a Scheme of Arrangement on 12 December 2018, Phoenix Group Holdings plc was inserted as the new ultimate parent company of the Group in place of Phoenix Group Holdings. Accordingly, the Company, as a UK-registered quoted company, must now comply with the DRR regulations as a matter of UK company law.

The appointment of the Directors of Phoenix Group Holdings plc, as shown on page 102, became effective from the date of admission of Phoenix Group Holdings plc to the London Stock Exchange on 13 December 2018.

The tables shown on pages 88 and 92 show the total remuneration received by Directors over the full year to 31 December 2018. The DRR regulations require the disclosure of the remuneration paid to the Directors of the Company in respect of services provided to Phoenix Group Holdings plc or its subsidiaries and this is shown on page 104 with services considered to have been provided effective from 13 December 2018. 

DIRECTORS' REMUNERATION POLICY

The 2019 AGM is the Company's first AGM as a UK-registered quoted company, and so the Company is seeking approval from its shareholders for its Directors' Remuneration Policy ('Remuneration Policy').

The Remuneration Policy which is being put forward for approval by shareholders of Phoenix Group Holdings plc at the 2019 AGM is in all material respects the same as the policy approved by the shareholders of Phoenix Group Holdings at that company's AGM on 11 May 2017. From the date of listing of Phoenix Group Holdings plc on 13 December 2018 the Remuneration Committee has voluntarily applied the policy previously established by Phoenix Group Holdings. This Policy will be reviewed in 2019 in light of changes to the UK Corporate Governance Code and other investor body guidelines and a new revised Policy will be presented to shareholders for approval at the AGM of Phoenix Group Holdings plc in 2020.

Ahead of this full review however, the Group has taken the opportunity to make two immediate updates to the Policy:

· The alignment of pension entitlement for newly appointed Executive Directors to that of the majority of the workforce.

· The introduction of a shareholding requirement post cessation of employment.

The Remuneration Policy is set out in section A of this report overleaf.

Section A: This section contains the Directors' Remuneration Policy as proposed for approval by the Company's shareholders at the Company's 2019 AGM on 2 May 2019. 

GENERAL POLICY

The Remuneration Policy for Executive Directors is summarised in the table below along with the policy on the Chairman's and the Non-Executive Directors' fees.

Summary of changes from previous policy:

As explained in the Remuneration Committee Chairman's letter at the beginning of this Directors' Remuneration Report, the Remuneration Policy proposed for adoption by the Company's shareholders at the 2019 AGM is largely unchanged from the Remuneration Policy approved by the shareholders of Phoenix Group Holdings at its 2017 AGM with the exception of the specific details outlined on page 79 and the addition of the 2019 LTIP metrics. In line with legislative requirements, a revised Remuneration Policy will be presented to shareholders in 2020 being three years following the 2017 AGM.

* This section does not form part of the Remuneration Policy and is for information only.

HOW MUCH THE EXECUTIVE DIRECTORS EARNED IN 2018/potential rewards under various scenarios (£000)

The charts below compare the maximum levels of Total Remuneration payable under the Directors' Remuneration Policy (see page 81) and the actual payments for 2018 detailed in the Single Figure Table (see page 88).

TOTAL REMUNERATION OPPORTUNITY (£000)

· Minimum, on-target and maximum represent the scenario charts required under the Directors' Remuneration Policy - see the data assumptions below.

· 'Maximum with growth' is the maximum scenario, but with the LTIP element increased to reflect a 50% share price growth assumption over the three-year period until LTIP vesting. The element of the total representing the value from these assumptions on share price growth and dividends is shown separately.

· 'Actual' represents the values shown in the 2018 Single Figure Table. Within this, the actual share price growth and dividends in the three-year period until LTIP vesting are shown separately.

Remuneration Policy table

NOTES TO THE REMUNERATION POLICY TABLE

1. Differences between the Policy on Remuneration for Directors and the Policy on Remuneration of other employees

When determining Executive Directors' remuneration, the Committee takes into account pay throughout the Group to ensure that the arrangements in place remain appropriate.

The Group has (as required by Solvency II regulations) one consistent reward policy for all levels of employees and this policy is made available to all staff. Therefore, the same reward principles guide reward decisions for all Phoenix employees, including Executive Directors, although remuneration packages differ to take into account appropriate factors in different areas of the business:

· AIP - all Phoenix employees participate in the AIP, although the quantum and balance of corporate to individual objectives varies by level. The most senior staff are subject to the regulatory requirements of Solvency II, and these individuals also receive part of their bonus in Company shares deferred for a period of three years. A different scorecard of AIP performance measures applies for employees in 'control functions' (risk, compliance, internal audit and actuarial) to exclude financial performance measures.

· LTIP - our most senior employees participate in the LTIP currently based on the same performance conditions as those for Executive Directors, although the Committee reserves the discretion to vary the performance conditions for awards made to employees below the Board for future awards.

· All-employee share plans - the Committee considers it is important for all employees to have the opportunity to become shareholders in the Company. The Company offers two HMRC tax advantaged arrangements in which all UK employees can participate and acquire shares on a discounted and tax advantaged basis (Sharesave and SIP), and equivalent arrangements in foreign jurisdictions (including on a tax advantaged basis permitted under local laws). In addition, selected individuals may receive ad-hoc share awards contingent on continued employment. 

2. Stating maximum amounts for the Remuneration Policy

The DRR regulations and related investor guidance encourages companies to disclose a cap within which each element of remuneration policy will operate. Where maximum amounts for elements of remuneration have been set within the Remuneration Policy, these will operate simply as caps and are not indicative of any aspiration.

3. Malus and clawback

Malus (being the forfeiture of unvested awards) and clawback (being the ability of the Company to claim repayment of paid amounts as a debt) provisions apply to the AIP, DBSS and LTIP. These provisions may be applied where the Remuneration Committee considers it appropriate to do so following:

· a review of the conduct, capability or performance of an individual;

· a review of the performance of the Company or a Group member;

· any material misstatement of the Company's or a Group member's financial results for any period;

· any material failure of Risk Management by an individual, a Group member or the Company; or

· any other circumstances that have a sufficiently significant impact on the reputation of the Company.

4. Travel and hospitality

While the Remuneration Committee does not consider this to form part of benefits in the normal usage of that term, it has been advised that corporate hospitality (whether paid for by the Company or another) and certain instances of business travel (including any related tax liabilities settled by the Company or another Group company) for Directors may technically be considered as benefits and so the Remuneration Committee expressly reserves the right to authorise such activities and reimbursement of associated expenses within its agreed policies.

5. Discretions reserved in operating incentive plans

The Remuneration Committee will operate the AIP, DBSS and LTIP according to their respective rules and the above Remuneration Policy table. The Remuneration Committee retains certain discretions, consistent with market practice, in relation to the operation and administration of these plans including:

· (as described in the Remuneration Policy table) the determination of performance measures and targets and resultant vesting and pay-out levels;

· (as described in the Remuneration Policy table) the ability to adjust performance measures and targets to reflect events and/or to ensure the performance measures and targets operate as originally intended;

· (as described in the Termination Policy) determination of the treatment of individuals who leave employment, based on the rules of the incentive plans, and the treatment of the incentive plans on exceptional events, such as a change of control of the Company; and

· the ability to make adjustments to existing awards made under the incentive plans in certain circumstances (e.g. rights issues, corporate restructurings or special dividends). Any exercise of discretion will be disclosed in the Implementation Report for the year.

RECRUITMENT REMUNERATION POLICY

The Company's recruitment remuneration policy aims to give the Remuneration Committee sufficient flexibility to secure the appointment and promotion of high calibre executives to strengthen the management team and secure the skill sets to deliver our strategic aims.

· In terms of the principles for setting a package for a new Executive Director, the starting point for the Remuneration Committee will be to apply the general policy for Executive Directors as set out above and structure a package in accordance with that policy. 

· The AIP and LTIP will operate (including the maximum award levels) as detailed in the general policy in relation to any newly appointed Executive Director.

· For an internal appointment, any variable pay element awarded in respect of the prior role may either continue on its original terms or be adjusted to reflect the new appointment as appropriate.

· For external and internal appointments, the Remuneration Committee may agree that the Company will meet certain relocation expenses as it considers appropriate.

· For external candidates, it may be necessary to make awards in connection with the recruitment to buy-out awards forfeited by the individual on leaving a previous employer. For such buy-out awards, Phoenix will not pay more than is, in the view of the Remuneration Committee, necessary and will in all cases seek, in the first instance, to deliver any such awards under the terms of the existing incentive pay structure. It may, however, be necessary in some cases to make such awards on terms that are more bespoke than the existing annual and equity-based pay structures in Phoenix in order to secure a candidate. Details of any buy-out awards will be appropriately disclosed.

· All such buy-out awards, whether under the AIP, LTIP or otherwise (for example, specific arrangements made under Listing Rule 9.4.2), will take account of the service obligations and performance requirements for any remuneration relinquished by the individual when leaving a previous employer. The Remuneration Committee will seek to make buy-out awards subject to what are, in its opinion, comparable requirements in respect of service and performance. However, the Remuneration Committee may choose to relax this requirement in certain cases (such as where the service and/or performance requirements are materially completed), and where the Remuneration Committee considers it to be in the interests of shareholders and where such factors are, in the view of the Remuneration Committee, reflected in some other way, such as a significant discount to the face value of the awards forfeited. Exceptionally, where necessary, this may include a guaranteed or non pro-rated annual incentive in the year of joining.

· For the avoidance of doubt, such buy-out awards are not subject to a formal cap.

· A new Non-Executive Director would be recruited on the terms explained in the Remuneration Policy for such Directors.

DIRECTORS' SERVICE CONTRACTS

Executive Directors

Executive Director service contracts, which do not contain expiry dates, provide that compensation provisions for termination without notice will only extend to 12 months of salary, certain fixed benefits and pension (which may be payable in instalments and subject to mitigation). By excluding any entitlement to compensation for loss of the opportunity to earn variable pay, the Remuneration Committee believes the contracts to be consistent with best practice. The Remuneration Committee also has discretion to mitigate further by paying on a phased basis with unpaid instalments ceasing after the initial period of six months if the Executive Director finds alternative employment. Contracts do not contain change of control provisions. The template contract is reviewed from time to time and may be amended provided it is not overall more generous than the terms described above.

Subject to Board approval, Executive Directors are permitted to accept outside appointments on external boards as long as these are not deemed to interfere with the business of the Group.

Non-Executive Directors

The Non-Executive Directors, including the Chairman, have letters of appointment which set out their duties and responsibilities. Appointment is for an initial fixed term of three years (which may be renewed), terminable by one month's notice from either side (six months in the case of the Chairman). Non-Executive Directors are not eligible to participate in incentive arrangements or receive pension provision or other benefits such as private medical insurance and life insurance.

Copies of Executive Director service contracts and Non-Executive Director letters of appointment are available for inspection at the Company's registered office.

Termination policy summary

In practice, the facts surrounding any termination do not always fit neatly into defined categories for good or bad leavers. Therefore, it is appropriate for the Remuneration Committee to consider the suitable treatment on a termination having regard to all of the relevant facts and circumstances available at that time. This policy applies both to any negotiations linked to notice periods on a termination and any treatment which the Remuneration Committee may choose to apply under the discretions available to it under the terms of the AIP, DBSS and LTIP plans. The potential treatments on termination under these plans are summarised below.

1 Where the reason for leaving is retirement, the individual will be required to provide confirmation of their continued retirement before any payments are released to them after the end of the vesting period.

The Company has power to enter into settlement agreements with executives and to pay compensation to settle potential legal claims. In addition, and consistent with market practice, in the event of termination of an Executive Director, the Company may pay a contribution towards the individual's legal fees and fees for outplacement services as part of a negotiated settlement. Any such fees would be disclosed as part of the detail of termination arrangements. For the avoidance of doubt, the policy does not include an explicit cap on the cost of termination payments.

In the event of cessation of a Non-Executive Director's appointment (excluding the Chairman) they would be entitled to a one month's notice period. The Chairman, as detailed in his letter of appointment, would be entitled to a six months' notice period.

Consideration of employment conditions elsewhere in the Group

As explained in the notes to the Remuneration Policy table, the Remuneration Committee takes into account Group-wide pay and employment conditions. The Remuneration Committee reviews the average Group-wide base salary increase and annual incentive costs and is responsible for all discretionary and all-employee share arrangements.

Consistent with previous practice, the Remuneration Committee did not consult with employees in preparing the 2017 Remuneration Policy although will be establishing further employee engagement in 2019 in accordance with the requirement under the Corporate Governance Code. Further details are shown on page 101.

Consideration of shareholders' views

Each year the Remuneration Committee takes into account the approval levels of remuneration-related matters at our AGM in determining that the current Remuneration Policy remains appropriate for the Company.

The Remuneration Committee also seeks to build an active and productive dialogue with investors on developments in the remuneration aspects of corporate governance generally and any changes to the Company's executive pay arrangements in particular. The Remuneration Committee consulted extensively with shareholders prior to the approval of the prior policy which was approved with 99.7% support in 2017. As this new policy is largely a rollover of the previous shareholder approved policy subject to the amendments described on page 79, it was not considered necessary to re-consult.

Section B: This section contains the Annual Report on Remuneration which forms part of the Directors' Remuneration Report to be proposed for approval by the Company's shareholders at the Company's 2019 AGM on 2 May 2019

As explained on page 79 Phoenix Group Holdings plc became the ultimate parent company of the Group and was listed on the London Stock Exchange on 13 December 2018. For ease of comparison to 2017, 2018 full year data is shown below. Details of remuneration paid by each of the two entities Phoenix Group Holdings and Phoenix Group Holdings plc is shown in the Appendix to this report on page 104.

IMPLEMENTATION REPORT - AUDITED INFORMATION

SINGLE FIGURE TABLE

1 The Executive Directors are entitled to adjust their salary/benefit combination under flexible benefits arrangements and the figures shown are before individual elections.

2 Benefits for Clive Bannister comprise car allowance and private medical insurance totalling £16,290. Benefits for James McConville comprise car allowance and private medical insurance totalling £16,032.

3 Annual incentive amounts are presented inclusive of any amounts which must be deferred into shares for three years (ie 40% of the AIP award for 2018). In 2018 and 2017, £359,100 and £360,835 respectively of Clive Bannister's incentive payment is subject to three-year deferral delivered in shares, and £232,320 and £226,810 of James McConville's incentive payment is subject to a similar deferral. Deferred amounts are subject to continued employment.

4 In accordance with the requirements of the DRR regulations, the 2018 value for long-term incentives is an estimate of the vesting outcomes for LTIP awards granted in 2016 and which are due to vest on 2 June 2019 for Clive Bannister and James McConville. These vesting levels are at 49.5% reflecting outcomes against the Cumulative cash generation and TSR performance measures to 31 December 2018 (see page 91) and assumptions regarding dividends for the period until vesting. This vesting outcome is then applied to the average share price between 1 October 2018 and 31 December 2018 (600.04p) to produce the estimated long-term incentives figures shown for 2018 in the above table. These assumptions will be trued up for actual share prices and dividends on vesting in the report for 2019. The disclosed LTIP figure of £745,255 for Clive Bannister reflects the proportion of the original award which ultimately vested (£619,744) plus the value of dividend roll-up on those shares (£125,511). For James McConville the equivalent values are £468,433 as the disclosed LTIP figure, comprising £389,547 for the value of the proportion of the original LTIP award which ultimately vested plus the value of dividend roll-up on those shares (£78,886). All values are calculated using the three month average share price to 31 December 2018 (600.04p).

5 For 2015's LTIP awards which are reflected in the 2017 long-term incentives column above, the performance conditions were met as to 64.28% of maximum. The 2017 long-term incentives values in the above table reflect the value of the Company's shares on the date of vesting which was 28 September 2018 (676p per share) multiplied by the number of shares vesting whereas the equivalent figure within the published 2017 Single Figure Table was an estimate which reflected the average share price between 1 October 2017 and 31 December 2017 (759.8462p per share) and certain assumptions regarding the cumulative value of dividends on the number of shares vesting. 

6 Clive Bannister and James McConville are entitled to each receive a Company pension contribution of 17.6% which is paid in cash. Pension contributions paid as cash supplements are reduced for the effect of employers' National Insurance contributions. Both Clive Bannister and James McConville received the pension contributions as cash supplements. No Director participated in a defined benefit pension arrangement in the year and none have any prospective entitlement to a defined benefit pension arrangement.

PAYMENTS FOR LOSS OF OFFICE AND PAYMENTS TO PAST DIRECTORS 

There were no payments made to former Directors and no payments for loss of office in the year.

AIP OUTCOMES FOR 2018- AUDITED INFORMATION

As explained in the Committee Chairman's statement, the business of the Group is to engage in corporate activity and the Remuneration Committee may adjust targets during the year to include such activity and ensure the targets continue to reflect performance as originally intended. 2018 was a transformational year for the Group in terms of corporate activity with respect to the acquisition of the Standard Life Assurance businesses. In light of this acquisition, the Committee approved the following adjustments to the AIP targets: 

Solvency II Management Actions: Threshold, target and maximum levels increased by £260 million to reflect the equity hedging action announced to the market. The range therefore increased from £100 million (threshold), £140 million (target), £200 million (maximum) to £360 million (threshold), £400 million (target), £460 million as shown in the table below.

Solvency II Management Actions are disclosed on page 32 and 33 of the Business Review and includes capital synergies associated with the acquisition of the Standard Life Assurance businesses.

Adjusted Shareholder Solvency II Own Funds: Threshold, target and maximum levels increased by £1,837 million to reflect equity raised as part of the acquisition, net of any dividends paid or payable in the first 12 months arising from the additional equity. The range therefore increased from £2,863 million (threshold), £2,913 million (target), £3,013 million (maximum) to £4,700 million (threshold), £4,750 million (target), £4,850 million as shown below.

Adjusted Shareholder Solvency II Own Funds represents the Group's Own Funds adjusted to remove the impacts of unsupported with-profit funds, the unsupported pension scheme (PGL Pension Scheme), restricted Tier 1 notes and Tier 2 or Tier 3 subordinated liabilities.

Against the specific Corporate measures, outturns were as follows:

1 The rating is a customer satisfaction score based on the results of a satisfaction survey managed by Ipsos MORI (an external research firm). Customers surveyed were asked to give a satisfaction rating of between 1 and 5 to a number of questions (with a rating of 4 or 5 regarded as satisfied). 93.1% of all questions asked scored a rating of 4 or above.

2 The Origo Options service is a recognised industry-wide initiative for processing Pension Transfers to ensure payments are made in a timely fashion. The service has set a benchmark standard of a 12 calendar day average elapsed time for processing transfers.

3 This measure looks at the resolution of incidents for which there could be customer detriment (financial or non-financial). It measures the timeliness of actions when things go wrong. The metrics in the table represent the percentage of cases closed within nine months. 

4 This measure looks at servicing (ie not product or advice) complaints which are closed within three days.

5 This measure looks at the proportion of cases where the Financial Ombudsman Service disagrees with our decision making in dealings with customers or an aspect of it. For the AIP the FOS overturn rate is calculated based on an average of the H1 current year and H2 prior year rates. This is due to the timing of when the FOS rates are published. The figures exclude cases from past Abbey Life businesses that are subject to the FCA's past business review as such cases must follow an approach prescribed by the FCA and are therefore not an indicator of Phoenix customer treatment.

Before confirming these outcomes for the 2018 AIP, the Committee undertook a review which confirmed that the Company had operated within its stated risk appetite during the year and that there were no other risk-related concerns that required the moderation of 2018 AIP outcomes.

Personal objectives were agreed by the Group Board and shared with the Remuneration Committee at the start of the year. The Board regards a number of the personal objectives set as commercially sensitive and, accordingly, it is not appropriate for such objectives to be disclosed. However a number of achievements for the Executive Directors are shown below:

Clive Bannister, Group Chief Executive Officer ('Group CEO')

James McConville, Group Finance Director ('Group FD')

Taking account of the attainment of personal objectives, the Group Chief Executive Officer received an 87.5% payout (£183,750) for this element and the Group Finance Director received a 100%payout (£132,000) for this element, consistent with their ratings for 2018. These Personal (individual objectives) measures applied to 20% of incentive opportunity and Corporate (financial and strategic) measures applied to 80% of incentive opportunity. Overall outturns as a percentage of maximum opportunity are 85.5% for the Group Chief Executive Officer and 88.0% for the Group Finance Director.

The table below shows the actual outturn against the annual incentive maximum.

As described in the Remuneration Policy, 40% of 2018 AIP outcomes will be delivered as an award of deferred shares under the Deferred Bonus Share Scheme which will vest after a three-year deferral period.

In addition, whilst the performance measures for the AIP for 2019 have been disclosed (see Implementation of Remuneration Policy for 2019 on page 97), the performance targets for these measures are regarded as commercially sensitive at the current time and accordingly are not disclosed. However, the Company intends to disclose the performance targets for 2019's AIP retrospectively in next year's Remuneration Report on a similar basis to the disclosures made above in respect of 2018's AIP.

LTIP OUTCOMES FOR 2016 AWARDS - AUDITED INFORMATION 

The above targets were all measured over the period of three financial years 1 January 2016 to 31 December 2018.

In addition to the above targets, the Committee confirmed that the underpin performance condition relating to debt levels and associated interest costs, and management of debt, capital restructuring and Risk Management within the Group, customer satisfaction and, in exceptional cases, personal performance (as described more fully on page 94, had been achieved in the performance period.

NON-EXECUTIVE FEES - AUDITED INFORMATION

The emoluments of the Non-Executive Directors for 2018 based on the current disclosure requirements were as follows:

1 The amounts within the benefits columns reflect the fact that the reimbursement of expenses to Non-Executive Directors for travel and accommodation costs incurred in attending Phoenix Group Holdings and Phoenix Group Holdings plc Board and associated meetings represent a taxable benefit. This position has been clarified with HMRC and the amounts shown are for reimbursed travel and accommodation expenses (and the related tax liability which is settled by the Group).

2 Henry Staunton retired from the Board of Phoenix Group Holdings on 31 October 2018.

3 Nicholas Lyons became Chairman designate of Phoenix Group Holdings from 1 September 2018 and was confirmed in this appointment on 31 October 2018. Figure above reflects fee paid from 31 October 2018. 

4 Ian Cormack retired from the Board of Phoenix Group Holdings on 2 May 2018.

5 Campbell Fleming and Barry O'Dwyer joined the Board of Phoenix Group Holdings on 31 August 2018 and waived all current and future emoluments with regard to their Directors' fees.

6 Karen Green joined the Board of Phoenix Group Holdings on 1 July 2017.

7 Isabel Hudson retired from the Board of Phoenix Group Holdings on 11 May 2017.

8 Belinda Richards joined the Board of Phoenix Group Holdings on 1 October 2017.

9 David Woods retired from the Board of Phoenix Group Holdings on 11 May 2017.

The aggregate remuneration of all Executive and Non-Executive Directors under salary, fees, benefits, cash supplements in lieu of pensions and annual incentive was £4.055 million (2017: £4.082million).

SHARE-BASED AWARDS - AUDITED INFORMATION

As at 31 December 2018, Directors' interests under long-term share-based arrangements were as follows:

LTIP

The number of shares for outstanding LTIP awards granted between 2015 and 2016 were increased to take into account the impact of the rights issues which took place on 9 November 2016 and 27 July 2018. The number of shares for outstanding LTIP awards granted between 2017 and 2018 were increased to take into account the impact of the rights issues which took place on 27 July 2018. All adjustments were based on the Theoretical Ex-Rights Price ('TERP') and approved by the Remuneration Committee. The share price on grant shown has also been adjusted to reflect the impact of the rights issue on all share prices.

1 In addition to the shares awarded under the LTIP presented above, participants receive an additional number of shares (based on the number of LTIP awards which actually vest) to reflect the dividends paid during the vesting period (and which for awards made from 2015, will include dividends paid during any applicable holding period).

2 Gains of Directors from share options exercised and vesting shares under the LTIP in 2018 were £nil (2017: £2,533,277). 

3 The 2016 LTIP award vested at 49.5% of maximum.

4 All LTIP awards are now subject to a holding period 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.

LTIP Targets

Following the acquisition of the Standard Life Assurance businesses, the Committee reviewed the business targets within the variable pay plans and made the necessary adjustments to ensure that the plans continue to operate as originally intended, properly reflect the aim to reward long-term value generation and are aligned to the market announcements directly in connection with the acquisition. This review resulted in an adjustment to the 2018 targets as follows:

Cumulative Cash Generation: target range increased from £1.474 billion (threshold) to £1.674 billion (maximum) to £1.824 billion (threshold) to £2.024 billion (maximum) as shown below reflecting the additional net cash generation expected by the end of 2020. 

Return on Adjusted Solvency II Shareholders Own Funds: rebasing of the opening position to reflect the equity issued and any synergy benefits expected by the end of 2020.

The Committee were satisfied these adjustments ensured the LTIP continued to operate as originally intended with the targets no easier to satisfy as a result of the acquisition.

No changes were made to the targets for the 2016 and 2017 awards.

The performance conditions for the 2016, 2017 and 2018 awards are set out below and include these adjustments to the 2018 targets.

DBSS