Phoenix Life Limited NPI With-Profits Fund

Transcription

1 Phoenix Life Limited NPI With-Profits Fund Annual report to with-profits policyholders by the Board of Phoenix Life Limited for the period 1 January 2017 to 31 December 2017 Report to policyholders PLL NPI June 2018 Page 1 of 10

2 Purpose We set out how we manage the Phoenix Life Limited with-profits funds in the Phoenix Life Limited Principles and Practices of Financial Management (PPFM). All of the business in the Phoenix Life Limited NPI With-Profits Fund ( the fund ) is reassured to the Pearl With-Profits Fund in Phoenix Life Assurance Limited (a sister company of Phoenix Life Limited). We set out how we manage the Phoenix Life Assurance Limited with-profits funds in the Phoenix Life Assurance Limited PPFM. The interests of the with-profits policyholders are protected by the PPFM. In this report, from the Phoenix Life Limited Board, we give details of how we have complied with the PPFMs for 2017 for our NPI With-Profits Fund. This report should be read with the PPFMs. Our PPFMs are available on our website at or you can ask us for a copy. References in this report to the PPFM should be read as referring to the principles and practices that are relevant to the with-profits business of the fund whether they are contained in the Phoenix Life Limited PPFM or the Phoenix Life Assurance Limited PPFM. Together the Boards of Phoenix Life Limited and Phoenix Life Assurance Limited, both referred to as the Board, can make choices or exercise discretion in a number of areas, such as setting bonuses, policy payouts and surrender values, and in addressing any competing or conflicting rights of policyholders and shareholders. This report deals with how discretion has been exercised in these areas. Policyholders may also wish to read the report from the Phoenix Life Assurance Limited Board to its Pearl With-Profits Fund with-profits policyholders. Summary It is the opinion of the Board that Phoenix Life Limited, including the NPI With-Profits Fund, was managed in line with the PPFM over The Board is also of the view that the decisions made in managing the NPI With-Profits Fund were appropriate and treated with-profits policyholders fairly. In preparing this report the Board took advice from the With-Profits Actuary and the With-Profits Actuary s report is attached at the end of this report. Report to policyholders PLL NPI June 2018 Page 2 of 10

3 Background The Phoenix Life Limited NPI With-Profits Fund consists of former NPI Limited withprofits fund policies. The NPI With-Profits Fund is part of Phoenix Life Limited, along with nine other withprofits funds and a non-profit fund. We manage each with-profits fund in line with the relevant sections of our PPFM. The with-profits bonuses, policy returns and payouts for each with-profits fund reflect the financial position of that fund. The performance of each with-profits fund reflects the historic performance of the original with-profits funds and companies up to their respective transfer to Phoenix Life Limited, and then their performance within Phoenix Life Limited since that time. The NPI With-Profits Fund is run as a separate ring fenced fund within Phoenix Life Limited but with the additional security that comes from being part of a large well capitalised company. In extreme circumstances one fund may have to provide financial assistance to another. However there are internal arrangements to ensure that Phoenix Life Limited holds assets in excess of the requirements of our regulator and, because of this, it is extremely unlikely that a with-profits policy in one fund will be affected by losses from another fund. We have produced separate reports for our other with-profits funds. The with-profits business in the fund is split into three different classes for the purposes of allocating annual bonuses and final bonuses as appropriate. The classes are: Unitised with-profits business. Socially Responsible With-Profits business. Capital Account business. Independent review The company formally consulted with, and took into account the opinions of the With- Profits Actuary and the With-Profits Committee (a committee that is independent by virtue of its majority of independent members) regarding all material changes during This included consultation on the changes to bonus rates, surrender values and estate management. Compliance with the PPFM during 2017 The guiding principles and practices apply to all the with-profits funds and in the event of conflict with other principles take priority. Report to policyholders PLL NPI June 2018 Page 3 of 10

4 The PPFM guiding principles cover the following areas: Legal requirements, that is, Phoenix Life Limited and its with-profits funds are managed in line with Phoenix Life Limited s then current understanding of all legal and regulatory requirements. Basic fund concepts, that is, each with-profits fund is operated as a stand-alone fund. Fair treatment, that is, Phoenix Life Limited aims to treat its with-profits policyholders fairly. The guiding principles are presented here at a high level rather than in the full detail of the PPFM. In the Board s opinion, the guiding principles were applied in line with the PPFM. Amounts payable under a with-profits policy We aim to pay all policyholders their fair share of the profits that the fund has earned over the time they have held their policy. We pay the share of profits in the form of annual and final bonuses. When deciding what is a fair share we consider the underlying value (sometimes called the 'asset share') of representative specimen policies as a guide. We aim to pay 100% of the underlying policy value. Where the underlying policy value is bigger than the benefits already guaranteed by the policy then, subject to smoothing, we aim to add bonuses so that the amount we pay in total is equal to the underlying policy value. The underlying value of policies reflects the premiums paid and the investment performance of the fund over the lifetime of the policies, after allowing for factors such as our costs, the tax we have to pay, charges for death benefits, charges for guarantees and other profits and losses. This was the approach we used over For policies where the guaranteed benefits are bigger than the underlying policy value we will be paying out more than 100% of the underlying policy value. It is unlikely that any further bonuses will be added to these policies. Sometimes we may pay out less than the underlying policy value for individual policies, for instance because we calculate bonuses using an average approach for groups of policies. We aim to maintain the payout ratios for surrendering and maturing policies within a target range of 80% to 120% of the underlying policy value. We believe this range is appropriate to accommodate market movement in the assets backing the funds. We changed our final bonus scales twice during 2017 in order to move our payouts closer to our 100% target and to keep the majority of payouts within the target range for the specimen policies. Report to policyholders PLL NPI June 2018 Page 4 of 10

5 We have compared surrender and maturity payouts paid to customers during 2017 with the underlying policy values. When doing this comparison we excluded policies where the payment of a guaranteed benefit resulted in a higher policyholder payment or where the policyholder payment could not reasonably be compared with a calculated underlying policy value. Our aim is that 90% of the payouts included in the comparison fall within the target range. We achieved this with approximately 98% of surrender payouts and 97% of maturity payouts included in the comparison falling within the target range. In the Board s opinion, the method used to calculate the underlying value of policies and the discretion applied to the methods used to determine payouts on all policies during 2017 has been in line with the PPFM. Annual bonus rates For socially responsible pension policies we increased the annual bonus rates from January 2018 compared to January For other policy types, annual bonuses were maintained at the same rates in January 2018 as in January Type of business Annual bonus % applied as increase in unit price Declared from1 January 2018 Portfolio Bond 1.00% Investment Bond % Socially Responsible Bond 2.00% Socially Responsible Pension 4.00% Pensions 1.50% Capital Account 4.00% The Board is satisfied that the approach taken in determining annual bonuses during the year was in line with the PPFM. Final bonus rates Final bonus rates, and MVRs were reviewed monthly in The changes reflected movements in asset share subject to smoothing. Capital account policies do not receive any final bonus. The Board is satisfied that the changes to final bonus rates resulted in changes to payouts that were consistent with the PPFM and were consistent with treating customers fairly. Report to policyholders PLL NPI June 2018 Page 5 of 10

6 Smoothing Smoothing is intended to avoid excessive differences in payouts on similar policies over short periods of time. There is some discretion in determining the degree of smoothing to apply when setting final bonus rates and market value reductions. The Board is satisfied that the movements in final bonuses and maturity payouts in 2017 were necessary to keep payouts reasonably in line with the underlying value of policies, to ensure fairness between groups of policyholders and to protect the financial position of the fund, and were in line with the PPFM. Surrender values We based surrender values on the value of the with-profits units and final bonus, subject to the potential application of a market value reduction (MVR). If the underlying policy value was less than the value of the with-profits units, then no final bonus was added and we applied a market value reduction which reduced the value of the with-profits units, so that the surrender value reflected the underlying policy value. We apply market value reductions to ensure fairness to all with-profits policyholders, so that surrender values are not unfairly higher than the policies' share of the underlying value of the fund s assets. We reviewed market value reductions at the same time as final bonus rates each month and changed them if necessary. In the Board s opinion, the method used to determine surrender values has been in line with the PPFM. Investment strategy During 2017, the underlying assets were invested in a mix of higher risk assets such as company shares (equities) and property and lower risk assets such as fixed interest stocks (bonds or loans issued by governments or companies) and cash deposits. Report to policyholders PLL NPI June 2018 Page 6 of 10

7 We had the following asset mix for with-profits policies on 31 December Asset type Socially responsible with-profits Unitised withprofits Capital account Company shares (equities) 73% 38% 24% Property 0% 7% 3% Other growth assets 0% 4% 0% Total growth assets 73% 49% 27% Fixed interest stocks - issued by the 20% 20% 20% UK government (gilts) Fixed interest stocks - other (including 0% 26% 47% corporate bonds) Cash 7% 5% 6% Total Fixed interest and cash assets 27% 51% 73% Total assets 100% 100% 100% The Board is satisfied that the approach taken in following the investment strategy during the year was in line with the PPFM. Business risks There were no significant changes to the risks the fund was exposed to during the year. There was an annual review by the Board of existing business risk exposure. In the opinion of the Board, appropriate measures were taken to limit the with-profits business exposure to risk to amounts which are fair. The Board is satisfied that it has managed its business risks in line with the PPFM. Expenses and charges The with-profits business of the NPI With-Profits Fund ( the NPI business ) is wholly reassured to the Phoenix Life Assurance Limited Pearl With-Profits Fund. The way charges and expenses were set was unchanged during the year. The Board is satisfied that the allocation of expenses and the charges deducted were in line with the PPFM. Estate management NPI With-Profits Fund s policyholders are not entitled to any share of the estate of Phoenix Life Assurance Limited Pearl With-Profits Fund. The Board is satisfied that the approach to the management of the estate is in line with the PPFM. Report to policyholders PLL NPI June 2018 Page 7 of 10

8 New business The fund is no longer actively seeking new business. The Board is satisfied that this is in line with the PPFM. Equity between the fund and shareholders The NPI With-Profits Fund only contains the with-profits investment element of relevant policies, and it wholly reassures this to the Phoenix Life Assurance Limited Pearl With- Profits Fund. The returns received by the fund from Phoenix Life Assurance Limited are wholly added to the policyholders with-profits investment element and neither the Phoenix Life Limited shareholder nor the Phoenix Life Assurance Limited shareholder receives any share of this. Where there are material transactions that involve both shareholder and with-profits policyholder interests these are considered by the appropriate governance committees including the With-Profits Committee before implementation. This will include any changes to commercial arrangements with Pearl Group Management Services (PGMS), as well as the terms of any transactions between the with-profits fund and the Non-Profit Fund. PGMS is a company within the Phoenix group of companies (Phoenix Group), providing management and administration services to the with-profits fund. The Board is satisfied that this is in line with the PPFM. Changes to the PPFM during 2017 We include a description of the recent changes to the PPFM with any annual statement we issue to with-profits policyholders. Communications to with-profits policyholders During 2017, we provided with-profits policyholders with key information concerning annual bonuses and changes to the PPFM with their annual statement. The Phoenix Life website ( was updated to provide access to tailored content for each with-profits fund. Report to policyholders PLL NPI June 2018 Page 8 of 10

9 Conclusion It is the opinion of the Board that Phoenix Life Limited including the NPI With-Profits Fund was, in all material respects, managed in line with the PPFM over The With-Profits Committee has reviewed this annual report to with-profits policyholders and does not wish to make any additional or separate reports. The Directors of Phoenix Life Limited June 2018 Report to policyholders PLL NPI June 2018 Page 9 of 10

10 Report to with-profits policyholders by the With-Profits Actuary of the Phoenix Life Limited NPI With-Profits Fund for the period 1 January 2017 to 31 December 2017 Purpose The Principles and Practices of Financial Management (PPFM) for Phoenix Life Limited ( the company ) is a detailed document which sets out how the company manages its with-profits business. The company has discretion in a number of areas, such as setting bonuses, policy payouts and surrender values, and in addressing any competing or conflicting rights of policyholders and shareholders. The purpose of my report to the company s with-profits policyholders of the NPI With- Profits Fund is to give my opinion, as required by the rules of the Financial Conduct Authority, as to whether the company has taken the interests of these with-profits policyholders into account in a reasonable and proportionate manner in exercising this discretion during Conclusion In my opinion, the company has taken the interests of the with-profits policyholders of the NPI With-Profits Fund into account in a reasonable and proportionate manner in exercising this discretion during My opinion is based on the information that the company provided to me during the year. The Financial Reporting Council is responsible for issuing and maintaining Technical Actuarial Standards (TASs) that apply to certain types of actuarial work. In my opinion my report, when considered alongside the information in the company s own report to which my report is annexed, together with other information provided to policyholders in relation to 2017, complies with the Technical Actuarial Work (TAS 100) and Insurance Technical Standards (TAS 200). Andrew Burke Fellow of the Institute of Actuaries With-Profits Actuary June 2018 Phoenix Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Phoenix Life Limited is registered in England No and have their registered office at: 1 Wythall Green Way, Wythall, Birmingham, B47 6WG. Report to policyholders PLL NPI June 2018 Page 10 of 10