Phoenix Group Holdings Regulatory News (PHNX)

Phoenix Group expects to be towards the upper end of its 2019 cash generation target and is on track to realise £1.2 billion Standard Life Assurance acquisition synergy target

Phoenix Group, Europe's largest life and pensions consolidator1, announces strong results for the six months ended 30 June 2019.

Financial highlights

·; Strong cash generation2 of £287 million in H1 2019 (H1 2018: £349 million). The Group expects to be towards the upper end of its cash generation target range of £600 million - £700 million3 for full year 2019.

·; Solvency II surplus of £3.0 billion4 as at 30 June 2019 (£3.2 billion5 as at 31 December 2018).

·; Shareholder Capital Coverage Ratio of 160%4,6 as at 30 June 2019 (167%5,6 as at 31 December 2018).

·; Group operating profit of £325 million in H1 2019 (H1 2018: £216 million).

·; Interim dividend of 23.4p per share, a 3.5%7 increase on the 2018 interim dividend.

·; New business contribution8 of £116 million from UK Open and Europe (H1 2018 pro forma9: £100 million).

·; £250 million of incremental long-term cash generation from H1 2019 new business (H1 2018 pro forma9:£303 million), enhancing the sustainability of our dividend.

·; Assets under administration of £245 billion as at 30 June 2019 (£226 billion as at 31 December 2018).

·; Leverage ratio10 of 23% as at 30 June 2019 (22% as at 31 December 2018) remains under target rangeof 25% - 30% and new £1.25 billion revolving credit facility in place.

Transition programme

·; Remains on track to deliver the £1.2 billion total synergy target for the Standard Life Assurance businesses transition.

·; £115 million of capital synergies delivered in H1 2019 taking cumulative capital synergies to £615 million against a target of £720 million (85% of total).

·; £21 million per annum cost savings delivered to date against a target of £75 million per annum (28% of total).

·; £17 million one-off cost synergies delivered to date against a target of £30 million (57% of total).

Delivering on strategic priorities

·; Brexit preparations complete with £250 million of capital injected into an Irish subsidiary prior to a Part VII transfer of our European branch businesses completed in March 2019.

·; £3.5 billion gross new business inflows for UK Open and Europe businesses in H1 2019 (H1 2018 pro forma9: £4.6 billion).

·; £0.5 billion of bulk purchase annuity liabilities contracted in the period (H1 2018: £0.5 billion) and a further£0.2 billion contracted in August.

·; £1.1 billion buy-in from the PGL Pension Scheme successfully completed.

·; £0.5 billion of illiquid assets sourced, taking allocation of illiquid assets backing annuity liabilities to 22%.

·; Regulatory approval for two master trust schemes, looking after over 240,000 customers and £5 billion assets under administration, enabling Phoenix to access this rapidly growing market.

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

"I am delighted to announce our H1 2019 results today which demonstrate Phoenix's commitment to meeting the targets it has set. Having delivered £287 million of cash generation year to date, Phoenix expects to be towards the upper end of the £600 - £700 million 2019 target range. We also continue to make good progress across all phases of our transition programme and remain on track to meet the £1.2 billion total synergy target announced in March.

Whilst net inflows into our Open businesses are down overall year on year reflecting market uncertainty from Brexit and a tail off in DB to DC transfers, contributions to our auto-enrolment workplace schemes have increased, and new annuity business in our Heritage segment has been strong. The £250 million of incremental long-term cash generation from this new business in H1 2019 brings sustainability to Phoenix and its dividend.

The life insurance sector continues to consolidate and the M&A pipeline remains strong. We are ready to do deals that meet our acquisition criteria and I am confident that Phoenix will continue to be the market leader in this consolidation process."

Presentation

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

To register for the conference call please go to:

https://www.webcastphoenixgroup.com/2019-half-year-results/vip_connect 

To register for the live webcast please go to:

https://www.webcastphoenixgroup.com/2019-half-year-results

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

Dividend

The interim dividend of 23.4p per share is expected to be paid on 30 September 2019.

The ordinary shares will be quoted ex-dividend on the London Stock Exchange as of 15 August 2019. The record date for eligibility for payment will be 16 August 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

Notes

1. Phoenix Group is the largest life and pensions consolidator in Europe with 10 million policies and £245 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. 2019 cash generation target is net of the £250 million cost of capitalising Standard Life International Designated Activity Company for Brexit.

4. The Solvency II capital position is an estimated position and assumes a dynamic recalculation of transitionals as at 30 June 2019. Had a dynamic recalculation not been assumed, the Solvency II surplus and the Shareholder Capital Coverage Ratio would decrease by £0.2 billion and 5% respectively.

5. The 31 December 2018 Solvency II capital position 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.

6. The Shareholder Capital Coverage Ratio excludes Solvency II own funds and Solvency Capital Requirements of unsupported with-profit funds and the PGL Pension Scheme.

7. Rebased to take into account the bonus element of the rights issue completed in July 2018.

8. "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.

9. The pro forma assumes that the acquisition of the Standard Life Assurance businesses took place on1 January 2018.

10. Current leverage ratio is estimated by management.

11. 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.

12. 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.

13. 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.

14. 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

INTERIM REPORT 2019

Phoenix is the largest life and pensions consolidator in Europe

HIGHLIGHTS

Half year ended 30 June 2019

·; Strong performance against all financial targets and expectation to be towards the upper end of £600 million - £700 million cash generation target range

·; On track to deliver £1.2bn synergy targets from the transition of Standard Life Assurance businesses

·; New business written across our Heritage and Open businesses will deliver incremental long-term cash generation of £250 million

·; Brexit preparations complete

·; Met or exceeded all customer service metrics

KEY PERFORMANCE INDICATORS

£287m

OPERATING COMPANIES' CASH GENERATION APM REM

£3.0bn

PGH SOLVENCY II SURPLUS (ESTIMATED)

160%

PGH SHAREHOLDER CAPITAL COVERAGE RATIO (ESTIMATED) APM

23.4p

INTERIM DIVIDEND PER SHARE

£325m

OPERATING PROFIT APM

OTHER PERFORMANCE INDICATORS

£39m

IFRS PROFIT AFTER TAX

£116m

NEW BUSINESS CONTRIBUTIONAPM

£245bn

ASSETS UNDER ADMINISTRATION APM

23%

FINANCIAL LEVERAGE RATIO1 APM

All amounts throughout the report marked with 'REM' are KPIs linked to Executive remuneration.

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

Read more on P56

1 As calculated by Phoenix using Fitch Ratings stated methodology.

GROUP CHIEF EXECUTIVE OFFICER'S REPORT

Phoenix has enjoyed a successful first half year in 2019. We delivered across all of our strategic priorities with strong performance against our financial targets; and are progressing the transition programme following the acquisition of the Standard Life Assurance businesses. We also completed our preparations for Brexit with a Part VII transfer of our European branch business to Standard Life International.

We remain focused on bringing sustainability to our business through a range of growth opportunities whilst continuing to deliver long-term predictable cash generation and maintaining a resilient solvency position.

Consistent with the Group's stable and sustainable dividend policy the Board has declared a 2019 interim dividend of 23.4p per share.

Financial Targets

The Group generated £287 million of cash in the period, net of a £250 million capital injection into our Irish subsidiary to prepare for Brexit. We therefore expect to be towards the upper end of our £600 to £700 million 2019 full year cash generation target range.

Our Solvency II balance sheet remains resilient with a surplus of £3.0 billion and a Shareholder Capital Coverage Ratio of 160%. We have also delivered an IFRS operating profit of £325 million.

TRANSITION programme

We remain on track to deliver our £1.2 billion total synergy target and continue to make strong progress across all aspects of our transition programme following the acquisition of the Standard Life Assurance businesses. Having achieved £115 million of capital synergies in the first half of the year, we have now delivered 85% of our £720 million target. The capital synergies delivered in the first half of the year consist primarily of benefits from the internal restructuring of the Group.

Our three phase transition programme to deliver the combined Group's end state operating model is advancing as planned.

Phase 1, which relates to Head Office functions such as HR, Legal and Risk, will be largely complete by the end of 2019. This phase also includes the roll out of a Group-wide Risk Management Framework.

Phase 2, which comprises the transition of finance and actuarial systems is on track to complete by end 2020. In this phase we will harmonise the Group's capital framework and merge our two Solvency II Internal Models.

Phase 3 will deliver a hybrid end state customer and technology operating model for both the UK Heritage and UK Open segments. The end state operating model will be designed to support further growth of the Open business and respond to the ever evolving landscape whilst also providing a versatile platform for future consolidation. Implementation will take 2-3 years.

To date we have delivered £21 million of cost savings against a target of £75 million per annum. In addition to this, we have delivered £17 million of one-off cost synergies against a target of £30 million.

New business

New business brings sustainability to Phoenix. New business written during the first half of 2019 will generate £250 million of incremental long-term cash generation, circa 1.5 times the interim dividend.

The Bulk Purchase Annuity ('BPA') market was buoyant in the first half of 2019 and Phoenix competed well. During this period, the Group completed a £0.5 billion liability BPA transaction with the Trustees of the Marks and Spencer Pension Scheme which will deliver £90 million of incremental long‑term cash generation.

New business through the Strategic Partnership with Standard Life Aberdeen plc brings improved sustainability to our long-term cash generation.

The UK Open business segment performance was driven by strong workplace gross inflows following the auto-enrolment increases in 2018 and 2019. However, it was a more challenging period for our Wrap products, due to a tail off in Defined Benefit to Defined Contribution pension scheme transfers and Brexit related market uncertainty, the latter also affecting Europe with flows down year on year.

In total, our UK Open and European segments delivered gross new business inflows of £3.5 billion, adding £160 million of long-term organic cash generation.

Furthermore, the Group completed a buy-in of the remaining £1.1 billion PGL Pension Scheme liabilities. This action was already anticipated in our long-term cash generation guidance but will be an enabler to additional future management actions, for example illiquid asset sourcing.

improving customer outcome

We place customers at the heart of what we do and are committed to delivering a high level of customer service.

We monitor our performance using a number of metrics and have met or exceeded all of our targets for the first half of this year.

We continue to work with our outsource partner, Diligenta, to improve the digital journey of legacy-Phoenix customers. We granted access to a further 1.2 million Phoenix Life customers in the period, taking the total number of customers with access to "My Phoenix" to 2.1 million.

Within the Standard Life business we have implemented new 'voice of the customer' technology to improve the quality and speed of customer feedback through telephony and digital journeys and extended our digital functionalities to enable customers in drawdown with a regular income to make additional one-off withdrawals.

As part of our 'Engaging the Unengaged' programme we contacted one million life and protection customers to remind them of the cover they hold, and to date have reconnected a total of £14.2 million with circa 2,000 customers that had lost contact with their policies.

Standard Life Assurance is one of the first providers to receive authorisation from the Pensions Regulator for two master trust schemes which together look after over 240,000 customers and £5 billion of assets under administration. Our master trusts, which are among the biggest in the UK, offer a strong pension proposition for members and provide a range of solutions to employers wishing to streamline their pension processes. This approval enables us to access this rapidly growing market.

On 23 July, the FCA announced the outcome of its enforcement action against Standard Life Assurance Limited following the industry-wide annuity review. The resulting fine of circa £31 million will be covered in full by the indemnity from Standard Life Aberdeen plc put in place on Phoenix's acquisition of this business. We are focused on putting right the issues identified and have already been in contact with affected customers as a part of the programme of redress which we expect to complete by the end of the year.

Growth

The drivers of consolidation in the life insurance sector such as trapped capital, increasing regulatory burdens and specialist skillset gaps are increasingly evident. We continue to see significant consolidation opportunities in the UK, with an estimated £390 billion of Heritage assets. Concurrently, the nascent German and Irish consolidation markets are growing.

Phoenix's strategic positioning is clear and we have strong access to funding through a combination of own resources and a new £1.25 billion revolving credit facility. With our scale, specialist skill set and financial strength, Phoenix is at the forefront of the UK consolidation market with optionality to extend its strategy into Germany and Ireland and deliver our vision of being Europe's Leading Life Consolidator.

BOARD CHANGES

The Board would like to express its gratitude to Barry O'Dwyer for his contribution following the acquisition of the Standard Life Assurance businesses. Barry stepped down from the Board in June following his appointment as the Group Chief Executive of Royal London.

We welcome Mike Tumilty who will be joining the Board on 1 September as a Non-Executive Director replacing Barry as a director nominated by Standard Life Aberdeen plc under the terms of the Relationship Agreement. Mike brings substantial skills and experience relevant to our strategy and we look forward to working with him in the future.

Corporate responsibility

We continue to progress our corporate and social responsibility agenda.

In June, Phoenix became a signatory to the Scottish Business Pledges. This is a voluntary code consisting of nine pledges for businesses to follow. Phoenix already meets all nine pledges and we intend to go well beyond the minimum requirements in areas including workforce engagement, our investment in youth and our commitment to a gender balanced workforce.

We continue to diversify our overall investment portfolio by making green investments. An example of this in the period was a £50 million private placement with A2Dominion Housing Group ('A2Dominion'). A2Dominion will use these funds to refinance maturing secured debt and progress new opportunities to provide more social and affordable housing.

OUTLOOK

Whilst we remain focused on the successful transition of the Standard Life Assurance businesses we look forward to pursuing new growth opportunities in the second half of 2019 to create value for all stakeholders and bring sustainability to our long-term cash generation.

I would like to take this opportunity to thank colleagues throughout the Group for their hard work during the first half of 2019 on delivering the Group's strategic priorities and for their continued focus on building a more sustainable Phoenix.

CLIVE BANNISTER

GROUP CHIEF EXECUTIVE OFFICER

6 August 2019

"Phoenix has a range of growth opportunities to increase the sustainability of its long-term cash generation"

CLIVE BANNISTER

GROUP CHIEF EXECUTIVE OFFICER

Business review

Cash Generation

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

Please see the Alternative Performance Measures ('APM') section on page 56 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 generated by the operating companies during the period was £287 million (HY18: £349 million).

Cash generation is reported net of a £250 million cash remittance into the Group's Irish domiciled subsidiary, Standard Life International. This capital injection preceded a Part VII transfer of the Standard Life Assurance Limited Irish, German and Austrian policies to Standard Life International, completed in March 2019 as part of preparations to ready the business for Brexit.

Recurring cash outflows

The operating expenses of £19 million (HY18: £19 million) are in line with prior period and principally comprise corporate office costs, net of income earned on holding company cash and investment balances.

Pension scheme contributions of £23 million (HY18: £23 million) are made on a monthly basis and comprise £20 million for the Pearl Group Scheme and £3 million for the Abbey Life Scheme.

Debt interest of £34 million (HY18: £10 million) increased as a result of the cash settlement of the semi-annual coupon on the £500 million Tier 1 bond issued in April 2018 and the annual coupon on the €500 million Tier 2 bond issued in September 2018. A semi‑annual coupon on the US$500 million Tier 2 bond was also settled in the period.

The remaining cash interest payments on the Group's outstanding shareholder debt are expected to be settled in the second half of the year.

Non-recurring net cash outflows

Non-recurring net cash outflows of £41 million (HY18: £126 million) principally comprises £31 million of recharged staff costs and Group expenses associated with corporate related projects, including £4 million of external costs related to the transition of the acquired Standard Life Assurance businesses. It also includes a further £4 million of costs related to the separation of those businesses from Standard Life Aberdeen plc ('SLA plc') and £3 million of cash paid to close out derivative instruments entered into by the holding companies to hedge the Group's exposure to currency risk.

Non-recurring cash outflows of £126 million for HY18 included £22 million of option premiums and £49 million of collateral posted in respect of derivative instruments entered into to hedge the Group's exposure to equity risk arising from the Group's acquisition of Standard Life Assurance. It also included a further £21 million of collateral posted on other Group hedging positions and net other corporate costs.

Shareholder dividend

The shareholder dividend of £169 million represents the payment of the 2018 final dividend in May.

Debt issuance (net of fees)

The £494 million debt issuance in HY18 comprised the proceeds of the Tier 1 bond issuance of £500 million completed in April 2018, net of associated fees.

Support of Bulk Purchase Annuity ('BPA') activity

£32 million (HY18: £62 million) of funding has been provided to the life companies to support BPA new business (based on the assets received as premium from the scheme on Day 1).

Target cash flows

The Group has a short-term target of £600 to £700 million for 2019 (net of the £250 million cash remittance into Standard Life International as part of Brexit preparations) and it expects to be towards the upper end of this 2019 cash generation target. The resilience of the £3.8 billion cash generation target set by the Group for the five-year period 2019 to 2023 is demonstrated by the illustrative stress testing in the table below.

Expected cash flows after 2024

There is an expected £8.2 billion of cash to emerge from 2024. This does not include any management actions from 2024 onwards or any additional value from future new business from the Group's Open business and BPA transactions.

"THE GROUP IS ON TRACK TO DELIVER ITS FINANCIAL TARGETS SET FOR THE YEAR."

JAMES MCCONVILLE

GROUP FINANCE DIRECTOR AND GROUP DIRECTOR, SCOTLAND

£287m

OPERATING COMPANIES' CASH GENERATION APM REM

Notes:

1 Includes £43 million and £47 million received by the holding companies in respect of tax losses surrendered to Phoenix Life and Standard Life Assurance respectively (HY18:£14 million - Phoenix Life).

All amounts in the Business Review section marked with 'APM' are alternative performance measures. See 'Alternative Performance Measures' section on page 56 for further details of these measures.

All amounts in the Business Review section marked with 'REM' are KPIs linked to executive remuneration.

Notes:

1 Assumes stress occurs on 1 July 2019.

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

3 Credit stress equivalent to an average 120bps spread widening across ratings and includes an allowance for 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 condensed 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.

A reconciliation from the Group's IFRS condensed consolidated statement of financial position to the Group's AUA is provided on page 53.

Please see the Alternative Performance Measure ('APM') section on page 56 for further details of this measure.

Group aUA

Group AUA increased to £244.7 billion in the period (2018: £226.3 billion) benefiting from positive market movements, notably strong performance in global equity markets during the first half of the year; partly offset by net outflows from the Group's UK Heritage and European businesses.

UK Heritage net flows

UK Heritage net outflows of £2.6 billion (HY18 pro forma1: £3.3 billion) reflects policyholder outflows on claims such as maturities, surrenders and annuities in payment, net of total premiums received in the period from in-force contracts.

It includes £1.1 billion of inflows arising from the Group's buy-in of the remaining pensioner liabilities of the PGL Pension Scheme and £0.5 billion of new business inflows arising from the BPA transaction completed in April.

UK Open flows

The UK Open segment experienced gross inflows of £4.8 billion (HY18 pro forma1: £5.5 billion) during the period, of which£3.1 billion (HY18 pro forma1: £4.0 billion) was received in respect of new contracts transacted in the period.

Strong gross inflows in the Workplace product of £2.3 billion (HY18 pro forma1: £1.9 billion) benefitted from statutory pensions auto-enrolment increases. Gross inflows in the Wrap product of £1.5 billion (HY18 forma1: £2.3 billion) were adversely impacted by challenging market conditions, notably market uncertainty arising from Brexit combined with a decline in transfers from defined benefit to defined contribution pension schemes. Retail products experienced gross inflows of £1.0 billion(HY18 forma1: £1.1 billion)

Outflows for the UK Open business were £4.0 billion (HY18 forma1: £3.4 billion) mainly due to run-off, resulting in net inflowsof £0.8 billion (HY18 pro forma1: £2.1 billion).

Europe net flows

The movement in AUA includes a small net outflow of £0.2 billion (HY18 pro forma: £0.2 billion) from the European business.

Other movements including markets

AUA increased by £20.4 billion as a result of other movements, largely driven by interest rate falls and the impact of strong global equity market performance in the first half 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.

New business contribution for the period was £116 million (HY18 pro forma1: £100 million) (net of tax). This includes£112 million from the Group's UK Open business driven in part by a £50 million positive impact of increases in statutory pensions auto-enrolment within Workplace and £4 million from the European business.

Long term cash generation

As a result of new business transacted in the period, long-term cash generation is expected to increase by £250 million, comprising £160 million from the UK Open and European business segments and £90 million from BPA transactions.

MOVEMENT IN AUA (£bn)

£245bn

ASSETS UNDER ADMINISTRATION APM

£116m

NEW BUSINESS CONTRIBUTION APM

Note:

1 The pro forma position assumes the acquisition of the Standard Life Assurance businesses took place on 1 January 2018.

CAPITAL MANAGEMENT

PGH PLC SOLVENCY II SURPLUS OVERVIEW

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 ('Phoenix Internal Model') to assess capital requirements, the scope of which was extended to include the acquired AXA Wealth and Abbey Life businesses in March 2017 and March 2018 respectively.

The Standard Life Assurance businesses determine their capital requirements in accordance with an approved Internal Model ('Standard Life Internal Model'), which was in place prior to the acquisition of the Standard Life Assurance businesses. The one exception to this is Standard Life International, the Group's Irish subsidiary, which remains on Standard Formula. As a result, the Group currently uses a Partial Internal Model to calculate Group SCR, aggregating outputs from the existing Phoenix Internal Model, the Standard Life Internal Model and Standard Life International's Standard Formula, without further diversification. A harmonisation programme to combine the two Internal Models into a single Internal Model is ongoing.

CHANGE IN PGH PLC SOLVENCY II SURPLUS (ESTIMATED)

The PGH plc Solvency II surplus has decreased to £3.0 billion (FY18: £3.2 billion). The result assumes a dynamic recalculation of Transitional Measures on Technical Provisions ('TMTP').

Surplus generation and the impact of the reduction in capital requirements for the Group added £0.2 billion to the surplus during the year.

Management actions undertaken increased the surplus by £0.3 billion. This includes £0.1 billion in respect of capital synergies associated with the acquisition of the Standard Life Assurance businesses, primarily as a result of internal group restructuring activities. Other management actions of £0.2 billion include further investment in illiquid assets within annuity portfolios and expense reductions.

The impact of new business written during the year reduced the surplus by £0.1 billion. This primarily reflects the capital strain associated with the BPA transaction executed in May and vesting annuities in the Heritage business segment. The Open business continues to be capital light.

The PGH plc Solvency II surplus position at 30 June 2019 is set out in the table below:

The Part VII transfer of the Standard Life Assurance Limited's Irish, German and Austrian policies to Standard Life International resulted in a £0.2 billion reduction in the surplus reflecting increases in the SCR and risk margin as a result of the more onerous capital requirements and a loss of diversification under Standard Formula compared to the Standard Life Internal Model, together with the recognition of counterparty default and additional currency risk.

Financing costs, pension contributions and dividend payments (including accrual for the 2019 interim dividend) amount to £0.2 billion and reduced the surplus in the period.

The adverse impact of economic and other variances reduced the surplus by £0.2 billion. This is largely due to the impact of the second pension scheme buy-in arrangement entered into between Phoenix Life Limited ('PLL') and the Trustees of the PGL Pension Scheme for the remaining liabilities of that Scheme. The adverse impact reflects the more onerous valuation basis for insurance technical provisions than the IAS19 basis for valuing pension scheme liabilities, creating an additional restriction within Own Funds. The impact is expected to be mitigated in the second half of 2019 once approval for Matching Adjustment has been received on these liabilities.

Other variances also includes the effect of strengthening assumptions in respect of the valuation of Equity Release Mortgages ('ERM'), and the adverse impact of falling yields, foreign exchange and property movements in the period.

SHAREHOLDER CAPITAL COVERAGE RATIO (ESTIMATED)

The Solvency II surplus excludes the surpluses arising in the Group's unsupported with-profit funds and the PGL Pension Scheme of £2.0 billion (FY18: £2.1 billion). Surpluses within the 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.

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. This approach suppresses the regulatory capital coverage ratio calculated as eligible own funds as a percentage of SCR.

As a result, the Group focuses on a shareholder view of the capital coverage ratio which it considers 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 56 for further details of this measure.

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 160% as at 30 June 2019 (FY18: 167%).

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 sensitivities reflect the impact of any strong with-profit funds or pension schemes that may become weak after application of the stress.

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 30 June 2019, the Life Company Free Surplus is £0.6 billion (FY18: £1.0 billion). The table opposite analyses the movement during the period.

Cash remittances from holding companies relate to the £250 million capital injection into Standard Life International as part of the Group's Brexit planning activities.

£3.0bn

PGH SOLVENCY II SURPLUS (ESTIMATED)

160%

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 139% as at 30 June 2019 (FY18:146%).

4 The estimated Solvency II surplus as at 30 June 2019 includes a dynamic recalculation of TMTP, in anticipation of the mandatory recalculation required as at 31 December 2019. Had the dynamic calculation not been performed, the surplus would have been £0.2 billion lower.

CHANGE IN PGH SOLVENCY II SURPLUS (£bn)

SHAREHOLDER CAPITAL COVERAGE RATIO (£bn)

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 56 for further details of this measure.

The Group has generated an operating profit of £325 million (HY18: £216 million). The increase compared to the prior period is primarily driven by the contribution from the Standard Life Assurance businesses acquired in August 2018, together with the net positive impacts of experience variances. These factors have been partly offset by the lower impact of management actions within operating profit compared to prior period and the net adverse impact of actuarial assumption changes during the period.

IFRS PROFIT AFTER TAX

The IFRS profit after tax attributable to owners is £39 million (HY18: £(24) million). The increase primarily reflects the improved operating profit and a tax credit arising in the year, partly offset by an increased amortisation charge on intangibles due to the acquisition of the Standard Life Assurance businesses.

BASIS OF OPERATING PROFIT

Operating profit generated by the UK Heritage, UK Open and European business segments 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 4 to the IFRS condensed 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. 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 £58 million (HY18: £40 million) has increased reflecting the contribution from the acquired Standard Life Assurance businesses.

The with-profit funds where internal capital support has been provided generated an operating loss of £10 million (HY18: £6 million loss). The loss is principally driven by the negative impact of updating actuarial assumptions with respect to the persistency of products with valuable guarantees in relation to late retirements.

The non-profit and unit-linked funds operating profit increased to £207 million (HY18: £185 million), reflecting the contribution of the acquired Standard Life Assurance businesses together with positive non-economic experience items. This has been partly offset by the lower positive impact of management actions and the delivery of actuarial modelling enhancements in the prior period.

The long-term return on owners' funds for the period was £2 million (HY18: £1 million).

UK OPEN OPERATING PROFIT

The Group's UK Open business segment delivered an operating profit of £43 million driven by 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 SLA plc, together with the operating profits from the Group's SunLife business.

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 £28 million during the first half of the year.

MANAGEMENT SERVICES COMPANIES OPERATING PROFIT

The operating profit for management services of £13 million (HY18: £8 million) comprises income from the life and holding companies in accordance with the respective management services company agreements less fees related to the outsourcing of services and other operating costs. The increase compared to prior period is principally driven by a revised management services agreement now in place for the full period in respect of the acquired Abbey Life business.

GROUP COSTS

Group costs of £16 million (HY18: £12 million) mainly comprise project recharges from the service companies offset by returns on the scheme surplus of the Group staff pension schemes. The increase compared to the prior period principally reflects a lower return on the scheme surplus of the PGL Pension Scheme following the buy-in transaction in March.

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

The net adverse investment return variances and economic assumption changes on long-term business of £81 million (HY18: £27 million positive) primarily arise due to losses on hedging positions held by the life funds following global equity market gains during the first half of the year. The Group's exposure to equity movements arise from future profits in relation to the shareholder share of with-profit bonuses and unit-linked charges which are 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.

Losses on these hedging positions have been partly offset by the positive impacts of strategic asset allocation activities undertaken in the period, including investment in higher yielding illiquid assets, together with positive impacts from lower fixed interest yields and narrowing credit spreads experienced in the first half of the year.

VARIANCE ON OWNERS' FUNDS

The adverse variance on owners' funds was £3 million (HY18: £136 million adverse). The reduction principally reflects that the prior period comparative includes losses on derivative instruments entered into by the holding companies to hedge exposure to equity risk arising pre-completion of the Group's acquisition of the Standard Life Assurance businesses.

AMORTISATION OF ACQUIRED IN-FORCE BUSINESS AND OTHER INTANGIBLES

The carrying amount of the Group's acquired in-force business and other intangibles was £3.8 billion at the end of the period (gross of deferred tax), of which £2.7 billion related 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 first half of the year totalled £189 million (HY18: £46 million) with the increase from the prior period driven by the additional acquired‑in-force business for the Standard Life Assurance businesses noted above. Amortisation of other intangible assets totalled £10 million in the first half of the year (HY18: £8 million).

OTHER NON-OPERATING ITEMS

Other non-operating items of £32 million negative (HY18: £37 million negative) includes £26 million of staff and other expenses associated with corporate related projects, including £4 million of external costs related to the transition of the acquired Standard Life Assurance businesses. It also includes £7 million of costs associated with preparations to ready the business for Brexit and net other items totalling £1 million of income.

FINANCE COSTS

Finance costs have increased by £9 million, reflecting the €500 million Tier 2 debt issuance in September 2018.

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 refreshed annually and is available on the corporate responsibility section of the Group's website.

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 expanded, into 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 credit for the period attributable to owners is £90 million (HY18: £14 million tax credit) based on a loss (after policyholder tax) of £51 million (HY18: £38 million loss). The significant tax adjustments to the owners' loss before tax principally reflect the tax impacts associated with the Part VII transfer of the Group's European business to Standard Life International and a prior year shareholder tax credit. Further details are provided in note 5 to the condensed consolidated interim financial statements.

FINANCIAL LEVERAGE

The Group seeks to manage the level of debt on its balance sheet by monitoring its financial leverage ratio. This is to help 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 30 June 2019 (as calculated by the Group in accordance with Fitch Ratings' stated methodology) is 23% (FY18: 22%). 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. It excludes debt instruments treated as equity. 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.

£325m

OPERATING PROFIT APM

£39m

IFRS PROFIT AFTER TAX

RISK MANAGEMENT

THE GROUP'S RISK MANAGEMENT FRAMEWORK

The roll-out of a harmonised Risk Management Framework ('RMF') is well progressed across the Group and we are on track to complete by year-end. This Framework combines the 'best of both' from the respective legacy frameworks and will support proactive and effective risk management and the execution of the Group's strategy. We intend to communicate more details of the harmonised framework as part of our 2019 Annual Report and Accounts.

PRINCIPAL RISKS AND UNCERTAINTIES FACING THE GROUP

The Group's principal risks remain unchanged from those noted in pages 43-45 of our 2018 Annual Report and Accounts (published March 2019). Key developments in our principal risks since then are detailed below. As economic and operational changes occur, and as the industry and regulatory environment evolves, the Group will continue to monitor the potential impact of these risks and take appropriate actions.

EMERGING RISKS

The Group's senior management and Board take emerging risks into account when setting strategy and reviewing business performance. This allows early management of risks that could lead to adverse outcomes for the business.

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

KEY

"The roll-out of a harmonised Risk Management Framework is well progressed across the Group and we are on track to complete by year-end. This Framework will continue to support proactive and effective risk management and the execution of the Group's strategy."

JONATHAN PEARS

GROUP CHIEF RISK OFFICER

Financials

IN THIS SECTION

statement of DIRECTORS' RESPONSIBILITIES

The Board of Directors of Phoenix Group Holdings plc hereby declares that, to the best of its knowledge:

·; the condensed consolidated interim financial statements for the half year ended 30 June 2019, which have been prepared in accordance with IAS 34 Interim Financial Reporting, gives a fair view of the assets, liabilities, financial position and results of Phoenix Group Holdings plc and its consolidated subsidiaries taken as whole;

·; the Interim Report includes a fair review of the state of affairs of Phoenix Group Holdings plc and its consolidated subsidiaries as at 30 June 2019 and for the financial half year to which the Interim Report relates as required by DTR 4.2.7 of the Disclosure Guidance and Transparency Rules. This includes a description of the important events that occurred during the first half of the year and refers to the principal risks and uncertainties facing Phoenix Group Holdings plc and its consolidated subsidiaries for the remaining six months of the year; and

·; the Interim Report includes, as required by DTR 4.2.8, a fair review of the information required on material transactions with related parties and any material changes in related party transactions described in the last annual report.

By order of the Board

CLIVE BANNISTER JAMES MCCONVILLE

Group Chief Executive Officer Group Finance Director and Group Director, Scotland

6 August 2019

PHOENIX GROUP HOLDINGS PLC BOARD OF DIRECTORS

CHAIRMAN

Nicholas Lyons

EXECUTIVE DIRECTORS

Clive BannisterJames McConville

NON-EXECUTIVE DIRECTORS

Alastair Barbour

Campbell Fleming

Karen Green

Wendy Mayall

John Pollock

Belinda Richards

Nicholas Shott

Kory Sorenson

AUDITOR'S REVIEW REPORT

To: The Board of Directors of Phoenix Group Holdings plc

Introduction

We have been engaged by the Company to review the condensed consolidated set of financial statements in the half-yearly financial report for the six months ended 30 June 2019 which comprises of the condensed consolidated income statement, condensed statement of consolidated comprehensive income, condensed statement of consolidated financial position, condensed statement of consolidated cash flow, condensed statement of consolidated changes in equity and the notes to the condensed consolidated interim financial statements. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated set of interim financial statements.

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union ('EU'). The condensed consolidated set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting, as adopted by the EU.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed consolidated set of financial statements in the half-yearly financial report based on our review.

Scope

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated set of interim financial statements in the half-yearly financial report for the six months ended 30 June 2019 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the EU and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

London

6 August 2019

Condensed Consolidated income statement

For the half year ended 30 June 2019

*Restated following rights issue.

Condensed statement of consolidated comprehensive income

For the half year ended 30 June 2019

CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION

As at 30 June 2019

CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS

For the half year ended 30 June 2019

CONDENSED STATEMENT OF CONSOLIDATED CHANGES IN EQUITY

For the half year ended 30 June 2019

1 On 12 December 2018, a scheme of arrangement was completed and as detailed in note A1 to the 2018 consolidated financial statements, has been accounted for in accordance with the principles of a reverse acquisition. The share premium reserve as at 31 December 2018 continued to reflect the position of Phoenix Group Holdings ('Old PGH'), the former ultimate parent undertaking of the Group. During the half year ended 30 June 2019, Old PGH, in accordance with Cayman Islands Companies Law, made a distribution of its entire share premium reserve to Phoenix Group Holdings plc, the current ultimate parent undertaking of the Group. This has been reflected as a transfer of share premium in the condensed statement of consolidated changes in equity in the period.

CONDENSED STATEMENT OF CONSOLIDATED CHANGES IN EQUITY

For the half year ended 30 June 2018

CONDENSED STATEMENT OF CONSOLIDATED CHANGES IN EQUITY

For the year ended 31 December 2018

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. Basis of preparation

The condensed consolidated interim financial statements ('the interim financial statements') for the half year ended 30 June 2019 comprise the interim financial statements of Phoenix Group Holdings plc ('the Company') and its subsidiaries (together referred to as 'the Group') as set out on pages 19 to 26 and were authorised by the Board of Directors for issue on 6 August 2019. The interim financial statements are unaudited but have been reviewed by our auditors, Ernst & Young LLP and their review report appears on page 18.

The interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. The accounting policies applied in the interim financial statements are consistent with those set out in the 2018 consolidated financial statements except in relation to the adoption of IFRS 16 Leases, where a new accounting policy applies from 1 January 2019. Further details are included in note 1.1.

The interim financial statements do not include all the information and disclosures required in the 2018 consolidated financial statements, and should be read in conjunction with the Group's 2018 Annual Report and Accounts, which have been prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union ('EU'). Prior to 31 December 2018, the consolidated financial statements were prepared in accordance with IFRSs as issued by the International Accounting Standards Board ('IASB'). As at 30 June 2019, there were no differences between IFRSs adopted by the EU and those issued by the IASB in terms of their application to the Group, and therefore there is no impact on the current or prior period as a result of this change.

In preparing the interim financial statements the Group has adopted the following standards, interpretations and amendments effective from 1 January 2019 in addition to IFRS 16:

·; IFRIC 23 Uncertainty over Income Tax;

·; Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures;

·; Amendments to IAS 19 Plan Amendments, Curtailment or Settlement; and

·; Annual Improvements to IFRSs 2015-2017 Cycle (Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23).

None of the above interpretations and amendments to standards are considered to have a material effect on these interim financial statements. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

After making enquiries, the Directors consider it appropriate to adopt the going concern basis in preparing these interim financial statements.

These interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2018 were delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

1.1 Changes in accounting policies - IFRS 16 Leases

IFRS 16 introduced a single, on-balance sheet accounting model for lessees effective from 1 January 2019. IFRS 16 supersedes IAS17 'Leases', IFRIC 4 'Determining whether an Arrangement contains a Lease', SIC-15 'Operating Leases-Incentives' and SIC-27 'Evaluating the Substance of Transactions Involving the Legal Form of a Lease'. As a result, the Group as a lessee has recognised right-of-use assets representing its rights to use underlying assets and lease liabilities representing its obligation to make lease payments. Lessor accounting remains similar to previous accounting policies.

The Group has applied IFRS 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 January 2019. Accordingly, the comparative information for 2018 has not been restated and continues to be reported under IAS 17 and related interpretations. The details of the changes in accounting policies are discussed below.

Definition of a lease

Previously, the Group determined at contract inception whether an arrangement was or contained a lease under IFRIC 4 'Determining Whether an Arrangement contains a Lease'. The Group now assesses whether a contract is or contains a lease based on IFRS16 which states that 'a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration'.

On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions are leases. It applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed. Therefore, the definition of a lease under IFRS 16 has been applied only to contracts entered into or changed on or after 1 January 2019.

The Group excludes non-lease components such as service charges and accounts for these on a straight-line basis over its lease term.

Accounting policy

As a lessee, the Group previously classified property leases as operating leases where a significant element of the risks and rewards of title to the asset was retained by the lessor. Under IFRS 16, the Group recognises right-of-use assets and lease liabilities for all property leases in the statement of consolidated financial position.

The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low value assets, including IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

Lease liabilities are presented as a separate line item and right-of-use assets are presented within 'property, plant and equipment' in the condensed statement of consolidated financial position.

The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, and subsequently at cost less any accumulated depreciation and impairments, and adjusted for certain remeasurements of the lease liability. The right-of-use asset is depreciated over the remaining lease term which is between 1 and 11 years.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the Group's incremental borrowing rate as the interest rate implicit in the lease cannot be readily determined. The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is remeasured when there is a change in future lease payments arising from, for example, rent reviews or from changes in the assessment of whether a termination option is reasonably certain not to be exercised. The Group has applied judgement to determine the lease term for some lease contracts with break clauses.

Transition

Previously, the Group classified property leases as operating leases under IAS 17. Payments made under operating leases, net of any incentives received from the lessor, were recognised as an expense in the consolidated income statement on a straight-line basis over the period of the lease.

At transition, for leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Group's incremental borrowing rate as at 1 January 2019. Right-of-use assets were measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.

The Group used a further practical expedient when applying IFRS 16 to leases previously classified as operating leases under IAS 17 to exclude initial direct costs from measuring the right-of-use asset at the date of initial application.

Impact on interim financial statements

The impact to the condensed statement of consolidated financial position on transition to IFRS 16 is outlined below:

The Group's weighted average incremental borrowing rate applied to lease liabilities in the condensed statement of consolidated financial position at the date of initial application was 2.77%.

The table below reconciles closing operating lease commitments at 31 December 2018 to opening lease liabilities as classified under IFRS16 at 1 January 2019.

1. The opening restatement relates to service agreements incorrectly categorised as operating lease commitments at 31 December 2018.

As a result of applying IFRS 16, in relation to leases that were previously classified as operating leases, the Group recognised £74 million of right-of-use assets and £74 million of lease liabilities as at 30 June 2019. Also in relation to those leases under IFRS 16, the Group has recognised depreciation and interest costs, instead of an operating lease expense. During the half year ending 30 June 2019 £5 million of depreciation charges and £1 million of interest costs were recognised.

The transition to IFRS 16 does not impact the profit before tax for the year.

1.2 Restatement of prior period information

In the 2018 consolidated financial statements the 2017 comparative information was restated. As a consequence, the comparative information for the half year ended 30 June 2018 has also been restated in this set of interim financial statements. Details of these restatements are outlined below.

Following the acquisition of the Standard Life Assurance businesses, the Group revised the presentation of its 2018 consolidated income statement to aid understanding of the Enlarged Group's results. Where necessary, the half year ended 30 June 2018 comparative amounts and accompanying notes have been restated to reflect line item reclassifications.

The Group reassessed its operating segments to reflect the way in which the business is being managed following the acquisition of the Standard Life Assurance businesses. Comparative segmental performance information has been restated in line with the revised segments and further details are provided in note 3.

The equity structure disclosed for the 30 June 2018 comparative period has been restated to reflect the difference between the par value of shares issued by the Company and the shares issued by Phoenix Group Holdings ('Old PGH') prior to the share for share exchange. Further details are included in note A1 of the 2018 consolidated financial statements. The restatement impacts the condensed statement of consolidated financial position and the condensed statement of consolidated changes in equity.

Additionally, operating lease commitments have been restated for service agreements incorrectly classified as operating leases as at 31 December 2018.

None of the restatements of prior period information have impacted the profit or loss or total equity attributable to the owners of the parent.

2. Acquisition of Standard Life Assurance businesses

On 31 August 2018, the Group acquired 100% of the issued share capital of Standard Life Assurance Limited ('SLAL'), Standard Life Pension Funds Limited, Standard Life International Designated Activity Company ('Standard Life International'), Vebnet (Holdings) Limited, Vebnet Limited, Standard Life Lifetime Mortgages Limited, Standard Life Assets and Employee Services Limited and Standard Life Investment Funds Limited (together known as the 'Standard Life Assurance businesses') from Standard Life Aberdeen plc ('SLA plc') for total consideration of £2,994 million. The consideration consisted of £1,971 million of cash funded by a fully underwritten rights issue of £950 million, with the remaining balance of £1,021 million funded by a mix of new debt and Phoenix's own resources. In addition, SLA plc took a 19.98% equity stake in the Enlarged Group on completion valued at £1,023 million, based on the share price at 31 August 2018.

The fair values of the identifiable assets acquired and liabilities assumed as at the date of the acquisition were disclosed in the notes to the 2018 consolidated financial statements.

3. Segmental analysis

The Group defines and presents operating segments in accordance with IFRS 8 'Operating Segments' which requires such segments to be based on the information which is provided to the Board, and therefore segmental information in this note is presented on a different basis from profit or loss in the interim financial statements.

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses relating to transactions with other components of the Group.

Following the acquisition of the Standard Life Assurance businesses, the Group has reassessed its operating segments to reflect the way the business is now being managed. The Group now has four reportable segments comprising UK Heritage, UK Open, Europe and Management Services.

Previously the Group had one operating segment being Phoenix Life which included the Group's operating insurance entities and the Management Services entities in the Group. Comparative segmental information for the half year ended 30 June 2018 has been presented on a basis consistent with the current period and the year ended 31 December 2018.

The UK Heritage segment contains UK businesses which no longer actively sell products to policyholders and which therefore run-off gradually over time. These businesses will accept incremental premiums on in-force policies, and will provide annuities to existing policyholders with vesting products. Bulk Purchase Annuity contracts are included in this segment.

The UK Open segment includes new and in-force life insurance and investment policies in respect of products that the Group continues to actively market to new and existing policyholders. This includes products such as workplace pensions and Self-Invested Personal Pensions ('SIPPs') distributed through the Group's Strategic Partnership with SLA plc, and also products sold under the SunLife brand.

The Europe segment includes business written in Ireland and Germany. This will include products that are actively being marketed to new policyholders, and legacy in-force products that are no longer being sold to new customers.

The Management Services segment comprises income from the life and holding companies in accordance with the respective management service agreements less fees related to the outsourcing of services and other operating costs.

Unallocated Group includes consolidation adjustments and Group financing (including finance costs) which are managed on a Group basis and are not allocated to individual operating segments.

Inter-segment transactions are set on an arm's length basis in a manner similar to transactions with third parties. Segmental results include those transfers between business segments which are then eliminated on consolidation.

Segmental measure of performance: Operating profit

The Company uses a non-GAAP measure of performance, being operating profit, to evaluate segment performance. Operating profit is considered to provide a comparable measure of the underlying performance of the business as it excludes the impact of short-term economic volatility and other one-off items. This measure incorporates an expected return, including a longer-term return on financial investments backing shareholder and policyholder funds over the period, with consistent allowance for the corresponding expected movement in liabilities. Annuity new business profits are included in operating profit using valuation assumptions consistent with the pricing of the business (including the Company's expected longer-term asset allocation backing the business).

The determination of operating profit is as described in note B1 of the Group's 2018 consolidated financial statements.

3.1 Segmental result

Half year ended 30 June 2019

Other non-operating items in respect of the half year ended 30 June 2019 include:

·; £26 million of staff costs and other expenses associated with corporate related projects, including £4 million of external costs associated with the transition of the Standard Life Assurance businesses; and

·; £7 million of costs associated with preparations to ready the business for Brexit and net other items totalling £1 million of income.

Other non-operating items in respect of the half year ended 30 June 2018 include:

·; a provision for £68 million in respect of a commitment to reduce ongoing and exit charges for non-workplace pension products;

·; costs of £17 million associated with the acquisition of the Standard Life Assurance businesses;

·; a net benefit of £52 million reflecting anticipated costs savings associated with process improvements and continued investment in the digitalisation of the customer journey; and

·; net other one-off items totalling a cost of £4 million.

Other non-operating items in respect of the year ended 31 December 2018 include:

·; a provision for £68 million in respect of a commitment to reduce ongoing and exit charges for non-workplace pension products;

·; costs of £43 million associated with the acquisition of the Standard Life Assurance businesses, and £7 million incurred under the on-going transition programme;

·; costs of £59 million associated with the equalisation of accrued Guaranteed Minimum Pension benefits within the Group's pension schemes;

·; a net benefit of £45 million reflecting anticipated costs savings associated with process improvements and continued investment in the digitalisation of the customer journey;

·; 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

·; net other one-off items totalling a cost of £47 million, including other corporate project costs of £42 million.

3.2 Segmental revenue

Of the revenue from external customers presented in the table above for the half year ended 30 June 2019, £1,506 million is attributable to customers in the United Kingdom ('UK') and £420 million to the rest of the world. The Europe operating segment comprises business written in Ireland and Germany to customers in both Europe and the UK. No revenue transaction with a single customer external to the Group amounts to greater than 10% of the Group's revenue.

The Group has total non-current assets (other than financial assets, deferred tax assets, pension schemes and rights arising under insurance contracts) of £6,035 million located in the UK and £395 million located in the rest of the world.

Predominantly all external revenue presented for the half year ended 30 June 2018 is attributable to customers in the UK. Additionally, predominantly all non-current assets (other than financial assets, deferred tax assets, pension schemes and rights arising under insurance contracts) held as at 30 June 2018 were located in the UK.

Of the revenue from external customers presented in the table above for the year ended 31 December 2018, £2,199 million is attributable to customers in the UK and £350 million to the rest of the world. The Europe operating segment comprises business written in Ireland and Germany to customers in both Europe and the UK. No revenue transaction with a single customer external to the Group amounts to greater than 10% of the Group's revenue.

The Group had total non-current assets (other than financial assets, deferred tax assets, pension schemes and rights arising under insurance contracts) of £6,318 million located in the UK and £367 million located in the rest of the world.

4. Investment return variances and economic assumption changes

The long-term nature of much of the Group's operations means that, for internal performance management, the effects of short-term economic volatility are treated as non-operating items. The Group focuses instead on an operating profit measure that incorporates an expected return on investments supporting its long-term business. The methodology for the determination of the expected investment return is explained below together with an analysis of investment return variances and economic assumption changes recognised outside of operating profit.

4.1 Calculation of the long-term investment return

The expected return on investments for both owner and policyholder funds is based on opening economic assumptions applied to the funds under management at the beginning of the reporting period. Expected investment return assumptions are derived actively, based on market yields on risk-free fixed interest assets at the start of each financial year.

The long-term risk-free rate used as a basis for deriving the long-term investment return is set by reference to the swap curve at the 15 year duration plus 10bps at the start of the year. A risk premium of 350bps is added to the risk-free yield for equities (30 June 2018 and 31 December 2018: 350bps), 250bps for properties (30 June 2018 and 31 December 2018: 250bps), 150bps for other fixed interest assets (30 June 2018 and 31 December 2018: 150bps) and 50bps for gilts (30 June 2018 and 31 December 2018: 50bps).

The principal assumptions underlying the calculation of the long-term investment return are:

4.2 Life assurance business

Operating profit for life assurance business is based on expected investment returns on financial investments backing owners' and policyholder funds over the reporting period, with consistent allowance for the corresponding expected movements in liabilities. Operating profit includes the effect of variance in experience for non-economic items, for example mortality, persistency and expenses, 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 disclosed separately outside operating profit.

The movement in liabilities included in operating profit reflects both the change in liabilities due to the expected return on investments and the impact of experience variances and assumption changes for non-economic items.

The effect of differences between actual and expected economic experience on liabilities, and changes to economic assumptions used to value liabilities, are taken outside operating profit. For many types of long-term business, including unit-linked and with-profit funds, movements in asset values are offset by corresponding changes in liabilities, limiting the net impact on profit. For other long-term business the profit impact of economic volatility depends on the degree of matching of assets and liabilities, and exposure to financial options and guarantees.

The investment variances and economic assumption changes excluded from the long-term business operating profit are as follows:

The net adverse investment return variances and economic assumption changes on long-term business of £81 million in the first half of 2019 (half year ended 30 June 2018: positive £27 million; year ended 31 December 2018: positive £283 million) primarily arise due to losses on hedging positions held by the life funds following global equity market gains during the first half of the year. The Group's exposure to equity movements arises from future profits in relation to the shareholder share of with-profit bonuses and unit-linked charges which are 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.

Losses on these hedging positions have been partly offset by the positive impacts of strategic asset allocation activities undertaken in the period, including investment in higher yielding illiquid assets together with positive impacts from lower fixed interest yields and narrowing credit spreads experienced in the first half of the year.

4.3 Owners' funds

For non-long-term business including owners' funds, the total investment income, including fair value gains, is analysed between a calculated longer-term return and short-term fluctuations.

The variances excluded from operating profit in relation to owners' funds are as follows:

The adverse variance on owners' funds of subsidiary undertakings was £3 million (30 June 2018: adverse £136 million; 31 December 2018: adverse £193 million). The reduction principally reflects that the prior period comparative includes losses on derivative instruments entered into by the holding companies to hedge exposure to equity risk arising pre-completion of the Group's acquisition of the Standard Life Assurance businesses.

5. Tax CHARGE/(CREDIT)

5.1 Current period tax charge/(credit)

The Group, as a proxy for policyholders in the UK, is required to pay taxes on investment income and gains each period. Accordingly, the tax charge or expense attributable to UK life assurance policyholder earnings is included in income tax expense. The tax charge attributable to policyholder earnings was £268 million (half year ended 30 June 2018: £4 million credit; year ended 31 December 2018: £211 million credit).

5.2 Tax (credited)/charged to other comprehensive income

5.3 Reconciliation of tax charge/(credit)

1 The Phoenix operating segments are predominantly in the UK. The reconciliation of tax (credit)/charge has therefore been completed by reference to the standard rate of UK tax.

2 2019 non-taxable income, gains and losses includes non-taxable dividends and gains and non-taxable pension scheme items.

3 2019 disallowable deductions are primarily in relation to a consolidation adjustment to the valuation of the PGL Pension Scheme 'buy-in' agreement of £5 million, a FCA thematic review provision in SLAL of £5 million, loss on transfer of loan facility of £2 million and fair value movements associated with a currency swap of £1 million.

4 The 2019 prior year credit primarily relates to the utilisation of trading losses in SLAL and Standard Life International of £(4) million, deferred tax asset recognition on software intangibles of £(21) million and deferred acquisition costs of £(6)m in relation to SLAL where these items are written off in the Group accounts but a tax deduction has not been claimed.

5 The 2019 profits taxed at rates other than 19% predominately relates to life company profits.

6 The 2019 tax credit represents the recognition of tax losses and intangible assets in the group companies based on the latest profit projections.

7 The deferred tax rate change credit arises as a result of the Part VII transfer of the SLAL European business to the Group's Irish domiciled subsidiary, Standard Life International of £(27) million and a reduction in AVIF tax rate applying to future profits emerging from the German branch of £(19) million.

The Finance Act 2016 reduced the rates of corporation tax from 20% to 19% in April 2017 and to 17% from April 2020. Consequently a blended rate of tax has been used for the purposes of providing for deferred tax in these consolidated financial statements. Deferred income tax assets are recognised for tax losses carried forward only to the extent that realisation of the related tax benefit is probable.

8 These can only be recognised against future capital gains and have no expiry date.

On 29 March 2017, the UK Government triggered Article 50 initiating a two-year process for leaving the EU. There is some uncertainty about how the existing tax legislation will apply after the UK's exit. No changes are required to the measurement of tax in these consolidated financial statements but this will be monitored and reassessed at each reporting period as negotiations continue.

6. Earnings per share

The Group calculates its basic earnings per share based on the present shares in issue using the earnings attributable to ordinary equity holders of the parent, divided by the weighted average number of ordinary shares in issue during the period.

Diluted earnings per share are calculated based on the potential future shares in issue assuming the conversion of all potentially dilutive ordinary shares. The weighted average number of ordinary shares in issue is adjusted to assume conversion of dilutive share awards granted to employees.

Following the completion of the rights issue in July 2018 the earnings per share calculations, for all periods up to the date the rights issue shares were issued, have been adjusted for the bonus element of the rights issue. The bonus factor used was 1.11.

6.1 Basic earnings per share

The result attributable to ordinary equity holders of the parent for the purposes of computing earnings per share has been calculated as set out below. This is after adjusting for the result attributable to non-controlling interests.

The weighted average number of ordinary shares outstanding during the period is calculated as follows:

Basic earnings per share is as follows:

6.2 Diluted earnings per share

The result attributable to ordinary equity holders of the parent used in the calculation of diluted earnings per share is the same as that used in the basic earnings per share calculation in note 6.1 above. The diluted weighted average number of ordinary shares outstanding during the period is 721 million (half year ended 30 June 2018 restated: 435 million; year ended 31 December 2018: 551 million). The Group's long-term incentive plan, deferred bonus share scheme and sharesave scheme increased the weighted average number of shares on a diluted basis by 1,211,008 shares for the half year ended 30 June 2019 (year ended 31 December 2018: 375,020 shares). As losses have an anti-dilutive effect, none of the share-based awards had a dilutive effect for the half year ended 30 June 2018.

Diluted earnings per share is as follows:

7. Dividends on ordinary shares

On 4 March 2019, the Board recommended a dividend of 23.4p per share in respect of the year ended 31 December 2018. The dividend was approved at the Company's Annual General Meeting, which was held on 2 May 2019. The dividend amounted to £169 million and was paid on 7 May 2019.

8. Share capital

1 Comparative figures have been restated for the scheme of arrangement (see note 1.2).

Movements in share capital during the period:

During the period, the Company issued 206,220 shares at a total premium of £1 million in order to satisfy its obligation to employees under the Group's sharesave schemes.

1 Restated for the scheme of arrangement (see note 1.2).

During 2018, the Company issued 270,142 shares at a premium of £2 million in order to satisfy its obligations to employees under the Group's sharesave schemes.

9. TIER 1 NOTES

On 26 April 2018, Old PGH issued £500 million of Fixed Rate Reset Perpetual Restricted Tier 1 Write Down Notes (the 'Tier 1 Notes'), the proceeds of which were used to fund a portion of the cash consideration for the acquisition of the Standard Life Assurance businesses. The Tier 1 Notes bear interest on their principal amount at a fixed rate of 5.75% per annum up to the 'First Call Date' of 26 April 2028. Thereafter the fixed rate of interest will be reset on the First Call Date and on each fifth anniversary of this date by reference to a five year gilt yield plus a margin of 4.169%. Interest is payable on the Tier 1 Notes semi-annually in arrears on 26 October and 26 April.

At the issue date, the Tier 1 Notes were unsecured and subordinated obligations of Old PGH. On 12 December 2018, the Company was substituted in place of Old PGH as issuer.

The Tier 1 Notes have no fixed maturity date and interest is payable only at the sole and absolute discretion of the Company; accordingly the Tier 1 Notes meet the definition of equity for financial reporting purposes and are disclosed as such in the condensed consolidated financial statements. If an interest payment is not made it is cancelled and it shall not accumulate or be payable at any time thereafter.

The Tier 1 Notes may be redeemed at par on the First Call Date or on any interest payment date thereafter at the option of the Company and also in other limited circumstances. If such redemption occurs prior to the fifth anniversary of the Issue Date such redemption must be funded out of the proceeds of a new issuance of, or exchanged into, Tier 1 Own Funds of the same or a higher quality than the Tier 1 Notes. In respect of any redemption or purchase of the Tier 1 Notes, such redemption or purchase is subject to the receipt of permission to do so from the PRA. Furthermore, on occurrence of a trigger event, linked to the Solvency II capital position and as documented in the terms of the Tier 1 Notes, the Tier 1 Notes will be subject to a permanent write-down in value to zero.

10. Non-controlling interests

The non-controlling interests of £265 million recognised on acquisition of the Standard Life Assurance businesses reflects third party ownership of Standard Life Private Equity Trust ('SLPET') determined at the fair value of the third party interest in the underlying assets and liabilities. SLPET is a UK Investment Trust listed and traded on the London Stock Exchange. As at 30 June 2019, the Group held 55.2% (31 December 2018: 55.2%) of the issued share capital of SLPET.

The Group's interest in SLPET is held in the with-profit and unit-linked funds of the Group's life companies. Therefore the shareholder exposure to the results of SLPET is limited to the impact of those results on the shareholder share of distributed profits of the relevant fund.

11. Pension schemes

The condensed statement of consolidated financial position incorporates the pension scheme assets and liabilities of the PGL Pension Scheme, the Pearl Group Staff Pension Scheme and the Abbey Life Staff Pension Scheme as at 30 June 2019.

In March 2019, the PGL Pension Scheme entered into a further 'buy-in' agreement with Phoenix Life Limited ('PLL') which covered the remaining pensioner and deferred members of the Scheme. The scheme transferred £1,111 million of plan assets to a collateral account and this transfer constituted the payment of premium to PLL. The assets transferred to PLL are recognised in the relevant line within financial assets in the condensed statement of consolidated financial position. As with the initial 'buy-in' transaction completed in December 2016, the economic effect of the transaction in the Scheme is to replace the plan assets transferred with a single line insurance policy reimbursement asset which is eliminated on consolidation. The value of this insurance policy at the date of the buy-in was £670 million.

The economic surplus of the PGL Pension Scheme amounted to £51 million (30 June 2018: £550 million; 31 December 2018: £506 million). The carrying value of insurance policies effected by the PGL Pension Scheme with the Group of £1,713 million (30 June 2018: £870 million; 31 December 2018: £877 million) are eliminated on consolidation. In the prior periods a deduction was made for the provision of tax on that part of the economic surplus available as a refund on a winding-up of the scheme. At 30 June 2019 the remaining economic surplus is expected to cover future anticipated pension scheme administration expenses and consequently no further deduction has been made. The resulting net pension scheme liability of the PGL Pension Scheme amounted to £1,662 million (30 June 2018: £487 million; 31 December 2018: £522 million). The value of the collateral assets disclosed within financial assets in the condensed statement of consolidated financial position is £2,101 million (30 June 2018: £1,080 million; 31 December 2018: £1,063 million).

The pension scheme asset of the Pearl Group Staff Pension Scheme amounted to £284 million (30 June 2018: £384 million; 31 December 2018: £255 million). Pension scheme assets are stated after deduction of the provision for tax on that part of the economic surplus available as a refund on a winding-up of the scheme and after adjusting for the irrecoverable amount of minimum funding requirement obligations.

The pension scheme liability of the Abbey Life Staff Pension Scheme amounted to £84 million (30 June 2018: £57 million; 31 December 2018: £74 million).

The triennial funding valuations of the PGL Pension Scheme and Pearl Group Staff Pension Scheme as at 30 June 2018 were completed in the first half of 2019. These showed a surplus in each scheme of £246 million and £104 million respectively. The recent funding valuation of the Abbey Life Staff Scheme Pension Scheme was completed as at 31 March 2018 and showed a deficit of £98 million.

12. Liabilities under insurance contracts - assumptions

12.1 Valuation of participating insurance and investment contracts

For participating business, which is with-profit business (insurance and investment contracts), the insurance contract liability is calculated on a realistic basis, adjusted to exclude the shareholders' share of future bonuses and the associated tax liability. This is a market consistent valuation, which involves placing a value on liabilities similar to the market value of assets with similar cash flow patterns.

12.2 Valuation of non-participating insurance contracts

The non-participating insurance contract liabilities are determined using either a net premium or gross premium valuation method.

12.3 Process used to determine assumptions

In determining the discount rate to be applied when calculating participating and non-participating insurance contract liabilities, the Group uses a risk-free rate derived from the swap yield curve, plus an illiquidity premium of 10bps. For certain non-participating business the Group makes a further adjustment to the risk-free rate to reflect illiquidity in respect of the assets backing those liabilities.

For participating insurance business the assumptions about future demographic trends are intended to be best estimates. They are determined after considering the companies' recent experience and/or relevant industry data. Economic assumptions are market consistent.

For non-participating insurance business, demographic assumptions are derived by setting assumptions at management's best estimates and recognising an explicit margin for demographic risks.

During the period a number of changes were made to assumptions to reflect changes in expected experience. The impact of material changes that impacted the result attributable to owners during the period was as follows:

13. Borrowings

On 27 June 2019, the Group cancelled its £600 million acquisition facility and replaced its £900 million unsecured revolving credit facility with a new £1.25 billion unsecured revolving credit facility (the 'revolving facility'), maturing in June 2024. The new revolving facility is undrawn as at 30 June 2019. There are no mandatory or target amortisation payments associated with the facility but voluntary prepayments are permissible. 

14. Financial instruments

14.1 Fair values

The table below sets out a comparison of the carrying amounts and fair values of financial instruments.

Financial assets