Phoenix Group Holdings plc: 2023 Full Year Results

22 March 2024

Phoenix announces strong full year 2023 results and new progressive dividend policy

Commenting on the results announcement, Phoenix Group CEO, Andy Briggs said:

"Phoenix's vision is to be the UK's leading retirement savings and income business, and we are making great progress in delivering our strategy to achieve this, as our strong 2023 financial results demonstrate.

We have achieved our 2025 growth target two years early with £1.5bn of new business cash delivered by our Standard Life business - a new record. We delivered over £2bn of cash generation and maintained our resilient balance sheet, and our strong performance has enabled the Board to recommend a 2.5% dividend increase.

The next phase of our strategy will see us balance our investment across our strategic priorities to grow, optimise and enhance our business. This will support us in delivering the ambitious new 2026 targets we are announcing today. Our confidence in this strategy is demonstrated by the new progressive and sustainable dividend policy we will operate going forward."

2023 financial results highlights

Cash: growing sustainable cash generation

·      £2,024m total cash generation¹ in 2023 (FY22: £1,504m) exceeded our upgraded target of c.£1.8bn for the year, including a c.£400m benefit from the Part VII transfer of Standard Life and Phoenix Life as announced in November.

·      £1,514m of incremental new business long-term cash generation (FY23: £1,233m), achieving our 2025 target of c.£1.5bn two years early.

Includes strong growth from our capital-light Pensions and Savings business to £395m (FY22: £249m) and an increase in our Retirement Solutions business to £1,066m (FY22: £934m), supported by enhanced capital efficiency.

 

Capital: resilient balance sheet

·      £3.9bn² Solvency II ('SII') Surplus remains resilient (FY22: £4.4bn) and is inclusive of a prudent £70m Consumer Duty provision, following a comprehensive review of our back book products ahead of the July 2024 compliance deadline.

·      176%^2,3 SII Shareholder Capital Coverage Ratio ('SCCR') (FY22: 189%³), towards top-end of 140-180% operating range.

·      36% SII leverage ratio (FY22: 34%) and 23% Fitch ratio⁴ (FY22: 23%⁴).

 

Earnings: driving improved profitability

·      IFRS adjusted operating profit before tax increased 13% year-on-year to £617m (FY22: £544m⁵), driven by strong growth in our Pension and Savings business, which is up 27% year-on-year to £190m (FY22: £150m).

·      New business net fund flows of £6.7bn increased 72% year-on-year (FY22: £3.9bn), driven by strong Workplace flows.

·      Significantly reduced IFRS loss after tax of £(88)m (FY22: £(2,657)m⁵) due to lower market volatility impacts in 2023.

·      Contractual Service Margin of £2.9bn (gross of tax), grew 10% driven by new business and Sun Life of Canada UK.

 

Attractive 2023 dividend growth supported by strong business performance

·      The Board is recommending a 2.5% increase in the Final 2023 dividend to 26.65p per share; Total dividend of 52.65p.

 

The next phase of our strategy delivers growing, sustainable cash generation and supports a new progressive dividend policy

·      In the next phase of our strategy we will build the remaining capabilities required to deliver a full-service customer proposition, through developing compelling Retail market propositions and innovative retirement income solutions.

·      We will also bring together our former Heritage and various Open businesses under a single Group-wide operating model, to offer a seamless journey for customers across their savings life cycle, and realise further cost efficiencies.

·      Operating Cash Generation is our new primary cash metric, which is the sustainable level of annual surplus generation in our life companies, that is then remitted to our Group HoldCo. It comprises our ongoing surplus emergence (£0.8bn in 2023) and the recurring management actions (£0.3bn in  2023) which we expect to deliver every year into the long term.

·      We expect to grow Operating Cash Generation by c.25% from £1.1bn in 2023 to £1.4bn in 2026, as we grow, optimise and enhance our business, after which it is expected to grow at a mid-single digit rate over the long term.

·      The Board's confidence in the delivery of growing Operating Cash Generation supports the move to a new progressive and sustainable ordinary dividend policy⁶.

 

An evolved financial framework that delivers cash, capital and earnings, with new targets and guidance

·      Cash: we will deliver growing Operating Cash Generation that more than covers our recurring uses and dividend, and generates excess cash.

o  Operating Cash Generation target of £1.4bn in 2026.

o  Total Cash Generation 1-year target range of £1.4bn-1.5bn in 2024 and 3-year target of £4.4bn across 2024-26.

·      Capital: we will maintain a resilient balance sheet and allocate surplus capital in accordance with our new capital allocation framework.

o  Continue to operate within our 140-180% Shareholder Capital Coverage Ratio operating range.

o  We intend to repay at least £500m⁷ of debt by the end of 2026, targeting a SII leverage ratio of c.30%⁸ by the end of 2026.

·      Earnings: drive strong growth in IFRS adjusted operating profit, through business growth and cost efficiencies.

o  Targeting £900m of IFRS adjusted operating profit in 2026 (FY23: £617m).

o  £250m of annual cost savings by the end of 2026.

 

New cash emergence profile disclosure demonstrates sustainability of cash generation

·      We are today providing new disclosure on the profile of cash emergence from both our 2023 in-force and new business (contained on page 43 of the appendix of our Full Year 2023 Results presentation that is available on our website).

·      This disclosure supports our cash targets and demonstrates the long-term sustainability of our cash generation.

 

All page references in this document refer to the Phoenix Group Holdings plc Annual Report and Accounts 2023.

 

Enquiries

Investors/analysts:

Claire Hawkins, Director of Corporate Affairs & Investor Relations, Phoenix Group

+44 (0)20 4559 3161

Andrew Downey, Investor Relations Director, Phoenix Group

+44 (0)20 4559 3145

Media:

Douglas Campbell, Teneo

+44 (0)7753 136 628

Shellie Wells, Corporate Communications Director, Phoenix Group

+44 (0)20 4559 3031

Presentation and webcast details

There will be a live virtual presentation for analysts and investors today starting at 09:30 (GMT). You can register for the live webcast at: Phoenix Group 2023 Full Year results

A copy of the presentation is available at:

https://www.thephoenixgroup.com/investor-relations/results-reports-and-presentations

A replay of the presentation and transcript will also be available on our website following the event.

Dividend details

The recommended Final 2023 dividend of 26.65 pence per share is expected to be paid on 22 May 2024.

The ordinary shares will be quoted ex-dividend on the London Stock Exchange as of 11 April 2024. The record date for eligibility for payment will be 12 April 2024.

Footnotes

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

2.   31 December 2023 Solvency II capital position is an estimated position and reflects a regulator approved recalculation of transitionals as at 31 December 2023 and recognition of the foreseeable Final 2023 shareholder dividend of £267m.

3.   The Shareholder Capital Coverage Ratio excludes Solvency II Own Funds and Solvency Capital Requirements of unsupported With-Profit funds and unsupported pension schemes.

4.   Fitch leverage ratio is estimated by management based on Fitch's published methodology. Ratio allows for currency hedges over foreign currency denominated debt.

5.   2022 restated comparative to reflect adoption of IFRS 17 and incorporates changes to the Group's methodology for determining adjusted operating profit since HY 2023.

6.   The Board will continue to prioritise the sustainability of our dividend over the very long term. Future dividends and annual increases will continue to be subject to the discretion of the Board, following assessment of longer-term affordability.

7.   £500m of debt repayment includes the £250m Tier 2 Bond that is callable in June 2024, subject to regulatory approval.

8.   Assuming economic conditions in line with 31 December 2023.

Legal Disclaimers

This announcement in relation to Phoenix Group Holdings plc and its subsidiaries (the 'Group') contains, and the Group 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, ambitions, outlook, guidance and expectations relating to future financial condition, performance, results, strategy and/or objectives.

Statements containing the words: 'believes', 'intends', 'will', 'may', 'should', 'expects', 'plans', 'aims', 'seeks', 'targets', 'continues' and 'anticipates' or other words of similar meaning are forward looking.  Such forward-looking statements and other financial and/or statistical data involve risk and uncertainty because they relate to future events and circumstances that are beyond the Group's control. For example, certain insurance risk disclosures are dependent on the Group's choices about assumptions and models, which by their nature are estimates. As such, actual future gains and losses could differ materially from those that the Group has estimated.

Other factors which could cause actual results to differ materially from those estimated by forward-looking statements include, but are not limited to: domestic and global economic, political, social, environmental and business conditions; asset prices; market-related risks such as fluctuations in investment yields, interest rates and exchange rates, the potential for a sustained low-interest rate or high interest rate environment, and the performance of financial or credit markets generally; the policies and actions of governmental and/or regulatory authorities including, for example, climate change and the effect of the UK's version of the 'Solvency II' regulations on the Group's capital maintenance requirements; developments in the UK's relationship with the European Union; the direct and indirect consequences for European and global macroeconomic conditions of the conflicts in Ukraine and the Middle East, and related or other geopolitical conflicts; political uncertainty and instability; the impact of changing inflation rates (including high inflation) and/or deflation; information technology or data security breaches (including the Group being subject to cyber-attacks); the development of standards and interpretations including evolving practices in ESG and climate reporting with regard to the interpretation and application of accounting; the limitation of climate scenario analysis and the models that analyse them; lack of transparency and comparability of climate-related forward-looking methodologies; climate change and a transition to a low-carbon economy (including the risk that the Group may not achieve its targets); the Group's ability along with governments and other stakeholders to measure, manage and mitigate the impacts of climate change effectively; 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 any acquisitions, disposals or other strategic transactions; risks associated with arrangements with third parties; inability of reinsurers to meet obligations or unavailability of reinsurance coverage; and the impact of changes in capital, and implementing changes in IFRS 17 or any other regulatory, solvency and/or accounting standards, and tax and other legislation and regulations in the jurisdictions in which members of the Group operate.

As a result, the Group's actual future financial condition, performance and results may differ materially from the plans, goals, ambitions, outlook, guidance 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 constitutes, nor should it be construed as, a profit forecast or estimate.

 

 

 

Chair's statement

 

Delivering on our purpose

We want to help people journey to and through retirement while investing in a better future for us all. Our approach focuses on two key areas: People and Planet. We are looking to address the UK pensions savings gap and manage the risk and opportunities of climate change.

 

At Phoenix our purpose is our North Star and it drives all that we do. I am delighted with the progress we have made this year to bring about better outcomes for all our stakeholders.

Nicholas Lyons, Chair of the Group Board

 

Sabbatical reflections

1 December 2023 marked my return as Chair of Phoenix Group, following a 14-month sabbatical where I fulfilled the role of Lord Mayor of the City of London. I am delighted to be back and look forward to supporting the continued evolution of our business.

 

As Lord Mayor it was my great privilege and responsibility to represent and promote the UK financial services industry. In doing so, my sabbatical confirmed to me that this industry is an essential element of the UK economy, with a critical role to play in supporting both economic growth and the trajectory to net zero by 2050 through sustainable investment. The clear feedback from my international travels is that the UK financial services industry is perceived as market-leading and there is great optimism about its future.

 

I would like to thank Alastair Barbour who assumed the role of Chair in my absence. He has made an enormous contribution to Phoenix over his ten-year tenure as a Director, and I wish him well for the future now that he has stepped down from the Board.

 

Delivering on our purpose

The pensions savings gap in the UK is a growing societal problem. As the UK's largest long-term savings and retirement business, we are striving to raise awareness of this problem and advocate for the changes needed to deliver the solutions and help people secure a life of possibilities.

 

We know that people can only save for their retirement if they have access to good work over their longer lives. That is why we are playing a role in promoting good work through Phoenix Insights, working in collaboration with others to influence government policy.

 

We are committed to innovating to develop the retirement income solutions of the future and we are advocating for the removal of policy barriers to enable us to support customers as they save for, journey to, and secure income in, retirement. More specifically we have recommended a framework to support an increase in auto-enrolment contributions from 8% to 12%, and we believe that guidance and advice should be available for everyone, not just those who can afford to pay for it.

 

We can drive good outcomes for our customers and manage the risks of climate change by delivering on our Net Zero Transition Plan commitments, outlined in our plan published in May, and by helping to unlock the barriers to allow capital to flow at scale into productive and sustainable investments.

 

I was delighted that we were a leading signatory and vocal proponent of the Mansion House Compact when it was unveiled in July. This seeks to address some of the issues around investing in unlisted equity, and the growth of UK companies of the future. I have every confidence the Compact will accomplish the dual aim of securing a brighter future for retirees and helping to channel billions of pounds into the UK economy.

 

Strong cash generation provides opportunity to invest and realise our vision

The team has delivered strong cash generation in 2023 with an acceleration in the organic growth story clearly evident, whilst at the same time maintaining a resilient balance sheet.

 

We are on a journey to deliver our vision of becoming the UK's leading retirement savings and income business. The clear strategic success in building the organic growth business over the last three years means we have reached a key milestone on our journey, as we evolve the business. The focus is now on investing to grow, optimise and enhance the business even further.

 

Strategic outcomes support a new dividend policy

I am delighted to announce that the Board is recommending a 2.5% increase in the Group's 2023 Final dividend to 26.65 pence per share. This means the Group's Total dividend for 2023 will be 52.65 pence per share.

 

The Board is confident in the Group's ability to deliver the next phase of our strategic journey, as we transition to our vision of becoming the UK's leading retirement savings and income business. This has supported our decision to move to a progressive and sustainable ordinary dividend policy, which is underpinned by the sustainable growth in Operating Cash Generation we now expect to deliver.

 

Thank you

Finally, I would like to take this opportunity to thank the Board, our colleagues, our partners and our wider stakeholders for their hard work, dedication and support in delivering another year of strong progress.

 

 

Nicholas Lyons

Chair of the Group Board

 

 

 

 

Group Chief Executive Officer's report

 

Successfully delivering our strategy

 

2023 has seen Phoenix Group deliver significant strategic progress and strong results, further supporting our track record of dividend growth.

 

We are on a journey from being a closed-book life consolidator to a purpose-led retirement savings and income business

Strong 2023 results delivered through strategic execution

We are balancing our investment to grow, optimise and enhance our business

Our strategy delivers sustainable, growing Operating Cash Generation that more than covers our recurring uses and a growing dividend

Phoenix will now operate a progressive and sustainable ordinary dividend policy

 

£2.0bn

2023 Total cash generation

(2022: £1.5bn) REM APM

 

+2.5%

 2023 Final dividend increase

 

 

I am delighted that 2023 was another year of strong new business growth for Phoenix Group. Having now built the component parts of a sustainably growing business, the next stage on our journey will see us grow, optimise and enhance our business so we can meet more of our customers' retirement needs and deliver more value for our stakeholders.

Andy Briggs, Group Chief Executive Officer

 

Delivering strong results

2023 has been another year of clear strategic delivery for Phoenix.

 

We're a highly cash generative business, as demonstrated by the delivery of £2.0 billion of total cash generation in 2023 (2022: £1.5 billion), exceeding our upgraded target of c.£1.8 billion target for the year. This was supported by the completion of one of the largest ever UK insurance Part VII transfers.

 

Executing against our strategic priorities enabled us to deliver another record year of new business long-term cash generation ('NB LTCG') of £1.5 billion (2022: £1.2 billion). This was supported by a c.70% increase in new business net fund flows in 2023 to £6.7 billion (2022: £3.9 billion). Performance in our Pensions and Savings business included the transfer of the Siemens workplace scheme, one of the largest workplace scheme transfers to have been tendered in the UK market in recent years. This clearly demonstrates the success we have had in re-establishing the Standard Life brand as a major workplace player. Growth in our Retirement Solutions business was also strong, driven by our Bulk Purchase Annuities ('BPA') business, which saw the Group write £6.2 billion of premiums during the year (FY22: £4.8 billion) at a reduced capital strain.

 

From a capital perspective, we saw a reduction in our Solvency II surplus to £3.9 billion (2022: £4.4 billion) and our Shareholder Capital Coverage Ratio ('SCCR') to 176% (2022: 189%) after allocating capital into growth opportunities. However, we continue to operate towards the upper-end of our 140-180% SCCR operating range.

 

In terms of our earnings, our IFRS adjusted operating profit increased by 13% to £617 million (2022: £544 million) supported by growth in our Pensions and Savings business. However, we reported an IFRS loss after tax of £(88) million, reflecting our investment into growth opportunities, as well as integration and transformation expenses in the period. However, this was significantly lower than the 2022 loss of £(2,657) million, benefiting from less accounting volatility from market movements.

 

As a result of this strong strategic and financial performance, the Board has recommended a 2.5% increase in the Final dividend of 26.65 pence per share, bringing the Total 2023 dividend to 52.65 pence per share, extending our strong track record of dividend growth.

 

A strategy supported by existing large and growing markets

Phoenix Group is the UK's largest long-term savings and retirement business, managing c.£283 billion of assets for c.12 million customers. Our purpose of 'helping people secure a life of possibilities' is embedded in everything that we do and informs our single strategic focus, which is to help customers journey to and through retirement.

 

We have a diversified and balanced business mix, across the long-term savings and retirement market, which can be largely categorised as 'Pensions and Savings' and 'Retirement Solutions'. Around two-thirds of our business is Pensions and Savings, which principally consists of capital-light fee-based products.

 

The UK long-term savings and retirement market is already large, with c.£3 trillion of total stock, but it is also growing fast, with annual flows of c.£150-200 billion. The breadth of our product portfolio means we are able to take advantage of a number of growing market opportunities. See pages 18 to 19 for 'Our growth drivers'.

 

Embarking on the next stage of our journey

Back in 2020, we had a single core capability, which was executing M&A and integrating those businesses. However, over the past three years we have built a number of sustainably growing organic businesses too.

 

This has seen us acquire and invest into the trusted Standard Life brand, and re-establish it amongst customers, corporates and advisers.

 

We have used that brand to help turbo-charge our growth as we built a competitive and capital efficient annuities business, followed by our now large and rapidly growing capital-light Workplace business.

 

In addition, we have built a highly-skilled in-house asset management capability, enabling us to efficiently manage our third-party asset managers, and to create long-term value through optimising our c.£38 billion shareholder credit portfolio.

 

We have an ongoing programme of initiatives to review our products and services and over the past seven years, we have invested significantly in focusing on good customer treatments and outcomes across our businesses. During that time, we have set aside over £200m on reducing charges and we are making planned investment to migrate customers to more modern technology. We are actively working to ensure we are well positioned to comply fully with the upcoming Consumer Duty requirements which come into effect on 31 July 2024, for which we have set aside £70 million of Solvency II capital.

 

Our successful execution has enabled us to prove "the wedge" hypothesis, with the new business cash from our Open businesses more than offsetting the Heritage run-off. That means we are today a sustainably growing business, and no longer reliant on M&A.

 

The next phase of our strategy is therefore about building on the strong foundations we have developed, and completing our full-service customer offering.

 

We will do this by building an innovative range of retirement income solutions and a compelling set of retail propositions, supported by a digital customer interface with personalised data, guidance and advice.

 

We are also now at the stage where we can further simplify our organisational structure, through integrating our Heritage and Open businesses onto a single Group-wide operating model. This will enable us to grow faster, by offering all of our customers, whether in an Open or Heritage product, a seamless journey across their savings life cycle. It will also further enhance our existing cost efficiency.

 

The successful execution of our strategy will enable us to win market share and grow our business sustainably over time as we journey towards our vision of becoming the UK's leading retirement savings and income business.

 

Balancing investment across our strategic priorities

To support us on our journey we have a clear set of strategic priorities to 1) Grow 2) Optimise and 3) Enhance, which are informed by - and in support - of our ESG themes of Planet and People and are underpinned by robust investment programmes within our new capital allocation framework. See pages 24 to 29 for more detail on our strategic priorities.

 

Firstly, we will Grow through building an innovative range of retirement income solutions, and a compelling set of Retail propositions, supported by a digital customer interface, with personalised data, guidance and advice. We will also further strengthen our Workplace proposition and optimise our annuities business. This will require c.£100 million of investment into our growth propositions, alongside c.£200 million of capital per annum into annuities, the outcome of which is to support mid-single digit growth in Operating Cash Generation over the long term.

 

Our second priority is to Optimise. As part of this we plan to continue our approach of repaying M&A-related debt with surplus cash. We expect to repay at least £500 million of debt by the end of 2026, on top of the c.£800 million we have repaid since 2020. This will support us in getting to a c.30% Solvency II leverage ratio by the end of 2026, which we believe is an appropriate steady-state level for our business, absent M&A.

 

We will also invest c.£100 million to enhance our asset and liability optimisation capabilities. This, alongside strong business growth, will support us in delivering increased recurring management actions of c.£400 million by 2026.

 

Our Enhance priority is designed to support us in transforming our operating model and culture, to create a leading, cost efficient and modern organisation.

 

We continue to invest to complete our remaining customer migrations onto TCS Diligenta. In addition, we intend to invest to improve the support we give our customers throughout their lives and to drive scale cost efficiencies by integrating our business onto a single Group-wide operating model. Together, these migration, transformation and cost efficiency progammes will require c.£500 million of investment.

 

Our focus on driving cost efficiency will enable us to deliver c.£250 million of annual cost savings by the end of 2026, which will enhance all of our key reporting metrics.

 

We also continue to strive to make Phoenix Group 'the best place any of us have ever worked'; through providing a great colleague experience. We passionately believe that by being diverse and inclusive we'll be a better organisation, we'll make better decisions, and we'll do a better job of representing our customers and communities.

 

Our new simplified, diverse and inclusive organisational structure will better empower our colleagues to make the right decisions for our customers.

 

Demonstrating the long-term sustainability of our business

Our strategy will support the delivery of sustainable, growing cash generation, a resilient capital position and improved earnings.

 

As part of our evolved financial framework we are introducing Operating Cash Generation ('OCG') as a new metric, to demonstrate the long-term sustainability of our business.

 

OCG is the sustainable level of surplus generation in our Life Companies, each and every year, that is also then remitted as cash to our Group Holding Company. See page 33 in our Business Review for more detail.

 

Executing against our strategic priorities will help us to grow OCG by c.25% over the next three years, from £1.1bn in 2023 to £1.4bn in 2026. After this time, we expect it to grow at a sustainable, mid-single digit growth rate over the long term.

 

Importantly, this OCG more than covers our recurring uses, and a growing dividend. Which generates excess cash that can support additional investment back into the business and/or additional shareholder returns.

 

M&A can add further scale to our business

Our existing scale and the success of our organic growth strategy mean that we are no longer reliant on M&A to grow our business and dividend, in the way we were when I joined.

 

We continue to believe that M&A can generate significant shareholder value, as demonstrated by our strong track record, and we see it as a potential lever to add further scale to our business.

 

However, we now have a range of organic growth opportunities available, in which to deploy our excess cash at very attractive returns, and so the bar for acquisitions is now higher than it has ever been.

Outlook

The economic backdrop in the UK means our societal purpose of helping people secure a life of possibilities has never been more important.

 

As we continue to strive to meet the needs of our customers, colleagues and other key stakeholders, this will support us in achieving our vision of becoming the UK's leading retirement savings and income business.

 

We are investing to grow, optimise and enhance our business to deliver this vision, which will enable us to win market share and grow our business sustainably over time.

 

As a result, the Board believes it is now appropriate for us to move to a progressive and sustainable ordinary dividend policy, which is underpinned by the sustainable, growing OCG we expect to deliver over the long term.

 

We see this as a pivotal step in the evolution of Phoenix Group's investment case, and it is a reflection of the Board's confidence in our future strategy.

 

Thank you

The fantastic progress Phoenix Group has made this year could not have been achieved without our exceptional people. I would therefore like to thank my colleagues throughout the Group for their continued contribution and dedication.

 

I look forward to our team delivering another year of significant progress in 2024.

 

 

Andy Briggs

Group Chief Executive Officer

 

 

 

Business review

 

Delivering sustainable cash generation

 

A strong performance in 2023

Key financial performance metrics:		2023	2022	YOY change
Cash	Total cash generation	£2,024m	£1,504m	+35%
New business	Incremental new business long-term cash generation	£1,514m	£1,233m	+23%
	Net fund flows	£6.7bn	£3.9bn	+72%
Dividends	Total dividend per share	52.65p	50.8p	+3.6%
	Final dividend per share	26.65p	26.0p	+2.5%
IFRS	Adjusted operating profit before tax1,2	£617m	£544m	+13%
	Loss after tax1,2	£(88)m	£(2,657)m	N/A
Solvency II capital	PGH Solvency II surplus	£3.9bn	£4.4bn	-11%
	PGH Shareholder Capital Coverage Ratio	176%	189%	-13%pts
Assets	Assets under administration	£283bn	£259bn	+9%
Leverage	Solvency II leverage ratio	36%	34%	+2%pts

 

1    2022 restated comparative to reflect adoption of IFRS 17

2    Incorporates changes to the Group's methodology for determining adjusted operating profit since Half Year 2023 (see note B.1 to the consolidated financial statements for further details).

 

 

In 2023 we have once again delivered a year of strong performance, as we execute on our strategy and fulfil our purpose.

 

We have delivered another year of resilient cash generation, with £2.0 billion of total cash generated in 2023, exceeding our upgraded target of c.£1.8 billion. With £5.2 billion delivered across 2021 to 2023, we have also therefore over-delivered our three-year cash generation target of £4.4 billion, by c.£0.8 billion.

 

We saw a strong performance in our growth businesses, which increased our incremental new business long-term cash generation ('NB LTCG') by 23% year-on-year to £1,514 million, and therefore have achieved our 2025 target two years early. This was supported by new business net fund flows that grew 72% to £6.7 billion (2022: £3.9 billion).

 

Our Shareholder Capital Coverage Ratio ('SCCR') of 176% remains towards the upper-end of our operating range of 140-180%, but reduced given our investment into growth, as well as our integration and transformation expenses. Similarly, our Solvency II ('SII') surplus reduced to £3.9 billion, but remains resilient.

Our strong overall performance this year has therefore enabled the Board to recommend a dividend increase of 2.5% for the year.

 

In terms of our IFRS earnings, the Group's adjusted operating profit grew 13% to £617 million, supported by 27% growth in our Pensions and Savings business and an 8% increase in our Retirement Solutions business. While we reported an IFRS loss after tax of £88 million, this was a £2,569 million improvement on 2022. The loss in 2023 was primarily driven by £(781) million of non-operating items, as outlined on page 36.

 

The segmental information given reflects the Group's new operating segments, further information is provided in note B.1 on page 180.

 

Clear strategic progress

We have made significant strategic progress in delivering sustainable organic growth.

In Pensions and Savings, our Workplace business continues to see an attractive retention rate with existing clients but is also now winning new larger schemes. Our Retail business remains in net outflow, but we have a clear strategy to address this over the coming years, by investing to deliver compelling customer propositions.

 

In Retirement Solutions, we continue to adopt a disciplined approach to Bulk Purchase Annuities ('BPA') and have been successful in reducing our capital strain. In September, we also launched a new individual annuity product, our first that is available in the open market.

 

From an M&A perspective, we successfully completed the acquisition of Sun Life of Canada UK ('SLOC') in April with the integration progressing well.

 

In summary, 2023 has been another year of clear strategic progress, that has supported the delivery of a strong set of results.

 

We continue to deliver sustainable and resilient cash generation, which underpins our new progressive and sustainable ordinary dividend policy. Our Solvency capital position also remains highly resilient, and can support the investment to grow, optimise and enhance our business going forward.

 

An evolved financial framework for the next phase of our journey

We are introducing our evolved financial framework that focuses on the three financial outcomes we deliver for our shareholders: cash, capital and earnings.

 

Phoenix has always managed its business for cash and capital, but our evolved key metrics provide clearer line of sight to the underlying business performance and more comparability with peers. We are also elevating the importance of IFRS earnings in our framework, following the transition to IFRS 17.

 

The key metrics we use can be seen here

 

 

The progress we have made in executing our strategic priorities has enabled us to deliver a strong set of results in 2023, and supported the Board's decision to recommend a 2.5% increase in the Final 2023 dividend.

Rakesh Thakrar, Group Chief Financial Officer

 

Our key performance indicators

With our financial framework designed to deliver cash, capital and earnings, we recognise the need to use a broad range of metrics to measure and report the performance of the Group, some of which are not defined or specified in accordance with Generally Accepted Accounting Principles ('GAAP') or the statutory reporting framework. The IFRS results are discussed on pages 36 to 37 and the IFRS financial statements are set out from page 164 onwards.

 

Alternative performance measures

In prioritising the generation of sustainable cash flows from our operating companies, performance metrics are monitored where they support this strategic purpose, which includes ensuring that the Solvency II capital strength of the Group is maintained. We use a range of Alternative Performance Measures ('APMs') to evaluate our business, including the below. Please see the APM

section on page 312 for further details.

 

Total cash generation

Cash generation represents the total cash remitted from the operating entities to the Group, supported by the Operating Cash Generation (see below) and the release of free surplus above capital requirements in the Life Companies, which is generated through margins earned on life and pension products and the release of capital requirements, and Group tax relief. This cash generation is used by the Group to fund expenses, interest costs and shareholder dividends, with any surplus then available to reinvest into organic and inorganic growth opportunities.

 

Operating Cash Generation

Operating Cash Generation ('OCG') is a new reporting metric. It represents the sustainable level of cash generation in our life companies each and every year, that is remitted from our underlying business operations. It comprises the emergence of cash as in-force business runs off over time and capital unwinds, plus day one surplus from writing new business (net of day one strain for fee-based business), group tax relief and recurring management actions. In addition, it includes a small cash contribution from the release of the Capital Management Policy that we hold in our Life Companies. The measure provides the sources of recurring organic cash generated which can be used to support sustainable cash remittances from the Life Companies, which in turn supports the Group's dividend, group costs and debt interest as well as funding investment to generate sustainable growth.

 

Incremental new business long-term cash generation

Incremental new business long-term cash generation is a key metric for measuring growth. It represents the operating companies' cash generation that is expected to arise in future years as a result of new business transacted in the period.

 

New business net fund flows

Represents the aggregate net position of assets under administration inflows less outflows for new business.

 

Adjusted operating profit

The Group uses adjusted operating profit as a measure of IFRS performance based on long-term assumptions. Adjusted operating profit is less affected by the short-term market volatility driven by Solvency II hedging (as illustrated on page 36) and non-recurring items than IFRS profit. A more detailed definition of adjusted operating profit is set out on page 312.

 

Solvency II

Solvency II is a key metric by which the Group makes business decisions and measures capital resilience. It is a regulatory measure that prescribes the measurement of value on a Solvency II basis and the calculation of the solvency capital requirement ('SCR'). The excess value above the SCR is reported as both a financial amount, 'Solvency II surplus', and as a ratio 'Solvency II Shareholder Capital Coverage Ratio ('SCCR')'.

 

Solvency II leverage

The Group seeks to manage the level of debt on its balance sheet by monitoring its financial leverage ratio. Solvency II leverage is calculated as the Solvency II value of debt divided by the value of Solvency II Regulatory Own Funds. Values for debt are adjusted to allow for the impact of currency hedges in place over foreign currency denominated debt.

 

 

 

Cash

£2,024m

Total cash generation REM APM

 

£1,514m

 Incremental new business long-term cash generation REM APM

 

 

Group cash flow analysis

£m	2023	2022
Cash and cash equivalents at 1 January	503	963
Total cash generation1	2,024	1,504
Uses of cash:
Operating expenses	(97)	(78)
Pension scheme contributions	(16)	(16)
Debt interest	(229)	(244)
Non-operating cash outflows	(111)	(395)
Debt repayments	(350)	(450)
Debt issuance	346	-
Shareholder dividend	(520)	(496)
Total uses of cash	(977)	(1,679)
Support of BPA activity	(288)	(285)
Cost of Sun Life of Canada UK acquisition	(250)	-
Closing cash and cash equivalents at 31 December	1,012	503

 

 

1    Total cash receipts include £219 million received by the holding companies in respect of tax losses surrendered (2022: £55 million).

 

 

Total cash generation

Cash generation represents cash remitted by the Group's operating companies to the holding companies. Please see the APM section on page 312 for further details of this measure.

 

Cash generation is principally used to fund the Group's operating costs, debt interest and repayments, investment into growth and shareholder dividends. Excess cash is available for investment into the business and/or additional shareholder returns.

 

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

Total cash generated by the operating companies during 2023 was £2,024 million (2022: £1,504 million). This exceeded the Group's upgraded target of c.£1.8 billion for the year, due to additional management actions being delivered.

 

Uses of cash

Operating expenses of £97 million (2022: £78 million) represent corporate office costs, net of income earned on holding company cash and investment balances. The increase compared to 2022 reflects the investment we have made in our Group capabilities to support our growth strategy,

 

Debt interest of £229 million (2022: £244 million) reflects interest paid in the period on the Group's debt instruments. The decrease year-on-year is due to the repayment of debt in July 2022.

 

Non-operating cash outflows were £111 million (2022: £395 million). This primarily comprises centrally funded projects and investments totalling £307 million. Of this, £129 million relates to Group project expenses for the transition activity in relation to legacy platform migrations, £18 million for other ongoing integration programmes including ReAssure and SLOC, £56 million of investment related to our growth propositions, and £12 million for our Finance Transformation. These costs were partially offset by a £196 million inflow in respect of net collateral cash and hedge close-outs.

 

Debt repayments and issuance in 2023 reflect the debt re-terming exercise we undertook in the fourth quarter.

 

The shareholder dividend of £520 million represents the payment of £260 million in May for the 2022 Final dividend and the payment of the 2023 Interim dividend of £260 million in September.

 

Funding of £288 million (2022: £285 million) has been provided to the Life Companies to support another strong year in BPA with £6.2 billion of premiums written (2022: £4.8 billion). The Group's success in further optimising its capital efficiency is reflected in the reduction of the Group's capital strain on BPA to 2.7% (2022: 3.2%) on a pre-Capital Management Policy ('CMP') basis, including the benefit of the Solvency II reform risk margin reduction. This enabled the Group to write increased NB LTCG but with a similar level of capital invested.

 

 

Incremental new business long-term cash generation

NB LTCG reflects the impact on the Group's future cash generation arising as a result of new business transacted in the year. It is stated on an undiscounted basis.

 

In 2023 we delivered another record year of organic new business growth including NB LTCG of £1,514 million (2022: £1,233 million), enabling us to achieve our 2025 target two years early.

 

Strong growth in our capital-light fee-based business, Pensions and Savings, led to a contribution of £395 million (2022: £249 million). Our disciplined approach in a buoyant BPA market drove an increase in NB LTCG in our Retirement Solutions business to £1,066 million (2022: £934 million). Europe and Other contributed £53 million (2022: £50 million).

 

 

Strong incremental new business long-term cash generation

 

 

Introducing Operating Cash Generation

As part of our evolved financial framework we are introducing Operating Cash Generation ('OCG') as a new alternative performance metric to demonstrate the long-term sustainability of our cash generation.

 

OCG is the combination of the operating surplus emerging and recurring management actions. It represents the sustainable surplus generation remitted from our Life Companies to the Group Holding Company. OCG can be easily reconciled to operating surplus generation ('OSG'), with the bridge being the small release of the Capital Management Policy ('CMP') held in our Life Companies.

 

OCG totalled £1.1 billion in 2023, comprising £0.8 billion of surplus emergence and £0.3 billion of recurring management actions.

 

Outlook

We will grow OCG sustainably over the long term through investing our surplus cash across our three strategic priorities of Grow, Optimise and Enhance.

 

We will Grow by investing c.£100 million into our growth propositions and by continuing to grow our annuities business with c.£200 million of capital invested annually. This will support strong growth across our Pensions and Savings and Retirement Solutions businesses.

 

As we Optimise, we will deliver recurring management actions of c.£400 million per annum by 2026, supported by c.£100 million investment in our asset and liability optimisation capabilities and as our business grows.

 

As we Enhance our business, we will continue to migrate customers and drive through cost efficiencies that will deliver c.£250 million of annual cost savings by the end of 2026.

 

Together these will increase OCG by c.25% from £1.1 billion in 2023 to £1.4 billion in 2026. After which we expect it to grow at a sustainable mid-single digit growth rate over the long term.

 

Future sources and uses of total cash generation

While OCG is our new primary metric, total cash generation remains very important, as we invest across our strategic priorities.

 

We have set a new total cash generation target of £4.4 billion across 2024-2026, that will enable us to cover our recurring uses, pay our growing dividend and invest in our business.

 

We expect to generate c.£3.7 billion of OCG over this period, which will more than cover our recurring uses and our planned investment of capital into annuities each year.

 

In addition we expect to generate a further c.£0.7 billion of non-operating cash generation across 2024-2026 comprising other management actions and the release of historic excess capital that has built up in our Life Companies. That provides us with a significant amount of surplus cash that we can invest across our strategic priorities.

 

Our HoldCo cash position is a healthy £1 billion today, which we expect to remain broadly consistent over 2024 to 2026.

 

 

We are introducing Operating Cash Generation as a new metric to demonstrate the long-term sustainability of our business model

 

Operating Cash Generation is expected to more than cover our recurring uses and generates surplus to invest into our business

 

 

Capital

£3.9bn

Group Solvency II surplus (estimated)

 

176%

Group Solvency II shareholder capital Coverage Ratio (estimated) APM

 

 

Capital management

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').

 

The Group'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-Profits 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, taxation and intangible assets.

 

Group Solvency II capital position

Our Solvency II capital position remains strong and resilient, with a surplus of £3.9 billion (2022: £4.4 billion), after the accrual for the deduction of our 2023 Final dividend of £267 million. Our SCCR reduced marginally to 176% (2022: 189%) but remains towards the upper-end of our 140-180% operating range, providing the capacity to continue investing to grow, optimise and enhance our business.

 

Change in Group Solvency II surplus and SCCR

Operating surplus generation increased the SII surplus by £1.1 billion, contributing to an increase in the SCCR of 27%pts. This was comprised of our ongoing surplus emergence which increased the SII surplus by £0.8 billion during the year and recurring management actions of £0.3 billion.

 

Other management actions increased the SII surplus further by £0.4 billion and added 16%pts to the SCCR.

 

Operating costs, debt interest and dividend totalled £0.9 billion, reducing the SCCR by 19%pts.

 

We have also chosen to invest £0.4 billion of surplus capital into growth. This includes £0.3 billion of capital investment to fund £6.2 billion of BPA premiums written in the year, reducing the SCCR by 10%pts, and £0.1bn of investment into our organic growth propositions, reducing the SCCR by a further 3%pts.

 

Our comprehensive hedging strategy is designed to protect our capital position. In 2023 this led to a small adverse impact from economic variances of £(0.3) billion on our Solvency II surplus. This included a £(0.1) billion adverse impact from unhedged gilt-swap spread movements, as well as adverse currency movements and some other smaller adverse impacts.

 

We are on track for the effective date for Consumer Duty on back-book products in July. Our ongoing focus on ensuring good outcomes for Heritage customers means we have identified only a small number of products that we believe need addressing in advance of the compliance date. We have set aside a prudent c.£70 million of Solvency II capital to reflect the impact of the possibility of introducing further charging caps on certain products, reducing the SCCR by 2%pts.

 

Other movements include the benefit of the Solvency II risk margin reform and favourable longevity assumption changes. These were offset by the strengthening of expense provisions associated with our transformation projects, in addition to a net adverse impact arising on the completion of the SLOC acquisition. Overall, these movements decreased Solvency II surplus by £0.3 billion and the SCCR by 13%.

 

 

£3.9 billion Group Regulatory Solvency II surplus

 

£3.9 billion Group Shareholder Solvency II surplus

 

2023 change in Group Solvency II surplus

 

 

Estimated impact on PGH Solvency II1	Surplus £bn	SCCR %
Solvency II base	3.9	176
Equities: 20% fall in markets	0.1	5
Long-term rates: 100bps rise in interest rates2	0.1	6
Long-term rates: 100bps fall in interest rates2	(0.1)	(5)
Long-term inflation: 50bps rise in inflation3	(0.1)	(1)
Property: 12% fall in values4	(0.2)	(5)
Credit spreads: 135bps widening with no allowance for downgrades5	(0.2)	(4)
Credit downgrade: immediate full letter downgrade on 20% of portfolio6	(0.3)	(9)
Lapse: 10% increase/decrease in rates7	(0.1)	(1)
Longevity: 6 months increase8	(0.4)	(8)

1    Illustrative impacts assume changing one assumption on 1 January 2024, while keeping others unchanged, and that there is no market recovery. They should not be used to predict the impact of future events as this will not fully capture the impact of economic or business changes. Given recent volatile markets, we caution against extrapolating results as exposures are not all linear.

2    Assumes the impact of a dynamic recalculation of transitionals and an element of dynamic hedging which is performed on a continuous basis to minimise exposure to the interaction of rates with other correlated risks including longevity.

3    Rise in Inflation: 15yr inflation +50bps.

4    Property stress represents an overall average fall in property values of 12%.

5    Credit stress varies by rating and term and is equivalent to an average 135bps spread widening. It assumes the impact of a dynamic recalculation of transitionals and makes no allowance for the cost of defaults/downgrades.

6    Impact of an immediate full letter downgrade across 20% of the shareholder exposure to the bond portfolio (e.g. from AAA to AA, AA to A, etc). This sensitivity assumes management actions are taken to rebalance the annuity portfolio back to the original average credit rating and makes no allowance for the spread widening which would be associated with a downgrade.

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

8    Only applied to the annuity portfolio.

 

Sensitivity and scenario analysis

As part of the Group's internal risk management processes, the Own Funds and regulatory SCR are regularly tested against a number of financial scenarios. The table provides illustrative impacts of changing one assumption while keeping others unchanged and reflects the business mix at the balance sheet date. Extreme market movements outside of these sensitivities may not be linear. While there is no value captured in the Group stress scenarios for recovery management actions, the Group does proactively manage its risk exposure. Therefore in the event of a stress, we would expect to recover some of the loss reflected in the stress impacts shown.

 

Unrewarded market risk sensitivities

We have a low appetite to equity, interest rate, inflation and currency risks, which we see as unrewarded, i.e. the return on capital for retaining the risk is lower than for hedging it. In order to stabilise our Solvency II surplus, we regularly monitor risk exposures and use a range of hedging instruments to remain within a Board-approved target range. Equity risk primarily arises from our exposure to a variation in future management fees on policyholder assets exposed to equities, while our currency exposure primarily arises from our foreign currency denominated debt. Our interest rate exposure principally relates to our shareholder credit portfolio, while our inflation exposures arises from both cost inflation expectations and inflation-linked policies.

 

Rewarded market risk sensitivities

We do however retain the credit risk in our c.£38 billion shareholder credit portfolio, and property risk in equity release mortgages, where we see these risks as rewarded. The shareholder credit assets are primarily used to back the Group's annuity portfolio. Exposure to these risks is needed to back growth in the Group's annuity portfolio. Stress testing is used to inform the level of risk to accept and to monitor exposures against risk appetite. We actively manage our portfolio to ensure it remains high quality and diversified, and to maintain our sensitivities within risk appetite. Our portfolio is c.99% investment grade and we have suffered no defaults, testament to the proactive approach taken by our in-house asset management team.

 

We also remain conservative in our property exposure. We have c.£4.5 billion of our credit portfolio exposed to equity release mortgages, which are all UK-based with an average rating of AA and average loan-to-value ('LTV') of 33%, and c.£1.1 billion in commercial real estate which is high quality and all UK-based with an average LTV of 47%. The full sensitivity we focus on for credit is a full letter downgrade of 20% of our credit portfolio, which is £(0.3) billion and is therefore small relative to the Group's £3.9 billion Solvency II surplus.

 

Managing demographic risks

We have three key demographic risks - lapse risk from early surrenders, longevity risk on our annuity portfolio and mortality risk on our protection book. We manage lapse risk through our strong customer proposition. Our longevity risk principally arises from our annuity book, but this is managed through reinsurance. We retain around half of this risk across our current in-force book, and reinsure most of this risk on new business. Mortality risk arises from our protection business and we seek to manage this as part of a well-diversified portfolio.

 

Life Company Free Surplus

Life Company Free Surplus represents the Solvency II surplus for the Life Companies that is in excess of their Board-approved CMPs. It is this Free Surplus from which the Life Companies remit cash to Group. We retain a significant Life Company Free Surplus of £2.2 billion which provides resilience to the Group's long-term cash generation.

 

Solvency II capital outlook

We maintain a 140-180% SCCR operating range, which reflects our low sensitivity to economic volatility due to our comprehensive hedging.

 

We have been at the top-end of our range for the past three years, but will invest some of this surplus as we transform our business, with the investment more front-end weighted across 2024-26. In addition, our intention to repay at least c.£500 million of debt by the end of 2026 will also reduce our SCCR over the coming years.

 

Leverage

We manage our leverage position by considering a range of factors including our cash interest cover, the interplay of our balance sheet hedging, and our capital tiering headroom. It also includes a number of output metrics that we monitor, such as the Fitch leverage ratio and Solvency II leverage ratio.

 

Our approach to leverage has always been to increase leverage to support M&A and then pay down that debt with surplus cash as it emerges. Since 2020 the Group has repaid c.£800 million of debt through this approach.

 

As at 31 December 2023, our Solvency II leverage ratio was 36% (2022: 34%). This increased in 2023, largely due to our investment in growth, integration and transformation. The Group's Fitch leverage ratio was 23% compared to full year 2022 on a restated basis of 23%,and is favourably below Fitch's stated range of 25-30% for an investment grade credit rating.

 

We plan to continue our approach of repaying M&A-related debt with surplus cash, and subject to regulatory approval, we intend to repay at least £500 million of debt by the end of 2026, including the £250 million Tier 2 bond that is callable in June 2024. This will support us in achieving a c.30%¹ Solvency II leverage ratio by the end of 2026. This is a steady-state level of leverage that we will believe is the appropriate for our business, absent M&A.

 

1    Assuming economic conditions in line with 31 December 2023.

 

Earnings

£617m

Adjusted operating profit before tax APM

 

£4.6bn

Adjusted shareholders' equity APM

 

 

IFRS profit and loss statement	2023	20221,2
Pensions and Savings	£190m	£150m
Retirement Solutions	£378m	£349m
With-Profits	£10m	£54m
Europe and Other	£132m	£60m
Corporate Centre	£(93)m	£(69)]m
Adjusted operating profit before tax	£617m	£544m
Investment return variances and economic assumption changes	£147m	£(3,309)m
Amortisation and impairment of intangibles	£(322)m	£(353)m
Other non-operating items	£(439)m	£(262)m
Finance costs	£(195)m	£(199)m
Profit before tax attributable to non-controlling interest	£28m	£67m
Loss before tax attributable to owners	£(164)m	£(3,512)m
Tax credit attributable to owners	£76m	£855m
Loss after tax attributable to owners	£(88)m	£(2,657)m

 

1    2022 restated comparative to reflect adoption of IFRS 17

2    Incorporates changes to the Group's methodology for determining adjusted operating profit since Half Year 2023 (see note B1 to the consolidated financial statements for further details).

 

 

IFRS results

IFRS (loss)/profit is a GAAP measure of financial performance and is reported in our statutory financial statements on page 164 onwards. Adjusted operating profit before tax 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 312 for further details of this measure.

On 1 January 2023, the Group adopted the new accounting standard, IFRS 17: 'Insurance Contracts', with comparatives restated from 1 January 2022. IFRS 17 requires a company to recognise profits as it delivers insurance services (rather than when it receives premiums) and to provide information about insurance contract profits the company expects to recognise in the future. The impact of the transition to IFRS 17 is set out in note A2.1.

 

IFRS loss after tax attributable to owners

The Group generated an IFRS loss after tax attributable to owners of £88 million (2022: loss of £2,657 million). The improvement versus 2022, primarily reflects a £3,456 million improvement in economic variances due to a much lower level of market volatility in the period, particularly interest rates. This has been partially offset by an increase in non-operating items as a result of our investment into growth in the period and ongoing migrations and transformation.

 

Basis of adjusted operating profit

Adjusted operating profit is based on expected investment returns on financial investments backing business where asset returns accrue to the shareholder and surplus assets over the reporting period, with allowance for the corresponding expected movements in liabilities (being the interest cost of unwinding the discount on the liabilities). Adjusted operating profit includes the unwind of the Contractual Service Margin ('CSM') and risk adjustment attributable to the shareholder. The principal assumptions underlying the calculation of the long-term investment return are set out in note B 2.1 to the IFRS consolidated financial statements.

 

Adjusted operating profit includes the effect of variances in experience relating to the current period for non-economic items, such as mortality and expenses. It also incorporates the impacts of asset trading optimisation and portfolio rebalancing where not reflected in the discount rate used in calculating expected return. Any difference between expected and actual investment return, along with other economic variances described further in note B1.1 are shown outside of adjusted operating profit. Adjusted operating profit is net of policyholder finance charges and policyholder tax.

 

Adjusted operating profit

The Group increased adjusted operating profit by 13% to £617 million (2022: £544 million). This primarily reflects strong growth in our Pensions and Savings business, which delivered adjusted operating profit of £190 million, an increase of 27% year-on-year (2022: £150 million). This was largely driven by higher AUA resulting in increased charges, and an improved margin through operating leverage.

 

Our Retirement Solutions business delivered an adjusted operating profit of £378 million (2022: £349 million). The 8% increase year-on-year primarily reflects a higher expected investment margin as a result of higher risk-free rates. The positive impact of BPA new business on CSM amortisation has offset the run-off of the remaining annuity book despite the phasing of a significant proportion of new business in late 2023.

 

With-Profits adjusted operating profit declined to £10 million (2022: £54 million) principally as a result of the run-off of this business and the adverse impacts of modelling refinements in the period.

 

Europe and Other adjusted operating profit increased to £132 million (2022: £60 million). This segment includes the expected investment margin from surplus assets within shareholder funds, which has increased due to the significant increases in interest rates over 2022. This has been partially offset by a reduction in CSM amortisation following the strengthening of the mortality assumptions on our Protection business.

 

The Group's Corporate Centre includes net operating costs in the period of £93 million (2022: £69 million), which increased due to investment in central functions to support our growth ambitions in the first phase of our journey, partially offset by increased interest income on Holding Company cash.

 

Investment return variances and economic assumption changes

The net positive economic variances of £147 million (2022: £3,309 million loss) results from a more stable market environment compared with the significant volatility experienced during 2022. The impact of positive changes to discount rates, primarily on annuities and including the impact of methodology refinements, more than offsets the losses arising from the impact of positive equity market movements on the hedges the Group holds to protect the Solvency II position. As the full value of future profits impacted by equity markets is not held on the IFRS balance sheet, this results in an 'over-hedged' position on an IFRS basis.

 

Amortisation and impairment of intangibles

The previously acquired in-force business, relating to IFRS 9 accounted capital-light fee-based products, is being amortised in line with the expected run-off profile of the investment contract profits to which it relates. The amortisation and impairment of acquired in-force business during the period of £316 million (2022: £347 million) has decreased year-on-year reflecting the impact of the business run-off. Amortisation and impairment of other intangible assets totalled £6 million in the period (2022: £6 million).

 

Other non-operating items

Other non-operating items in the period totalled a £439 million loss (2022: £262 million loss), inclusive of a £66 million gain recognised on the Sun Life of Canada UK acquisition. This includes £169 million expenditure to support our growth strategy and £36 million impact from setting up a new European subsidiary that was required post-Brexit to continue serving some of our overseas Heritage customers.

 

Other items include £217 million of costs relating to finance transformation activities, £111 million in respect of ongoing integration, transition and transformation projects, £12 million of other corporate project costs, and net other one-off items totalling £74 million, including costs associated with the Part VII transfer of three of the Group's Life insurance entities.

 

Lastly, finance costs of £195 million reflect interest borne on the Group debt instruments and were broadly stable year-on-year (2022: £199 million).

 

Tax charge attributable to owners

The Group's approach to the management of its tax affairs is set out in its Tax Strategy document which is available in the corporate responsibility section of the Group's website.

The Group tax credit for the period attributable to owners is £76 million (2022: £855 million tax credit) based on a loss (after policyholder tax) of £(164) million (2022: loss of £(3,512) million). A reconciliation of the tax charge is set out in note C8 to the Group financial statements.

 

Contractual Service Margin ('CSM')

The CSM represents a stock of future profits that will unwind into the P&L in future years.

 

The Group had a CSM (gross of tax) of £2.9 billion as at 31 December 2023, which grew by 10% in 2023 (2022: £2.6 billion) primarily due to new BPA business written, the acquisition of the SLOC in 2023, interest accretion and assumption changes, which was partly offset by the CSM release into the income statement.

 

The CSM release in the period represents c.8% of the closing CSM (gross of tax) pre release of £3.1 billion. We expect the release of the CSM (gross of tax) to be c.5-7% over time, primarily driven by annuities.

 

Assets under administration

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

 

Group AUA as at 31 December 2023 was £282.5 billion (2022: £259.0 billion), an increase of 9% year-on-year. This increase was primarily driven by an £18.7 billion benefit from positive market and other movements and £8.0 billion relating to the SLOC acquisition. Net inflows in Workplace, Retirement Solutions, Europe and Other were £4.7 billion, £3.3 billion and £0.3 billion respectively, but these were offset by £1.6 billion of outflows in Retail and £9.9 billion of legacy outflows.

 

Outlook

The investments we are making across our strategic priorities will support strong growth in our IFRS adjusted operating profit before tax over the next few years.

 

We are targeting £900 million of IFRS adjusted operating profit in 2026, up from £617 million in 2023, reflecting a c.50% increase. This includes the majority of the £250 million cost savings as well as the impact of our organic growth and management actions.

 

We have an elevated level of non-operating costs at present, but we expect these to normalise after we are through our three-year investment programme. We have also suffered significant headwinds to shareholders equity from adverse economics over the past two years, primarily related to the significant rise in long-term interest rates and rise in equities. While future economic impacts are hard to forecast, we would expect to see some unwind of this adverse impact if interest rates return to normalised levels. We would also earn higher revenue from higher asset values in our Pensions and Savings business.

 

The other below the line items are more predictable and while we expect our shareholders' equity to decline over the coming years, we expect it to remain positive over the long term.

 

Our adjusted shareholders' equity, inclusive of the CSM, will remain broadly stable near-term and then begin to grow. Supported by strong CSM growth from our annuities business and other management actions.

 

As a reminder, our Group consolidated shareholders' equity is not a constraint to the payment of our dividends. This is because our dividends are paid from the Phoenix Group Holding Company, which is not impacted by IFRS 17 and has c.£4.6 billion of distributable reserves.

 

 

Movement of IFRS 17 adjusted shareholders' equity over 2023

 

 

Capital allocation

52.65p

Total 2023 dividend per share

 

+2.5%

Final 2023 dividend increase

 

 

2023 dividend increase

Phoenix has demonstrated a strong dividend track record over the past 13 years, with a c.4% compound annual growth rate ('CAGR') since 2011. Our strong strategic and financial performance in 2023 has supported a 2.5% recommended increase in the Final 2023 dividend to 26.65p per share, taking the Total dividend to 52.65p per share.

 

New capital allocation framework for the next phase of our journey

As we embark on the next stage of our journey, we are outlining a new capital allocation framework.

 

There are two key underpins to our framework. The first is that we will operate a progressive and sustainable ordinary dividend policy. The second is that we will maintain our strong and resilient balance sheet, by operating within a 140-180% Shareholder Capital Coverage Ratio range.

 

We will seek to balance the investment of our 2024-2026 surplus capital across our strategic priorities of grow, optimise and enhance.

 

In our Grow strategic priority, we will invest c.£100 million into developing our growth propositions and c.£200 million of capital per annum to grow our annuities.

 

In our Optimise strategic priority, we will continue our approach of repaying M&A-related debt using surplus cash, with an intention to repay at least £500 million of debt by the end of 2026. This will support a Solvency II leverage ratio of c.30%¹ by the end of 2026. We will also invest c.£100 million into our asset and liability optimisation capabilities to support recurring managements over the long term.

 

In our Enhance strategic priority, we will invest c.£500 million on migration, transformation and cost efficiency programmes bringing our businesses onto a single Group-wide operating model that will further enhance our cost efficiency.

 

Additional surplus capital, over and above these committed investments, will be allocated to the highest return opportunities. This could include additional investment into growth, further deleveraging, M&A, and/or additional capital return to shareholders.

 

1    Assuming economic conditions in line with 31 December 2023.

 

New progressive dividend policy

The Board has evolved Phoenix's dividend policy to reflect the confidence it has in the Group's strategy. The Group will now operate a progressive and sustainable ordinary dividend policy.

 

The Board will continue to announce any potential annual dividend increase alongside the Group's Full Year results and expects the Interim dividend to be in-line with the previous year's Final dividend. The Board will continue to prioritise the sustainability of our dividend over the very long term. Future dividends and annual increases will continue to be subject to the discretion of the Board, following assessment of longer-term affordability.

 

 

Outlook

Growing Operating Cash Generation that more than covers our recurring uses and supports our new progressive and sustainable ordinary dividend policy.

Looking ahead

Our purpose is to help people secure a life of possibilities. The continued execution against our three strategic priorities of Grow, Optimise and Enhance, will support us in delivering strong financial outcomes for our shareholders.

 

Clear financial outcomes for shareholders

We have a new set of ambitious 2026 targets, across our evolved financial framework of cash, capital and earnings.

 

Starting with cash, Phoenix has set three new cash generation targets. The first is that we expect Operating Cash Generation to grow to £1.4 billion in 2026, a c.25% increase from 2023. This growth underpins our Total cash generation target, with a one-year target for 2024 of £1.4-1.5 billion, and a three-year target of £4.4 billion across 2024-2026.

 

Our cash targets demonstrate our confidence in our ability to deliver sustainable, growing cash generation over time.

 

In terms of capital, we will continue to maintain a strong Solvency II balance sheet through our comprehensive hedging approach. This will see us continue to operate within our Solvency II SCCR operating range of 140-180% and continue to manage our key individual risk sensitivities on a Solvency II surplus basis.

 

 

Our intention to repay at least £500 million of debt by the end of 2026. This will support us on our path towards a c.30% Solvency II leverage ratio by the end of 2026, which is an appropriate steady-state level for our business absent M&A.

 

Turning to earnings, we are targeting IFRS adjusted operating profit to grow c.50% to £900 million in 2026, as we grow, optimise and enhance our business. This will include the majority of the c.£250 million of annual cost savings we aim to deliver by the end of 2026.

 

We expect the improving macroeconomic outlook, with interest rates and inflation normalising, to support our future growth ambitions and targets.

 

Delivering against the targets across our evolved financial framework of cash, capital and earnings, in turn supports our new progressive and sustainable ordinary dividend policy.

 

2024 will be another exciting year for Phoenix Group on our journey and as we continue to deliver on our purpose and our strategy.

 

 

Rakesh Thakrar

Group Chief Financial Officer

 

 

Growing Operating Cash Generation supports our new progressive dividend policy

 

 

We have a clear set of supporting targets:

 

Cash

£1.4 billion Operating Cash Generation in 2026

£4.4 billion of Total cash generation across 2024-2026

£1.4-to-£1.5 billion of Total cash generation in 2024

 

Capital

140-180% Shareholder Capital Coverage Ratio operating range

Solvency II leverage ratio of c.30% by the end of 2026

 

Earnings

Targeting £900 million of IFRS adjusted operating profit in 2026

c.£250m of annual cost savings by 2026

 

 

 

 

 

 

Principal risks and uncertainties facing the Group

The Group's principal risks and uncertainties are detailed in this section, together with their potential impact, mitigating actions in place and any change in risk exposure since the Group's 2022 Annual Report and Accounts, published in March 2023.

 

A principal risk is a risk or combination of risks that can seriously affect the performance, future prospects or reputation of the Group, including risks that would threaten its business model, solvency or liquidity. The Board Risk Committee has carried out a robust assessment of principal risks and emerging risks. As a result of this review, the 13 risks noted in the Group's 2022 Annual Report and Accounts have been retained. The articulation of the principal risks related to transitioning acquired businesses and Environmental, Social and Governance ('ESG') has been refined to reflect the evolution of how these risks could impact the Group. The overall level of risk exposure for ESG risks is now reported as 'Heightened' for the first time since introduction in 2019, in recognition of the external headwinds which could impact the Group's ability to effectively manage sustainability risks.

 

Both strategic and operational risk categories contain multiple principal risks; risks in these categories are broadly ordered for their relevance to enabling the Group to achieve its strategic priorities.

 

Further details of the Group's exposure to financial and insurance risks and how these are managed are provided in note E6 and F11 to the IFRS consolidated financial statements.

 

 

Strategic priorities

1 Grow
2 Optimise

3 Enhance

 

 

Impact	Mitigation	Change from 2022 Annual Report and Accounts
Strategic risk The Group fails to deliver long-term organic cash generation in line with its Annual Operating Plan         1 3
Confidence in the Group might be diminished if it fails to deliver organic cash generation in line with targets shared, particularly as the Group seeks to support people by offering a wide range of solutions to help customers journey to and through retirement.	The Group's business unit structure brings focus and accountability. The key areas of growth are Pensions and Savings and Retirement Solutions. Each business unit holds an annual strategy setting exercise to consider the needs of potential and existing customers, the interests of shareholders, the competitive landscape and the Group's overall purpose and objectives. The Group's Annual Operating Plan commits it to making significant investment in its growth businesses, including propositional enhancements driven by customer insight. The Group is established in the Bulk Purchase Annuity ('BPA') market and continues to invest in its operating model to further strengthen its capability to support its growth plans. For new BPA business, the Group continues to be selective and proportionate, focusing on value not volume, by applying its rigorous Capital Allocation Framework.	Unchanged The Group viewed this risk as 'Improving' in the 2022 Annual Report and Accounts, reflecting the demonstrated success of the strategy to pursue organic cash generation; this view of the level of risk exposure is unchanged. The Group has delivered strong organic growth in 2023, with new business net fund flows of c. £7bn, compared to £3.9bn in 2022. This is in line with the Group's strategy to deliver a balanced business mix through leveraging its scale in the capital-light fee-based businesses and maintaining a disciplined level of growth in annuities. As a result of this strong performance, the Group has delivered c. £1.5bn of total new business long-term cash generation in 2023, achieving its 2025 target two years early. During 2023, the Group completed BPA transactions with a combined premium of c. £6bn, compared to £4.8bn in 2022. This continues to demonstrate that the Group has the ability to compete and win in the BPA market. In September, the Group launched the Standard Life Pension Annuity to the open market in the UK, becoming the first new provider to enter the annuity market since the introduction of Pension Freedoms legislation in 2015. The Pensions and Savings business, operating under the Standard Life brand, has developed its operating model to centre around three trading channels: Workplace, Retail Intermediated and Retail direct. The Workplace business continues to attract good flows in, delivering net fund flows of c. £4.5bn in 2023, nearly double the £2.4bn delivered in 2022. This is supported by c. £2bn of new scheme assets transferred in 2023, including the Siemens workplace scheme, which represents one of the largest scheme transfers to have been tendered in the UK market in recent years, demonstrating the strength of the Group's proposition. The operating model and organisational design are being developed and implemented for the Retail businesses, with the aim of maximising opportunities for growth, both directly and through advisers, from new and existing customers. During 2023, £1.079bn of assets were internally transferred to Retail direct to enable existing customers to access modern pension offerings to support them to and through retirement. The Group is looking to expand the current offering of financial guidance and advice to support customers in better preparing for their retirement.
Strategic risk continued The Group's strategic partnerships fail to deliver the expected benefits     1 2 3
Strategic partnerships are a core enabler for delivery of the Group's strategy; they allow it to meet the needs of its customers and clients and deliver value for its shareholders. The Group's end state operating model will leverage the strengths of its strategic partners whilst retaining in-house key skills which differentiate it from the market. However, there is a risk that the Group's strategic partnerships do not deliver the expected benefits leading to adverse impacts to customer outcomes, strategic objectives, regulatory obligations and the Group's reputation and brand. Some of the Group's key strategic partnerships include: abrdn plc: Provides investment management services to the Group including the development of investment solutions for customers. abrdn plc manages c. £154bn of the Group's assets under administration, at December 2023. HSBC plc: Provides custody and fund accounting services to the Group to manage c. £165bn of its unit linked operations. TCS Diligenta: The Group's partnership covers a range of services including customer administration and digital and technology capabilities to support customer outcomes.	The Group has in place established engagement processes and a rigorous governance structure to manage relationships with its strategic partners, in line with the Group's Supplier Management Model. The Group takes steps to monitor its supplier concentration risks and has business continuity plans to deploy should there be a significant failure of a strategic partner.	Unchanged The Group assessed this risk as 'Heightened' in the 2019 Annual Report and Accounts due to the increased dependency it placed on its strategic partnerships, and then 'Improved' in 2020 due to strengthening controls around the operation of those partnerships. Whilst the Group has further strengthened and simplified its strategic partnerships since that time, its assessment of the level of risk exposure is unchanged from the 2020 position, reflecting the Group's ongoing reliance on its strategic partners to deliver the volume of change needed to advance the Group's strategic objectives. The Group continues to develop its partnership with TCS Diligenta to support its strategic deliverables. The successful migration of another 700,000 Phoenix Life customer policies to TCS Diligenta's BaNCS platform was completed in November 2023. Planning for further migrations in 2024 and beyond is underway. During 2023 the Group successfully transferred the custody and fund accounting services for £12.3bn of assets to HSBC plc. This is a key milestone in the Group's journey towards implementing harmonised investment administration processes, and boosts its strategic partnership with HSBC plc.
Strategic risk continued The Group fails to effectively transition acquired businesses      1 2 3
The Group is exposed to the risk of failing to transform, simplify and better integrate the component parts of our acquired businesses to deliver leading customer experiences and realise scale efficiencies successfully and efficiently. The transition of acquired businesses into the Group, including customer migrations, could introduce structural or operational challenges that, without sufficient controls, could result in the Group failing to deliver the expected outcomes for customers or achieve the efficiencies of its target operating model.	Integration plans are developed and resourced with appropriately skilled staff to ensure target operating models are delivered in line with expectations. The Group's priority at all times is on delivering for its customers. Customer migrations are planned thoroughly with robust execution controls in place. Lessons learned from previous migrations are applied to future activity to continuously strengthen the Group's processes. The Group views future M&A activity as an optional strategy accelerant and will assess new inorganic growth opportunities against a clear set of criteria and seeks to execute those opportunities which score positively against these criteria. The Group's acquisition strategy is supported by the Group's financial strength and flexibility, strong regulatory relationships and its track record of generating shareholder value and delivering good customer outcomes. The financial and operational risks of target businesses are assessed in the acquisition phase and potential mitigants are identified which may include temporary capital or liquidity buffers.	Unchanged This risk was assessed as 'Heightened' in the Group's 2018 Annual Report and Accounts due to the transformational nature of the Standard Life acquisition. The assessment of the level of exposure to this risk is unchanged from the 2018 position due to the volume of ongoing transition and integration activity. The Group has worked to transform from a financial engineering business to a purpose-led, organically growing business. Focus is now on pivoting to transform and simplify the business in the next phase of our journey. The Group continues to develop its partnership with TCS Diligenta to support its target operating model. Further customer migrations to TCS Diligenta's BaNCS platform are planned in upcoming years, which will support delivery of the Group's target operating model and enable all Phoenix policies to benefit from a more advanced administration platform. The key risk in respect of migration activity is that the time, and associated cost, to deliver these whilst protecting customer outcomes is greater than expected and the Group regularly assesses its reserving basis as a result. In April 2023 the Group completed the acquisition of Sun Life of Canada UK, a closed book UK life insurance company, from Sun Life Assurance Company of Canada. The integration is progressing well, with the majority of functions due to complete activity in April 2024. The Group has now delivered c. 20% of the targeted c. £500m incremental long-term cash generation target from this acquisition, with the remainder due to emerge in 2025 and 2026.
Strategic risk continued The Group does not have sufficient capacity and capability to fully deliver its significant change agenda which is required to execute the Group's strategic objectives            1 2 3
The Group's ability to deliver change on time and within budget could be adversely impacted by insufficient resource and capabilities as well as inefficient prioritisation, scheduling and oversight of projects. The risk could materialise within both the Group and its strategic partners. This could result in the benefits of change not being realised by the Group in the time frame assumed in its business plans and may result in the Group being unable to deliver its strategic objectives. Poor change delivery could affect the Group's ability to operate its core processes in a controlled and timely manner.	The Group's Change Management Framework defines a clear set of prioritisation criteria and scheduling principles for new projects. This is to support the safe and controlled mobilisation of change in line with capacity and risk appetite and to strengthen business readiness processes to deliver change safely into the operational environment. These prioritisation principles are a core part of the Annual Operating Plan process, alongside a significant focus on the deliverability of the change portfolio in 2024. Information setting out the current and forecast levels of resource supply and demand continues to be provided to accountable Senior Management to enable informed decision-making. This aims to ensure that all material risks to project delivery are appropriately identified, assessed, managed, monitored and reported.	Unchanged Whilst significant progress has been made on developing the change capability and capacity, there has been no change to the assessment of exposure to this risk since its introduction in the 2020 Annual Report and Accounts, which reflects the potential impact of failing to deliver the Group's significant strategic and regulatory change agenda. The Group has continued to strengthen its Change Management Framework during 2023 and expects to see an improving trend in this risk as those enhancements are seen in project delivery, noting that the Group has a number of multi-year change programmes so benefits will emerge in 2024 and beyond. The Group's Chief Operating Officer is driving further enhancements to evolve and mature the Group's change operating model. In 2023 this included significant effort being put into the recruitment of senior change professionals, alongside the assessment and further development of all internal change resources.
Strategic risk continued The Group fails to appropriately prepare for and manage the effects of climate change and wider ESG risks                1 2 3
The Group is exposed to the risk of failing to respond adequately to ESG risks and delivering on its purpose; for example, failing to meet and make its sustainability commitments. A failure to manage ESG risk could result in adverse customer outcomes, reduced colleague engagement, reduced proposition attractiveness, reputational risks and litigation. The Group is exposed to risks arising from the transition to a lower-carbon economy, which could result in a loss in the value of policyholder and shareholder assets. In addition, physical risk can give rise to financial implications, such as direct damage to assets, operational impacts either direct or due to supply chain disruption, and impacts on policyholder health and wellbeing, impacting demographic experience.	The Group has a clear sustainability strategy in place which is updated annually to reflect the Group's latest plans and risk exposures, with key metrics on progress monitored throughout the year. Sustainability risk and climate risk are both embedded into the Group's RMF. Sustainability risk 'cross-cuts' the Group's Risk Universe. This means the consideration of material sustainability-related risks is embedded in the Group's risk policies, with regular reporting undertaken to ensure ongoing visibility of its exposure to these risks. Several sustainability-related risk policies are also in place to cover the main sources of sustainability risk. The Group is making good progress on integrating the management of climate change and wider ESG risks across the business, including in investment portfolios, with further work underway to embed its consideration fully across the business. The Group continues to engage with suppliers and asset managers on their progress and approach to managing climate change and wider ESG risks. The Group undertakes annual climate-related stress and scenario testing and continues to build its climate scenario modelling capabilities. The Group undertakes deep dives on emerging ESG risk areas (such as greenwashing and ESG litigation risk) to increase understanding and awareness for Boards and Management, and facilitate control improvements where required.	Heightened This risk is considered 'Heightened' for the first time since its introduction as a principal risk in the 2019 Annual Report and Accounts. The key driver for this change is the rapidly evolving external ESG environment. In particular, the increasing politicalisation and weakening of government policies in relation to ESG risk (such as that of the UK Government) as this could delay the necessary actions to transition to a low carbon economy, making the potential future crystallisation of physical climate events increasingly likely. Anti-climate change and ESG sentiment, particularly in high carbon-emitting countries, could have far-reaching consequences for the pace and effectiveness of climate action and continue to slow down policy changes. This could limit future ESG-aligned investment opportunities and make it more difficult for the Group to manage ESG risk and meet its climate commitments. Recent reports from bodies such as the Intergovernmental Panel on Climate Change and the United Nations Environment Programme highlight the slow progress and significant scale of the challenge in restricting global warming below 1.5°C. Real world events are occurring at a high rate, with 2023 setting the record for the hottest year ever on record. The Group is cognisant of this changing environment and undertakes thought leadership and wide engagement with policymakers and market participants to actively raise the debate around key sustainability themes. Analysis indicates the Group is on track to achieve its 2025 targets if planned actions are implemented. However, further internal actions will likely be needed to achieve the 2030 targets, which are also increasingly dependent on external factors such as the decarbonisation of the wider economy and actions by others - in particular government, regulators, and the high transition risk sector.
Customer risk The Group fails to deliver good outcomes for its customers or fails to deliver propositions that continue to meet the evolving needs of customers 1 2
The Group is exposed to the risk that it fails to deliver good outcomes for its customers, leading to adverse customer experience and potential customer harm. This could also lead to reputational damage for the Group and/or financial losses. In addition, a failure to deliver propositions that meet the evolving needs of customers may result in the Group's failure to deliver its purpose of helping people secure a life of possibilities.	The Group's Conduct Risk Appetite sets the boundaries within which the Group expects customer outcomes to be managed. The Group's Conduct Strategy, which overarches the Risk Universe and all risk policies, is designed to detect where customers are at risk of poor outcomes, minimise conduct risks, and respond with timely and appropriate mitigating actions. The Group has a suite of customer policies that set out key customer risks and the Control Objectives that determine the Key Controls required to mitigate them. The Group maintains a strong and open relationship with the FCA and other regulators, particularly on matters involving customer outcomes. The Group's Proposition Development Process ensures consideration of customer needs and conduct risk when developing propositions.	Unchanged There has been no change to the overall level of exposure to this risk since it was introduced in the 2018 Annual Report and Accounts. The FCA's Consumer Duty represents a step change in approach for the industry, re-enforcing a shift away from a rules-based regime to principles-based regulation. The Duty introduces an overarching requirement that firms, and their employees, must act to deliver good outcomes for retail customers. In response, the Group mobilised a programme of work to implement the changes required to achieve its interpretation of compliance in line with the key regulatory deadlines of end-April 2023, end-July 2023 and end-July 2024. Despite having met the first two deadlines, the Group's view is that the risk exposure around the Duty is elevated whilst the supervisory approach matures, and closed products are reviewed against the Duty's principles, most notably fair value, ahead of the end-July 2024 deadline. The Group has built on its strong foundations, enhancing existing and creating new Group frameworks, processes and strategies to meet Duty requirements. This includes a Fair Value Framework designed to assess value in its broadest definition and refreshing the Conduct Strategy to embed and maintain the culture of the Group, informed by monitoring behaviours and customer outcomes. The FCA is raising the bar in terms of expectations on firms to ensure and evidence good outcomes are being achieved for their customers. The FCA continues to provide guidance to the industry to support firms' plans to embed the Duty within their businesses. It also recognises that its own understanding and development of guidance and its supervisory approach will continue to evolve. The Group continues to monitor the impacts of the cost-of-living crisis on its customers. Proactive action to support customers, including those most vulnerable, is a priority. The Group is using customer behaviour research and analysis to provide customers with the support and help that they need. This has included improving all brand websites to provide general cost-of-living support, encouraging customers to get in touch for help and including links to external support websites.
Operational risk The Group or its outsource partners are not sufficiently operationally resilient       1 2 3
The Group is exposed to the risk of causing intolerable levels of disruption to its customers and stakeholders if it cannot maintain the provision of important business services when faced with a major operational disruption. This could occur either in-house or within the Group's primary and downstream outsource partners, and be triggered by a range of environmental and climatic factors such as the cost-of-living crisis and adverse weather phenomena. The Group regularly conducts customer migrations as part of transition activities in delivering against its strategic objectives. In doing so, it faces the risk of interruption to its customer services, which may result in the failure to deliver expected customer outcomes. Regulatory requirements for operational resilience, and a timetable to achieve full compliance, were published in March 2021. Whilst the specific requirement to work within set impact tolerances takes effect in March 2025, the Group is already exposed to regulatory censure in the event of operational disruption should the regulator determine that the cause was a breach of existing regulation.	The Group's Operational Resilience Framework enhances the protection of customers and stakeholders. It is designed to prevent intolerable harm and supports compliance with the regulations. The Group continues to work closely with its outsource partners to ensure that the level of resilience delivered is aligned to the Group's impact tolerances. The Group has already taken some action, through previous strategic transformation activity, to reduce exposure to technological redundancy and key person dependency risk, increasing the resilience of its customer service. It continues to do so where further exposure is identified. The Group regularly reviews important business service MI to ensure appropriate action is taken to rectify and prevent customer harm. The Group is working to further strengthen and enhance the overall resilience of the Group and its outsource partners by March 2025 through its Operational Resilience Remediation Project. The Group and its outsource partners have well-established business continuity management and disaster recovery frameworks that are annually refreshed and regularly tested. Disruption events are used to assess lessons learned to identify any continual improvements to be made.	Unchanged This strategic risk has been assessed as 'Heightened' in the Group's Annual Report and Accounts since 2020. Key drivers of this assessment are the increasing threat of cyber-attacks and the Group's dependency on its outsource partners to have appropriate resilience to operational disruption. The Group has a significant change and customer migration agenda over the next three to five years, effective completion of which is required to deliver planned strengthening of its operational resilience both internally and with some material outsourced service providers. This exposes the Group to increased risk. However, this is mitigated through strengthened Operational Resilience and Change Management Frameworks, where the risk of late delivery is actively managed by both the relevant change programme and separate operational resilience remediation governance and reporting. The quantum of strategic customer transformation activity requires subject matter expertise to execute successfully. The Group's operational resilience, internally and with material third parties, would be impacted by a large-scale loss of colleagues, for example due to illness or incapacity such as influenza, in the UK or globally. Such impacts are difficult to mitigate in the short-term; however, the Group and material suppliers made substantial investments in remote working capability to manage the impacts of COVID-19, which would be expected to help mitigate the impacts of a further pandemic to service continuity.
Operational risk continued The Group is impacted by significant changes in the regulatory, legislative or political environment    1 2 3
Changes in regulation could lead to non-compliance with new requirements that could impact the quality of customer outcomes, lead to regulatory sanction, impact financial performance or cause reputational damage. These could require changes to working practices and have an adverse impact on resources and financial performance. Political uncertainty or changes in the government could see changes in policy that could impact the industry in which the Group operates.	The Group undertakes proactive horizon scanning to understand potential changes to the regulatory and legislative landscape. This allows the Group to understand the potential impact of these changes to amend working practices to meet the new requirements by the deadline. The Group engages with many political parties and industry bodies to foster collaboration and inspire change which supports the Group's purpose of helping customers secure a life of possibilities.	Unchanged This risk was assessed as 'Heightened' in the Group's 2021 Annual Report and Accounts due to the uncertainty around Solvency II reforms and the FCA's proposed Consumer Duty. These, and the significant undertaking to achieve compliance with IFRS 17 in 2023, were the key drivers of the assessment of risk as further 'Heightened' in the 2022 Annual Report and Accounts and the current assessment is unchanged from that position. The volatile political environment remains 'Heightened' ahead of worldwide elections in 2024, including an expected UK General Election. The current administration continues to face economic headwinds, management of which has implications for the Group's customer base, including the cost-of-living crisis, increased borrowing costs and the potential increase in vulnerability. In June 2023, HMT published draft legislation related to the Solvency II reforms, indicating the reform implementation would be staged with some reforms coming into force on 31 December 2023 and the remainder on 30 June 2024. The Prudential Regulation Authority ('PRA') has since issued two of three anticipated consultations on the rules to implement those reforms in H2 2023, and its near final policy to go live at year-end 2024, relating to Internal Models, Transitional measures on Technical Provisions and Group supervision. Internal teams are reviewing the detail to assess what actions are needed to ensure the Group is compliant with the new rules. The Group supports the PRA and HMT's objectives to reform the regulations to better suit the UK market whilst maintaining appropriate safeguards for policyholders. The financial impact of the reforms will depend on the exact detail of the final legislation. The relatively short time period between the PRA's final Policy Statement and the implementation date of the new rules contributes to the status of this risk. The Group will therefore remain actively involved in industry lobbying on Solvency II and is preparing as much as possible ahead of time to ensure compliance with new rules at the point of implementation. The Group views the FCA's Consumer Duty as well aligned to its strategic priority of helping people secure a life of possibilities and, from 31 July 2023, the Group is materially compliant with the Duty for its open products. Focus remains on reviewing customer journeys and fair value assessments for closed products to achieve compliance with the Duty's principles for these products ahead of the 31 July 2024 deadline. In November 2023 the FCA issued Sustainability Disclosure Requirements and investment labelling requirements which aim to inform and protect consumers and improve trust in the market for sustainable investments. The Group supports the FCA's aims noting that terminology used and a lack of consistency between providers makes it difficult for consumers to navigate. The Group has mobilised a project to ensure its practices align with the new regulation. In December 2023, the FCA issued the Advice Guidance Boundary Review consultation paper. The consultation could lead to a significant change in the way that people who cannot access advice are supported in the industry and the Group is actively engaging with the FCA on this topic. IFRS 17 aims to standardise insurance accounting across the industry and achieving compliance has been a significant undertaking. The Group will continue its finance transformation programme in 2024 to further streamline and automate IFRS 17 processes to support efficient financial reporting in the future.
Operational risk continued The Group or its supply chain are not sufficiently cyber resilient             2 3
Phoenix Group is the UK's largest long-term savings and retirement business, with a significant profile, which leads to greater interest from cyber criminals. The world continues to become increasingly digitally connected and cyber-attacks remain a major threat to the Group. Over the past five years the Group has grown from 5m to 12m customers, while the number of colleagues in the Group has grown from 900 to over 7,500, not including contractors. In addition, the Group's footprint includes engagement with c. 1,800 suppliers which increases the attack surface significantly. This continual growth poses a greater risk of cyber-attack which could have a significant impact on customer outcomes, strategic objectives, regulatory obligations and the Group's reputation and brand. Based on external events and trends, the threat posed by a cyber security breach remains high and the complexity of the Group's increasingly interconnected digital ecosystem exposes it to multiple attack vectors. These include phishing and business email compromise, hacking, data breach and supply chain compromise. Increased use of online functionality to meet customer preferences and flexible ways of working, including remote access to business systems, adds additional challenges to cyber resilience and could impact service provision and customer security. The pace of change is accelerating due to the rapid rise of artificial intelligence ('AI'), which in turn is compounding the threats and as a result, the cyber world is a more dangerous place than ever before. AI also has the potential to improve cyber security by dramatically increasing the timeliness and accuracy of threat detection and response. Cyber security is an essential pre-condition for the safety of AI systems and is required to ensure resilience, privacy, fairness, reliability and predictability.	The Group is continually strengthening its cyber security controls, attack detection and response processes, identifying weaknesses through ongoing assessment and review. The Enterprise Information Security Strategy includes a continuous Information Security and Cyber Improvement Programme, which is driven by input from the Annual Cyber Risk Assessment and Annual Cyber Threat Assessment that utilises internal and external threat intelligence sources. The Group continues to consolidate its cyber security tools and capabilities and the Enterprise Information Security Strategy 2023-2025 includes delivery of a Group Identity Platform and Zero Trust model, Supplier Assurance Platform, Secure Cloud Adoption and proactive Data Loss Prevention. The specialist second line Information Security and Cyber Risk team provides independent oversight and challenge of information security controls, identifying trends, internal and external threats and advising on appropriate mitigation solutions. The Group continues to enhance and strengthen its outsourced service provider and third-party oversight and assurance processes. Regular Board, Executive, Risk and Audit Committee engagement occurs within the Group. The Group holds ISO 27001 Information Security Management Certification for its Workplace Pension and Benefits schemes, which provides confidence to both clients and internal stakeholders that it is committed to managing security.	Unchanged This risk was assessed as 'Heightened' in the Group's 2022 Annual Report and Accounts and this remains unchanged. The UK cyber threat level remains elevated, due to the sustained Russia/Ukraine war, China/Taiwan tensions, and the addition of the Israel/Palestine armed conflict. Cyber threat levels remain high with increased likelihood of a cyber-attack from a State actor; however it is highly unlikely that a Nation State actor would directly target the Group and any impact would be as a result of indirect cyber-attacks against the UK's critical national infrastructure, IT or information security service providers or global financial services companies. Cyber criminals continue to be the Group's most likely threat, primarily due to the type of data held by financial sector organisations being attractive to criminal actors. On 19 April 2023, the UK's National Cyber Security Centre issued an alert warning of a heightened risk from attacks by state-aligned Russian hacktivists, urging all organisations in the country to apply recommended security measures. The Group's cyber controls are designed and maintained to repel the full range of cyber-attack scenarios; whilst the Group's main threat is considered to be cyber crime, from individuals or organised crime groups, the same controls are utilised to defend against a Nation State-level cyber-attack. The single consolidated Group Supplier Information Security Framework, which is improving the Security Oversight and Assurance of the Group's large portfolio of Outsourced Service Providers ('OSP'), third- and fourth-party suppliers, continues to mature. Further embedding and maturing over the next 12 months will help mitigate the risks associated with supply chain cyber security, which is considered the Group's top cyber security threat. Vulnerability management continued to mature throughout 2023 with the Enterprise Cyber Exposure Score ('CES') remaining steady. The Group received formal approval from the FCA and PRA in July 2023 for closure of the Cybersecurity Best Practice Evaluation and Testing ('CBEST') remediation programme.
Operational risk continued The Group fails to retain or attract a diverse and engaged workforce with the skills needed to deliver its strategy   1 2 3
Delivery of the Group's strategy is dependent on a talented, diverse and engaged workforce. This risk is inherent in the Group's business model given the nature of acquisition activity and specialist skill sets. Potential areas of uncertainty include the ongoing transition of ReAssure businesses into the Group, the expanded strategic partnership with TCS Diligenta and the introduction of the flexible working model. Potential periods of uncertainty could result in a loss of critical corporate knowledge, unplanned departures of key individuals, or the failure to attract and retain individuals with the appropriate skills to help deliver the Group's strategy. This could ultimately impact the Group's operational capability, its customer relationships and financial performance.	The Group aims to attract and retain colleagues from all backgrounds by creating a shared sense of purpose and commitment to our strategy, supported by offering competitive terms and conditions, benefits, and flexibility. Monthly colleague surveys promote continuous listening, allow rapid identification of concerns and actions that help improve engagement. The Group looks to respond proactively to external social, economic and marketplace events that impact colleagues. The increased scale and presence of the Group, and success in multi-site and remote working, gives greater access to a larger talent pool to attract and retain in the future. In addition, the Group's graduate and early career programmes helps to support the talent pipeline.	Unchanged There has been no change to the overall level of exposure to this risk since it was introduced in the 2018 Annual Report and Accounts. This is driven by acknowledgement of the significant amount of integration activity within the Group and uncertainty regarding the longer-term social and marketplace impacts of the pandemic and cost-of-living crisis on colleague attrition, sickness, motivation and engagement. Skills essential to the Group continue to be in high-demand in the wider marketplace. The Group monitors this closely and continues to remain confident in the attractiveness of its colleague proposition. The Group launched Midlife MOT assessments to help colleagues take stock in the key areas of wealth, work and wellbeing. The Group continues to leverage apprenticeships to support workforce diversity and to fill key skills, creating bespoke graduate and early careers programmes for specialist technical areas. The Group continues to successfully operate a flexible working model, with strategic investments in technology and other resources maximising its effectiveness. The Group introduced Phoenix Flex as a core part of its employee offering in 2023, to help support colleagues in balancing their personal and professional lives, by encouraging and celebrating flexibility at work, embracing differences, and helping colleagues to thrive.
Market risk Adverse investment market movements or broader economic forces can impact the Group's ability to meet its cash flow targets, along with the potential to negatively impact customer investments or sentiment 1 2 3
The Group and its customers are exposed to the implications of adverse market movements. This can impact the Group's capital, solvency, profitability and liquidity position, fees earned on assets held, the certainty and timing of future cash flows and long-term investment performance for shareholders and customers. There are a number of drivers for market movements including government and central bank policies, geopolitical events, market sentiment, sector-specific sentiment, global pandemics and financial risks of climate change, including risks from the transition to a low carbon economy.	The Group undertakes regular monitoring activities in relation to market risk exposure, including limits in each asset class, cash flow forecasting and stress and scenario testing. In particular, the Group's increase in exposure to residential property and private investments, as a result of its BPA investment strategy, is actively monitored. The Group continues to implement de-risking strategies and control enhancements to mitigate unwanted customer and shareholder outcomes from certain market movements, such as equities, interest rates, inflation and foreign currencies. The Group maintains cash buffers in its holding companies and has access to a credit facility to reduce reliance on emerging cash flows. The Group closely monitors and manages its excess capital position and it regularly discusses market outlook with its asset managers.	Unchanged This risk was assessed as 'Heightened' in the Group's 2019 Annual Report and Accounts, and then again in 2020 due to ongoing economic uncertainty, geopolitical tensions, the impacts of COVID-19 and uncertainty around interest rates. Whilst some of these have lessened, they remain the key drivers for the current assessment of exposure to this risk. The global macro-economic environment remains highly uncertain; although prices continue to rise, the rate of inflation is lower. The UK Consumer Price Index is down to 4.0% in January 2024 from a peak of 11.1% in October 2022. There is an increased expectation that the Bank of England will achieve its target of 2% by the end of 2025. The Bank of England base rate has increased from 0.1% in December 2021 to 5.25% in August 2023, and remains at this level, with the outlook for this to remain stable until summer 2024 before reductions can be expected. Higher interest rates, coupled with cost-of-living rises, have suppressed residential property prices. These are expected to bottom out in summer 2024 and see a return to growth after interest rates start to come down. UK gilt yields remain high, rivalling the levels seen during the 2022 mini-budget market event. The Group continues to monitor and manage its market risk exposures, including to interest rates and inflation, and to markets affected by the increasing number of geopolitical conflicts and concerns. For example, continued attacks on shipping in the Red Sea pose a risk of worsening inflationary pressures and the downstream effects on interest rates. The Group's strategy continues to involve hedging the major market risks and, in 2023, the Group's Stress and Scenario testing programme continued to demonstrate the resilience of its balance sheet to market stresses. Contingency actions remain available to help manage the Group's capital and liquidity position in the event of unanticipated market movements.
Insurance risk The Group may be exposed to adverse demographic experience which is out of line with expectations 1 2
The Group has guaranteed liabilities, annuities and other policies that are sensitive to future longevity, persistency and mortality rates. For example, if annuity policyholders live for longer than expected, then the Group will need to pay their benefits for longer. The amount of additional capital required to meet additional liabilities could have a material adverse impact on the Group's ability to meet its cash flow targets.	The Group undertakes regular reviews of demographic experience and monitors exposure relative to quantitative risk appetite limits. Monitoring includes identifying any trends or variances in experience, in order to appropriately reflect these in assumptions. The Group continues to manage its longevity risk exposures, which includes the use of longevity swaps and reinsurance contracts to maintain this risk within appetite. Where required, the Group continues to take capital management actions to mitigate adverse demographic experience.	Unchanged This risk was assessed as 'Heightened' in the 2020 Annual Report and remains 'Heightened'. The assessment is driven by continued uncertainty around future demographic experience driven primarily by the long-term effects of COVID-19 on life expectancy; potential health risks from rising NHS waiting times; the rise in long-term sickness rates observed across the UK workforce; and health and customer behaviour implications from the cost-of-living crisis. Demographic experience and the latest assessment of future trends continue to be considered in regular assumption reviews, including making appropriate allowance for the impacts of COVID-19 on both longevity and mortality as part of the 2023 assumption reviews. The Group continues to monitor customer behaviour as a result of the cost-of-living crisis to ensure its impact on demographic assumptions is appropriately reflected in regular assumption reviews. Proactive action is being taken to ensure support is provided to customers as the impacts from the cost-of-living crisis continue to materialise. The Group completed BPA transactions with a combined premium of c. £6bn in 2023. Furthermore, the launch of the new Standard Life Pension Annuity ('SLPA') product in the second half of 2023 is a significant milestone for the Group. Consistent with previous transactions, the Group continues to reinsure the vast majority of the longevity risk using longevity swaps and reinsurance contracts that are reviewed regularly.
Credit risk The Group is exposed to the risk of downgrade or failure of a significant counterparty    1 2 3
The Group seeks rewarded credit risk in order to drive value for shareholders and invests in a wide range of credit risky assets in accordance with its strategic asset allocation. The Group is exposed to the risk of downgrades and deterioration in the creditworthiness or default of investments, derivatives or banking counterparties. This could cause immediate financial loss or a reduction in future profits. The Group is also exposed to trading counterparties, such as reinsurers or service providers, failing to meet all or part of their obligations. This would negatively impact the Group's operations that may in turn have adverse effects on customer relationships and may lead to financial loss.	The Group seeks to take credit risk by maintaining a high quality and diversified credit investment portfolio and ensuring relationships are with highly rated counterparties. The Credit Risk Policy and Counterparty Limit Framework sets out a system of controls to manage this risk within appetite with early warning indicators to manage the most material exposures within acceptable tolerances. This includes the management of risks linked to climate change, including the impact on assets from transitioning to a low carbon economy. The Group regularly monitors its counterparty exposures and has specific limits in place relating to individual counterparties (with sub-limits for each credit risk exposure), sector concentration, geographies and asset class. Limits also restrict exposure to BBB+ and below rated assets. The Group undertakes regular stress and scenario testing of the credit portfolio. Where possible, exposures are diversified using a range of counterparty providers. All material reinsurance and derivative positions are appropriately collateralised. The Group regularly discusses market outlook with its asset managers in addition to the second line Risk oversight provided. For mitigation of risks associated with stock-lending, additional protection is provided through collateral and indemnity insurance.	Unchanged In the Group's 2020 Annual Report and Accounts, this risk was assessed as 'Heightened' as a result of the market volatility and wider economic and social impacts arising from COVID-19. While the residual risks from COVID-19 have receded, the current assessment of the level of exposure to this risk is unchanged from the 2020 position, driven by the ongoing geopolitical tensions, economic uncertainty and persistent high inflation. Over 2023 the Group continued to undertake actions to increase the overall credit quality of its portfolio and mitigate the impact on risk capital of future downgrades. This positive progress is balanced by risks arising from geopolitical conflicts such as those in Ukraine and the Middle East, and supply chain disruptions arising from the risk of deterioration in the relationship between the USA and China. Uncertainties over the global economic outlook, persistent high inflation and higher for longer interest rates present an increased risk of defaults and downgrades. However, a UK sovereign downgrade is less probable than at the end of 2022, following both Moody's and S&P's revision of the UK credit rating's outlook from 'negative' to 'stable' during 2023. This has a positive impact on UK-related assets including Gilts, Housing Associations and Local Authority Loans. Despite the failure of a number of US regional banks and a regulator-facilitated merger of Credit Suisse with UBS in early 2023, the Group's view is that a full-blown banking crisis will not follow. In addition, the Group has limited exposure to banks with idiosyncratic risks. The Group has no direct shareholder credit exposure to Russia or Ukraine and no exposure to sanctioned entities. The Group continues to increase investment in illiquid credit assets as a result of BPA transactions. This is within appetite and in line with the Group's strategic asset allocation plans. The growth in illiquid assets will be met by growth in the overall Group credit portfolio.

 

 

Emerging risks and opportunities

The Group's Senior Management and Board take emerging risks and opportunities into account when considering potential outcomes. This determines if appropriate management actions are in place to manage the risk or take advantage of the opportunity. Two examples of key risks and opportunities discussed by Senior Management and the Board during 2023 are:

Description	Risk Universe category
Quantum computing
Quantum computing has the potential to deliver improved actuarial analysis, portfolio optimisation, risk modelling and management, forecasting and enhanced fraud prevention. It has the ability to arrive at feasible solutions for optimisation problems, or find better accuracies for machine learning problems, or run simulations exponentially faster. However, there are significant risks to consider, such as the potential for quantum computing to be used with malicious intent against the Group. The Group will seek to get 'quantum-safe' as soon as possible, to minimise the magnitude of emerging threats, including the potential of breaking current encryption systems, which would leave personal data of the Group's customers vulnerable to hackers. Switching from one encryption regime to another will take years to implement with the payoff timeline for incorporating quantum resources currently perceived as being in excess of three years. It is crucial for the Group to develop quantum-resistant encryption algorithms and implement robust security measures to protect sensitive information. There is a potential opportunity to maximise capital preservation and commercial differentiation, by leveraging the exponential growth in data available to the market.	Operational
Pensions innovation
Changing customer expectations around simplicity of products, personalisation and increasing technology-based interaction presents greater risk from market disruptions. Customers are increasingly looking for frictionless services, which will heighten competition in offering a complete experience and solutions to customer needs. Aside from these risks, this does represent a significant opportunity for the Group to meet ever-evolving customer needs to become a trusted partner to and through retirement. The Group continues to partner with innovative start-ups, providing user experience and technical delivery support for priority proposition initiatives. Digital and Workplace successfully launched Phoenix Group's Innovation Forum, inviting new partners from TCS COIN and FinTech Scotland networks to apply to work with the Group on defined challenges. The Group tracks industry change including on the use of analytics; ensuring compliance with cookies regulation; simplifying the process to gather permissions to market; and changes via Consumer Duty. The Group has an opportunity around future ways of working and innovation, leading to improved and enhanced customer experiences whilst ensuring that regulatory work fully supports good customer outcomes within the next one to three years.	Customer

 

 

Statement of Directors' responsibilities

 

Statement of Directors' responsibilities in respect of the Annual Report of Phoenix Group Holdings plc

The Directors are responsible for preparing the Annual Report, consolidated financial statements and the Company financial statements in accordance with applicable United Kingdom law and regulations.

 

The Board has prepared a Strategic report which provides an overview of the development and performance of Phoenix Group's business for the year ended 31 December 2023, covers the future developments in the business of Phoenix Group and its consolidated subsidiaries and provides details of any important events affecting the Company and its subsidiaries after the year end. The Strategic report and the Directors' report together constitute the management report as required under DTR 4.1.8R.

 

Company law requires the Directors to prepare the consolidated and the Company financial statements for each financial year. Under that law the Directors have elected to prepare the consolidated and Company financial statements in accordance with UK-adopted International Accounting Standards ('IASs') in conformity with the requirements of the Companies Act 2006. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of Phoenix Group and of the profit or loss of Phoenix Group and the Company for that period.

 

In preparing these financial statements the Directors are required to:

 

·      select suitable accounting policies in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;

·      make judgements and accounting estimates that are reasonable, relevant and reliable;

·      present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

·      provide additional disclosures when compliance with the specific requirements in IASs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on Phoenix Group financial position and financial performance;

·      in respect of Phoenix Group financial statements, state whether UK-adopted IASs have been followed, subject to any material departures disclosed and explained in the financial statements;

·      in respect of the parent Company financial statements, state whether applicable UK accounting standards, have been followed, subject to any material departures disclosed and explained in the financial statements; and

·      prepare the consolidated and the Company financial statements on the Going concern basis unless it is inappropriate to presume that Phoenix Group will continue in business.

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain Phoenix Group's transactions and disclose with reasonable accuracy at any time the financial position of Phoenix Group, and enable them to ensure that the Company and the consolidated financial statements and the Directors' Remuneration report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of Phoenix Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic report, Directors' report, Directors' Remuneration report and Corporate governance statement that comply with that law and those regulations.

 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

The Directors as at the date of this Directors' report, whose names and functions are listed in the Board of Directors section on pages 64 to 67, confirm that, to the best of their knowledge:

 

·      the consolidated financial statements, prepared in accordance with UK-adopted IASs give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and undertakings included in the consolidation taken as a whole;

·      the Annual Report, including the Strategic report, includes a fair review of the development and performance of the business and the position of the Company and undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

·      the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for users (who have a reasonable knowledge of business and economic activities) to assess the Company's position, performance, business model and strategy.

 

The Strategic report and the Directors' report were approved by the Board of Directors on 20 March 2024.

 

By order of the Board

 

Andy Briggs

Group Chief Executive Officer

 

Rakesh Thakrar

Group Chief Financial Officer

 

21 March 2024

 

 

 

 

Consolidated income statement

For the year ended 31 December 2023

		2023	2022 restated1
	Notes	£m	£m
Insurance revenue	C1	4,861	5,142
Insurance service expenses	C5	(4,354)	(5,248)
Insurance service result before reinsurance contracts		507	(106)
Net expenses from reinsurance contracts		(180)	(162)
Insurance service result	C5	327	(268)
Fees and commissions	C2	967	858
Net investment income/(expense)	C3	20,840	(38,012)
Other operating income		86	102
Gain on acquisition	H2	66	-
Total income/(expense)		22,286	(37,320)
Net finance (expense)/income from insurance contracts	C4	(6,982)	22,879
Net finance income/(expense) from reinsurance contracts	C4	179	(1,053)
Net insurance finance (expense)/income		(6,803)	21,826
Change in investment contract liabilities		(13,894)	14,487
Change in reinsurers' share of investment contract liabilities		873	(1,448)
Amortisation and impairment of acquired in-force business	G2	(318)	(349)
Amortisation of other intangibles	G2	(6)	(6)
Administrative expenses	C5	(1,674)	(1,421)
Net (expense)/income attributable to unitholders		(186)	372
Profit/(loss) before finance costs and tax		278	(3,859)
Finance costs	C7	(258)	(230)
Profit/(loss) for the year before tax		20	(4,089)
Tax (charge)/credit attributable to policyholders' returns	C8	(184)	577
Loss before the tax attributable to owners		(164)	(3,512)
Tax (charge)/credit	C8	(108)	1,432
Add: tax attributable to policyholders' returns	C8	184	(577)
Tax credit attributable to owners	C8	76	855
Loss for the year attributable to owners		(88)	(2,657)
Attributable to:
Owners of the parent		(116)	(2,724)
Non-controlling interests	D5	28	67
		(88)	(2,657)
Earnings per ordinary share
Basic (pence per share)	B3	(13.8)p	(274.9)p
Diluted (pence per share)	B3	(13.8)p	(274.9)p

1  Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).

Statement of comprehensive income

For the year ended 31 December 2023

	Notes	2023	2022 restated1
Loss for the year		(88)	(2,657)
Other comprehensive (expense)/income:
Items that are or may be reclassified to profit or loss:
Cash flow hedges:
Fair value (losses)/gains arising during the year	D3	(107)	181
Reclassification adjustments for amounts recognised in profit or loss	D3	75	(186)
Exchange differences on translating foreign operations		4	32
Items that will not be reclassified to profit or loss:
Remeasurement of owner-occupied property	D3	2	(5)
Remeasurements of net defined benefit asset/liability	G1	(66)	940
Tax credit/(charge) relating to other comprehensive income items	C8	21	(283)
Total other comprehensive (expense)/income for the year		(71)	679
Total comprehensive expense for the year		(159)	(1,978)
Attributable to:
Owners of the parent		(187)	(2,045)
Non-controlling interests	D5	28	67
		(159)	(1,978)

1  Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).

Statement of consolidated financial position

As at 31 December 2023

	Notes	31 December 2023 £m	31 December 2022 restated1 £m	1 January 2022 restated1 £m
Assets
Pension scheme asset	G1	26	14	36
Reimbursement rights	G1	204	205	212
Intangible assets
Goodwill		10	10	10
Acquired in-force business		1,912	2,177	2,509
Brands		106	112	118
	G2	2,028	2,299	2,637
Property, plant and equipment	G3	106	125	130
Investment property	G4	3,698	3,727	5,283
Financial assets
Loans and deposits		248	268	465
Derivatives	E3	2,766	4,068	4,567
Equities		87,628	76,737	86,981
Investment in associate	H4	349	329	431
Debt securities		93,374	83,116	104,761
Collective investment schemes		78,909	75,389	85,995
Reinsurers' share of investment contract liabilities		9,672	9,065	9,961
	E1	272,946	248,972	293,161
Insurance assets
Insurance contract assets	F1	-	48	65
Reinsurance contract assets	F1	4,876	4,071	4,720
		4,876	4,119	4,785
Deferred tax asset	G8	143	158	-
Current tax receivable	G8	502	519	419
Prepayments and accrued income		439	403	354
Other receivables	G5	2,578	4,455	1,693
Cash and cash equivalents	G6	7,168	8,839	9,112
Assets classified as held for sale	H3	4,594	7,205	9,946
Total assets		299,308	281,040	327,768

1  Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).

Approved by the Board on 21 March 2024.

 

 

 

Andy Briggs                                                                               Rakesh Thakrar

Chief Executive Officer                                                              Chief Financial Officer

Company registration number 11606773.

 

	Notes	31 December 2023 £m	31 December 2022 restated1 £m	1 January 2022 restated1 £m
Equity and liabilities
Equity attributable to owners of the parent
Share capital	D1	100	100	100
Share premium		16	10	6
Shares held by employee benefit trust	D2	(15)	(13)	(12)
Foreign currency translation reserve		91	87	55
Merger relief reserve	D1	1,819	1,819	1,819
Other reserves	D3	16	46	56
Retained earnings		469	1,162	3,743
Total equity attributable to owners of the parent		2,496	3,211	5,767
Tier 1 Notes	D4	494	494	494
Non-controlling interests	D5	549	532	460
Total equity		3,539	4,237	6,721
Liabilities
Pension scheme liability	G1	2,557	2,520	3,103
Insurance liabilities
Insurance contract liabilities	F1	115,741	107,608	132,497
Reinsurance contract liabilities	F1	147	7	-
		115,888	107,615	132,497
Financial liabilities
Investment contracts		158,004	141,169	157,449
Borrowings	E5	3,892	3,980	4,225
Derivatives	E3	3,342	5,875	1,248
Net asset value attributable to unitholders		2,921	3,042	3,592
Obligations for repayment of collateral received		1,005	1,706	3,442
	E1	169,164	155,772	169,956
Provisions	G7	155	184	184
Deferred tax liabilities	G8	257	309	1,407
Current tax payable	G8	41	34	19
Lease liabilities	G9	74	92	99
Accruals and deferred income	G10	579	544	551
Other payables	G11	2,272	1,373	1,485
Liabilities classified as held for sale	H3	4,782	8,360	11,746
Total liabilities		295,769	276,803	321,047
Total equity and liabilities		299,308	281,040	327,768

1  Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).

Statement of consolidated changes in equity

For the year ended 31 December 2023

	Share capital (note D1) £m	Share premium (note D1) £m	Shares held by the employee benefit trust (note D2) £m	Foreign currency translation reserve £m	Merger relief reserve (note D1) £m	Other reserves (note D3) £m	Retained earnings £m	Total £m	Tier 1 Notes (note D4) £m	Non-controlling interests (note D5) £m	Total equity £m
At 1 January 20231	100	10	(13)	87	1,819	46	1,162	3,211	494	532	4,237
(Loss)/profit for the year	-	-	-	-	-	-	(116)	(116)	-	28	(88)
Other comprehensive income/(expense) for the year	-	-	-	4	-	(30)	(45)	(71)	-	-	(71)
Total comprehensive income/(expense) for the year	-	-	-	4	-	(30)	(161)	(187)	-	28	(159)
Issue of ordinary share capital, net of associated commissions and expenses	-	6	-	-	-	-	-	6	-	-	6
Dividends paid on ordinary shares	-	-	-	-	-	-	(520)	(520)	-	-	(520)
Dividends paid to non-controlling interests	-	-	-	-	-	-	-	-	-	(11)	(11)
Credit to equity for equity-settled share-based payments	-	-	-	-	-	-	22	22	-	-	22
Shares distributed by the employee benefit trust	-	-	12	-	-	-	(12)	-	-	-	-
Shares acquired by the employee benefit trust	-	-	(14)	-	-	-	-	(14)	-	-	(14)
Coupon paid on Tier 1 Notes, net of tax relief	-	-	-	-	-	-	(22)	(22)	-	-	(22)
At 31 December 2023	100	16	(15)	91	1,819	16	469	2,496	494	549	3,539

1  There has been no impact on equity from the transition to IFRS 9 Financial Instruments (see note A2.2 for further details).

Statement of consolidated changes in equity

For the year ended 31 December 2022

	Share capital (note D1) £m	Share premium (note D1) £m	Shares held by employee benefit trust (note D2) £m	Foreign currency translation reserve restated1 £m	Merger relief reserve (note D1) £m	Other reserves (note D3) £m	Retained earnings restated1 £m	Total £m	Tier 1 Notes (note D4) £m	Non-controlling interests (note D5) £m	Total equity restated1 £m
At 1 January 2022 (as reported)	100	6	(12)	71	1,819	56	3,775	5,815	494	460	6,769
Impact of transition to IFRS 17 (note A2.1)	-	-	-	(16)	-	-	(32)	(48)	-	-	(48)
At 1 January 2022 (restated)	100	6	(12)	55	1,819	56	3,743	5,767	494	460	6,721
(Loss)/profit for the year	-	-	-	-	-	-	(2,724)	(2,724)	-	67	(2,657)
Other comprehensive income/(expense) for the year	-	-	-	32	-	(10)	657	679	-	-	679
Total comprehensive income/(expense) for the year	-	-	-	32	-	(10)	(2,067)	(2,045)	-	67	(1,978)
Issue of ordinary share capital, net of associated commissions and expenses	-	4	-	-	-	-	-	4	-	-	4
Dividends paid on ordinary shares	-	-	-	-	-	-	(496)	(496)	-	-	(496)
Dividends paid to non-controlling interests	-	-	-	-	-	-	-	-	-	(10)	(10)
Credit to equity for equity-settled share based payments	-	-	-	-	-	-	16	16	-	-	16
Shares distributed by employee benefit trust	-	-	12	-	-	-	(12)	-	-	-	-
Shares acquired by employee benefit trust	-	-	(13)	-	-	-	-	(13)	-	-	(13)
Non-controlling interests recognised on acquisition	-	-	-	-	-	-	-	-	-	15	15
Coupon paid on Tier 1 Notes, net of tax relief	-	-	-	-	-	-	(22)	(22)	-	-	(22)
At 31 December 2022	100	10	(13)	87	1,819	46	1,162	3,211	494	532	4,237

1  Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).

Statement of consolidated cash flows

For the year ended 31 December 2023

	Notes	2023 £m	2022 £m
Cash flows from operating activities
Cash (utilised)/generated by operations	I2	(770)	1,019
Taxation paid		(93)	(153)
Net cash flows from operating activities		(863)	866
Cash flows from investing activities
Acquisition of SLF of Canada UK Limited, net of cash acquired	H2	(20)	-
Net cash flows from investing activities		(20)	-
Cash flows from financing activities
Proceeds from issuing ordinary shares, net of associated commission and expenses		6	4
Ordinary share dividends paid	B4	(520)	(496)
Dividends paid to non-controlling interests	D5	(11)	(10)
Repayment of policyholder borrowings	E5.2	(58)	(32)
Repayment of shareholder borrowings	E5.2	(350)	(450)
Repayment of lease liabilities	G9	(14)	(14)
Proceeds from new shareholder borrowings, net of associated expenses	E5.2	346	-
Proceeds from new policyholder borrowings, net of associated expenses	E5.2	64	61
Coupon paid on Tier 1 Notes		(29)	(29)
Interest paid on policyholder borrowings		(3)	(1)
Interest paid on shareholder borrowings		(200)	(215)
Net cash flows from financing activities		(769)	(1,182)
Net decrease in cash and cash equivalents		(1,652)	(316)
Cash and cash equivalents at the beginning of the year (before reclassification of cash and cash equivalents to held for sale)		8,872	9,188
Less: cash and cash equivalents of operations classified as held for sale	H3	(52)	(33)
Cash and cash equivalents at the end of the year		7,168	8,839

 

Notes to the consolidated financial statements

A. Significant accounting policies

A1. Basis of preparation

The consolidated financial statements for the year ended 31 December 2023 set out on pages 164 to 290 comprise the financial statements of Phoenix Group Holdings plc ('the Company') and its subsidiaries (together referred to as 'the Group'), and were authorised by the Board of Directors for issue on 21 March 2024.

The consolidated financial statements have been prepared under the historical cost convention except for investment property, owner-occupied property and those financial assets and financial liabilities (including derivative instruments) that have been measured at fair value.

The consolidated financial statements are presented in sterling (£) rounded to the nearest million except where otherwise stated.

Assets and liabilities are offset and the net amount reported in the statement of consolidated financial position only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liability simultaneously. Income and expenses are not offset in the consolidated income statement unless required or permitted by an International Financial Reporting Standard ('IFRS') or interpretation, as specifically disclosed in the accounting policies of the Group.

Statement of compliance

The consolidated financial statements have been prepared in accordance with UK-adopted international accounting standards ('IASs') and the legal requirements of the Companies Act 2006.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiary undertakings, including collective investment schemes, where the Group exercises overall control. In accordance with the principles set out in IFRS 10 Consolidated Financial Statements, the Group controls an investee if and only if the Group has all the following:

•  power over the investee;

•  exposure, or rights, to variable returns from its involvement with the investee; and

•  the ability to use its power over the investee to affect its returns.

The Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including relevant activities, substantive and protective rights, voting rights and purpose and design of an investee. The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Further details about the consolidation of subsidiaries, including collective investment schemes, are included in note H1.

Going concern

The consolidated financial statements have been prepared on a going concern basis. The Directors have, at the time of approving the consolidated financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the period covered by the assessment having assessed the principal risks, forecasts, projections and other relevant evidence for the period to 31 March 2025. Further details of the going concern assessment are included in the Directors' Report on page 143.

A2. Adoption of new accounting pronouncements in 2023

In preparing the consolidated financial statements, the Group has adopted the following standards and amendments effective from 1 January 2023 and which have been endorsed by the UK Endorsement Board ('UKEB'):

•  IFRS 17 Insurance Contracts - see note A2.1;

•  IFRS 9 Financial Instruments - see note A2.2;

•  Disclosure of Accounting Policies (Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgements). The amendments are intended to assist entities in deciding which accounting policies to disclose in their financial statements and requires an entity to disclose 'material accounting policy information' instead of its 'significant accounting policies'. Accounting policy information is material if, when considered together with other information included in an entity's financial statements, it can reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements. The IASB has also developed guidance and examples to explain and demonstrate the application of the 'four-step materiality process' described in IFRS Practice Statement 2;

•  Definition of Accounting Estimates (Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors). The amendments replace the definition of a 'change in accounting estimates' with a definition of 'accounting estimates'. Under the new definition, accounting estimates are 'monetary amounts in financial statements that are subject to measurement uncertainty'. The Board has retained the concept of changes in accounting estimates in the standard by including a number of clarifications;

•  Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12 Income Taxes). The amendments narrow the scope of the recognition exemption in paragraphs 15 and 24 of IAS 12 so that it no longer applies to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. The IASB expects that the amendments will reduce diversity in reporting and align the accounting for deferred tax on such transactions with the general principle in IAS 12 of recognising deferred tax for temporary differences; and

•  International Tax Reform-Pillar Two Model Rules (Amendments to IAS 12 Income Taxes). The scope of IAS 12 has been amended to clarify that the standard applies to income taxes arising from tax law enacted or substantively enacted to implement the Pillar Two model rules published by the OECD, including tax law that implements qualified domestic minimum top-up taxes described in those rules. The amendments introduce a temporary exception to the accounting requirements for deferred taxes in IAS 12, so that an entity would neither recognise nor disclose information about deferred tax assets and liabilities related to Pillar Two income taxes. The Group confirms that it has applied this exception during the period.

The nature and impact of the adoption of IFRS 17 and IFRS 9 are disclosed in notes A2.1 and A2.2 below. The remaining amendments to standards are not considered to have a material effect on these consolidated financial statements.

A2.1 Adoption of IFRS 17 Insurance Contracts

The Group has adopted IFRS 17 effective from 1 January 2023 and comparative information for the year ended 31 December 2022 has been retrospectively restated. IFRS 17 replaces IFRS 4 Insurance Contracts and significantly changes the way the Group recognises, measures, presents and discloses its insurance contracts, investment contracts with discretionary participation features ('DPF') and reinsurance contracts held. It introduces a model that measures groups of contracts based on the present value of future cash flows with an explicit risk adjustment for non-financial risk and a contractual service margin ('CSM'), representing the unearned profit to be recognised in profit or loss over the coverage period.

New accounting policies adopted following the implementation of IFRS 17 are included within note F1 and critical accounting estimates and judgements applied are detailed in note A4.

A2.1.1 Transition approach

Changes in accounting policies resulting from the adoption of IFRS 17 have been applied using a fully retrospective approach ('FRA') to the extent practicable and using a Fair Value Approach ('FVA') approach where the FRA was considered impracticable. The FRA requires the Group to:

•  identify, recognise and measure each group of insurance and reinsurance contracts as if IFRS 17 had always applied;

•  derecognise any existing balances that would not exist had IFRS 17 always applied; and

•  recognise any resulting net difference in equity.

In determining whether it was practicable for the FRA transition method to be applied, the Group has considered the following key factors:

•  the ability to obtain assumptions and data at the required level of granularity, without the material use of hindsight, particularly in relation to contracts within acquired businesses and where the Group's financial reporting metrics did not require such information;

•  the availability and usability of historic data given the significant integration work performed by the Group on both its policy administration and actuarial modelling systems where re-platforming from legacy systems onto a unified platform has been carried out; and

•  the significant level of regulatory change experienced by the insurance industry, such as Solvency II, which impacts on the level of change undertaken on both legacy and current policy administration and actuarial modelling systems.

The FRA has been applied to the following insurance business on transition to IFRS 17:

•  bulk purchase annuities;

•  annuities and unit-linked policies that originated from 1 January 2021 onwards for the acquired Standard Life Assurance business entities;

•  SunLife policies that originated post 1 January 2018; and

•  ReAssure Assurance Limited annuities and non-profit policies from acquisition date of the ReAssure entities.

The FVA has been applied to the Group's remaining insurance business. On transition, 58% of the CSM (net of reinsurance) is calculated under the FRA and 42% under the FVA. However, of the business transitioned under FRA a significant amount of the CSM relates to the ReAssure business acquired in 2020 and fair valued at that date. Management therefore considers c.95% of the liabilities, equating to c.84% of the CSM, to be a more accurate reflection of the use of the FVA.

In applying the FVA, the CSM (or loss component) has been determined at 1 January 2022 as the difference between the fair value of a group of contracts and the present value of expected future cash flows including acquisition costs, plus an explicit risk adjustment. In determining the fair value, the Group has applied the requirements of IFRS 13 Fair Value Measurement, except for the demand deposit floor requirement, as required by IFRS 17. The fair value determined by the Group uses cash flows with contract boundaries consistent with IFRS 17 requirements. The measurement of the fair value of contracts includes items taken into consideration by a market participant but which are not included in the IFRS 17 measurement of contracts, such as a risk premium to reflect a market participant's view of uncertainty inherent in the contract cash flows being valued and a profit margin. Significant judgements and estimates used in determining the fair value have been set out in note A4.1.

The fair value for the groups of with-profits contracts, has been determined at transition date as the sum of the best estimate liability ('BEL'); the policyholders' share of the estate; a risk premium; and other fair value adjustments, i.e. profits on annuities vesting into the non-profit fund.

The treatment for reinsurance contracts held at transition is similar to that for insurance contracts with a few exceptions. The reinsurance BEL is calculated using the IFRS 17 discounted probability-weighted expected present value of the cash flows on transition date. The cash flows under the reinsurance contract are stressed in order to calculate the risk premium, plus an adjustment is made for risk of reinsurer default (i.e. additional risk of claims received being lower than the best estimate) in the risk premium.

A2.1.2 Impact of transition

Total equity attributable to owners of the parent

The Group has determined the quantitative impact of moving to IFRS 17 on 1 January 2022 to be a decrease in the total equity attributable to owners of the parent of £48 million, from £5,815 million to £5,767 million. The main drivers of this reduction are:

		£m
Derecognition of intangible assets related to contracts measured under IFRS 17	On adoption of IFRS 17, the acquired in force business ('AVIF') and customer relationship intangibles and deferred acquisition cost assets associated with the acquisition of insurance contracts are no longer held as separate assets and instead are included implicitly in the measurement of insurance contract assets and liabilities.	(2,030)
Remeasurement of insurance contract liabilities (net of reinsurance)	The remeasurement of insurance contract liabilities primarily includes the following items: •  removal of IFRS 4 margins as IFRS 17 requires cash flows to be measured on a best estimate basis with the addition of an explicit adjustment for risk; •  inclusion of future shareholder profits from with-profit and unit-linked business that are not fully recognised under IFRS 4; and •  changes in the discount rate, most materially impacting annuity contracts. Also included is the impact of a change in treatment in respect of hybrid contracts. These are typically contracts which contain elements of unit-linked and with-profits. Under IFRS 4 these components were separated and reported under IAS 39 and IFRS 4 respectively. Under IFRS 17 if the contract as a whole meets the definition of an investment with DPF contract, the whole contract falls within the scope of IFRS 17 unless the criteria for a distinct investment component is met. If it does not, the whole contract falls within the scope of IFRS 9. On transition a significant proportion of the Group's hybrid contracts were determined to fall within the scope of IFRS 17 and did not meet the criteria to be separated into its components. A small portion of hybrid contracts are accounted for under IFRS 9.	5,481
Recognition of a risk adjustment (net of reinsurance)	IFRS 17 requires an explicit adjustment in respect of non-financial risk, this replaces some of the margins for uncertainty implicitly included in the measurement of cash flows under IFRS 4.	(1,061)
Recognition of a contractual service margin (net of reinsurance)	The contractual service margin reflects the unearned profit to be recognised in profit or loss as services are provided.	(2,430)
Changes in deferred tax from the above items		(8)
Change in total equity attributable to owners of the parent		(48)

In addition to the above IFRS 17 has impacted how insurance and reinsurance contract-related balances are presented in the statement of consolidated financial position. Certain assets and liabilities previously reported separately are now included within IFRS 17 balances, these include balances such as unallocated surplus, deposits received from reinsurers and insurance contract/reinsurance payables/receivables and payables related to direct insurance contracts. Other liabilities and assets have been partly reclassified within IFRS 17 liabilities and assets where these balances relate to insurance contracts, such as provisions, loans and deposits (policy loans), other payables and other receivables. Costs that are assessed as directly attributable to insurance contracts are accounted for under IFRS 17 and this includes those that would have previously determined in accordance with the requirements of IAS 37 Provisions, Contingent Liabilities and Contingent Assets to be included in provisions.

The impacts on the key line items in the Group's statement of consolidated financial position are set out below:

	31 December 2021 as previously reported £m	Impact of implementation of IFRS 17 £m	1 January 2022 restated £m
Intangible assets	4,565	(1,928)	2,637
Financial assets	293,192	(31)	293,161
Insurance contract assets	-	65	65
Reinsurance contract assets	8,587	(3,867)	4,720
Other insurance/reinsurance receivables	139	(139)	-
Other assets	27,316	(131)	27,185
Total assets	333,799	(6,031)	327,768
Insurance contract liabilities	128,864	3,633	132,497
Unallocated surplus	1,801	(1,801)	-
Financial liabilities
Investment contracts	160,417	(2,968)	157,449
Deposits received from reinsurers	3,569	(3,569)	-
Provisions	235	(51)	184
Deferred tax liabilities	1,399	8	1,407
Other insurance/reinsurance payables	2,007	(2,007)	-
Other liabilities	28,738	772	29,510
Total liabilities	327,030	(5,983)	321,047
Total equity	6,769	(48)	6,721

Loss attributable to owners for the year ended 31 December 2022

As a result of adopting IFRS 17, the loss after tax attributable to owners for the year ended 31 December 2022 increased by £895 million from a loss of £1,762 million to a loss of £2,657 million.

	As previously reported £m	Restated £m	Change £m
Adjusted operating profit before tax	1,245	544	(701)
Economic variances	(2,673)	(3,309)	(636)
Amortisation and impairment of acquired in-force business	(501)	(347)	154
Amortisation and impairment of other intangibles	(21)	(6)	15
Other non-operating items	(179)	(262)	(83)
Finance costs attributable to owners	(199)	(199)	-
Loss before tax attributable to owners of the parent	(2,328)	(3,579)	(1,251)
Profit before tax attributable to non-controlling interest	67	67	-
Loss before tax attributable to owners	(2,261)	(3,512)	(1,251)
Tax credit attributable to owners	499	855	356
Loss after tax attributable to owners	(1,762)	(2,657)	(895)

Details of the adjusted operating profit methodology following the transition to IFRS 17 is set out in note B1.

The main drivers of this reduction are:

•  the change in profit recognition pattern. Under IFRS 17 profits are spread over the life of contracts as service is provided. This includes the deferral of new business profits from annuity contracts written in the period;

•  economic variances have increased in relation to the Solvency II hedging in place. The interest rate sensitive liabilities reduce compared to IFRS 4 as the majority of the Group's CSM uses locked-in discount rates resulting in a higher level of 'over-hedging'. In addition, the offset to the losses primarily from interest rate hedging from gains arising on equity hedges in the previously reported numbers is reduced, as under IFRS 17 these hedges now partially offset adverse market impacts arising in the income statement from unit-linked and with-profits business which have a loss component;

•  a reduction in amortisation of the element of acquired in-force ('AVIF') business associated with insurance contracts which is derecognised on transition to IFRS 17; and

•  other non-operating items have reduced due to costs that have been assessed as directly attributable to insurance contracts being included in the calculation of the CSM.

A2.2 Adoption of IFRS 9 Financial Instruments

IFRS 9 replaced IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or after 1 January 2018. The Group elected, under the amendments to IFRS 4, to apply the temporary exemption from IFRS 9, to defer the initial application date of IFRS 9 to align with the initial application of IFRS 17. The Group has therefore adopted the requirements of IFRS 9 from 1 January 2023 and in accordance with the transition provisions in the standard, comparatives have not been restated.

IFRS 9 introduces new requirements for classifying and measuring financial assets and liabilities, impairment methodology, and general hedge accounting rules and replaced the corresponding sections of IAS 39.

New accounting policies adopted following the implementation of IFRS 9 are included within note E1.

A2.2.1 Classification and measurement of financial instruments

Financial assets

IFRS 9 requires all financial assets to be assessed based on a combination of the Group's business model for managing the assets and the instruments' contractual cash flow characteristics. As a result of adopting IFRS 9 on 1 January 2023, certain loans and deposits and cash and cash equivalents investment asset balances, previously classified as amortised cost, have now been reclassified at fair value through profit or loss ('FVTPL') (mandatory) category. The classification adopted is driven by the business model assessment which determined that these assets are managed and evaluated on a fair value basis. These financial assets, which back policyholder liabilities, are actively managed and therefore support the wider objective of the Group to maximise Solvency II headroom. The reclassification of these assets has not resulted in an adjustment to equity at 1 January 2023 as the fair value of these assets at this date was equal to the amortised cost.

Under IAS 39, certain underlying items of participating contracts were designated as at FVTPL because the Group managed them and evaluated their performance on a fair value basis in accordance with a documented investment strategy. Under IFRS 9, portfolios of these assets are mandatorily measured at FVTPL as the business model assessment concludes that they are managed and evaluated on a fair value basis and consequently the classification as FVTPL remains unchanged upon adoption of IFRS 9.

All other financial assets that are not actively managed such as certain cash and cash equivalents, receivables and loans and deposits, are typically held to collect cash flows and therefore continue to be classified as amortised cost under IFRS 9.

The Group has not elected to measure any equity securities financial assets at fair value through other comprehensive income ('FVOCI'). Further, no other debt securities financial assets are classified as FVOCI on adoption of IFRS 9.

Financial liabilities

IFRS 9 has not had a significant effect on the Group's accounting policies for financial liabilities as the classification and measurement of financial liabilities remains largely unchanged from IAS 39. Financial liabilities are either classified as amortised cost or at FVTPL.

Investment contracts without DPF, which do not transfer significant insurance risk, continue to be accounted for as a financial liability and designated at FVTPL on the basis that these liabilities are both managed on a fair value basis and are designated as such to avoid an accounting mismatch with the assets held to back them.

On transition to IFRS 17 and IFRS 9, deposits from reinsurers are no longer classified as financial liabilities under IFRS 9 in accordance with the IFRS 17 requirements for 'premium withheld' arrangements. The premiums withheld have now become a component of fulfilment cash flows and for contracts with deposit back arrangements, the presentation of the deposit back liability has now changed to be shown as an offset to the reinsurance asset.

The Group has assessed the IFRS 9 requirement that changes in fair value of financial liabilities relating to credit risk be presented in OCI, with the balance of the change in fair value to be presented in profit and loss, unless this treatment would create or enlarge an accounting mismatch in profit and loss. Based on this assessment, no financial liabilities were identified as requiring split presentation of movements between OCI and profit and loss as this would create an accounting mismatch as the assets held to back these liabilities are at FVTPL.

The valuation of investment contract liabilities without DPF are measured at the fair value of the related assets and liabilities. The liability is the sum of the investment contract liabilities plus an additional amount to cover the present value of the excess of future policy costs over future charges.

The application of the classification and measurement requirements in IFRS 9 at 1 January 2023 resulted in the following reclassification adjustments:

	IAS 39		IFRS 9
Financial assets	Measurement category	Carrying amount £m	Measurement category	Carrying amount £m
Loans and deposits1	Amortised cost	254	FVTPL	254
Cash and cash equivalent1	Amortised cost	8,423	FVTPL	8,423

1  Actively managed investment assets.

A2.2.2 Impairment

The adoption of IFRS 9 has changed the Group's accounting for impairment losses for financial assets held at amortised cost by replacing IAS 39's incurred loss approach with a forward-looking expected credit loss ('ECL') approach. The new impairment model applies to the Group's financial assets carried at amortised cost.

A significant portion of Group's financial assets are carried at FVTPL under IFRS 9 and are therefore not subject to ECL assessment. The other financial assets classified as amortised cost and subject to ECL mainly relate to certain loan assets, other receivables and certain cash and cash equivalents balances.

In accordance with IFRS 9, the Group has applied the ECL model to financial assets measured at amortised cost. For these in-scope financial assets at the reporting date either the lifetime expected credit loss or a 12-month expected credit loss is provided for, depending on the Group's assessment of whether the credit risk associated with the specific asset has increased significantly since initial recognition. The Group's current credit risk grading framework comprises the following categories:

Category	Description	Basis for recognising ECL
Performing	The counterparty has a low risk of default and does not have any past-due amounts	12 month ECL
Doubtful	There has been a significant increase in credit risk since initial recognition	Lifetime ECL - not credit impaired
In default	There is evidence indicating the asset is credit impaired	Lifetime ECL - credit impaired
Write-off	There is evidence indicating that the counterparty is in severe financial difficulty and the Group has no realistic prospect of recovery	Amount is written off

The financial assets held at amortised cost are assessed at transition as 'performing' and this assessment is summarised below.

Loans and deposits - the Group has assessed the estimated credit losses of these loans and deposits as low due to the external credit ratings of the counterparties resulting in low credit risk and there being no past-due amounts.

Other receivables - these balances relate to investment broker balances and other regular receivables due to the Group in the normal course of business. Expected credit losses are assessed as being immaterial given the typically short-term nature of these balances.

Cash and cash equivalents - the Group's cash and cash equivalents are held with banks and financial institutions, which have investment grade credit ratings of "BBB" or above. The Group considers that its cash and cash equivalents have low credit risk based on the external credit ratings of the counterparties and no history of default. The impact to the net carrying amount stated in the table above is therefore considered not to be material.

Based on the above assessment, an immaterial credit loss balance has been determined due to these financial assets being predominantly short-term and having low credit risk.

A2.2.3 Hedge accounting

The Group has applied IFRS 9's hedge accounting requirements. The Group uses cross currency swaps to hedge the currency risk arising from borrowings denominated in foreign currencies. The Group has carried over the current hedging relationships as cash flow hedges under IFRS 9. The IFRS 9 hedge accounting model requires the extended documentation of each hedging relationship. The Group has updated the existing hedging documentation to reflect the changes to the effectiveness testing process to include qualitative testing on a prospective basis including the analysis of the economic relationship between the hedged item and hedging instrument, analysis of source of hedge ineffectiveness, determining the hedge ratio and assessment of whether the effect of credit risk dominates the value changes that result from the economic relationship. The current hedging relationships are straightforward arrangements whereby the cross currency swaps fully hedge the underlying hedged item and they are all fully collateralised.

A3. Accounting policies

The principal accounting policies have been consistently applied in these consolidated financial statements. An exception to this is where IFRS 9 has been adopted prospectively from 1 January 2023 and IAS 39 has been applied in the comparative period. Where an accounting policy can be directly attributed to a specific note to the consolidated financial statements, the policy is presented within that note, with a view to enabling greater understanding of the results and financial position of the Group. All other significant accounting policies are disclosed below.

A3.1 Foreign currency transactions

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the 'functional currency'). The consolidated financial statements are presented in sterling, which is the Group's presentation currency.

The results and financial position of all Group companies that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

•  assets and liabilities are translated at the closing rate at the period end;

•  income, expenses and cash flows denominated in foreign currencies are translated at average exchange rates; and

•  all resulting exchange differences are recognised through the statement of consolidated comprehensive income.

Foreign currency transactions are translated into the functional currency of the transacting Group entity using exchange rates prevailing at the date of the translation. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated income statement. Translation differences on non-monetary items at fair value through profit or loss are reported as part of the fair value gain or loss.

A3.2 Other operating income

Other operating income includes income from all other operating activities which are incidental to the principal activities of the Group.

A4. Critical accounting estimates and judgements

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Disclosures of judgements made by management in applying the Group's accounting policies include those that have the most significant effect on the amounts that are recognised in the consolidated financial statements. Disclosures of estimates and associated assumptions include those that have a significant risk of resulting in a material change to the carrying value of assets and liabilities within the next year. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of the judgements as to the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Critical accounting estimates are those which involve the most complex or subjective judgements or assessments. The areas of the Group's business that typically require such estimates are the measurement of insurance and investment contract liabilities with DPF, determination of the fair value of certain financial assets and liabilities, and valuation of pension scheme assets and liabilities.

The application of critical accounting judgements that could have the most significant effect on the recognised amounts include classification of contracts to be accounted for as insurance or investment contracts, the determination of adjusted operating profit, the recognition of an investment as an associate and determination of control with regard to underlying entities.

Details of all critical accounting estimates and judgements are included below.

A4.1 Insurance contract and investment contract with DPF liabilities

The Group applies significant judgement and estimation when classifying and measuring insurance contracts, including determination of the inputs, assumptions and techniques it uses to determine the BEL, risk adjustment and CSM at each reporting period to measure the insurance contract and reinsurance contact liabilities/assets. The main areas where significant judgement and estimation were required are:

Contract classification

Classification of contracts as insurance (or reinsurance) is based upon an assessment of the significance of insurance risk transferred to the Group. Insurance contracts are defined by IFRS 17 as those containing significant insurance risk if, and only if, an insured event could cause an insurer to make significant additional payments in any scenario, excluding scenarios that lack commercial substance, at the inception of the contract.

Classification of contracts as investment with DPF is based upon an assessment of whether the discretionary amount of benefits is expected to be a significant amount of the total benefits.

Measurement of insurance contract liabilities

In applying IFRS 17 requirements for the measurement of insurance contract liabilities, the following inputs and methods were used that include significant estimates:

•  the present value of future cash flows is estimated using deterministic scenarios, except where stochastic modelling involves projecting future cash flows under a large number of possible economic scenarios for market variables such as interest rates and equity returns and where the cash flows reflect a series of interrelated options that are implicit or explicit;

•  the approach and assumptions used to derive discount rates, including any illiquid premiums (see note F11.2.1);

•  the approach and confidence level for estimating risk adjustments for non-financial risk (see note F11.2.2); and

•  the assumptions about future cash flows relating to mortality, morbidity, policyholder behaviour, and expense inflation (see note F11.2.3).

Details of how insurance contract liabilities are accounted for are included within the accounting policies in note F1.

Amortisation of the CSM

The Group applies judgements when determining the amount of the CSM for a group of insurance contracts to be recognised in profit or loss as insurance revenue in each period to reflect the insurance contract services provided in that period. The amount is determined by considering for each group of contracts the quantity of the benefits provided and its expected coverage period. Determining the coverage unit requires significant judgement, taking into consideration a number of areas, including:

•  identification of a coverage unit that is deemed to be a suitable proxy for the service provided. This is particularly relevant for products that provide a combination of different types of insurance coverage, investment-related service and investment-return service; and

•  the allowance for time value of money in the release of the coverage unit (i.e. whether or not the coverage units should be discounted).

For deferred annuities the weighting between the deferral phase and the payment phase coverage units is calculated so that the services provided in the deferral phase reflect the investment return and those in the payment phase reflect the annuity payment with the total services adjusted to provide a consistent level of service when transitioning between the deferral phase and the payment phase.

Following an assessment, the Group has determined the quantity of the benefits provided under each contract to be a suitable proxy for the service provided as follows:

Type of business/products	Coverage unit (quantity of benefits)
Term life assurance Endowment Non-participating whole-life Other protection products	Sum assured in force
Immediate annuity	Annuity payments
Deferred annuity	Fund size during deferred period and annuity payments for the payment period
Unit linked	Annual management charge and insurance charges
Conventional with-profits ('CWP') & Unitised with-profits ('UWP')	Maximum of the guaranteed benefit and asset share

In relation to the application of discount rate in determining the coverage units, the Group has elected to apply discounting as this gives a more even allocation of profit as services are provided over the life of a group of contracts. The discount rate is the locked-in rate for insurance contracts measured under the general model ('GM') and current rates for insurance contracts measured under the variable fee approach ('VFA').

In addition, the sections noted below are areas where significant judgement and estimation has been required on transition to IFRS 17.

Determination of transition method and its application

The Group exercised significant judgement in determining which transition method was applied for each group of insurance contracts, considering the impracticability assessment for the application of the FRA, including determining whether sufficient reasonable and supportable information was available to apply the FRA. Where it was assessed that a FRA was impracticable, the Group determined, in line with the options available in IFRS 17, to use the FVA.

In applying the FVA, the Group has used reasonable and supportable information at the transition date in order to identify groups of insurance contracts and to determine whether any contracts are considered to be direct participating contracts, which meet the VFA eligibility criteria. For groups of contracts measured using the FVA, the Group has aggregated contracts issued more than one year apart.

In estimating the fair value, the Group has used significant judgement to determine adjustments required to reflect a market participant's view, and also to allocate fair value between groups of insurance contracts as follows:

•  only relevant future cash flows within the boundaries of the insurance contracts were included in the fair value estimation;

•  assumptions about BEL were adjusted and simplified by applying IFRS 17 parameters i.e. discount rate, expenses, contract boundary plus incorporating the risk premium to reflect the view of a market participant;

•  discount rates were determined at the transition date, based on the risk-free rate with an allowance for illiquid premium taken into account;

•  the risk premium was calibrated to a market participant view of an appropriate cost of capital rate; and

•  a proportional approach was used to allocate the risk premium to each group of insurance contracts.

Eligibility assessment for use of VFA

The Group has issued unit-linked and with-profits contracts, which fall within the scope of IFRS 17, where the return on the underlying items is shared with policyholders. Underlying items comprise mainly specified portfolios of investment assets for unit-linked contracts and the net assets of a with-profits fund for with-profits policies that determine amounts payable to policyholders. The Group has exercised significant judgement to assess whether the amounts expected to be paid to the policyholder constitute a substantial share of the fair value returns on the underlying items. The policyholder's share of the fair value returns on underlying items includes amounts deducted to cover non-investment services, e.g. administration and risk charges. The fair value returns assumed on the underlying items also reflect the expected real world returns over the duration of the contract or group of insurance contracts being tested.

Determination of contract boundaries

The assessment of the contract boundary defines which future cash flows are included in the measurement of a contract. This requires judgement and consideration of the Group's substantive rights and obligations under the contract. The Group exercises significant judgement in determining the appropriate contract boundaries, taking into consideration a number of factors, including: features and terms and conditions of products; any implied substantive obligations and rights arising from the features of the product or policyholder needs it is meeting; pricing practices; and administrative practices.

Cash flows are within the boundaries of investment contracts with DPF if they result from a substantive obligation of the Group to deliver cash at a present or future date.

Separating distinct investment components from insurance and reinsurance contracts

When assessing whether an investment component is distinct, the Group considers the following, which may indicate that the insurance and investment component are highly interrelated:

•  the value of one component varies with the other component;

•  existence of an option to switch between the different components;

•  discounts that span both elements e.g. reduced asset management charges based on total size of contract; and

•  other interacting features, e.g. insurance risk from premium waivers, return of premium covering both elements of the policy.

Where the investment component is non-distinct, the whole contract is measured under IFRS 17. Distinct investment components are separated from the host insurance contract and measured under IFRS 9.

A4.2 Fair value of financial assets and liabilities

Financial assets and liabilities are measured at fair value and accounted for as set out in the accounting policies in note E1. Financial instruments valued where valuation techniques are based on observable market data at the period end are categorised as Level 2 financial instruments. Financial instruments valued where valuation techniques are based on non-observable inputs are categorised as Level 3 financial instruments. Level 2 and Level 3 financial instruments therefore involve the use of estimates.

Further details of the estimates made are included in note E2. In relation to the Level 3 financial instruments, sensitivity analysis is performed in respect of the key assumptions used in the valuation of these financial instruments. The details of this sensitivity analysis are included in note E2.4.

A4.3 Pension scheme obligations

The valuation of pension scheme obligations is determined using actuarial valuations that depend upon a number of assumptions, including discount rate, inflation and longevity. External actuarial advice is taken with regard to setting the financial assumptions to be used in the valuation. As defined benefit pension schemes are long-term in nature, such assumptions can be subject to significant uncertainty.

Further details of these estimates and the sensitivity of the defined benefit obligation to key assumptions are provided in note G1.

A4.4 Adjusted operating profit

Adjusted operating profit is the Group's non-GAAP measure of performance and provides stakeholders with a comparable measure of the underlying performance of the Group. The Group is required to make judgements as to the appropriate longer-term rates of investment return for the determination of adjusted operating profit based on yields at the start of the financial year, as detailed in note B2, and as to whether items are included within adjusted operating profit or excluded as an adjustment to adjusted operating profit in accordance with the accounting policy detailed in note B1. Items excluded from adjusted operating profit are referred to as 'non-operating items'.

A4.5 Control and consolidation

The Group has invested in a number of collective investment schemes and other types of investment where judgement is applied in determining whether the Group controls the activities of these entities. These entities are typically structured in such a way that owning the majority of the voting rights is not the conclusive factor in the determination of control in line with the requirements of IFRS 10 Consolidated Financial Statements. The control assessment therefore involves a number of further considerations such as whether the Group has a unilateral power of veto in general meetings and whether the existence of other agreements restrict the Group from being able to influence the activities. Further details of these judgements are given in note H1.

A4.6 How climate risk affects our accounting judgments and estimates

In preparation of these financial statements, the Group has considered the impact of climate change across a number of areas, predominantly in respect of the valuation of financial instruments, insurance and investment contract liabilities and goodwill and other intangible assets.

Many of the effects arising from climate change will be longer-term in nature, with an inherent level of uncertainty, and have been assessed as having a limited effect on accounting judgments and estimates for the current period.

The majority of the Group's financial assets are held at fair value and use quoted market prices or observable market inputs in their valuation. The use of quoted market prices and market inputs to determine fair value reflects current information and market sentiment regarding the effect of climate risk. For the valuation of level 3 financial instruments, there are no material unobservable inputs in relation to climate risk. Note E6 provides further risk management disclosures in relation to financial risks including sensitivities in relation to credit and market risk. In addition, further details on managing the related climate change risks are provided in the Task Force for Climate-related Financial Disclosures ('TCFD') on page 44 of the Annual Report and Accounts.

Insurance and investment contract liabilities with DPF use economic assumptions taking into account market conditions at the valuation date as well as non-economic assumptions such as future expenses, longevity and mortality, which are set based on past experience, market practice, regulations and expectations about future trends. Due to the level of annuities written by the Group, it is particularly exposed to longevity risk. At 31 December 2023 there are no adjustments made to the longevity assumptions to specifically allow for the impact of climate change on annuitant mortality. Further details as to how assumptions are set and of the sensitivity of the Group's results to annuitant longevity and other key insurance risks are set out in note F11.

The assessment of impairment for goodwill and intangible assets is based on value in use calculations. Value in use represents the value of future cash flows and uses the Group's three-year annual operating plan and the expectation of long-term economic growth beyond this period. The three-year annual operating plan reflects management's current expectations on competitiveness and profitability and reflects the expected impacts of the process of moving towards a low carbon economy. Note G2 provides further details on goodwill and other intangible assets and on impairment testing performed.

A5. New accounting pronouncements not yet effective

The IASB has issued the following standards or amended standards and interpretations which apply from the dates shown. The Group has decided not to early adopt any of these standards, amendments or interpretations where this is permitted.

Classification of Liabilities as Current and Non-current Liabilities with Covenants (Amendments to IAS 1 Presentation of Financial Statements) (1 January 2024)

The initial amendments clarify rather than change existing requirements and aim to assist entities in determining whether debt and other liabilities with an uncertain settlement date should be classed as current or non-current. It is currently not expected that there will be any reclassifications as a result of this clarification.

Non-current Liabilities with Covenants (Amendments to IAS 1 Presentation of Financial Statements) (1 January 2024)

Further amendments were then made which specify that covenants of loan arrangements which an entity must comply with only after the reporting date would not affect classification of a liability as current or non-current at the reporting date. However, those covenants that an entity is required to comply with on or before the reporting date would affect classification as current or non-current, even if the covenant is only assessed after the entity's reporting date. The amendments also introduce additional disclosure requirements. When an entity classifies a liability arising from a loan arrangement as non-current and that liability is subject to the covenants which an entity is required to comply with within 12 months of the reporting date, the entity shall disclose information in the notes that enables users of financial statements to understand the risk that the liability could become repayable within 12 months of the reporting period. These amendments are not expected to have any impact on the Group.

Lease Liability in a Sale and Leaseback (Amendments to IFRS 16 Leases) (1 January 2024)

The amendments relate to how a seller-lessee accounts for variable lease payments that arise in a sale and leaseback transaction. On initial recognition, the seller-lessee is required to include variable lease payments when measuring a lease liability arising from a sale-and-leaseback transaction. After initial recognition, they are required to apply the general requirements for subsequent accounting of the lease liability such that no gain or loss relating to the retained right of use is recognised. Seller-lessees are required to reassess and potentially restate sale-and-leaseback transactions entered into since the implementation. These amendments are not expected to have any impact on the Group.

Supplier Finance Arrangements (Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures) (1 January 2024)

The amendments add a disclosure objective to IAS 7 stating that an entity is required to disclose information about its supplier finance arrangements that enables users of financial statements to assess the effects of those arrangements on the entity's liabilities and cash flows. In addition, IFRS 7 was amended to add supplier finance arrangements as an example within the requirements to disclose information about an entity's exposure to concentration of liquidity risk These amendments are not expected to have any impact on the Group.

Lack of Exchangeability (Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates) (1 January 2025)

The amendments clarify how an entity should assess whether a currency is exchangeable and how it should determine a spot exchange rate when exchangeability is lacking, as well as require the disclosure of information that enables users of financial statements to understand the impact of a currency not being exchangeable. These amendments are not expected to have any impact on the Group.

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) (Effective date deferred)

The amendments address the conflict between IFRS 10 and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. These amendments are not expected to have any impact on the Group.

The following amendments to standards listed above have been endorsed for use in the UK by the UK Endorsement Board:

•  Classification of Liabilities as Current and Non-current (Amendments to IAS 1);

•  Non-current Liabilities with Covenants (Amendments to IAS 1);

•  Lease Liability in a Sale and Leaseback (Amendments to IFRS 16 Leases); and

•  Supplier Finance Arrangements (Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures).

B. Earnings performance

B1. 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 consolidated 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.

For management purposes the Group is organised into value centres. During the period the Group reassessed its reportable segments to reflect its transition to a purpose-led retirement specialist and the commencement of the grow, optimise and enhance stage of our strategic journey. The Group now has five operating segments comprising Retirement Solutions, Pensions & Savings, With-Profits, SunLife & Protection, and Europe & Other. The comparative information has been restated to reflect this change. For reporting purposes, operating segments are aggregated where they share similar economic characteristics including the nature of products and services, types of customers and the nature of the regulatory environment. The SunLife & Protection operating segment has been aggregated with the Europe operating segment into the Europe & Other reportable segment.

The Retirement Solutions segment includes new and in-force individual annuity and Bulk Purchase Annuity contracts written within shareholder funds, with the exception of individual annuity contracts written as a result of Guaranteed Annuity Options on with-profit contracts. Such contracts remain in the With-Profits segment following the transition to IFRS 17, as they fall within the contract boundary of the original savings or pension contract. The Retirement Solutions segment also includes UK individual annuity business written within the Standard Life Heritage With-Profit Fund as the profits are primarily attributable to the shareholder through the Recourse Cash Flow mechanism established on demutualisation.

The Pensions & Savings segment includes new and in-force life insurance and investment unit-linked policies in respect of pensions and savings products that the Group continues to actively market to new and existing policyholders. This includes products such as workplace pensions and Self-Invested Personal Pension ('SIPPs') distributed through the Group's Strategic Partnership with abrdn plc. In addition, it includes in-force insurance and investment unit-linked products from legacy businesses which no longer actively sell products to policyholders and which therefore run-off gradually over time. The Pensions & Savings segment also includes UK unitised business written in the Standard Life Heritage With-Profit funds, as profits are primarily attributable to the shareholder through the Recourse Cash Flow mechanism.

The With-Profits segment includes all policies written by the Group's with-profit funds, with the exception of Standard Life Heritage With-Profit Fund contracts reflected in other segments as noted above for Retirement Solutions and Pensions & Savings where profits are primarily attributable to the shareholder through the Recourse Cash Flow mechanism.

The Europe & Other segment includes business written in Ireland and Germany. This includes products that are actively being marketed to new policyholders and legacy in-force products that are no longer being sold to new customers. The segment also includes protection products and products sold under the SunLife brand.

The Corporate Centre segment, which is not a reportable segment, principally comprises central head office costs that are not directly attributable to the Group's insurance or investment contracts. Management services costs are now allocated to the four reportable 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: Adjusted operating profit

The Group uses a non-GAAP measure of performance, being adjusted operating profit, to evaluate segmental performance. Adjusted 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.

The Group's adjusted operating profit methodology has been updated since it was disclosed in the 2022 consolidated financial statements following the transition to IFRS 17 Insurance Contracts.

The following sets out the adjusted operating profit methodology:

For unit-linked business accounted for under IFRS 9, adjusted operating profit reflects the fees collected from customers less operating expenses including overheads.

For unit-linked and With-Profits business accounted for under IFRS 17, adjusted operating profit reflects the release of the risk adjustment, amortisation of CSM, and demographic experience variances in the period.

For shareholder annuity, other non-profit business and With-Profits funds receiving shareholder support accounted for under IFRS 17, adjusted operating profit includes the release of the risk adjustment, amortisation of CSM, and demographic experience variances in the period. Adjusted operating profit also incorporates an expected return on the financial investments backing this business and any surplus assets, with allowance for the corresponding movement in liabilities.

Adjusted operating profit excludes the above items for non-profit business written in a With-Profits fund where these amounts do not accrue directly to the shareholder.

Adjusted operating profit includes the effect of experience variances relating to the current period for non-economic items, such as mortality and expenses. It also incorporates the impacts of asset trading and portfolio rebalancing where not reflected in the discount rate used in calculating expected return.

Adjusted operating profit is reported net of policyholder finance charges and policyholder tax.

Adjusted operating profit excludes the impacts of the following items:

Economic variances

•  the difference between actual and expected experience for economic items recognised in the income statement, impacts of economic assumptions on the valuation of liabilities measured under the General Model and the change in value of loss components on Variable Fee Approach business resulting from market movements on underlying items;

•  economic volatility arising from the Group's hedging strategy which is calibrated to protect the Solvency II capital position and cash generation capability of the operating companies;

•  the accounting mismatch resulting from the application of IFRS 17 between the measurement of non-profit business in a with-profit fund (noted above) and the change in fair value of this business included within the measurement of the with-profit contracts under the Variable Fee Approach;

•  the accounting mismatch resulting from buy-in contracts between the Group's pension schemes and Phoenix Life Limited, the Group's main insurance subsidiary. The mismatch represents the difference between the unwind of the IAS 19 discount rate calculated with reference to a AA-rated corporate bond and the expected investment returns on the backing assets; and

•  the effect of the mismatch between changes in estimates of future cash flows on General Model contracts measured at current discount rates and the corresponding adjustment to the CSM measured at the discount rate locked-in at inception.

Other

•  amortisation and impairment of intangible assets (net of policyholder tax);

•  finance costs attributable to owners;

•  gains or losses on the acquisition or disposal of subsidiaries (net of related costs);

•  the financial impacts of mandatory regulatory change;

•  the profit or loss attributable to non-controlling interests;

•  integration, restructuring or other significant one-off projects impacting the income statement; and

•  any other items which, in the Director's view, should be disclosed separately by virtue of their nature or incidence to enable a full understanding of the Group's financial performance. This is typically the case where the nature of the item is not reflective of the underlying performance of the operating companies.

The items excluded from adjusted operating profit are referred to as 'non-operating items'. Whilst the excluded items are important to an assessment of the consolidated financial performance of the Group, management considers that the presentation of adjusted operating profit provides a good indicator of the underlying performance of the Group's operating segments and the Group uses this, as part of a suite of measures, for decision-making and monitoring performance. The Group's adjusted operating profit should be read in conjunction with the IFRS profit before tax.

Revisions to methodology

The methodology to determine adjusted operating profit has been revised, compared to that disclosed in the Interim Financial Report 2023, for the following items:

•  A 1-year (rather than a 15-year) risk-free rate has been used to derive the expected investment return assumption on assets backing insurance contract liabilities to reduce unintended economic volatility (see note B2.1);

•  an adjustment to remove mismatches between the discount rate used within the valuation of the Group's pension scheme liabilities and the returns on the underlying assets, as noted within Economic Variances above; and

•  a refinement to the approach used to quantify the level of trading profits.

The segmental result for the year ended 31 December 2022 presented in note B1.1 incorporates these revisions. The impact of these revisions is to reduce total segmental adjusted operating profit by £26 million, and correspondingly to increase economic variances by £26 million. There is no impact on the loss before the tax attributable to owners of the parent.

 

B1.1 Segmental result

	Notes	2023 £m	2022 restated1 £m
Adjusted operating profit
Retirement Solutions		378	349
Pensions & Savings		190	150
With-Profits		10	54
Europe & Other		132	60
Corporate Centre		(93)	(69)
Total segmental adjusted operating profit		617	544
Economic variances	B2.2	147	(3,309)
Amortisation and impairment of acquired in-force business		(316)	(347)
Amortisation and impairment of other intangibles and goodwill	G2	(6)	(6)
Other non-operating items		(439)	(262)
Finance costs on borrowing attributable to owners		(195)	(199)
Loss before the tax attributable to owners of the parent		(192)	(3,579)
Profit before tax attributable to non-controlling interests		28	67
Loss before the tax attributable to owners		(164)	(3,512)

1  Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).

Other non-operating items in respect of the year ended 31 December 2023 include:

•  a gain on acquisition of £66 million reflecting the excess of the fair value of the net assets acquired over the consideration paid for the acquisition of SLF of Canada UK Limited (see note H2 for further details);

•  £169 million of costs associated with strategic growth initiatives, including investment in digital and direct asset sourcing capabilities, establishment of the Group's Bermudan reinsurance operations, and transformation of the Group's operating model to support efficient growth;

•  £79 million of costs associated with the delivery of the Group Target Operating Model for IT and Operations, including the migration of policyholder administration onto the Tata Consultancy Services ('TCS') platform. Under IFRS 17, the expected costs in respect of this activity that are directly attributable to insurance contracts have been included within insurance contract liabilities;

•  costs of £65 million associated with the implementation of IFRS 17;

•  costs of £52 million associated with finance transformation activities, including the migration to cloud-based systems and enhancements to actuarial modelling capabilities and the related control environment;

•  costs of £49 million associated with the consolidation by Part VII transfer of four of the Group's Life Companies into a single entity, completed in the second half of 2023;

•  a £36 million adverse impact from the strengthening of actuarial reserves associated with the Part VII transfer of certain European business from the Group's UK Life Companies to a newly established European subsidiary;

•  £32 million of costs associated with ongoing integration programmes;

•  £12 million of past service costs in relation to a Group pension scheme (see note G1 for further details); and

•  Corporate project costs and net other one-off items totalling a cost of £11 million.

Other non-operating items in respect of the year ended 31 December 2022 include:

•  £73 million of costs associated with a strategic initiative to enhance capabilities to support the move towards the Group's strategic asset allocation alongside growth delivered through bulk purchase annuity transactions, investment in digital capability and transformation of operating model to support efficient growth;

•  £47 million related to the increase in expected costs associated with the delivery of the Group Target Operating Model for IT and Operations, following a strategic decision to re-phase the programme, together with the costs of migrating policyholder administration onto the TCS platform for certain legacy portfolios of business;

•  costs of £31 million associated with the ongoing ReAssure integration programme;

•  costs of £15 million associated with the implementation of IFRS 17;

•  £15 million of past service costs in relation to a Group pension scheme. Further details are included in note G1.1;

•  £14 million relating to a support package to help colleagues navigate cost of living challenges, which included giving all colleagues, except the most senior staff, a one-off net of tax payment of £1,000 in August 2022;

•  £12 million costs associated with the acquisition of SLF of Canada UK Limited; and

•  Corporate project costs and net other one-off items totalling a cost of £55 million.

Further details of the investment return variances and economic assumption changes on long-term business, and the variance on owners' funds are included in note B2.

B1.2 Segmental revenue

2023	Retirement Solutions £m	Pensions & Savings £m	With-Profits £m	Europe & Other £m	Total £m
Revenue from external customers:
Insurance revenue	3,751	272	267	571	4,861
Fees and commissions	-	828	52	87	967
Total segmental revenue	3,751	1,100	319	658	5,828

 

2022 restated1	Retirement Solutions £m	Pensions & Savings £m	With-Profits £m	Europe & Other £m	Total £m
Revenue from external customers:
Insurance revenue	3,544	307	636	655	5,142
Fees and commissions	-	733	35	90	858
Total segmental revenue	3,544	1,040	671	745	6,000

1  Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).

Of the revenue from external customers presented in the table above, £5,583 million (2022: £5,792 million) is attributable to customers in the United Kingdom ('UK') and £245 million (2022: £208 million) to the rest of the world. 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 £3,622 million (2022: £3,622 million) located in the UK and £299 million (2022: £352 million) located in the rest of the world.

B2. 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 adjusted operating profit measure that incorporates an expected return on investments supporting its long-term business. The accounting policy adopted in the calculation of adjusted operating profit is detailed in note B1. 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 adjusted operating profit.

B2.1 Calculation of the long-term investment return

Adjusted operating profit for life assurance business is based on expected investment returns on financial investments backing shareholder, annuity, other non-profit business, With-Profit funds receiving shareholder support and surplus assets, with allowance for the corresponding movements in liabilities.

The methodology to determine the expected investment returns on financial investments has been revised, compared to that disclosed in the Interim Financial Report 2023, to use the 1-year (rather than 15-year) risk-free rate for deriving the expected investment return assumption on assets backing the insurance contract liabilities to reduce unintended economic volatility as set out in note B1. The information below for the year ended 31 December 2022 includes these revisions and is presented on a consistent basis to that at 31 December 2023.

The long-term risk-free rate used as the basis for deriving the long-term investment return is consistent with that set out in note F11.2.1 at the 1-year duration for assets backing the insurance contract liabilities and surplus cash assets, and at the 15-year duration for surplus non-cash assets.

A risk premium of 380 bps is added to the risk-free yield for equities (31 December 2022: 370 bps), 50 bps for properties (31 December 2022: 280 bps) and 130bps for debt securities (31 December 2022: 80 bps).

 

The principal assumptions, determined as at 1 January of each reporting period, underlying the calculation of the long-term investment return for surplus assets are:

	2023 %	2022   %
Equities	7.4	4.6
Properties	4.1	3.7
Debt securities	4.9	1.7

During 2022 UK interest rates increased significantly, this had the impact of increasing the risk-free yield at the 15-year point by 271bps from 0.91% to 3.62%.

 

B2.2 Life assurance business

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

	2023  £m	2022  £m
Economic variances	147	(3,309)

The net favourable economic variances of £147 million (2022: adverse £3,309 million) have primarily arisen as a result of a more stable market environment compared with the significant volatility experience during 2022. The impact of positive changes to discount rates, primarily on annuities and including the impact of methodology refinements (see note B2.1), more than offsets the losses arising from the impact of positive equity market movements on the hedges the Group holds to protect the Solvency II position. As the full value of future profits impacted by equity markets is not held on the IFRS balance sheet, this results in volatility in the Group's IFRS results .

B3. 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 year.

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.

The basic and diluted earnings per share calculations are also presented based on the Group's adjusted operating earnings net of financing costs. Adjusted operating profit is a non-GAAP performance measure that 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.

The result attributable to ordinary equity holders of the parent for the purposes of determining earnings per share has been calculated as set out below.

2023	Adjusted operating profit £m	Financing costs £m	Adjusted operating earnings net of financing costs £m	Other non-operating items £m	Total £m
Profit/(loss) before the tax attributable to owners	617	(195)	422	(586)	(164)
Tax (charge)/credit attributable to owners	(119)	46	(73)	149	76
Profit/(loss) for the year attributable to owners	498	(149)	349	(437)	(88)
Coupon paid on Tier 1 notes, net of tax relief	-	(22)	(22)	-	(22)
Deduct: Share of result attributable to non-controlling interests	-	-	-	(28)	(28)
Profit/(loss) for the year attributable to ordinary equity holders of the parent	498	(171)	327	(465)	(138)

 

2022 (restated)1	Adjusted operating profit £m	Financing costs £m	Adjusted operating earnings net of financing costs £m	Other non-operating items £m	Total £m
Profit/(loss) before the tax attributable to owners	544	(199)	345	(3,857)	(3,512)
Tax (charge)/credit attributable to owners	(119)	43	(76)	931	855
Profit/(loss) for the year attributable to owners	425	(156)	269	(2,926)	(2,657)
Coupon paid on Tier 1 notes, net of tax relief	-	(22)	(22)	-	(22)
Deduct: Share of result attributable to non-controlling interests	-	-	-	(67)	(67)
Profit/(loss) for the year attributable to ordinary equity holders of the parent	425	(178)	247	(2,993)	(2,746)

1  Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).

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

	2023 Number million	2022 Number million
Issued ordinary shares at beginning of the year	1,000	1,000
Effect of ordinary shares issued	1	-
Effect of non-contingently issuable shares in respect of Group's long-term incentive plan	2	1
Own shares held by the employee benefit trust	(2)	(2)
Weighted average number of ordinary shares	1,001	999

The diluted weighted average number of ordinary shares outstanding during the period is 1,003 million (2022: 1,001 million). The Group's long-term incentive plan, deferred bonus share scheme and sharesave schemes increased the weighted average number of shares on a diluted basis by 2,259,377 shares for the year ended 31 December 2023 (2022: 1,841,988 shares). As losses have an anti-dilutive effect, none of the share-based awards had a dilutive effect in the calculation of basic earnings per share for either of the years ended 31 December 2022 or 31 December 2023.

Earnings per share disclosures are as follows:

	2023 pence	2022 restated pence
Basic earnings per share	(13.8)	(274.9)
Diluted earnings per share	(13.8)	(274.9)
Basic adjusted operating earnings net of financing costs per share	32.7	24.7
Diluted adjusted operating earnings net of financing costs per share	32.6	24.7

B4. Dividends

Final dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the Group's owners. Interim dividends are deducted from equity when they are paid.

Dividends for the year that are approved after the reporting period are dealt with as an event after the reporting period. Declared dividends are those that are appropriately authorised and are no longer at the discretion of the entity.

	2023  £m	2022  £m
Dividends declared and paid in the year	520	496

On 10 March 2023, the Board recommended a final dividend of 26.0p per share in respect of the year ended 31 December 2022. The dividend was approved at the Group's Annual General Meeting, which was held on 4 May 2023. The dividend amounted to £260 million and was paid on 10 May 2023.

On 15 September 2023, the Board declared an interim dividend of 26.0p per share for the half year ended 30 June 2023. The dividend amounted to £260 million and was paid on 23 October 2023.

C. Other Income Statement notes

C1. Insurance Revenue

The Group's insurance revenue reflects the provision of services arising from a group of insurance contracts at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those services. Insurance revenue from a group of insurance contracts is therefore the relevant portion for the period of the total consideration for the contracts, (i.e. the amount of premiums paid to the Group adjusted for financing effect (the time value of money) and excluding any investment components). The total consideration for a group of contracts covers amounts related to the provision of services and is comprised of:

•  the release of the CSM;

•  changes in the risk adjustment for non-financial risk relating to current services;

•  claims and other insurance service expenses incurred in the period, generally measured at the amounts expected at the beginning of the period;

•  experience adjustments arising from premiums received in the period other than those that relate to future service;

•  insurance acquisition cash flows recovery which is determined by allocating the portion of premiums related to the recovery of those cash flows on the basis of the passage of time over the expected coverage of a group of contracts; and

•  other amounts, including any other pre-recognition cash flow assets derecognised at the date of initial recognition.

The amount of the CSM of a group of insurance contracts that is recognised as insurance revenue in each year is determined by identifying the coverage units in the group, allocating the CSM remaining at the end of the year equally to each coverage unit provided in the year and expected to be provided in future years, and recognising in profit or loss the amount of the CSM allocated to coverage units provided in the year.

The number of coverage units in a group is the quantity of service provided by the contracts in the group, determined by considering for each contract the quantity of benefits provided under a contract and its expected coverage period. The coverage units are reviewed and updated at each reporting date.

The Group consider the following when determining coverage units:

•  the quantity of benefits provided by contracts in the group;

•  the expected coverage period of contracts in the group;

•  the likelihood of insured events occurring, only to the extent that they affect the expected coverage period of contracts in the group;

•  for insurance contracts without direct participation features, the generation of an investment return for the policyholder, if applicable (investment-return service); and

•  for insurance contracts with direct participation features, the management of underlying items on behalf of the policyholder (investment-related service).

The coverage units for groups of reinsurance contracts held are determined based on the quantity of coverage provided by the reinsurance contracts held in the group but not the coverage provided by the insurer to its policyholders through the underlying insurance contracts. However, where the reinsurance held is a 100% quota share arrangement, it is expected that the coverage units would be consistent with the underlying insurance contracts. Where there is a change to the fulfilment cash flows of the group of underlying policies that does not adjust the CSM, it also would not adjust the CSM of the group of reinsurance contracts.

2023	Retirement Solutions £m	Pensions & Savings £m	With-Profits £m	Europe & Other £m	Total £m
Amounts relating to changes in liabilities for remaining coverage:
CSM recognised in period for services provided	260	25	77	47	409
Change in risk adjustment for non-financial risk	39	8	4	12	63
Expected incurred claims and other insurance service expenses	3,450	233	169	497	4,349
Policyholder tax charges	1	6	17	1	25
Amounts relating to recovery of insurance acquisition cash flows	1	-	-	14	15
Insurance revenue	3,751	272	267	571	4,861
Comprising contracts measured using:
Fair value approach at transition	1,887	262	257	420	2,826
Fully retrospective approach at transition and new contracts	1,864	10	10	151	2,035
2022	Retirement Solutions £m	Pensions & Savings £m	With-Profits £m	Europe & Other  £m	Total £m
Amounts relating to changes in liabilities for remaining coverage:
CSM recognised in period for services provided	207	13	99	67	386
Change in risk adjustment for non-financial risk	76	11	8	7	102
Expected incurred claims and other insurance service expenses	3,260	300	546	564	4,670
Policyholder tax charges	-	(17)	(17)	1	(33)
Amounts relating to recovery of insurance acquisition cash flows	1	-	-	16	17
Insurance revenue	3,544	307	636	655	5,142
Comprising contracts measured using:
Fair value approach at transition	1,828	307	602	479	3,216
Fully retrospective approach at transition and new contracts	1,716	-	34	176	1,926

C2. Fees and commissions

Fees related to the provision of investment management services and administration services are recognised as services are provided. Front end fees, which are charged at the inception of service contracts, are deferred as a liability and recognised over the life of the contract. No significant judgements are required in determining the timing or amount of fee income or the costs incurred to obtain or fulfil a contract.

The table below disaggregates fees and commissions by segment.

2023	Retirement Solutions £m	Pensions & Savings £m	With-Profits £m	Europe & Other £m	Total £m
Fee income from investment contracts without DPF	-	814	52	60	926
Initial fees deferred during the year	-	-	-	(9)	(9)
Revenue from investment contracts without DPF	-	814	52	51	917
Other revenue from contracts with customers	-	14	-	36	50
Fees and commissions	-	828	52	87	967

 

2022 restated1	Retirement Solutions £m	Pensions & Savings £m	With-Profits £m	Europe & Other £m	Total £m
Fee income from investment contracts without DPF	-	727	35	72	834
Initial fees deferred during the year	-	-	-	(9)	(9)
Revenue from investment contracts without DPF	-	727	35	63	825
Other revenue from contracts with customers	-	6	-	27	33
Fees and commissions	-	733	35	90	858

¹Prior period comparatives have been restated on transition to IFRS17 Insurance Contracts (see note A2.1 for further details).

Remaining performance obligations

The practical expedient under IFRS 15 has been applied and remaining performance obligations are not disclosed as the Group has the right to consideration from customers in amounts that correspond with the performance completed to date. Specifically management charges become due over time in proportion to the Group's provision of investment management services.

In the period no amortisation or impairment losses from contracts with customers were recognised in the statement of comprehensive income.

C3. Net investment income

Net investment income comprises interest, dividends, rents receivable, net interest income/(expense) on the Group defined benefit pension scheme asset/(liability), fair value gains and losses on financial assets (except for reinsurers' share of investment contract liabilities without DPF, see note E1), financial liabilities and investment property at fair value and impairment losses on loans and receivables.

Interest income is recognised in the consolidated income statement as it accrues using the effective interest method.

Dividend income is recognised in the consolidated income statement on the date the right to receive payment is established, which in the case of listed securities is the ex-dividend date.

Rental income from investment property is recognised in the consolidated income statement on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income.

Fair value gains and losses on financial assets and financial liabilities designated at fair value through profit or loss are recognised in the consolidated income statement. Fair value gains and losses includes both realised and unrealised gains and losses.

	2023 £m	2022 restated1 £m
Investment income
Interest income on financial assets at amortised cost	37	21
Interest income on financial assets at FVTPL	3,901	2,888
Dividend income	5,923	5,409
Rental income	324	343
Net interest expense on Group defined benefit pension scheme (liability)/asset	(109)	(64)
	10,076	8,597
Fair value gains/(losses)
Financial assets and financial liabilities at FVTPL:
Designated upon initial recognition	11,117	(38,539)
Mandatorily held	9	(6,707)
Investment property	(362)	(1,363)
	10,764	(46,609)
Net investment income	20,840	(38,012)

1  Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).

C4. Net finance (expense)/income from insurance contracts

Insurance finance income and expenses comprise changes in the carrying amounts of groups of insurance contracts arising from the effects of the time value of money, financial risk and changes therein, unless any such changes for groups of direct participating contracts are allocated to a loss component and included in insurance service expenses. They include changes in the measurement of groups of contracts caused by changes in the value of underlying items. The Group presents insurance finance income or expenses in profit or loss.

2023	Retirement Solutions £m	Pensions & Savings £m	With-Profits £m	Europe & Other £m	Total £m
Insurance contracts issued
Changes in fair value of underlying items of direct participating contracts	-	(581)	(629)	(376)	(1,586)
Group's share of changes in fair value of underlying items or fulfilment cash flows that do not adjust the CSM	-	10	-	-	10
Unwind of discount on fulfilment cash flows	(1,930)	(902)	(1,320)	(1,040)	(5,192)
Interest accreted on the CSM	(62)	-	(10)	(5)	(77)
Effect of changes in interest rates and other financial assumptions	31	(117)	45	(96)	(137)
Insurance finance expense	(1,961)	(1,590)	(1,914)	(1,517)	(6,982)
Reinsurance contracts held
Unwind of discount on fulfilment cash flows	272	-	47	6	325
Interest accreted on the CSM	23	-	3	-	26
Effect of changes in interest rates and other financial assumptions	(173)	-	(5)	6	(172)
Reinsurance finance income	122	-	45	12	179
Net insurance finance expense	(1,839)	(1,590)	(1,869)	(1,505)	(6,803)
2022	Retirement Solutions £m	Pensions & Savings £m	With-Profits £m	Europe & Other £m	Total £m
Insurance contracts issued
Changes in fair value of underlying items of direct participating contracts	-	2,066	3,235	4,402	9,703
Unwind of discount on fulfilment cash flows	(698)	(9)	(144)	(8)	(859)
Interest accreted on the CSM	(44)	-	(6)	(5)	(55)
Effect of changes in interest rates and other financial assumptions	10,328	8	2,373	1,182	13,891
Policyholder tax	-	(42)	(15)	256	199
Insurance finance income	9,586	2,023	5,443	5,827	22,879
					-
Reinsurance contracts held					-
Unwind of discount on fulfilment cash flows	87	-	43	12	142
Interest accreted on the CSM	15	-	3	-	18
Effect of changes in interest rates and other financial assumptions	(423)	-	(439)	(351)	(1,213)
Reinsurance finance expense	(321)	-	(393)	(339)	(1,053)
Net insurance finance income	9,265	2,023	5,050	5,488	21,826

There is a close relationship between the net investment income in note C3, as it relates to assets backing contracts within the scope of IFRS 17, and net insurance finance (expense)/income. Net investment income includes the results for all investment assets including those backing investment contracts and surplus assets.

For Retirement Solutions the principal product is annuities. The insurance finance (expense)/income primarily reflects the unwind of the discount rate on the liabilities. This is largely offset by the interest income earned, included within net investment income, on the assets backing the annuity contracts which primarily consist of debt securities and equity release mortgages. Changes in the discount rates used to discount the annuity cash flows in the measurement of the insurance contract liabilities are largely offset by changes in the fair value of the backing assets, included in net investment income, in respect of BEL and risk adjustment.

Mismatches between net investment income and insurance finance expense arises for the following reason:

•  the annuity business within the Retirement Solutions segment uses the General Model for measurement. As a result, the CSM is measured using discount rates locked in at inception, whereas the assets backing the CSM are based on current economic assumptions.

•  the discount rate for annuity business uses the Strategic Asset Allocation as set out in Note F11.2.1, and therefore insurance finance expenses are impacted by changes to this reference portfolio where the asset mix is based on the strategic investment objectives of the Group. Net investment income is determined with reference to the actual assets held by the Group during the reporting period.

•  changes in non-economic assumptions for General Model business impacts BEL and risk adjustment using current discount rates and CSM using locked in discount rates. This gives rise to a mismatch for which there is no corresponding item within net investment income.

For Pensions & Savings the principal products are unit-linked and hybrid contracts which contain an element of unit-linked and unitised with-profits within a single contract. These contracts are measured primarily using the Variable Fee Approach as the amounts payable to policyholders reflect a substantial share of the fair value returns on the backing assets. As a result the change in fair value of underlying items within insurance finance (expense)/income will be closely matched by changes in the backing assets which are also measured at fair value.

The unwind of discount rate on cash flows within insurance finance (expenses)/income is offset by the investment income recognised in respect of backing assets. The discount rate used for BEL and risk adjustment is determined on a bottom-up basis, as set out in note F11.2.1, based on the liquidity characteristics of the liabilities rather than with reference to the backing assets and therefore a mismatch occurs.

For With-Profits business there are differing impacts dependent on the nature of the liabilities within the fund. For with-profit business without guarantees the relationship between net investment income and insurance finance (expense)/income will be consistent with that for the business within Pensions & Savings. In respect of guarantees, the value of these is typically influenced by changes in interest rates. The Group hedges its interest rate risk in respect of these guarantees with derivatives such that the effect of changes in interest rates on guarantees within insurance finance (expense)/income are largely offset by changes in the fair value of the derivatives used for hedging in net investment income.

For non-profit business in a with-profit fund where profits from these contracts accrue to the with-profit policyholders or to the with-profit fund estate, the non-profit contracts and their backing assets are considered to be an underlying item of the with-profit contracts and therefore changes in their fair value are included within insurance finance (expense)/income.

The non-profit contracts are measured based on their substance. For non-profit annuities which fall within the scope of IFRS 17, they are measured using the IFRS 17 General Model and the treatment of the non-profit contract is consistent with the non-profit annuities within the Retirement Solutions segment. The effect of these non-profit annuities on the income statement does not match the change in fair value measurement used to measure their effect on the with-profit policyholders and therefore a mismatch arises. For unit-linked business which falls within the scope of IFRS 9 it is measured in line with the Group's accounting policy for investment contracts with this impact being taken through 'change in investment contract liabilities' and therefore is not included in net investment income. The assets backing the non-profit business in the with-profit fund are typically measured at fair value with investment income and changes in fair value being included within net investment income.

The Europe & Other segment contains business consistent with that in the segments noted above and will mirror the relationships between net investment income and insurance finance (expense)/income as noted above for the relevant type of business. In addition, this segment contains protection business which uses a bottom-up discount rate based on the liability characteristics rather than being based on the backing assets, which leads to mismatches between net investment income and insurance finance (expenses)/income.

C5. Expenses

Insurance service expenses

Insurance service expenses arising from insurance contracts are recognised in profit or loss generally as they are incurred. They exclude repayments of investment components and comprise the following items:

•  adjustment to liabilities for incurred claims and benefits, excluding investment components reduced by loss component allocations;

•  other incurred directly attributable expenses, including amounts of any other pre-recognition cash flows assets (other than insurance acquisition cash flows) derecognised at the date of initial recognition;

•  insurance acquisition cash flows amortisation;

•  insurance acquisition cash flows assets impairment; and

•  reversal of impairment of assets for insurance acquisition cash flows.

Net income or expense from reinsurance contracts held

Income and expenses from reinsurance contracts are presented separately from income and expenses from insurance contracts. Income and expenses from reinsurance contracts, other than insurance finance income or expenses, are presented on a net basis as 'net expenses from reinsurance contracts' in the insurance service result.

Net expenses from reinsurance contracts comprise an allocation of reinsurance premiums paid less amounts recovered from reinsurers.

The Group recognises an allocation of reinsurance premiums paid in profit or loss as it receives services under groups of reinsurance contracts. The allocation of reinsurance premiums paid relating to services received for each period represents the total of the changes in the asset for remaining coverage that relates to services for which the Group expects to pay consideration.

Administrative expenses

Administrative expenses are recognised in the consolidated income statement as incurred.

Total expenses are analysed by expenses type as follows:

	2023  £m	2022 restated1 £m
Claim and benefits	1,441	2,290
(Reversal of losses)/losses on onerous insurance contracts	(22)	531
Cost of retroactive cover on reinsurance contracts held	3	2
Employee costs	664	611
Outsourcer expenses	308	247
Professional fees	571	441
Commission expenses	155	145
Office and IT costs	260	172
Investment management expenses and transaction costs	413	569
Direct costs of collective investment schemes	20	25
Depreciation	21	19
Pension past service costs	13	15
Pension administrative expenses	7	7
Advertising and sponsorship	66	63
Other	78	26
	3,998	5,163
Amounts attributed to Insurance acquisition cash flows incurred during the year	(154)	(128)
Amortisation of insurance acquisition cash flows	15	17
Total expenses	3,859	5,052
Reported within:
Insurance service expenses	4,354	5,248
Net expenses from reinsurance contracts2	(2,169)	(1,617)
Administrative expenses	1,674	1,421
Total expenses	3,859	5,052

1  Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).

2  Reported as part of the 'Net expenses from reinsurance contracts' balance in the consolidated income statement.

Employee costs comprise:

	2023  £m	2022  £m
Wages and salaries	603	554
Social security contributions	61	57
	664	611
	2023	2022
	Number	Number
Average number of persons employed	7,512	8,165

C6. Auditor's remuneration

During the year the Group obtained the following services from its auditor at costs as detailed in the table below.

	2023  £m	2022  £m
Audit of the consolidated financial statements	12.7	4.8
Audit of the Company's subsidiaries	12.9	10.7
	25.6	15.5
Audit-related assurance services	2.8	2.4
Total fee for assurance services	28.4	17.9
Total auditor's remuneration	28.4	17.9

No services were provided by the Company's auditors to the Group's pension schemes in either 2023 or 2022.

The increase in the audit fee during 2023 principally reflects the additional work undertaken in connection with the transition to IFRS 17.

Audit-related assurance services includes fees payable for services where the reporting is required by law or regulation to be provided by the auditor, such as reporting on regulatory returns. It also includes fees payable in respect of reviews of interim financial information and services where the work is integrated with the audit itself.

There were no other non-audit services provided during the year (2022: £nil).

Further information on auditor's remuneration and the assessment of the independence of the external auditor is set out in the Audit Committee report on pages 92 to 99.

C7. Finance costs

Interest payable is recognised in the consolidated income statement as it accrues and is calculated using the effective interest method.

	2023  £m	2022  £m
Interest expense
On financial liabilities at amortised cost	256	227
On leases	2	3
	258	230
Attributable to:
- policyholders	8	3
- owners	250	227
	258	230

C8. Tax charge/(credit)

Income tax comprises current and deferred tax. Income tax is recognised in the consolidated income statement except to the extent that it relates to items recognised in the statement of consolidated comprehensive income or the statement of consolidated changes in equity, in which case it is recognised in these statements.

Current tax is the expected tax payable on the taxable income for the year, using tax rates and laws enacted or substantively enacted at the date of the statement of consolidated financial position together with adjustments to tax payable in respect of previous years.

The tax charge is analysed between tax that is payable in respect of policyholders' returns and tax that is payable on owners' returns. This allocation is calculated based on an assessment of the effective rate of tax that is applicable to owners for the year.

C8.1 Current year tax charge/(credit)

	2023  £m	2022 restated1  £m
Current tax:
UK corporation tax	28	36
Overseas tax	110	86
	138	122
Adjustment in respect of prior years	(16)	(23)
Total current tax charge	122	99
Deferred tax:
Origination and reversal of temporary differences	(14)	(1,348)
Change in the rate of UK corporation tax	(6)	(206)
Write down/(up) of deferred tax assets	6	23
Total deferred tax credit	(14)	(1,531)
Total tax charge/(credit)	108	(1,432)
Attributable to:
- policyholders	184	(577)
- owners	(76)	(855)
Total tax charge/(credit)	108	(1,432)

1  Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).

The Group, as a proxy for policyholders in the UK, is required to pay taxes on investment income and gains each year. Accordingly, the tax credit or expense attributable to UK life assurance policyholder earnings is included in income tax expense. The tax charge attributable to policyholder earnings was £184 million (2022: £577 million credit).

The 2023 current tax prior year adjustment arises principally from the carry back of tax losses arising from adverse market movements in 2022. The carry back of losses reduces the tax charge relating to prior periods and is broadly offset by a reduction in tax losses carried forward to future periods, on which a deferred tax asset is recognised. This is partially offset by true-ups from the tax reporting provisions in various entities within the group.

The 2022 current tax prior year adjustment relates principally to a tax dispute with HMRC in relation to the tax treatment of an asset formerly held by Guardian Assurance Limited (before the business was transferred to ReAssure Limited) was resolved in the period in favour of the Group. The 2021 current tax liability included an accrual for the total tax under dispute. The matter was heard before the First Tier Tribunal in May 2022 and the Court found in favour of ReAssure Limited. HMRC did not appeal against this decision and so the accrual for the potential tax liability was released.

C8.2 Tax (credited)/charged to other comprehensive income

	2023  £m	2022  £m
Current tax credit	(8)	-
Deferred tax (credit)/charge on defined benefit schemes	(13)	283
	(21)	283

C8.3 Tax credited to equity

	2023  £m	2022 restated  £m
Current and deferred tax credit on Tier 1 Notes	(7)	(7)
Deferred tax credit on unrealised gains and other items	(1)	(10)
Deferred tax charge on share schemes	-	2
Total tax credit	(8)	(15)

C8.4 Reconciliation of tax charge/(credit)

	2023  £m	2022 restated  £m
Profit/(loss) for the year before tax	20	(4,089)
Policyholder tax (charge)/credit	(184)	577
Loss before the tax attributable to owners	(164)	(3,512)
Tax credit at standard UK rate of 23.5% (2022:19%)1	(39)	(668)
Non-taxable gains2	(16)	(4)
Disallowable expenses	1	3
Prior year tax charge/(credit) for shareholders3	12	(7)
Movement on acquired in-force amortisation at rates other than 23.5% (2022: 19%)	12	20
Profits taxed at rates other than 23.5% (2022: 19%)4	(25)	12
Derecognition of previously recognised deferred tax assets5	(39)	10
Deferred tax rate change6	(6)	(206)
Current year losses not valued7	18	(17)
Other	6	2
Owners' tax charge/(credit)	(76)	(855)
Policyholder tax charge/(credit)	184	(577)
Total tax charge/(credit) for the year	108	(1,432)

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

2  Relates principally to a profit arising on consolidation due to the purchase of the SLF of Canada UK Limited, not subject to deferred tax.

3  The 2023 prior year tax charge relates to true-ups from the tax reporting provisions in various entities within the group.

4  Profits taxed at rates other than 23.5% relates to overseas profits, consolidated fund investments and UK life company profits subject to marginal shareholder tax rates

5  Relates principally to increases in the recognised value of tax attributes in SLIDAC offset by a reduction in the future value of capital losses in ReAssure Limited.

6  Deferred tax rate change relates primarily to movements in deferred tax liabilities which are expected to unwind at rates in excess of the current year rate of 23.5%.

7  Relates to losses accruing in Phoenix Life Assurance Europe DAC in relation to which a deferred tax asset cannot be recognised.

D. Equity

D1. Share Capital

The Group has issued ordinary shares which are classified as equity. Incremental external costs that are directly attributable to the issue of these shares are recognised in equity, net of tax.

	2023 £m	2022 £m
Issued and fully paid:
1,001.5 million ordinary shares of £0.10 each (2022: 1,000.4 million)	100	100

The holders of ordinary shares are entitled to one vote per share on matters to be voted on by owners and to receive such dividends, if any, as may be declared by the Board of Directors in its discretion out of legally available profits.

Movements in issued share capital during the year:

	2023  Number	2023  £	2022  Number	2022  £
Shares in issue at 1 January	1,000,352,477	100,035,247	999,536,058	99,953,605
Ordinary shares issued in the year	1,185,942	118,594	816,419	81,642
Shares in issue at 31 December	1,001,538,419	100,153,841	1,000,352,477	100,035,247

During the year, 1,185,942 shares (2022: 816,419) were issued at a premium of £6 million (2022: £4 million) in order to satisfy obligations to employees under the Group's sharesave schemes (see note I1).

The balance in the merger reserve arose upon the issuance of equity shares in 2020 as part consideration for the acquisition of the entire share capital of ReAssure Group plc. The Group has applied the relief in section 612 of the Companies Act 2006 to present the difference between the consideration received and the nominal value of the shares issued of £1,819 million in a merger reserve as opposed to in share premium.

D2. Shares held by the employee benefit trust

Where the Phoenix Group Employee Benefit Trust ('EBT') acquires shares in the Company or obtains rights to purchase its shares, the consideration paid (including any attributable transaction costs, net of tax) is shown as a deduction from owners' equity. Gains and losses on sales of shares held by the EBT are charged or credited to the own shares account in equity.

The EBT holds shares to satisfy awards granted to employees under the Group's share-based payment schemes.

	2023  £m	2022  £m
At 1 January	13	12
Shares acquired by the EBT	14	13
Shares awarded to employees by the EBT	(12)	(12)
At 31 December	15	13

During the year 1,942,979 (2022: 1,764,660) shares were awarded to employees by the EBT and 2,477,897 (2022: 1,970,764) shares were purchased. The number of shares held by the EBT at 31 December 2023 was 2,626,940 (2022: 2,092,022).

The Company provided the EBT with an interest-free non-recourse facility arrangement to enable it to purchase the shares.

D3. Other Reserves

The other reserves comprise the owner-occupied property revaluation reserve and the cash flow hedging reserve.

Owner-occupied property revaluation reserve

This reserve comprises the revaluation surplus arising on revaluation of owner-occupied property. When a revaluation loss arises on a previously revalued asset it should be deducted first against the previous revaluation gain. Any excess impairment will then be recorded as an impairment expense in the consolidated income statement.

Cash flow hedging reserve

Where a cash flow hedging relationship exists, the effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated under the heading of cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the consolidated income statement, and is reported in net investment income.

Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line as the recognised hedged item.

Hedge accounting is discontinued when the Group revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. Any gain or loss recognised in other comprehensive income and accumulated in equity at that time is recycled to profit or loss over the period the hedged item impacts profit or loss.

Further details of the Group's hedge accounting policy are included in note E1.

	Owner-occupied property revaluation reserve	Cash flow hedging reserve	Total other reserves
2023	£m	£m	£m
At 1 January 2023	-	46	46
Other comprehensive income/(expense) for the year	2	(32)	(30)
At 31 December 2023	2	14	16

 

	Owner-occupied property revaluation reserve	Cash flow hedging reserve	Total other reserves
2022	£m	£m	£m
At 1 January 2022	5	51	56
Other comprehensive expense for the year	(5)	(5)	(10)
At 31 December 2022	-	46	46

In June 2021, the Group entered into four cross currency swaps which were designated as hedging instruments in order to effect cash flow hedges of the Group's Euro and US Dollar denominated borrowings (see note E5). Hedge accounting has been adopted effective from the date of designation of the hedging relationship. The objective of the hedging relationships is to hedge the risk of variability in functional currency equivalent cash flows with the foreign currency denominated borrowings due to changes in forward rates. The hedge ratio (i.e. the relationship between the quantity of the hedging instrument and the quantity of the hedged item in terms of their relative weighting) is such that there is an exact match in the relative weightings of the hedged items and hedging instruments within each of the hedging relationships.

D4. Tier 1 notes

The Fixed Rate Reset Perpetual Restricted Tier 1 Contingent Convertible Notes ('Tier 1 Notes') meet the definition of equity and accordingly are shown as a separate category within equity at the proceeds of issue. The coupons on the instruments are recognised as distributions on the date of payment and are charged directly to the statement of consolidated changes in equity.

	2023 £m	2022 £m
Tier 1 Notes	494	494

On 26 April 2018, Old PGH (the Group's ultimate parent company up to December 2018) issued £500 million of 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 5 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. The coupon paid in the year was £29 million (2022: £29 million).

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 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.

On 27 October 2020, the terms of the Tier 1 Notes were amended and the consequence of a trigger event, linked to the Solvency II capital position, was changed. Previously, the Tier 1 Notes were subject to a permanent write-down in value to zero. The amended terms require that the Tier 1 Notes would automatically be subject to conversion to ordinary shares of the Company at the conversion price of £1,000 per share, subject to adjustment in accordance with the terms and conditions of the notes and all accrued and unpaid interest would be cancelled. Following any such conversion there would be no reinstatement of any part of the principal amount of, or interest on, the Tier 1 Notes at any time.

D5. Non-controlling interests

Non-controlling interests are stated at the share of net assets attributed to the non-controlling interest holder at the time of acquisition, adjusted for the relevant share of subsequent changes in equity.

	APEOT 2023 £m	APEOT 2022 £m
At 1 January	532	460
Profit for the year	28	67
Dividends paid	(11)	(10)
Increase in non-controlling interests	-	15
At 31 December	549	532

The non-controlling interests of £549 million (2022: £532 million) reflects third party ownership of abrdn Private Equity Opportunities Trust plc ('APEOT') determined at the proportionate value of the third party interest in the underlying assets and liabilities. APEOT is a UK Investment Trust listed and traded on the London Stock Exchange. As at 31 December 2023, the Group held 53.6% (2022: 53.6%) of the issued share capital of APEOT.

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

Summary financial information showing the interest that non-controlling interests have in the Group's activities and cash flows is shown below:

APEOT	2023 £m	2022 £m
Statement of financial position:
Financial assets	586	554
Other assets	10	12
Total assets	596	566
Total liabilities	47	34
Income statement:
Net income	37	74
Profit after tax	28	67
Comprehensive income	28	67
Cash flows:
Net decrease in cash and cash equivalents	(1)	(7)

E. Financial assets & liabilities

E1. Fair values

Financial assets

Financial assets are to be classified into one of the following measurement categories: Fair value through profit or loss ('FVTPL'), fair value through other comprehensive income ('FVOCI') and amortised cost. Classification is made based on the objectives of the entity's business model for managing its financial assets and the contractual cash flow characteristics of the instruments.

Financial assets are measured at amortised cost where they have:

•  contractual terms that give rise to cash flows on specified dates, that represent solely payments of principal and interest on the principal amount outstanding; and

•  are held within a business model whose objective is achieved by holding to collect contractual cash flows.

These financial assets are initially recognised at cost, being the fair value of the consideration paid for the acquisition of the financial asset. All transaction costs directly attributable to the acquisition are also included in the cost of the financial asset. Subsequent to initial recognition, these financial assets are carried at amortised cost, using the effective interest method.

Equities, debt securities, collective investment schemes, derivatives and certain loans and deposits and cash and cash equivalents are measured at FVTPL as they are managed and evaluated on a fair value basis.

Purchases and sales of financial assets are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset.

Where derivative financial instruments are held to hedge the Group's Euro and US Dollar borrowings, the effective portion of any gain or loss that arises on remeasurement to fair value is initially recognised in other comprehensive income and is recycled to profit or loss as the hedged item impacts the profit or loss. For such instruments, the timing of the recognition of any gain or loss that arises on remeasurement to fair value in profit or loss depends on the nature of the hedge relationship.

The Group has treaties in place with third party insurance companies to provide reinsurance in respect of liabilities that are linked to the performance of funds maintained by those companies. The contracts in question do not transfer significant insurance risk and therefore are classified as financial instruments and are valued at fair value through profit and loss. These contracts are disclosed under Reinsurers' share of investment contract liabilities in the statement of consolidated financial position.

Impairment of financial assets

The Group assesses the expected credit losses associated with its loans and deposits, receivables, cash and cash equivalents and other financial assets carried at amortised cost. The measurement of credit impairment is based on an Expected Credit Loss (' ECL') model and depends upon whether there has been a significant increase in credit risk.

For those credit exposures for which credit risk has not increased significantly since initial recognition, the Group measures loss allowances at an amount equal to the total expected credit losses resulting from default events that are possible within 12 months after the reporting date ('12-month ECL'). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, the Group measures and recognises an allowance at an amount equal to the expected credit losses over the remaining life of the exposure, irrespective of the timing of the default ('Lifetime ECL'). If the financial asset becomes 'credit-impaired' (following significant financial difficulty of issuer/borrower, or a default/breach of a covenant), the Group will recognise a Lifetime ECL. ECLs are derived from unbiased and probability-weighted estimates of expected loss.

The loss allowance reduces the carrying value of the financial asset and is reassessed at each reporting date. ECLs and subsequent remeasurements of the ECL, are recognised in the consolidated income statement.

Fair value estimation

The fair values of financial instruments traded in active markets such as publicly traded securities and derivatives are based on quoted market prices at the period end. The quoted market price used for financial assets is the applicable bid price on the period end date. The fair value of investments that are not traded in an active market is determined using valuation techniques such as broker quotes, pricing models or discounted cash flow techniques. Where pricing models are used, inputs are based on market related data at the period end. Where discounted cash flow techniques are used, estimated future cash flows are based on contractual cash flows using current market conditions and market calibrated discount rates and interest rate assumptions for similar instruments.

For units in unit trusts and shares in open-ended investment companies, fair value is determined by reference to published bid values. The fair value of receivables and floating rate and overnight deposits with credit institutions is their carrying value. The fair value of fixed interest-bearing deposits is estimated using discounted cash flow techniques.

Associates

Investments in associates that are held for investment purposes are accounted for under IFRS 9 Financial Instruments for the current period (2022: IAS 39 Financial Instruments: Recognition and Measurement) as permitted by IAS 28 Investments in Associates and Joint Ventures. These are measured at fair value through profit or loss. There are no investments in associates which are of a strategic nature.

Derecognition of financial assets

A financial asset (or part of a group of similar financial assets) is derecognised where:

•  the rights to receive cash flows from the asset have expired;

•  the Group retains the right to receive cash flows from the assets, but has assumed an obligation to pay them in full without material delay to a third party under a 'pass-through' arrangement; or

•  the Group has transferred its rights to receive cash flows from the asset and has either transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Financial liabilities

On initial recognition, financial liabilities are recognised when due and measured at the fair value of the consideration received less directly attributable transaction costs (with the exception of liabilities at FVTPL for which all transaction costs are expensed).

Subsequent to initial recognition, financial liabilities (except for liabilities under investment contracts without DPF and other liabilities designated at FVTPL) are measured at amortised cost using the effective interest method.

Financial liabilities are designated upon initial recognition at FVTPL where doing so results in more meaningful information because either:

•  it eliminates or significantly reduces accounting mismatches that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases; or

•  a group of financial assets, financial liabilities or both is managed and its performance is evaluated and managed on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the investments is provided internally on that basis to the Group's key management personnel.

Investment contracts without DPF

Contracts under which the transfer of insurance risk to the Group from the policyholder is not significant are classified as investment contracts and accounted for as financial liabilities.

Receipts and payments on investment contracts without DPF are accounted for using deposit accounting, under which the amounts collected and paid out are recognised in the statement of consolidated financial position as an adjustment to the liability to the policyholder.

Investment contracts without DPF are measured at fair value which is determined using a valuation technique to provide a reliable estimate of the amount for which the liability could be transferred in an orderly transaction between market participants at the measurement date, subject to a minimum equal to the surrender value. The valuation of liabilities on unit-linked contracts are held at the fair value of the related assets and liabilities. The liability is the sum of the unit-linked liabilities plus an additional amount to cover the present value of the excess of future policy costs over future charges.

Movements in the fair value of investment contracts without DPF and reinsurers' share of investment contract liabilities are included in Change in investment contract liabilities in the consolidated income statement.

Investment contract policyholders are charged for policy administration services, investment management services, surrenders and other contract fees. These fees are recognised as revenue over the period in which the related services are performed. If the fees are for services provided in future periods, they are deferred and recognised over those periods. 'Front end' fees are charged on some non-participating investment contracts. Where the non-participating investment contract is measured at fair value, such fees which relate to the provision of future investment management services are deferred and recognised as the services are provided.

Net asset value attributable to unitholders

The net asset value attributable to unitholders represents the non-controlling interest in collective investment schemes which are consolidated by the Group. This interest is classified at FVTPL and measured at fair value, which is equal to the bid value of the number of units of the collective investment scheme not owned by the Group.

Obligations for repayment of collateral received

It is the Group's practice to obtain collateral in stock lending and derivative transactions, usually in the form of cash or marketable securities. Where cash collateral received is available to the Group for investment purposes, it is recognised as a 'financial asset' and the collateral repayable is recognised as 'obligations for repayment of collateral received' in the statement of consolidated financial position. The 'obligations for repayment of collateral received' are measured at amortised cost, which in the case of cash is equivalent to the fair value of the consideration received. Further details of the Group's collateral arrangements are included in note E4.

Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.

Offsetting financial assets and financial liabilities

Financial assets and liabilities are offset and the net amount reported in the statement of financial position only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. When financial assets and liabilities are offset any related interest income and expense is offset in the income statement.

Hedge accounting

The Group designates certain derivatives as hedging instruments in order to effect cash flow hedges. At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk.

Where a cash flow hedging relationship exists, the effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated under the heading of cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in net investment income.

Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line as the recognised hedged item.

Hedge accounting is discontinued if: the Group's hedging objective has changed (can result in a partial discontinuance); the hedged item or hedging instrument no longer exists or is sold; there is no longer an economic relationship between the hedged item and the hedging instrument; or the effect of credit risk starts to dominate the value changes that result from the economic relationship. Any gain or loss recognised in other comprehensive income and accumulated in equity at that time is recycled to profit or loss over the period the hedged item impacts profit or loss.

E1.1 Fair value analysis

The table below sets out a comparison of the carrying amounts and fair values of financial instruments as at 31 December 2023:

	Carrying value
2023	Total £m	Amounts due for settlement after 12 months £m	Fair value £m
Financial assets
Financial assets mandatorily held at fair value through profit or loss ('FVTPL'):
Loans and deposits	231	4	231
Derivatives	2,769	2,338	2,769
Equities1	87,656	-	87,656
Investment in associate (see note H4)1	349	-	349
Debt securities	94,785	79,994	94,785
Collective investment schemes1	79,937	-	79,937
Reinsurers' share of investment contract liabilities1	9,700	-	9,700
Financial assets measured at amortised cost:
Loans and deposits	17	17	17
Total financial assets	275,444		275,444
Less amounts classified as financial assets held for sale (see note H3)2	(2,498)		(2,498)
Total financial assets less financial assets classified as held for sale	272,946		272,946

 

	Carrying value
2023	Total £m	Amounts due for settlement after 12 months £m	Fair value £m
Financial liabilities
Financial liabilities mandatorily held at FVTPL:
Derivatives	3,344	2,976	3,344
Financial liabilities designated at FVTPL upon initial recognition:
Borrowings	45	45	45
Net asset value attributable to unitholders1	2,921	-	2,921
Investment contract liabilities1	162,784	-	162,784
Financial liabilities measured at amortised cost:
Borrowings	3,847	3,757	3,739
Obligations for repayment of collateral received	1,005	-	1,005
Total financial liabilities	173,946		173,838
Less amounts classified as financial liabilities held for sale (see note H3)3	(4,782)		(4,782)
Total financial liabilities less financial liabilities held for sale	169,164		169,056

1    These assets and liabilities have no specified settlement date.

2    Amounts classified as financial assets held for sale include derivatives of £3 million, equities of £28 million, debt securities of £1,411 million, collective investment schemes of £1,028 million and reinsurers' share of investment contract liabilities of £28 million.

3    Amounts classified as financial liabilities held for sale include derivative liabilities of £2 million and investment contract liabilities of £4,780 million.

	Carrying value
2022 restated1	Total £m	Amounts due for settlement after 12 months £m	Fair value £m
Financial assets
Financial assets mandatorily held at FVTPL:
Held for trading - derivatives	4,071	3,353	4,071
Financial assets designated at FVTPL upon initial recognition:
Equities2	76,780	-	76,780
Investment in associate (see note H4)2	329	-	329
Debt securities	84,710	70,115	84,710
Collective investment schemes2	78,353	-	78,353
Reinsurers' share of investment contract liabilities2	9,090	-	9,090
Financial assets measured at amortised cost:
Loans and deposits	268	89	268
Total financial assets	253,601		253,601
Less amounts classified as financial assets held for sale (see note H3)3	(4,629)		(4,629)
Total financial assets less financial assets classified as held for sale	248,972		248,972

 

	Carrying value
2022 restated1	Total £m	Amounts due for settlement after 12 months £m	Fair value £m
Financial liabilities
Financial liabilities mandatorily held at FVTPL:
Held for trading - derivatives	5,879	5,118	5,879
Financial liabilities designated upon initial recognition:
Borrowings	64	64	64
Net asset value attributable to unitholders2	3,042	-	3,042
Investment contract liabilities2	149,481	-	149,481
Financial liabilities measured at amortised cost:
Borrowings	3,916	3,648	3,644
Obligations for repayment of collateral received	1,706	-	1,706
Total financial liabilities	164,088		163,816
Less amounts classified as financial liabilities held for sale(see note H3)4	(8,316)		(8,316)
Total financial liabilities less financial liabilities held for sale	155,772		155,500

1    Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).

2    These assets and liabilities have no specified settlement date.

3    Amounts classified as financial assets held for sale include derivatives of £3 million, equities of £43 million, debt securities of £1,594 million, collective investment schemes of £2,964 million and reinsurers' share of investment contract liabilities of £25 million.

4    Amounts classified as financial liabilities held for sale include derivative liabilities of £4 million and investment contract liabilities of £8,312 million.

E1.2 impairment of financial assets held at amortised cost

The adoption of IFRS 9 has changed the Group's accounting for impairment losses for financial assets held at amortised cost by replacing IAS 39's incurred loss approach with a forward-looking expected credit loss ('ECL') approach. The new impairment model applies to the Group's financial assets carried at amortised cost.

A significant portion of the Group's financial assets are carried at FVTPL under IFRS 9 and are therefore not subject to ECL assessment. The financial assets classified as amortised cost and subject to ECL mainly relate to certain loan assets, other receivables and certain cash and cash equivalents balances.

For the in-scope financial assets at the reporting date either the lifetime expected credit loss or a 12-month expected credit loss is provided for, depending on the Group's assessment of whether the credit risk associated with the specific asset has increased significantly since initial recognition. The Group's current credit risk grading framework comprises the following categories:

Category	Description	Basis for recognising ECL
Performing	The counterparty has a low risk of default and does not have any past-due amounts	12 month ECL
Doubtful	There has been a significant increase in credit risk since initial recognition	Lifetime ECL - not credit impaired
In default	There is evidence indicating the asset is credit impaired	Lifetime ECL - credit impaired
Write-off	There is evidence indicating that the counterparty is in severe financial difficulty and the Group has no realistic prospect of recovery	Amount is written off

The financial assets held at amortised cost are assessed at transition as 'performing' and this assessment is summarised below.

Loans and deposits - the Group has assessed the estimated credit losses of these loans and deposits as low due to the external credit ratings of the counterparties resulting in low credit risk and there being no past-due amounts.

Other receivables - these balances relate to investment broker balances and other regular receivables due to the Group in the normal course of business. Expected credit losses are assessed as being immaterial given the typically short-term nature of these balances.

Cash and cash equivalents - the Group's cash and cash equivalents are held with banks and financial institutions, which have investment grade credit ratings of 'BBB' or above. The Group considers that its cash and cash equivalents have low credit risk based on the external credit ratings of the counterparties and, there being no history of default. The impact to the net carrying amount stated in the table above is therefore not considered to be material.

Based on the above assessment, an immaterial credit loss balance has been determined due to these financial assets being predominantly short-term and having low credit risk.

E2. Fair value hierarchy

E2.1 Determination of fair value and fair value hierarchy of financial instruments

Level 1 financial instruments

The fair value of financial instruments traded in active markets (such as exchange traded securities and derivatives) is based on quoted market prices at the period end provided by recognised pricing services. Market depth and bid-ask spreads are used to corroborate whether an active market exists for an instrument. Greater depth and narrower bid-ask spread indicate higher liquidity in the instrument and are classed as Level 1 inputs. For collective investment schemes and reinsurers' share of investment contract liabilities, fair value is by reference to published bid prices.

Level 2 financial instruments

Financial instruments traded in active markets with less depth, or wider bid-ask spreads, which do not meet the classification as Level 1 inputs, are classified as Level 2. The fair values of financial instruments not traded in active markets are determined using broker quotes or valuation techniques with observable market inputs. Financial instruments valued using broker quotes are classified as Level 2, only where there is a sufficient range of available quotes. The fair value of over-the-counter derivatives is estimated using pricing models or discounted cash flow techniques. Collective investment schemes where the underlying assets are not priced using active market prices are determined to be Level 2 instruments. Where pricing models are used, inputs are based on market related data at the period end. Where discounted cash flows are used, estimated future cash flows are based on management's best estimates and the discount rate used is a market related rate for a similar instrument. The fair value of investment contract liabilities reflects the fair value of the underlying assets and liabilities in the funds plus an additional amount to cover the present value of the excess of future policy costs over future charges. The liabilities are consequently determined to be Level 2 instruments.

Level 3 financial instruments

The Group's financial instruments determined by valuation techniques using non-observable market inputs are based on a combination of independent third party evidence and internally developed models. In relation to investments in hedge funds and private equity investments, non-observable third party evidence in the form of net asset valuation statements is used as the basis for the valuation. Adjustments may be made to the net asset valuation where other evidence, for example recent sales of the underlying investments in the fund, indicates this is required. Securities that are valued using broker quotes which could not be corroborated across a sufficient range of quotes are considered as Level 3. For a small number of investment vehicles and debt securities, standard valuation models are used, as due to their nature and complexity they have no external market. Inputs into such models are based on observable market data where applicable. The fair value of loans, derivatives and some borrowings with no external market is determined by internally developed discounted cash flow models using appropriate assumptions corroborated with external market data where possible.

For financial instruments that are recognised at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) during each reporting period.

Fair value hierarchy information for non-financial assets measured at fair value is included in note G3 for owner-occupied property and in note G4 for investment property.

E2.2 Fair value hierarchy of financial instruments

The tables below separately identify financial instruments carried at fair value from those measured on another basis but for which fair value is disclosed.

2023	Level 1 £m	Level 2 £m	Level 3 £m	Total fair value £m
Financial assets measured at fair value
Financial assets mandatorily held at FVTPL
Loans and deposits	-	231	-	231
Derivatives	139	2,398	232	2,769
Equities	85,029	132	2,495	87,656
Investment in associate	349	-	-	349
Debt securities	45,529	35,438	13,818	94,785
Collective investment schemes	76,343	3,193	401	79,937
Reinsurers' share of investment contract liabilities	9,700	-	-	9,700
Total financial assets measured at fair value	217,089	41,392	16,946	275,427
Less amounts classified as held for sale	(1,639)	(181)	(678)	(2,498)
Total financial assets measured at fair value, excluding amounts classified as held for sale	215,450	41,211	16,268	272,929
Financial assets measured at amortised cost for which fair values are disclosed
Loans and deposits	-	17	-	17
	215,450	41,228	16,268	272,946

 

2023	Level 1 £m	Level 2 £m	Level 3 £m	Total fair value £m
Financial liabilities measured at fair value
Financial liabilities designated at FVTPL
Derivatives	152	2,986	206	3,344
Financial liabilities designated at FVTPL upon initial recognition:
Borrowings	-	-	45	45
Net asset value attributable to unitholders	2,921	-	-	2,921
Investment contract liabilities	-	162,784	-	162,784
	2,921	162,784	45	165,750
Total financial liabilities measured at fair value	3,073	165,770	251	169,094
Less amounts classified as held for sale	-	(4,782)	-	(4,782)
Total financial liabilities measured at fair value, excluding amounts classified as held for sale	3,073	160,988	251	164,312
Financial liabilities measured at amortised cost for which fair values are disclosed
Borrowings	-	3,739	-	3,739
Obligations for repayment of collateral received	-	1,005	-	1,005
Total financial liabilities measured at amortised cost for which fair values are disclosed	-	4,744	-	4,744
	3,073	165,732	251	169,056

 

2022 restated1	Level 1 £m	Level 2 £m	Level 3 £m	Total fair value £m
Financial assets measured at fair value
Financial assets mandatorily held at FVTPL
Derivatives	165	3,754	152	4,071
Financial assets designated at FVTPL upon initial recognition:
Equities	74,464	124	2,192	76,780
Investment in associate	329	-	-	329
Debt securities	48,151	25,094	11,465	84,710
Collective investment schemes	75,962	2,079	312	78,353
Reinsurers' share of investment contract liabilities	9,090	-	-	9,090
	207,996	27,297	13,969	249,262
Total financial assets measured at fair value	208,161	31,051	14,121	253,333
Less amounts classified as held for sale	(3,661)	(179)	(789)	(4,629)
Total financial assets measured at fair value, excluding amounts classified as held for sale	204,500	30,872	13,332	248,704
Financial assets measured at amortised cost for which fair values are disclosed
Loans and deposits	-	261	7	268
	204,500	31,133	13,339	248,972

 

2022 restated1	Level 1 £m	Level 2 £m	Level 3 £m	Total fair value £m
Financial liabilities measured at fair value
Financial liabilities mandatorily at FVTPL
Derivatives	98	5,538	243	5,879
Financial liabilities designated at FVTPL upon initial recognition:
Borrowings	-	-	64	64
Net asset value attributable to unitholders	3,042	-	-	3,042
Investment contract liabilities	-	149,481	-	149,481
	3,042	149,481	64	152,587
Total financial liabilities measured at fair value	3,140	155,019	307	158,466
Less amounts classified as held for sale	-	(8,316)	-	(8,316)
Total financial liabilities measured at fair value, excluding amounts classified as held for sale	3,140	146,703	307	150,150
Financial liabilities measured at amortised cost for which fair values are disclosed
Borrowings	-	3,644	-	3,644
Obligations for repayment of collateral received	-	1,706	-	1,706
Total financial liabilities measured at amortised cost for which fair values are disclosed	-	5,350	-	5,350
	3,140	152,053	307	155,500

1. Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).

E2.3 Significant inputs and input values for Level 3 financial instruments

			Key unobservable input value
Description	Valuation technique	Significant inputs	2023	2022
Equities	Single broker1 and net asset value2	Single broker indicative price	N/A	N/A
Debt securities (see E2.3.1 for further details)
Loans guaranteed by export credit agencies & supranationals	DCF model3	Credit spread	78bps (weighted average)	111bps (weighted average)
Private corporate credit	DCF model3	Credit spread	145bps (weighted average)	169bps (weighted average)
Infrastructure loans	DCF model3	Credit spread	160bps (weighted average)	220bps (weighted average)
Loans to housing associations	DCF model3	Credit spread	139bps (weighted average)	164bps (weighted average)
Local authority loans	DCF model3	Credit spread	130bps (weighted average)	137bps (weighted average)
Equity Release Mortgage loans ('ERM')	DCF model and Black-Scholes model4	Spread	256bps over Sonia plus 36bps	260bps over the IFRS reference curve
		House price inflation	+75bps adjustment to RPI	+75bps adjustment to RPI
		House prices	£280,316 (average)	£304,088 (average)
		Mortality	Average life expectancy of a male and female currently aged 75 is 14.1 years and 15.6 years respectively	Average life expectancy of a male and female currently aged 75 is 14.5 years and 15.9 years respectively
		Voluntary redemption rate	190bps to 650bps	150bps to 700bps
Commercial real estate loans	DCF model3	Credit spread	253bps (weighted average)	253bps (weighted average)
Income strips 5	Income capitalisation	Credit spread	613bps	661bps
Collective investment schemes	Net asset value statements2	N/A	N/A	N/A
Borrowings
Property reversions loans (see note E5)	Internally developed model	Mortality rate	130% IFL92C15 (Female) 6	130% IFL92C15 (Female) 6
			130% IML92C15 (Male) 6	130% IML92C15 (Male) 6
		House price inflation	3-year RPI rate plus 75bps	3-year RPI rate plus 75bps
		Discount rate	3-year swap rate plus 170 bps	3-year swap rate plus 170 bps
		Deferred possession rate	370bps	370bps
Derivative assets and liabilities
Forward private placements, infrastructure and local authority loans 7	DCF model3	Credit spread	111bps (weighted average)	145bps (weighted average)
Longevity swaps 8	DCF model3	Swap curve	swap curve	swap curve + 36bps
Equity Release Income Plan total return swap 9	DCF model3	Credit spread	500bps	500bps

1    Broker indicative prices: Although such valuations are sensitive to estimates, it is believed that changing one or more of the assumptions to reasonably possible alternative assumptions would not change the fair value significantly.

2    Net asset value statements: Net asset statements are provided by independent third parties, and therefore no significant non-observable input or sensitivity information has been prepared for those instruments valued on this basis.

3    Discounted cash flow ('DCF') model: Except where otherwise stated, the discount rate used is based on a risk-free curve and a credit spread. The risk-free rate is taken from an appropriate gilt of comparable duration. The spread is derived from a basket of comparable securities.

4    ERM loans: The loans are valued using a DCF model and a Black-Scholes model for valuation of the No-Negative Equity Guarantee ('NNEG'). The NNEG caps the loan repayment in the event of death or entry into long-term care to be no greater than the sales proceeds from the property. The future cash flows are estimated based on assumed levels of mortality derived from published mortality tables, entry into long-term care rates and voluntary redemption rates. Cash flows include an allowance for the expected cost of providing a NNEG assessed under a real world approach using a closed form model including an assumed level of property value volatility. For the NNEG assessment, property values are indexed from the latest property valuation point and then assumed to grow in line with an RPI based assumption. Cash flows are discounted using a risk free curve plus a spread, where the spread is based on recent originations, with margins to allow for the different risk profiles of ERM loans.

5    Income strips are transactions where an owner-occupier of a property has sold a freehold or long leasehold interest to the Group, and has signed a long lease (typically 30-45 years) or a ground lease (typically 45-175 years) and retains the right to repurchase the property at the end of the lease for a nominal sum (usually £1). The income strips are valued using an income capitalisation approach, where the annual rental income is capitalised using an appropriate yield. The yield is determined by considering recent transactions involving similar income strips.

6    IFL92C15 and IML92C15 relate to immediate annuitant female and male lives and refer to the 92 series mortality tables produced by the Continuous Mortality Investigation (CMI).

7    Derivative liabilities include forward investments of £54 million (2022: £146 million) which include a commitment to acquire or provide funding for fixed rate debt instruments at specified future dates.

8    Included within derivative assets and liabilities are longevity swap contracts with corporate pension schemes with a fair value of £230 million (2022: £152 million) and £100 million (2022: £34 million) respectively.

9    Included within derivative liabilities is the Equity Release Income Plan ('ERIP') total return swap with a value of £50 million (2022: £63 million), under which a share of the disposal proceeds arising on a portfolio of property reversions is payable to a third party (see note E.3.3 for further details).

E2.3.1 Debt securities

Analysis of Level 3 debt securities	2023 £m	2022 £m
Unquoted corporate bonds:
Loans guaranteed by export credit agencies & supranationals	486	402
Private corporate credit	1,829	1,422
Infrastructure loans - project finance	1,097	882
Infrastructure loans - corporate	1,493	1,175
Loans to housing associations	1,186	691
Local authority loans	932	596
Equity release mortgages	4,486	3,934
Commercial real estate loans	1,147	1,104
Income strips	674	786
Bridging loans to private equity funds	470	462
Other	18	11
Total Level 3 debt securities	13,818	11,465
Less amounts classified as held for sale	(674)	(786)
Total Level 3 debt securities excluding amounts classified as held for sale	13,144	10,679

E2.4 Sensitivities of Level 3 instruments

	2023 £m	2022 £m
Debt securities - Loans guaranteed by export credit agencies & supranationals
65 bps increase in spread	(13)	(9)
65 bps decrease in spread	14	11
Debt securities - Private corporate credit
65 bps increase in spread	(103)	(98)
65 bps decrease in spread	116	112
Debt securities - Infrastructure loans
65 bps increase in spread	(129)	(103)
65 bps decrease in spread	134	107
Debt securities - Loans to housing associations
65 bps increase in spread	(93)	(54)
65 bps decrease in spread	105	58
Debt securities - Local authority loans
65 bps increase in spread	(82)	(51)
65 bps decrease in spread	90	55
Debt securities - ERM loans
100bps increase in spread	(373)	(329)
100bps decrease in spread	410	370
5% increase in mortality	16	13
5% decrease in mortality	(18)	(14)
15% increase in voluntary redemption rate	44	49
15% decrease in voluntary redemption rate	(47)	(52)
1% increase in house price inflation	52	27
1% decrease in house price inflation	(74)	(42)
10% increase in house prices	38	22
10% decrease in house prices	(59)	(38)
Debt securities - CRELs
65 bps increase in spread	(44)	(18)
65 bps decrease in spread	48	19
Debt securities - Income strips
65bps increase in spread (2022: 35 bps increase in spread)	(89)	(76)
65bps decrease in spread (2022: 35 bps decrease in spread)	109	88
Derivatives - Forward private placements, infrastructure and local authority loans
65 bps increase in spread	(6)	(30)
65 bps decrease in spread	7	31
Derivatives - Longevity swap contracts
100bps increase in swap curve	(20)	(17)
100bps decrease in swap curve	25	21
Derivatives - Equity Release Income Plan total return swap
100bps increase in spread	1	2
100bps decrease in spread	(1)	(2)

For the property reversions loans and bridging loans to private equity funds, there are no reasonably possible movements in unobservable input values which would result in a significant movement in the fair value of the financial instruments.

For those assets valued using net asset value statements (equities and collective investment schemes) no sensitivity information has been prepared as the net asset statements are provided by independent third parties.

E2.5 Transfers of financial instruments between Level 1 and Level 2

2023	From Level 1 to Level 2 £m	From Level 2 to Level 1 £m
Financial assets measured at fair value
Financial assets mandatorily held at FVTPL
Derivatives	-	21
Equities	10	12
Debt securities	1,023	725
Collective investment schemes1	1,188	16

1  As a result of the assessment of the liquidity of the underlying investments held within collective investment schemes, in accordance with the Group's fair value hierarchy classification methodology a net £1,172 million of collective investment schemes has transferred from Level 1 to Level 2.

2022	From Level 1 to Level 2 £m	From Level 2 to Level 1 £m
Financial assets measured at fair value
Financial assets mandatorily held at FVTPL
Derivatives	48	-
Financial assets designated at FVTPL upon initial recognition:
Equities	73	5
Debt securities	1,478	1,267
Collective investment schemes	28	-

Consistent with the prior year, all the Group's Level 1 and Level 2 assets have been valued using standard market pricing sources.

The application of the Group's fair value hierarchy classification methodology at an individual security level, in particular observations with regard to measures of market depth and bid-ask spreads, resulted in an overall net movement of debt securities from Level 1 to Level 2 in both the current and prior period.

E2.6 Movement in Level 3 financial instruments measured at fair value

2023	At 1 January 2023 £m	Reclassification of balances on transition to IFRS 91 £m	At 1 January 2023 (restated) £m	Net (losses)/gains in income statement £m	Purchases £m	Sales £m	Transfers  from Level 1 and Level 2 £m	Transfers to Level 1 and Level 2 £m	At 31 December 20232 £m	Unrealised gains on assets held at end of period £m
Financial assets measured at fair value
Financial assets mandatorily held at FVTPL:
Loans and deposits	-	7	7	(1)	-	(6)	-	-	-	-
Derivatives	152	-	152	80	-	-	-	-	232	80
Equities	2,192	-	2,192	163	433	(293)	2	(2)	2,495	14
Debt securities	11,465	-	11,465	416	7,011	(5,224)	150	-	13,818	475
Collective investment schemes	312	-	312	46	47	(5)	1	-	401	46
Total financial assets measured at fair value	14,121	7	14,128	704	7,491	(5,528)	153	(2)	16,946	615

1  See note A2.2.1 for further details.

2  Total financial assets of £16,946 million includes £678 million of assets classified as held for sale.

2023	At 1 January 2023 £m	Net losses in income statement £m	Purchases £m	Sales/repayments £m	Transfers from  Level 1 and Level 2 £m	Transfers to Level 1 and Level 2 £m	At 31 December 2023 £m	Unrealised losses on liabilities held at end of period £m
Financial liabilities measured at fair value
Financial liabilities mandatorily held at FVTPL:
Derivatives	243	67	-	(104)	-	-	206	59
Financial liabilities designated at FVTPL upon initial recognition:
Borrowings	64	2	-	(21)	-	-	45	2
Total financial liabilities measured at fair value	307	69	-	(125)	-	-	251	61

 

2022	At 1 January 2022 £m	Net (losses)/gains in income statement £m	Purchases £m	Sales £m	Transfers  from Level 1 and Level 2 £m	Transfers to Level 1 and Level 2 £m	At 31 December 20221 £m	Unrealised (losses)/gains on assets held at end of period £m
Financial assets measured at fair value
Financial assets mandatorily held at FVTPL:
Derivatives	237	(85)	-	-	-	-	152	(85)
Financial assets designated at FVTPL upon initial recognition:
Equities	1,899	177	438	(369)	47	-	2,192	12
Debt securities	12,452	(3,544)	6,838	(4,277)	2	(6)	11,465	(3,595)
Collective investment schemes	286	(79)	108	(3)	-	-	312	(73)
	14,637	(3,446)	7,384	(4,649)	49	(6)	13,969	(3,656)
Total financial assets measured at fair value	14,874	(3,531)	7,384	(4,649)	49	(6)	14,121	(3,741)

1  Total financial assets of £14,121 million includes £789 million classified as held for sale.

2022	At 1 January 2022 £m	Net losses in income statement £m	Purchases £m	Sales/ Repayments £m	Transfers from  Level 1 and Level 2 £m	Transfers to Level 1 and Level 2 £m	At 31 December 20221 £m	Unrealised losses on liabilities held at end of period £m
Financial liabilities measured at fair value
Financial liabilities mandatorily held at FVTPL:
Derivatives	125	130	-	(12)	-	-	243	123
Financial liabilities designated at FVTPL upon initial recognition:
Borrowings	70	9	-	(15)	-	-	64	9
Total financial liabilities measured at fair value	195	139	-	(27)	-	-	307	132

Gains and losses on Level 3 financial instruments are included in net investment income in the consolidated income statement. There were no gains or losses recognised in other comprehensive income in either the current or comparative period.

E3. Derivatives

The Group purchases derivative financial instruments principally in connection with the management of its insurance contract and investment contract liabilities based on the principles of reduction of risk and efficient portfolio management. The Group does not typically hold derivatives for the purpose of selling and repurchasing in the near term or with the objective of generating a profit from short-term fluctuations in price or margin. The Group also holds derivatives which are designated as hedging instruments in order to hedge the Group's Euro and US Dollar borrowings. These hedging relationships qualify for hedge accounting under IFRS 9 and are designated as cash flow hedges.

Derivative financial instruments are recognised initially at fair value and are subsequently remeasured to fair value. The gain or loss on remeasurement to fair value is recognised in the consolidated income statement where the derivatives are held for trading. Where derivative financial instruments are held to hedge the Group's Euro and US Dollar borrowings, the effective portion of any gain or loss that arises on remeasurement to fair value is initially recognised in other comprehensive income and is recycled to profit or loss as the hedged item impacts the profit or loss. See notes E1 and D3 for further details of the Group's hedging accounting policy.

E3.1 Summary

The fair values of derivative financial instruments are as follows:

	Assets 2023 £m	Liabilities 2023 £m	Assets 2022 £m	Liabilities 2022 £m
Forward currency	265	97	327	221
Credit default swaps	9	2	4	18
Contracts for difference	2	1	3	3
Interest rate swaps	1,456	2,290	2,281	4,313
Swaptions	164	65	187	46
Inflation swaps	187	142	295	104
Equity options	107	106	334	147
Stock index futures	18	87	162	36
Fixed income futures	84	124	95	231
Longevity swap contracts	230	100	152	34
Currency futures	15	5	4	8
Cross currency swaps	232	274	227	653
Equity Release Income Plan total return swap	-	50	-	63
Other	-	1	-	2
	2,769	3,344	4,071	5,879
Less amounts classified as held for sale	(3)	(2)	(3)	(4)
	2,766	3,342	4,068	5,875

E3.2 Longevity swap contracts

The Group has in place longevity swap arrangements with corporate pension schemes which do not meet the definition of insurance contracts under the Group's accounting policies. Under these arrangements the majority of the longevity risk has been passed to third parties. Derivative assets of £230 million and derivative liabilities of £100 million have been recognised as at 31 December 2023 (2022: £152 million and £34 million respectively).

E3.3 Equity Release Income Plan ('ERIP') total return swap

ERIP contracts are an equity release product under which the Group holds a reversionary interest in the residential property of policyholders who have been provided with a lifetime annuity in return for the legal title to their property (see note G4). The Group is party to an ERIP total return swap under which a share of the future generated cash flows arising under the ERIP contracts is payable to a third party. Over time, as the property reversions are realised, the relevant share of disposal proceeds is transferred to a third party who also holds a beneficial interest in these residential properties. The carrying amount of the derivative liability is the present value of all future cash flows due to the third party under the total return swap.

E4. Collateral arrangements

The Group receives and pledges collateral in the form of cash or non-cash assets in respect of stock lending transactions, derivative contracts and reinsurance arrangements in order to reduce the credit risk of these transactions. The amount and type of collateral required where the Group receives collateral depends on an assessment of the credit risk of the counterparty, but is usually in the form of cash and marketable securities.

Collateral received in the form of cash, where the Group has contractual rights to receive the cash flows generated and is available to the Group for investment purposes, is recognised as a financial asset in the statement of consolidated financial position with a corresponding financial liability for its repayment. Non-cash collateral received is not recognised in the statement of consolidated financial position, unless the counterparty defaults on its obligations under the relevant agreement.

Non-cash collateral pledged where the Group retains the contractual rights to receive the cash flows generated is not derecognised from the statement of consolidated financial position, unless the Group defaults on its obligations under the relevant agreement. Cash collateral pledged, where the counterparty has contractual rights to receive the cash flows generated, is derecognised from the statement of consolidated financial position and a corresponding receivable is recognised for its return.

The Group is also party to reverse repurchase agreements under which securities are purchased from third parties with an obligation to resell the securities. The securities are not recognised as financial assets on the statement of consolidated financial position, unless the counterparty defaults on its obligations under the relevant agreement. The right to receive the return of any cash paid as purchase consideration plus interest is recognised as a financial asset on the statement of financial position.

E4.1 Financial instrument collateral arrangements

The Group has no financial assets and financial liabilities that have been offset in the statement of consolidated financial position as at 31 December 2023 (2022: none).

The table below contains disclosures related to financial assets and financial liabilities recognised in the statement of consolidated financial position that are subject to enforceable master netting arrangements or similar agreements. Such agreements do not meet the criteria for offsetting in the statement of consolidated financial position as the Group has no current legally enforceable right to offset recognised financial instruments. Furthermore, certain related assets received as collateral under the netting arrangements will not be recognised in the statement of consolidated financial position as the Group does not have permission to sell or re-pledge, except in the case of default. Details of the Group's collateral arrangements in respect of these recognised assets and liabilities are provided below.

		Related amounts not offset
	Gross and net amounts of recognised financial assets	Financial instruments and cash collateral received	Derivative liabilities	Net  amount
2023	£m	£m	£m	£m
Financial assets
OTC derivatives	2,629	976	1,459	194
Exchange traded derivatives	137	33	28	76
Stock lending	836	836	-	-
Repurchase arrangement	100	100	-	-
Total	3,702	1,945	1,487	270
		Related amounts not offset
	Gross and net amounts of recognised financial liabilities	Financial instruments and cash collateral pledged	Derivative assets	Net  amount
	£m	£m	£m	£m
Financial liabilities
OTC derivatives	3,126	1,520	1,459	147
Exchange traded derivatives	216	68	28	120
Total	3,342	1,588	1,487	267
		Related amounts not offset
	Gross and net amounts of recognised financial assets	Financial instruments and cash collateral received	Derivative liabilities	Net  amount
2022	£m	£m	£m	£m
Financial assets
OTC derivatives	3,747	1,055	2,293	399
Exchange traded derivatives	324	193	28	103
Stock lending	1,451	1,451	-	-
Total	5,522	2,699	2,321	502
		Related amounts not offset
	Gross and net amounts of recognised financial liabilities	Financial instruments and cash collateral pledged	Derivative assets	Net  amount
	£m	£m	£m	£m
Financial liabilities
OTC derivatives	5,606	2,206	2,293	1,107
Exchange traded derivatives	273	36	28	209
Total	5,879	2,242	2,321	1,316

E4.2 Derivative collateral arrangements

Assets accepted

It is the Group's practice to obtain collateral to mitigate the counterparty risk related to over-the-counter ('OTC') derivatives usually in the form of cash or marketable financial instruments.

The fair value of financial assets accepted as collateral for OTC derivatives but not recognised in the statement of consolidated financial position amounts to £505 million (2022: £471 million).

The amounts recognised as financial assets and liabilities from cash collateral received at 31 December 2023 are set out below.

	OTC derivatives
	2023	2022
	£m	£m
Financial assets	971	1,513
Financial liabilities	(971)	(1,513)

The maximum exposure to credit risk in respect of OTC derivative assets is £2,629 million (2022: £3,747 million) of which credit risk of £2,434 million (2022: £3,348 million) is mitigated by use of collateral arrangements (which are settled net after taking account of any OTC derivative liabilities owed to the counterparty).

Credit risk on exchange traded derivative assets of £137 million (2022: £324 million) is mitigated through regular margining and the protection offered by the exchange.

Assets pledged

The Group pledges collateral in respect of its OTC derivative liabilities. The value of assets pledged at 31 December 2023 in respect of OTC derivative liabilities of £3,126 million (2022: £5,606 million) amounted to £1,936 million (2022: £3,228 million).

E4.3 Stock lending collateral arrangements

The Group lends listed financial assets held in its investment portfolio to other institutions.

The Group conducts stock lending only with well-established, reputable institutions in accordance with established market conventions. The financial assets do not qualify for derecognition as the Group retains all the risks and rewards of the transferred assets except for the voting rights.

It is the Group's practice to obtain collateral in stock lending transactions, usually in the form of cash or marketable financial instruments.

The fair value of financial assets accepted as such collateral but not recognised in the statement of consolidated financial position amounts to £897 million (2022: £1,586 million).

The maximum exposure to credit risk in respect of stock lending transactions is £836 million (2022: £1,451 million) of which credit risk of £833 million (2022: £1,451 million) is mitigated through the use of collateral arrangements.

 E4.4 Other collateral arrangements

At 31 December 2023, the Group had entered into reverse repurchase transactions under which it purchased securities and had taken on the obligation to resell the securities. The fair value of the financial assets accepted as collateral in respect of these transactions, but not recognised in the statement of consolidated financial position, is £100 million (2022: £nil).

The maximum exposure to credit risk in respect of reverse repurchase transactions is £100 million (2022: £ nil) of which credit risk of £100 million (2022: £ nil) is mitigated through the use of collateral arrangements.

Details of collateral received to mitigate the counterparty risk arising from the Group's reinsurance transactions is given in note F10.

Collateral has also been pledged and charges have been granted in respect of certain Group borrowings. The details of these arrangements are set out in note E5.

E5. Borrowings

The Group classifies the majority of its interest-bearing borrowings as financial liabilities carried at amortised cost and these are recognised initially at fair value less any directly attributable transaction costs. The difference between initial cost and the redemption value is amortised through the consolidated income statement over the period of the borrowing using the effective interest method.

Certain borrowings are designated upon initial recognition at fair value through profit or loss and measured at fair value where doing so provides more meaningful information due to the reasons stated in the financial liabilities accounting policy (see note E1). Transaction costs relating to borrowings designated upon initial recognition at fair value through profit or loss are expensed as incurred.

Borrowings are classified as either policyholder or shareholder borrowings. Policyholder borrowings are those borrowings where there is either no or limited shareholder exposure, for example, borrowings attributable to the Group's with-profit operations.

E5.1 Analysis of borrowings

	Carrying value		Fair value
	2023 £m	2022 £m	2023 £m	2022 £m
£300 million multi-currency revolving credit facility (note a)	90	62	90	62
Property reversions loan (note b)	45	64	45	64
Total policyholder borrowings	135	126	135	126
£428 million Tier 2 subordinated notes (note c)	197	427	202	429
US $500 million Tier 2 notes (note d)	391	413	377	390
€500 million Tier 2 bonds (note e)	430	439	419	416
US $750 million Contingent Convertible Tier 1 notes (note f)	587	618	563	580
£500 million Tier 2 notes (note g)	489	487	476	445
US $500 million Fixed Rate Reset Tier 2 notes (note h)	274	412	262	382
£500 million 5.867% Tier 2 subordinated notes (note i)	536	543	493	465
£250 million Fixed Rate Reset Callable Tier 2 subordinated notes (note j)	254	259	239	244
£250 million 4.016% Tier 3 subordinated notes (note k)	253	256	250	231
£350 million Fixed Rate Reset Callable Tier 2 subordinated notes (note l)	346	-	368	-
Total shareholder borrowings	3,757	3,854	3,649	3,582
Total borrowings	3,892	3,980	3,784	3,708
Amount due for settlement after 12 months	3,802	3,918

a    abrdn Private Equity Opportunities Trust plc ('APEOT') has in place a syndicated multi-currency revolving credit facility, of which £90 million (2022: £62 million) had been drawn down as at 31 December 2023. During 2022 the amount of the facility was increased from £200 million to £300 million and its term maturity was extended to December 2025. Interest accrues on this facility at a margin over the reference rate of the currency drawn.

b    The Property Reversions loan from Santander UK plc ('Santander') was recognised in the consolidated financial statements at fair value. It relates to the sale of Extra-Income Plan policies that Santander finances to the value of the associated property reversions. As part of the arrangement Santander receives an amount calculated by reference to the movement in the Halifax House Price Index and the Group is required to indemnify Santander against profits or losses arising from mortality or surrender experience which differs from the basis used to calculate the reversion amount. During 2023, repayments totalling £21 million were made (2022: £15 million). Note G4 contains details of the assets that support this loan.

c    On 23 January 2015, PGH Capital plc ('PGHC') issued £428 million of subordinated notes due 2025 at a coupon of 6.625%. Fees associated with these notes of £3 million were deferred and are being amortised over the life of the notes in the statement of consolidated financial position. Upon exchange £32 million of these notes were held by Group companies. During 2017, the internal holdings were sold to third parties, thereby increasing external borrowings by £32 million. On 20 March 2017, Old PGH (the Group's ultimate parent company up to December 2018) was substituted in place of PGHC as issuer of the £428 million subordinated notes and then on 12 December 2018 the Company was substituted in place of Old PGH as issuer. On 7 December 2023, the Company repurchased £231 million of the principal amount of the notes via a tender offer. The remaining principal amount of the notes at 31 December 2023 is £197 million.

d    On 6 July 2017, Old PGH issued US $500 million Tier 2 bonds due 2027 with a coupon of 5.375%. Fees associated with these notes of £2 million were deferred and are being amortised over the life of the notes. On 12 December 2018 the Company was substituted in place of Old PGH as issuer.

e    On 24 September 2018, Old PGH issued €500 million Tier 2 notes due 2029 with a coupon of 4.375%. Fees associated with these notes of £7 million were deferred and are being amortised over the life of the notes. On 12 December 2018 the Company was substituted in place of Old PGH as issuer.

f     On 29 January 2020, the Company issued US $750 million fixed rate reset perpetual restricted Tier 1 contingent convertible notes (the 'Contingent Convertible Tier 1 Notes') which are unsecured and subordinated. The Contingent Convertible Tier 1 Notes have no fixed maturity date and interest is payable only at the sole and absolute discretion of the Company. The Contingent Convertible Tier 1 Notes bear interest on their principal amount at a fixed rate of 5.625% per annum up to the 'First Reset Date' of 26 April 2025. Thereafter the fixed rate of interest will be reset on the First Reset Date and on each fifth anniversary of this date by reference to the sum of the yield of the Constant Maturity Treasury ('CMT') rate (based on the prevailing five-year US Treasury yield) plus a margin of 4.035%, being the initial credit spread used in pricing the notes. Interest is payable on the Contingent Convertible Tier 1 Notes semi-annually in arrears on 26 April and 26 October. If an interest payment is not made it is cancelled and it shall not accumulate or be payable at any time thereafter.

The terms of the Contingent Convertible Tier 1 Notes contain a contingent settlement provision which is linked to the occurrence of a 'Capital Disqualification Event'. Such an event is deemed to have taken place where, as a result of a change to the Solvency II regulations, the Contingent Convertible Tier 1 Notes are fully excluded from counting as own funds. On the occurrence of such an event and where the Company has chosen not to use its corresponding right to redeem the notes the Company shall no longer be able to exercise its discretion to cancel any interest payments due on such Contingent Convertible Tier 1 Notes on any interest payment date following the occurrence of this event. Accordingly the Contingent Convertible Tier 1 Notes are considered to meet the definition of a financial liability for financial reporting purposes.

The Contingent Convertible Tier 1 Notes may be redeemed at par on the First Reset 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 Contingent Convertible Tier 1 Notes. In respect of any redemption or purchase of the Contingent Convertible 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 Contingent Convertible Tier 1 Notes, the Contingent Convertible Tier 1 Notes will automatically be subject to conversion to ordinary shares of the Company at the conversion price of US $1,000 per share, subject to adjustment in accordance with the terms and conditions of the notes and all accrued and unpaid interest will be cancelled. Following such conversion there shall be no reinstatement of any part of the principal amount of, or interest on, the Contingent Convertible Tier 1 Notes at any time.

g    On 28 April 2020, the Company issued £500 million fixed rate Tier 2 Notes (the 'Tier 2 Notes') which are unsecured and subordinated. The Tier 2 Notes have a maturity date of 28 April 2031 and include an issuer par call right for the three-month period prior to maturity. The Tier 2 Notes bear interest on the principal amount at a fixed rate of 5.625% per annum payable annually in arrears on 28 April each year.

h    On 4 June 2020, the Company issued US $500 million fixed rate reset callable Tier 2 notes (the 'Fixed Rate Reset Tier 2 Notes') which are unsecured and subordinated. The Fixed Rate Reset Tier 2 notes have a maturity date of 4 September 2031 with an optional issuer par call right on any day in the three-month period up to and including 4 September 2026. The Fixed Rate Reset Tier 2 Notes bear interest on the principal amount at a fixed rate of 4.75% per annum up to the interest rate reset date of 4 September 2026. If the Fixed Rate Reset Tier 2 Notes are not redeemed before that date, the interest rate resets to the sum of the applicable CMT rate (based on the prevailing five-year US Treasury yield) plus a margin of 4.276%, being the initial credit spread used in pricing the notes. Interest is payable on the Fixed Rate Reset Tier 2 Notes semi-annually in arrears on 4 March and 4 September each year. On 7 December 2023, the Company repurchased US $150 million of the principal amount of the Fixed Rate Reset Tier 2 Notes via a tender offer. The remaining principal amount of the notes at 31 December 2023 is US $350 million.

i     On 22 July 2020, as part of the acquisition of ReAssure Group plc, the Group assumed the £500 million 5.867% Tier 2 subordinated notes. On the same date, the Company was substituted in place of ReAssure Group plc as issuer of the notes. The £500 million 5.867% Tier 2 subordinated notes have a maturity date of 13 June 2029 and were initially recognised at their fair value as at the date of acquisition of £559 million. The fair value adjustment is being amortised over the remaining life of the notes. Interest is payable semi-annually in arrears on 13 June and 13 December.

j     On 22 July 2020, as part of the acquisition of ReAssure Group plc, the Group assumed the £250 million fixed rate reset callable Tier 2 subordinated notes. On the same date, the Company was substituted in place of ReAssure Group plc as issuer of the notes. The £250 million fixed rate reset callable Tier 2 subordinated notes have a maturity date of 13 June 2029 and were initially recognised at their fair value as at the date of acquisition of £275 million. The fair value adjustment is being amortised over the remaining life of the notes. The notes include an issuer par call right exercisable on 13 June 2024. Interest is payable semi-annually in arrears on 13 June and 13 December. These notes initially bear interest at a rate of 5.766% on the principal amount and the rate of interest will reset on 13 June 2024, and on each interest payment date thereafter, to a margin of 5.17% plus the yield of a UK Treasury Bill of similar term.

k    On 22 July 2020, as part of the acquisition of ReAssure Group plc, the Group assumed the £250 million 4.016% Tier 3 subordinated notes. On the same date, the Company was substituted in place of ReAssure Group plc as issuer of the notes. The £250 million 4.016% Tier 3 subordinated notes have a maturity date of 13 June 2026 and were initially recognised at their fair value as at the date of acquisition of £259 million. The fair value adjustment is being amortised over the remaining life of the notes. Interest is payable semi-annually in arrears on 13 June and 13 December.

l     On 6 December 2023, the Company issued £350 million fixed rate reset callable Tier 2 notes which are unsecured and subordinated. The notes have a maturity date of 6 December 2053 with an optional issuer par call right on any day in the six-month period up to and including 6 December 2033. The notes bear interest on the principal amount at a fixed rate of 7.75% per annum up to the interest rate reset date of 6 December 2033. If the notes are not redeemed before that date, the interest rate resets to the sum of the 5 year benchmark Gilt rate plus a margin of 4.65%, being the sum of the initial credit spread used in pricing the notes and a 1% margin step-up. Interest is payable on the notes semi-annually in arrears on 6 June and 6 December each year.

m   The Group has in place a £1.75 billion unsecured revolving credit facility (the 'revolving facility'), maturing in June 2026. The facility accrues interest at a margin over SONIA that is based on credit rating. The facility remains undrawn as at 31 December 2023.

E5.2 Reconciliation of liabilities arising from financing activities

The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes (with the exception of lease liabilities, which have been included in note G9). Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group's consolidated statement of cash flows as cash flows from financing activities.

		Cash movements		Non-cash movements
	At 1 January 2023 £m	New borrowings, net of costs £m	Repayments £m	Changes in fair value £m	Movement in foreign exchange £m	Other movements1 £m	At 31 December 2023 £m
£300 million multi-currency revolving credit facility	62	64	(37)	-	-	1	90
Property Reversions loan	64	-	(21)	2	-	-	45
£428 million Tier 2 subordinated notes	427	-	(231)	-	-	1	197
US $500 million Tier 2 bonds	413	-	-	-	(22)	-	391
€500 million Tier 2 notes	439	-	-	-	(10)	1	430
US $750 million Contingent Convertible Tier 1 notes	618	-	-	-	(32)	1	587
£500 million Tier 2 notes	487	-	-	-	-	2	489
US $500 million Fixed Rate Reset Tier 2 notes	412	-	(119)	-	(20)	1	274
£500 million 5.867% Tier 2 subordinated notes	543	-	-	-	-	(7)	536
£250 million Fixed Rate Reset Callable Tier 2 subordinated notes	259	-	-	-	-	(5)	254
£250 million 4.016% Tier 3 subordinated notes	256	-	-	-	-	(3)	253
£350 million Fixed Rate Reset Callable Tier 2 subordinated notes	-	346	-	-	-	-	346
Derivative assets2	(225)	-	-	108	-	(1)	(118)
	3,755	410	(408)	110	(84)	(9)	3,774

1  Principally comprises amortisation under the effective interest method applied to borrowings held at amortised cost. No interest was capitalised in the year.

2  Cross currency swaps to hedge against adverse currency movements in respect of Group's Euro and US Dollar denominated borrowings.

		Cash movements		Non-cash movements
	At 1 January 2022	New borrowings, net of costs	Repayments	Changes in fair value	Movement in foreign exchange	Other movements1	At 31 December 2022
	£m	£m	£m	£m	£m	£m	£m
£300 million multi-currency revolving credit facility	17	61	(17)	-	1	-	62
Property Reversions loan	70	-	(15)	9	-	-	64
£428 million Tier 2 subordinated notes	427	-	-	-	-	-	427
£450 million Tier 3 subordinated notes	450	-	(450)	-	-	-	-
US $500 million Tier 2 bonds	368	-	-	-	45	-	413
€500 million Tier 2 notes	416	-	-	-	22	1	439
US $750 million Contingent Convertible Tier 1 notes	551	-	-	-	66	1	618
£500 million Tier 2 notes	485	-	-	-	-	2	487
US $500 million Fixed Rate Reset Tier 2 notes	368	-	-	-	44	-	412
£500 million 5.867% Tier 2 subordinated notes	550	-	-	-	-	(7)	543
£250 million Fixed Rate Reset Callable Tier 2 subordinated notes	266	-	-	-	-	(7)	259
£250 million 4.016% Tier 3 subordinated notes	257	-	-	-	-	(1)	256
Derivative assets2	(48)	-	-	(177)	-	-	(225)
Derivative liabilities2	5	-	-	(5)	-	-	-
	4,182	61	(482)	(173)	178	(11)	3,755

1  Principally comprises amortisation under the effective interest method applied to borrowings held at amortised cost. No interest was capitalised in the year.

2  Cross currency swaps to hedge against adverse currency movements in respect of Group's Euro and US Dollar denominated borrowings.

E6. Risk management - financial and other risks

This note forms one part of the risk management disclosures in the consolidated financial statements. An overview of the Group's approach to risk management is outlined in note I3 and the Group's management of insurance risk is detailed in note F11.

E6.1 Financial risk and the Asset Liability Management ('ALM') framework

The use of financial instruments naturally exposes the Group to the risks associated with them, chiefly market risk, credit risk and financial soundness risk.

Responsibility for agreeing the financial risk profile rests with the Board of each Life Company, as advised by investment managers, internal committees and the actuarial function. In setting the risk profile, the Board of each Life Company will receive advice from the Chief Investment Officer, the relevant With-profit Actuary and the relevant actuarial function holder/Chief Actuary as to the potential implications of that risk profile with regard to the probability of both realistic insolvency and of failing to meet the regulatory Minimum Capital Requirement. The Chief Actuary will also advise the extent to which the investment risk taken is consistent with the Group's commitment to help customers secure a life of possibilities, including meeting the FCA's expectations under the New Consumer Duty.

Derivatives are used in many of the Group's funds, within policy guidelines agreed by the Board of each Life Company and overseen by investment committees of the Boards of each Life Company supported by management oversight committees. Derivatives are primarily used for risk hedging purposes or for efficient portfolio management, including the activities of the Group's Treasury function.

More detail on the Group's exposure to financial risk is provided in note E6.2 below.

The Group is also exposed to insurance risk arising from its Life, Pensions and Savings business. Life insurance risk in the Group arises through its exposure to longevity, persistency, mortality and to other variances between assumed and actual experience. These variances can be in factors such as administrative expenses and new business pricing. More detail on the Group's exposure to insurance risk is provided in note F11.

The Group's overall exposure to market and credit risk is monitored by appropriate committees, which agree policies for managing each type of risk on an ongoing basis, in line with the investment strategy developed to achieve investment returns in excess of amounts due in respect of insurance contracts. The effectiveness of the Group's ALM framework relies on the matching of assets and liabilities arising from insurance and investment contracts, taking into account the types of benefits payable to policyholders under each type of contract. Separate portfolios of assets are maintained for with-profit business funds (which include all of the Group's participating business), non-linked non-profit funds and unit-linked funds.

E6.2 Financial risk analysis

Transactions in financial instruments result in the Group assuming financial risks. These include credit risk, market risk and financial soundness risk. Each of these are described below, together with a summary of how the Group manages the risk, along with sensitivity analysis where appropriate. The sensitivity analysis does not take into account the impact on the Group's pension schemes, including any impact arising as a result of the elimination of intra-group buy-in transactions between the life companies and the Group's pension schemes. It also does not include second order impacts of market movements, for example, where a market movement may give rise to potential indicators of impairment for the Group's intangible balances.

Climate risk

The Group is exposed to financial risks (in particular market and credit risk) related to the transition to a low carbon economy, and the physical impacts resulting from climate change which could result in long-term market, credit, insurance, reputation, proposition and operational implications. As such, this risk is treated as a component of the cross-cutting Sustainability risk in the Group's Risk Universe.

Identification of climate related risks has been embedded into the Group's Risk Management Framework. Significant progress has been made in recent years in developing risk metrics and establishing appropriate governance and risk management processes. The Group has adopted a proactive approach towards combatting climate change, with key net zero targets. Further details on these targets and on managing the related climate change risks are provided in the Climate Report and Task Force for Climate-related Financial Disclosures ('TCFD').

E6.2.1 Credit risk

Credit risk is defined as the risk of reductions in earnings and/or value, through financial or reputational loss, as a result of the default of a counterparty or an associate of such a counterparty to a financial transaction (i.e. failure to honour their financial obligations, or failing to perform them in a timely manner), whether on or off balance sheet.

There are two principal sources of credit risk for the Group:

•  credit risk which results from direct investment activities, including investments in debt securities, derivatives counterparties, collective investment schemes, hedge funds and the placing of cash deposits; and

•  credit risk which results indirectly from activities undertaken in the normal course of business. Such activities include premium payments, outsourcing contracts, reinsurance agreements, exposure from material suppliers and the lending of securities.

The amount disclosed in the statement of consolidated financial position in respect of all financial assets, together with rights secured under off balance sheet collateral arrangements, but excluding the minority interest in consolidated collective investment schemes and those assets that back policyholder liabilities, represents the Group's maximum exposure to credit risk. The credit risk borne by the shareholder on with-profit policies is dependent on the extent to which the underlying insurance fund is relying on shareholder support.

The impact of non-government debt securities and, inter alia, the change in market credit spreads during the year is fully reflected in the values shown in these consolidated financial statements. Credit spreads are the excess of corporate bond yields over gilt yields to reflect the higher level of risk. Similarly, the value of derivatives that the Group holds takes into account fully the changes in swap rates.

There is an exposure to spread changes affecting the prices of corporate bonds and derivatives. This exposure applies to supported with-profit funds (where risks and rewards fall wholly to shareholders), non-profit funds and shareholders' funds.

The Group holds £18,479 million (2022: £15,977 million) of corporate bonds which are used to back annuity liabilities in non-profit funds. These annuity liabilities include an aggregate credit default provision of £388 million (2022: £305 million) to fund against the risk of default.

A 100bps widening of credit spreads, with all other variables held constant and no change in assumed expected defaults, would result in a decrease in the profit after tax in respect of a full financial year, and in equity, of £357 million (2022: £480 million), and a decrease in CSM of £5 million (2022: £6 million).

A 100bps narrowing of credit spreads, with all other variables held constant and no change in assumed expected defaults, would result in an increase in the profit after tax in respect of a full financial year, and in equity, of £485 million (2022: £626 million), and an increase in CSM of £6 million (2022: £10 million).

Credit risk is managed by the monitoring of aggregate Group exposures to individual counterparties and by appropriate credit risk diversification. The Group manages the level of credit risk it accepts through credit risk tolerances and limits (including asset class, industry and geography limits). Additional controls for illiquid asset concentration risk are set out via specific risk limits within the risk appetite framework. Credit risk on derivatives and securities lending is mitigated through the use of collateral with appropriate haircuts.

Credit quality of assets

An indication of the Group's exposure to credit risk is the quality of the investments and counterparties with which it transacts. The following table provides information regarding the aggregate credit exposure split by credit rating.

2023	AAA £m	AA £m	A £m	BBB £m	BB and below £m	Non-rated £m	Unit-linked £m	Total £m	Less amounts classified as held for sale £m	Total £m
Loans and deposits	-	3	-	-	-	245	-	248	-	248
Derivatives	-	1,314	736	-	-	662	57	2,769	(3)	2,766
Debt securities1,2	7,427	34,133	21,170	14,769	2,933	7,332	7,021	94,785	(1,411)	93,374
Reinsurance contract assets	-	2,690	2,163	-	-	23	-	4,876	-	4,876
Reinsurers' share of investment contract liabilities	-	-	-	-	-	-	9,700	9,700	(28)	9,672
Cash and cash equivalents	-	1,254	4,383	88	-	-	1,495	7,220	(52)	7,168
	7,427	39,394	28,452	14,857	2,933	8,262	18,273	119,598	(1,494)	118,104

1  For financial assets that do not have credit ratings assigned by external ratings agencies, the Group assigns internal ratings for use in management and monitoring of credit risk. £169 million of AAA, £1,435 million of AA, £2,470 million of A, £1,819 million of BBB and £247 million of BB and below debt securities are internally rated. If a financial asset is neither rated by an external agency nor internally rated, it is classified as 'non-rated'.

2  Non-rated debt securities includes equity release mortgages with a value of £4,486 million (further details are set out in note E2.3) and non-rated bonds.

2022 restated	AAA £m	AA £m	A £m	BBB £m	BB and below £m	Non-rated £m	Unit-linked £m	Total £m	Less amounts classified as held for sale £m	Total £m
Loans and deposits	-	4	-	-	-	193	71	268	-	268
Derivatives	-	1,500	1,060	28	-	1,370	113	4,071	(3)	4,068
Debt securities2,3	6,834	26,095	19,045	16,238	1,929	7,182	7,387	84,710	(1,594)	83,116
Reinsurance contract assets	-	2,418	1,579	-	-	74	-	4,071	-	4,071
Reinsurers' share of investment contract liabilities	-	-	-	-	-	-	9,090	9,090	(25)	9,065
Cash and cash equivalents	339	1,160	5,749	63	-	5	1,556	8,872	(33)	8,839
	7,173	31,177	27,433	16,329	1,929	8,824	18,217	111,082	(1,655)	109,427

1  Prior period comparatives have been restated on transition of IFRS17 Insurance Contracts (see note A2.1 for further details).

2  For financial assets that do not have credit ratings assigned by external ratings agencies, the Group assigns internal ratings for use in management and monitoring of credit risk. £149 million of AAA, £1,083 million of AA, £1,742 million of A, £2,766 million of BBB and £367 million of BB and below debt securities are internally rated. If a financial asset is neither rated by an external agency nor internally rated, it is classified as 'non-rated'.

3  Non-rated debt securities includes equity release mortgages with a value of £3,934 million (further details are set out in note E2.3) and non-rated bonds.

Credit ratings have not been disclosed in the above tables for the assets of the unit-linked funds since the shareholder is not directly exposed to credit risks from these assets. Included in unit-linked funds are assets which are held as reinsured external fund links. Under certain circumstances, the shareholder may be exposed to losses relating to the default of the reinsured external fund link.

Credit ratings have not been disclosed in the above tables for holdings in unconsolidated collective investment schemes and investments in associates. The credit quality of the underlying debt securities within these vehicles is managed by the safeguards built into the investment mandates for these vehicles.

The Group maintains accurate and consistent risk ratings across its asset portfolio. This enables management to focus on the applicable risks and to compare credit exposures across all lines of business, geographical regions and products. The rating system is supported by a variety of financial analytics combined with market information to provide the main inputs for the measurement of counterparty risk. All risk ratings are tailored to the various categories of assets and are assessed and updated regularly.

The Group operates an Asset Management Risk Committee, a Rating Committee and a Portfolio Credit Committee to monitor and perform oversight of internal credit ratings for externally rated and internally rated assets. A variety of methods are used to validate the appropriateness of credit assessments from external institutions and fund managers. Internally rated assets do not have a public rating from an external credit assessment institution or from external asset managers. Instead internal credit ratings are used by the Group which are provided by fund managers or for certain assets (in particular, equity release mortgages and illiquid assets) are determined by the Life Companies. The Committees review the policies, processes and practices to ensure the appropriateness of the internal ratings, and to ensure they are in line with regulatory requirements.

Throughout 2023, the Group has taken de-risking action to increase the overall credit quality of its asset portfolio and mitigate the impact of future downgrades on risk capital. Further details are included in the Risk Management section of the Strategic Report.

The Group has increased exposure to an array of illiquid credit assets such as equity release mortgages, local authority loans, social housing, infrastructure and commercial real estate loans with the aim of achieving greater diversification and investment returns, consistent with the Strategic Asset Allocation approved by the Board.

A further indicator of the quality of the Group's financial assets is the extent to which they are neither past due nor impaired. All of the amounts in the table above for the current and prior year are neither past due nor impaired.

Additional life company asset disclosures are included on page 306 and include information on the Group's market exposure analysed by credit rating, sector and country of exposure for the shareholder debt portfolio.

Credit risk of financial liabilities designated at FVTPL

The fair value of investment contracts and net asset value attributable to unitholders liabilities are determined based upon the performance of the assets backing those liabilities. This has the effect that the fair value of the liability primarily reflects asset-specific performance risk rather than credit risk. As a result, the value of credit risk associated with financial liabilities designated at FVTPL is not considered to be significant.

Concentration of credit risk

Concentration of credit risk might exist where the Group has significant exposure to an individual counterparty or a group of counterparties with similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic and other conditions. The Group has most of its counterparty risk within its life business and is monitored by the Group Counterparty Credit Risk Framework contained within the Group Credit Risk Policy. It is further provided for in investment management agreements, overlaid by regulatory requirements and the monitoring of aggregate counterparty exposures across the Group against additional Group counterparty limits. Counterparty risk in respect of OTC derivative counterparties is monitored using a Potential Future Exposure ('PFE') value metric.

The Group is also exposed to concentration risk with outsource partners. The Group operates a policy to manage outsourcer service counterparty exposures and the impact from default is reviewed regularly by executive committees and measured through stress and scenario testing.

Reinsurance

The Group is exposed to credit risk as a result of insurance risk transfer contracts with reinsurers. The Group's policy is to place reinsurance only with highly rated counterparties (minimum rating requirement of A-). The Group restricts concentration with individual external reinsurers by specifying limits on ceding and minimum conditions for acceptance and retention of reinsurers. In recent years the Group has made progress in increasing the number of reinsurers it transacts with, however, an element of concentration remains due to the nature of the reinsurance market and the restricted range of reinsurers available. The Group manages its exposure to reinsurance credit risk through the operation of a credit policy, collateralisation, and regular monitoring of exposures at the Reinsurance Management Committee and other credit focused committees.

Collateral

The credit risk of the Group is mitigated, in certain circumstances, by entering into collateral agreements. The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are implemented regarding the acceptability of types of collateral and the valuation parameters. Collateral is mainly obtained in respect of stock lending, certain reinsurance arrangements and to provide security against the daily mark to model value of derivative financial instruments. Management monitors the market value of the collateral received, requests additional collateral when needed, and performs an impairment valuation when impairment indicators exist and the asset is not fully secured and is not carried at fair value. See note E4 for further information on collateral arrangements.

E6.2.2 Market risk

Market risk is defined as the risk of reductions in earnings and/or value, through financial or reputational loss, from unfavourable market movements. The risk typically arises from exposure to equity, property and fixed income asset classes and the impact of changes in interest rates, inflation rates and currency exchange rates.

The Group is mainly exposed to market risk as a result of:

•  the mismatch between liability profiles and the related asset investment portfolios;

•  the investment of surplus assets including shareholder reserves yet to be distributed, surplus assets within the with-profit funds and assets held to meet regulatory capital and solvency requirements; and

•  the income flow of management charges derived from the value of invested assets of the business.

The Group manages the levels of market risk that it accepts through the operation of a market risk policy using a number of controls and techniques including:

•  defined lists of permitted securities and/or application of investment constraints and portfolio limits;

•  clearly defined investment benchmarks for policyholder and shareholder funds;

•  stochastic and deterministic asset/liability modelling;

•  active use of derivatives to improve the matching characteristics of assets and liabilities and to reduce the risk exposure of a portfolio; and

•  setting risk limits for main market risks and managing exposures against these appetites.

All operations comply with regulatory requirements relating to the taking of market risk.

Assets in the shareholder funds are managed against benchmarks that ensure they are diversified across a range of asset classes, instruments and geographies that are appropriate to the liabilities of the funds or are held to match the cash flows anticipated to arise in the business. A combination of limits by name of issuer, sector, geographical region and credit rating are used where relevant to reduce concentration risk among the assets held.

The assets of the participating business are principally managed to support the liabilities of the participating business and are appropriately diversified by both asset class and geography, considering:

•  the economic liability and how this varies with market conditions;

•  the need to invest assets supporting participating business in a manner consistent with the participating policyholders' reasonable expectations and Principles and Practices of Financial Management ('PPFM'); and

•  the need to ensure that regulatory and capital requirements are met.

In practice, an element of market risk arises as a consequence of the need to balance these considerations, for example, in certain instances participating policyholders may expect that equity market risk will be taken on their behalf, and derivative instruments may be used to manage these risks.

Markets remain volatile particularly given geopolitical tensions, heightened inflation, and action by central banks to reduce inflationary pressures on economies whilst balancing the need to aid post-pandemic recovery. This is noted in the Strategic Report principal risk section.

Interest rate and inflation risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate relative to the respective liability due to the impact of changes in market interest rates on the value of interest-bearing assets and on the value of future guarantees provided under certain contracts of insurance. The paragraphs in this section also apply to inflation risk, but references to fixed rate assets and liabilities would be replaced with index-linked assets and liabilities.

The Group is required to manage its interest rate exposures in line with qualitative risk appetite statements, quantitative risk metrics and any additional hedging benchmarks. Interest rate risk is managed by matching assets and liabilities where practicable and by entering into derivative arrangements for hedging purposes where appropriate. This is particularly the case for the non-participating funds and supported participating funds. For unsupported participating business, some element of investment mismatching is permitted where it is consistent with the principles of treating customers fairly. The with-profit funds of the Group provide capital to allow such mismatching to be effected. In practice, the life companies of the Group maintain an appropriate mix of fixed and variable rate instruments according to the underlying insurance or investment contracts and will review this at regular intervals to ensure that overall exposure is kept within the risk profile agreed for each particular fund. This also requires the maturity profile of these assets to be managed in line with the liabilities to policyholders.

The sensitivity analysis for interest rate and inflation risk indicates how changes in the fair value or future cash flows of a financial instrument arising from changes in market interest and inflation rates at the reporting date result in a change in profit after tax, equity and CSM. It takes into account the effect of such changes in market interest and inflation rates on all assets and liabilities that contribute to the Group's reported profit after tax and in equity. Changes in the value of the Group's holdings in swaptions as a result of time decay or changes to interest rate volatility are not captured in the sensitivity analysis.

With-profit business and non-participating business within the with-profit funds are exposed to interest rate risk as guaranteed liabilities are valued relative to market interest rates and investments include fixed interest securities and derivatives. For unsupported with-profit business the profit or loss arising from mismatches between such assets and liabilities is largely offset by increased or reduced discretionary policyholder benefits dependent on the existence of policyholder guarantees. The contribution of unsupported participating business to the Group result is largely limited to the shareholders' share of bonuses. The contribution of the supported participating business to the Group result is determined in line with IFRS 17, which exposes the shareholder to changes in the value of the liabilities backed by shareholder assets and the value of capital advanced to the with-profit funds.

In the non-participating funds, policy liabilities' sensitivity to interest rates are matched primarily with debt securities and hedging if necessary to match duration on a regulatory basis for the Group's Solvency II position, with the result that sensitivity to changes in interest rates is very low. The Group's exposure to interest rates on an IFRS basis principally arises from the Group's hedging strategy to protect the regulatory capital position, which results in an adverse impact on profit on an increase in interest rates.

The Group is exposed to inflation risk through certain contracts, such as annuities, which may provide for future benefits to be paid taking account of changes in the level of experienced and implied inflation, and also through the Group's cost base. The Group seeks to manage inflation risk within the ALM framework through the holding of derivatives, such as inflation swaps, or physical positions in relevant assets, such as index-linked gilts, where appropriate.

The sensitivity analysis results for IFRS are based on a combination of modelled results and Solvency II adjusted sensitivity results. Sensitivity results include an allowance for estate distribution absorption on with-profit business and the second-order impact on Risk Adjustment but excludes the impact on the Group's pension schemes.

		2023			2022 restated1
	Change in interest rate	Impact on profit after tax and equity £m	Impact on CSM £m		Impact on profit after tax and equity £m	Impact on CSM £m
Insurance contract and reinsurance contract balances	+1%	3,682	(51)		3,321	(52)
Investment contract without DPF balances	+1%	1,551	-		1,451	-
Financial assets subject to interest rate risk backing insurance and reinsurance contract balances	+1%	(3,988)	-		(3,599)	-
Financial assets subject to interest rate risk backing investment contract without DPF balances	+1%	(1,550)	-		(1,451)	-
Other financial assets subject to interest rate risk	+1%	(222)	-		(317)	-
Insurance contract and reinsurance contract balances	-1%	(4,873)	103		(4,503)	123
Investment contract without DPF balances	-1%	(2,051)	-		(1,921)	-
Financial assets subject to interest rate risk backing insurance and reinsurance contract balances	-1%	5,253	-		4,927	-
Financial assets subject to interest rate risk backing investment contract without DPF balances	-1%	2,049	-		1,921	-
Other financial assets subject to interest rate risk	-1%	222	-		317	-
		2023			2022 restated1
	Change in inflation	Impact on profit after tax and equity £m	Impact on CSM £m		Impact on profit after tax and equity £m	Impact on CSM £m
Insurance contract and reinsurance contract balances	+1%	(944)	(7)		(683)	(7)
Investment contract without DPF balances	+1%	(173)	-		(165)	-
Financial assets subject to inflation risk backing insurance and reinsurance contract balances	+1%	983	-		692	-
Financial assets subject to inflation risk backing investment contract without DPF balances	+1%	173	-		165	-
Other financial assets subject to inflation risk	+1%	9	-		22	-
Insurance contract and reinsurance contract balances	-1%	840	37		598	35
Investment contract without DPF balances	-1%	145	-		135	-
Financial assets subject inflation risk backing insurance and reinsurance contract balances	-1%	(868)	-		(597)	-
Financial assets subject to inflation risk backing investment contract without DPF balances	-1%	(145)	-		(135)	-
Other financial assets subject to inflation risk	-1%	(7)	-		(18)	-

1  Prior period comparatives have been restated on transition to IFRS17 Insurance Contracts (see note A2.1 for further details).

Equity and property risk

The Group is exposed to the risk of reductions in the valuation of equities (or changes in the volatility) or property investments which could result in reductions in asset values and losses for policyholders or shareholders. In this context, equity assets should be taken to include shares, equity derivatives, equity collectives and unlisted equities. Property assets include direct property investment, shares in property companies, property collectives and structured property assets.

The portfolio of marketable equity securities and property investments which is carried in the statement of consolidated financial position at fair value has exposure to price risk. The Group's objective in holding these assets is to earn higher long-term returns by investing in a diverse portfolio of equities and properties. Portfolio characteristics are analysed regularly and price risks are actively managed in line with investment mandates. The Group's holdings are diversified across industries and concentrations in any one company or industry are limited.

Equity and property price risk is primarily borne in respect of assets held in with-profit funds, unit-linked funds or equity release mortgages in the non-profit funds. For unit-linked funds this risk is borne by policyholders and asset movements directly impact unit prices and hence policy values. For with-profit funds policyholders' future bonuses will be impacted by the investment returns achieved and hence the price risk, whilst the Group also has exposure to the value of guarantees provided to with-profit policyholders. In addition some equity investments are held in respect of shareholders' funds. For the non-profit fund property price risk from equity release mortgages is borne by the Group with the aim of achieving greater diversification and investment returns, consistent with the Strategic Asset Allocation approved by the Board. The Group as a whole is exposed to price risk fluctuations impacting the income flow of management charges from the invested assets of all funds; this is primarily managed through the use of derivatives.

Equity and property price risk is managed through the agreement and monitoring of financial risk profiles that are appropriate for each of the Group's life funds in respect of maintaining adequate regulatory capital and treating customers fairly. This is largely achieved through asset class diversification and within the Group's ALM framework through the holding of derivatives or physical positions in relevant assets where appropriate.

The shareholders' exposure to equity risk principally arises from the Group's hedging strategy to protect the regulatory capital position, which results in an adverse impact on profit on an increase in equity prices.

The sensitivity analysis for equity and property price risk illustrates how a change in the fair value of equities and properties affects the Group result. It takes into account the effect of such changes in equity and property prices on all assets and liabilities that contribute to the Group's reported profit after tax and in equity but excludes the impact on the Group's pension schemes.

		2023			2022 restated1
	Change in equity prices	Impact on profit after tax and equity £m	Impact on CSM £m		Impact on profit after tax and equity £m	Impact on CSM £m
Insurance contract and reinsurance contract balances	+10%	(2,079)	117		(2,082)	124
Investment contract without DPF balances	+10%	(7,636)	-		(7,031)	-
Financial assets subject to equity price risk backing insurance and reinsurance contract balances	+10%	2,159	-		2,205	-
Financial assets subject to equity price risk backing Investment contract without DPF balances	+10%	7,636	-		7,031	-
Other financial assets subject to equity price risk	+10%	(335)	-		(299)	-
Insurance contract and reinsurance contract balances	-10%	2,039	(30)		2,040	(31)
Investment contract without DPF balances	-10%	7,740	-		7,121	-
Financial assets subject to equity price risk backing insurance and reinsurance contract balances	-10%	(2,128)	-		(2,169)	-
Financial assets subject to equity price risk backing Investment contract without DPF balances	-10%	(7,740)	-		(7,121)	-
Other financial assets subject to equity price risk	-10%	335	-		299	-
		2023			2022 restated1
	Change in property prices	Impact on profit after tax and equity £m	Impact on CSM £m		Impact on profit after tax and equity £m	Impact on CSM £m
Insurance contract and reinsurance contract balances	+10%	(199)	5		(201)	3
Investment contract without DPF balances	+10%	(431)	-		(410)	-
Financial assets subject to property price risk backing insurance and reinsurance contract balances	+10%	205	-		199	-
Financial assets subject to property price risk backing Investment contract without DPF balances	+10%	431	-		410	-
Other financial assets subject to property price risk	+10%	3	-		11	-
Insurance contract and reinsurance contract balances	-10%	191	(3)		194	(2)
Investment contract without DPF balances	-10%	407	-		388	-
Financial assets subject to property price risk backing insurance and reinsurance contract balances	-10%	197	-		(192)	-
Financial assets subject to property price risk backing Investment contract without DPF balances	-10%	(407)	-		(388)	-
Other financial assets subject to property price risk	-10%	(2)	-		(10)	-

1  Prior period comparatives have been restated on transition to IFRS17 Insurance Contracts (see note A2.1 for further details).

The sensitivity to changes in equity prices is primarily driven by the Group's equity hedging arrangements over the value of future management charges that are linked to asset values.

Currency risk

Currency risk is the risk that changes in the value of currencies could lead to reductions in asset values which may result in losses for policyholders and shareholders. With the exception of Standard Life International business sold in Germany and the Republic of Ireland and some historic business written in the Republic of Ireland, the Group's principal transactions are carried out in sterling. The assets for these books of business are generally held in the same currency denomination as their liabilities, therefore, any foreign currency mismatch is largely mitigated. Consequently, the foreign currency risk relating to this business mainly arises when the assets and liabilities are translated into sterling.

The Group's financial assets are primarily denominated in the same currencies as its insurance and investment liabilities. Thus, the main foreign exchange risk arises from recognised assets and liabilities denominated in currencies other than those in which insurance and investment liabilities are expected to be settled and, indirectly, from the non-UK earnings of UK companies.

Some of the Group's with-profit funds have an exposure to overseas assets which is not driven by liability considerations. The purpose of this exposure is to reduce overall risk whilst maximising returns by diversification. This exposure is limited and managed through investment mandates which are subject to the oversight of the investment committees of the Boards of each life company. Fluctuations in exchange rates from certain holdings in overseas assets are hedged against currency risks.

During 2021, the Group entered into four hedging relationships to hedge the currency risk on its Euro and US dollar denominated hybrid debt (US $500 million Tier 2 bonds, €500 million Tier 2 notes, US $750 million contingent convertible Tier 1 notes and US $500 million Fixed Rate Reset Tier 2 notes as set out in note E5) through cross currency rate swaps.

E6.2.3 Financial soundness risk

Financial soundness risk is a broad risk category encompassing capital management risk, tax risk and liquidity and funding risk.

Capital management risk is defined as the failure of the Group, or one of its separately regulated subsidiaries, to maintain sufficient capital to provide appropriate security for policyholders and meet all regulatory capital requirements whilst not retaining unnecessary capital. The Group has exposure to capital management risk through the requirements of the Solvency II capital regime, as implemented by the PRA, to calculate regulatory capital adequacy at a Group level. The Group's UK life subsidiaries have exposure to capital management risk through the Solvency II regulatory capital requirements mandated by the PRA at the solo level. The Group's approach to managing capital management risk is described in detail in note I3.

Tax risk

Tax risk is defined as the risk of reductions in earnings and/or value, through financial or reputational loss, due to an unforeseen tax cost, or by the inappropriate reporting and disclosure of information in relation to taxation. Tax risk can be caused by:

•  the Group, or one of its subsidiaries, making a material error in its tax reporting;

•  incorrect calculation of tax provisions;

•  failure to implement the optimum financial arrangements to underpin a commercial transaction; and

•  incorrect operation of policyholder tax requirements.

Tax risk is managed by maintaining an appropriately-staffed tax team who have the qualifications and experience to make judgements on tax issues, augmented by advice from external specialists where required. In addition, the Group has a formal tax risk policy, which sets out its risk appetite in relation to specific aspects of tax risk, and which details the controls the Group has in place to manage those risks.

Liquidity risk

Liquidity risk is defined as failure to maintain adequate levels of financial resources to meet obligations as they fall due. Funding risk relates to the potential inability to raise additional capital or liquidity when required in order to maintain the resilience of the balance sheet. The Group has exposure to liquidity risk as a result of servicing its external debt and equity investors, and from the operating requirements of its subsidiaries. The Group's subsidiaries have exposure to liquidity risk as a result of normal business activities, specifically the risk arising from an inability to meet short-term cash flow requirements and to meet obligations to policy liabilities. The Board of Phoenix Group Holdings plc has defined a number of governance objectives and principles and the liquidity risk frameworks of each subsidiary are designed to ensure that:

•  liquidity risk is managed in a manner consistent with the subsidiary company Boards' strategic objectives, risk appetite and PPFM;

•  cash flows are appropriately managed and the reputation of the Group is safeguarded; and

•  appropriate information on liquidity risk is available to those making decisions.

The Group's liquidity risk management strategy is based on a risk appetite of less than a 1 in 200 chance of having insufficient liquid or tangible assets to meet financial obligations as they fall due and is supported by:

•  holding appropriate assets to meet liquidity buffers;

•  holding high quality liquid assets to support day to day operations;

•  an effective stress testing framework to ensure survival horizons are met under different severe, but plausible scenarios;

•  effective liquidity portfolio management including Early Warning Indicators; and

•  liquidity risk contingency planning.

The Group's funding strategy aims to maintain the appropriate level of debt and equity in order to support the Group's organic and inorganic growth ambitions, while maintaining sufficient headroom for hybrid capital under Solvency II rules.

Liquidity forecasts showing headroom against liquidity buffers are prepared regularly to predict required liquidity levels over both the short and medium-term allowing management to respond appropriately to changes in circumstances. In the event of a liquidity shortfall, either current or projected, this would be managed in line with the Group's Contingency Liquidity Plan where the latest available contingency management actions would be considered.

In extreme circumstances, the Group could be exposed to liquidity risk in its unit-linked funds. This could occur where a high volume of surrenders coincides with a tightening of liquidity in a unit-linked fund to the point where assets of that fund have to be sold to meet those withdrawals. Where the fund affected consists of less liquid assets such as property, it can take several months to complete a sale and this would impede the proper operation of the fund. In these situations, the Group considers its risk to be low since there are steps that can be taken first within the funds themselves both to ensure the fair treatment of all investors in those funds and to protect the Group's own risk exposure.

The vast majority of the Group's derivative contracts are traded OTC and have a two-day collateral settlement period. The Group's derivative contracts are monitored daily, via an end-of-day valuation process, to assess the need for additional funds to cover margin or collateral calls.

Some of the Group's commercial property investments, cash and cash equivalents are held through collective investment schemes. The collective investment schemes have the power to restrict and/or suspend withdrawals, which would, in turn, affect liquidity.

The following table provides a maturity analysis showing the remaining contractual maturities of the Group's undiscounted financial liabilities and associated interest.

2023	1 year or less or on demand £m	1-5 years £m	Greater than 5 years £m	No fixed term £m	Total £m	Less amounts classified as held for sale (see note H3) £m	Total £m
Investment contracts	162,784	-	-	-	162,784	(4,780)	158,004
Borrowings1	298	2,065	2,563	45	4,971	-	4,971
Derivatives1	366	403	5,718	-	6,487	(2)	6,485
Net asset value attributable to unitholders	2,921	-	-	-	2,921	-	2,921
Obligations for repayment of collateral received	1,005	-	-	-	1,005	-	1,005
Lease liabilities1	9	35	63	-	107	-	107
Accruals and deferred income	536	29	14	-	579	-	579
Other payables	2,272	-	-	-	2,272	-	2,272

 

2022 restated2	1 year or less or on demand £m	1-5 years £m	Greater than 5 years £m	No fixed term £m	Total £m	Less amounts classified as held for sale (see note H3) £m	Total £m
Investment contracts	149,481	-	-	-	149,481	(8,312)	141,169
Borrowings1	268	1,326	2,357	64	4,015	-	4,015
Derivatives1	757	794	9,335	-	10,886	(4)	10,882
Net asset value attributable to unitholders	3,042	-	-	-	3,042	-	3,042
Obligations for repayment of collateral received	1,706	-	-	-	1,706	-	1,706
Lease liabilities1	11	37	95	-	143	-	143
Accruals and deferred income	527	42	12	-	581	(37)	544
Other payables	1,373	-	-	-	1,373	-	1,373

1  These financial liabilities are disclosed at their undiscounted value and therefore differ from amounts included in the statement of consolidated financial position which discloses the discounted value.

2  Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).

Investment contract policyholders have the option to terminate or transfer their contracts at any time and to receive the surrender or transfer value of their policies. Although these liabilities are payable on demand, and are therefore included in the contractual maturity analysis as due within one year, the Group does not expect all these amounts to be paid out within one year of the reporting date.

The following tables present the estimated amount and timing of the remaining contractual discounted cash flows arising from insurance contract liabilities.

2023	Up to 1 year £m	1-2 years £m	2-3 years £m	3-4 years £m	4-5 years £m	>5 years £m	Total £m
Insurance contract liabilities	8,468	4,987	4,959	5,292	5,633	80,447	109,786

 

2022 restated1	Up to 1 year £m	1-2 years £m	2-3 years £m	3-4 years £m	4-5 years £m	>5 years £m	Total £m
Insurance contract liabilities	7,381	4,470	4,486	4,720	5,956	75,551	102,564

1  Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).

The following table sets out the amounts that are payable on demand and the carrying value of the related portfolios of contracts.

	2023		2022 restated1
	Amounts payable on demand £m	Carrying value of portfolio £m	Amounts payable on demand £m	Carrying value of portfolio £m
With-profits	(44,076)	(51,709)	(44,319)	(52,026)
Annuities	(5,163)	(34,217)	(2,094)	(29,277)
Unit-linked	(15,820)	(16,431)	(13,442)	(13,740)
Protection	(612)	(1,947)	(330)	(1,474)
Other	-	225	-	297
Short-term payables and receivables (including deposits from reinsurers)	(3,541)	(3,541)	(4,067)	(4,067)
	(69,212)	(107,620)	(64,252)	(100,287)

1  Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).

A significant proportion of the Group's financial assets are held in gilts, cash, supranationals and investment grade securities which the Group considers sufficient to meet the liabilities as they fall due. The vast majority of these investments are readily realisable immediately since most of them are quoted in an active market.

The Group has a set of established policies and processes to manage its exposure to liquidity risk, including impacts arising from the economic environment, business developments and funding changes. Where liquidity risk is heightened, such as during periods of significant market volatility, triggers are in place to enhance the frequency of liquidity monitoring and to implement available contingency actions to ensure sufficient liquidity is maintained.

E6.2.4 Strategic risk

Strategic risks threaten the achievement of the Group strategy through poor strategic decision-making, implementation or response to changing circumstances. The Group recognises that core strategic activity brings with it exposure to strategic risk. However, the Group seeks to proactively review, manage and control these exposures.

The Group's strategy and business plan are exposed to external events that could prevent or impact the achievement of the strategy; events relating to how the strategy and business plan are executed; and events that arise as a consequence of following the specific strategy chosen. The identification and assessment of strategic risks is an integrated part of the Risk Management Framework. Strategic risk should be considered in parallel with the Risk Universe as each of the risks within the Risk Universe can impact the Group's strategy.

A Strategic Risk Policy is maintained and reported against regularly, with a particular focus on risk management, stakeholder management, corporate activity and overall reporting against the Group's strategic ambitions.

E6.2.5 Operational risk

Operational risk is the risk of reductions in earnings and/or value, through financial or reputational loss, from inadequate or failed internal processes and systems, or from people-related or external events. Operational risk arises due to failures in one or more of the following aspects of our business:

•  indirect exposures through outsourcing service providers and suppliers;

•  direct exposures through internal practices, actions or omissions;

•  external threats from individuals or groups focused on malicious or criminal activities, or on external events occurring which are not within the Group's control; and

•  negligence, mal-practice or failure of employees, or suppliers to follow good practice in delivering operational processes and practices.

It is accepted that it is neither possible, appropriate nor cost effective to eliminate all operational risks from the business as operational risk is inherent in any operating environment particularly given the regulatory framework under which the Group operates. As such the Group will tolerate a degree of operational risk subject to appropriate and proportionate levels of control around the identification, management and reporting of such risks. A set of operational risk policies are maintained that set out the nature of the operational risk exposure and key controls in place to control the risk.

E6.2.6 Customer risk

Customer risk is the risk of financial failure, reputational loss, loss of earnings and/or value through inappropriate or poor customer treatment (including poor advice). It can arise as a result of:

•  Customer Outcomes: The risk that our decisions, actions or behaviors individually or collectively result in a failure to act to deliver good outcomes for our customers, including in the following areas: Product Design & Development, Communication & Guidance, Customer Support & Understanding, Monitoring & Oversight, Customer Feedback, and Culture & standards.

•  Customer Transformation: The design, governance and oversight of Strategic Customer Transformation Activity in retained functions and service providers, fails to deliver on reasonable customer expectations, taking account of the Phoenix Group customer treatment risk appetites and regulatory requirements.

The Group has both a Conduct Risk appetite to focus on behaviours within the business, and a Customer Risk appetite to focus on achieving good customer outcomes (both of which apply to the Company). The behaviours and standards all colleagues are expected to achieve are detailed in our Group Code of Conduct. For our customers, what represents a good outcome is articulated in our Customer Standards and supporting Business Unit processes. In addition, the Group Conduct Strategy, which overarches our Risk Universe and all risk policies is designed to detect where our customers are at risk of poor outcomes, minimise conduct risks, and respond with timely and appropriate mitigating actions.

The Group also has a suite of customer polices which set out the key customer risks and control objectives in place to mitigate them. The customer risks for the Group are regularly reported to management oversight committees.

F. Insurance contracts, investment contracts with DPF and reinsurance

F1. Liabilities under insurance contracts

Classification

Contracts under which the Group accepts significant insurance risk are classified as insurance contracts. Contracts held by the Group under which it transfers significant insurance risk related to underlying insurance contracts are classified as reinsurance contracts. Some contracts entered into by the Group have the legal form of insurance contracts but do not transfer significant insurance risk and expose the Group to financial risk. These contracts are classified as financial liabilities and are referred to as investment contracts.

All references in these accounting policies to insurance contracts and reinsurance contracts include contracts issued, initiated or acquired by the Group, unless otherwise stated.

Insurance contracts are classified as direct participating contracts or contracts without direct participation features. Direct participating contracts are contracts for which, at inception:

•  the contractual terms specify that the policyholder participates in a share of a clearly identified pool of underlying items;

•  the Group expects to pay to the policyholder an amount equal to a substantial share of the fair value returns on the underlying items; and

•  the Group expects a substantial proportion of any change in the amounts to be paid to the policyholder to vary with the change in fair value of the underlying items.

All other insurance contracts and all reinsurance contracts are classified as contracts without direct participation features.

Some investment contracts issued by the Group contain discretionary participation features ('DPF'), whereby the investor has the right and is expected to receive, as a supplement to the amount not subject to the Group's discretion, potentially significant additional benefits based on the return of specified pools of investment assets. The Group accounts for these contracts under IFRS 17 consistent with insurance contracts.

The classification assessment is made at the date of inception or for business combinations or portfolio transfers, as at the date of acquisition. Once a contract is assessed as insurance, investment with DPF or reinsurance, the classification continues until the contract is derecognised or modified.

When considering classification, and applying the provisions of IFRS 17, the Group identifies a contract as the smallest unit of account. The Group also makes an evaluation of whether a series of contracts can be treated together in applying IFRS 17 based on reasonable and supportable information, or whether a single contract contains components that need to be separated and treated as if they were stand-alone contracts.

Accounting treatment

Separating components from insurance and reinsurance contracts

The Group assesses its insurance products to determine whether they contain components, which must be accounted for under accounting standards other than IFRS 17 (distinct non-insurance components).

Where an insurance contract has a distinct investment component and meets the separation criteria established under IFRS 17, the investment component is separated from the host contract and accounted for under IFRS 9. The assessment of whether a contract has a distinct investment component is carried out at inception of the contract, or the date of acquisition in the case of a business combination.

When assessing whether the investment component is distinct, the Group considers the following, which may indicate that the insurance and investment component are highly interrelated:

•  the value of one component varies with the other component;

•  existence of an option to switch between the different components;

•  discounts that span both elements e.g. a reduced asset management charge based on total size of contract; and

•  other interacting features e.g. insurance risk from premium waivers and return of premium covering both elements of the policy.

After separating any distinct components, the Group applies the requirements of IFRS 17 to all remaining components of the insurance contract or where distinct criteria are not met, the whole contract is accounted for within IFRS 17.

Level of aggregation

The Group is required to divide its business into groups for the purposes of recognition and measurement. The Group's business is firstly split into portfolios. Portfolios contain groups of contracts with similar risks, which are managed together. Portfolios are further divided based on expected profitability at inception into three categories: onerous contracts, contracts that are profitable at initial recognition and have no significant risk of becoming onerous, and the remaining profitable contracts. For reinsurance contracts the same three groups would be identified with 'onerous' being replaced with 'net gain' and 'profitable' being replaced with 'net cost'. Contracts which are issued more than one year apart are not permitted to be included within the same group. However as permitted by IFRS 17, the groups of contracts for which the FVA has been adopted on transition include contracts issued more than one year apart.

The Group has defined portfolios of insurance and reinsurance contracts issued broadly based on the predominant risks inherent in the products/contracts, for example, longevity, persistency, mortality, and by considering whether groups of products are managed together. These portfolios are further split by legal entity, with-profit fund and contracts subject to different IFRS 17 measurement models are grouped separately. The portfolios are allocated to cohorts based on whether they are onerous at inception or based on their expected level of profitability using information available at inception.

For reinsurance contracts held, portfolios are based upon similar risks to those of the underlying contracts. The reinsurance contracts held are assessed for aggregation requirements on an individual contract basis.

The grouping of the insurance contracts are determined at initial recognition and are not subsequently reassessed. Therefore, a contract will remain within the assigned aggregation group until it is derecognised, either by expiry or modification.

Recognition

The Group recognises groups of insurance contracts that it issues from the earliest of the following:

•  the beginning of the coverage period of the group of contracts;

•  the date when the first payment from the policyholder in the group is due or actually received if there is no due date; or

•  for a group of onerous contracts, as soon as facts and circumstances indicate that the group is onerous.

Investment contracts with DPF are initially recognised at the date when the Group becomes a party to the contract.

Insurance contracts acquired in a business combination within the scope of IFRS 3 Business Combinations or a portfolio transfer are accounted for as if they were entered into at the date of acquisition or transfer.

Reinsurance contracts held are recognised from the earliest of the following:

•  the beginning of the coverage period of the group of reinsurance contracts held. However, the Group delays the recognition of a group of reinsurance contracts held that provide proportionate coverage (for example, through a quota share arrangement) until the date when any underlying insurance contract is initially recognised, if that date is later than the beginning of the coverage period of the group of reinsurance contracts held; and

•  the date the Group recognises an onerous group of underlying insurance contracts if the Group entered into the related reinsurance contract held in the group of reinsurance contracts held at or before that date.

The Group adds new contracts to the group in the reporting period in which that contract meets one of the criteria set out above.

Contract boundaries

The Group includes in the measurement of a group of insurance contracts all the future cash flows within the boundary of each contract in the group. Cash flows are within the boundary of an insurance contract if they arise from the rights and obligations that exist during the period in which the policyholder is obligated to pay premiums or the Group has a substantive obligation to provide the policyholder with insurance contract services. A substantive obligation to provide insurance contract services ends when:

•  the Group has the practical ability to reprice the risks of the particular policyholder or change the level of benefits so that the price fully reflects those risks; or

•  both of the following criteria are satisfied:

-  the Group has the practical ability to reprice the contract or a portfolio of contracts so that the price fully reflects the reassessed risk of that portfolio; and

-  the pricing of premiums up to the date when risks are reassessed does not reflect the risks related to periods beyond the reassessment date.

Where an expected premium or expected claim is not within the contract boundary, it is not recognised as a cash flow of the contract and is instead considered to relate to a future insurance contract and recognised when those contracts meet the recognition criteria.

The contract boundary is reassessed at each reporting date to include the effect of changes in circumstances on the Group's substantive rights and obligations and, therefore, may change over time.

The contract boundary for a reinsurance contract is dependent on the terms and conditions of the reinsurance contract and therefore may not necessarily be the same as for the underlying contracts. Where the reinsurance contract is open to new business on agreed terms for a period of time, the contract boundary may include estimates of reinsurance on insurance contracts that have not yet been issued or reported.

Measurement

The Group's insurance contracts issued without direct participation features are grouped together under annuity, protection and other non-linked insurance business. These groups of insurance contract are measured under the General Model ('GM').

Direct participating contracts issued by the Group are contracts with DPF where the Group holds the pool of underlying assets. Direct participating insurance contracts are grouped together and reported primarily as either unit-linked or with-profit business although some protection contracts are considered to have direct participation features. These groups of contracts are measured using the variable fee approach ('VFA'), unless they fail the eligibility test to be treated under this approach, in such circumstances they are measured under the GM.

Reinsurance contracts held are measured under the GM irrespective of the measurement model used for the underlying contracts. Certain with-profit funds within the Group hold non-profit insurance business such as annuities. This business will also be measured under the GM.

Initial measurement - Insurance contracts

On initial recognition, the Group measures a group of insurance contracts as the total of (a) the fulfilment cash flows, which comprise estimates of future cash flows, adjusted to reflect the time value of money and the associated financial risks, and a risk adjustment for non-financial risk; and (b) the contractual service margin ('CSM'). The fulfilment cash flows of a group of insurance contracts do not reflect the Group's non-performance risk.

The fulfilment cash flows comprise:

•  unbiased and probability-weighted estimates of future cash flows that are within the contract boundary plus an adjustment to reflect the time value of money and the financial risks related to future cash flows, to the extent that the financial risks are not included in the estimates of future cash flows ('BEL'); and

•  a risk adjustment for non-financial risk.

The measurement of fulfilment cash flows includes insurance acquisition cash flows which are allocated as a portion of premium to profit or loss (through insurance revenue) over the period of the contract in a systematic and rational way based on the passage of time.

The risk adjustment for non-financial risk for a group of insurance contracts, determined separately from the other estimates, is the compensation required for bearing uncertainty about the amount and timing of the cash flows that arises from non-financial risk. The Group applies a confidence level technique. The risk adjustment is allocated to groups of contracts based on an analysis of the risk profiles of the groups, reflecting the effects of the diversification benefits between Group entities to the extent that the Group includes it when determining the compensation required to bear that risk. The Group includes diversification between Group entities which use the Group Internal Model for management decision-making. Where a Standard Formula approach is used, no diversification with other entities within the Group is allowed for. The Group determines the risk adjustment using a one-year time horizon, consistent with the time horizon used for Solvency II, a key metric underlying how the Group is managed.

The CSM of a group of insurance contracts represents the unearned profit that the Group will recognise over the life of the contract as insurance and investment-related services are provided. For profitable groups of insurance contracts the CSM is established to ensure that no profit or loss is recognised at inception and consequently it offsets the net present value of the expected cash flows (including initial premium and insurance acquisition cash flows) and the risk adjustment. For a group of insurance contracts that are onerous, the CSM is set to nil and a loss is immediately recognised in profit or loss. A loss component of the liability for remaining coverage ('LRC') is established for the amount of loss recognised.

The initial recognition of the CSM is consistent for insurance contracts applying the GM and VFA measurement approaches, however there are key differences for subsequent measurement of the CSM under these measurement models.

For groups of contracts acquired in a transfer of contracts or a business combination, the consideration received for the contracts is included in the fulfilment cash flows as a proxy for the premiums received at the date of acquisition. In a business combination, the consideration received is the fair value of the contracts at that date.

With-profit estate

The Group has a number of with-profit funds where surpluses are shared between policyholders and shareholders. All such funds are closed to new business. These funds typically have an estate, being a surplus of assets over those needed to meet the liabilities of current policyholders. As these funds are closed to new business, the surplus is expected to be distributed to existing policyholders over time and the Group has determined it appropriate to allocate the expected future policyholder payments from the estate to specific groups of contracts within the measurement of the best estimate cash flows.

Subsequent measurement - Insurance contracts

The carrying amount of a group of insurance contracts at each reporting date is the sum of the LRC and the liability for incurred claims ('LIC'). The LRC comprises the BEL, risk adjustment and any remaining CSM at that date. The LIC includes the BEL and risk adjustment (the fulfilment cash flows for incurred claims and expenses that have not yet been paid, including claims that have been incurred but not yet reported). There is no CSM associated with the LIC, and as a result, any changes in the LIC are taken directly to profit or loss.

The fulfilment cash flows of groups of insurance contracts are measured at the reporting date using current estimates of future cash flows, current discount rates and current estimates of the risk adjustment for non-financial risk. Changes in fulfilment cash flows are recognised as follows.

Changes relating to future services insurance	Adjusted against the CSM (or recognised in the insurance service result in profit or loss if the group is onerous)
Changes relating to current or past services	Recognised in the insurance service result in profit or loss
Effects of the time value of money, financial risk and changes	Recognised in insurance finance income or expenses therein on estimated future cash flows

Where, during the coverage period, a group of insurance contracts becomes onerous, the Group recognises a loss in profit or loss for the net outflow, resulting in the carrying amount of the liability for the group being equal to the fulfilment cash flows. A loss component is established by the Group for the liability for remaining coverage for such groups of onerous contracts representing the losses recognised.

The CSM of each group of contracts is calculated at each reporting date as follows:

Insurance contracts measured under GM

For insurance contracts measured under the GM approach, the CSM is adjusted by applying locked-in discount rates, while the BEL and risk adjustment are adjusted using current discount rates.

The carrying amount of the CSM at each reporting date is the carrying amount at the start of the year, adjusted for:

•  the CSM of any new contracts that are added to the group in the year;

•  interest accreted on the carrying amount of the CSM during the year;

•  changes in fulfilment cash flows that relate to future services, except to the extent that:

-  any increases in the fulfilment cash flows exceed the carrying amount of the CSM, in which case the excess is recognised as a loss in profit or loss and creates a loss component; or

-  any decreases in the fulfilment cash flows are allocated to the loss component, reversing losses previously recognised in profit or loss;

•  the effect of any currency exchange differences on the CSM; and

•  the amount recognised as insurance revenue because of the services provided in the year (see the 'Insurance revenue' accounting policy in note C1 for further details).

Changes in fulfilment cash flows relating to future service that adjust the CSM comprise:

•  experience adjustments arising from the difference between premiums received and the expected amounts estimated at the beginning of the period, that relate to future service, along with any associated acquisition costs;

•  changes in estimates of the present value of future cash flows in the BEL and risk adjustment;

•  differences between any investment component expected to become payable in the period and the actual investment component that becomes payable; and

•  changes in the risk adjustment for non-financial risk that relate to future service.

The impact of discounting the risk adjustment for business measured under GM is disaggregated and recognised within Net finance income or expenses from insurance contracts within the income statement.

Insurance contracts measured under VFA model

The Group's unit-linked and with-profit business that meets the VFA eligibility criteria are direct participating contracts under which the Group's obligation to the policyholder is the net of:

•  the obligation to pay the policyholder an amount equal to the fair value of the underlying items; and

•  a variable fee in exchange for future services provided by the contracts, being the amount of the Group's share of the fair value of the underlying items less fulfilment cash flows that do not vary based on the returns on underlying items. The Group provides investment services under these contracts by giving a return based on underlying items, in addition to insurance coverage.

For unit-linked and with-profit contracts that are measured under the VFA, interest is not accreted on the CSM using a locked-in discount rate, instead it is determined with reference to the underlying items, reflecting that on these types of insurance contracts the Group fees for providing investment-related services are determined with reference to the value of the investments associated with the policyholder's policy. For example, annual management charges ('AMC') are determined by reference to the value of the policyholder's fund value and the shareholder's share of bonuses on a with-profit policy in a 90:10 fund is determined based on the performance of the with-profit fund.

The variable fee earned by the Group is consequently the Group's share of the fair value of underlying items less fulfilment cash flows that do not vary based on returns of the underlying items.

For unit-linked contracts, the underlying items are funds that the unit price of the investment chosen by the policyholder varies with.

For with-profits contracts, the underlying items are typically the net assets of the relevant with-profit fund, including the estate and the fair value of non-profit contracts within the fund. With-profit funds can vary in their nature and operation, therefore will be dependent on facts and circumstances.

When measuring a group of unit-linked and with-profit contracts using the VFA, the Group adjusts the fulfilment cash flows for the whole of the changes in the obligation to pay policyholders an amount equal to the fair value of the underlying items. These changes do not relate to future services and are recognised in profit or loss. The Group then adjusts any CSM for changes in the amount of the Group's share of the fair value of the underlying items, which relate to future services, as explained below.

The carrying amount of the CSM at each reporting date is the carrying amount at the start of the year, adjusted for:

•  the CSM of any new contracts that are added to the group in the year;

•  the change in the amount of the Group's share of the fair value of the underlying items and changes in fulfilment cash flows that relate to future services, except to the extent that:

-  the Group has applied the risk mitigation option to exclude from the CSM changes in the effect of financial risk on the amount of its share of the underlying items or fulfilment cash flows;

-  a decrease in the amount of the Group's share of the fair value of the underlying items, or an increase in the fulfilment cash flows that relate to future services, exceeds the carrying amount of the CSM, giving rise to a loss in profit or loss (included in insurance service expenses) and creating a loss component; or

-  an increase in the amount of the Group's share of the fair value of the underlying items, or a decrease in the fulfilment cash flows that relate to future services, is allocated to the loss component, reversing losses previously recognised in profit or loss (included in insurance service expenses);

•  the effect of any currency exchange differences on the CSM; and

•  the amount recognised as insurance revenue because of the services provided in the year (see the 'Insurance revenue' accounting policy in note C1 for further details).

Changes in fulfilment cash flows that relate to future service include the changes relating to future services specified above for contracts without direct participation features (measured at current discount rates) and changes in the effect of the time value of money and financial risks that do not arise from underlying items.

The Group does not currently apply the risk mitigation option to any material extent.

Loss components

A loss component represents a notional record of the losses attributable to each group of onerous insurance contracts. The loss component is released based on a systematic allocation of the subsequent changes relating to future service in the fulfilment cash flows to (i) the loss component; and (ii) the liability for remaining coverage excluding the loss component. The loss component is also updated for subsequent changes in estimates of the fulfilment cash flows and the risk adjustment relating to future service. The systematic allocation of subsequent changes to the loss component results in the total amounts allocated to the loss component being equal to zero by the end of the coverage period of a group of insurance contracts. The Group uses coverage units as the method of systematic allocation.

Reinsurance contracts held - measurement

The carrying amount of a group of reinsurance contracts at each reporting date is the sum of the asset/liability for remaining coverage and the asset/liability for incurred claims. The asset/liability for remaining coverage comprises (a) the fulfilment cash flows that relate to services that will be received under the contracts in future periods and (b) any remaining CSM at that date.

The measurement of reinsurance contracts held at initial recognition follows the same principles as those for insurance contracts issued, with the exception of the following:

•  measurement of the cash flows include an allowance on a probability-weighted basis for the effect of any non-performance by the reinsurers, including the effects of collateral;

•  the risk adjustment for non-financial risk is determined so that it represents the amount of risk being transferred to the reinsurer; and

•  the Group recognises both gains and losses at initial recognition in the statement of consolidated financial position as CSM and releases this to profit or loss as the reinsurer renders services, except for any portion of a loss that relates to events before initial recognition. Where the Group recognises a loss on initial recognition of an onerous group of underlying contracts, it establishes a loss-recovery component of the asset for remaining coverage depicting the recovery of losses recognised.

To determine the risk adjustment for reinsurance contracts held, the Group will apply the approach set out above for insurance contracts both gross and net of reinsurance and determine the amount of risk being transferred to the reinsurer as the difference between the two results.

The loss-recovery component determines the amounts that are subsequently presented in profit or loss as reversals of recoveries of losses from reinsurance contracts and are excluded from the allocation of reinsurance premiums paid. It is adjusted to reflect changes in the loss component of the onerous group of underlying contracts, but it cannot exceed the portion of the loss component of the onerous group of underlying contracts that the Group expects to recover from the reinsurance contracts.

The Group adjusts the CSM of the group to which a reinsurance contract belongs and as a result recognises income when it recognises a loss on initial recognition of onerous underlying contracts, if the reinsurance contract is entered into before or at the same time as the onerous underlying contracts are recognised. The adjustment to the CSM is determined by multiplying:

•  the amount of the loss that relates to the underlying contracts; and

•  the percentage of claims on the underlying contracts that the Group expects to recover from the reinsurance contracts.

The subsequent measurement of reinsurance contracts held follows the same principles as those for insurance contracts issued, with the exception of the following:

•  changes in the fulfilment cash flows are recognised in profit or loss if the related changes arising from the underlying ceded contracts have been recognised in profit or loss. Alternatively, changes in the fulfilment cash flows adjust the CSM; and

•  changes in the fulfilment cash flows that result from changes in the risk of non-performance by the issuer of a reinsurance contract held do not adjust the CSM as they do not relate to future service. The effect of the non-performance risk of the reinsurer is assessed at each reporting date and the effect of changes in the non-performance risk is recognised in profit or loss.

Modification and derecognition

The Group derecognises insurance and reinsurance contracts when:

•  the rights and obligations relating to the contract are extinguished (i.e. discharged, cancelled or expired); or

•  the contract is modified such that the modification results in a change in the measurement model, or the applicable standard for measuring a component of the contract. In such cases, the Group derecognises the initial contract and recognises the modified contract as a new contract.

Disclosure Groups

The Group disaggregates information for the purposes of making the disclosures required by IFRS 17 into the following disclosure groups:

•  Retirement Solutions;

•  Pensions & Savings;

•  With-Profits; and

•  Europe & Other

The disclosure groups are aligned to the segments used for segmental reporting in note B1.

The table below shows a summary of the carrying amount of insurance contracts and the related reinsurance contracts in the statement of consolidated financial position.

2023	Retirement Solutions £m	Pensions & Savings £m	With-Profits £m	Europe & Other £m	Total £m
Insurance contracts issued
Estimates of present value of future cash flows	(35,036)	(22,041)	(29,880)	(22,829)	(109,786)
Risk adjustment	(767)	(84)	(104)	(217)	(1,172)
CSM	(3,741)	(201)	(597)	(244)	(4,783)
Net insurance contract liabilities issued	(39,544)	(22,326)	(30,581)	(23,290)	(115,741)
Insurance contract liabilities	(39,544)	(22,326)	(30,581)	(23,290)	(115,741)
Insurance contract assets	-	-	-	-	-
Net insurance contract liabilities issued	(39,544)	(22,326)	(30,581)	(23,290)	(115,741)
Reinsurance contracts held
Estimates of present value of future cash flows	935	20	820	391	2,166
Risk adjustment	537	2	46	48	633
CSM	1,604	-	147	179	1,930
Net reinsurance contract assets held	3,076	22	1,013	618	4,729
Reinsurance contract assets	3,223	22	1,013	618	4,876
Reinsurance contract liabilities	(147)	-	-	-	(147)
Net reinsurance contract assets held	3,076	22	1,013	618	4,729

 

2022	Retirement Solutions £m	Pensions & Savings £m	With-Profits £m	Europe & Other £m	Total £m
Insurance contracts issued
Estimates of present value of future cash flows	(30,779)	(21,302)	(28,282)	(22,201)	(102,564)
Risk adjustment	(681)	(89)	(158)	(169)	(1,097)
CSM	(2,821)	(94)	(565)	(419)	(3,899)
Net insurance contract liabilities issued	(34,281)	(21,485)	(29,005)	(22,789)	(107,560)
Insurance contract liabilities	(34,281)	(21,533)	(29,005)	(22,789)	(107,608)
Insurance contract assets	-	48	-	-	48
Net insurance contract liabilities issued	(34,281)	(21,485)	(29,005)	(22,789)	(107,560)
Reinsurance contracts held
Estimates of present value of future cash flows	1,132	-	869	276	2,277
Risk adjustment	379	-	38	61	478
CSM	952	-	142	215	1,309
Net reinsurance contract assets held	2,463	-	1,049	552	4,064
Reinsurance contract assets	2,463	-	1,056	552	4,071
Reinsurance contract liabilities	-	-	(7)	-	(7)
Net reinsurance contract assets held	2,463	-	1,049	552	4,064

F2. Movements in present value of future cash flows, risk adjustment and CSM of insurance contracts

The reconciliations below provide a roll-forward of the net asset or liability for insurance contracts issued by measurement component showing estimates of the present value of future cash flows, the risk adjustment for non-financial risk and the CSM.

 

Retirement Solutions	2023				2022
	Estimates of the present value of future cash flows £m	Risk adjustment £m	Contractual service margin £m	Total £m	Estimates of the present value of future cash flows £m	Risk adjustment £m	Contractual service margin £m	Total £m
Insurance contract liabilities as at 1 January	30,779	681	2,821	34,281	39,028	1,161	2,671	42,860
Insurance contract assets as at 1 January	-	-	-	-	-	-	-	-
Net insurance contract liabilities as at 1 January	30,779	681	2,821	34,281	39,028	1,161	2,671	42,860
Changes in profit or loss:
CSM recognised for services provided	-	-	(260)	(260)	-	-	(207)	(207)
Risk adjustment for the risk expired	-	(39)	-	(39)	-	(76)	-	(76)
Experience adjustments	(8)	-	-	(8)	(13)	-	-	(13)
Policyholder tax charges	(1)	-	-	(1)	-	-	-	-
Total change relating to current service	(9)	(39)	(260)	(308)	(13)	(76)	(207)	(296)
Contracts initially recognised in the period	(602)	167	435	-	(357)	128	232	3
Changes in estimates that adjust the CSM	(566)	(92)	658	-	(88)	7	81	-
Changes in estimates that do not adjust the CSM	1	-	-	1	4	(1)	-	3
Total change relating to future service	(1,167)	75	1,093	1	(441)	134	313	6
Adjustments to liabilities for incurred claims (past service)	106	-	-	106	-	-	-	-
Impairment of assets for insurance acquisition cash flows	(1)	-	-	(1)	-	-	-	-
Insurance service result	(1,071)	36	833	(202)	(454)	58	106	(290)
Insurance finance expense/(income)	1,895	4	62	1,961	(9,096)	(534)	44	(9,586)
Total changes in profit or loss	824	40	895	1,759	(9,550)	(476)	150	(9,876)
Cash flows:
Premiums received	6,421	-	-	6,421	4,596	-	-	4,596
Claims and other expenses paid	(4,380)	-	-	(4,380)	(3,272)	-	-	(3,272)
Insurance acquisition cash flows	(38)	-	-	(38)	(26)	-	-	(26)
Total cash flows	2,003	-	-	2,003	1,298	-	-	1,298
Other movements1	1,430	46	25	1,501	3	(4)	-	(1)
Net insurance contract liabilities as at 31 December	35,036	767	3,741	39,544	30,779	681	2,821	34,281
Insurance contract liabilities as at 31 December	35,036	767	3,741	39,544	30,779	681	2,821	34,281
Insurance contract assets as at 31 December	-	-	-	-	-	-	-	-
Net insurance contract liabilities as at 31 December	35,036	767	3,741	39,544	30,779	681	2,821	34,281

1  £1,514 million included in 'estimates of the present value of future cash flows' relates to the fair value of insurance contracts acquired as part of the acquisition of SLF of Canada UK Limited in the period (see note H2).

Pensions & Savings	2023				2022
	Estimates of the present value of future cash flows £m	Risk adjustment £m	Contractual service margin £m	Total £m	Estimates of the present value of future cash flows £m	Risk adjustment £m	Contractual service margin £m	Total £m
Insurance contract liabilities as at 1 January	21,350	89	94	21,533	25,059	88	96	25,243
Insurance contract assets as at 1 January	(48)	-	-	(48)	(65)	-	-	(65)
Net insurance contract liabilities as at 1 January	21,302	89	94	21,485	24,994	88	96	25,178
Changes in profit or loss:
CSM recognised for services provided	-	-	(25)	(25)	-	-	(13)	(13)
Risk adjustment for the risk expired	-	(8)	-	(8)	-	(11)	-	(11)
Experience adjustments	10	-	-	10	33	-	-	33
Policyholder tax charges	(6)	-	-	(6)	18	-	-	18
Total change relating to current service	4	(8)	(25)	(29)	51	(11)	(13)	27
Contracts initially recognised in the period	(67)	33	34	-	-	-	-	-
Changes in estimates that adjust the CSM	(103)	(1)	104	-	(9)	(2)	11	-
Changes in estimates that do not adjust the CSM	(10)	2	-	(8)	119	13	-	132
Total change relating to future service	(180)	34	138	(8)	110	11	11	132
Adjustments to liabilities for incurred claims (past service)	14	-	-	14	5	-	-	5
Insurance service result	(162)	26	113	(23)	166	-	(2)	164
Insurance finance expense/(income)	1,593	1	(4)	1,590	(2,024)	1	-	(2,023)
Total changes in profit or loss	1,431	27	109	1,567	(1,858)	1	(2)	(1,859)
Cash flows:
Premiums received	389	-	-	389	443	-	-	443
Claims and other expenses paid	(3,488)	-	-	(3,488)	(2,277)	-	-	(2,277)
Total cash flows	(3,099)	-	-	(3,099)	(1,834)	-	-	(1,834)
Other movements1	2,407	(32)	(2)	2,373	-	-	-	-
Net insurance contract liabilities as at 31 December	22,041	84	201	22,326	21,302	89	94	21,485
Insurance contract liabilities as at 31 December	22,041	84	201	22,326	21,350	89	94	21,533
Insurance contract assets as at 31 December	-	-	-	-	(48)	-	-	(48)
Net insurance contract liabilities as at 31 December	22,041	84	201	22,326	21,302	89	94	21,485

1  £2,411 million included in 'estimates of the present value of future cash flows' relates to the fair value of insurance contracts acquired as part of the acquisition of SLF of Canda UK Limited (see note H2).

With-Profits	2023				2022
	Estimates of the present value of future cash flows £m	Risk adjustment £m	Contractual service margin £m	Total £m	Estimates of the present value of future cash flows £m	Risk adjustment £m	Contractual service margin £m	Total £m
Insurance contract liabilities as at 1 January	28,282	158	565	29,005	35,838	252	433	36,523
Insurance contract assets as at 1 January	-	-	-	-	-	-	-	-
Net insurance contract liabilities as at 1 January	28,282	158	565	29,005	35,838	252	433	36,523
Changes in profit or loss:
CSM recognised for services provided	-	-	(77)	(77)	-	-	(99)	(99)
Risk adjustment for the risk expired	-	(4)	-	(4)	-	(8)	-	(8)
Experience adjustments	23	-	-	23	4	-	-	4
Policyholder tax charges	(17)	-	-	(17)	17	-	-	17
Total change relating to current service	6	(4)	(77)	(75)	21	(8)	(99)	(86)
Changes in estimates that adjust the CSM	(99)	(20)	119	-	(182)	(43)	225	-
Changes in estimates that do not adjust the CSM	(52)	(12)	-	(64)	354	27	-	381
Total change relating to future service	(151)	(32)	119	(64)	172	(16)	225	381
Adjustments to liabilities for incurred claims (past service)	(33)	-	-	(33)	(41)	-	-	(41)
Insurance service result	(178)	(36)	42	(172)	152	(24)	126	254
Insurance finance expense/(income)	1,891	13	10	1,914	(5,379)	(70)	6	(5,443)
Total changes in profit or loss	1,713	(23)	52	1,742	(5,227)	(94)	132	(5,189)
Cash flows:
Premiums received	121	-	-	121	136	-	-	136
Claims and other expenses paid	(694)	-	-	(694)	(2,468)	-	-	(2,468)
Total cash flows	(573)	-	-	(573)	(2,332)	-	-	(2,332)
Other movements1	458	(31)	(20)	407	3	-	-	3
Net insurance contract liabilities as at 31 December	29,880	104	597	30,581	28,282	158	565	29,005
Insurance contract liabilities as at 31 December	29,880	104	597	30,581	28,282	158	565	29,005
Insurance contract assets as at 31 December	-	-	-	-	-	-	-	-
Net insurance contract liabilities as at 31 December	29,880	104	597	30,581	28,282	158	565	29,005

1  £349 million included in 'estimates of the present value of future cash flows' relates to the fair value of insurance contracts acquired as part of the acquisition of SLF of Canada UK Limited (see note H2).

Europe & Other	2023				2022
	Estimates of the present value of future cash flows	Risk adjustment	Contractual service margin	Total	Estimates of the present value of future cash flows	Risk adjustment	Contractual service margin	Total
	£m	£m	£m	£m	£m	£m	£m	£m
Insurance contract liabilities as at 1 January	22,201	169	419	22,789	27,394	220	257	27,871
Insurance contract assets as at 1 January	-	-	-	-	-	-	-	-
Net insurance contract liabilities as at 1 January	22,201	169	419	22,789	27,394	220	257	27,871
Changes in profit or loss:
CSM recognised for services provided	-	-	(47)	(47)	-	-	(67)	(67)
Risk adjustment for the risk expired	-	(12)	-	(12)	-	(7)	-	(7)
Experience adjustments	18	-	-	18	36	-	-	36
Policyholder tax charges	(1)	-	-	(1)	(1)	-	-	(1)
Total change relating to current service	17	(12)	(47)	(42)	35	(7)	(67)	(39)
Contracts initially recognised in the period	(57)	8	53	4	(47)	4	46	3
Changes in estimates that adjust the CSM	116	27	(143)	-	(134)	(21)	155	-
Changes in estimates that do not adjust the CSM	10	25	-	35	21	(15)	-	6
Total change relating to future service	69	60	(90)	39	(160)	(32)	201	9
Adjustments to liabilities for incurred claims (past service)	(104)	-	-	(104)	8	-	-	8
Impairment of assets for insurance acquisition cash flows	(3)	-	-	(3)	-	-	-	-
Insurance service result	(21)	48	(137)	(110)	(117)	(39)	134	(22)
Insurance finance expense/(income)	1,550	(13)	(20)	1,517	(5,820)	(12)	5	(5,827)
Total changes in profit or loss	1,529	35	(157)	1,407	(5,937)	(51)	139	(5,849)
Cash flows:
Premiums received	1,673	-	-	1,673	1,731	-	-	1,731
Claims and other expenses paid	(2,259)	-	-	(2,259)	(1,666)	-	-	(1,666)
Insurance acquisition cash flows	(116)	-	-	(116)	(102)	-	-	(102)
Total cash flows	(702)	-	-	(702)	(37)	-	-	(37)
Other movements1	(199)	13	(18)	(204)	781	-	23	804
Net insurance contract liabilities as at 31 December	22,829	217	244	23,290	22,201	169	419	22,789
Insurance contract liabilities as at 31 December	22,829	217	244	23,290	22,201	169	419	22,789
Insurance contract assets as at 31 December	-	-	-	-	-	-	-	-
Net insurance contract liabilities as at 31 December	22,829	217	244	23,290	22,201	169	419	22,789

1  £112 million included in 'estimates of the present value of future cash flows' relates to the fair value of insurance contracts acquired as part of the acquisition of SLF of Canada UK Limited (see note H2).

F3. Movements in liabilities for remaining coverage and liabilities for incurred claims for insurance contracts

The following reconciliations show how the net carrying amounts of insurance contracts issued changed over the year as a result of cash flows, amounts recognised in the consolidated income statement and other movements, analysed by remaining coverage and incurred claims.

Retirement Solutions	2023				2022
	Liabilities for remaining coverage				Liabilities for remaining coverage
	Excluding loss component	Loss component	Liabilities for incurred claims	Total	Excluding loss component	Loss component	Liabilities for incurred claims	Total
	£m	£m	£m	£m	£m	£m	£m	£m
Insurance contract liabilities as at 1 January	34,189	56	36	34,281	42,742	54	64	42,860
Insurance contract assets as at 1 January	-	-	-	-	-	-	-	-
Net insurance contract liabilities as at 1 January	34,189	56	36	34,281	42,742	54	64	42,860
Insurance revenue (note C1)	(3,751)	-	-	(3,751)	(3,544)	-	-	(3,544)
Insurance service expenses
Incurred claims and other expenses	-	(4)	3,446	3,442	-	(3)	3,252	3,249
Amortisation of insurance acquisition cash flows	1	-	-	1	1	-	-	1
Losses on onerous contracts and reversals of those losses	-	1	-	1	-	4	-	4
Changes to liabilities for incurred claims (past service)	-	-	106	106	-	-	-	-
Impairment of assets for insurance acquisition cash flows	(1)	-	-	(1)	-	-	-	-
Insurance service result	(3,751)	(3)	3,552	(202)	(3,543)	1	3,252	(290)
Insurance finance expense/(income)	1,960	1	-	1,961	(9,587)	1	-	(9,586)
Total changes in the consolidated income statement	(1,791)	(2)	3,552	1,759	(13,130)	2	3,252	(9,876)
Investment components	(160)	-	160	-	7	-	(7)	-
Cash flows:
Premiums received	6,421	-	-	6,421	4,596	-	-	4,596
Claims and other expenses paid	-	-	(4,380)	(4,380)	-	-	(3,272)	(3,272)
Insurance acquisition cash flows	(38)	-	-	(38)	(26)	-	-	(26)
Total cash flows	6,383	-	(4,380)	2,003	4,570	-	(3,272)	1,298
Other movements1	1,429	-	72	1,501	-	-	(1)	(1)
Net insurance contract liabilities as at 31 December	40,050	54	(560)	39,544	34,189	56	36	34,281
Insurance contract liabilities as at 31 December	40,050	54	(560)	39,544	34,189	56	36	34,281
Insurance contract assets as at 31 December	-	-	-	-	-	-	-	-
Net insurance contract liabilities as at 31 December	40,050	54	(560)	39,544	34,189	56	36	34,281

1  £1,514 million relates to the fair value of insurance contracts acquired as part of the acquisition of SLF Canada UK Limited (see note H2)

Pensions & Savings	2023				2022
	Liabilities for remaining coverage				Liabilities for remaining coverage
	Excluding loss component	Loss component	Liabilities for incurred claims	Total	Excluding loss component	Loss component	Liabilities for incurred claims	Total
	£m	£m	£m	£m	£m	£m	£m	£m
Insurance contract liabilities as at 1 January	21,359	131	43	21,533	25,117	-	126	25,243
Insurance contract assets as at 1 January	(50)	2	-	(48)	(65)	-	-	(65)
Net insurance contract liabilities as at 1 January	21,309	133	43	21,485	25,052	-	126	25,178
Insurance revenue (note C1)	(272)	-	-	(272)	(307)	-	-	(307)
Insurance service expenses
Incurred claims and other expenses	-	(14)	257	243	-	-	333	333
Amortisation of insurance acquisition cash flows	-	-	-	-	-	-	-	-
Losses on onerous contracts and reversals of those losses	-	(8)	-	(8)	-	133	-	133
Changes to liabilities for incurred claims (past service)	-	-	14	14	-	-	5	5
Insurance service result	(272)	(22)	271	(23)	(307)	133	338	164
Insurance finance expense/(income)	1,576	5	9	1,590	(2,025)	-	2	(2,023)
Total changes in the consolidated income statement	1,304	(17)	280	1,567	(2,332)	133	340	(1,859)
Investment components	(2,207)	-	2,207	-	(1,854)	-	1,854	-
Cash flows:
Premiums received	389	-	-	389	443	-	-	443
Claims and other expenses paid	-	-	(3,488)	(3,488)	-	-	(2,277)	(2,277)
Total cash flows	389	-	(3,488)	(3,099)	443	-	(2,277)	(1,834)
Other movements1	2,097	(1)	277	2,373	-	-	-	-
Net insurance contract liabilities as at 31 December	22,892	115	(681)	22,326	21,309	133	43	21,485
Insurance contract liabilities as at 31 December	22,892	115	(681)	22,326	21,359	131	43	21,533
Insurance contract assets as at 31 December	-	-	-	-	(50)	2	-	(48)
Net insurance contract liabilities as at 31 December	22,892	115	(681)	22,326	21,309	133	43	21,485

1  £2,411 million relates to the fair value of insurance contracts acquired as part of the acquisition of SLF Canada UK Limited (see note H2).

With-Profits	2023				2022
	Liabilities for remaining coverage				Liabilities for remaining coverage
	Excluding loss component	Loss component	Liabilities for incurred claims	Total	Excluding loss component	Loss component	Liabilities for incurred claims	Total
	£m	£m	£m	£m	£m	£m	£m	£m
Insurance contract liabilities as at 1 January	27,812	397	796	29,005	35,908	17	598	36,523
Insurance contract assets as at 1 January	-	-	-	-	-	-	-	-
Net insurance contract liabilities as at 1 January	27,812	397	796	29,005	35,908	17	598	36,523
Insurance revenue (note C1)	(267)	-	-	(267)	(636)	-	-	(636)
Insurance service expenses
Incurred claims and other expenses	-	(61)	253	192	-	(1)	551	550
Losses on onerous contracts and reversals of those losses	-	(64)	-	(64)	-	381	-	381
Changes to liabilities for incurred claims (past service)	-	-	(33)	(33)	-	-	(41)	(41)
Insurance service result	(267)	(125)	220	(172)	(636)	380	510	254
Insurance finance expense/(income)	1,883	14	17	1,914	(5,447)	-	4	(5,443)
Total changes in the consolidated income statement	1,616	(111)	237	1,742	(6,083)	380	514	(5,189)
Investment components	(2,360)	-	2,360	-	(2,148)	-	2,148	-
Cash flows:
Premiums received	121	-	-	121	136	-	-	136
Claims and other expenses paid	-	-	(694)	(694)	-	-	(2,468)	(2,468)
Total cash flows	121	-	(694)	(573)	136	-	(2,468)	(2,332)
Other movements1	402	26	(21)	407	(1)	-	4	3
Net insurance contract liabilities as at 31 December	27,591	312	2,678	30,581	27,812	397	796	29,005
Insurance contract liabilities as at 31 December	27,591	312	2,678	30,581	27,812	397	796	29,005
Insurance contract assets as at 31 December	-	-	-	-	-	-	-	-
Net insurance contract liabilities as at 31 December	27,591	312	2,678	30,581	27,812	397	796	29,005

1  £349 million relates to the fair value of insurance contracts acquired as part of the acquisition of SLF Canada UK Limited (see note H2).

Europe & Other	2023				2022
	Liabilities for remaining coverage				Liabilities for remaining coverage
	Excluding loss component	Loss component	Liabilities for incurred claims	Total	Excluding loss component	Loss component	Liabilities for incurred claims	Total
	£m	£m	£m	£m	£m	£m	£m	£m
Insurance contract liabilities as at 1 January	22,271	72	446	22,789	27,488	64	319	27,871
Insurance contract assets as at 1 January	-	-	-	-	-	-	-	-
Net insurance contract liabilities as at 1 January	22,271	72	446	22,789	27,488	64	319	27,871
Insurance revenue (note C1)	(571)	-	-	(571)	(655)	-	-	(655)
Insurance service expenses
Incurred claims and other expenses	-	(11)	526	515	-	(3)	603	600
Amortisation of insurance acquisition cash flows	14	-	-	14	16	-	-	16
Losses on onerous contracts and reversals of those losses	-	39	-	39	-	9	-	9
Changes to liabilities for incurred claims (past service)	-	-	(104)	(104)	-	-	8	8
Impairment of assets for insurance acquisition cash flows	(3)	-	-	(3)	-	-	-	-
Insurance service result	(560)	28	422	(110)	(639)	6	611	(22)
Insurance finance income/expense	1,488	14	15	1,517	(5,830)	2	1	(5,827)
Total changes in the consolidated income statement	928	42	437	1,407	(6,469)	8	612	(5,849)
Investment components	(1,483)	-	1,483	-	(1,172)	-	1,172	-
Cash flows:
Premiums received	1,673	-	-	1,673	1,731	-	-	1,731
Claims and other expenses paid	-	-	(2,259)	(2,259)	-	-	(1,666)	(1,666)
Insurance acquisition cash flows	(116)	-	-	(116)	(102)	-	-	(102)
Total cash flows	1,557	-	(2,259)	(702)	1,629	-	(1,666)	(37)
Other movements1	(218)	28	(14)	(204)	795	-	9	804
Net insurance contract liabilities as at 31 December	23,055	142	93	23,290	22,271	72	446	22,789
Insurance contract liabilities as at 31 December	23,055	142	93	23,290	22,271	72	446	22,789
Insurance contract assets as at 31 December	-	-	-	-	-	-	-	-
Net insurance contract liabilities as at 31 December	23,055	142	93	23,290	22,271	72	446	22,789

1  £112 million relates to the fair value of insurance contracts acquired as part of the acquisition of SLF Canada UK Limited (see note H2).

F4. Movements in present value of future cash flows, risk adjustment and CSM of reinsurance contracts held

The reconciliations below provide a roll-forward of the net asset or liability for reinsurance contracts held by measurement component, showing estimates of the present value of future cash flows, the risk adjustment for non-financial risk and the CSM.

	2023				2022
	Estimates of the present value of future cash flows £m	Risk adjustment £m	Contractual service margin £m	Total £m	Estimates of the present value of future cash flows £m	Risk adjustment £m	Contractual service margin £m	Total £m
Reinsurance contract liabilities as at 1 January	(8)	-	1	(7)	-	-	-	-
Reinsurance contract assets as at 1 January	2,285	478	1,308	4,071	3,032	659	1,028	4,719
Net reinsurance contract assets as at 1 January	2,277	478	1,309	4,064	3,032	659	1,028	4,719
Changes in profit or loss:
CSM recognised for services received	-	-	(168)	(168)	-	-	(113)	(113)
Risk adjustment for the risk expired	-	(30)	-	(30)		(42)		(42)
Experience adjustments	27	-	-	27	(13)		-	(13)
Total change relating to current service	27	(30)	(168)	(171)	(13)	(42)	(113)	(168)
Contracts initially recognised in the period	(351)	229	122	-	(193)	120	73	-
Changes in estimates that adjust the CSM	(610)	(49)	659	-	(285)	9	276	-
Changes in estimates that do not adjust the CSM	(17)	7	-	(10)	-	(5)	-	(5)
Reversal of impairment of assets for reinsurance acquisition cash flows	2	-	-	2	-	-	-	-
Total change relating to future service	(976)	187	781	(8)	(478)	124	349	(5)
Changes in amounts recoverable arising from changes in liabilities for incurred claims (past service)	(1)	-	-	(1)	11	-	-	11
Net expenses from reinsurance contracts	(950)	157	613	(180)	(480)	82	236	(162)
								-
Reinsurance finance (expense)/income	156	(3)	26	179	(808)	(263)	18	(1,053)
Total changes in the profit or loss	(794)	154	639	(1)	(1,288)	(181)	254	(1,215)
Cash flows:
Premiums paid	3,085	-	-	3,085	1,656	-	-	1,656
Claims recovered and other expenses paid	(2,280)	-	-	(2,280)	(1,090)	-	-	(1,090)
Total cash flows	805	-	-	805	566	-	-	566
Other movements1	(122)	1	(18)	(139)	(33)	-	27	(6)
Net reinsurance contract assets as at 31 December	2,166	633	1,930	4,729	2,277	478	1,309	4,064
Reinsurance contract liabilities as at 31 December	(244)	37	60	(147)	(8)		1	(7)
Reinsurance contract assets as at 31 December	2,410	596	1,870	4,876	2,285	478	1,308	4,071
Net reinsurance contract assets as at 31 December	2,166	633	1,930	4,729	2,277	478	1,309	4,064
Analysed by segment as follows:
Retirement Solutions	935	537	1,604	3,076	1,132	379	952	2,463
Pensions & Savings	20	2	-	22	-	-	-	-
With-profits	820	46	147	1,013	869	38	142	1,049
Europe & Other	391	48	179	618	276	61	215	552
Net reinsurance contract assets as at 31 December	2,166	633	1,930	4,729	2,277	478	1,309	4,064

1  £(153) million included in 'estimates of the present value of future cash flows' relates to the fair value of reinsurance contracts acquired as part of the acquisition of SLF of Canada UK Limited (see note H2).

F5. Movements in liabilities for remaining coverage and liabilities for incurred claims for reinsurance contracts held

The following reconciliations show how the net carrying amounts of reinsurance contracts held changed over the year as a result of cash flows, amounts recognised in the consolidated income statement and other movements, analysed by remaining coverage and incurred claims.

	2023				2022
	Assets for remaining coverage				Assets for remaining coverage
	Excluding loss recovery component	Loss recovery component	Assets for incurred claims	Total	Excluding loss recovery component	Loss recovery component	Assets for incurred claims	Total
	£m	£m	£m	£m	£m	£m	£m	£m
Reinsurance contract liabilities as at 1 January	(7)	-	-	(7)	-	-	-	-
Reinsurance contract assets as at 1 January	6,705	47	(2,681)	4,071	7,915	52	(3,248)	4,719
Net reinsurance contract assets as at 1 January	6,698	47	(2,681)	4,064	7,915	52	(3,248)	4,719
								-
Reinsurance expenses	(2,349)	-	-	(2,349)	(1,779)	-	-	(1,779)
Claims recoverable and other expenses incurred	-	-	2,181	2,181	-	-	1,612	1,612
Changes in the CSM due to recognition and reversal of a loss-recovery component from onerous underlying contracts	-	(10)	-	(10)	-	(4)	-	(4)
Changes to assets for incurred claims (past service)	-	-	(1)	(1)	-	-	11	11
Cost of retroactive cover on reinsurance contracts held	-	(3)	-	(3)	-	(2)	-	(2)
Reversal of impairment of assets for insurance acquisition cash flows	2	-	-	2	-	-	-	-
Net income/(expenses) from reinsurance contracts held	(2,347)	(13)	2,180	(180)	(1,779)	(6)	1,623	(162)
Reinsurance finance income/expense	179	-	-	179	(1,054)	1	-	(1,053)
Total changes in the consolidated income statement	(2,168)	(13)	2,180	(1)	(2,833)	(5)	1,623	(1,215)
Investment components	(35)	-	35	-	(32)	-	32	-
Cash flows:								-
Premiums paid	3,085	-	-	3,085	1,656	-	-	1,656
Claims recovered and other expenses paid	-	-	(2,280)	(2,280)	-	-	(1,090)	(1,090)
Reinsurance acquisition cash flows	-	-	-	-	-	-	-	-
Total cash flows	3,085	-	(2,280)	805	1,656	-	(1,090)	566
Other movements1	(585)	3	443	(139)	(8)	-	2	(6)
Net reinsurance contract assets as at 31 December	6,995	37	(2,303)	4,729	6,698	47	(2,681)	4,064
Reinsurance contract liabilities as at 31 December	(152)	-	5	(147)	(7)	-	-	(7)
Reinsurance contract assets as at 31 December	7,147	37	(2,308)	4,876	6,705	47	(2,681)	4,071
Net reinsurance contract assets as at 31 December	6,995	37	(2,303)	4,729	6,698	47	(2,681)	4,064
Analysed by segment as follows:
Retirement Solutions	5,421	36	(2,381)	3,076	5,148	46	(2,731)	2,463
Pensions & Savings	6	-	16	22	-	-	-	-
With-Profits	984	-	29	1,013	1,025	-	24	1,049
Europe & Other	584	1	33	618	525	1	26	552
Net reinsurance contract assets as at 31 December	6,995	37	(2,303)	4,729	6,698	47	(2,681)	4,064

1  £(153) million relates to the fair value of insurance contracts acquired as part of the acquisition of SLF of Canada UK Limited (see note H2).

F6. The impact on the current period of transition approaches adopted in establishing CSMs

The impact on the current period of the transition approaches adopted in establishing CSMs for insurance contracts issued and reinsurance contracts held is shown in the tables below. For further details of the transition approaches applied see note A2.1.1.

F6.1 Insurance contracts

Retirement Solutions	2023			2022
	Fair value approach at transition £m	Fully retrospective approach at transition and new contracts £m	Total £m	Fair value approach at transition £m	Fully retrospective approach at transition and new contracts £m	Total £m
CSM as at 1 January	784	2,037	2,821	817	1,854	2,671
Changes that relate to current service:
CSM recognised for services provided	(103)	(157)	(260)	(77)	(130)	(207)
Changes that relate to future service:
Contracts initially recognised in the period	-	435	435	-	232	232
Changes in estimates that adjust the CSM	438	220	658	30	51	81
Insurance service result	335	498	833	(47)	153	106
Insurance finance expenses	18	44	62	14	30	44
Total changes in profit or loss	353	542	895	(33)	183	150
Other movements	25	-	25	-	-	-
CSM as at 31 December	1,162	2,579	3,741	784	2,037	2,821

 

Pensions & Savings	2023			2022
	Fair value approach at transition £m	Fully retrospective approach at transition and new contracts £m	Total £m	Fair value approach at transition £m	Fully retrospective approach at transition and new contracts £m	Total £m
CSM as at 1 January	94	-	94	96	-	96
Changes that relate to current service:
CSM recognised for services provided	(17)	(8)	(25)	(13)	-	(13)
Changes that relate to future service:
Contracts initially recognised in the period	-	34	34	-	-	-
Changes in estimates that adjust the CSM	54	50	104	11	-	11
Insurance service result	37	76	113	(2)	-	(2)
Insurance finance income	-	(4)	(4)	-	-	-
Total changes in profit or loss	37	72	109	(2)	-	(2)
Other movements	(2)	-	(2)	-	-	-
CSM as at 31 December	129	72	201	94	-	94

 

With-Profits	2023			2022
	Fair value approach at transition £m	Fully retrospective approach at transition and new contracts £m	Total £m	Fair value approach at transition £m	Fully retrospective approach at transition and new contracts £m	Total £m
CSM as at 1 January	514	51	565	417	16	433
Changes that relate to current service:
CSM recognised for services provided	(69)	(8)	(77)	(89)	(10)	(99)
Changes that relate to future service:
Contracts initially recognised in the period	-	-	-	-	-	-
Changes in estimates that adjust the CSM	90	29	119	180	45	225
Insurance service result	21	21	42	91	35	126
Insurance finance expenses	9	1	10	6	-	6
Total changes in profit or loss	30	22	52	97	35	132
Other movements	(19)	(1)	(20)	-	-	-
CSM as at 31 December	525	72	597	514	51	565

 

Europe & Other	2023			2022
	Fair value approach at transition £m	Fully retrospective approach at transition and new contracts £m	Total £m	Fair value approach at transition £m	Fully retrospective approach at transition and new contracts £m	Total £m
CSM as at 1 January	306	113	419	214	43	257
Changes that relate to current service:
CSM recognised for services provided	(27)	(20)	(47)	(56)	(11)	(67)
Changes that relate to future service:
Contracts initially recognised in the period	-	53	53	5	41	46
Changes in estimates that adjust the CSM	(85)	(58)	(143)	130	25	155
Insurance service result	(112)	(25)	(137)	79	55	134
Insurance finance (income)/expenses	(22)	2	(20)	(3)	8	5
Total changes in profit or loss	(134)	(23)	(157)	76	63	139
Other movements	(3)	(15)	(18)	16	7	23
CSM as at 31 December	169	75	244	306	113	419

F6.2 Reinsurance contracts held

	2023			2022
	Fair value approach at transition £m	Fully retrospective approach at transition and new contracts £m	Total £m	Fair value approach at transition £m	Fully retrospective approach at transition and new contracts £m	Total £m
CSM as at 1 January	697	612	1,309	498	530	1,028
Changes that relate to current service:
CSM recognised for services received	(99)	(69)	(168)	(67)	(46)	(113)
Changes that relate to future service:
Contracts initially recognised in the period	-	122	122	-	73	73
Changes in estimates that adjust the CSM	254	405	659	219	56	275
Net expenses from reinsurance contracts	155	458	613	152	83	235
Reinsurance finance income	10	16	26	9	9	18
Total changes in profit or loss	165	474	639	161	92	253
Other movements	(39)	21	(18)	38	(10)	28
CSM as at 31 December	823	1,107	1,930	697	612	1,309
Analysed by segment as follows:
Retirement Solutions	497	1,107	1,604	339	613	952
With-Profits	147	-	147	143	(1)	142
Europe & Other	179	-	179	215	-	215
CSM as at 31 December	823	1,107	1,930	697	612	1,309

F7. Recognition of CSM in profit or loss

The following tables set out when the Group expects to recognise the carrying value of the CSM in the consolidated income statement for insurance contracts issued and reinsurance contracts held. For General Model business this is shown after allowing for future accretion of interest on the CSM at the locked in rate. The amounts presented represent the net impact in each period of expected release of the CSM recognised in revenue less the accretion of interest on the CSM on General Model business recognised in insurance finance expenses.

2023	Less than 1 year £m	1-2 years £m	2-3 years £m	3-4 years £m	4-5 years £m	5-10 years £m	More than 10 years £m	Total £m
Insurance contracts issued
Retirement Solutions	243	236	225	214	205	877	1,741	3,741
Pensions & Savings	26	21	18	16	14	49	57	201
With-Profits	66	56	50	44	37	126	218	597
Europe & Other	33	25	23	20	18	64	61	244
Total CSM	368	338	316	294	274	1,116	2,077	4,783
Reinsurance contracts held
Retirement Solutions	(116)	(111)	(105)	(99)	(93)	(383)	(697)	(1,604)
Pensions & Savings	-	-	-	-	-	-	-	-
With-Profits	(14)	(13)	(12)	(11)	(9)	(32)	(56)	(147)
Europe & Other	(16)	(15)	(14)	(13)	(13)	(51)	(57)	(179)
Total CSM	(146)	(139)	(131)	(123)	(115)	(466)	(810)	(1,930)

 

	Less than 1 year	1-2 years	2-3 years	3-4 years	4-5 years	5-10 years	More than 10 years	Total
2022	£m	£m	£m	£m	£m	£m	£m	£m
Insurance contracts issued
Retirement Solutions	216	200	186	173	162	668	1,216	2,821
Pensions & Savings	10	9	8	7	7	24	29	94
With-profits	81	63	54	46	39	123	159	565
Europe & Other	52	41	32	29	26	97	142	419
Total CSM	359	313	280	255	234	912	1,546	3,899
Reinsurance contracts held
Retirement Solutions	(73)	(68)	(63)	(59)	(55)	(225)	(409)	(952)
Pensions & Savings	-	-	-	-	-	-	-	-
With-profits	(17)	(15)	(14)	(12)	(11)	(35)	(38)	(142)
Europe & Other	(14)	(14)	(14)	(15)	(15)	(67)	(76)	(215)
Total CSM	(104)	(97)	(91)	(86)	(81)	(327)	(523)	(1,309)

F8. Effect of contracts initially recognised in the year

The effect on the measurement components arising from the initial recognition of insurance and reinsurance contracts in the year is disclosed in the tables below. Contracts issued mainly comprise of bulk purchase annuity transactions completed in the year and protection business. Contracts acquired in the year relate to the acquisition of SLF of Canada UK Limited (see note H2).

F8.1 Insurance contracts

Retirement Solutions	2023					2022
	Contracts issued		Contracts acquired			Contracts issued		Contracts acquired
	Profitable £m	Onerous £m	Profitable £m	Onerous £m	Total £m	Profitable £m	Onerous £m	Profitable £m	Onerous £m	Total £m
Estimate of present value of future cash outflows:
Insurance acquisition cash flows	39	-	-	-	39	2	1	-	-	3
Claims and other directly attributable expenses	5,710	-	1,443	-	7,153	3,881	106	-	-	3,987
Estimates of present value of future cash outflows	5,749	-	1,443	-	7,192	3,883	107	-	-	3,990
Estimates of present value of future cash inflows	(6,280)	-	(1,514)	-	(7,794)	(4,238)	(109)	-	-	(4,347)
Risk adjustment incurred	132	-	35	-	167	123	5	-	-	128
CSM	399	-	36	-	435	232	-	-	-	232
Losses on onerous contracts at initial recognition	-	-	-	-	-	-	3	-	-	3

 

Pension & Savings	2023					2022
	Contracts issued		Contracts acquired			Contracts issued		Contracts acquired
	Profitable £m	Onerous £m	Profitable £m	Onerous £m	Total £m	Profitable £m	Onerous £m	Profitable £m	Onerous £m	Total £m
Estimate of present value of future cash outflows:
Claims and other directly attributable expenses	-	-	2,344	-	2,344	-	-	-	-	-
Estimates of present value of future cash outflows	-	-	2,344	-	2,344	-	-	-	-	-
Estimates of present value of future cash inflows	-	-	(2,411)	-	(2,411)	-	-	-	-	-
Risk adjustment	-	-	33	-	33	-	-	-	-	-
CSM	-	-	34	-	34	-	-	-	-	-
Losses on onerous contracts at initial recognition	-	-	-	-	-	-	-	-	-	-

 

With-Profits	2023					2022
	Contracts issued		Contracts acquired			Contracts issued		Contracts acquired
	Profitable £m	Onerous £m	Profitable £m	Onerous £m	Total £m	Profitable £m	Onerous £m	Profitable £m	Onerous £m	Total £m
Estimate of present value of future cash outflows:
Claims and other directly attributable expenses	-	-	349	-	349	-	-	-	-	-
Estimates of present value of future cash outflows	-	-	349	-	349	-	-	-	-	-
Estimates of present value of future cash inflows	-	-	(349)	-	(349)	-	-	-	-	-
Risk adjustment	-	-	-	-	-	-	-	-	-	-
CSM	-	-	-	-	-	-	-	-	-	-
Losses on onerous contracts at initial recognition	-	-	-	-	-	-	-	-	-	-

 

Europe & Other	2023					2022
	Contracts issued		Contracts acquired			Contracts issued		Contracts acquired
	Profitable £m	Onerous £m	Profitable £m	Onerous £m	Total £m	Profitable £m	Onerous £m	Profitable £m	Onerous £m	Total £m
Estimate of present value of future cash outflows:
Insurance acquisition cash flows	80	-	-	-	80	86	-	-	-	86
Claims and other directly attributable expenses	172	270	109	-	551	423	215	-	-	638
Estimates of present value of future cash outflows	252	270	109	-	631	509	215	-	-	724
Estimates of present value of future cash inflows	(308)	(268)	(112)	-	(688)	(559)	(212)	-	-	(771)
Risk adjustment	5	2	1	-	8	4	-	-	-	4
CSM	51	-	2	-	53	46	-	-	-	46
Losses on onerous contracts at initial recognition	-	4	-	-	4	-	3	-	-	3

F8.2 Reinsurance contracts

	2023					2022
	Contracts originated		Contracts acquired			Contracts originated		Contracts acquired
	Without a loss recovery component £m	With a loss recovery component £m	Without a loss recovery component £m	With a loss recovery component £m	Total £m	Without a loss recovery component £m	With a loss recovery component £m	Without a loss recovery component £m	With a loss recovery component £m	Total £m
Estimates of present value of future cash inflows	8,287	-	153	-	8,440	3,650	-	-	-	3,650
Estimates of present value of future cash outflows	(8,584)	-	(207)	-	(8,791)	(3,843)	-	-	-	(3,843)
Risk adjustment incurred	195	-	34	-	229	120	-	-	-	120
CSM	102	-	20	-	122	73	-	-	-	73
Income recognised on initial recognition	-	-	-	-	-	-	-	-	-	-

All contracts originated, and the majority of contracts acquired, relate to the Retirement Solutions segment.

F9. Underlying items

The following table sets out the composition and the fair value of underlying items of the Group's participating contracts which are measured using the variable fee approach.

	2023				2022
	Pensions & Savings £m	With-Profits £m	Europe & Other £m	Total £m	Pensions & Savings £m	With-Profits £m	Europe & Other £m	Total £m
Collective investment schemes	17,572	17,027	15,549	50,148	17,068	17,442	14,268	48,778
Debt securities	2,860	8,095	3,910	14,865	2,711	7,956	3,605	14,272
Equities	2,390	5,846	966	9,202	1,562	5,824	942	8,328
Investment property	319	798	18	1,135	277	872	19	1,168
Derivative assets	3	263	1,019	1,285	5	295	1,287	1,587
Cash and cash equivalents	47	81	329	457	48	122	365	535
Loans and deposits	-	3	199	202	-	2	238	240
Other assets	81	633	174	888	67	1,026	382	1,475
Derivative liabilities	(1)	(459)	(430)	(890)	(6)	(613)	(536)	(1,155)
Obligation for repayment of collateral received	(1)	(125)	(231)	(357)	(3)	(127)	(254)	(384)
Insurance contract liabilities	-	(2,034)	(4)	(2,038)	-	(2,148)	-	(2,148)
Investment contract liabilities	-	(6,628)	-	(6,628)	-	(6,907)	-	(6,907)
Other liabilities	(31)	(703)	(550)	(1,284)	(12)	(617)	(186)	(815)
	23,239	22,797	20,949	66,985	21,717	23,127	20,130	64,974

F10. Collateral arrangements

It is the Group's practice to obtain collateral to mitigate the counterparty risk related to reinsurance transactions usually in the form of cash or marketable financial instruments.

Where the Group receives collateral in the form of marketable financial instruments which it is not permitted to sell or re-pledge except in the case of default, it is not recognised in the statement of consolidated financial position. The fair value of financial assets accepted as collateral for reinsurance transactions but not recognised in the statement of consolidated financial position amounts to £4,880 million (2022: £4,002 million).

Where the Group receives collateral on reinsurance transactions in the form of cash it is recognised in the statement of consolidated financial position along with a corresponding liability to repay the amount of collateral received, disclosed as part of 'Reinsurance contract assets'. Where there is interest payable on such collateral, it is recognised within Net finance income/(expense) from reinsurance contracts. The amounts recognised as financial assets and liabilities from cash collateral received at 31 December 2023 are set out below.

 

	Reinsurance transactions
	2023  £m	2022  £m
Financial assets	208	267
Financial liabilities	208	267

F11. Risk management - insurance risk

This note forms one part of the risk management disclosures in the consolidated financial statements. An overview of the Group's approach to risk management is outlined in note I3 and the Group's management of financial and other risks is detailed in note E6.

Insurance risk refers to the risk of reductions in earnings and/or value, through financial or reputational loss, due to fluctuations in the timing, frequency and severity of insured/underwritten events and to fluctuations in the timing and amount of claim settlements. This includes fluctuations in profits due to customer behaviour. The Life businesses are exposed to the following elements of insurance risk:

Mortality	higher than expected death claims on assurance products, lower than expected improvements in mortality or adverse movement in mortality rates on Equity Release Mortgages;
Longevity	lower than expected number of deaths experienced on annuity products or greater than expected improvements in annuitant mortality;
Morbidity/Disability	higher than expected number of inceptions on critical illness or income protection policies and lower than expected termination rates on income protection policies or adverse movements in morbidity rates on Equity Release Mortgages;
Expenses	unexpected timing or value of expenses incurred;
Persistency	adverse movement in surrender rates, premium paying rates, premium indexation rates, cash withdrawal/drawdown rates, GAO surrender rates, GAO take-up rates, policyholder retirement dates, propensity to commute benefits, transfer out rates or the occurrence of a mass lapse event or adverse change in mortgage prepayment rates leading to losses;
New business pricing	inappropriate pricing of new business that is not in line with the underlying risk factors for that business.
Concentration of risk	concentration of risk arising from insurance contracts might exist where the Group has significant exposure to specific demographic factors such as age, smoker status, geographical location. The Group's exposure to insurance risk is spread across a diversified portfolio of products and approximately 12 million policyholders. Concentration risk might also arise from insurance contracts that expose the Group to financial risk as a result of options and guarantees contained within the product. Details of the Group's approach to managing these features are contained in F11.3 Managing Product Risk. The Group sets individual risk limits as a key control within its Risk Appetite Framework.  Risk limits are reviewed as part of approving the Group's Annual Operating Plan and permit concentrations of certain risks only where the strategy can be demonstrated as affordable within risk appetite.

The Group sets individual risk limits as a key control within its Risk Appetite Framework. Risk limits are reviewed as part of approving the Group's Annual Operating Plan and permit concentrations of certain risks only where the strategy can be demonstrated as affordable within risk appetite.

Objectives and policies for mitigating insurance risk

Insurance risks are managed by monitoring risk exposure against pre-defined appetite limits. If a risk is moving out of appetite, the Group can choose to mitigate it via reinsurance in the case of longevity, mortality and morbidity risks, or by taking other risk reducing actions.

This is supported by additional methods to assess and monitor insurance risk exposures for both individual types of risks insured and overall risks. These methods include internal risk measurement models, experience analyses, external data comparisons, sensitivity analyses, scenario analyses and stress testing. Assumptions that are deemed to be financially significant are reviewed at least annually for pricing and reporting purposes.

The profitability of the run-off of the closed book of business within the Group depends, to a significant extent, on the values of claims paid in the future relative to the assets accumulated to the date of claim. Typically, over the lifetime of a contract, premiums and investment returns exceed claim costs in the early years and it is necessary to set aside these amounts to meet future obligations. The amount of such future obligations is assessed on actuarial principles by reference to assumptions about the development of financial and insurance risks.

It is therefore necessary for the Directors of each life company to make decisions, based on actuarial advice, which ensure an appropriate accumulation of assets relative to liabilities. These decisions include investment policy, bonus policy and, where discretion exists, the level of payments on early termination.

In the Retirement Solutions operating segment, longevity risk exposures continue to increase as a result of the Bulk Purchase Annuity deals it has successfully acquired, however the vast majority of these exposures are reinsured to third parties. New business growth driven by product segments such as Workplace unit-linked pensions, within the Pensions and Savings business, exposes the Group to persistency and expense risks.

F11.1 Sensitivities

Insurance liabilities are sensitive to changes in risk variables, such as prevailing market interest rates, currency rates and equity prices, since these variations alter the value of the financial assets held to meet obligations arising from insurance contracts and changes in investment conditions also have an impact on the value of insurance liabilities themselves. Additionally, insurance liabilities are sensitive to the assumptions which have been applied in their calculation, such as mortality and lapse rates. Sometimes allowance must also be made for the effect on future assumptions of management or policyholder actions in certain economic scenarios. This could lead to changes in assumed asset mix or future bonus rates. The most significant non-economic sensitivities arise from mortality, longevity and lapse risk. The table below analyses how the CSM, profit after tax and equity would have increased or (decreased) if changes in underwriting risk variables that were reasonably possible at the reporting date had occurred. This analysis presents the sensitivities both before and after risk mitigation by reinsurance and assumes that all other variables remain constant.

		Impact on profit after tax and equity		Impact on CSM
		Gross of reinsurance	Net of reinsurance	Gross of reinsurance	Net of reinsurance
2023	Change in risk variable	£m	£m	£m	£m
Assurance mortality	+5%	(33)	(49)	(112)	(54)
	-5%	(24)	(6)	211	149
Annuitant longevity	+5%	91	(30)	(946)	(230)
	-5%	(101)	10	896	236
Lapse rates	+10%	(5)	-	33	20
	-10%	(8)	(13)	(11)	4
Expenses	+10%	(68)	(67)	(302)	(302)
	-10%	32	32	349	349
		Impact on profit after tax and equity		Impact on CSM
		Gross of reinsurance	Net of reinsurance	Gross of reinsurance	Net of reinsurance
2022	Change in risk variable	£m	£m	£m	£m
Assurance mortality	+5%	9	(13)	(180)	(118)
	-5%	(16)	6	216	147
Annuitant longevity	+5%	54	(62)	(835)	(250)
	-5%	(108)	-	845	304
Lapse rates	+10%	1	5	20	8
	-10%	(12)	(16)	-	12
Expenses	+10%	(57)	(57)	(275)	(274)
	-10%	27	27	315	314

F11.2 Assumptions

The assumptions used to determine the liabilities are updated at each reporting date to reflect recent experience, unless IFRS17 requires otherwise. Material judgement is required in calculating these liabilities and, in particular, in the choice of assumptions about which there is uncertainty over future experience. The principal assumptions are as follows:

F11.2.1 Discount rates

All cash flows are discounted using risk-free yield curves adjusted to reflect the timing and liquidity characteristics of those cash flows. For the risk-free yield curve the Group uses those published by the PRA and EIOPA for regulatory reporting. Where necessary, yield curves are interpolated between the last available market data point and the ultimate forward rate.

The Group uses a top-down approach primarily for annuities and a bottom-up discount rate for all other business. Under the top-down approach, the discount rate is determined from the yield implicit in the fair value of an appropriate reference portfolio of assets that reflects the characteristics of the liabilities. For annuity business, the Group determines the reference portfolio based on the strategic asset allocation ('SAA') which aligns to the strategic investment objectives of the Group. The SAA sets out the target level of investment in a range of asset classes and the yield for these asset classes is determined based on the fair value of assets in that class held at the valuation date.

Adjustments are made for differences between the reference portfolio and the insurance contract liability cash flows, including an allowance for credit defaults. The credit default deduction comprises an allowance for both expected and unexpected defaults and takes into consideration long-term historical data on actual defaults and an allowance for variability around these defaults. The credit default deduction is determined based on the assets held at the valuation date.

The approach to determining unexpected defaults is based on a percentage of spread less the expected default allowance. The percentage of spread was set using a top-down view that took into consideration management's best estimate as to the allocation of the spread between illiquidity factors and the risk of default. Given the widening of spreads during 2022 resulting from macro-economic conditions driven by the war in Ukraine and resulting food and energy crises, surging inflation and the Mini Budget, this judgement became more material. Since the beginning of 2022, the Group has been developing a credit model for use in the Phoenix Solvency II Internal Model (subject to PRA approval), which also provides a best estimate view of credit defaults. The new model applies a stress to long-term historical actual default data to determine the variability of defaults. From 30 June 2022, the new model has been used as an input in determining the assumption for unexpected credit defaults as it is considered to provide a more refined view of the variability of defaults, particularly in volatile market conditions.

The top-down approach was further refined as at 31 December 2023. This refinement related to the determination of the yield used in relation to the Equity Release Mortgages asset class. The previous approach calculated the yield by reference to the internal securitisation structure established for this asset class for Solvency II purposes. This was amended as at the reporting date to determine the yield based on the underlying Equity Release Mortgage loans themselves. This refinement had the impact of increasing the liquidity premium applied at 31 December 2023 for GBP Annuities by circa 19bps.

Under the bottom-up approach, the discount rate is determined as the risk-free yield curve, adjusted for differences in liquidity characteristics by adding an illiquidity premium. For with-profits business a single illiquidity premium is determined for each fund based on the cash flow characteristics of the contracts within the fund and applied to all contracts within the fund.

The tables below set out the yield curves used to discount the cash flows of insurance contracts for major currencies.

	Risk-free rate (bps)
2023	1 year	5 years	10 years	20 years	30 years
GBP	474	336	328	343	336
Euro	336	232	239	240	218
	Risk-free rate (bps)
2022	1 year	5 years	10 years	20 years	30 years
GBP	446	406	371	354	335
Euro	318	313	309	276	229
				Liquidity premium over risk-free rate
				2023	2022
				bps	bps
Annuities GBP				173	151
Annuities Euro				49	44
With-Profits GBP - liquid liabilities				20	10
With-Profits Euro - liquid liabilities				20	10
With-Profits GBP - illiquid liabilities				107 - 173	100 - 151

F11.2.2 Risk adjustment

The Group has used the confidence level technique to derive the risk adjustment for non-financial risk. The risk adjustment percentile is determined based on the Group's view of the compensation required in respect of non-financial risk. The diversification benefit included in the risk adjustment reflects diversification between contracts within the perimeter of the Group's Internal Model. There is no diversification allowed for between contracts measured under standard formula and the internal model. The confidence level percentile is calculated on a one year basis. The risk adjustment calibration is set at least annually, off-cycle, based on the Group's current view of risk. The risk adjustment calculation is reassessed at each reporting date, i.e. the risk adjustment is not locked-in at initial recognition.

For with-profit business, the shareholder's portion of non-financial risks (including an allowance for burn-through costs to the shareholder) is allowed for in the derivation of the risk adjustment. For non-profit business held within a with-profit fund, the risk adjustment takes into account the compensation required by both the shareholder and the participating policyholders.

Confidence level techniques are used to derive the overall risk adjustment for non-financial risk and this is allocated down to each group of contracts in accordance with their risk profiles. The confidence level percentile input used to determine the risk adjustment is as follows:

	2023	2022
Insurance contracts (gross of reinsurance)	80th	80th

The one year confidence level used to determine the risk adjustment has been converted to an approximate lifetime confidence level using an approach which involves dividing by the square root of the lifetime duration of the insurance business.

Lifetime confidence level	2023	2022
Insurance contracts (gross of reinsurance)	61st	61st

F11.2.3 Other assumptions

Other assumptions such as policyholder behaviours (lapses and surrender rates), expense inflation and demographic assumptions (i.e. longevity, mortality) are a key component of determining the cash flows related to the insurance contract liabilities. The underwriting risk variables and assumptions are set based on past experience and/or relevant industry data, market practice, regulations and expectations about future trends. Economic assumptions used in the measurement of fulfilment cash flows are market consistent.

Expenses and expense inflation

Insurance contract liabilities include an allowance for the best estimate of future expenses associated with the administration of in-force policies. This requires the allocation of the Group's future expenses between those that relate to the administration of in-force policies, those attributable to the acquisition of new business and other costs, such as corporate costs. There is a level of judgement applied in the analysis that supports this allocation. Additionally, judgement is applied in the determination of the projected costs of the Group, in particular where those projections include the impact of transition and integration activity.

Expenses are assumed to increase at either the rate of increase in the Retail Price Index ('RPI'), or a rate derived from the UK inflation swaps curve, plus fixed margins in accordance with the various management service agreements ('MSAs') the Group has in place with outsource partners. For with-profit business the rate of RPI inflation is determined within each stochastic scenario. For other business it is based on the Bank of England inflation spot curve. For MSAs with contractual increases set by reference to national average earnings inflation, this is approximated as RPI inflation or RPI inflation plus 1%. In instances in which inflation risk is not mitigated, appropriate margins are applied to reflect central expectations of earnings inflation in excess of RPI.

Mortality and longevity rates

Mortality rates are based on company experience and published tables, adjusted appropriately to take account of changes in the underlying population mortality since the table was published, company experience and forecast changes in future mortality. Where appropriate, a margin is added to assurance mortality rates to allow for adverse future deviations. Annuitant mortality rates are adjusted to make allowance for future improvements in pensioner longevity.

Lapse and surrender rates (persistency)

The assumed rates for surrender and voluntary premium discontinuance depend on the length of time a policy has been in force and the relevant company experience. Surrender or voluntary premium discontinuances are only assumed for realistic basis funds. Withdrawal rates used in the valuation of with-profit policies are based on observed experience and adjusted when it is considered that future policyholder behaviour will be influenced by different considerations than in the past. In particular, it is assumed that withdrawal rates for unitised with-profit contracts will be higher on policy anniversaries on which Market Value Adjustments do not apply.

Discretionary participating bonus rate

The regular bonus rates assumed in each scenario are determined in accordance with each company's Principles and Practices of Financial Management ('PPFM'). Final bonuses are assumed at a level such that maturity payments will equal asset shares subject to smoothing rules set out in the PPFM and the value of guaranteed benefits.

Policyholder options and guarantees

Some of the Group's products give potentially valuable guarantees, or give options to change policy benefits which can be exercised at the policyholders' discretion. These products are described below:

Most with-profit contracts give a guaranteed minimum payment on a specified date or range of dates or on death if before that date or dates. For pensions contracts, the specified date is the policyholder's chosen retirement date or a range of dates around that date. For endowment contracts, it is the maturity date of the contract. For with-profit bonds it is often a specified anniversary of commencement, in some cases with further dates thereafter. Annual bonuses when added to with-profit contracts usually increase the guaranteed amount.

There are guaranteed surrender values on a small number of older contracts.

Some pensions contracts include guaranteed annuity options. The total amounts provided in the with-profit and non-profit funds in respect of the future costs of guaranteed annuity options are £860 million (2022: £922 million) and £61 million (2022: £61 million) respectively.

In common with other life companies in the UK which have written pension transfer and opt-out business, the Group has set up provisions for the review and possible redress relating to personal pension policies. These provisions, which have been calculated from data derived from detailed file reviews of specific cases and using a certainty equivalent approach, which give a result very similar to a market consistent valuation, are included in liabilities arising under insurance contracts. The total amount provided in the with-profit funds and non-profit funds in respect of the review and possible redress relating to pension policies, including associated costs, are £191 million (2022: £195 million) and £2 million (2022: £2 million) respectively.

With-profit deferred annuities participate in profits only up to the date of retirement. At retirement, a guaranteed cash option allows the policyholder to commute the annuity benefit into cash on guaranteed terms.

Assumption changes

During the year a number of changes were made to assumptions to reflect changes in expected experience. The impact of material changes during the year was as follows:

	Increase/(decrease) in CSM	(Decrease)/increase in loss component	Increase/ (decrease) in CSM	(Decrease)/ increase in loss component
For insurance contracts:
Change in longevity assumptions	918	(1)	239	(17)
Change in persistency assumptions	(6)	17	-	5
Change in mortality assumptions	(102)	12	127	(1)
Change in expenses assumptions	(170)	(35)	(172)	59
For reinsurance contracts:
Change in longevity assumptions	(598)	-	(122)	-
Change in persistency assumptions	-	-	(10)	-
Change in mortality assumptions	15	-	(40)	-
Change in expenses assumptions	(13)	-	(33)	-

2023:

The £320 million net of reinsurance increase in CSM due to changes in longevity assumptions reflects updates to base and improvement assumptions to reflect latest experience analyses, including moving to the latest CMI model.

As well as annual persistency updates to reflect latest experience, assumption changes were made for late retirements and GAO take-up rates during the year.

The £(87) million net of reinsurance decrease in CSM due to change in mortality assumptions is driven by changes in Europe & Other base mortality valuation assumptions.

 The £(183) million net of reinsurance decrease in CSM and £(35) million net of reinsurance decrease in loss component are due to changes in expense assumptions is driven by an increase in reserves principally in respect of delivery of the Group Target Operating Model for IT and Operations included the migration of policyholder administration onto the Tata Consultancy Services ('TCS') platform together with Group expense provisions and an increase in modelled maintenance expenses assumptions. This is partly offset due to changes in modelled investment expenses and release of an investment manual.

2022:

The £117 million net of reinsurance increase in CSM due to changes in longevity assumptions reflects updates to base and improvement assumptions to reflect latest experience analyses. The £17 million gross increase in loss component is driven by longevity assumption changes on Phoenix BPA business.

Persistency assumptions have been updated to reflect latest experience analyses, leading to a £17 million impact on loss component.

The £87 million net of reinsurance increase in CSM due to changes in mortality assumptions is driven by changes in morbidity assumption for German morbidity riders.

The £(205) million net of reinsurance decrease in CSM and £59 million net of reinsurance increase in loss component due to changes in expense assumptions primarily reflects an increase in the anticipated costs associated with the implementation of IFRS 17 and the delivery of the Group Target Operating Model for IT and Operations.

F11.3 Managing product risk

The following sections give an assessment of the risks associated with the Group's main life assurance products and the ways in which the Group manages those risks.

Product	Primary segment	Main insurance risks
With-Profit:
Unitised & Traditional - without guarantees	With-Profits	Longevity & Lapse
Unitised & Traditional - with guarantees	With-Profits	Lapse
Annuities	With-Profits	Longevity
Non-profit:
Deferred annuities - with guarantees	Retirement Solutions	Longevity
Deferred annuities - without guarantees	Retirement Solutions	Longevity
Immediate annuities	Retirement Solutions	Longevity
Protection	Europe & Other	Mortality, Morbidity & Lapse
Unit-linked - with guarantees	Pensions & Savings	Longevity & Lapse
Unit-linked - without guarantees	Pensions & Savings	Mortality, Morbidity & Lapse

The above products will also be exposed to market risk and further details are included in note E6.2.

£12,966 million (2022: £11,753 million) of liabilities are subject to longevity swap arrangements.

With-profit fund (unitised and traditional)

The Group operates a number of with-profit funds in which the with-profit policyholders benefit from a discretionary annual bonus (guaranteed once added in most cases) and a discretionary final bonus. Non-participating business is also written in some of the with-profit funds and some of the funds may include immediate annuities and deferred annuities with Guaranteed Annuity Rates ('GAR').

The investment strategy of each fund differs, but is broadly to invest in a mixture of fixed interest investments and equities and/or property and other asset classes in such proportions as is appropriate to the investment risk exposure of the fund and its capital resources.

The Group has significant discretion regarding investment policy, bonus policy and early termination values. The process for exercising discretion in the management of the with-profit funds is set out in the PPFM for each with-profit fund and is overseen by with-profit committees. Advice is also taken from the with-profit actuary of each with-profit fund. Compliance with the PPFM is reviewed annually and reported to the PRA, Financial Conduct Authority ('FCA') and policyholders.

The bonuses are designed to distribute to policyholders a fair share of the return on the assets in the with-profit funds together with other elements of the experience of the fund. The shareholders of the Group are entitled to receive one-ninth of the cost of bonuses declared for some funds and £nil for others. For the Heritage With Profits Fund ('HWPF'), under the Scheme of Demutualisation, shareholders are entitled to receive certain defined cash flows arising on specified blocks of UK and Irish business.

Unitised and traditional with-profit policies are exposed to equivalent risks, the main difference being that unitised with-profit policies purchase notional units in a with-profit fund whereas traditional with-profit policies do not. Benefit payments for unitised policies are then dependent on unit prices at the time of a claim, although charges may be applied. A unitised with-profit fund price is typically guaranteed not to fall and increases in line with any discretionary bonus payments over the course of one year.

Deferred annuities

Deferred annuity policies are written to provide either a cash benefit at retirement, which the policyholder can use to buy an annuity on the terms then applicable, or an annuity payable from retirement. The policies contain an element of guarantee expressed in the form that the contract is written in, i.e. to provide cash or an annuity. Deferred annuity policies written to provide a cash benefit may also contain an option to convert the cash benefit to an annuity benefit on guaranteed terms; these are known as GAR policies. Deferred annuity policies written to provide an annuity benefit may also contain an option to convert the annuity benefit into cash benefits on guaranteed terms; these are known as Guaranteed Cash Option ('GCO') policies. In addition, certain unit prices in the HWPF are guaranteed not to decrease.

Long-term interest rates remain relatively low compared to historical levels and life expectancy has increased more rapidly than originally anticipated. The guaranteed terms on GAR policies are more favourable than the annuity rates currently available in the market available for cash benefits. The guaranteed terms on GCO policies are currently not valuable. Deferred annuity policies which are written to provide annuity benefits are managed in a similar manner to immediate annuities and are exposed to the same risks.

The option provisions on GAR policies are particularly sensitive to downward movements in interest rates, increasing life expectancy and the proportion of customers exercising their option. Adverse movements in these factors could lead to a requirement to increase reserves which could adversely impact profit and potentially require additional capital. In order to address the interest rate risk (but not the risk of increasing life expectancy or changing customer behaviour with regard to exercise of the option), insurance subsidiaries within the Group have purchased derivatives that provide protection against an increase in liabilities and have thus reduced the sensitivity of profit to movements in interest rates (see note E6.2.2).

The Group seeks to manage this risk in accordance with both the terms of the issued policies and the interests of customers, and has obtained external advice supporting the manner in which it operates the long-term funds in this respect.

Immediate annuities

This type of annuity is purchased with a single premium at the outset, and is paid to the policyholder for the remainder of their lifetime. Payments may also continue for the benefit of a surviving spouse or partner after the annuitant's death. Annuities may be level, or escalate at a fixed rate, or may escalate in line with a price index and may be payable for a minimum period irrespective of whether the policyholder remains alive.

The main risks associated with this product are longevity and investment risks. Longevity risk arises where the annuities are paid for the lifetime of the policyholder, and is managed through the initial pricing of the annuity and through reinsurance (appropriately collateralised) or transfer of existing liabilities. Annuities may also be a partial 'natural hedge' against losses incurred in protection business in the event of increased mortality (and vice versa) although the extent to which this occurs will depend on the similarity of the demographic profile of each book of business. In addition, the Group has in place longevity swaps that provide downside protection over longevity risk.

The pricing assumption for mortality risk is based on both historic internal information and externally-generated information on mortality experience, including allowances for future mortality improvements. Pricing will also include a contingency margin for adverse deviations in assumptions.

Market and credit risk is influenced by the extent to which the cash flows under the contracts have been matched by suitable assets which is managed under the ALM framework. Asset/liability modelling is used to monitor this position on a regular basis.

Protection

These contracts are typically secured by the payment of a regular premium payable for a period of years providing benefits payable on certain events occurring within the period. The benefits may be a single lump sum or a series of payments and may be payable on death, serious illness or sickness.

The main risk associated with this product is the claims experience and this risk is managed through the initial pricing of the policy (based on actuarial principles), the use of reinsurance and a clear process for administering claims.

Market and credit risk is influenced by the extent to which the cash flows under the contracts have been matched by suitable assets which is managed under the ALM framework. Asset/liability modelling is used to monitor this position on a regular basis.

G. Other statement of consolidated financial position notes

G1. Pension schemes

Defined contribution pension schemes

Obligations for contributions to defined contribution pension schemes are recognised as an expense in the consolidated income statement as incurred.

Defined benefit pension schemes

The net surplus or deficit (the economic surplus or deficit) in respect of the defined benefit pension schemes is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior years; that benefit is discounted to determine its present value and the fair value of any scheme assets is deducted.

The economic surplus or deficit is subsequently adjusted to eliminate on consolidation the carrying value of insurance policies issued by Group entities to the defined benefit pension schemes (the reported surplus or deficit). A corresponding adjustment is made to the carrying values of insurance contract liabilities and investment contract liabilities.

As required by IFRIC 14, IAS 19 -'The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction', to the extent that the economic surplus (prior to the elimination of the insurance policies issued by Group entities) will be available as a refund, the economic surplus is stated after a provision for tax that would be borne by the scheme administrators when the refund is made. The Group recognises a pension surplus on the basis that it is entitled to the surplus of each scheme in the event of a gradual settlement of the liabilities, due to its ability to order a winding up of the Trust.

Additionally under IFRIC 14 pension funding contributions are considered to be a minimum funding requirement and, to the extent that the contributions payable will not be available to the Group after they are paid into the Scheme, a liability is recognised when the obligation arises. The net pension scheme asset/liability represents the economic surplus net of all adjustments noted above.

The Group determines the net interest expense or income on the net pension scheme asset/liability for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the opening net pension scheme asset/liability. The discount rate is the yield at the period end on AA credit rated bonds that have maturity dates approximating to the terms of the Group's obligations. The calculation is performed by a qualified actuary using the projected unit credit method.

The movement in the net pension scheme asset/liability is analysed between the service cost, past service cost, curtailments and settlements (all recognised within administrative expenses in the consolidated income statement), the net interest cost on the net pension scheme asset/liability, including any reimbursement assets (recognised within net investment income in the consolidated income statement), remeasurements of the net pension scheme asset/liability (recognised in other comprehensive income) and employer contributions.

This note describes the Group's five main defined benefit pension schemes for its employees, the Pearl Group Staff Pension Scheme ('Pearl Scheme'), the PGL Pension Scheme, the Abbey Life Staff Pension Scheme ('Abbey Life Scheme') the ReAssure Staff Pension Scheme ('ReAssure Scheme') and from 3 April 2023, the Sun Life Assurance Company of Canada 1988 UK and Irish Employee Benefits Scheme ('Sun Life of Canada Scheme'), and explains how the pension scheme asset/liability is calculated.

An analysis of the pension scheme (liability)/asset for each pension scheme is set out in the table below:

	2023  £m	2022  £m
Pearl Group Staff Pension Scheme
Economic surplus	50	46
Adjustment for insurance policies eliminated on consolidation	(1,507)	(1,501)
Net pension scheme liability, as reported	(1,457)	(1,455)
Reimbursement right in respect of reinsurance, as reported	202	205
Add: value attributed to assets held by PLL within financial assets1	1,506	1,576
Adjusted net pension scheme liabilities	251	326
PGL Pension Scheme
Economic surplus	20	23
Adjustment for insurance policies eliminated on consolidation	(1,093)	(1,079)
Amounts due from subsidiary eliminated on consolidation	(18)	-
Net pension scheme liability, as reported	(1,091)	(1,056)
Add: assets held by PLL within financial assets1	1,206	1,246
Adjusted net pension scheme asset	115	190
Abbey Life Staff Pension Scheme
Economic deficit	(7)	(5)
Minimum funding requirement obligation	(2)	(3)
Net pension scheme liability	(9)	(8)
ReAssure Staff Pension Scheme
Economic surplus	14	22
Provision for tax on that part of the economic surplus available as a refund on a winding-up of the Scheme	(5)	(8)
Net pension scheme asset	9	14
Sun Life of Canada Scheme
Net pension scheme asset	17	-
Reimbursement right	2	-

1  The Pearl Scheme and the PGL Pension Scheme have both executed buy-in transactions with a Group life company and subsequently assets supporting the Group's actuarial liabilities are recognised on a line-by-line basis within financial assets in the statement of consolidated financial position. Further details are included in notes G1.1 and G1.2 below.

    In the current and prior periods an adjusted net pension scheme asset has been presented in relation to both these pension schemes. The value of the assets held by PLL within financial assets in respect of the PGL Pension Scheme buy-ins is equal to the assets posted to a ring-fenced collateral account. For the Pearl Scheme the assets held by PLL supporting the buy-ins are not ring-fenced and the value has been determined as the value of the insurance contract liability within the PLL financial statements less the value of the associated reinsurance asset.

    Movements in these financial assets are reflected in the consolidated income statement within net investment income, however as noted in the accounting policy, the movement in the net pension scheme liability (as shown in notes G1.1 and G1.2) is primarily reflected in other comprehensive income.

Risks

The Group's defined benefit schemes typically expose the Group to a number of risks, the most significant of which are:

Asset volatility - the value of the schemes' assets will vary as market conditions change and as such is subject to considerable volatility. The liabilities are calculated using a discount rate set with reference to corporate bond yields; if assets underperform this yield, this will create a deficit. The majority of the assets are held within a liability driven investment strategy which is linked to the funding basis of the schemes (set with reference to government bond yields). As such, to the extent that movements in corporate bond yields are out of line with movements in government bond yields, volatility will arise.

Inflation risk - a significant proportion of the schemes' benefit obligations are linked to inflation, and higher inflation will lead to higher liabilities (although in most cases, caps on the level of inflationary increases are in place to protect against extreme inflation). The majority of the assets are held within a liability driven investment strategy which allows for movements in inflation, meaning that changes in inflation should not materially affect the surplus.

Life expectancy - the majority of the schemes' obligations are to provide benefits for the life of the member therefore increases in life expectancy will result in an increase in the liabilities. For the Pearl and PGL schemes, this is largely offset by the buy-in policies that move in line with the liabilities. These buy-in policies are eliminated on consolidation (see notes G1.1 and G1.2 for further details).

A High Court legal ruling in June 2023 (Virgin Media Limited v NTL Pension Trustees II Limited) decided that certain rule amendments were invalid if they were not accompanied by the correct actuarial confirmation. While the ruling only applied to the specific pension scheme in question, if it stands it will form part of case law and can therefore be expected to apply across other pension schemes. The ruling is subject to appeal and it may take some time for the outcome of the appeal to be known. The Group has not assessed the extent of any likely impacts from this ruling and considers that there is sufficient uncertainty not to warrant recognition of any potential obligation in respect of this in the consolidated statement of financial position at 31 December 2023. Any subsequent developments following this ruling will be monitored by the Group.

Information on each of the Group's pension schemes is set out below.

G1.1 Pearl Group Staff Pension Scheme

Scheme details

The Pearl Scheme comprises a final salary section, a money purchase section and a hybrid section (a mix of final salary and money purchase). The Pearl Scheme is closed to new members and has no active members.

Defined benefit scheme

The Pearl Scheme is established under, and governed by, the trust deeds and rules and has been funded by payment of contributions to a separately administered trust fund. A Group company, Pearl Life Holdings Limited ('PeLHL'), is from 1 October 2023 the principal employer of the Pearl Scheme (previously Pearl Group Holdings No.2 Limited ('PGH2')). PeLHL assumed the Scheme covenant together with all obligations of the Scheme following the transfer.

The principal employer meets the administration expenses of the Pearl Scheme. The Pearl Scheme is administered by a separate trustee company, P.A.T. (Pensions) Limited, which is separate from PeLHL. The trustee company is comprised of three representatives from the Group, three member nominated representatives and one independent trustee in accordance with the trustee company's articles of association. The trustee is required by law to act in the interest of all relevant beneficiaries and is responsible for the investment policy with regard to the assets.

The valuation has been based on an assessment of the liabilities of the Pearl Scheme as at 31 December 2023, undertaken by independent qualified actuaries. The present values of the defined benefit obligation and the related interest costs have been measured using the projected unit credit method.

A triennial funding valuation of the Pearl Scheme as at 30 June 2021 was completed in 2022 by a qualified actuary. This showed a surplus as at 30 June 2021 of £67 million, on the agreed technical provisions basis. The funding and IFRS accounting bases of valuation can give rise to different results for a number of reasons. The funding basis of valuation is based on general principles of prudence whereas the accounting valuation is based on best estimates. Discount rates are gilt-based for the funding valuation whereas the rate used for IFRS valuation purposes is based on a yield curve for high quality AA-rated corporate bonds. In addition the values are prepared at different dates which will result in differences arising from changes in market conditions and employer contributions made in the subsequent period.

Pension Scheme Commitment Agreement and buy-in transactions

On 17 November 2020, the Pearl Scheme entered into a Commitment Agreement with PGH2 to complete a series of buy-ins. At the same time, the Pearl Scheme completed the first buy-in with Phoenix Life Limited ('PLL') covering 25% of the Scheme's pensioner and deferred member liabilities, transferring the associated risks, including longevity improvement risk, to PLL effective from 30 September 2020.

Two further buy-in transactions were completed in July 2021 and October 2021 covering 35% and 15% respectively of the Scheme's pensioner and deferred member liabilities and the final buy-in transaction was completed in November 2022. Risks, including longevity improvement risk, were transferred to PLL effective from 28 May 2021 and 31 August 2021 and 30 September 2022 respectively.

Upon completion of each buy-in transaction the Scheme transferred the following plan assets to PLL:

•  In November 2020, £731 million of plan assets were transferred to PLL in satisfaction of the premium of £735 million and was net of a £4 million payment by PLL to the Scheme in respect of members' benefits for October and November 2020.

•  In July 2021, £1,049 million of plan assets were transferred to PLL in satisfaction of the premium and a further £12 million cash payment was paid by the Scheme in August 2021. PLL paid £5 million to the Scheme in respect of members' benefits for June and July 2021; and

•  In October 2021, £433 million of plan assets were transferred to PLL in satisfaction of the premium of £435 million and was net of a £2 million payment by PLL to the Scheme in respect of members' benefits for September and October 2021. A further £1 million cash payment in respect of the premium was paid by the Scheme in December 2021.

•  In November 2022, £556 million of plan assets were transferred to PLL in satisfaction of the premium of £560 million and was net of a £4 million payment by PLL to the Scheme in respect of members' benefits for October and November 2022.

The assets transferred to PLL are recognised in the relevant line within financial assets in the consolidated statement of financial position. The economic effect of the buy-in transactions in the Scheme is to replace the plan assets transferred with a single line insurance policy reimbursement right asset which is subsequently eliminated on consolidation. The value of this insurance policy at 31 December 2023 was £1,507 million (2022: £1,501 million) which includes an amount owed by PLL of £nil million (2022: £2 million).

The Commitment agreement contained provisions under which payments by PGH2 to the Scheme were required in the event that the Group did not meet the minimum buy-in completion schedule. Following completion of the last buy-in transaction in 2022 the Group no longer has an obligation to pay gilts deficit recovery contributions.

The new agreement also introduced a new form of security provided by PGH2 to the trustee. The share charges over certain Group entities were replaced by a new surety bond arrangement, whereby two external third-party insurers, each provided £100 million of cover payable to the Scheme following certain trigger events. This cover provided by the surety bond guarantee was fully released upon completion of the final buy-in transaction in November 2022.

No contributions were paid to the Pearl Scheme in either the current or prior period. PeLHL meets the administrative and non-investment running expenses of the Scheme as set out in the schedule of contributions (PGH2 prior to 1 October 2023).

During 2022, the Company reached an agreement for the removal of a trustee discretion to pay some pension increases in excess of the 5% cap. The trustee agreed to give up this discretion in exchange for a single 1.6% uplift for current pensions in payment effective from 1 April 2022 and a 1.3% increase to eligible benefits of both pension and deferred members effective from 1 April 2023. In the current period, the financial impact of the 1.3% uplift has been to recognise an increase in the defined benefit obligation of £12 million and a past service cost in the consolidated income statement (at 31 December 2022, the financial impact of the 1.6% uplift was £15 million).

Reimbursement right asset in respect of Reinsurance arrangement

In March 2022, PLL entered into a quota share reinsurance arrangement with an external insurer to reinsure a further 27% of the risks transferred to PLL as part of the third buy-in transaction with the Pearl Scheme. A total of approximately 91% of these liabilities have now been reinsured. A premium of £104 million was paid by PLL to the reinsurer. As PLL expects to use the claims received to pay for its obligations under the insurance contract between it and the Pearl Scheme (i.e. to settle the defined benefit obligation) the reinsurance arrangement is considered to be a non-qualifying insurance policy and is classified as a reimbursement right. The reinsurance arrangement is expected to match a proportion of the defined benefit obligation of the Pearl Scheme therefore the valuation of the reimbursement right is consistent with the valuation of the associated defined benefit obligation. The value of the reimbursement right asset amounted to £202 million (31 December 2022: £205 million).

Summary of amounts recognised in the consolidated financial statements

The amounts recognised in the consolidated financial statements are as follows:

2023	Fair value of scheme assets £m	Defined benefit obligation £m	Pension Scheme Liability £m	Reimburse-ment right £m
At 1 January	46	(1,501)	(1,455)	205
Interest income/(expense)	2	(72)	(70)	10
Past service cost	-	(12)	(12)	-
Included in profit or loss	2	(84)	(82)	10
Remeasurements:
Return on plan assets excluding amounts included in interest income	2	-	2	-
Gain from changes in demographic assumptions	-	12	12	-
Loss from changes in financial assumptions	-	(51)	(51)	-
Experience gain	-	15	15	-
Included in other comprehensive income	2	(24)	(22)	-
Income received from insurance policies	102	-	102	-
Benefit payments	(102)	102	-	(13)
At 31 December	50	(1,507)	(1,457)	202

 

2022	Fair value of scheme assets £m	Defined benefit obligation £m	Provision for tax on the economic surplus available as a refund £m	Pension Scheme Liability £m	Reimbursement right asset £m
At 1 January	807	(2,224)	(92)	(1,509)	212
Interest income/(expense)	16	(52)	(2)	(38)	4
Past service cost	-	(15)	-	(15)	-
Included in profit or loss	16	(67)	(2)	(53)	4
Remeasurements:
Return on plan assets excluding amounts included in interest income	(208)	-	-	(208)	(101)
Gain from changes in demographic assumptions	-	3	-	3	-
Gain from changes in financial assumptions	-	805	-	805	-
Experience loss	-	(116)	-	(116)	-
Change in provision for tax on economic surplus available as a refund	-	-	94	94	-
Included in other comprehensive income	(208)	692	94	578	(101)
Income received from insurance policies	89	-	-	89	-
Benefit payments	(98)	98	-	-	(14)
Assets transferred as premium for Scheme buy-in	(560)	-	-	(560)	-
Assets transferred as premium for reinsurance arrangement	-	-	-	-	104
At 31 December	46	(1,501)	-	(1,455)	205

Scheme assets

The distribution of the scheme assets at the end of the year was as follows:

	2023		2022
	Total £m	Of which not quoted in an active market £m	Total £m	Of which not quoted in an active market £m
Properties	-	-	5	5
Private equities	5	5	4	4
Hedge funds	3	3	3	3
Cash and other	42	-	34	-
Obligations for repayment of stock lending collateral received	-	-	-	-
Reported scheme assets	50	8	46	12
Add back:
Insurance policies eliminated on consolidation	1,507	1,507	1,501	1,501
Economic value of assets	1,557	1,515	1,547	1,513

Defined benefit obligation

The calculation of the defined benefit obligation can be allocated to the scheme's members as follows:

•  Deferred scheme members: 33% (2022: 40%); and

•  Pensioners: 67% (2022: 60%)

The weighted average duration of the defined benefit obligation at 31 December 2023 is 13.5 years (2022: 13.5 years).

Principal assumptions

The principal financial assumptions of the Pearl Scheme are set out in the table below:

	2023 %	2022 %
Rate of increase for pensions in payment (5% per annum or RPI if lower)	2.90	3.05
Rate of increase for deferred pensions ('CPI')	2.60	2.70
Discount rate	4.60	4.95
Inflation - RPI	3.10	3.30
Inflation - CPI	2.60	2.70

The discount rate and inflation rate assumptions have been determined by considering the shape of the appropriate yield curves and the duration of the Pearl Scheme's liabilities. This method determines an equivalent single rate for each of the discount and inflation rates, which is derived from the profile of projected benefit payments.

The post-retirement mortality assumptions are in line with a scheme-specific table which was derived from the actual mortality experience in recent years based on the SAPS standard tables for males and for females based on year of use. Future longevity improvements from 1 January 2021 are based on amended CMI 2022 Core Projections (2022: From 1 January 2021 based on amended CMI 2021 Core Projections) and a long-term rate of improvement of 1.5% (2022: 1.5%) per annum for males and 1.2% (2022: 1.2%) per annum for females. Under these assumptions, the average life expectancy from retirement for a member currently aged 40 retiring at age 60 is 29.0 years and 30.3 years for male and female members respectively (2022: 29.2 years and 30.5 years respectively).

A quantitative sensitivity analysis for significant actuarial assumptions is shown below:

2023 Assumptions Sensitivity level	Base	Discount rate		RPI		Life expectancy
		25bps increase	25bps decrease	25bps increase	25bps decrease	1 year increase	1 year decrease
Impact on the defined benefit obligation (£m)	1,507	(41)	43	23	(22)	37	(37)

 

2022 Assumptions Sensitivity level	Base	Discount rate		RPI		Life expectancy
		25bps increase	25bps decrease	25bps increase	25bps decrease	1 year increase	1 year decrease
Impact on the defined benefit obligation (£m)	1,501	(40)	42	26	(25)	37	(37)

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method has been applied as when calculating the pension asset recognised within the statement of consolidated financial position.

G1.2 PGL Pension Scheme

The PGL Pension Scheme comprises a final salary section and a defined contribution section.

Scheme details

Defined contribution scheme

On 1 July 2020 the Group closed the defined contribution section of the PGL Scheme and ceased making contributions from this date.

Defined benefit scheme

The defined benefit section of the PGL Pension Scheme is a final salary arrangement which is closed to new entrants and has no active members.

The PGL Scheme is administered by a separate trustee company, PGL Pension Trustee Ltd. The trustee company is comprised of two representatives from the Group, three member nominated representatives and one independent trustee in accordance with the trustee company's articles of association. The trustee is required by law to act in the interest of all relevant beneficiaries and is responsible for the day to day administration of the benefits.

The valuation has been based on an assessment of the liabilities of the PGL Pension Scheme as at 31 December 2023, undertaken by independent qualified actuaries.

To the extent that an economic surplus will be available as a refund, the economic surplus is stated after a provision for tax that would be borne by the scheme administrators when the refund is made.

A triennial funding valuation of the PGL Pension Scheme as at 30 June 2021 was completed in 2022 by a qualified actuary. This showed a surplus as at 30 June 2021 of £2 million. The IFRS valuation cash flows reflect the latest available data and are not limited to being updated following the completion of each funding valuation.

There are no further committed contributions to pay in respect of the defined benefit section of the Scheme.

Insurance policies with Group entities

In March 2019, the PGL Pension Scheme entered into a buy-in agreement with PLL which covered the remaining pensioner and deferred members of the Scheme not covered by the first such agreement concluded in December 2016. The plan assets transferred to PLL as premium are held in a collateral account and are recognised in the relevant line within financial assets in the statement of consolidated financial position. The economic effect of these transactions in the Scheme is to replace the plan assets transferred with a single line insurance policy reimbursement asset which is eliminated on consolidation along with the relevant insurance contract liabilities in PLL.

The value of the insurance policies with Group entities at 31 December 2023 is £1,093 million (2022: £1,079 million).

During the year, £18 million of scheme assets were transferred to PLL as premium for the buy-out transaction which completed in January 2024. A debtor of £18 million, to reflect the prepayment of this premium at 31 December 2023 (2022: £nil), has been eliminated on consolidation. Further details of this transaction are included in note I7.

Summary of amounts recognised in the consolidated financial statements

The amounts recognised in the consolidated financial statements are as follows:

2023	Fair value of scheme assets £m	Defined benefit obligation £m	Total £m
At 1 January	27	(1,083)	(1,056)
Interest income/(expense)	1	(52)	(51)
Administrative expenses	(3)	-	(3)
Included in profit or loss	(2)	(52)	(54)
Remeasurements:
Return on plan assets excluding amounts included in interest income	(1)	-	(1)
Gain from changes in demographic assumptions	-	13	13
Loss from changes in financial assumptions	-	(27)	(27)
Experience loss	-	(17)	(17)
Included in other comprehensive income	(1)	(31)	(32)
Income received from insurance policies	69	-	69
Benefit payments	(69)	69	-
Assets transferred as premium for scheme buy-out	(18)	-	(18)
At 31 December	6	(1,097)	(1,091)

 

2022	Fair value of scheme assets £m	Defined benefit obligation £m	Total £m
At 1 January	31	(1,623)	(1,592)
Interest income/(expense)	1	(32)	(31)
Administrative expenses	(4)	-	(4)
Included in profit or loss	(3)	(32)	(35)
Remeasurements:
Return on plan assets excluding amounts included in interest income	(1)	-	(1)
Gain from changes in demographic assumptions	-	5	5
Gain from changes in financial assumptions	-	531	531
Experience loss	-	(36)	(36)
Included in other comprehensive income	(1)	500	499
Income received from insurance policies	72	-	72
Benefit payments	(72)	72	-
At 31 December	27	(1,083)	(1,056)

Scheme assets

The distribution of the scheme assets at the end of the year was as follows:

		2023		2022
	Total £m	Of which not quoted in an active market £m	Total £m	Of which not quoted in an active market £m
Cash and other	6	-	27	-
Reported scheme assets	6	-	27	-
Add back:
Insurance policies eliminated on consolidation	1,093	1,093	1,079	1,079
Amounts due from subsidiary eliminated on consolidation	18	18	-	-
Economic value of assets	1,117	1,111	1,106	1,079

Defined benefit obligation

The calculation of the defined benefit obligation can be allocated to the scheme's members as follows:

•  Deferred scheme members: 36% (2022: 36%); and

•  Pensioners: 64% (2022: 64%)

The weighted average duration of the defined benefit obligation at 31 December 2023 is 13.5 years (2022: 13.5 years).

Principal assumptions

The principal financial assumptions of the PGL Pension Scheme are set out in the table below:

	2023 %	2022 %
Rate of increase for pensions in payment (7.5% per annum or RPI if lower)	3.10	3.30
Rate of increase for deferred pensions ('CPI')	2.60	2.70
Discount rate	4.60	4.95
Inflation - RPI	3.10	3.30
Inflation - CPI	2.60	2.70

The discount rate and inflation assumptions have been determined by considering the shape of the appropriate yield curves and the duration of the PGL Pension Scheme liabilities. This method determines an equivalent single rate for each of the discount and inflation rates, which is derived from the profile of projected benefit payments.

The post-retirement mortality assumptions are in line with 86%/94% of S1P Light base tables for males and females. Future longevity improvements from 1 January 2021 are based on amended CMI 2022 Core Projections (2022: From 1 January 2021 based on amended CMI 2021 Core Projections) with a long-term rate of improvement of 1.5% (2022: 1.5%) per annum for males and 1.2% (2022: 1.2%) per annum for females. Under these assumptions, the average life expectancy from retirement for a member currently aged 40 retiring at age 62 is 27.4 years (2022: 27.7 years) and 28.8 years (2022: 29.1 years) for male and female members respectively.

A quantitative sensitivity analysis for significant actuarial assumptions is shown below:

2023 Assumptions Sensitivity level	Base	Discount rate		RPI		Life expectancy
		25bps increase	25bps decrease	25bps increase	25bps decrease	1 year increase	1 year decrease
Impact on the defined benefit obligation (£m)	1,097	(32)	33	22	(21)	31	(31)

 

2022 Assumptions Sensitivity level	Base	Discount rate		RPI		Life expectancy
		25bps increase	25bps decrease	25bps increase	25bps decrease	1 year increase	1 year decrease
Impact on the defined benefit obligation (£m)	1,083	(31)	33	23	(22)	30	(30)

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method has been applied as when calculating the pension liability recognised within the statement of consolidated financial position.

G1.3 Abbey Life Staff Pension Scheme

Scheme details

On 30 June 2017, the Abbey Life Scheme was transferred from Abbey Life to PeLHL, a fellow subsidiary. PeLHL assumed the scheme covenant together with all obligations of the scheme following implementation of the transfer. The Abbey Life Scheme is a registered occupational pension scheme, set up under trust, and legally separate from the employer PeLHL. The scheme is administered by Abbey Life Trust Securities Limited (the trustee), a corporate trustee. There are three trustee directors, one of whom is nominated by the Abbey Life Scheme members and two of whom are appointed by PeLHL. The trustee is responsible for administering the scheme in accordance with the trust deed and rules and pensions laws and regulations. The Abbey Life Scheme is closed to new entrants and has no active members.

The valuation has been based on an assessment of the liabilities of the Abbey Life Scheme as at 31 December 2023 undertaken by independent qualified actuaries. The present values of the defined benefit obligation and the related interest costs have been measured using the projected unit credit method.

Funding

The last funding valuation of the Abbey Life Scheme was carried out by a qualified actuary as at 31 March 2021 and showed a deficit of £86 million. Following completion of the funding valuation a recovery plan was agreed between the Group and the trustee of the Abbey Life Scheme for PeLHL to pay monthly contributions of £400,000 into the Scheme until 31 July 2025 to eliminate the funding shortfall. In addition, the entire balance of the 2013 Charged Account of £42 million was paid to the Scheme in December 2021.

A new schedule of contributions was agreed effective from November 2021, for PeLHL to pay the following amounts in respect of deficit contributions in addition to the amounts payable under the recovery plan:

•  fixed monthly contributions of £400,000 payable from 1 August 2025 to 30 June 2026;

•  monthly contributions in respect of administration expenses of £106,295 payable up to 31 March 2022, then increasing annually in line with the Retail Prices Index assumption to 30 June 2028; and

•  annual payments of £4 million into the New 2016 Charged Account by 31 July each year, with the next payment being made on 31 July 2022, and the last payment due by 31 July 2025.

The charged account is an Escrow account which was created to provide the trustees with additional security in light of the funding deficit. The amounts held in the charged account does not form part of Abbey Life Scheme assets.

Under the terms of the New 2016 Funding Agreement the funding position of the Abbey Life Scheme will be assessed as at 31 March 2027. A payment will be made from the New 2016 Charged Account to the Scheme if the results of the assessment reveal a shortfall calculated in accordance with the terms of the New 2016 Funding Agreement. The amount of the payment will be the lower of the amount of the shortfall and the amount held in the New 2016 Charged Account.

An additional liability of £2 million (2022: £3 million) has been recognised reflecting a charge on any refund of the resultant IAS 19 surplus that arises after adjustment for discounted future contributions of £11 million (2022: £15 million) in accordance with the minimum funding requirement. A deferred tax asset of £3 million (2022: £3 million) has also been recognised to reflect tax relief at a rate of 25% that is expected to be available on the contributions once paid into the Scheme.

Summary of amounts recognised in the consolidated financial statements

The amounts recognised in the consolidated financial statements are as follows:

2023	Fair value of scheme assets £m	Defined benefit obligation £m	Minimum funding requirement obligation £m	Total £m
At 1 January	206	(211)	(3)	(8)
Interest income/(expense)	10	(10)	-	-
Administration expenses	(2)	-	-	(2)
Included in profit or loss	8	(10)	-	(2)
Remeasurements:
Return on plan assets excluding amounts included in interest income	2	-	-	2
Experience loss	-	(4)	-	(4)
Gain from changes in demographic assumptions	-	2	-	2
Loss from changes in financial assumptions	-	(6)	-	(6)
Change in minimum funding requirement obligation	-	-	1	1
Included in other comprehensive income	2	(8)	1	(5)
Employer's contributions	6	-	-	6
Benefit payments	(11)	11	-	-
At 31 December	211	(218)	(2)	(9)

 

2022	Fair value of scheme assets £m	Defined benefit obligation £m	Provision for tax on the economic surplus available as a refund £m	Minimum funding requirement obligation £m	Total £m
At 1 January	330	(318)	(4)	(7)	1
Interest income/(expense)	7	(6)	-	-	1
Administrative expenses	(2)	-	-	-	(2)
Included in profit or loss	5	(6)	-	-	(1)
Remeasurements:
Return on plan assets excluding amounts included in interest income	(123)	-	-	-	(123)
Experience loss	-	(9)	-	-	(9)
Gain from changes in financial assumptions	-	110	-	-	110
Change in minimum funding requirement obligation	-	-	-	4	4
Change in provision for tax on economic surplus available as a refund	-	-	4	-	4
Included in other comprehensive income	(123)	101	4	4	(14)
Employer's contributions	6	-	-	-	6
Benefit payments	(12)	12	-	-	-
At 31 December	206	(211)	-	(3)	(8)

Scheme assets

The distribution of the scheme assets at the end of the year was as follows:

	2023		2022
	Total £m	Of which not quoted in an active market £m	Total £m	Of which not quoted in an active market £m
Diversified income fund	45	-	44	-
Fixed interest government bonds	148	-	86	-
Corporate bonds	97	-	87	-
Derivatives	(85)	(85)	(15)	(15)
Cash and cash equivalents	6	-	4	-
Pension scheme assets	211	(85)	206	(15)

Defined benefit obligation

The calculation of the defined benefit obligation can be allocated to the Abbey Life Scheme's members as follows:

•  Deferred scheme members: 44% (2022: 44%); and

•  Pensioners: 56% (2022: 56%)

The weighted average duration of the defined benefit obligation at 31 December 2023 is 13.5 years (2022: 13.5 years).

Principal assumptions

The principal financial assumptions of the Abbey Life Scheme are set out in the table below:

	2023 %	2022 %
Rate of increase for pensions in payment (5% per annum or RPI if lower)	2.90	3.05
Rate of increase for deferred pensions ('CPI' subject to caps)	2.60	2.70
Discount rate	4.60	4.95
Inflation - RPI	3.10	3.30
Inflation - CPI	2.60	2.70

The discount rate and inflation assumptions have been determined by considering the shape of the appropriate yield curves and the duration of the Abbey Life Scheme liabilities. This method determines an equivalent single rate for each of the discount and inflation rates, which is derived from the profile of projected benefit payments.

The post-retirement mortality assumptions are in line with a scheme-specific table which was derived from the actual mortality experience in recent years, performed as part of the actuarial funding valuation as at 31 March 2021, using the SAPS S3 'Light' tables for males and for females based on year of use. Future longevity improvements from 1 January 2021 are based on amended CMI 2022 Core Projections (2022: From 1 January 2021 based on amended CMI 2021 Core Projections) and a long-term rate of improvement of 1.5% (2022: 1.5%) per annum for males and 1.2% (2022: 1.2%) per annum for females. Under these assumptions the average life expectancy from retirement for a member currently aged 45 retiring at age 65 is 24.5 years and 25.6 years for male and female members respectively (2022: 24.8 years and 25.9 years respectively).

A quantitative sensitivity analysis for significant actuarial assumptions is shown below:

2023 Assumptions Sensitivity level	Base	Discount rate		RPI		Life expectancy
		25bps increase	25bps decrease	25bps increase	25bps decrease	1 year increase	1 year decrease
Impact on the defined benefit obligation (£m)	218	(7)	7	5	(5)	7	(7)

 

2022 Assumptions Sensitivity level	Base	Discount rate		RPI		Life expectancy
		25bps increase	25bps decrease	25bps increase	25bps decrease	1 year increase	1 year decrease
Impact on the defined benefit obligation (£m)	211	(7)	7	4	(4)	7	(7)

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method has been applied as when calculating the pension liability recognised within the statement of consolidated financial position.

G1.4 ReAssure Life Staff Pension Scheme

Scheme details

The ReAssure Scheme is a registered occupational pension scheme, set up under trust, and legally separate from the employer ReAssure Midco Limited ('RML'). The scheme is administered by ReAssure Pension Trustees Limited, a corporate trustee. There are six trustee directors, two of whom are nominated by the ReAssure Scheme members and four of whom are appointed by RML. The trustee is responsible for administering the scheme in accordance with the trust deed and rules and pensions laws and regulations. The ReAssure Scheme is closed to new entrants and to future accrual for active members.

The valuation has been based on an assessment of the liabilities of the ReAssure Scheme as at 31 December 2023 undertaken by independent qualified actuaries. The present values of the defined benefit obligation and the related interest costs have been measured using the projected unit credit method.

Funding

The last funding valuation of the ReAssure Scheme was carried out by a qualified actuary as at 31 December 2020 and showed a deficit of £77 million.

Following the completion of the 2020 valuation a recovery plan was agreed in September 2021 between the trustee and RML in order to make good the deficit. RML agreed to pay contributions of £17.7 million into the existing Custody Account spread over four annual payments of £4.425 million payable on 1 April 2022, 1 April 2023, 1 April 2024 and 1 April 2025. It is anticipated that these payments will be sufficient to cover the difference between the funding shortfall and the balance of the Custody Account at 31 December 2020 and to remove any remaining deficit at 31 December 2025.

The amounts held in this account do not form part of the Scheme's plan assets and are instead held in the Custody Account and are included within financial assets in the statement of consolidated financial position.

The Group agrees to cover those expenses incurred by the ReAssure Scheme and the cost of the death-in-service benefits for those members of the scheme entitled to those benefits. Payments of £2 million (2022:£2 million) have been made during the year to cover these costs.

Summary of amounts recognised in the consolidated financial statements

The amounts recognised in the consolidated financial statements are as follows:

2023	Fair value of scheme assets £m	Defined benefit obligation £m	Provision for tax on the economic surplus available as a refund £m	Total £m
At 1 January	288	(266)	(8)	14
				-
Interest income/(expense)	14	(13)	-	1
Administrative expenses	(1)	-	-	(1)
Included in profit or loss	13	(13)	-	-
Remeasurements:
Return on plan assets excluding amounts included in interest income	(7)	-	-	(7)
Gain from changes in demographic assumptions	-	13	-	13
Loss from changes in financial assumptions	-	(10)	-	(10)
Experience loss	-	(7)	-	(7)
Change in provision for tax on economic surplus available as a refund	-	-	3	3
Included in other comprehensive income	(7)	(4)	3	(8)
Employer's contributions	3	-	-	3
Benefit payments	(10)	10	-	-
At 31 December	287	(273)	(5)	9

 

2022	Fair value of scheme assets £m	Defined benefit obligation £m	Provision for tax on the economic surplus available as a refund £m	Total £m
At 1 January	492	(438)	(19)	35
Interest income/(expense)	9	(9)	-	-
Administrative expenses	(1)	-	-	(1)
Included in profit or loss	8	(9)	-	(1)
Remeasurements:
Return on plan assets excluding amounts included in interest income	(203)	-	-	(203)
Gain from changes in financial assumptions	-	188	-	188
Experience loss	-	(19)	-	(19)
Change in provision for tax on economic surplus available as a refund	-	-	11	11
Included in other comprehensive income	(203)	169	11	(23)
Employer's contributions	3	-	-	3
Benefit payments	(12)	12	-	-
At 31 December	288	(266)	(8)	14

Scheme assets

The distribution of the scheme assets at the end of the year was as follows:

	2023		2022
	Total £m	Of which not quoted in an active market £m	Total £m	Of which not quoted in an active market £m
Equities	32	-	31	-
Government bonds	118	-	121	-
Corporate bonds	92	-	83	-
Managed funds	-	-	-	-
Other quoted securities	41	-	45	-
Cash and cash equivalents	4	-	8	-
Pension scheme assets	287	-	288	-

Defined benefit obligation

The calculation of the defined benefit obligation can be allocated to the ReAssure Scheme's members as follows:

•  Deferred scheme members: 66% (2022: 66%); and

•  Pensioners: 34% (2022: 34%)

The weighted average duration of the defined benefit obligation at 31 December 2023 is 17 years (2022: 17 years).

Principal assumptions

The principal assumptions of the ReAssure Scheme are set out in the table below:

	2023 %	2022 %
Rate of increase for pensions in payment (5% per annum or RPI if lower)	2.90	3.05
Rate of increase for deferred pensions	2.60	2.70
Rate of increase in salaries	3.60	3.70
Discount rate	4.60	4.95
Inflation - RPI	3.10	3.30
Inflation - CPI	2.60	2.70

The discount rate and inflation assumptions have been determined by considering the shape of the appropriate yield curves and the duration of the ReAssure Scheme liabilities. This method determines an equivalent single rate for each of the discount and inflation rates, which is derived from the profile of projected benefit payments.

The post-retirement mortality assumptions are in line with SAPS Series 3 light base tables with a 102% (2022: 102%) multiplier for males and a 95% (2022: 95%) multiplier for females, with CMI 2019 projections in line with a 1.5% pa long-term trend up to and including 31 December 2020. Future longevity improvements from 1 January 2021 onwards are in line with amended CMI 2022 Core Projections (2022: from 1 January 2021 in line with amended CMI 2021 Core Projections) with a long-term trend of 1.5% pa (2022: 1.5%) for males and 1.2% (2022: 1.2%) for females.

Under these assumptions the average life expectancy from retirement for a member currently aged 45 retiring at age 60 is 29.7 years and 31.3 years for male and female members respectively (2022: 30.0 years and 31.6 years for male and female members respectively).

A quantitative sensitivity analysis for significant actuarial assumptions is shown below:

2023
Assumptions	Base	Discount rate		RPI		Life expectancy
Sensitivity level		25bps increase	25bps decrease	25bps increase	25bps decrease	1 year increase	1 year decrease
Impact on the defined benefit obligation (£m)	273	(11)	11	9	(9)	7	(7)
2022
Assumptions	Base	Discount rate		RPI		Life expectancy
Sensitivity level		25bps increase	25bps decrease	25bps increase	25bps decrease	1 year increase	1 year decrease
Impact on the defined benefit obligation (£m)	266	(10)	11	8	(8)	7	(7)

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method has been applied as when calculating the pension liability recognised within the statement of consolidated financial position.

G1.5 Sun Life Assurance Company of Canada 1988 UK and Irish Employee Benefits scheme

Scheme details

The Sun Life Assurance Company of Canada 1988 UK and Irish Employee Benefits scheme ('Sun Life of Canada Scheme') was consolidated within the Group financial statements following the acquisition of the Sun Life businesses on 3 April 2023. The Sun Life of Canada Scheme is a registered occupational pension scheme, set up under trust, and legally separate from the principal employer Sun Life Assurance Company of Canada (U.K.) Limited. The Scheme is administered by a specialist third party administrator, Hymans Robertson LLP. A Trustee Board is responsible for ensuring the Scheme is run in accordance with the Trust Deed and Rules and for ensuring compliance with legislation although certain tasks are delegated to third parties. The Trustee Board is made up of three Trustees; an Independent Trustee who is also the Chair, a Principal Employer appointed Trustee and a Member-Nominated Trustee. The Independent Trustee is Capital Cranfield Pension Trustees Limited. The Sun Life of Canada Scheme is closed to new entrants and to future accrual for active members.

The valuation has been based on an assessment of the liabilities of the Sun Life of Canada Scheme as at 31 December 2023 undertaken by independent qualified actuaries. The present values of the defined benefit obligation and the related interest costs have been measured using the projected unit credit method.

The economic surplus of the Scheme is anticipated to be used to cover future costs of the Scheme and will be fully utilised prior to any winding-up of the Scheme. As a result, no provision for tax is deducted from the surplus.

Funding

The last funding valuation of the Sun Life of Canada Scheme was carried out by a qualified actuary as at 31 December 2022 and showed a surplus of £6 million. No contributions are required to be paid by the employer into the Scheme.

Summary of amounts recognised in the consolidated financial statements

The amounts recognised in the consolidated financial statements are as follows:

2023	Fair value of scheme assets £m	Defined benefit obligation £m	Total £m	Reimbursement right £m
On acquisition of SLF of Canada UK Limited (note H2)	302	(286)	16	2
Interest income/(expense)	14	(13)	1	-
Included in profit or loss	14	(13)	1	-
Remeasurements:
Return on plan assets excluding amounts included in interest income	(5)	-	(5)	-
Gain from changes in demographic assumptions	-	5	5	-
Loss from changes in financial assumptions	-	(4)	(4)	-
Experience gain	-	4	4	-
Included in other comprehensive income	(5)	5	-	-
Benefit payments	(14)	14	-	-
At 31 December	297	(280)	17	2

Scheme assets

The distribution of the scheme assets at the end of the year was as follows:

	2023
	Total £m	Of which not quoted in an active market £m
Debt securities	36	-
Cash and cash equivalents	4	-
Qualifying insurance contracts1	257	257
Pension scheme assets	297	257

1  In 2018 and 2021 the Scheme completed two buy-in transactions with external parties which cover approximately 90% of the Scheme's liabilities.

Defined benefit obligation

The calculation of the defined benefit obligation can be allocated to the Sun Life of Canada Scheme's members as follows:

•  Deferred scheme members: 40%; and

•  Pensioners: 60%.

The weighted average duration of the defined benefit obligation at 31 December 2023 is 12.8 years.

Principal assumptions

The principal assumptions of the Sun Life of Canada Scheme are set out in the table below:

	2023 %
Rate of increase for pensions in payment	3.05
Rate of increase for deferred pensions	2.15
Discount rate	4.60
Inflation - RPI	3.10
Inflation - CPI	2.30

The discount rate and inflation assumptions have been determined by considering the shape of the appropriate yield curves and the duration of the Sun Life of Canada Scheme liabilities. This method determines an equivalent single rate for each of the discount and inflation rates, which is derived from the profile of projected benefit payments.

The post-retirement mortality assumptions are in line with 2022 VITA Lite tables. Future longevity improvements are in line with the 2022 CMI model with no weight on 2020 and 2021 experience and 25% weighting on 2022 experience, with a long-term trend of 1.5% p.a. for males and 1.5% p.a. for females.

Under these assumptions the average life expectancy from retirement for a member currently aged 45 retiring at age 65 is 23.1 years and 26.1 years for male and female members respectively.

A quantitative sensitivity analysis for significant actuarial assumptions is shown below:

2023 Assumptions Sensitivity level	Base	Discount rate		RPI		Life expectancy
		25bps increase	25bps decrease	25bps increase	25bps decrease	1 year increase	1 year decrease
Impact on the defined benefit obligation (£m)	280	(9)	9	7	(8)	11	(11)

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method has been applied as when calculating the pension liability recognised within the statement of consolidated financial position.

G2. Intangible assets

Goodwill

Business combinations are accounted for by applying the acquisition method. Goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired.

Goodwill is measured on initial recognition at cost. Following initial recognition, goodwill is stated at cost less any accumulated impairment losses. Goodwill is not amortised but is tested for impairment annually or when there is evidence of possible impairment. For impairment testing, goodwill is allocated to relevant cash generating units. Goodwill is impaired when the recoverable amount is less than the carrying value.

In certain acquisitions an excess of the acquirer's interest in the net fair value of the acquiree's identifiable assets, liabilities, contingent liabilities and non-controlling interests over cost may arise. Where this occurs, the surplus of the fair value of net assets acquired over the fair value of the consideration is recognised in the consolidated income statement.

Acquired in-force business

Investment contracts without DPF acquired in business combinations and portfolio transfers are measured at fair value at the time of acquisition. The difference between the fair value of the contractual rights acquired and obligations assumed and the liability measured at fair value which is determined using a valuation technique to provide a reliable estimate of the amount for which the liability could be transferred in an orderly transaction between market participants at the measurement date, subject to a minimum equal to the surrender value. This acquired in-force business is amortised on a diminishing balance basis.

An impairment review is performed whenever there is an indication of impairment. When the recoverable amount is less than the carrying value, an impairment loss is recognised in the consolidated income statement.

The acquired in-force business is allocated to relevant cash generating units for the purposes of impairment testing.

Brands

Brands are measured on initial recognition at cost. The cost of an intangible asset acquired in a business combination is the fair value as at the date of the acquisition. The cost of an intangible asset acquired in exchange for a non-monetary asset is measured at fair value as at the date of the transaction. Following initial recognition, the brand and other contractual arrangement intangible assets are carried at cost less accumulated amortisation and any accumulated impairment losses.

Amortisation is calculated using the straight-line method to allocate the cost of brands over their estimated useful lives. They are tested for impairment whenever there is evidence of possible impairment. For impairment testing, they are allocated to the relevant cash generating unit. Brands are impaired when the recoverable amount is less than the carrying value.

2023	Goodwill £m	Acquired in-force business £m		Brands £m		Total £m
Cost or valuation
At 1 January	57	4,180		131		4,368
Acquisition of SLF of Canada UK Limited	-	16		-		16
At 31 December	57	4,196		131		4,384
Amortisation and impairment
At 1 January	(47)	(1,966)		(19)		(2,032)
Amortisation charge for the year	-	(290)		(6)		(296)
Impairment charge for the year	-	(28)		-		(28)
At 31 December	(47)	(2,284)		(25)		(2,356)
Carrying amount at 31 December	10	1,912		106		2,028
Amount recoverable after 12 months	10	1,654		100		1,764

 

2022 restated1	Goodwill £m	Acquired in-force business £m		Brands £m		Total £m
Cost or valuation at 1 January and 31 December	57	4,180		131		4,368
Amortisation and impairment
At 1 January	(47)	(1,617)		(13)		(1,677)
Amortisation charge for the year	-	(332)		(6)		(338)
Impairment charge for the year	-	(17)		-		(17)
At 31 December	(47)	(1,966)		(19)		(2,032)
Carrying amount	10	2,214		112		2,336
Less amounts classified as held for sale (see note H3)	-	(37)		-		(37)
Carrying amount at 31 December	10	2,177		112		2,299
Amount recoverable after 12 months	10	1,912		106		2,028
1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).

G2.1 Goodwill

The carrying value of goodwill has been tested for impairment at the year end and the results of this exercise are detailed below.

Goodwill with a carrying value of £10 million (2022: £10 million) was recognised on the acquisition of AXA Wealth during 2016 and has been allocated to the Pensions & Savings and Europe & Other segments. This represents the value of the workforce assumed and the potential for future value creation, which relates to the ability to invest in and grow the SunLife brand. Value in use has been determined as the present value of certain future cash flows associated with that business. The cash flows used in the calculation are consistent with those adopted by management in the Group's operating plan, and for the period 2028 and beyond, assume a zero growth rate. The underlying assumptions of these projections include market share, customer numbers, commission rates and expense inflation. The cash flows have been valued at a risk adjusted discount rate of 14% (2022: 14%) that makes prudent allowance for the risk that future cash flows may differ from that assumed.

This test demonstrated that value in use was greater than carrying value. Given the magnitude of the excess of the value in use over carrying value, management does not believe that a reasonably foreseeable change in key assumptions would cause the carrying value to exceed value in use.

G2.2 Acquired in-force business

Acquired in-force business ('AVIF') on investment contracts without DPF represents the difference between the fair value of the contractual rights under these contracts and the liability measured at fair value which is determined using a valuation technique to provide a reliable estimate of the amount for which the liability could be transferred in an orderly transaction between market participants at the measurement date, subject to a minimum equal to the surrender value. AVIF on these investment contracts is amortised in line with emergence of economic benefits over their expected term. AVIF balances are assessed for impairment where an indicator of impairment has been identified.

AVIF of £16 million was recognised during the year upon acquisition of SLF of Canada UK Limited. Further details are included in note H2.

On 23 February 2021, the Group entered into an agreement with abrdn plc to simplify the arrangements of their Strategic Partnership. Under the terms of the transaction, the Group will sell its UK investment and platform related products, comprising Wrap SIPP, Onshore bond and UK TIP to abrdn plc and this will be effected through a Part VII transfer. Since 2021, the balances in the statement of consolidated financial position relating to this business have been classified as a disposal group held for sale.

The total proceeds of disposal for this business were not expected to exceed the carrying value of the related net assets and accordingly the disposal group was recognised at fair value less costs to sell. The value of the AVIF at 23 February 2021, which relates to the SIPP and Onshore business, was £122 million and an impairment charge of £67 million was recognised in 2021. A further impairment of £28 million has been recognised during the year (2022: £17 million). The AVIF balance classified as held for sale has not been amortised up to 31 December 2023.

As at 31 December 2023, the insured funds element of the Wrap SIPP and Onshore Bond businesses will no longer transfer to abrdn (see note H3 for further details). As a result, this business no longer meets the requirements to be classified as held for sale. Consequently, the AVIF, which has a carrying value of £9 million at 31 December 2023, will be classified within the AVIF line in the consolidated statement of financial position. The AVIF will be amortised in line with the transfer of the economic risk and rewards for this business to abrdn plc via the profit transfer arrangement.

G2.3 Brands

An intangible asset was recognised at cost on acquisition of AXA Wealth and represents the value attributable to the SunLife brand as at 1 November 2016. The intangible asset was valued on a 'multi-period excess earnings' basis and was recognised at a cost of £20 million. Impairment testing was performed in a combined test with the AXA goodwill (see section G2.1). The value in use continues to exceed its carrying value. This brand intangible is being amortised over a 10 year period. The carrying value of the AXA Wealth brand as at 31 December 2023 is £6 million (2022: £8 million).

On 23 February 2021, the Group entered into an agreement to acquire ownership of the Standard Life brand as part of a larger transaction with abrdn plc, which transferred to the Group in May 2021. The Standard Life brand was initially recognised at a value of £111 million which represented the fair value attributable to the brand as at the transaction date. The intangible asset was valued on a 'multi-period excess earnings' basis and is being amortised over a period of 30 years. The carrying value of the Standard Life brand as at 31 December 2023 is £100 million (2022: £104 million).

G3. Property, plant and equipment

Owner-occupied property is stated at its revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and impairment. Owner-occupied property is depreciated over its estimated useful life, which is taken as 20 - 50 years. Land is not depreciated. Accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the owner-occupied property and the net amount is restated to the revalued amount of the asset. Gains and losses on owner-occupied property are recognised in other comprehensive income.

The right-of-use assets are 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 assets are depreciated over the remaining lease term which is between 1 and 11 years (2022: 1 and 11 years).

Equipment consists primarily of computer equipment and fittings. Equipment is stated at historical cost less deprecation. Where acquired in a business combination, historical cost equates to the fair value at the acquisition date. Depreciation on equipment is charged to the consolidated income statement over its estimated useful life of between 2 and 15 years.

2023	Owner-occupied properties £m	Right-of-use assets - property £m	Equipment £m	Total £m
Cost or valuation
At 1 January	32	96	67	195
Additions	1	-	8	9
Revaluation losses	(5)	-	-	(5)
At 31 December	28	96	75	199
Depreciation
At 1 January	-	(32)	(38)	(70)
Depreciation	-	(10)	(13)	(23)
At 31 December	-	(42)	(51)	(93)
Carrying amount at 31 December	28	54	24	106

 

2022	Owner-occupied properties £m	Right-of-use assets - property £m	Equipment £m	Total £m
Cost or valuation
At 1 January	29	94	61	184
Additions	9	3	8	20
Revaluation losses	(6)	-	-	(6)
Disposals	-	(1)	(2)	(3)
At 31 December	32	96	67	195
Depreciation
At 1 January	-	(24)	(30)	(54)
Depreciation	-	(9)	(10)	(19)
Disposals	-	1	2	3
At 31 December	-	(32)	(38)	(70)
Carrying amount at 31 December	32	64	29	125

Owner-occupied properties have been valued by accredited independent valuers at 31 December 2023 on an open market basis in accordance with the Royal Institution of Chartered Surveyors' requirements, which is deemed to equate to fair value. The fair value measurement for the properties of £28 million (2022: £32 million) has been categorised as Level 3 based on the non-observable inputs to the valuation technique used. Unrealised loss for the current year is £5 million (2022: £6 million).

The fair value of the owner-occupied properties was derived using the investment method supported by comparison with similar market transactions for similar properties. The significant non-observable inputs used in the valuations are the expected rental values per square foot and the capitalisation rates.

The fair value of the owner-occupied properties valuation would increase (decrease) if the expected rental values per square foot were to be higher (lower) and the capitalisation rates were to be lower (higher).

G4. Investment property

Investment property, including right of use assets, is initially recognised at cost, including any directly attributable transaction costs. Subsequently investment property is measured at fair value. Fair value is the price that would be received to sell a property in an orderly transaction between market participants at the measurement date. Fair value is determined without any deduction for transaction costs that may be incurred on sale or disposal. Gains and losses arising from the change in fair value are recognised as income or an expense in the statement of comprehensive income.

Investment property includes right-of-use assets, where the Group acts as lessee. Leases, where a significant portion of the risks and rewards of ownership are retained by the lessor, are classified as operating leases. Where investment property is leased out by the Group, rental income from these operating leases is recognised as income in the consolidated income statement on a straight-line basis over the period of the lease.

	2023  £m	2022  £m
At 1 January	6,233	8,592
Additions	49	104
Acquisition of SLF of Canada UK Limited (note H2)	283	-
Improvements	27	27
Disposals	(484)	(1,141)
Remeasurement of right-of-use asset	-	2
Movement in foreign exchange	(4)	12
Losses on adjustments to fair value (recognised in consolidated income statement)	(362)	(1,363)
	5,742	6,233
Less amounts classified as held for sale (see note H3)	(2,044)	(2,506)
At 31 December	3,698	3,727
Unrealised losses on properties held at end of year	(180)	(1,582)

As at 31 December 2023, a property portfolio including amounts classified held for sale of £5,621 million (2022: £6,070 million) is held by the life companies in a mix of commercial sectors, spread geographically throughout the UK and Europe.

Investment properties also includes £42 million (2022: £62 million) of property reversions arising from sales of the NPI Extra Income Plan (see note E5 for further details) and £64 million (2022: £80 million) from the Group's interest in the residential property of policyholders who have previously entered into an Equity Release Income Plan ('ERIP') policy.

Certain investment properties held by the life companies possess a ground rent obligation which gives rise to both a right-of-use asset and a lease liability. The right-of-use asset associated with the ground rent obligation is valued at fair value and is included within the total investment property valuation. The value of the ground rent right-of-use asset as at 31 December 2023 was £15 million (2022: £21 million). The remeasurement resulted in no change in value of the ground rent right-of-use asset (2022: increase of £2 million). There were no additions (2022: £2 million) and £6 million disposals (2022: £4 million) of ground rent right-of-use assets during the period.

Commercial investment property is measured at fair value by independent property valuers having appropriate recognised professional qualifications and recent experiences in the location and category of the property being valued. The valuations are carried out in accordance with the Royal Institute of Chartered Surveyors ('RICS') guidelines with expected income and capitalisation rate as the key non-observable inputs.

The NPI residential property reversions, an interest in customers' properties which the Group will realise upon their death, are valued using a discounted cash flow model based on the Group's proportion of the current open market value, and discounted for the expected lifetime of the policyholder derived from published mortality tables, the mortality rates are 130% for both males and females based on the IFL92C15 table for males and the IML92C15 table for females. The open market value is measured by independent local property surveyors having appropriate recognised professional qualifications with reference to the assumed condition of the property and local market conditions. The individual properties are valued triennially and indexed using regional house price indices to the year end date. The discount rate is a 3 year swap rate plus 1.7% margin (2022: 3 year swap rate plus 1.7% margin), and adjusted for the deferred possession rate of 3.7% (2022: 3.7%). Assumptions are also made in the valuation for future movements in property prices, based on a risk free rate. The residential property reversions have been substantially refinanced under the arrangements with Santander as described in note E5.

The ERIP residential property reversions, an interest in the residential property of policyholders who have previously entered into an ERIP policy and been provided with a lifetime annuity in return for the legal title to their property, are valued using unobservable inputs and management's best estimates. As the inward cash flows on these properties will not be received until the lifetime lease is no longer in force, which is usually upon the death of the policyholder, these interests are valued on a reversionary basis which is a discounted current open market value.

The open market values of the properties are independently revalued every two years by members of the Royal Institution of Chartered Surveyors and in the intervening period are adjusted by reference to the Nationwide Building Society regional indices of house prices. The discount period is based on the best estimates of the likely date the property will become available for sale and the discount rate applied is determined by the general partner as its best estimate of the appropriate discount rate. The mortality assumption is based on the PMLO8HAWP table for males and the PFLO8HAWP table for females, adjusted to reflect the historic experience of the business concerned. The mortality rates are projected using future mortality improvements from the CMI Mortality Projection Model. No explicit allowance is made for house price inflation in the year through to their realisation. Therefore, the key assumptions used in the valuation of the reversionary interests are the interest discount rate and the mortality assumption. The discount rate was 5% (2022: 5%).

The fair value measurement of the investment properties has been categorised as Level 3 based on the inputs to the valuation techniques used. The following table shows the valuation techniques used in measuring the fair value of the investment properties, the significant non-observable inputs used, the inter-relationship between the key non-observable inputs and the fair value measurement of the investment properties:

Description	Valuation techniques	Significant non-observable inputs	Weighted average 2023	Weighted average 2022
Commercial Investment Property	RICS valuation	Expected income per sq. ft. Estimated rental value per hotel room	£23.41 £7,156	£22.41 £7,043
		Estimated rental value per parking space	£1,123	£1,115
		Capitalisation rate	5.13%	5.01%

The estimated fair value of commercial properties would increase (decrease) if:

•  the expected income were to be higher (lower); or

•  the capitalisation rate were to be lower (higher).

The estimated fair value of the NPI residential property reversions would increase (decrease) if:

•  the deferred possession rate were to be lower (higher);

•  the mortality rate were to be higher (lower).

The estimated fair value of the ERIP residential property reversions would increase (decrease) if:

•  the discount rate were to be lower (higher);

•  the mortality rate were to be higher (lower).

Direct operating expenses (offset against rental income in the consolidated income statement) in respect of investment properties that generated rental income during the year amounted to £36 million (2022: £27 million). The direct operating expenses arising from investment property that did not generate rental income during the year amounted to £5 million (2022: £5 million).

Future minimum lease rental receivables in respect of non-cancellable operating leases on investment properties were as follows:

	2023 £m	2022 £m
Not later than 1 year	278	356
Later than 1 year and not later than 5 years	919	1,131
Later than 5 years	2,903	3,345

G5. Other receivables

Other receivables are recognised when due and measured on initial recognition at the fair value of the amount receivable. Subsequent to initial recognition, these receivables are measured at amortised cost using the effective interest rate method.

	2023  £m	2022 restated1 £m
Investment broker balances	115	312
Cash collateral pledged and initial margins posted	1,728	3,698
Property related receivables	165	145
Deferred acquisition costs relating to investment contracts without DPF	8	7
Other debtors	562	293
At 31 December	2,578	4,455
Amount recoverable after 12 months	13	6
1     Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).

G6. Cash and cash equivalents

Cash and cash equivalents comprise cash balances and short-term deposits with an original maturity term of three months or less at the date of placement. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are deducted from cash and cash equivalents for the purpose of the statement of consolidated cash flows.

	2023 £m	2022 £m
Bank and cash balances	2,751	2,716
Short-term deposits (including notice accounts and term deposits)	4,469	6,156
	7,220	8,872
Less amounts classified as held for sale	(52)	(33)
At 31 December	7,168	8,839

Deposits are subject to a combination of fixed and variable interest rates. The carrying amounts of balances held at amortised cost approximate to fair value at the period end. Cash and cash equivalents in long-term business operations and consolidated collective investment schemes of £6,994 million (2022: £8,597 million) are primarily held for the benefit of policyholders and so are not generally available for use by the owners.

G7. Provisions

A provision is recognised when the Group has a present legal or constructive obligation, as a result of a past event, which is likely to result in an outflow of resources and where a reliable estimate of the amount of the obligation can be made. If the effect is material, the provision is determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

A provision is recognised for onerous contracts when the expected benefits to be derived from the contracts are less than the related unavoidable costs. The unavoidable costs reflect the net cost of exiting the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it. Costs that meet the requirements to be classified as a provision but are determined to be directly attributable to insurance contracts and investment contracts with DPF are classified within the insurance contract assets and liabilities.

Where it is expected that a part of the expenditure required to settle a provision will be reimbursed by a third party the reimbursement is recognised when, and only when, it is virtually certain that the reimbursement will be received. This reimbursement is recognised as a separate asset within other receivables and will not exceed the amount of the provision.

					Restructuring provisions
2023	Leasehold properties £m	Staff related £m	Known incidents £m	Indirect tax provisions   £m	Transition and Transformation provision £m	Transfer of policy administration provision £m	Other £m	Total £m
At 1 January restated1	9	7	48	29	72	8	11	184
Additions in the year	2	1	9	43	6	1	10	72
Acquisition of SLF of Canada UK Limited (note H2)	-	4	-	-	-	-	1	5
Utilised during the year	-	-	(24)	(3)	(20)	(4)	(9)	(60)
Released during the year	(2)	(1)	(18)	(10)	(11)	-	(4)	(46)
At 31 December	9	11	15	59	47	5	9	155

1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).

Leasehold properties

The leasehold properties provision includes a £9 million (2022: £7 million) dilapidations provision in respect of obligations under operating leases and £nil (2022: £2 million) in respect of the excess of lease rentals and other payments on properties that are currently vacant or are expected to become vacant, over the amounts to be recovered from subletting these properties.

Staff related

Staff related provisions include provisions for unfunded pensions of £8 million (2022: £4 million), and private medical and other insurance costs for former employees of £3 million (2022: £3 million).

Known incidents

The known incidents provision was created for historical data quality, administration systems problems and process deficiencies on the policy administration, financial reconciliations and operational finance aspects of business outsourced. These balances represent the best estimates of costs payable to customers. Additional information has been given below in respect of the more significant balances within this provision.

During 2021, a £15 million provision was recognised in relation to errors in final encashment calculations for With Profits Trustee Investment Plans and in 2022 it was increased to £29 million. During 2023, £18 million (2022: £nil) was utilised and £7 million was released. The remaining balance at 31 December 2023 is £4 million (2022: £29 million). An £11 million provision was also recognised in April 2021 following identification that certain customers who have a Protected Pension Age or a Protected Tax Free Lump Sum may not have had their benefits settled correctly. During 2023, £4 million (2022: £4 million) was released and the remaining balance at 31 December 2023 is £3 million (2022: £7 million). These provisions will be utilised within one to four years.

In 2020, following completion of the Part VII transfer of the Legal & General business, a £12 million provision was recognised in respect of amounts owed to customers due to various system and processing errors resulting in incorrect rules having been applied to policies. During the year, the provision was increased by £2 million (2022: £nil) and a further £1 million (2022: £4 million) was released. The remaining balance at 31 December 2023 is £3 million (2022: £2 million). A new provision of £5 million was created during 2023 in relation to a pricing error within the same business transfer caused by incorrect static data. During the year, £4 million was utilised and the remaining balance at 31 December 2023 is £1 million. These provisions will be utilised within one to two years.

The remaining provisions of £4 million as at 31 December 2023 (2022: £10 million) are expected to be utilised within one to four years. As at 31 December 2023, there are no significant uncertainties which could give rise to a material change to the value of the provisions held for current known incidents.

Indirect tax provision

The indirect tax provision relates to various indirect tax matters across operational taxes, employment taxes and VAT. During the year, the provision was strengthened by £43 million (2022: £nil). £3 million (2022: £nil) was utilised and a further £10 million (2022: £nil) was released. The remaining balance at 31 December 2023, of £59 million (2022: £29 million) represents the Group's estimate of the maximum exposure as at the reporting date and is expected to be utilised in one to three years.

Restructuring provisions

Transition and transformation provision

Following the acquisition of the Standard Life Assurance businesses in August 2018, the Group established a transition and transformation programme which aims to deliver the integration of the Group's operating models via a series of phases. During 2019, the Group announced its intention to extend its strategic partnership with TCS to provide customer servicing, to develop a digital platform and for migration of existing Standard Life policies to this platform which raised a valid expectation of the impacts in those likely to be affected.

The initial provision was established in 2019 and included migration costs, severance costs and other expenses. Migration costs are considered a direct expenditure necessarily entailed by the restructuring and represent an obligation arising from arrangements entered into with TCS during 2019. No costs have been provided for that relate to the ongoing servicing of policies. Migration costs payable to TCS are subject to limited uncertainty as they are fixed under the terms of the agreement entered into. There was an increase in costs during 2022 following on from a strategic decision to re-phase the programme. The severance costs are subject to uncertainty and will be impacted by the number of staff that transfer to TCS, and the average salaries and number of years' service of those affected.

During the year, the provision was increased by £6 million (2022: £33 million), a further £20 million (2022: £19 million) was utilised and £11 million (2022: nil) was released. The remaining £47 million (2022: £72 million) is expected to be utilised within one to three years.

Transfer of policy administration

A significant proportion of the Group's policy administration is outsourced to Diligenta Limited ('Diligenta'), a UK-based subsidiary of Tata Consultancy Services ('TCS'). Diligenta provide life and pension business process services to a large number of the Group's policyholders. During 2018, the Group announced its intention to move to a single outsourcer platform and to transfer a further 2 million of the Group's legacy policies to Diligenta.

An initial provision was recognised in 2018 for the expected cost of the platform migration and for severance and other costs associated with exiting from the current arrangements. Migration costs are considered a direct expenditure necessarily entailed by the restructuring and represent an obligation arising from arrangements entered into with TCS during 2018. No costs have been provided for that relate to the ongoing servicing of policies. The migration elements of the provision are subject to limited uncertainty as a consequence of the signed agreements that are in place. The uncertainty in relation to the severance and associated exit costs is limited as the restructuring programme is nearing completion. During the year the provision was increased by £1 million (2022: £4 million) and a further £4 million (2022: £4 million) was utilised. The remaining provision of £5 million (2022: £8 million) is expected to be utilised within one year.

Other provisions

Other provisions includes £3 million (2022: £4 million) of obligations arising under a gift voucher scheme operated by the SunLife business and a commission clawback provision which represents the expected future clawback of commission income earned by the SunLife business as a result of assumed lapses of policies or associated benefits.

Another provision of £1 million was also recognised during the year upon acquisition of SLF of Canada UK Limited in relation to restructuring and litigation.

The remaining other provisions of £5 million (2022: £7 million) consist of a number of small balances, all of which are less than £3 million in value.

Discounting

The impact of discounting on all provisions during the year from either the passage of time or from a change in the discount rate is not material.

G8. Tax assets and liabilities

Deferred tax is provided for on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not provided in respect of temporary differences arising from the initial recognition of goodwill and the initial recognition of assets or liabilities in a transaction that is not a business combination and that, at the time of the transaction, affects neither accounting nor taxable profit. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates and laws enacted or substantively enacted at the period end.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

	2023  £m	2022 restated1 £m
Current tax:
Current tax receivable	502	519
Current tax payable	(41)	(34)
Deferred tax:
Deferred tax assets	143	158
Deferred tax liabilities	(257)	(309)

1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).

Movement in deferred tax liabilities

2023	1 January £m	Recognised in consolidated income statement £m	Recognised in other comprehensive income £m	SLF of Canada UK Limited acquisition £m	Other movements £m	Less amounts previously classified as held for sale £m	31 December £m
Trading losses	196	132	-	27	-	-	355
Capital losses	24	(22)	-	-	-	-	2
Expenses and deferred acquisition costs carried forward	397	6	-	19	-	-	422
Provisions and other temporary differences	32	(28)	-	-	-	-	4
Non-refundable pension scheme surplus	(151)	34	12	(4)	1	-	(108)
Committed future pension contributions	9	(5)	(1)	-	-	-	3
Transitional adjustment relating to IFRS 17	-	(1)	2	9	-	-	10
Accelerated capital allowances	17	4	-	1	-	1	23
Intangibles	14	17	-	-	-	-	31
Acquired in-force business	(405)	55	-	(4)	-	(7)	(361)
Customer relationships	(28)	1	-	-	-	-	(27)
Unrealised gains	(261)	(77)	-	(23)	-	-	(361)
Actuarial liability differences between local GAAP and IFRS 17	2	(110)	-	(16)	6	-	(118)
Other	3	8	-	-	-	-	11
	(151)	14	13	9	7	(6)	(114)

 

2022 (restated)	1 January £m	Recognised in consolidated income statement £m	Recognised in other comprehensive income £m	SLF of Canada UK Limited acquisition £m	Other movements £m	Less amounts classified as held for sale £m	31 December £m
Trading losses	103	86	-	-	7	-	196
Capital losses	32	(8)	-	-	-	-	24
Expenses and deferred acquisition costs carried forward	81	318	-	-	(2)	-	397
Provisions and other temporary differences	28	6	-	-	(2)	-	32
Non-refundable pension scheme surplus	(255)	392	(288)	-	-	-	(151)
Committed future pension contributions	-	5	4	-	-	-	9
Accelerated capital allowances	16	1	-	-	-	-	17
Intangibles	2	11	-	-	1	-	14
Acquired in-force business	(445)	43	-	-	-	(3)	(405)
Actuarial liability differences between local GAAP and IFRS 17	(341)	339	-	-	4	-	2
Customer relationships	(30)	2	-	-	-	-	(28)
Unrealised gains	(593)	333	1	-	(2)	-	(261)
IFRS transitional adjustments	(5)	5	-	-	-	-	-
Other	-	1	-	-	2	-	3
	(1,407)	1,534	(283)	-	8	(3)	(151)

The standard rate of UK corporation tax for the year ended 31 December 2023 is 23.5% (2022: 19%).

An increase from the 19% UK corporation tax rate to 25%, effective from 1 April 2023, was announced in the Budget on 3 March 2021, and substantively enacted on 24 May 2021. Accordingly, shareholder deferred tax assets and liabilities, where provided, are reflected at 25%. Deferred income tax assets are recognised for tax losses carried forward only to the extent that realisation of the related tax benefit is probable.

	2023  £m	2022  £m
Deferred tax assets have not been recognised in respect of:
Tax losses carried forward	110	82
Excess expenses and deferred acquisition costs	9	116
Actuarial liability differences between local GAAP and IFRS 17	14	27
Intangibles	12	29
Deferred tax assets not recognised on capital losses	312	40

The Group also has £635 million of BLAGAB trading losses carried forward as at 31 December 2023 in Phoenix Life Limited, ReAssure Limited and Sun Life Assurance Company of Canada (UK) Limited (2022: £ 456 million of losses across Phoenix Life Limited, ReAssure Limited and Phoenix Life Assurance Limited). Of the £635 million, a deferred tax asset was recognised in respect of £623 million of losses (2022:£164 million of losses). The remaining £12 million of gross losses are projected to be utilised, however no value has been attributed to these deferred tax assets given the interaction with other deductible temporary differences (2022: £158 million of losses). In 2022 deferred tax assets were not recognised in respect of the remaining £134 million of losses due to the uncertainty of future trading profits against which the losses could be offset.

There is a technical matter which is currently being discussed with HMRC in relation to the L&G insurance business transfer to ReAssure Limited. These discussions are not sufficiently progressed at this stage for recognition of any potential tax benefit arising.

A tax dispute with HMRC in relation to the tax treatment of an asset formerly held by Guardian Assurance Limited (before the business was transferred to ReAssure Limited) was resolved in the period in favour of the Group. The 2021 current tax liability included an accrual for the total tax under dispute on the basis that there was sufficient risk that the tax treatment of the Group would not then be accepted. In 2022 this tax liability was released.

The Group in conjunction with a number of other companies has challenged HMRC's position on the corporation tax treatment of overseas portfolio dividends from companies resident in the EU ('EU dividends') using a Group Litigation Order ('GLO'). The issue relates to whether the UK tax rules, which taxed EU dividends received prior to 1 July 2009, was contrary to EU law given that dividends received from UK companies were exempt from tax. In 2009 UK tax law was changed with both overseas and UK dividends being treated as exempt from corporation tax.

In July 2018, the Supreme Court concluded in favour of the tax payer and a tax benefit of £13 million was recognised at the end of 2018 in relation to enhanced double tax relief claims which the Group is entitled to in accordance with the Court judgement. As a result of the insurance business transfer from Legal and General Assurance Society during YE20, the tax refund for the benefit of the Group's with-profit and unit linked funds increased to £45 million and £23 million respectively. In the case of the with-profit funds there was an increase in unallocated surplus and for the unit linked funds there was a corresponding increase in investment contract liabilities as a result of the recognition of the tax asset.

In January 2020, HMRC issued a communication to taxpayers who are affected by the dividend GLO but are not direct participants of it, setting out HMRC's intended approach to settling enquiries into the amount of double tax relief available for statutory protective or other claims. The Group has been discussing the claims with HMRC during the course of 2022 and 2023, but due to the significant number of cases and years affected, no amounts have as yet been repaid. The level of tax refund expected is currently unchanged as at the end of 2023.

Some companies of the Group were late joiners or not members of the GLO but have made statutory protective tax claims totalling circa £14 million for the benefit of unit linked life funds based on the Supreme Court decision. HMRC has challenged the validity of such claims and is currently considering further tax litigation in this area against other third parties. Some progress through the courts has been made in the course of 2022 and 2023, but it is expected that the litigation will continue to run. Due to the uncertainty around the potential success of the claims a tax asset has not been recognised in respect of these claims.

The Group is continuing to monitor developments in relation to the G20-OECD Inclusive Framework "Pillar Two" rules, as the Group expects to be within the scope of the rules from 1 January 2024. Broadly, these rules seek to ensure that, on a jurisdiction-by-jurisdiction basis, large multinational enterprises pay a minimum tax rate of 15% on worldwide profits arising after 31 December 2023.

The Group also notes the enactment of legislation in Bermuda in December 2023 which introduced a Corporate Income Tax with a headline rate of 15% effective from 1 January 2025. This legislation is expected to apply to the Group's local Bermudian operations. Given the current size of local operations, the Group does not expect the immediate impact to be material.

As at year end 2023, the main other overseas jurisdictions where we operate and which have enacted local Pillar Two legislation are Germany, Ireland, Luxembourg, the Netherlands and the United Kingdom.

The Group is continuing to assess the impact of the Pillar Two income taxes legislation on its future financial performance. Based on the work completed to date on most recent historical financial information, the Group does not expect a material exposure to Pillar Two income taxes. Nonetheless, the Group notes that the Pillar Two income taxes legislation is expected to continue developing, the rules are inherently complex and can potentially lead to arbitrary outcomes. Further that historical financial performance is not necessarily indicative of future performance, so the actual impact that the Pillar Two income taxes legislation may have on the Group's future financial performance may be different from expectations.

G9. Lease Liabilities

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. For ground rent leases, the incremental borrowing rate of investment funds holding the associated investment properties is used as the discount rate. 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.

	2023 £m	2022 £m
At 1 January	92	99
Leases incepted during the year	1	6
Termination of leases following the disposal of associated investment properties	(7)	(4)
Interest expense	2	3
Lease payments	(14)	(14)
Remeasurement of leases	-	2
At 31 December	74	92
Amount due within twelve months	9	11
Amount due after twelve months	65	81

Details of the related right-of-use assets are included in notes G3 and G4.

G10. Accruals and deferred income

This note analyses the Group's accruals and deferred income at the end of the year.

	2023  £m	2022 restated1 £m
Accruals	545	476
Deferred income	34	105
Accruals and deferred income including amounts classified as held for sale	579	581
Less amounts classified as held for sale	-	(37)
At 31 December	579	544
Amount due for settlement after 12 months	42	35

1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).

G11. Other payables

Other payables are recognised when due and are measured on initial recognition at the fair value of the consideration payable. Subsequent to initial recognition, these payables are measured at amortised cost using the effective interest rate method.

	2023  £m	2022 restated1 £m
Investment broker balances	727	513
Property related payables	51	53
Investment management fees	16	48
Other payables	1,478	759
	2,272	1,373
Amount due for settlement after 12 months	-	-

1  Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).

H. Interests in subsidiaries and associates

H1. Subsidiaries

Subsidiaries are consolidated from the date that effective control is obtained by the Group (see basis of consolidation in note A1) and are excluded from consolidation from the date they cease to be subsidiary undertakings. For subsidiaries disposed of during the year, any difference between the net proceeds, plus the fair value of any retained interest, and the carrying amount of the subsidiary including non-controlling interests, is recognised in the consolidated income statement.

The Group uses the acquisition method to account for the acquisition of subsidiaries. The cost of an acquisition is measured at the fair value of the consideration. Any excess of the cost of acquisition over the fair value of the net assets acquired is recognised as goodwill. In certain acquisitions an excess of the acquirer's interest in the net fair value of the acquiree's identifiable assets, liabilities, contingent liabilities and non-controlling interests over cost may arise. Where this occurs, the surplus of the fair value of net assets acquired over the fair value of the consideration is recognised in the consolidated income statement.

Directly attributable acquisition costs are included within administrative expenses, except for acquisitions undertaken prior to 2010 when they are included within the cost of the acquisition. Costs directly related to the issuing of debt or equity securities are included within the initial carrying amount of debt or equity securities where these are not carried at fair value. Intra-group balances and income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements.

The Group has invested in a number of collective investment schemes such as Open-ended Investment Companies ('OEICs'), unit trusts, Société d'Investissement à Capital Variable ('SICAVs'), investment trusts and private equity funds. These invest mainly in equities, bonds, property and cash and cash equivalents. The Group's percentage ownership in these collective investment schemes can fluctuate according to the level of Group and third party participation in the structures.

When assessing control over collective investment schemes, the Group considers those factors described under the 'Basis of consolidation' in note A1. In particular, the Group considers the scope of its decision-making authority, including the existence of substantive rights (such as power of veto, liquidation rights and the right to remove the fund manager) that give it the ability to direct the relevant activities of the investee. The assessment of whether rights are substantive rights, and the circumstances under which the Group has the practical ability to exercise them, requires the exercise of judgement. This assessment includes a qualitative consideration of the rights held by the Group that are attached to its holdings in the collective investment schemes, rights that arise from contractual arrangements between the Group and the entity or fund manager and the rights held by third parties. In addition, consideration is made of whether the Group has de facto power, for example, where third party investments in the collective investment schemes are widely dispersed.

Where Group companies are deemed to control such collective investment schemes they are consolidated in the Group financial statements, with the interests of external third parties recognised as a liability (see the accounting policy for 'Net asset value attributable to unitholders' in note E1 for further details).

Certain of the collective investment schemes have non-coterminous period ends and are consolidated on the basis of additional financial statements prepared to the period end.

Portfolio transfers

When completing an acquisition, the Group first considers whether the acquisition meets the definition of a business combination under IFRS 3 Business Combinations. IFRS 3, and the use of acquisition accounting, does not apply in circumstances where the acquisition of an asset or a group of assets does not constitute a business, and is instead a portfolio of assets and liabilities. In such cases, the Group's policy is to recognise and measure the assets acquired and liabilities assumed in accordance with the Group's accounting policies for those assets and liabilities. The difference between the consideration and the net assets or liabilities acquired is recognised in the consolidated income statement.

H1.1 Significant restrictions

The ability of subsidiaries to transfer funds to the Group in the form of cash dividends or to repay loans and advances is subject to local laws, regulations and solvency requirements.

Each UK life company and the Group must retain sufficient capital at all times to meet the regulatory capital requirements mandated by or otherwise agreed with the relevant national supervisory authority. Further information on the capital requirements applicable to Group entities are set out in the Capital Management section (note I3). Under UK company law, dividends can only be paid if a UK company has distributable reserves sufficient to cover the dividend.

In addition, contractual requirements may place restrictions on the transfer of funds as follows:

•  Pearl Life Holdings Limited ('PeLHL') is required to make payments of contributions into charged accounts on behalf of the Abbey Life Scheme. These amounts do not form part of the pension scheme assets and at 31 December 2023, PeLHL held £9 million (2022: £9 million) within debt securities and £24 million (2022: £18 million) within cash and cash equivalents in respect of these charged accounts. Further details of when the remaining amounts may become payable to the pensions scheme are included in note G1.3.

•  ReAssure Midco Limited ('RML') is required to make payments of contributions into a ring-fenced account on behalf of the ReAssure Staff Pension Scheme. These amounts do not form part of the pension scheme assets and at 31 December 2023, RML held £44 million (2022: £40 million) within debt securities in respect of this account. Further details of when these amounts may become payable to the pensions scheme are included in note G1.4.

H2. Acquisition of SLF of Canada UK Limited

On 3 April 2023, the Group acquired 100% of the issued share capital of SLF of Canada UK Limited from Sun Life Assurance Company of Canada, part of the Sun Life Financial Inc. Group, for total cash consideration of £250 million.

SLF of Canada UK Limited and its subsidiaries are a closed book life insurance business that has a portfolio of pension, life and annuity products.

The acquisition is in line with the Group's strategy to undertake mergers and acquisitions ('M&A') to acquire new customers at scale and deliver better outcomes for them. The Group also transforms acquired businesses to deliver significant cost and capital synergies, creating significant shareholder value. The table below summarises the fair value of identifiable assets and acquired liabilities assumed as at the date of acquisition.

	Notes	Fair value  £m
Assets
Acquired in-force business	G2	16
Pension scheme asset	G1	16
Reimbursement rights	G1	2
Investment property	G4	283
Financial assets		7,552
Deferred tax assets		12
Prepayments and accrued income		47
Other receivables		64
Cash and cash equivalents		230
Total assets		8,222
Liabilities
Insurance contract liabilities	F1	4,386
Reinsurance contract liabilities	F1	153
Investment contract liabilities		3,190
Other financial liabilities		75
Provisions	G7	5
Deferred tax liabilities		3
Current tax		4
Other payables		90
Total liabilities		7,906
Fair value of net assets acquired		316
Gain arising on acquisition		(66)
Purchase consideration transferred		250
Analysis of cash flows on acquisition:
Net cash acquired with the subsidiaries (included in cash flow from investing activities)		230
Cash paid		(250)
Net cash flow on acquisition		(20)

Acquired in-force business (AVIF)

An asset of £16 million arises reflecting the present value of future profits associated with the acquired in-force business. The AVIF has been determined by reference to the fair value of investment contract rights acquired.

The valuation of AVIF has been determined by reference to the assumptions expected to be applied by a market participant in an orderly transaction. The valuation approach uses present value techniques applied to the best estimate cash flows expected to arise from policies that were in-force at the acquisition date, adjusted to reflect the price of bearing the uncertainty inherent in those cash flows. This approach incorporates a number of judgements and assumptions which have impacted on the resultant valuation, the most significant of which include expected policy lapses and surrender costs, and the expenses associated with servicing the policies, together with economic assumptions such as future investment returns and the discount rate. The determination of the majority of these assumptions is carried out on a consistent basis with those used in financial reporting with appropriate adjustments to reflect a market participant's view. The adjustment for risk for the uncertainty in the cash flows has been determined using a cost of capital approach.

The valuation of insurance contract liabilities and associated reinsurance assets has been carried out on a consistent basis with that applied by the Group under the fair value approach on the transition to IFRS 17. Further information on the fair value approach used for the transition to IFRS 17 is set out in note A4.1 Determination of transition method and its application.

Deferred acquisition costs of £1 million and a deferred income liability of £2 million have been derecognised on acquisition and replaced as part of the AVIF balance.

Other receivables

The financial assets acquired include other receivables with a fair value of £64 million. The gross amount due under the contracts is £64 million, of which no balances are expected to be uncollectable.

Tax

The tax impact of the fair value adjustments recognised on acquisition has been reflected in the acquisition balance sheet.

Gain on acquisition

A gain on acquisition of £66 million has been recognised in the Group's consolidated income statement for the year ended 31 December 2023, reflecting the excess of the fair value of the net assets acquired over the consideration paid for the acquisition of the SLF of Canada UK businesses.

The consideration for the acquisition was fixed and determined using a 'locked box' pricing mechanism as at 31 December 2021. Over the period between 31 December 2021 and the completion date, the value of the net assets acquired increased. This principally reflects a negative impact on assets from increasing yields being more than offset by a reduction in liabilities as a result of favourable assumption changes and demographic experience.

Additionally, in accordance with IFRS 3 Business Combinations, the acquired defined benefit pension schemes has been measured on acquisition in accordance with the Group's accounting policies as set out in note G1, as opposed to a fair value basis.

Transaction costs

Transaction costs of £4 million have been expensed and are included in administrative expenses in the consolidated income statement. All of these costs were paid.

Impact of the acquisition on results

From the date of acquisition, the SLF of Canada UK business contributed £199 million to revenue and £24 million of profit after tax attributable to owners.

It is not possible to provide revenue and profit after tax attributable to owners for the Group had the acquisition taken place at the beginning of the year as key income statement items such as the amortisation of the contractual service margin recognised under IFRS 17 are calculated with reference to the fair value as at the date of acquisition.

H3. Assets and liabilities classified as held for sale

The Group classifies disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly attributable to the disposal of the disposal group, excluding finance costs and income tax expense. Assets and liabilities classified as held for sale are presented separately in the statement of consolidated financial position.

Agreement with abrdn plc

On 23 February 2021, the Group entered into a new agreement with abrdn plc to simplify the arrangements of their Strategic Partnership, enabling the Group to control its own distribution, marketing and brands, and focusing the Strategic Partnership on using abrdn plc's asset management services in support of Phoenix Group's growth strategy. Under the terms of the transaction, the Group agreed to sell its UK investment and platform-related products, comprising Wrap Self Invested Personal Pension ('Wrap SIPP'), Onshore Bond and UK Trustee Investment Plan ('TIP') to abrdn plc through a Part VII transfer. The economic risk and rewards for this business transferred to abrdn plc effective from 1 January 2021 via a profit transfer arrangement. Consideration received of £62 million in respect of this business was deferred until completion of the Part VII and the payments to abrdn plc in respect of the profit transfer arrangement are being offset against the deferred consideration balance.

Since 2021, the balances in the statement of consolidated financial position relating to the Wrap SIPP, Onshore Bond and TIP business have been classified as a disposal group held for sale. The total proceeds of disposal were not expected to exceed the carrying value of the related net assets and accordingly the disposal group was measured at fair value less costs to sell, resulting in an impairment of the acquired in-force business ('AVIF') of £59 million at the date of the transaction. As at 31 December 2023, the expected completion date for the transfer of the TIP business was March 2025.

Prior to 31 December 2023, a re-scoping exercise was undertaken with abrdn plc and it was agreed that the insured funds elements of the Wrap SIPP and Onshore Bond businesses will no longer transfer to abrdn plc, and as a result this business no longer meets the requirements to be classified as held for sale. The self-invested elements of the Wrap SIPP business, which are held off-balance sheet, are still expected to transfer after April 2025. As at 31 December 2023, only the TIP business has been classified as a disposal group held for sale.

The AVIF, which relates to the Wrap SIPP and Onshore Bond business, has been further impaired since 2021 and a further impairment charge of £28 million has been recognised in the year (2022: £17 million) prior to being removed from its classification as held for sale. As at 31 December 2023, the balances relating to the Wrap SIPP and Onshore Bond business have been included within the respective line items in the consolidated statement of financial position, and assets of £2,410 million and liabilities of £2,412 million have been removed from the held for sale classification. The major classes of assets and liabilities classified as held for sale are as follows:

	2023 £m	2022 £m
Acquired in-force business	-	37
Investment property	2,044	2,506
Financial assets	2,498	4,629
Cash and cash equivalents	52	33
Assets classified as held for sale	4,594	7,205
Assets in consolidated funds1	188	1,147
Total assets of the disposal group	4,782	8,352
Investment contract liabilities	(4,780)	(8,312)
Other financial liabilities	(2)	(4)
Deferred tax liabilities	-	(7)
Accruals and deferred income	-	(37)
Liabilities classified as held for sale	(4,782)	(8,360)

1 Included in assets of the disposal group are assets in consolidated funds, which are held to back investment contract liabilities of the Wrap SIPP, Onshore Bond and TIP business and are disclosed within financial assets in the consolidated statement of financial position. The Group controls these funds at 31 December 2023 and therefore consolidates 100% of the assets with any non-controlling interest recognised as net asset value attributable to unitholders.

H4. Associates: Investment in UK commercial property REIT ('UKCPR')

UKCPR is a property investment company which is domiciled in Guernsey and is admitted to the official list of the UK Listing Authority and to trading on the London Stock Exchange.

The Group's interest in UKCPR is held in the with-profit funds of the Group's life companies. Therefore, the shareholder exposure to fair value movements in the Group's investment in UKCPR is limited to the impact of those movements on the shareholder share of distributed profits of the relevant fund.

As at 31 December 2023, the Group held 43.4% (2022: 44.6%) of the issued share capital of UKCPR and the value of this investment, measured at fair value and included within financial assets, was £349 million (2022: £329 million). Management has concluded that the Group did not control UKCPR in either the current or comparative periods. The Group does not hold a unilateral power of veto in general meetings and voting is subject to certain restrictions in accordance with the terms of an existing relationship agreement it has with UKCPR.

Summary consolidated financial information (at 100%) for UKCPR group is shown below:

	2023	2022
Non-current assets	1,224	1,276
Current assets	64	83
Non-current liabilities	(236)	(291)
Current liabilities	(28)	(32)
	1,024	1,036
Revenue	68	71
Profit/(loss) for the year after tax	32	(222)

H5. Structured entities

A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only, and the relevant activities are directed by means of contractual arrangements. A structured entity often has some or all of the following features or attributes: (a) restricted activities; (b) a narrow and well-defined objective, such as to provide investment opportunities for investors by passing on risks and rewards associated with the assets of the structured entity to investors; (c) insufficient equity to permit the structured entity to finance its activities without subordinated financial support; and (d) financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches).

The Group has determined that all of its investments in collective investment schemes are structured entities. In addition, a number of debt security structures and private equity funds have been identified as structured entities. The Group has assessed that it has interests in both consolidated and unconsolidated structured entities as shown below:

•  Unit trusts;

•  OEICs;

•  SICAVs;

•  Private equity funds;

•  Asset backed securities;

•  Collateralised Debt Obligations ('CDOs');

•  Other debt structures; and

•  Phoenix Group Employee Benefit Trust ('EBT').            

The Group's holdings in the investments listed above are susceptible to market price risk arising from uncertainties about future values. Holdings in investment funds are subject to the terms and conditions of the respective fund's prospectus and the Group holds redeemable shares or units in each of the funds. The funds are managed by internal and external fund managers who apply various investment strategies to accomplish their respective investment objectives. All of the funds are managed by fund managers who are compensated by the respective funds for their services. Such compensation generally consists of an asset-based fee and a performance-based incentive fee and is reflected in the valuation of each fund.

H5.1 Interests in consolidated structured entities

The Group has determined that where it has control over funds, these investments are consolidated structured entities.

The EBT is a consolidated structured entity that holds shares to satisfy awards granted to employees under the Group's share-based payment schemes.

During the year, the Group granted further loans to the EBT of £12 million (2022: £13 million).

As at the reporting date, the Group has no intention to provide financial or other support to any other consolidated structured entity.

H5.2 Interests in unconsolidated structured entities

The Group has interests in unconsolidated structured entities. These investments are held as financial assets in the Group's consolidated statement of financial position held at fair value through profit or loss. Any change in fair value is included in the consolidated income statement in 'net investment income'. Dividend and interest income is received from these investments.

A summary of the Group's interest in unconsolidated structured entities is included below. These are shown according to the financial asset categorisation in the consolidated statement of financial position.

	2023	2022
	Carrying value of financial assets £m	Carrying value of financial assets £m
Equities	1,051	968
Collective investment schemes	78,909	75,389
Debt securities	8,264	8,062
	88,224	84,419

The Group's maximum exposure to loss with regard to the interests presented above is the carrying amount of the Group's investments. Once the Group has disposed of its shares or units in a fund, it ceases to be exposed to any risk from that fund. The Group's holdings in the above unconsolidated structured entities are largely less than 50% and as such the size of these structured entities are likely to be significantly higher than their carrying value.

Details of commitments to subscribe to private equity funds and other unlisted assets are included in note I5.

H6. Group entities

The table below sets out the Group's subsidiaries (including consolidated collective investment schemes), associates and significant holdings in undertakings (including undertakings in which the holding amounts to 20% or more of the nominal value of the shares or units and they are not classified as a subsidiary or associate).

	Registered address of incorporated entities	If unincorporated, address of principal place of business	Type of investment (including class of shares held)	% of shares /units held
Subsidiaries:
Phoenix Life Limited (life assurance company)	Wythall1		Ordinary Shares	100.00%
Phoenix Life Assurance Limited (life assurance company)	Wythall1		Ordinary Shares	100.00%
Phoenix Life Assurance Europe DAC (life assurance company)	Dublin3		Ordinary Shares	100.00%
Standard Life Assurance Limited (life assurance company - directly owned by the Company)	Edinburgh2		Ordinary Shares	100.00%
Standard Life International Designated Activity Company (life assurance company - directly owned by the Company)	Dublin3		Ordinary Shares	100.00%
Standard Life Pension Funds Limited (life assurance company)	Edinburgh2		Limited by Guarantee	100.00%
Sun Life Assurance Company of Canada (U.K.) Limited (life assurance company)	Hampshire43		Ordinary Shares	100.00%
ReAssure Life Limited (life assurance company)	Telford4		Ordinary Shares	100.00%
ReAssure Limited (life assurance company)	Telford4		Ordinary Shares	100.00%
Phoenix Re Limited (life assurance company)	Bermuda41		Ordinary Shares	100.00%
Phoenix Group Management Services Limited (management services company)	Wythall1		Ordinary Shares	100.00%
Pearl Group Services Limited (management services company)	Wythall1		Ordinary Shares	100.00%
Standard Life Assets and Employee Services Limited (management services company)	Edinburgh2		Ordinary Shares	100.00%
ReAssure Companies Services Limited (management services company)	Telford4		Ordinary Shares	100.00%
PGMS (Ireland) Limited (management services company)	Dublin5		Ordinary Shares	100.00%
ReAssure UK Services Limited (management services company)	Telford4		Ordinary Shares	100.00%
Phoenix Management Services (Bermuda) Limited (management services company)	Bermuda41		Ordinary Shares	100.00%
SLFC Services Company (UK) Limited (management services company)	Hampshire43		Ordinary Shares	100.00%
PA (GI) Limited (non-trading company)	Wythall1		Ordinary Shares	100.00%
103 Wardour Street Retail Investment Company Limited (investment company)	Telford4		Ordinary Shares	100.00%
28 Riberia de Loira SL (property management company)	Madrid42		Ordinary Shares	100.00%
3 St Andrew Square Apartments Limited (property management company)	Edinburgh6		Ordinary Shares	100.00%
330 Avenida de Aragon SL (property management company)	Madrid17		Ordinary Shares	100.00%
Abbey Life Assurance Company Limited (non-trading company)	Wythall1		Ordinary Shares	100.00%
Abbey Life Trust Securities Limited (pension trustee company)	Wythall1		Ordinary Shares	100.00%
Abbey Life Trustee Services Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Abrdn Private Equity Opportunities Trust plc (investment company)	Edinburgh6		Ordinary Shares	56.01%
Alba LAS Pensions Management Limited (dormant company)	Edinburgh2		Ordinary Shares	100.00%
Alba Life Trustees Limited (non-trading company)	Edinburgh2		Ordinary Shares	100.00%
Axial Fundamental Strategies (US Investments) LLC (investment company)	Delaware7		Limited Liability Company	100.00%
BA (FURBS) Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Barnwood Properties Limited (property investment company)	Hampshire43		Ordinary Shares	100.00%
BL Telford Limited (dormant company)	Telford4		Ordinary Shares	100.00%
Britannic Finance Limited (finance and insurance services company)	Wythall1		Ordinary Shares	100.00%
Britannic Group Services Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Britannic Money Investment Services Limited (investment advice company)	Wythall1		Ordinary Shares	100.00%
Century Trustee Services Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
CGE Management Company Limited (formerly known as Clyde Gateway Management Company Limited)	Edinburgh6		Ordinary Shares	100.00%
CH Management Limited (investment company)	Delaware7		Ordinary Shares	100.00%
Cityfourinc (dormant company)	Wythall1		Unlimited with Shares	100.00%
ERIP General Partner Limited (General Partner to ERIP Limited Partnership)	Telford4		Ordinary Shares	80.00%
ERIP Limited Partnership (Limited Partnership)	Telford4		Ordinary Shares	100.00%
G Assurance & Pensions Services Limited (non-trading company)	Telford4		Ordinary Shares	100.00%
G Financial Services Limited (dormant company)	Telford4		Ordinary Shares	100.00%
G Life H Limited (holding company)	Telford4		Ordinary Shares	100.00%
G Park Management Company Limited (property management company)	London44		Ordinary Shares	100.00%
G Trustees Limited (trustee company)	Telford4		Ordinary Shares	100.00%
Gallions Reach Shopping Park (Nominee) Limited (dormant company)	London44		Ordinary Shares	100.00%
Gresham Life Assurance Society Limited (dormant company)	Telford4		Ordinary Shares	100.00%
Iceni Nominees (No. 2) Limited (dormant company)	London44		Ordinary Shares	100.00%
IH (Jersey) Limited (dormant company)	Jersey8		Ordinary Shares	100.00%
Impala Holdings Limited (holding company)	Wythall1		Ordinary Shares	100.00%
Impala Loan Company 1 Limited (dormant company)	Edinburgh2		Ordinary Shares	100.00%
Inhoco 3107 Limited (dormant company)	London44		Ordinary Shares	100.00%
Laurtrust Limited (dormant company)	Hampshire43		Ordinary Shares	100.00%
London Life Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
London Life Trustees Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Namulas Pension Trustees Limited (trustee company)	Telford4		Ordinary Shares	100.00%
National Provident Institution (dormant company)	Wythall1		Unlimited without Shares	100.00%
National Provident Life Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
NM Life Trustees Limited (dormant company)	Telford4		Ordinary Shares	100.00%
NM Pensions Limited (dormant company)	Telford4		Ordinary Shares	100.00%
NP Life Holdings Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
NPI (Printworks) Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
NPI (Westgate) Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
PC Management Limited (property management company)	Dublin15		Ordinary Shares	69.00%
Pearl (Covent Garden) Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Pearl (Martineau Phase 1) Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Pearl (Martineau Phase 2) Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Pearl (Moor House) Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Pearl (WP) Investments LLC (investment company)	Delaware7		Limited Liability Company	100.00%
Pearl AL Limited (dormant company)	Edinburgh2		Ordinary Shares	100.00%
Pearl Assurance Group Holdings Limited (investment company)	Wythall1		Ordinary Shares	100.00%
Pearl Customer Care Limited (financial services company)	Wythall1		Ordinary Shares	100.00%
Pearl Group Holdings (No. 1) Limited (finance company)	London10		Ordinary Shares	100.00%
Pearl Group Holdings (No. 2) Limited (holding company)	Wythall1		Ordinary Shares	100.00%
Pearl Group Secretariat Services Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Pearl Life Holdings Limited (holding company)	Wythall1		Ordinary Shares	100.00%
Pearl MP Birmingham Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Pearl RLG Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Pearl Trustees Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Phoenix Life CA Holdings Limited (formerly known as PG Dormant (No 4) Limited) (dormant company)	Wythall1		Ordinary Shares	100.00%
Phoenix Group CA Services Limited (formerly known as PG Dormant (No 5) Limited) (dormant company)	Wythall1		Ordinary Shares	100.00%
Phoenix Life CA Limited (formerly known as PG Dormant (No 6) Limited) (dormant company)	Wythall1		Ordinary Shares	100.00%
PGMS (Glasgow) Limited (investment company)	Edinburgh2		Ordinary Shares	100.00%
PGMS (Ireland) Holdings Unlimited Company (holding company)	Dublin5		Unlimited with Shares	100.00%
PGS 2 Limited (investment company)	Wythall1		Ordinary Shares	100.00%
Phoenix & London Assurance Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Phoenix (Barwell 2) Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Phoenix (Chiswick House) Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Phoenix (Moor House 1) Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Phoenix (Moor House 2) Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Phoenix (Printworks) Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Phoenix (Stockley Park) Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Phoenix Advisers Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Phoenix AW Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Phoenix Customer Care Limited (financial services company)	Wythall1		Ordinary Shares	100.00%
Phoenix ER1 Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Phoenix ER2 Limited (finance company)	Wythall1		Ordinary Shares	100.00%
Phoenix ER3 Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Phoenix ER4 Limited (finance company)	Wythall1		Ordinary Shares	100.00%
Phoenix ER5 Limited (finance company)	Wythall1		Ordinary Shares	100.00%
Phoenix ER6 Limited (finance company)	Wythall1		Ordinary Shares	100.00%
Phoenix Group Capital Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Phoenix Group Employee Benefit Trust	Jersey16		Trust	100.00%
Phoenix Group Holdings (Bermuda) Limited (holding company - directly owned by the Company)	Bermuda41		Ordinary Shares	100.00%
Phoenix Group Holdings (non-trading company)	Cayman Islands10		Private Company	100.00%
Phoenix Group Management Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
PGH CA Limited (formerly known as Pearl Group Management Services Limited) (dormant company)	London9		Ordinary Shares	100.00%
Phoenix Holdings (Bermuda) Limited (holding company)	Bermuda41		Ordinary Shares	100.00%
Phoenix Life Holdings Limited (holding company - directly owned by the Company)	Wythall1		Ordinary Shares	100.00%
Phoenix Management Services Holdings (Bermuda) Limited (holding company)	Bermuda41		Ordinary Shares	100.00%
Phoenix Pension Scheme (Trustees) Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Phoenix Pensions Trustee Services Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Phoenix SCP Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Phoenix SCP Pensions Trustees Limited (trustee company)	Wythall1		Ordinary Shares	100.00%
Phoenix SCP Trustees Limited (trustee company)	Edinburgh2		Ordinary Shares	100.00%
Phoenix SL Direct Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Phoenix SPV1 Limited (investment company)	Wythall1		Ordinary Shares	100.00%
Phoenix SPV2 Limited (investment company)	Wythall1		Ordinary Shares	100.00%
Phoenix SPV3 Limited (investment company)	Wythall1		Ordinary Shares	100.00%
Phoenix SPV4 Limited (investment company)	Wythall1		Ordinary Shares	100.00%
Phoenix ULA Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Phoenix Unit Trust Managers Limited (unit trust manager)	Wythall1		Ordinary Shares	100.00%
Phoenix Wealth Holdings Limited (holding company)	Wythall1		Ordinary Shares	100.00%
Phoenix Wealth Services Limited (financial services company)	Wythall1		Ordinary Shares	100.00%
Phoenix Wealth Trustee Services Limited (trustee company)	Wythall1		Ordinary Shares	100.00%
Pilangen Logistik AB (investment company)	Stockholm13		Ordinary Shares	100.00%
Pilangen Logistik I AB (investment company)	Stockholm13		Ordinary Shares	100.00%
ReAssure FS Limited (dormant company)	Telford4		Ordinary Shares	100.00%
ReAssure FSH UK Limited (holding company)	Telford4		Ordinary Shares	100.00%
ReAssure Group plc (holding company - directly owned by the Company)	Telford4		Ordinary Shares	100.00%
ReAssure Life Pension Trustees Limited (dormant company)	Telford4		Ordinary Shares	100.00%
ReAssure LL Limited (dormant company)	Telford4		Ordinary Shares	100.00%
ReAssure Midco Limited (holding company)	Telford4		Ordinary Shares	100.00%
ReAssure Nominees Limited (dormant company)	Telford4		Ordinary Shares	100.00%
ReAssure Pension Trustees Limited (dormant company)	Telford4		Ordinary Shares	100.00%
ReAssure PM Limited (dormant company)	Telford4		Ordinary Shares	100.00%
ReAssure Trustees Limited (dormant company)	Telford4		Ordinary Shares	100.00%
ReAssure Two Limited (dormant company)	Telford4		Ordinary Shares	100.00%
ReAssure UK Life Assurance Company Limited (dormant company)	Telford4		Ordinary Shares	100.00%
Scottish Mutual Assurance Limited (dormant company)	Edinburgh2		Ordinary Shares	100.00%
Scottish Mutual Nominees Limited (dormant company)	Edinburgh2		Ordinary Shares	100.00%
Scottish Mutual Pension Funds Investment Limited (trustee company)	Edinburgh2		Ordinary Shares	100.00%
SL (NEWCO) Limited (dormant company)	Edinburgh2		Ordinary Shares	100.00%
SL Liverpool limited (formerly known as SL Liverpool PLC) (dormant company)	Wythall1		Ordinary Shares	100.00%
SLA Belgium No.1 SA (investment company)	Brussels11		Société Anonyme	100.00%
SLA Denmark No.1 ApS (investment company)	Copenhagen14		Ordinary Shares	100.00%
SLA Denmark No.2 ApS (investment company)	Copenhagen14		Ordinary Shares	100.00%
SLA Germany No.1 S.à.r.l. (investment company)	Luxembourg20		Ordinary Shares	100.00%
SLA Germany No.2 S.à.r.l. (investment company)	Luxembourg20		Ordinary Shares	100.00%
SLA Germany No.3 S.à.r.l. (investment company)	Luxembourg20		Ordinary Shares	100.00%
SLA Ireland No.1 S.à.r.l. (investment company)	Luxembourg20		Ordinary Shares	100.00%
SLA Netherlands No.1 B.V. (investment company)	Amsterdam12		Ordinary Shares	100.00%
SLACOM (No. 10) Limited (dormant company)	Edinburgh2		Ordinary Shares	100.00%
SLACOM (No. 8) Limited (dormant company)	Edinburgh2		Ordinary Shares	100.00%
SLACOM (No. 9) Limited (dormant company)	Edinburgh2		Ordinary Shares	100.00%
SLF of Canada UK Limited (holding company - directly owned by the Company)	Hampshire43		Ordinary Shares	100.00%
SLIF Property Investment GP Limited (General Partner to SLIF Property Investment)	Edinburgh6		Ordinary Shares	100.00%
Standard Life Agency Services Limited (dormant company)	Edinburgh2		Ordinary Shares	100.00%
Standard Life Assurance (HWPF) Luxembourg S.à.r.l. (investment company)	Luxembourg20		Ordinary Shares	100.00%
Standard Life Investment Funds Limited (dormant company)	Edinburgh2		Ordinary Shares	100.00%
Standard Life Lifetime Mortgages Limited (mortgage provider company)	Edinburgh2		Ordinary Shares	100.00%
Standard Life Master Trust Co. Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Standard Life Mortgages Limited (dormant company)	Wythall1		Ordinary Shares	100.00%
Standard Life Property Company Limited (dormant company)	Edinburgh2		Ordinary Shares	100.00%
Standard Life Trustee Company Limited (trustee company)	Edinburgh2		Ordinary Shares	100.00%
Sun Life of Canada UK Holdings Limited (dormant company)	Hampshire43		Ordinary Shares	100.00%
SunLife Limited (financial services distribution company)	Wythall1		Ordinary Shares	100.00%
The Heritable Securities and Mortgage Investment Association Ltd (dormant company)	Edinburgh2		Ordinary Shares	100.00%
The London Life Association Limited (dormant company)	Wythall1		Limited by Guarantee	100.00%
The Pathe Building Management Company Limited (dormant company)	Telford4		Ordinary Shares	100.00%
The Phoenix Life SCP Institution (dormant company)	Edinburgh2		Limited by Guarantee	100.00%
The Scottish Mutual Assurance Society (dormant company)	Edinburgh2		Limited by Guarantee	100.00%
The Standard Life Assurance Company of Europe B.V. (financial holding company)	Amsterdam12		Ordinary Shares	100.00%
Vebnet (Holdings) Limited (holding company)	Wythall1		Ordinary Shares	100.00%
Vebnet Limited (services company)	Edinburgh2		Ordinary Shares	100.00%
Welbrent Property Investment Company Limited (dormant company)	London44		Ordinary Shares	100.00%
SLIF Property Investment LP		Edinburgh6	Limited Partnership	100.00%
Pearl Private Equity LP		Edinburgh6	Limited Partnership	100.00%
Pearl Strategic Credit LP		Edinburgh6	Limited Partnership	100.00%
European Strategic Partners LP		Edinburgh6	Limited Partnership	72.70%
ASI Phoenix Global Private Equity III LP		Edinburgh6	Limited Partnership	100.00%
Janus Henderson Institutional Short Duration Bond Fund		London18	Unit Trust	100.00%
Janus Henderson Institutional Mainstream UK Equity Trust		London18	Unit Trust	100.00%
Janus Henderson Institutional UK Equity Tracker Trust		London18	Unit Trust	100.00%
Janus Henderson Institutional High Alpha UK Equity Fund		London18	Unit Trust	84.56%
Janus Henderson Global Funds - Janus Henderson Institutional Overseas Bond Fund		London18	OEIC, sub fund	99.20%
Janus Henderson Strategic Investment Funds - Janus Henderson Institutional North American Index Opportunities Fund		London18	OEIC, sub fund	82.73%
Janus Henderson Strategic Investment Funds - Janus Henderson Institutional Asia Pacific ex Japan Index Opportunities Fund		London18	OEIC, sub fund	96.27%
Janus Henderson Strategic Investment Funds - Janus Henderson Institutional Japan Index Opportunities Fund		London18	OEIC, sub fund	86.79%
PUTM ACS Asia Pacific ex Japan Fund		Wythall1	Unit Trust	99.95%
PUTM ACS Emerging Market Equity Fund		Wythall1	Unit Trust	100.00%
PUTM ACS European ex UK Fund		Wythall1	Unit Trust	100.00%
PUTM ACS Japan Equity Fund		Wythall1	Unit Trust	100.00%
PUTM ACS Lothian European Ex UK Fund		Wythall1	Unit Trust	100.00%
PUTM ACS Lothian North American Equity Fund		Wythall1	Unit Trust	100.00%
PUTM ACS Lothian UK Gilt Fund		Wythall1	Unit Trust	100.00%
PUTM ACS Lothian UK Listed Smaller Companies Fund (formerly known as PUTM ACS UK Smaller Companies Fund)		Wythall1	Unit Trust	99.90%
PUTM ACS North American 2 Fund		Wythall1	Unit Trust	100.00%
PUTM ACS North American Fund		Wythall1	Unit Trust	100.00%
PUTM ACS Sustainable Index Asia Pacific ex Japan Equity Fund		Wythall1	Unit Trust	100.00%
PUTM ACS Sustainable Index Emerging Markets Equity Fund		Wythall1	Unit Trust	100.00%
PUTM ACS Sustainable Index European Equity Fund		Wythall1	Unit Trust	100.00%
PUTM ACS Sustainable Index Japan Equity Fund		Wythall1	Unit Trust	100.00%
PUTM ACS Sustainable Index UK Equity Fund		Wythall1	Unit Trust	100.00%
PUTM ACS Sustainable Index US Equity Fund		Wythall1	Unit Trust	100.00%
PUTM ACS UK All Share Listed Equity Multi Manager Fund		Wythall1	Unit Trust	100.00%
PUTM ACS US Dollar Credit Fund		Wythall1	Unit Trust	100.00%
PUTM Bothwell Asia Pacific (Excluding Japan) Fund		Wythall1	Unit Trust	100.00%
PUTM Bothwell Emerging Market Debt Unconstrained Fund		Wythall1	Unit Trust	100.00%
PUTM Bothwell Emerging Markets Equity Fund		Wythall1	Unit Trust	100.00%
PUTM Bothwell Euro Sovereign Fund		Wythall1	Unit Trust	100.00%
PUTM Bothwell European Credit Fund		Wythall1	Unit Trust	100.00%
PUTM Bothwell Floating Rate ABS Fund		Wythall1	Unit Trust	100.00%
PUTM Bothwell Global Bond Fund		Wythall1	Unit Trust	100.00%
PUTM Bothwell Global Credit Fund		Wythall1	Unit Trust	100.00%
PUTM Bothwell Index-Linked Sterling Hedged Fund		Wythall1	Unit Trust	100.00%
PUTM Bothwell Long Gilt Sterling Hedged Fund		Wythall1	Unit Trust	100.00%
PUTM Bothwell Short Duration Credit Fund		Wythall1	Unit Trust	100.00%
PUTM Bothwell Sterling Credit Fund		Wythall1	Unit Trust	100.00%
PUTM Bothwell Sterling Government Bond Fund		Wythall1	Unit Trust	100.00%
PUTM Bothwell Sub-Sovereign A Fund		Wythall1	Unit Trust	100.00%
PUTM Bothwell Tactical Asset Allocation Fund		Wythall1	Unit Trust	100.00%
PUTM Bothwell Uk Equity Income Fund		Wythall1	Unit Trust	100.00%
PUTM Bothwell Ultra Short Duration Fund		Wythall1	Unit Trust	100.00%
PUTM Far Eastern Unit Trust		Wythall1	Unit Trust	99.64%
PUTM UK All-Share Index Unit Trust		Wythall1	Unit Trust	100.00%
PUTM UK Stock Market Fund		Wythall1	Unit Trust	100.00%
PUTM UK Stock Market Fund (Series 3)		Wythall1	Unit Trust	100.00%
abrdn (Lothian) European Trust II (formerly known as abrdn European Trust II)		London44	Unit Trust	100.00%
abrdn (Lothian) European Trust (formerly known as abrdn European Trust)		London44	Unit Trust	95.65%
abrdn (Lothian) International Trust (formerly known as abrdn International Trust)		London44	Unit Trust	100.00%
abrdn (Lothian) Japan Trust (formerly known as Abrdn Japan Trust)		London44	Unit Trust	78.05%
abrdn (Lothian) North American Trust (formerly known as abrdn North American Trust)		London44	Unit Trust	99.47%
abrdn (Lothian) Pacific Basin Trust (formerly known as abrdn Pacific Basin Trust)		London44	Unit Trust	98.51%
abrdn (Lothian) UK Corporate Bond Trust (formerly known as abrdn UK Corporate Bond Trust)		London44	Unit Trust	100.00%
abrdn (Lothian) UK Equity General Trust (formerly known as abrdn UK Equity General Trust)		London44	Unit Trust	99.67%
abrdn Emerging Markets Income Equity Fund		London44	OEIC, sub fund	74.36%
abrdn Europe ex UK Ethical Equity Fund		London44	OEIC, sub fund	78.61%
abrdn MT American Equity Unconstrained Fund (formerly known as ASIMT American Equity Unconstrained Fund)		London44	Unit Trust	78.13%
abrdn MT Global REIT Fund (formerly known as ASIMT Global REIT Fund)		London44	Unit Trust	80.49%
abrdn MT Japan Fund (formerly known as ASIMT Japan Fund)		London44	Unit Trust	77.55%
abrdn MT Sterling Intermediate Credit Fund (formerly known as ASIMT Sterling Intermediate Credit Fund Launch Fund)		London44	Unit Trust	93.63%
abrdn MyFolio Managed I Fund		London44	OEIC, sub fund	77.50%
abrdn MyFolio Managed II Fund		London44	OEIC, sub fund	76.92%
abrdn MyFolio Managed III Fund		London44	OEIC, sub fund	84.49%
abrdn MyFolio Managed V Fund		London44	OEIC, sub fund	76.75%
abrdn Short Dated Global Corporate Bond Tracker Fund		London44	OEIC, sub fund	95.85%
abrdn Short Dated Sterling Corporate Bond Tracker Fund		London44	OEIC, sub fund	91.26%
abrdn SICAV I - Europe ex UK Sustainable Equity Fund		Luxembourg20	SICAV, sub fund	68.91%
abrdn SICAV I - GDP Weighted Global Government Bond Fund		Luxembourg20	SICAV, sub fund	73.21%
abrdn SICAV I - Global Bond Fund		Luxembourg20	SICAV, sub fund	99.60%
abrdn SICAV I - Global Government Bond Fund		Luxembourg20	SICAV, sub fund	80.21%
abrdn SICAV II - Global Equity Impact Fund		Luxembourg20	SICAV, sub fund	61.26%
abrdn SICAV II - Global Inflation-linked Bond Fund		Luxembourg20	SICAV, sub fund	51.42%
abrdn SICAV II - Global Short Duration Corporate Bond Fund		Luxembourg20	SICAV, sub fund	98.25%
abrdn SICAV II - Absolute Return Global Bond Strategies Fund		Luxembourg20	SICAV, sub fund	92.46%
abrdn SICAV II - European Government All Stocks Fund		Luxembourg20	SICAV, sub fund	100.00%
abrdn SICAV II - Global Emerging Markets Local Currency Debt Fund		Luxembourg20	SICAV, sub fund	89.59%
abrdn SICAV II - Global High Yield Bond Fund		Luxembourg20	SICAV, sub fund	54.75%
abrdn SICAV II Global Real Estate Securities Sustainable Fund (formerly known as abrdn SICAV II Global REIT Focus Fund)		Luxembourg20	SICAV, sub fund	97.10%
abrdn Standard Liquidity Fund (Lux) - Seabury Euro Liquidity 1 Fund		Luxembourg20	UCITS, sub fund	100.00%
abrdn Standard Liquidity Fund (Lux) - Seabury Sterling Liquidity 2 Fund		Luxembourg20	UCITS, sub fund	100.00%
abrdn Standard Liquidity Fund (Lux) - Seabury Sterling Liquidity 3 Fund		Luxembourg20	UCITS, sub fund	99.45%
abrdn Standard SICAV I - China Onshore Bond Fund		Luxembourg20	SICAV, sub fund	60.75%
abrdn Sustainable Index World Equity Fund		London44	Unit Trust	90.61%
abrdn Sustainable Index American Equity Fund		London44	OEIC, sub fund	60.53%
abrdn Phoenix Fund Financing SCSP (formerly known as ASI Phoenix Fund Financing SCSP (PLFF))		Luxembourg20	Special Limited Partnership	100.00%
Ignis Private Equity Fund LP		Cayman Islands10	Limited Partnership	100.00%
Ignis Strategic Credit Fund LP		Cayman Islands10	Limited Partnership	100.00%
North American Strategic Partners (Feeder) 2008 Limited Partnership		Edinburgh6	Limited Partnership	100.00%
North American Strategic Partners 2008 L.P.		Delaware7	Limited Partnership	100.00%
Ignis Strategic Solutions Funds plc - Fundamental Strategies Fund		Dublin22	OEIC, sub fund	100.00%
Ignis Strategic Solutions Funds plc - Systematic Strategies Fund		Dublin22	OEIC, sub fund	100.00%
Phoenix Highvista Venture Capital Partners LP (formerly known as ASI Phoenix Venture Capital Partners LP)		USA56	Limited Partnership	100.00%
BNY Mellon 50/50 Global Equity Fund		London40	UCITS, sub fund	73.99%
HSBC Investment Funds - Balanced Fund		London23	OEIC, sub fund	81.64%
IFSL AMR OEIC - IFSL AMR Diversified Portfolio		Bolton24	OEIC, sub fund	72.83%
iShares 350 UK Equity Index Fund UK		London25	OEIC, sub fund	99.46%
Legal & General European Equity Income Fund		London26	Unit Trust	86.50%
Legal & General Growth Trust		London26	Unit Trust	84.77%
Quilter Investors Global Dynamic Equity Fund		London27	OEIC, sub fund	87.03%
UBS Global Optimal Fund		London50	OEIC, sub fund	78.77%
Amundi MSCI World Climate Transition CTB		Luxembourg28	SICAV, sub fund	51.95%
Stonepeak Core Fund (Lux) SCSp		Luxembourg51	Special Limited Partnership	83.30%
Partners Group Phoenix, L.P. Inc.		Guernsey55	Limited Partnership	100.00%
ESP General Partner Limited Partnership		Edinburgh6	Limited Partnership	100.00%
Aviva Investors UK Property Feeder Trust		London59	Unit Trust	100.00%
Associates:
UK Commercial Property REIT Limited (property investment company)	Guernsey29		Ordinary Shares	43.39%
UK Commercial Property Estates Holdings Limited (property investment company)	Guernsey29		Ordinary Shares	43.39%
UK Commercial Property Estates Limited (property investment company)	Guernsey29		Ordinary Shares	43.39%
UK Commercial Property Finance Holdings Limited (property investment company)	Guernsey29		Ordinary Shares	43.39%
Duke Distribution Centres S.à.r.l. (investment company)	Luxembourg31		Ordinary Shares	43.39%
Duke Offices & Developments S.à.r.l. (investment company)	Luxembourg31		Ordinary Shares	43.39%
Significant holdings:
Janus Henderson Institutional Global Responsible Managed Fund		London18	OEIC, sub fund	31.10%
Janus Henderson Institutional UK Index Opportunities Fund		London18	OEIC, sub fund	58.64%
aberdeen Standard Liquidity Fund (Lux) - Sterling Fund		Luxembourg20	UCITS, sub fund	30.05%
abrdn American Equity Enhanced Index Fund		London44	OEIC, sub fund	48.23%
abrdn American Income Equity Fund		London44	OEIC, sub fund	65.26%
abrdn Asia Pacific Equity Enhanced Index Fund		London44	OEIC, sub fund	35.99%
abrdn Asia Pacific Equity Fund		London44	OEIC, sub fund	22.83%
abrdn Dynamic Distribution Fund		London44	Unit Trust	63.23%
abrdn Emerging Markets Equity Enhanced Index Fund		London44	OEIC, sub fund	25.45%
abrdn Emerging Markets Equity Fund		London44	OEIC, sub fund	22.06%
abrdn Emerging Markets Local Currency Bond Tracker Fund		London44	OEIC, sub fund	42.19%
abrdn Ethical Corporate Bond Fund		London44	OEIC, sub fund	57.34%
abrdn Europe ex UK Income Equity Fund		London44	OEIC, sub fund	26.24%
abrdn Europe Equity Enhanced Index Fund		London44	OEIC, sub fund	25.37%
abrdn European Equity Tracker Fund		London44	OEIC, sub fund	23.14%
abrdn Global Equity Fund		London44	OEIC, sub fund	22.99%
abrdn Global Inflation-Linked Bond Fund		London44	OEIC, sub fund	24.13%
abrdn Global Inflation-Linked Bond Tracker Fund		London44	OEIC, sub fund	52.87%
abrdn Global Government Bond Tracker Fund		London44	OEIC, sub fund	31.90%
abrdn Global Real Estate Fund		London44	Unit Trust	36.57%
abrdn Global Smaller Company Fund		London44	OEIC, sub fund	25.59%
abrdn High Yield Bond Fund		London44	OEIC, sub fund	20.37%
abrdn Investment Grade Corporate Bond Fund		London44	OEIC, sub fund	42.52%
abrdn Japan Equity Enhanced Index Fund		London44	OEIC, sub fund	51.85%
abrdn MyFolio Managed IV Fund		London44	OEIC, sub fund	68.36%
abrdn MyFolio Market I Fund		London44	OEIC, sub fund	42.30%
abrdn MyFolio Market II Fund		London44	OEIC, sub fund	50.36%
abrdn MyFolio Market III Fund		London44	OEIC, sub fund	56.77%
abrdn MyFolio Market IV Fund		London44	OEIC, sub fund	54.08%
abrdn MyFolio Market V Fund		London44	OEIC, sub fund	58.47%
abrdn MyFolio Multi-Manager II Fund		London44	OEIC, sub fund	48.78%
abrdn MyFolio Multi-Manager III Fund		London44	OEIC, sub fund	56.50%
abrdn MyFolio Multi-Manager IV Fund		London44	OEIC, sub fund	59.86%
abrdn MyFolio Multi-Manager V Fund		London44	OEIC, sub fund	37.59%
abrdn Short Dated Corporate Bond Fund		London44	OEIC, sub fund	26.77%
abrdn Short Duration Global Inflation-Linked Bond Fund		London44	OEIC, sub fund	22.07%
abrdn SICAV I - Diversified Income Fund		Luxembourg20	SICAV, sub fund	36.27%
abrdn SICAV I - Global Corporate Sustainable Bond Fund		Luxembourg20	SICAV, sub fund	36.02%
abrdn SICAV I - Japanese Sustainable Equity Fund		Luxembourg20	SICAV, sub fund	22.52%
abrdn SICAV I - North American Smaller Companies Fund		Luxembourg20	SICAV, sub fund	24.34%
abrdn SICAV I - Short Dated Enhanced Income Fund		Luxembourg20	SICAV, sub fund	39.94%
abrdn SICAV II European Corporate Bond Fund		Luxembourg20	SICAV, sub fund	31.46%
abrdn SICAV II European Smaller Companies Fund		Luxembourg20	SICAV, sub fund	27.33%
abrdn SICAV II Global Corporate Bond Fund		Luxembourg20	SICAV, sub fund	53.05%
abrdn Standard Liquidity Fund (Lux) - Seabury Euro Liquidity 1 Fund (formerly known as Abrdn Liquidity Fund (Lux) Euro Fund)		Luxembourg20	UCITS, sub fund	39.38%
abrdn Sterling Corporate Bond Fund (formerly known as ASI (SLI) Corporate Bond Fund)		London44	OEIC, sub fund	26.45%
abrdn Strategic Bond Fund		London44	OEIC, sub fund	54.16%
abrdn UK Equity Enhanced Index Fund		London44	OEIC, sub fund	47.25%
abrdn UK Government Bond Fund		London44	OEIC, sub fund	38.10%
abrdn UK Income Equity Fund		London44	OEIC, sub fund	28.14%
abrdn UK Income Unconstrained Equity Fund		London44	OEIC, sub fund	61.71%
abrdn UK Mid-Cap Equity Fund		London44	OEIC, sub fund	31.44%
abrdn UK Real Estate Feeder Fund (formerly known as Standard Life Investments UK Real Estate Accumulation Feeder Fund)		London44	Unit Trust	63.85%
abrdn UK Smaller Companies Fund		London44	OEIC, sub fund	30.89%
abrdn UK Value Sustainable and Responsible Investment Equity Fund		London44	OEIC, sub fund	40.54%
abrdn UK Value Equity Fund (formerly known as abrdn UK Unconstrained Equity Fund)		London44	OEIC, sub fund	58.68%
Brent Cross Partnership		London30	Limited Partnership	23.83%
Gallions Reach Shopping Park Limited Partnership		London44	Unit Trust	100.00%
Gallions Reach Shopping Park Unit Trust		Jersey21	Unit Trust	100.00%
Standard Life Investments Brent Cross LP		Edinburgh6	Unit Trust	40.13%
Standard Life Investments UK Shopping Centre Trust		Jersey32	Unit Trust	40.13%
AB SICAV I - Diversified Yield Plus Portfolio		Luxembourg19	SICAV, sub fund	39.21%
Abrdn SICAV I - Emerging Markets Low Volatility Equity Portfolio		Luxembourg19	SICAV, sub fund	88.22%
ACS World Multifactor Equity Tracker Fund		London25	OEIC, sub fund	22.21%
Amundi Index Solutions - Amundi Global Corp SRI 1-5Y		Luxembourg28	SICAV, sub fund	22.22%
Amundi Index Solutions - Amundi MSCI China ESG Leaders Select		Luxembourg28	SICAV, sub fund	47.25%
Amundi Index Solutions - Amundi MSCI Emerging Ex China ESG Leaders Select		Luxembourg28	SICAV, sub fund	50.67%
Amundi UCITS Funds - Amundi Global Multi-Factor Equity Fund		Luxembourg28	UCITS, sub fund	22.13%
AQR Global Risk Premium UCITS Fund		Luxembourg49	UCITS, sub fund	100.00%
Baillie Gifford Emerging Markets Leading Companies Fund		Edinburgh39	OEIC, sub fund	28.44%
Baillie Gifford Investment Funds II ICVC - Baillie Gifford UK Equity Core Fund		Edinburgh39	OEIC, sub fund	39.42%
Baillie Gifford UK & Balanced Funds ICVC - Baillie Gifford UK and Worldwide Equity Fund		Edinburgh39	OEIC, sub fund	26.78%
Barings Emerging Markets Debt Short Duration Fund		Dublin34	OEIC, sub fund	30.89%
BlackRock Global Funds - Sustainable World Bond Fund		Luxembourg19	SICAV, sub fund	24.75%
BlackRock Market Advantage Fund		London25	UCITS, sub fund	50.74%
iShares Bloomberg Roll Select Commodity Strategy ETF		USA57	OEIC, sub fund	36.12%
BNY Mellon Global Equity Fund		London40	OEIC, sub fund	26.96%
BNY Mellon Multi-Asset Global Balanced Fund		London40	UCITS, sub fund	30.09%
CF Macquaries Global Infrastructure Securities Fund		London47	OEIC, sub fund	26.98%
Fidelity Multi Asset Open Adventurous Fund		Surrey35	OEIC, sub fund	46.63%
Goldman Sachs SICAV - Emerging Markets Total Return Bond Portfolio		Luxembourg36	SICAV, sub fund	85.06%
Goldman Sachs SICAV - Goldman Sachs Emerging Markets Debt Portfolio		Luxembourg36	SICAV, sub fund	23.94%
Invesco Global Targeted Returns Fund		Luxembourg19	OEIC, sub fund	44.27%
Invesco Managed Growth Fund		Oxfordshire37	OEIC, sub fund	52.21%
Janus Henderson Diversified Growth Fund		London18	OEIC, sub fund	66.93%
L&G Absolute Return Bond Plus Fund		Luxembourg38	SICAV, sub fund	66.30%
L&G Emerging Markets Bond Fund		Luxembourg38	SICAV, sub fund	74.79%
L&G Multi-Asset Target Return Fund		Luxembourg46	SICAV, sub fund	40.13%
Legal & General Strategic Bond Fund		London26	Unit Trust	31.04%
Legal & General Emerging Markets Government Bond (Local Currency) Index Fund		London26	Unit Trust	20.86%
Legal & General Emerging Markets Government Bond USD Index Fund		London26	Unit Trust	34.11%
Legal & General European Index Trust		London26	Unit Trust	22.28%
Legal & General Future World Sustainable UK Equity Fund		London26	Unit Trust	29.75%
Legal & General High Income Trust		London26	Unit Trust	46.29%
Legal & General UK Smaller Companies Trust		London26	Unit Trust	31.25%
LGIM Sterling Liquidity Plus Fund		Dublin34	UCITS, sub fund	41.02%
Nomura American Century Concentrated Global Growth Equity Fund		Dublin54	UCITS, sub fund	22.79%
Quilter Investors Cirilium Balanced Blend Portfolio		London27	OEIC, sub fund	37.72%
Quilter Investors Ethical Equity Fund		London27	Unit Trust	42.63%
Quilter Investors Global Equity Growth Fund		London27	OEIC, sub fund	49.63%
Robeco - Phoenix Customized Multi Asset Fund		Rotterdam48	SICAV, sub fund	100.00%
Robeco QI Emerging Markets Sustainable Enhanced Index Equities		Luxembourg45	SICAV, sub fund	100.00%
Schroder European Fund		London52	Unit Trust	44.40%
Schroder Global Emerging Markets Fund		London52	SICAV, sub fund	20.33%
Schroder International Selection Fund - Global Bond		Luxembourg53	SICAV, sub fund	29.67%
Schroder International Selection Fund - Global Diversified Growth		Luxembourg53	SICAV, sub fund	22.20%
Schroder UK Mid 250 Fund		London52	Unit Trust	20.22%
The Marks and Spencer Worldwide Managed Fund		Chester58	Unit Trust	41.96%
Threadneedle Investment Funds ICVC - American Select Fund		London33	OEIC, sub fund	22.10%
Vanguard Common Contractual Fund - Vanguard U.S. Equity Index Common Contractual Fund		Dublin34	UCITS, sub fund	75.02%
Vanguard Investment Series plc - Vanguard Global Corporate Bond Index Fund		Dublin34	UCITS, sub fund	35.55%
Vanguard Investment Series plc - Vanguard Global Short-Term Corporate Bond Index Fund		Dublin34	UCITS, sub fund	38.35%
Vanguard Investment Series plc - Vanguard U.K. Short-Term Investment Grade Bond Index Fund		Dublin34	UCITS, sub fund	50.14%
Vanguard Investments Common Contractual Fund - Vanguard FTSE Developed Europe ex UK Common Contractual Fund		Dublin34	UCITS, sub fund	100.00%
Vanguard Investments Common Contractual Fund - Vanguard FTSE Developed World Common Contractual Fund		Dublin34	UCITS, sub fund	43.74%
Vanguard Investments Common Contractual Fund - Vanguard FTSE Developed World ex UK Common Contractual Fund		Dublin34	UCITS, sub fund	100.00%

1      1 Wythall Green Way, Wythall, Birmingham, West Midlands, B47 6WG, United Kingdom

2      Standard Life House, 30 Lothian Road, Edinburgh, EH1 2DH, United Kingdom

3      90 St. Stephen's Green, Dublin, D2, Ireland

4      Windsor House, Telford Centre, Telford, Shropshire, TF3 4NB, United Kingdom

5      Goodbody Secretarial Limited, International Financial Services Centre, 25/28 North Wall Quay, Dublin 1, Ireland

6      1 George Street, Edinburgh, EH2 2LL, United Kingdom

7      Corporation Service Company, 2711 Centerville Rd Suite 400, Wilmington, DE 19808, United States

8      22-24 New Street, St Pauls Gate, 4th Floor, JE1 4TR, Jersey

9      20 Old Bailey, London, England, EC4M 7AN, United Kingdom

10    Ugland House, Grand Cayman, KY1-1104, Cayman Islands

11    Avenue Louise 326, bte 33 1050 Brussels, Belgium

12    Telestone 8, Teleport, Naritaweg 165, 1043 BW, Amsterdam, Netherlands

13    Citco (Sweden) Ab, Stureplan 4c, 4 Tr, 114 35 Stockholm, Sweden

14    c/o Citco (Denmark) ApS, Holbergsgade 14, 2 .tv, 1057 København K Denmark

15    5th Floor Beaux Lane House, Mercer Street Lower, Dublin 2, Dublin, Ireland

16    32 Commercial Street, St Helier, Jersey, Channel Islands, JE2 3RU, Jersey

17    Avenida de Aragon 330 - Building 5, 3rd Floor, Parque Empresarial Las Mercedes, 28022 - Madrid, Spain

18    201 Bishopsgate, London, EC2M 3AE, United Kingdom

19    88 2-4, Rue Eugène Ruppert, L-2453 Luxembourg, Luxembourg

20    35a Avenue J.F. Kennedy, L-1855, Luxembourg

21    Ogier House, The Esplanade, St Helier, JE4 9WG, Jersey

22    32 Molesworth Street, Dublin 2, Dublin, D02 Y512, Ireland

23    8 Canada Square, London, E14 5HQ, United Kingdom

24    Marlborough House, 59 Chorley New Road, Bolton, BL1 4QP, United Kingdom

25    12 Throgmorton Avenue, London EC2N 2DL, United Kingdom

26    One Coleman Street, London, EC2R 5AA, United Kingdom

27    Senator House, 85 Queen Victoria Street, London, EC4V 4AB, United Kingdom

28    5, Allée Scheffer, L-2520 Luxembourg, Luxembourg

29    Trafalgar Court, Les Banques, St Peter Port, GY1 3QL, Guernsey

30    Kings Place, 90 York Way, London, N1 9GE, United Kingdom

31    1, Allée Scheffer, L-2520 Luxembourg, Luxembourg

32    Elizabeth House, 9 Castle Street, St Helier, JE4 2QP, Jersey

33    Cannon Place, 78 Cannon Street, London, EC4N 6AG, United Kingdom

34    70 Sir John Rogerson's Quay, Dublin 2, Ireland

35    Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey, KT20 6RP, United Kingdom

36    49, Avenue J.F. Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg

37    Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire, RG9 1HH, United Kingdom

38    10, Château d'Eau, L-3364 Leudelange, Grand Duchy of Luxembourg

39    Calton Square, 1 Greenside Row, Edinburgh, EH1 3AN, United Kingdom

40    160 Queen Victoria Street, London, EC4V 4LA, United Kingdom

41    Canon's Court, 22 Victoria Street, Hamilton, HM12, Bermuda

42    Calle Nanclares de Oca, 1B, 28022 Madrid

43    Matrix House, Basing View, Basingstoke, Hampshire, RG21 4DZ, England

44    280 Bishopsgate, London, EC2M 4AG, United Kingdom

45    Senningerberg, 6, Route De Trèves, L-2633, Luxembourg

46    Senningerberg, 6, Lou Hemmer Street, L-1748, Luxembourg

47    2nd Floor, 20-22 Bedford Row, London, WC1R 4EB, United Kingdom

48    Weena 850, 3014 DA, Rotterdam, Netherlands

49    Hesperange, 33, rue de Gasperich, L-5826, Luxembourg

50    5 Broadgate, London, EC2M 2QS, United Kingdom

51    20, rue de la Poste, Grand Duchy of Luxembourg, L-2346, Luxembourg

52    1 London Wall Place, London, EC2Y 5AU, United Kingdom

53    Senningerberg, 5, Hohenhof, L-1736, Luxembourg

54    33 Sir John Rogersons Quay, Dublin, D02 XK09, Ireland

55    St. Peter Port, Tudor House, Le Bordage, GY1 6BD, Guernsey

56    Highvista Strategies LLC, 200 Clarendon Street 50th Floor, Boston, 02116, United States

57    Corporation Trust Centre, 1290 Orange Street, Wilmington, 19801, United States

58    c/o Marks and Spencer Unit Trust Management Limited, Kings Meadow, Chester Business Park, Chester, CH99 9FB, United Kingdom

59    St. Helens, 1 Undershaft, London, EC3P 3DQ, United Kingdom

The following subsidiaries have been granted an audit exemption by parental guarantee by virtue of s.479A of the Companies Act 2006:

•  Britannic Finance Limited

•  Britannic Money Investment Services Limited

•  G Life H Limited

•  G Assurance & Pensions Services Limited

•  Pearl Assurance Group Holdings Limited

•  Pearl Customer Care Limited

•  PGMS (Glasgow) Limited

•  PGS 2 Limited

•  Phoenix Customer Care Limited

•  Phoenix SPV 1 Limited

•  Phoenix SPV 2 Limited

•  Phoenix SPV 3 Limited

•  Phoenix SPV 4 Limited

•  Phoenix Wealth Holdings Limited

•  ReAssure Companies Services Limited

•  ReAssure FSH UK Limited

•  Vebnet Limited

•  Vebnet (Holdings) Limited

The following subsidiaries were dissolved during the period. The subsidiaries were deconsolidated from the date of dissolution:

•  Crawley Unit Trust

•  Inesia SA

•  PUTM ACS Lothian UK Listed Equity Fund

•  PUTM ACS UK All Share Listed Equity Fund

•  PUTM Bothwell UK All Share Listed Equity Fund

•  PUTM UK Equity Unit Trust

•  abrdn Active Plus Bond Trust

•  abrdn Dynamic Multi Asset Growth Fund

•  abrdn Emerging Markets Equity Fund

•  abrdn Short Dated UK Government Bond Trust

•  abrdn Standard SICAV II China Equities Fund

•  abrdn Standard SICAV II Emerging Market Debt Fund

•  abrdn Standard SICAV II European Equities Fund

•  abrdn Standard SICAV II Global Equities Fund

•  abrdn Standard SICAV II Japanese Equities Fund

•  abrdn Strategic Bond Fund

•  abrdn UK Government Bond Trust

The following subsidiaries were either fully disposed of or the Group was no longer deemed to control the subsidiary. The subsidiaries were deconsolidated from either the date of disposal or from the date when the Group was deemed to no longer control the subsidiary:

•  abrdn Short Dated Corporate Bond Fund

•  abrdn American Income Equity Fund

•  abrdn Sustainable Index UK Equity Fund

•  CF Macquaries Global Infrastructure Securities Fund

•  Quilter Investors Global Equity Index Fund 

•  Quilter Investors UK Equity Index Fund

The following associate was dissolved during the period. The investment in associate was derecognised from the date of dissolution:

•  UK Commercial Property Estates (Reading) Limited

•  UKCPT Limited Partnership

The Group no longer has significant holdings in the following undertakings:

•  Aberdeen Japan Equity Fund

•  abrdn American Unconstrained Equity Fund

•  abrdn Diversified Growth Fund

•  abrdn Global Absolute Return Strategies Retail Acc

•  abrdn Global Focused Equity Fund

•  abrdn Multi-Asset Fund

•  abrdn Standard SICAV II Global Absolute Return Strategies Fund

•  abrdn UK High Income Equity Fund

•  abrdn UK Opportunities Equity Fund

•  AXA Fixed Interest Investment ICVC - Sterling Strategic Bond Fund

•  L&G Euro High Alpha Corporate Bond Fund

•  Legal & General European Trust

•  MI Somerset Global Emerging Markets Fund

•  Performance Retail Unit Trust

•  Quilter Investors China Equity Fund

•  Standard Life Capital Infrastructure I LP

 

I. Other notes

I1. Share-based payment

Equity-settled share-based payments to employees and others providing services are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non-market-based vesting conditions. Further details regarding the determination of the fair value of equity-settled share-based transactions are set out below.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest. At each period end, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in the consolidated income statement such that the cumulative expense reflects the revised estimate with a corresponding adjustment to equity.

I1.1 Share-based payment expense

The expense recognised for employee services receivable during the year is as follows:

	2023 £m	2022 £m
Expense arising from equity-settled share-based payment transactions	22	16

I1.2 Share-based payment expense

Long-Term Incentive Plan ('LTIP')

The Group implemented a Long-Term Incentive Plan to retain and motivate its senior management group. The awards under this plan are in the form of nil-cost options to acquire an allocated number of ordinary shares.

Assuming no good leavers or other events which would trigger early vesting rights, the 2021, 2022 and 2023 LTIP awards are subject to performance conditions tied to the Group's performance in respect of net operating cash receipts, return on shareholder value, persistency and total shareholder return ('TSR'). The 2022 and 2023 LTIP awards also include a performance condition tied to the Group's performance on decarbonisation. See the Directors' Remuneration Report for further details of the performance conditions.

For all LTIP awards, a holding period applies so that any LTIP awards to Executive Committee members for which the performance vesting requirements are satisfied will not be released for a further two years from the third anniversary of the original award date. Dividends will accrue on LTIP awards until the end of the holding period. There are no cash settlement alternatives.

2023 LTIP awards were granted on 17 March 2023 and are expected to vest on 17 March 2026. The 2020 LTIP awards vested on 13 March 2023. The 2021 awards will vest on 12 March 2024 and the 2022 awards will vest on 18 March 2025.

The fair value of these awards is estimated at the average share price in the three days preceding the date of grant, taking into account the terms and conditions upon which the instruments were granted. The fair value of the LTIP awards is adjusted in respect of the TSR performance condition which is deemed to be a 'market condition'. The fair value of the 2020, 2021 and 2022 TSR elements of the LTIP awards has been calculated using a Monte Carlo model. The inputs to this model are shown below:

	2023	2022	2021
	TSR performance condition	TSR performance condition	TSR performance condition
Share price (p)	559	639	738.6
Expected term (years)	2.8	2.8	3.0
Expected volatility (%)	23	31	30
Risk-free interest rate (%)	3.31	1.21	0.14
Expected dividend yield (%)	Dividends are received by holders of the awards therefore no adjustment to fair value is required

On 4 October 2023, 19 August 2022 and 17 August 2021, LTIP awards were granted to certain senior management employees. The vesting periods and performance conditions for these awards are linked to the core 2021, 2022 and 2023 LTIP awards respectively.

On 17 March 2023 and 4 October 2023 LTIP Buy-out awards were granted to certain senior management employees. There are discrete vesting periods for these awards and these grants of shares are conditional on the employees remaining in employment with the Group for the vesting period. Similar awards were also issued on 18 March 2022, 19 August 2022, 12 March 2021 and 17 August 2021.

Each year, the Group issues a Chairman's share award under the terms of the LTIP which is granted to a small number of employees in recognition of their outstanding contribution in the previous year. The awards are granted on the same dates as the core 2021, 2022 and 2023 LTIP awards. These grants of shares are conditional on the employees remaining in employment with the Group for the vesting period and achieving an established minimum good/good performance grading. Good leavers will be able to, at the discretion of the Remuneration Committee, exercise their full award at vesting.

Deferred Bonus Share Scheme ('DBSS')

Each year, part of the annual incentive for certain executives is deferred into shares of the parent company. The grant of these shares is conditional on the employee remaining in employment with the Group for a period of three years from the date of grant. Good leavers will be able to, at the discretion of the Remuneration Committee, exercise their full award at vesting. Dividends will accrue for DBSS awards over the three-year deferral period.

The 2023 DBSS was granted on 17 March 2023 and is expected to vest on 17 March 2026. The 2020 DBSS awards vested on 13 March 2023. The 2021 awards are expected to vest on 12 March 2024 and the 2022 awards are expected to vest on 18 March 2025.

The fair value of these awards is estimated at the average share price in the three days preceding the date of the grant, taking into account the terms and conditions upon which the options were granted.

Sharesave scheme

The sharesave scheme allows participating employees to save up to £500 each month for the UK scheme and up to €500 per month for the Irish scheme over a period of either three or five years. The 2023 sharesave options were granted on 25 October 2023. Irish Sharesave options are no longer granted.

Under the sharesave arrangement, participants remaining in the Group's employment at the end of the three or five year saving period are entitled to use their savings to purchase shares at an exercise price at a discount to the share price on the date of grant. Employees leaving the Group for certain reasons are able to use their savings to purchase shares if they leave prior to the end of their three or five year period.

The fair value of the options has been determined using a Black-Scholes valuation model. Key assumptions within this valuation model include expected share price volatility and expected dividend yield.

The following information was relevant in the determination of the fair value of the 2019 to 2023 UK sharesave options:

	2023 sharesave	2022 sharesave	2021 sharesave	2020 sharesave	2019 sharesave
Share price (£)	4.448	6.142	7.486	5.664	6.800
Exercise price (£)	3.78	5.09	5.89	4.97	5.61
Expected life (years)	3.1 and 5,1	3.25 and 5.25	3.25 and 5.25	3.25 and 5.25	3.25 and 5.25
Risk-free rate (%) - based on UK government gilts commensurate with the expected term of the award	4.7 (for 3.1 year scheme) and 4.5 (for 5.25 year scheme)	2.0 (for 3.25 year scheme) and 1.9 (for 5.25 year scheme)	0.5 (for 3.25 year scheme) and 0.7 (for 5.25 year scheme)	0.5 (for 3.25 year scheme) and 0.5 (for 5.25 year scheme)	1.0 (for 3.25 year scheme) and 1.1 (for 5.25 year scheme)
Expected volatility (%) based on the Company's share price volatility to date	23.0	30.0	30.0	30.0	30.0
Dividend yield (%)	11.5	8.0	6.3	8.2	6.8

The information for determining the fair value of the 2021 Irish sharesave options differed from that included in the table above as follows:

- Share price (€): 8.618

- Exercise price (€): 6.880

- Risk-free rate (%): (0.4) (for 3.25 year scheme) and (0.3) (for 5.25 year scheme)

- No Sharesave awards were granted to Irish employees during either 2022 or 2023.

Share Incentive Plan

The Group operates two Share Incentive Plans ('SIP') open to UK and Irish employees which allows participating employees to purchase 'Partnership shares' in the Company through monthly contributions. In respect of the UK SIP, the contributions are limited to the lower of £150 per month and 10% gross monthly salary. In 2019 the matching element of the UK SIP was amended to give the employee one 'Matching share' for each 'Partnership share' purchased limited to £50. Contributions above £50 are not matched. The Irish SIP, which was launched in 2019, gives the employee 1.4 'Matching shares' for each 'Partnership share' purchased. For this plan monthly contributions are limited to the lower of €40 per month and 7.5% of gross monthly salary.

The fair value of the Matching shares granted is estimated as the share price at date of grant, taking into account terms and conditions upon which the instruments were granted. At 31 December 2023, 546,430 matching shares (excluding unrestricted shares) were conditionally awarded to employees (2022: 543,995).

I1.3 Movements in the year

The following tables illustrate the number of, and movements in, LTIP, Sharesave and DBSS share options during the year:

	2023
	Number of share options
	LTIP	Sharesave	DBSS
Outstanding at the beginning of the year, including dividend shares	9,387,235	5,001,906	2,301,801
Granted during the year	4,202,695	5,038,820	1,675,548
Forfeited during the year	(1,750,509)	(223,565)	(29,932)
Cancelled during the year	-	(1,371,617)	-
Exercised during the year	(1,217,227)	(1,184,132)	(701,644)
Expired during the year	(13,908)	(416,547)	(11,227)
Dividends on vested awards	503,119	-	133,420
Outstanding at the end of the year	11,111,405	6,844,865	3,367,966

 

	2022
	Number of share options
	LTIP	Sharesave	DBSS
Outstanding at the beginning of the year	7,613,036	4,750,822	1,551,935
Granted during the year	3,350,169	1,827,291	1,121,085
Forfeited during the year	(523,125)	(252,992)	(4,917)
Cancelled during the year	-	(506,796)	-
Exercised during the year	(1,328,703)	(816,419)	(443,747)
Dividends on vested awards	275,858	-	77,445
Outstanding at the end of the year	9,387,235	5,001,906	2,301,801

The weighted average fair value of options granted during the year was £2.92 (2022: £4.34).

The weighted average share price at the date of exercise for the rewards exercised is £5.46 (2022: £6.13).

The weighted average remaining contractual life for the awards outstanding as at 31 December 2023 is 5.3 years (2022: 5.7 years).

I2. Cash flows from operating activities

Operating cash flows include purchases and sales of investment property and financial investments as the purchases are funded from cash flows associated with the origination of insurance and investment contracts, net of payments of related benefits and claims.

The following analysis gives further detail behind the 'cash (utilised)/generated by operations' figure in the statement of consolidated cash flows.

	Notes	2023 £m	2022 restated1 £m
Profit/(loss) for the year before tax		20	(4,089)
Adjustments for non-cash movements in profit/(loss) before tax for the year:
Gain on acquisition of SLF of Canada UK Limited	H2	(66)	-
Fair value losses/(gains) on:
Investment property	G4	362	1,363
Financial assets and derivative liabilities		(11,045)	45,197
Change in fair value of borrowings	E5.2	(82)	186
Amortisation and impairment of intangible assets	G2	324	355
Share-based payment charge	I1.1	22	16
Finance costs	C7	258	230
Net interest expense on Group defined benefit pension scheme liability/asset	G1	109	64
Pension past service costs	G1	12	15
Other costs of pension schemes	G1	6	7
Movement in assets and liabilities relating to operations:
(Increase)/decrease in investment assets		(7,986)	3,974
(Increase)/decrease in reinsurers' share of investment contract liabilities		(621)	896
(Increase)/decrease in reinsurance contract assets/liabilities		(818)	657
Decrease in assets classified as held for sale		2,593	2,741
Increase/(decrease) in insurance contract liabilities/assets		3,980	(25,597)
Increase/(decrease) in investment contract liabilities		13,673	(16,549)
Decrease in obligation for repayment of collateral received		(703)	(1,740)
Decrease in liabilities classified as held for sale		(3,571)	(3,386)
Net decrease/(increase) in working capital		2,772	(3,312)
Other cash movements relating to operations:
Contributions to defined benefit pension schemes	G1	(9)	(9)
Cash (utilised)/generated by operations		(770)	1,019

1 Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details).

I3. Capital management

The Group's capital management is based on the Solvency II framework as implemented in the UK. This involves a valuation in line with Solvency II principles of the Group's Own Funds and risk-based assessment of the Group's Solvency Capital Requirement ('SCR').

This note sets out the Group's approach to managing capital and provides an analysis of Own Funds and SCR.

Risk and capital management objectives

The risk management objectives and policies of the Group are based on the requirement to protect the Group's regulatory capital position, thereby safeguarding policyholders' guaranteed benefits whilst also ensuring the Group can meet its various cash flow requirements. Subject to this, the Group seeks to use available capital to achieve increased returns, balancing risk and reward, to generate additional value for policyholders and shareholders.

In pursuing these objectives, the Group deploys financial and other assets and incurs insurance contract liabilities and financial and other liabilities. Financial and other assets principally comprise investments in equity securities, debt securities, collective investment schemes, property, derivatives, reinsurance, trade and other receivables, and banking deposits. Financial liabilities principally comprise investment contracts, borrowings for financing purposes, derivative liabilities and net asset value attributable to unitholders.

The Group's Risk Management Framework is described in the risk management commentary on pages 46 to 57 of the Annual Report and Accounts and the Risk Universe component of this framework summarises the comprehensive set of risks to which the Group is exposed. The major risks ('Level 1' risks) that the Group's businesses are exposed to and the Group's approach to managing those risks are outlined in the following notes:

•  note E6: Credit risk, market risk, financial soundness risk, strategic risk, customer risk and operational risk; and

•  note F11: Insurance risk.

The section on risk and capital management objectives is included below.

Capital Management Framework

The Group's Capital Management Framework is designed to achieve the following objectives:

•  to provide appropriate security for policyholders and meet all regulatory capital requirements under the Solvency II regime while not retaining unnecessary excess capital, operating within a Solvency II Shareholder Capital Coverage ratio of 140-180%;

•  to ensure sufficient liquidity to meet obligations to policyholders and other creditors;

•  to manage our leverage position, including optimisation of the Solvency II leverage ratio and the Fitch leverage ratio to maintain an investment grade credit rating; and

•  to maintain a dividend policy to pay an ordinary dividend that is progressive and sustainable.

The framework comprises a suite of capital management policies that govern the allocation of capital throughout the Group to achieve the framework objectives under a range of stress conditions. The policy suite is defined with reference to policyholder security, creditor obligations, owner dividend policy and regulatory capital requirements.

Group capital

Group capital is managed on a Solvency II basis. Under the Solvency II framework, the primary sources of capital managed by the Group comprises the Group's Own Funds as measured under the Solvency II principles adjusted to exclude surplus funds attributable to the Group's unsupported with-profit funds and unsupported pension schemes.

A Solvency II capital assessment involves 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'). Solvency II surplus is the excess of Own Funds over the SCR.

The Group aims to maintain a Solvency II surplus at least equal to its Board-approved capital policy, which reflects Board risk appetite for meeting prevailing solvency requirements.

The capital policy of each Life Company is set and monitored by each Life Company Board. These policies ensure there is sufficient capital within each Life Company to meet regulatory capital requirements under a range of stress conditions. The capital policy of each Life Company varies according to the risk profile and financial strength of the company.

The capital policy of each Group Holding Company is designed to ensure that there is sufficient liquidity to meet creditor obligations through the combination of cash buffers and cash flows from the Group's operating companies.

Own Funds and SCR

Basic Own Funds represents the excess of assets over liabilities from the Solvency II balance sheet adjusted to add back any relevant subordinated liabilities that meet the criteria to be treated as capital items.

The Basic Own Funds are classified into three Tiers based on permanency and loss absorbency (Tier 1 being the highest quality and Tier 3 the lowest). The Group's Own Funds are assessed for their eligibility to cover the Group SCR with reference to both the quality of capital and its availability and transferability. Surplus funds in with-profit funds of the Life companies and in the pension schemes are restricted and can only be included in Eligible Own Funds up to the value of the SCR they are used to support.

Eligible Own Funds to cover the SCR are obtained after applying the prescribed Tiering limits and availability restrictions to the Basic Own Funds.

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'.

The Group operates an Internal Model to calculate Group SCR, all Group companies are within the scope of the single internal model, with the exception of acquired ReAssure businesses, the Irish life entities, Standard Life International Designated Activity Company and Phoenix Life Assurance Europe Designated Activity Company, and Sun Life Assurance Company of Canada (U.K.) Limited, which determine their capital requirements in accordance with the Standard Formula.

Group capital resources - unaudited

The Group capital resources, presented on a shareholder basis, are based on the Group's Eligible Own Funds adjusted to remove amounts pertaining to unsupported with-profit funds and Group pension schemes:

Unaudited		2023 £bn	2022 £bn
PGH plc Eligible Own Funds		11.1	11.1
Remove Own Funds pertaining to unsupported with-profit funds and pension schemes		(2.2)	(1.8)
Group capital resources		8.9	9.3

Solvency II surplus - unaudited

An analysis of the PGH plc Solvency II surplus as at 31 December 2023 is provided in the business review section on page 34 to 35. The Group has complied with all externally imposed capital requirements during the year.

I4. Related party transactions

In the ordinary course of business, the Group and its subsidiaries carry out transactions with related parties as defined by IAS 24 Related Party Disclosures, which comprise a Group pension scheme, an associate and key management personnel.

I4.1 Related party transactions

During the year, the Group entered into the following related party transactions with a Group pension scheme and an associate:

	Transactions	Transactions
	2023 £m	2022 £m
Pearl Group Staff Pension Scheme
Payment of administrative expenses	(4)	(4)
UK Commercial Property REIT
Dividend income	19	29

I4.2 Transactions with key management personnel

The total compensation of key management personnel, being those having authority and responsibility for planning, directing and controlling the activities of the Group, including the Executive, Non-Executive Directors and, effective from 1 January 2023, members of the Group's Executive Committee is as follows:

	2023 £m	2022 £m
Salary and other short-term benefits	15	5
Equity compensation plans	8	3

Details of the shareholdings and emoluments of individual Directors are provided in the Remuneration report on pages 111 to 140.

During the year to 31 December 2023 key management personnel and their close family members contributed £203,234 (2022: £183,933) to Pensions and Savings products sold by the Group and transferred out £110,074 (2022: £nil) of investments. At 31 December 2023, the total value of key management personnel's investments in Group Pensions and Savings products was £1,989,979 (2022: £525,781).

I5. Commitments

This note analyses the Group's other commitments.

	2023  £m	2022  £m
To subscribe to private equity funds and other unlisted assets	1,738	1,132
To purchase, construct or develop investment property and income strips	23	62
For repairs, maintenance or enhancements of investment property	15	13

I6. Contingent liabilities

Where the Group has a possible future obligation as a result of a past event, or a present legal or constructive obligation but it is not probable that there will be an outflow of resources to settle the obligation or the amount cannot be reliably estimated, this is disclosed as a contingent liability.

Legal proceedings

In the normal course of business, the Group is exposed to certain legal issues, which can involve litigation and arbitration. At the year end, the Group has a number of contingent liabilities in this regard, none of which are considered by the Directors to be material.

I7. Events after the reporting period

The financial statements are adjusted to reflect significant events that have a material effect on the financial results and that have occurred between the period end and the date when the financial statements are authorised for issue, provided they give evidence of conditions that existed at the period end. Events that are indicative of conditions that arise after the period end that do not result in an adjustment to the financial statements are disclosed.

On 19 January 2024, the Group completed a buy-out transaction with the PGL Pension Scheme, one of the Group's defined benefit schemes. The impact of this transaction is being determined and will be included in the Group's results for 2024.

On 6 February 2024, the Board approved the redemption of the £250 million 5.766% Fixed Rate Reset Callable Tier 2 Subordinated Notes due 2029 on the first call date of 13 June 2024 (subject to regulatory approval).

On 21 March 2024, UK Commercial Property REIT Limited ('UKCPR'), an associate of the Group, and Tritax Big Box REIT plc ('BBOX') announced a recommended all-share combination whereby BBOX will acquire the entire share capital of UKCPR for consideration of 0.444 new shares of BBOX for each share of UKCPR held. The transaction is expected to complete in May 2024, subject to the approval of both UKCPR and BBOX shareholders, and Court sanction of the scheme of arrangement under Part VIII of the Companies Law of Guernsey. On the date of announcement, Phoenix Life Limited ('PLL'), a subsidiary of the Group, held 43.3% of UKCPR's issued ordinary share capital and had irrevocably undertaken to vote in favour of the transaction. Upon completion, PLL is expected to hold shares representing 10.1% of BBOX's total issued share capital. It is anticipated that this transaction, on completion, will result in the Group accounting for its ownership in BBOX as an investment, rather than the current associate treatment of UKCPR, as the Group will not have significant influence over BBOX.

On 21 March 2024, the Board recommended a final dividend of 26.65p per share for the year ended 31 December 2023 (2022: 26.0p). Payment of the final dividend is subject to shareholder approval at the AGM. The cost of this dividend has not been recognised as a liability in the consolidated financial statements for 2023 and will be charged to the statement of consolidated changes in equity in 2024.

N Lyons

A Briggs

R Thakrar

K Green

H Iioka

K Murray

E Bucks

M Gregory

J Pollock

B Richards

D Scott

M Semple

N Shott

21 March 2024

 

 

 

Parent company financial statements

Statement of financial position

As at 31 December 2023

		2023	2022
	Notes	£m	£m
ASSETS
Property, plant and equipment	10	17	19
Investments in Group entities	11	10,536	10,231
Financial assets
Loans and deposits	12	1,302	2,550
Derivatives	6	119	257
Debt securities	13	1	1
Collective investment schemes	13	1,017	775
Deferred tax	14	159	113
Prepayments and accrued income		50	54
Other amounts due from Group entities	20	25	19
Cash and cash equivalents	15	1	-
Total assets		13,227	14,019

 

EQUITY AND LIABILITIES
Equity attributable to ordinary shareholders
Share capital	3	100	100
Share premium	3	16	10
Merger relief reserve	3	1,819	1,819
Other reserve	3	(4)	(4)
Retained earnings		4,621	5,062
Total equity attributable to ordinary shareholders		6,552	6,987
Tier 1 Notes	4	411	411
Total equity		6,963	7,398
Liabilities
Financial liabilities
Borrowings	5	5,813	6,229
Derivatives	6	1	22
Obligations for repayment of collateral received	6	30	86
Other amounts due to Group entities	20	62	43
Provisions	7	222	97
Lease liabilities	8	18	20
Accruals and deferred income	9	118	124
Total liabilities		6,264	6,621
Total equity and liabilities		13,227	14,019

The notes identified numerically on pages 294 to 305 are an integral part of these separate financial statements. Where items also appear in the consolidated financial statements, reference is made to the notes (identified alphanumerically) on pages 171 to 290.

Approved by the Board on 21 March 2024.

 

 

 

Andy Briggs                                                                               Rakesh Thakrar

Chief Executive Officer                                                              Chief Financial Officer

Company registration number 11606773.

 

Statement of changes in equity

For the year ended 31 December 2023

	Share capital (note 3)	Share premium (note 3)	Merger relief reserve (note 3)	Other reserve (note 3)	Retained earnings	Total	Tier 1 Notes (note 4)	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2023	100	10	1,819	(4)	5,062	6,987	411	7,398
Total comprehensive income for the year attributable to owners	-	-	-	-	79	79	-	79
Issue of ordinary share capital, net of associated commissions and expenses	-	6	-	-	-	6	-	6
Dividends paid on ordinary shares (note B4)	-	-	-	-	(520)	(520)	-	(520)
Coupon paid on Tier 1 Notes, net of tax relief	-	-	-	-	(22)	(22)	-	(22)
Credit to equity for equity-settled share-based payments (note I1)	-	-	-	-	22	22	-	22
At 31 December 2023	100	16	1,819	(4)	4,621	6,552	411	6,963

For the year ended 31 December 2022

	Share capital (note 3)	Share premium (note 3)	Merger relief reserve (note 3)	Other reserve (note 3)	Retained earnings	Total	Tier 1 Notes (note 4)	Total equity
	£m	£m		£m	£m	£m	£m	£m
At 1 January 2022	100	6	1,819	(4)	5,448	7,369	411	7,780
Total comprehensive income for the period attributable to owners	-	-	-	-	116	116	-	116
Issue of ordinary share capital, net of associated commissions and expenses	-	4	-	-	-	4	-	4
Dividends paid on ordinary shares (note B4)	-	-	-	-	(496)	(496)	-	(496)
Coupon paid on Tier 1 Notes, net of tax relief	-	-	-	-	(22)	(22)	-	(22)
Credit to equity for equity-settled share-based payments (note I1)	-	-	-	-	16	16	-	16
At 31 December 2022	100	10	1,819	(4)	5,062	6,987	411	7,398

 

Statement of cash flows

For the year ended 31 December 2023

	Notes	2023 £m	2022 £m
Cash flows from operating activities
Cash utilised by operations	16	(589)	(417)
Net cash flows from operating activities		(589)	(417)
Cash flows from investing activities
Acquisition of SLF of Canada UK Limited		(250)	-
Advances to Group entities		(129)	(852)
Dividends received from Group entities		103	455
Interest received from Group entities		219	162
Capital contribution to subsidiary (note 11)		(55)	(200)
Repayment of amounts due from Group entities		1,425	2
Derivative settlements		72	(70)
Net cash flows from investing activities		1,385	(503)
Cash flows from financing activities
Proceeds from issuing ordinary shares	3	6	4
Proceeds from new shareholder borrowings, net of associated expenses	5	1,450	2,274
Repayment of shareholder borrowings	5	(1,362)	(616)
Ordinary share dividends paid		(520)	(496)
Interest paid on borrowings		(338)	(311)
Lease payments		(2)	(1)
Coupon paid on Tier 1 Notes		(29)	(29)
Net cash flows from financing activities		(795)	825
Net increase/(decrease) in cash and cash equivalents		1	(95)
Cash and cash equivalents at the beginning of the year		-	95
Cash and cash equivalents at the end of the year		1	-

 

 

Notes to the parent company financial statements

1. Accounting policies

(a) Basis of preparation

The financial statements have been prepared on a going concern basis and under the historical cost convention, except for those financial assets and financial liabilities (including derivative instruments) that have been measured at fair value.

The Company has taken advantage of the exemption in section 408 of the Companies Act 2006 not to present its own income statement in these financial statements. Profit attributable to owners for the year ended 31 December 2023 was £79 million (2022: £116 million).

Statement of Compliance

The Company's financial statements have been prepared in accordance with UK - adopted international accounting standards as applied in accordance with section 408 of the Companies Act 2006.

The financial statements are presented in sterling (£) rounded to the nearest million except where otherwise stated.

Assets and liabilities are offset and the net amount reported in the statement of financial position only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liability simultaneously.

(b) Accounting policies

Where applicable, the accounting policies in the separate financial statements are the same as those presented in the consolidated financial statements on pages 171 to 290 with the exception of the one policy whereby the Company has not adopted the Group's policy of hedge accounting.

Where an accounting policy can be directly attributed to a specific note to the consolidated financial statements, the policy is presented within that note. Each note within the Company financial statements makes reference to the note to the consolidated financial statements containing the applicable accounting policy. The accounting policy in relation to foreign currency transactions is included within note A3.1 to the consolidated financial statements.

Investments in Group entities

Investments in Group entities are carried in the statement of financial position at cost less impairment.

The Company assesses at each reporting date whether an investment is impaired by assessing whether any indicators of impairment exist. If objective evidence of impairment exists, the Company calculates the amount of impairment as the difference between the recoverable amount of the Group entity and its carrying value and recognises the amount as an expense in the income statement.

The recoverable amount is determined based on the cash flow projections of the underlying entities.

(c) Critical accounting estimates and judgements

Critical accounting estimates are those which involve the most complex or subjective judgements or assessments. The area of the Company's business that typically requires such estimates and judgement is the impairment assessment for investments in Group entities.

Impairment of investments in Group entities

The Company conducts impairment reviews of investments in subsidiaries whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Determining whether an asset is impaired requires an estimation of the recoverable amount, which requires the Company to estimate the value in use. The value in use uses future cash flows and a suitable discount rate in order to calculate the present value. Where the actual future cash flows are less than expected, an impairment loss may arise. Further details are included in note 11.

2. Financial information

New accounting pronouncements not yet effective

Details of the standards, interpretations and amendments to be adopted in future periods are detailed in note A5 to the consolidated financial statements, none of which are expected to have a significant impact on the Company's financial statements.

3. Share capital, share premium, merger relief reserve and other reserve

	2023 £m	2022 £m
Issued and fully paid:
1,001.5 million ordinary shares of £0.10 each (2022: 1,000.4 million)	100	100

 

	2023 Number	2023 £	2022 Number	2022 £
Shares in issue at 1 January	1,000,352,477	100,035,247	999,536,058	99,953,605
Ordinary shares issued in the period	1,185,942	118,594	816,419	81,642
Shares in issue at 31 December	1,001,538,419	100,153,841	1,000,352,477	100,035,247

During 2023, the Company issued 1,185,942 shares (2022: 816,419 shares) with a premium of £6 million (2022: £4 million) in order to satisfy its obligations to employees under the Group's sharesave schemes.

The Company has applied the relief in section 612 of the Companies Act 2006 to present the difference between the consideration received and the nominal value of the shares issued of £1,819 million in a merger reserve as opposed to in share premium. A merger reserve is required to be used as a result of the Company having issued equity shares in 2020 as part consideration for the shares of the ReAssure Group plc and securing at least a 90% holding in that entity.

On 12 December 2018, the Company became the ultimate parent undertaking of the Group by acquiring the entire share capital of 'Old PGH' (the Group's ultimate parent company until December 2018) via a share for share exchange. The cost of investment in Old PGH was determined as the carrying amount of the Company's share of the equity of Old PGH on the date of the transaction. The difference between the cost of investment and the market capitalisation of Old PGH immediately before the share for share exchange of £4 million has been recognised as an Other reserve, and is shown as a separate component of equity.

4. Tier 1 notes

The accounting policy and details of the terms for the Tier 1 Notes are included in note D4 to the consolidated financial statements.

	2023	2022
	£m	£m
Tier 1 Notes	411	411

On 12 December 2018, the Company was substituted in place of Old PGH as issuer of the Tier 1 Notes and these were recognised at the fair value of £411 million in the form of an intragroup loan which was received as consideration.

On 27 October 2020, the terms of the Tier 1 Notes were amended and the consequence of a trigger event, linked to the Solvency II capital position, was changed. Previously, the Tier 1 Notes were subject to a permanent write-down in value to zero. The amended terms require that the Tier 1 Notes would automatically be subject to conversion to ordinary shares of the Company at the conversion price of £1,000 per share, subject to adjustment in accordance with the terms and conditions of the notes and all accrued and unpaid interest would be cancelled. Following any such conversion there would be no reinstatement of any part of the principal amount of, or interest on, the Tier 1 Notes at any time.

5. Borrowings

The accounting policy for borrowings is included in note E5 to the consolidated financial statements.

	Carrying value		Fair value
	2023	2022	2023	2022
	£m	£m	£m	£m
Loans due to third-parties:
£428 million subordinated loans (note a)	199	433	202	429
US $500 million Tier 2 bonds (note b)	368	383	377	390
€500 million Tier 2 notes (note c)	409	414	419	416
US $750 million Contingent Convertible Tier 1 notes (note d)	587	618	563	580
£500 million Tier 2 notes (note e)	489	487	476	445
US $500 million Fixed Rate Reset Tier 2 notes (note f)	274	412	262	382
£500 million 5.867% Tier 2 subordinated notes (note g)	536	543	493	465
£250 million Fixed Rate Reset Callable Tier 2 subordinated notes (note h)	254	259	239	244
£250 million 4.016% Tier 3 subordinated notes (note i)	253	256	250	231
£350 million Fixed Rate Reset Callable Tier 2 subordinated notes (note j)	346	-	368	-
	3,715	3,805	3,649	3,582
Loans due to Group companies:
Loan due to Standard Life Assurance Limited (note k)	-	309	-	309
Senior loan due to ReAssure Limited (note l)	-	718	-	718
€100 million loan due to Standard Life International DAC (note m)	90	89	90	89
£130 million floating term loan due to ReAssure Life Limited (note n)	138	130	138	130
£250 million loan due to ReAssure Limited (note o)	261	-	261	-
£250 million remittance loan due to ReAssure Limited (note p)	257	-	257	-
€50 million loan due to Standard Life International DAC (note q)	44	-	44	-
Cash-pooling with other Group entities (note t)	1,308	1,178	1,308	1,178
	2,098	2,424	2,098	2,424
Total borrowings	5,813	6,229	5,747	6,006
Amount due for settlement after 12 months	4,505	5,051

a    On 12 December 2018, the Company was substituted in place of Old PGH as issuer of the £428 million Tier 2 subordinated notes due 2025 at a coupon of 6.625%, which were initially recognised at fair value of £439 million. On 7 December 2023, the Company repurchased £231 million of the principal amount of the notes via a tender offer. The remaining principal amount of the notes at 31 December 2023 is £199 million.

b    On 12 December 2018, the Company was substituted in place of Old PGH as issuer of the US $500 million Tier 2 bonds due 2027 with a coupon of 5.375%, which were initially recognised at fair value of £349 million.

c    On 12 December 2018, the Company was substituted in place of Old PGH as issuer of the €500 million Tier 2 notes due 2029 with a coupon of 4.375%, which were initially recognised at fair value of £407 million.

d    On 29 January 2020, the Company issued US $750 million fixed rate reset perpetual restricted Tier 1 contingent convertible notes (the 'contingent convertible Tier 1 Notes') which are unsecured and subordinated. The contingent convertible Tier 1 Notes have no fixed maturity date and interest is payable only at the sole and absolute discretion of the Company. The contingent convertible Tier 1 Notes bear interest on their principal amount at a fixed rate of 5.625% per annum up to the 'First Reset Date' of 26 April 2025. Thereafter the fixed rate of interest will be reset on the First Reset Date and on each fifth anniversary of this date by reference to the sum of the yield of the Constant Maturity Treasury ('CMT') rate (based on the prevailing five year US Treasury yield) plus a margin of 4.035%, being the initial credit spread used in pricing the notes. Interest is payable on the contingent convertible Tier 1 Notes semi-annually in arrears on 26 April and 26 October. If an interest payment is not made it is cancelled and it shall not accumulate or be payable at any time thereafter.

e    On 28 April 2020, the Company issued £500 million fixed rate Tier 2 notes (the 'Tier 2 notes') which are unsecured and subordinated. The Tier 2 notes have a maturity date of 28 April 2031 and include an issuer par call right for the three month period prior to maturity. The Tier 2 notes bear interest on the principal amount at a fixed rate of 5.625% per annum payable annually in arrears on 28 April.

f     On 4 June 2020, the Company issued US $500 million fixed rate reset callable Tier 2 notes (the 'Fixed Rate Reset Tier 2 notes') which are unsecured and subordinated. The Fixed Rate Reset Tier 2 notes have a maturity date of 4 September 2031 with an optional issuer par call right on any day in the three month period up to and including 4 September 2026. The Fixed Rate Reset Tier 2 notes bear interest on the principal amount at a fixed rate of 4.75% per annum up to the interest rate reset date of 4 September 2026. If the Fixed Rate Reset Tier 2 notes are not redeemed before that date, the interest rate resets to the sum of the applicable CMT rate (based on the prevailing five year US Treasury yield) plus a margin of 4.276%, being the initial credit spread used in pricing the notes. Interest is payable on the Fixed Rate Reset Tier 2 notes semi-annually in arrears on 4 March and 4 September. On 7 December 2023, the Company repurchased US $150 million of the principal amount of the Fixed Rate Reset Tier 2 notes via a tender offer. The remaining principal amount of the notes at 31 December 2023 is US $350 million.

g    On 22 July 2020, the Company was substituted in place of ReAssure Group plc as issuer of the £500 million 5.867% Tier 2 subordinated notes. These notes have a maturity date of 13 June 2029 and were initially recognised at their fair value of £559 million. The fair value adjustment are being amortised over the remaining life of the notes. Interest is payable semi-annually in arrears on 13 June and 13 December.

h    On 22 July 2020, the Company was substituted in place of ReAssure Group plc as issuer of the £250 million fixed rate reset callable Tier 2 subordinated notes. The £250 million fixed rate reset callable Tier 2 subordinated notes have a maturity date of 13 June 2029 and were initially recognised at their fair value of £275 million. The fair value adjustment are being amortised over the remaining life of the notes. The notes include an issuer par call right exercisable on 13 June 2024. Interest is payable semi-annually in arrears on 13 June and 13 December. These notes initially bear interest at a rate of 5.766% on the principal amount and the rate of interest will reset on 13 June 2024, and on each interest payment date thereafter, to a margin of 5.17% plus the yield of a UK Treasury Bill of similar term.

i     On 22 July 2020, the Company was substituted in place of ReAssure Group plc as issuer of the £250 million 4.016% Tier 3 subordinated notes. The notes have a maturity date of 13 June 2026 and were initially recognised at their fair value of £259 million. The fair value adjustment is being amortised over the remaining life of the notes. Interest is payable semi-annually in arrears on 13 June and 13 December.

j     On 6 December 2023, the Company issued £350 million fixed rate reset callable Tier 2 notes which are unsecured and subordinated. The notes have a maturity date of 6 December 2053 with an optional issuer par call right on any day in the six-month period up to and including 6 December 2033. The notes bear interest on the principal amount at a fixed rate of 7.75% per annum up to the interest rate reset date of 6 December 2033. If the notes are not redeemed before that date, the interest rate resets to the sum of the 5 year benchmark Gilt rate plus a margin of 4.65%, being the sum of the initial credit spread used in pricing the notes and a 1% margin step-up. Interest is payable on the notes semi-annually in arrears on 6 June and 6 December each year.

k    On 22 February 2019, the Company recognised a loan due in 2024 to Standard Life Assurance Limited ('SLAL'), a subsidiary undertaking, for £162 million. This loan was the initial consideration for the acquisition from SLAL of its investment in Standard Life International Designated Activity Company ('SLIDAC'). On 28 March 2019 the purchase price was adjusted by £120 million, which resulted in an increase in the loan principal. Interest accrues at SONIA plus 1.9366% and is capitalised. During the year interest of £9 million (2022: £6 million) was capitalised. On 21 December 2023, the Company received a distribution of the loan, extinguishing the Company's obligations under the loan.

l     On 31 December 2022, ReAssure Limited ('RAL') issued a £718 million term loan of £718 million to the Company, maturing on 31 December 2027. At the same time, the Company issued a contingent loan to RAL for the same amount (see note 12 (d) for further details). Interest accrues on the term loan asset at a rate of SONIA plus 1.49%. If the Company fails to make payments of principal or interest in accordance with the terms of the loan, a corresponding amount of RAL's obligations under the contingent loan would be offset. The Company made the quarterly loan repayments due on 30 June and 30 September 2023, and repaid the loan in full on 21 December 2023.

m   On 20 December 2022, SLIDAC issued a €100 million floating term loan to the Company with a maturity date of 31 March 2024. Interest accrues on the term loan at a rate of EURIBOR plus 0.78%. As at 31 December 2023, the interest rate was 4.67%.

n    On 16 December 2022, ReAssure Life Limited ('RLL') issued a £130 million floating term loan to the Company for a term of 5 years. Interest accrues on the term loan at a rate of SONIA plus 1.49%. As at 31 December 2023, the interest rate was 4.95%.

o    On 5 May 2023, RAL issued a £250 million floating term loan to the Company for a term of 5 years. Interest accrues on the term loan at a rate of SONIA plus 1.62%. As at 31 December 2023, the interest rate was 5.08%.

p    On 21 July 2023, RAL issued a £250 million remittance loan to the Company for a term of 5 years. Interest accrues on the term loan at a rate of SONIA plus 1.51%. As at 31 December 2023, the interest rate was 6.69%.

q    On 21 July 2023, SLIDAC issued a €50 million floating term loan to the Company with a maturity date of 31 March 2025. Interest accrues on the term loan at a rate of EURIBOR plus 0.79%. As at 31 December 2023, the interest rate was 4.68%.

r     On 21 July 2023, Phoenix Life Assurance Limited issued a £150 million floating term loan to the Company at an interest rate of 6.68% for a term of 5 years. On 21 December 2023, the Company received a distribution of the loan, extinguishing the Company's obligations under the loan.

s    On 21 July 2023, SLAL issued a £50 million floating term loan to the Company at an interest rate of 6.68% for a term of 5 years. On 21 December 2023, the Company received a distribution of the loan, extinguishing the Company's obligations under the loan.

t     On 13 September 2022, the Company entered into an uncommitted intra-group cash-pooling facility with certain subsidiaries, under which the Company will either borrow funds from, or lend funds to, the relevant subsidiary. All amounts due under the facility attract interest at SONIA and are repayable on demand.

u    The Group has in place a £1.75 billion unsecured revolving credit facility (the 'revolving facility'), maturing in June 2026. The facility accrues interest at a margin over SONIA that is based on credit rating. The facility remains undrawn as at 31 December 2023.

Borrowings initially recognised at fair value are being amortised to par value over the life of the borrowings.

For the purposes of the additional fair value disclosures for liabilities recognised at amortised cost, all borrowings have been categorised as Level 2 financial instruments.

Further details of the loans due to third parties (loans a. to j.) are contained in note E5 to the consolidated financial statements.

Reconciliation of liabilities arising from financing activities

The table below details changes in the Company's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Company's statement of cash flows as cash flows from financing activities.

	Cash			Non-cashflow
	At 1 January 2023 £m	New borrowings, net of costs  £m	Repayments £m	Dividend in specie payment £m	Movement in foreign exchange £m	(Amortisation)/accretion £m	Capitalised interest £m	Movement in fair value £m	At 31 December 2023 £m
£428 million subordinated notes	433	-	(231)	-	-	(3)	-	-	199
US $500 million Tier 2 bonds	383	-	-	-	(21)	6	-	-	368
€500 million Tier 2 notes	414	-	-	-	(9)	4	-	-	409
US $750 million Contingent Convertible Tier 1 notes	618	-	-	-	(32)	1	-	-	587
£500 million Tier 2 notes	487	-	-	-	-	2	-	-	489
US $500 million Fixed Rate Reset Tier 2 notes	412	-	(119)	-	(20)	1	-	-	274
£500 million 5.867% Tier 2 subordinated notes	543	-	-	-	-	(7)	-	-	536
£250 million Fixed Rate Reset Callable Tier 2 subordinated notes	259	-	-	-	-	(5)	-	-	254
£250 million 4.016% Tier 3 subordinated notes	256	-	-	-	-	(3)	-	-	253
£350 million Fixed Rate Reset Callable Tier 2 subordinated notes	-	346	-	-	-	-	-	-	346
Loan due to Standard Life Assurance Limited 1	309	-	-	(318)	-	-	9	-	-
Senior loan due to ReAssure Limited	718	-	(718)	-	-	-	-	-	-
€100 million loan due to Standard Life International DAC	89	-	-	-	(2)	-	3	-	90
£130 million floating term loan due to ReAssure Life Limited	130	-	-	-	-	-	8	-	138
£250 million loan due to ReAssure Limited	-	250	-	-	-	-	11	-	261
£250 million remittance loan due to ReAssure Limited	-	250	-	-	-	-	7	-	257
€50 million loan due to Standard Life International DAC	-	43	-	-	-	-	1	-	44
£150 million remittance loan due to Phoenix Life Assurance Limited 1	-	150	-	(146)	-	(4)	-	-	-
£50 million remittance loan due to Standard Life Assurance Limited 1	-	50	-	(49)	-	(1)	-	-	-
Cash-pooling with other Group entities	1,178	361	(294)	-	-	-	63	-	1,308
Derivative assets 2	(225)	-	-	-	-	(1)	-	108	(118)
	6,004	1,450	(1,362)	(513)	(84)	(10)	102	108	5,695

1 The liability has been discharged via a dividend in specie payment.

2 Cross currency swaps to hedge against adverse currency movements in respect of the Group's Euro and US Dollar denominated borrowings (see note 6 for further details).

	Cash			Non-cashflow
	At 1 January 2022 £m	New borrowings, net of costs  £m	Repayments £m	Movement in foreign exchange £m	Accretion/(amortisation) £m	Capitalised interest £m	Movement in fair value £m	At 31 December 2022 £m
£428 million subordinated notes	435	-	-	-	(2)	-	-	433
£450 million Tier 3 subordinated notes	449	-	(450)	-	1	-	-	-
US $500 million Tier 2 bonds	337	-	-	41	5	-	-	383
€500 million Tier 2 notes	389	-	-	21	4	-	-	414
US $750 million Contingent Convertible Tier 1 notes	551	-	-	66	1	-	-	618
£500 million Tier 2 notes	485	-	-	-	2	-	-	487
US $500 million Fixed Rate Reset Tier 2 notes	368	-	-	44		-	-	412
£500 million 5.867% Tier 2 subordinated notes	550	-	-	-	(7)	-	-	543
£250 million 4.016% Tier 3 subordinated notes	257	-	-	-	(1)	-	-	256
£250 million Fixed Rate Reset Callable Tier 2 subordinated notes	266	-	-	-	(7)	-	-	259
Loan due to Standard Life Assurance Limited	300	-	-	-	-	9	-	309
Senior loan due to ReAssure Limited2	-	718	-	-	-	-	-	718
€100 million loan due to Standard Life International DAC	-	88	-	1	-	-	-	89
£130 million floating term loan to ReAssure Life Limited	-	130	-	-	-	-	-	130
Cash-pooling with other Group entities	-	1,338	(166)	-	-	6	-	1,178
Derivative assets 1	(48)	-	-	-	-	-	(177)	(225)
Derivative liabilities 1	5	-	-	-	-	-	(5)	-
	4,344	2,274	(616)	173	(4)	15	(182)	6,004

1  Cross currency swaps to hedge against currency movements in respect of the Group's Euro and US Dollar denominated borrowings (see note 6 for further details).

2  Settled simultaneously with the issuance of the £718 million contingent loan.

6. Derivatives

The accounting policy for derivatives is included in note E3 to the consolidated financial statements.

In June 2021, the Company entered into four cross currency swaps in order to hedge against adverse currency movements in respect of its Euro and US Dollar denominated borrowings.

From December 2021, the Company also hedged certain Euro, US Dollar, Japanese Yen and Hong Kong Dollar exposures to adverse foreign currency movements in respect of underlying business within its subsidiaries.

The fair value of the derivative financial instruments is as follows:

	Asset		Liability
	2023	2022	2023	2022
	£m	£m	£m	£m
Cross currency swaps	118	225	-	-
Foreign currency swaps	1	32	1	22
	119	257	1	22

Derivative collateral arrangements

The accounting policy for collateral arrangements is included in note E4 to the consolidated financial statements.

Assets accepted

The maximum exposure to credit risk in respect of over-the-counter ('OTC') derivative assets is £119 million (2022: £257 million) of which credit risk of £30 million (2022: £86 million) is mitigated by use of collateral arrangements (which are settled net after taking account of any OTC derivative liabilities owed by the counterparty).

Assets pledged

The Company has not pledged any collateral in respect of its OTC derivative liabilities.

7. Provisions

The accounting policy for provisions is included in note G7 to the consolidated financial statements.

In 2019, the Company recognised an initial Standard Life transition and transformation restructuring provision of £159 million. During the year, £27 million (2022: £28 million) of the restructuring provision was utilised and the provision was decreased by £7 million (2022: increased by £33 million). The remaining provision of £63 million (2022: £97 million) is expected to be utilised within one to three years. See note G7 to the consolidated financial statements for further details.

Following the acquisition of the ReAssure businesses in 2020, the Group established a transition and transformation programme which aims to deliver the integration of the Group's operating models via a series of phases. During 2023, the Group announced its intention to migrate existing ReAssure policies to the TCS platform which raised a valid expectation of the impacts in those likely to be affected.

The initial provision of £127 million included migration costs, severance costs and other expenses. Migration costs are considered a direct expenditure necessarily entailed by the restructuring and represent an obligation arising from arrangements entered into with TCS during 2023. No costs have been provided for that relate to the ongoing servicing of policies. Migration costs payable to TCS are subject to limited uncertainty as they are fixed under the terms of the agreement entered into. The severance costs are subject to uncertainty and will be impacted by the number of staff that transfer to TCS, and the average salaries and number of years' service of those affected.

During the year, the provision was increased by £65 million and £33 million was utilised. The remaining provision of £159 million is expected to be utilised within one to five years.

8. Lease liabilities

The accounting policy for lease liabilities is included in note G9 to the consolidated financial statements.

Lease liabilities relate to office premises at 20 Old Bailey, London. The lease was assigned on 24 March 2021 for a term of 12 years and 9 months, with an option to break the contract on 25 December 2028. It is currently not expected that the break clause will be exercised.

	2023 £m	2022 £m
At 1 January	20	21
Lease payments	(2)	(1)
At 31 December	18	20
Amount due within twelve months	2	1
Amount due after twelve months	16	19

9. Accruals and deferred income

The accounting policy for accruals and deferred income is included in note G10 to the consolidated financial statements.

	2023  £m	2022  £m
Accruals and deferred income	118	124
Amount due for settlement after 12 months	5	-

10. Property, plant and equipment

The accounting policy for property, plant and equipment is included in note G3 to the consolidated financial statements.

Property, plant and equipment includes the right-of-use asset relating to office premises leased at 20 Old Bailey, London. Depreciation is being charged on a straight line basis over the term of the lease.

	Total Property, Plant and Equipment 2023 £m
Cost or valuation
At 1 January and 31 December	22
Depreciation
At 1 January	(3)
Depreciation	(2)
At 31 December	(5)
Carrying amount at 31 December	17
	Total Property, Plant and Equipment 2022 £m
Cost or valuation
At 1 January and 31 December	22
Depreciation
At 1 January	(1)
Depreciation	(2)
At 31 December	(3)
Carrying amount at 31 December	19

11. Investment in group entities

	2023 £m	2022 £m
Cost
At 1 January	14,420	14,220
Additions	305	200
At 31 December	14,725	14,420
Impairment
At 1 January and 31 December	(4,189)	(4,189)
Carrying amount
At 31 December	10,536	10,231

In April 2023, the Company acquired 100% of the issued share capital of SLF of Canada UK Limited business for a cost of £250 million. In addition, during the year the Company established a Bermuda based entity, Phoenix Group Holdings (Bermuda) Limited, and capital contributions totaling £55 million were paid to the entity.

During 2023, the following Part VII schemes (transfer of insurance business) were undertaken which had the effect of reallocating the value of the Company's investment in Group entities between certain subsidiaries:

•  the PLL and RLL EU business policies were transferred into a new EU regulated life company, Phoenix Life Assurance Europe DAC ('PLAE'), within the Group.

•  the business of PLAL, SLAL and Standard Life Pension Funds Limited ('SLPF') was transferred to PLL. In line with the strategic objectives of the Group, the transfer simplifies the operating model whilst resulting in financial, operational and liquidity benefits with the excess capital position, after allowing for costs and capital policy, of the life companies improving significantly.

•  Additionally, during 2023 the servicing activities of Pearl Group Services Limited and Standard Life Asset and Employee Services Limited were transferred to Phoenix Group Management Services Limited. In line with the strategic objectives of the Group, the transfer simplifies the operating model resulting in operational benefits.

As at 31 December 2023 and 31 December 2022, the market capitalisation of the Company was lower than the net asset value, and this was considered to be an indicator that the Company's investments in its subsidiaries may have been impaired. Where such indicators are identified, an impairment test is performed.

As a starting point, the contribution of the life insurance subsidiaries to the recoverable amount has been determined with reference to Solvency II Own Funds, which reflects a probability-weighted best estimate of cash flows for in-force insurance and investment contracts consistent with the Group's operating plan with an allowance for risk, together with an economic valuation of the underlying assets and other liabilities. Suitable adjustments were made to Solvency II Own Funds in order to align with the dividend paying capacity of the life insurance subsidiaries, which included the removal of the surplus attributable to policyholders in the with-profit funds. Where the Solvency II Own Funds exceeded the carrying value of the investment in subsidiary, management has concluded that no impairment is required.

For one of its subsidiaries, Phoenix Life Holdings Limited ("PLHL"), the carrying value of the investment exceeded the Solvency II Own Funds as at 31 December 2023. Accordingly, a value in use test was applied that utilises cash flow projections based on the emergence of surplus for in-force business on a Solvency II basis, together with new business cash flows on a Solvency II basis. This analysis has been informed by dividend projections on a consistent basis to that set out in the Group's business plan approved by the Board. The value in use calculation has used a discount rate of 10%, calculated using a risk adjusted weighted average cost of capital approach, and a long term growth rate after the initial five year business plan period of 2%. A 1% increase in the discount rate would reduce the recoverable amount by £920 million and would not result in any impairment being recognised in respect of PLHL. A 1% reduction in the long-term growth rate would reduce the recoverable amount by £684 million and would also not result in any impairment being recognised in respect of PLHL.

Based on the assessment above, no impairment has been recorded in 2023 in respect of the investment in Group entities (2022: £nil).

For a list of principal Group entities, refer to note H6 of the consolidated financial statements in which the entities directly held by the Company are separately identified.

12. Loans and deposits

	Carrying value		Fair value
	2023 £m	2022 £m	2023 £m	2022 £m
Loans due from Phoenix Life Holdings Limited (note a)	1,284	1,273	1,299	1,279
Cash-pooling to other Group entities (note b)	5	546	5	546
Loan due from Phoenix Group Employee Benefit Trust (note c)	13	13	13	13
Loan due from ReAssure Limited (note d)	-	718	-	718
Loans and deposits due from Group entities	1,302	2,550	1,317	2,556
Total loans and deposits	1,302	2,550	1,317	2,556
Amounts due after 12 months	1,297	2,004

All loans and deposit balances are due from Group entities and are measured at amortised cost using the effective interest method. The fair value of these loans and deposits are also disclosed. None of the loans are considered to be overdue.

a    On 12 December 2018, the Company was assigned a £428 million subordinated loan by Phoenix Life Holdings Limited ('PLHL'). The loan accrues interest at a rate of 6.675% and matures on 18 December 2025. This loan was initially recognised at fair value of £439 million and is amortised to par over the period to 2025. At 31 December 2023, the carrying value of the loan was £432 million (2022: £433 million).

On 12 December 2018, the Company was assigned a £450 million subordinated loan by PLHL. The loan accrues interest at a rate of 4.158% and matured on 20 July 2022. On 20 July 2022, the amount due on the maturity of the subordinated loan of £450 million was advanced under a new loan to PLHL. The new loan accrues interest at a compounded rate of SONIA rate plus a margin of 1.30% and is capitalised. During the year interest of £27 million (2022: £7 million) was capitalised. The loan matures on 31 December 2027. At 31 December 2023, the carrying value of the loan was £484 million (2022: £457 million due under the subordinated loan).

On 12 December 2018, the Company was assigned a US $500 million loan by PLHL due to mature in 2027 with a coupon of 5.375%. This loan was initially recognised at fair value of £349 million and is accreted to par over the period to 2027. Movement in foreign exchange during the period decreased the carrying value by £20 million (2022: £41 million increase). At 31 December 2023, the carrying value of the loan was £368 million (2022: £383 million).

b    On 13 September 2022, the Company entered into an uncommitted intra-group cash-pooling facility with certain subsidiaries, under which the Company will either borrow funds from, or lend funds to, the relevant subsidiary. All amounts due under the facility attract interest at SONIA and are repayable on demand.

c    On 18 June 2019, the Company was assigned an interest free facility arrangement with Phoenix Group Employee Benefit Trust ('EBT'). As at 31 December 2023, the carrying value of the loan was £13 million (2022: £13 million). The loan is fully recoverable until the awards held in the EBT vest to the participants, at which point the loan is reviewed for impairment. Any impairments are determined by comparing the carrying value to the estimated recoverable amount of the loan. During the year funding of £12 million (2022: £12 million) was provided to the EBT and £12 million of the loan was impaired (2022: £12 million).

d    On 31 December 2022, the Company issued a contingent loan of £718 million with RAL which accrues interest at a rate of SONIA plus 2.95%. Loan repayments and interest payments are made quarterly in arrears. Repayment of principal each quarter is set at the amount of surplus emerging from a specified block of unit-linked business in RAL, less interest payable. RAL made the quarterly loan repayments due on 30 June and 30 September 2023, and repaid the loan in full on 21 December 2023.

For the purposes of the additional fair value disclosures for assets recognised at amortised cost, all loans and deposits are categorised as Level 3 financial instruments. The fair value of loans and deposits with no external market is determined by internally developed discounted cash flow models using a risk adjusted discount rate corroborated with external market data where possible.

Details of the factors considered in determination of fair value are included in note E2 to the consolidated financial statements.

13. Financial assets

	2023	2022
	£m	£m
Financial assets at fair value through profit or loss
Derivatives	119	257
Debt securities	1	1
Collective investment schemes	1,017	775
	1,137	1,033
Amounts due after 12 months	1	1

Determination of fair value and fair value hierarchy of financial assets

Details of the factors considered in determination of the fair value are included in note E2 to the consolidated financial statements.

Year ended 31 December 2023		Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Financial assets at fair value through profit or loss
Derivatives		-	119	-	119
Debt securities		-	-	1	1
Collective investment schemes		1,017	-	-	1,017
		1,017	119	1	1,137

 

Year ended 31 December 2022		Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Financial assets at fair value through profit or loss
Derivatives		-	257	-	257
Debt securities		-	-	1	1
Collective investment schemes		775	-	-	775
		775	257	1	1,033

There were no transfers between levels in either 2023 or 2022.

Level 3 financial instrument sensitivities

The investment in debt securities is in respect of debt holdings in a property investment structure which was originally transferred to the Company via an in-specie dividend received from Old PGH during 2019. The holding was disposed of during the year ended 31 December 2020, but a balance of £1 million remains in respect of a potential repayment of cash reserves that may be due to the Company. The amount recognised has taken account of both the uncertain nature of the value of the proceeds and when they will be received.

14. Deferred Tax

The accounting policy for tax assets and liabilities is included in note G8 to the consolidated financial statements.

Movement in deferred tax balances

	1 January 2023 £m	Credit for the year £m	31 December 2023 £m
Provisions and other temporary differences	113	46	159

 

	1 January 2022 £m	Credit for the year £m	31 December 2022 £m
Provisions and other temporary differences	82	31	113

The standard rate of UK corporation tax for the accounting period is 23.5% (2022: 19%).

Following cancellation of the planned corporation tax rate reduction from 19% to 17% announced in the Chancellor's Budget of March 2020, an increase to 25% effective from April 2023 was announced in the Budget of 3 March 2021. Accordingly, deferred tax assets and liabilities are provided at the rate of 25%.

15. Cash and cash equivalents

The accounting policy for cash and cash equivalents is included in note G6 to the consolidated financial statements.

	2023 £m	2022 £m
Bank and cash balances	1	-

16. Cash flows from operating activities

	2023	2022
	£m	£m
(Loss)/profit for the year before tax	(89)	26
Non-cash movements in loss/profit for the year before tax:
Impairment of loan due from subsidiary	12	12
Investment income	(965)	(127)
Finance costs	399	287
Fair value losses/(gains) on financial assets	117	(171)
Foreign exchange movement on borrowings at amortised cost	(63)	173
Share-based payment charge	22	16
Depreciation	2	2
(Increase)/decrease in investment assets	(242)	290
Net decrease/(increase) in working capital	218	(925)
Cash utilised by operations	(589)	(417)

17. Capital and risk management

The Company's capital comprises share capital, the Tier 1 Notes and all reserves as calculated in accordance with International Financial Reporting Standards ('IFRS'), as set out in the statement of changes in equity. Under English company law, dividends must be paid from distributable profits. As the ultimate parent undertaking of the Group, the Company manages its capital to ensure that it has sufficient distributable profits to pay dividends in accordance with its dividend policy. The distributable reserves of the Company as at 31 December 2023 were £4,621 million (2022: £5,062 million).

At 31 December 2023, total capital was £6,963 million (2022: £7,398 million). The movement in capital in the period comprises the total comprehensive income for the period attributable to owners of £79 million (2022: £116 million), dividends paid of £520 million (2022: £496 million), coupon paid on Tier 1 Notes, net of tax relief of £22 million (2022: £22 million), credit to equity for equity-settled share-based payments of £22 million (2022: £16 million) and issue of ordinary share capital of £6 million (2022: £4 million).

In addition, the Group also manages its capital on a regulatory basis as described in note I3 to the consolidated financial statements.

The principal risks and uncertainties facing the Company are interest rate risk, liquidity risk, foreign currency risk and credit risk. The Company hedges its currency risk exposure arising on foreign currency hybrid debt.

Details of the Group's financial risk management policies are outlined in note E6 to the consolidated financial statements.

Credit risk management practices

The Company's current credit risk grading framework comprises the following categories:

Category	Description	Basis for recognising ECL
Performing	The counterparty has a low risk of default and does not have any past-due amounts	12 month ECL
Doubtful	There has been a significant increase in credit risk since initial recognition	Lifetime ECL - not credit impaired
In default	There is evidence indicating the asset is credit-impaired	Lifetime ECL - credit impaired
Write-off	There is evidence indicating that the counterparty is in severe financial difficulty and the Company has no realistic prospect of recovery	Amount is written off

The table below details the credit quality of the Company's financial assets, as well as the Company's maximum exposure to credit risk by credit risk rating grades:

2023	External credit rating	Internal credit rating	12 month or lifetime ECL	Gross carrying amount £m	Loss allowance £m	Net carrying amount £m
Loans and deposits (note 12)	N/A	Performing	12 month ECL	1,302	-	1,302
Other amounts due from Group entities (note 20)	N/A	Performing	12 month ECL	25	-	25
Cash and cash equivalents (note 15)	A	N/A	12 month ECL	1	-	1

 

2022	External credit rating	Internal credit rating	12 month or lifetime ECL	Gross carrying amount £m	Loss allowance £m	Net carrying amount £m
Loans and deposits (note 12)	N/A	Performing	12 month ECL	2,550	-	2,550
Other amounts due from Group entities (note 20)	N/A	Performing	12 month ECL	19	-	19

The Company considers reasonable and supportable information that is relevant and available without undue cost or effort to assess whether there has been a significant increase in risk since initial recognition. This includes quantitative and qualitative information and forward-looking analysis.

Loans and deposits - The Company is exposed to credit risk relating to loans and deposits from other Group companies, which are considered to be of low risk. Given their low risk, the loss allowance has been set at less than £1 million. The Company assesses whether there has been a significant increase in credit risk since initial recognition by assessing whether there have been any historic defaults, by reviewing the going concern assessment of the borrower and the ability of the Group to prevent a default by providing a capital or cash injection. Specific considerations for the loan to the Employee Benefit Trust are discussed in note 12.

Amounts due from other Group entities - The credit risk from activities undertaken in the normal course of business is considered to be extremely low. Given their low risk, the loss allowance has been set at less than £1 million. The Company assesses whether there has been a significant increase in credit risk since initial recognition by assessing past credit impairments, history of defaults and the long-term stability of the Group.

Cash and cash equivalents - The Company's cash and cash equivalents are held with bank and financial institution counterparties which have investment grade 'A' credit ratings. The Company considers the associated credit risk is low based on the external credit ratings of the counterparties and, there being no history of default, the impact to the net carrying amount stated in the table above is therefore considered not to be material.

The Company writes off a financial asset when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the counterparty has been placed into liquidation or has entered into bankruptcy proceedings. Financial assets written off may still be subject to enforcement activities under the Company's recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognised in profit or loss.

18. Share-based payments

Detailed information on the Long-term incentive plans, Sharesave schemes and Deferred bonus share schemes is contained in note I1 in the consolidated financial statements.

19. Directors' remuneration

Details of the remuneration of the Directors of Phoenix Group Holdings plc is included in the Directors' Remuneration Report on pages 111 to 140 of the Annual Report and Accounts.

20. Related party transactions

The Company has related party transactions with Group entities and its key management personnel. Details of the total compensation of key management personnel, being those having authority and responsibility for planning, directing and controlling the activities of the Group, including the Executive and Non-Executive Directors, are included in note I4 to the consolidated financial statements.

During the year ended 31 December 2023, the Company entered into the following transactions with related parties.

	2023 £m	2022 £m
Dividend income from other Group entities	655	455
Interest income from other Group entities	210	124
	865	579
Expense to other Group entities	561	246
Interest expense to other Group entities	196	60
	757	306
Amounts due from related parties at the end of the year:
	2023 £m	2022 £m
Loans due from Group entities	1,302	2,550
Interest accrued on loans due from Group entities	28	29
Other amounts due from Group entities	25	19
	1,355	2,598
Amount due for settlement after 12 months	1,297	2,004
Amounts due to related parties at the end of the year:
	2023 £m	2022 £m
Loans due to Group entities	2,098	2,424
Interest accrued on loans due to Group entities	15	14
Other amounts due to Group entities	62	43
	2,175	2,481
Amount due for settlement after 12 months	700	1,246

21. Auditor's remuneration

Details of auditor's remuneration for Phoenix Group Holdings plc and its subsidiaries is included in note C6 to the consolidated financial statements.

22. Events after the reporting period

Details of events after the reporting date are included in note I7 to the consolidated financial statements.

N Lyons

A Briggs

R Thakrar

K Green

H Iioka

K Murray

E Bucks

M Gregory

J Pollock

B Richards

D Scott

M Semple

N Shott

21 March 2024

 

 

Additional life company asset disclosures

The analysis of the asset portfolio provided below comprises the assets held by the Group's life companies, and it is stated net of derivative liabilities. It excludes other Group assets such as cash held in the holding and management service companies and the assets held by the non-controlling interests in consolidated collective investment schemes. The information is presented on a look-through basis into the underlying funds.

The following table provides an overview of the exposure by asset category of the Group's life companies' shareholder and policyholder funds:

31 December 2023

Carrying value	Shareholder and non-profit funds1 £m	Participating supported1 £m	Participating non-supported2 £m	Unit-linked2 £m	Total £m
Cash and cash equivalents	4,129	1,085	5,309	8,002	18,525
Debt securities - gilts and foreign government bonds	7,753	286	15,039	12,312	35,390
Debt securities - other government and supranationals	2,021	230	2,175	3,253	7,679
Debt securities - infrastructure loans - project finance3	1,137	-	-	-	1,137
Debt securities - infrastructure loans - corporate4	1,523	-	1	-	1,524
Debt securities - local authority loans5	1,032	1	2	4	1,039
Debt securities - loans guaranteed by export credit agencies and supranationals6	733	-	-	-	733
Debt securities - private corporate credit7	2,271	-	106	8	2,385
Debt securities - loans to housing association8	1,243	-	8	2	1,253
Debt securities - commercial real estate loans9	1,147	-	-	-	1,147
Debt securities - equity release mortgages9	4,486	-	-	-	4,486
Debt securities - other debt securities	15,097	1,152	12,397	27,688	56,334
	38,443	1,669	29,728	43,267	113,107
Equity securities	117	50	17,227	112,122	129,516
Property investments	47	16	1,677	5,062	6,802
Income strips9	-	-	-	674	674
Other investments10	(371)	(529)	822	10,800	10,722
Total Life Company assets	42,365	2,291	54,763	179,927	279,346
Less assets held by disposal groups11	-	-	-	(4,780)	(4,780)
At 31 December 2023	42,365	2,291	54,763	175,147	274,566
Cash and cash equivalents in Group holding companies					1,012
Cash and financial assets in other Group companies					686
Financial assets held by the non-controlling interest in consolidated collective investment schemes					4,018
Financial assets in consolidated funds held by disposal groups11					188
Total Group consolidated assets excluding amounts classified as held for sale					280,470
Comprised of:
Investment property					3,698
Financial assets					272,946
Cash and cash equivalents					7,168
Derivative liabilities					(3,342)
					280,470

1          Includes assets where shareholders of the life companies bear the investment risk.

2          Includes assets where policyholders bear most of the investment risk.

3          Total infrastructure loans - project finance of £1,137 million include £1,097 million classified as Level 3 debt securities in the fair value hierarchy.

4          Total infrastructure loans - corporate of £1,524 million include £1,493 million classified as Level 3 debt securities in the fair value hierarchy.

5          Total local authority loans of £1,039 million include £932 million classified as Level 3 debt securities in the fair value hierarchy.

6          Total loans guaranteed by export credit agencies and supranationals of £733 million include £486 million classified as Level 3 debt securities in the fair value hierarchy.

7          Total private corporate credit of £2,385 million include £1,829 million classified as Level 3 debt securities in the fair value hierarchy.

8          Total loans to housing associations of £1,253 million include £1,186 million classified as Level 3 debt securities in the fair value hierarchy.

9          All commercial real estate loans, equity release mortgages and income strips are classified as Level 3 debt securities in the fair value hierarchy.

10        Includes policy loans of £1 million, other loans of £189 million, net derivative liabilities of £(770) million, reinsurers' share of investment contracts of £9,700 million and other investments of £1,602 million.

11        See note H3 to the consolidated financial statements for further details.

31 December 2022 restated1

Carrying value	Shareholder and non-profit funds2 £m	Participating supported2 £m	Participating non-supported3 £m	Unit-linked3 £m	Total £m
Cash and cash equivalents	4,385	1,027	5,312	6,445	17,169
Debt securities - gilts and foreign government bonds	4,913	260	15,065	13,212	33,450
Debt securities - other government and supranational	1,691	242	1,717	2,341	5,991
Debt securities - infrastructure loans - project finance4	922	-	-	-	922
Debt securities - infrastructure loans - corporate5	1,205	-	1	-	1,206
Debt securities - local authority loans6	686	1	2	4	693
Debt securities - loans guaranteed by export credit agencies and supranationals7	509	-	-	-	509
Debt securities - private corporate credit8	1,660	-	100	8	1,768
Debt securities - loans to housing associations9	769	-	8	2	779
Debt securities - commercial real estate loans10	1,104	-	-	-	1,104
Debt securities - equity release mortgages10	3,934	-	-	-	3,934
Debt securities - other debt securities	13,895	1,118	13,067	33,515	61,595
	31,288	1,621	29,960	49,082	111,951
Equity securities	109	46	17,114	94,462	111,731
Property investments	68	22	1,698	5,361	7,149
Income strips10	-	-	-	786	786
Other investments11	(1,241)	(508)	732	9,273	8,256
Total Life Company assets	34,609	2,208	54,816	165,409	257,042
Less assets held by disposal groups12	-	-	-	(8,312)	(8,312)
At 31 December 2022	34,609	2,208	54,816	157,097	248,730
Cash and cash equivalents in Group holding companies					502
Cash and financial assets in other Group companies					1,071
Financial assets held by the non-controlling interest in consolidated collective investment schemes					4,213
Financial assets in consolidated funds held by disposal groups12					1,147
Total Group consolidated assets excluding amounts classified as held for sale					255,663
Comprised of:
Investment property					3,727
Financial assets					248,972
Cash and cash equivalents					8,839
Derivative liabilities					(5,875)
					255,663

1          Prior period comparatives have been restated on transition to IFRS 17 Insurance Contracts (see note A2.1 for further details). This has resulted in a net reduction of £(9) million as result of moving £(11) million policy loans to insurance contracts along with a £2 million increase in reinsurance share of investment contracts.

2          Includes assets where shareholders of the life companies bear the investment risk.

3          Includes assets where policyholders bear most of the investment risk.

4          Total infrastructure loans - project finance of £922 million include £882 million classified as Level 3 debt securities in the fair value hierarchy.

5          Total infrastructure loans - corporate of £1,206 million include £1,175 million classified as Level 3 debt securities in the fair value hierarchy.

6          Total local authority loans of £693 million include £596 million classified as Level 3 debt securities in the fair value hierarchy.

7          Total loans guaranteed by export credit agencies and supranationals of £509 million include £402 million classified as Level 3 debt securities in the fair value hierarchy.

8          Total private corporate credit of £1,768 million include £1,422 million classified as Level 3 debt securities in the fair value hierarchy.

9          Total loans to housing associations of £779 million include £691 million classified as Level 3 debt securities in the fair value hierarchy.

10        All commercial real estate loans, equity release mortgages and income strips are classified as Level 3 debt securities in the fair value hierarchy.

11        Includes other loans of £398 million, net derivative liabilities of £(1,837) million, reinsurers' share of investment contracts of £9,090 million and other investments of £605 million.

12        See note H3 to the consolidated financial statements for further details.

The following table provides a reconciliation of the total life company assets to the Assets under Administration ('AUA') as at 31 December 2023 detailed in the Business Review on page 37.

	2023  £bn	2022  £bn
Total Life Company assets excluding amounts classified as held for sale	274.6	248.7
Off-balance sheet AUA1	10.3	10.3
Less: Wrap SIPP and Onshore Bond assets2	(2.4)	-
Assets Under Administration	282.5	259.0

1          Off-balance sheet AUA represents assets held in respect of certain Group Self-Invested Personal Pension products where the beneficial ownership interest resides with the customer (and which are therefore not recognised in the consolidated statement of financial position) but on which the Group earns fee revenue.

2          Assets held in Wrap Self-Invested Personal Pension ('Wrap SIPP') and Onshore Bond products the associated profits of which accrue to abrdn plc under a profit transfer arrangement have been excluded from AUA (see note H3 to the consolidated financial statements for further details).

All of the life companies' debt securities are held at fair value through profit or loss under IFRS 9 Financial Instruments (2022: IAS 39 Financial Instruments: Recognition & Measurement), and therefore already reflect any reduction in value between the date of purchase and the reporting date.

The life companies have in place a comprehensive database that consolidates credit exposures across counterparties, geographies and business lines. This database is used for credit monitoring, stress testing and scenario planning. The life companies continue to manage their balance sheets prudently and have taken extra measures to ensure their market exposures remain within risk appetite.

For each of the life companies' significant financial institution counterparties, industry and other data has been used to assess the exposure of the individual counterparties. As part of the Group's risk appetite framework and analysis of shareholder exposure to a potential worsening of the economic situation, this assessment has been used to identify counterparties considered to be most at risk from defaults. The financial impact on these counterparties, and the contagion impact on the rest of the shareholder portfolio, is assessed under various scenarios and assumptions. This analysis is regularly reviewed to reflect the latest economic outlook, economic data and changes to asset portfolios. The results are used to inform the Group's views on whether any management actions are required.

The table below shows the Group's market exposure analysed by credit rating for the shareholder debt portfolio, which comprises of debt securities held in the shareholder and non-profit funds.

Sector analysis of shareholder and non-profit fund bond portfolio

	AAA £m	AA £m	A £m	BBB £m	BB & below1 £m	Total £m
Industrials	-	127	216	520	10	873
Basic materials	-	1	126	55	-	182
Consumer, cyclical	10	227	344	82	70	733
Technology and telecoms	118	142	644	706	1	1,611
Consumer, non-cyclical	197	334	677	240	-	1,448
Structured finance	-	-	37	-	-	37
Banks2	314	749	2,915	682	13	4,673
Financial services	65	558	197	69	14	903
Diversified	-	4	17	6	-	27
Utilities	14	515	979	1,208	10	2,726
Sovereign, sub-sovereign and supranational3	1,348	8,932	658	152	-	11,090
Real estate	132	588	3,334	1,259	92	5,405
Investment companies	-	91	48	8	-	147
Insurance	18	325	176	106	-	625
Oil and gas	-	218	330	149	-	697
Collateralised debt obligations	-	7	2	-	-	9
Private equity loans	-	-	18	105	-	123
Equity release mortgages4	2,504	991	864	127	-	4,486
Infrastructure	-	467	243	1,881	57	2,648
At 31 December 2023	4,720	14,276	11,825	7,355	267	38,443

1          Includes unrated holdings of £17 million.

2          The £4,673 million total shareholder exposure to bank debt comprised £3,730 million senior debt and £943 million subordinated debt.

3          Includes £762 million reported as local authority loans, £467 million reported as loans guaranteed by export credit agencies and supranationals and £87 million reported as private corporate credit in the summary table on page 306.

4          The credit ratings attributed to equity release mortgages are based on the ratings assigned to the internal securitised loan notes.

Sector analysis of shareholder and non-profit fund bond portfolio

	AAA £m	AA £m	A £m	BBB £m	BB & below1 £m	Total £m
Industrials	-	395	252	643	11	1,301
Basic materials	-	1	130	6	-	137
Consumer, cyclical	-	311	314	111	67	803
Technology and telecoms	186	288	517	551	-	1,542
Consumer, non-cyclical	246	328	802	231	-	1,607
Structured finance	-	-	38	-	-	38
Banks2	526	464	2,919	344	39	4,292
Financial services	139	401	100	68	19	727
Diversified	-	5	29	-	-	34
Utilities	19	141	727	1,353	-	2,240
Sovereign, sub-sovereign and supranational3	932	5,838	509	116	2	7,397
Real estate	76	234	2,590	1,053	180	4,133
Investment companies	1	125	-	5	-	131
Insurance	22	354	321	70	43	810
Oil and gas	-	132	346	55	-	533
Collateralised debt obligations	-	7	-	-	-	7
Private equity loans	-	-	7	69	-	76
Equity release mortgages4	2,216	852	810	56	-	3,934
Infrastructure	-	123	60	1,208	155	1,546
At 31 December 2022	4,363	9,999	10,471	5,939	516	31,288

1          Includes unrated holdings of £108 million.

2          The £4,292 million total shareholder exposure to bank debt comprised £3,345 million senior debt and £947 million subordinated debt.

3          Includes £686 million reported as local authority loans and £107 million reported as loans guaranteed by export credit agencies and supranationals in the summary table on page 307.

4          The credit ratings attributed to equity release mortgages are based on the ratings assigned to the internal securitised loan notes.

The following table sets out the debt security exposure by country of the shareholder and non-profit funds of the life companies:

Analysis of shareholder debt security exposure by country	Sovereign, sub-sovereign and supranational 2023 £m	Corporate and other 2023 £m	Total 2023 £m	Sovereign, sub-sovereign and supranational 2022 £m	Corporate and other 2022 £m	Total 2022 £m
UK	9,046	16,169	25,215	5,914	13,781	19,695
Supranationals	704	-	704	541	45	586
USA	274	4,764	5,038	317	5,122	5,439
Germany	133	811	944	46	716	762
France	169	1,724	1,893	153	921	1,074
Netherlands	79	457	536	24	417	441
Italy	-	304	304	-	145	145
Ireland	35	88	123	-	74	74
Spain	12	253	265	17	103	120
Luxembourg	55	133	188	56	118	174
Belgium	89	134	223	28	83	111
Australia	1	477	478	1	386	387
Canada	45	410	455	6	385	391
Mexico	2	157	159	2	137	139
Other - non-Eurozone 1	356	1,125	1,481	252	1,241	1,493
Other - Eurozone	90	347	437	40	217	257
Total shareholder debt securities	11,090	27,353	38,443	7,397	23,891	31,288

1  There was no shareholder exposure to Russia, Ukraine and Belarus at 31 December 2023 and 31 December 2022.

 

 

Additional capital disclosures

PGH PLC Solvency II surplus

The PGH plc surplus at 31 December 2023 is £3.9 billion (2022: £4.5 billion).

	31 December 2023 Estimated £bn	31 December 2022 £bn
Own Funds	11.1	11.1
SCR	(7.2)	(6.6)
Surplus	3.9	4.5

Composition of own funds

Own Funds items are classified into different Tiers based on the features of the specific items and the extent to which they possess the following characteristics, with Tier 1 being the highest quality:

•  availability to be called up on demand to fully absorb losses on a going-concern basis, as well as in the case of winding-up ('permanent availability'); and

•  in the case of winding-up, the total amount that is available to absorb losses before repayment to the holder until all obligations to policyholders and other beneficiaries have been met ('subordination').

PGH plc's total Own Funds are analysed by Tier as follows:

	31 December 2023 Estimated £bn	31 December 2022 £bn
Tier 1 - Unrestricted	6.7	6.8
Tier 1 - Restricted	1.1	1.1
Tier 2	2.7	2.6
Tier 3	0.6	0.6
Total Own Funds	11.1	11.1

PGH plc's unrestricted Tier 1 capital accounts for 60% (2022: 61%) of total Own Funds and comprises ordinary share capital, surplus funds of the unsupported with-profit funds which are recognised only to a maximum of the SCR, and the accumulated profits of the remaining business.

Restricted Tier 1 capital comprises the contingent convertible Tier 1 Notes issued in January 2020 and the Tier 1 Notes issued in April 2018, the terms of which enable the instruments to qualify as restricted Tier 1 capital for regulatory reporting purposes.

Tier 2 capital is comprised of subordinated notes whose terms enable them to qualify as Tier 2 capital for regulatory reporting purposes.

Tier 3 items include the Tier 3 subordinated notes of £0.2 billion (2022: £0.2 billion) and the deferred tax asset of £0.4 billion (2022: £0.4 billion).

Breakdown of SCR

The Group operates one single PRA approved Internal Model covering all the Group entities, with the exception of the Irish entity, Standard Life International Designated Activity Company ('SLIDAC'), the acquired ReAssure and SLF Canada UK Limited businesses. SLIDAC, ReAssure and SLF Canada UK Limited businesses calculate their capital requirements in accordance with the Standard Formula. An analysis of the pre-diversified SCR of PGH plc is presented below:

	31 December 2023 Estimated		31 December 2022
	Internal Model  %	ReAssure, SLIDAC and SLF Canada UK Limited  Standard Formula  %	Internal Model  %	ReAssure, and SLIDAC  Standard Formula  %
Longevity	17	10	15	17
Credit	19	19	17	19
Persistency	19	33	18	28
Interest rates	5	3	8	6
Operational	8	4	8	4
Swap spreads	2	-	2	-
Property	6	1	4	1
Other market risks	10	18	15	14
Other non-market risks	14	12	13	11
Total pre-diversified SCR	100	100	100	100

The principal risks of the Group are described in detail in note E6 and F11 in the IFRS consolidated financial statements.

Minimum capital requirements

Under the Solvency II regulations, the Minimum Capital Requirement ('MCR') is the minimum amount of capital an insurer is required to hold below which policyholders and beneficiaries would become exposed to an unacceptable level of risk if an insurer was allowed to continue its operations. For Groups this is referred to as the Minimum Consolidated Group SCR ('MGSCR').

The MCR is calculated according to a formula prescribed by the Solvency II regulations and is subject to a floor of 25% of the SCR or €4.0 million, whichever is higher, and a cap of 45% of the SCR. The MCR formula is based on factors applied to technical provisions and capital at risk. The MGSCR represents the sum of the MCRs of the underlying insurance companies.

The Eligible Own Funds to cover the MGSCR is subject to quantitative limits as shown below:

•  the Eligible amounts of Tier 1 items should be at least 80% of the MGSCR; and

•  the Eligible amounts of Tier 2 items shall not exceed 20% of the MGSCR.

PGH plc's MGSCR at 31 December 2023 is £1.8 billion (2022: £2.3 billion).

PGH plc's Eligible Own Funds to cover MGSCR is £7.9 billion (2022: £8.2 billion) leaving an excess of Eligible Own Funds over MGSCR of £6.1 billion (2022: £5.9 billion), which translates to an MGSCR coverage ratio of 432% (2022: 361%).

 

Alternative performance measures

The Group assesses its financial performance based on a number of measures. Some measures are management derived measures of historic or future financial performance, position or cash flows of the Group; which are not defined or specified in accordance with relevant financial reporting frameworks such as International Financial Reporting Standards ('IFRS') or Solvency II.

 

These measures are known as Alternative Performance Measures ('APMs').

 

APMs are disclosed to provide stakeholders with further helpful information on the performance of the Group and should be viewed as complementary to, rather than a substitute for, the measures determined according to IFRS and Solvency II requirements. Accordingly, these APMs may not be comparable with similarly titled measures and disclosures by other companies.

 

A list of the APMs used in our results as well as their definitions, why they are used and, if applicable, how they can be reconciled to the nearest equivalent GAAP measure is provided below. Further discussion of these measures can be found in the business review from page 30.

 

APMs marked with 'NEW' have been introduced in the period. IFRS adjusted shareholders' equity has been introduced following the adoption of IFRS 17.  New business net funds flows, Operating Cash Generation ('OCG'), recurring management actions, Return on Capital ('RoC') and Solvency II leverage have been introduced to reflect the evolution of the Group's strategy as described in the CEO's Report and Our strategic priorities and KPIs and Directors Remuneration Report sections of the Annual Report.  New business contribution ('NBC'), BPA Capital Strain (Pre-Capital Management Policy) and BPA premiums written have been described in previous annual reports but as these have taken on more prominence are also marked as new.

 

APMs marked with 'CHANGED' have been amended from that disclosed in the Annual Report and Accounts 2022.  Fitch leverage ratio and adjusted operating profit have been amended to reflect the adoption of IFRS 17.

 

 

APM	Definition	Why this measure is used	Reconciliation to financial statements
Adjusted operating profit   CHANGED	Adjusted operating profit is a financial performance measure based on expected long-term investment returns. It is stated before tax and non-operating items including amortisation and impairments of intangibles, finance costs attributable to owners and other non-operating items which in the Director's view should be excluded by their nature or incidence to enable a full understanding of financial performance.   Further details of the components of this measure and the assumptions inherent in the calculation of the long-term investment return are included in note B2.1 to the consolidated financial statements.	This measure provides a more representative view of the Group's performance than the IFRS result after tax as it provides long-term performance information unaffected by short-term economic volatility and one-off items, and is stated net of policyholder finance charges and tax.   It helps give stakeholders a better understanding of the underlying performance of the Group by identifying and analysing non-operating items.	A reconciliation of adjusted operating profit to the IFRS result before tax attributable to owners is included in the business review on page 36.
Assets under administration	The Group's Assets under Administration ('AUA') represents assets administered by or on behalf of the Group, covering both policyholder fund and shareholder assets. It includes assets recognised in the Group's IFRS statement of consolidated financial position together with certain assets administered by the Group for which beneficial ownership resides with customers.	AUA indicates the potential earnings capability of the Group arising from its insurance and investment business. AUA flows provide a measure of the Group's ability to deliver new business growth.	A reconciliation from the Group's IFRS statement of consolidated financial position to the Group's AUA is provided on page 308.
Bulk Purchase Annuity ('BPA') Capital Strain (Pre-Capital Management Policy)   NEW	Represents the capital deployment on BPA measured on a Solvency II basis, before capital management policy, expressed as a proportion of the BPA Premium.   It is calculated as the capital deployed (being the Solvency II Technical Provisions plus SCR plus acquisition costs plus reinsurance premium less BPA Premium, net of tax) as a proportion of the BPA Premium.	BPA Capital Strain (Pre-Capital Management Policy) reflects how efficiently capital is deployed on BPA to deliver new business growth.	The capital deployed in writing BPA business is included within the new business strain component of the change in Solvency SII surplus in the period, as set out in the diagram on page 34.
BPA premiums written   NEW	Represents the aggregate, gross of reinsurance, new business premium volume for BPA business, measured at the risk transfer date, written in the period.	BPA premiums written provides a measure of the Group's ability to deliver new business growth.	BPA premiums written is not directly reconcilable to the financial statements as premiums are no longer reported on the IFRS income statement.  BPA premium written is included within the 'Estimates of present value of future cash flows' line on the effect of contracts initially recognised in the year in Note F8.1 for the Retirement Solutions disclosure group.
Fitch leverage ratio   CHANGED	The Fitch leverage ratio is calculated by Phoenix (using Fitch Ratings' stated methodology) as debt as a percentage of the sum of debt and equity. Debt is defined as the IFRS carrying value of shareholder borrowings. Equity is defined as the sum of equity attributable to the owners of the parent, non-controlling interests, contractual service margin ('CSM') (net of tax), policyholders' share of the estate and the Tier 1 Notes.	The Group seeks to manage the level of debt on its balance sheet by monitoring its financial leverage position. One of the output metrics used in this regard is the Fitch leverage ratio. This is to ensure the Group maintains its investment grade credit rating as issued by Fitch Ratings.	The adjusted equity component of the Fitch leverage ratio is as set out below for the IFRS adjusted shareholders' equity metric.   Fitch Leverage                       FY23                        £bn Shareholders' equity                                                              2.5 CSM (net of tax)                                                                   2.1 Adjusted shareholders' equity                                              4.6 Non controlling interests                                                      0.5 Policyholder surplus in With-profit funds                                                                  4.2 Tier 1 notes                                                                                                 1.0 Total Shareholders' Equity- Fitch basis A                      10.3 Total Shareholder debt B                                                   3.1 Fitch Leverage (B/A + B)                                    23%   Non-controlling interests is directly sourced from the Group's IFRS statement of consolidated financial position and Tier 1 notes from the borrowings note E5 on pages 209 to 211.  Policyholder surplus in with-profit funds is a subset of Estimates of present value of future cash flows within insurance contract liabilities in Note F1 on page 226.
Group in force Long-term Free Cash ('LTFC')	Group in force Long-term Free Cash ('LTFC') is comprised of long-term cash to emerge from in-force business, plus holding company cash, less an allowance for costs associated with in-flight mergers and acquisitions and the related transition activities, and a deduction for shareholder debt outstanding.   The calculation for the LTIP performance metric excludes any future shareholder dividends and is before interest on debt until maturity.	LTFC provides a measure of the Group's total long-term cash available for operating costs, interest, growth and shareholder returns. Increases in LTFC will be driven by sources of long-term cash i.e. new business and over-delivery of management actions. Decreases in LTFC will reflect the uses of cash at holding company level, including expenses, interest, investment in BPA and dividends. Is a measure in the 2023 LTIP.	The metric is not directly reconcilable to the financial statements as it includes a significant component relating to cash that is expected to emerge in the future. Holding company cash included within LTFC is consistent with the holding company cash and cash equivalents as disclosed in the cash section of the business review. Shareholder debt outstanding reflects the face value of the shareholder borrowings disclosed on page 209.
IFRS adjusted shareholders' equity   NEW	IFRS adjusted shareholders' equity is calculated as IFRS Total equity attributable to owners of the parent plus the CSM, net of tax.	Adjusted shareholders' equity provides a meaningful measure of the value generated by the Group, including the value held in the CSM for IFRS 17 contracts.	Adjusted shareholders' equity reconciles to the IFRS balance sheet as follows: FY23 £m Total equity attributable to owners of the parent   2,496 Add: CSM 2,853 Less: Tax on CSM (713) Adjusted shareholders' equity    4,636   Total equity attributable to owners of the parent is directly sourced from the Group's IFRS statement of consolidated financial position on pages 166 and 167. CSM is set out in note F1 on page 227.  Tax is reflected at the deferred tax rate of 25%.
Incremental new business long-term cash generation	Incremental new business long-term cash generation represents the operating companies' total cash generation that is expected to arise in future years as a result of new business transacted in the current period. It excludes any costs associated with the acquisition of the new business.	This measure provides an indication of the Group's performance in delivering new business growth to offset the impact of run-off of the Group's legacy business and to bring sustainability to future cash generation.	Incremental new business long-term cash generation is not directly reconcilable to the financial statements as it relates to cash generation expected to arise in the future.
Group in force Long-term Free Cash ('LTFC')	Group in force Long-term Free Cash ('LTFC') is comprised of long-term cash to emerge from in-force business, plus holding company cash, less an allowance for costs associated with in-flight mergers and acquisitions and the related transition activities, and a deduction for shareholder debt outstanding.   The calculation for the LTIP performance metric excludes any future shareholder dividends and is before interest on debt until maturity.	LTFC provides a measure of the Group's total long-term cash available for operating costs, interest, growth and shareholder returns. Increases in LTFC will be driven by sources of long-term cash i.e. new business and over-delivery of management actions. Decreases in LTFC will reflect the uses of cash at holding company level, including expenses, interest, investment in BPA and dividends. Is a measure in the 2023 LTIP.	The metric is not directly reconcilable to the financial statements as it includes a significant component relating to cash that is expected to emerge in the future. Holding company cash included within LTFC is consistent with the holding company cash and cash equivalents as disclosed in the cash section of the business review. Shareholder debt outstanding reflects the face value of the shareholder borrowings disclosed on page 209.
Life Company Free Surplus	The Solvency II surplus of the Life Companies that is in excess of their Board approved capital according to their capital management policies.	This figure provides a view of the level of surplus capital in the Life Companies that is available for distribution to the holding companies, and the generation of Free Surplus underpins future Operating Cash Generation ('OCG').	Life Company Free Surplus is a subset of the change in Solvency II surplus over the period set out in the diagram on page 34.  It can be reconciled as follows:   FY23 £bn Group Solvency II surplus   3.9 Less: Non-life company components 0.7 Less: Capital Management Policy (2.4) Life Company Free Surplus      2.2
Net fund flows	Represents the aggregate net position of gross AUA inflows less gross outflows. It is an in-year movement in the Group's AUA.	Net fund flows provides a measure of the Group's ability to deliver new business growth.	Net fund flows is not directly reconcilable to the financial statements as it includes movements in AUA which do not flow directly to the Group's IFRS consolidated income statement. However, a reconciliation from the Group's IFRS statement of consolidated financial position to the Group's AUA is provided on page 308.
New business contribution ('NBC')   NEW	Represents the increase in Solvency II Shareholder Own funds arising from new business written in the year, assuming assets have been fully transitioned in to the pricing portfolio, and provides an assessment of the day one value (excluding a cost of capital)  arising on the writing of new business on a discounted basis.  It is adjusted to exclude (i) prudence in the Fundamental Spread, (ii)  the associated risk margin and (iii) any restrictions in respect of contract boundaries. Is stated on a net of tax basis, is after acquisition costs and includes future year cash flows in which long term maintenance costs are deducted  and therefore it excludes any short term cost overruns.	The measure provides an assessment of the day one value (excluding a cost of capital) arising on the writing of new business, and is stated after applicable tax and acquisition costs.  This measure is a 2024 AIP metric.	NBC is a subset of the new business element within Group's Solvency II analysis of movement set out on page 34 and is adjusted for the items stated..
New business net fund flows   NEW	Represents the aggregate net position of AUA inflows less outflows for new business written in the period.	New business net fund flows provides a measure of the Group's ability to deliver new business growth.	New business net fund flows is not directly reconcilable to the financial statements.  It is a subset of Net fund flows described above.
Operating Cash Generation ('OCG')   and   Operating Surplus Generation ('OSG')     NEW	Operating Cash Generation ('OCG') is the emergence of cash on a Solvency II basis  as surplus emerges (being the in-force business run off over time and capital unwind, plus day one surplus from writing new business (net of day 1 strain for fee based business) plus group tax relief), plus recurring management actions. As a cash measure it will be reported in line with Life Company Free Surplus view and therefore is the excess of their Board approved capital according to their capital management policies.   OCG before adjustment to reflect the release of capital management policy is referred to as Operating Surplus Generation ('OSG').	The measure provides the sources of recurring organic cash generated which can be used to support sustainable cash remittances from the Life Companies, which in turn supports the Group's dividend as well as funding investment to generate sustainable growth.	The components of the OCG are:                                                                                                 FY23                                                                                                   £bn Surplus emergence                                                                    0.8 Recurring management actions                                                 0.3 OSG                                                                                       1.1 Release of capital management policy        OCG                                                                                           1.1   OSG forms a component of the change in Solvency II surplus in the period as set out in the diagram on page 34.
Recurring management actions   NEW	Recurring management actions are measured on a Solvency II basis and represent the Day 1 impact on Own Funds and SCR.  They are management actions that are either genuinely repeatable, repeatable in nature but subject to diminishing returns or not repeatable but benefits are expected from similar types of actions	The measure is a key component of OCG and one of the sources which can be used to support sustainable cash remittances from the Life Companies	Recurring management actions are a subset of the Solvency II surplus generated in the period as shown in the diagram on page 34.
Policy for making pro forma adjustments in the Annual Report and Accounts Pro forma adjustments will be used in the Annual Report and Accounts ('ARA') where management considers that they allow the user of the ARA to better understand the financial performance, financial position, cash flows or outlook of the Group.   Examples of where pro forma adjustments may be used are in relation to acquisitions or disposals which are material to the Group, changes to the Group's capital structure or changes in reporting frameworks the Group applies such as Solvency II or IFRS.  Where pro forma adjustments are considered necessary for the understanding of the financial performance, financial position, cash flows or outlook of the Group these will be clearly labelled as pro forma with a clear explanation provided as to the reason for the adjustments and the Key Performance Indicators, Alternative Performance Metrics and other performance metrics impacted.
APM	Definition	Why this measure is used	Reconciliation to financial statements
Return on Capital ('RoC')   NEW	Reflects the Solvency II Own Funds component of the Operating Cash Generation (i.e. the inforce and new business surplus generation and group tax relief), less financing costs plus recurring management actions divided by Opening Unrestricted Core Tier 1 Shareholder Capital (UT1) + Deferred tax assets ('DTA').  At a high level, this could be more simply described as the operating growth in own funds less financing costs as a percentage of opening own funds excluding debt.	The RoC measure is intended to demonstrate our efficiency in allocating capital to generate returns for our shareholders. It will demonstrate if we are using our capital efficiently to generate optimal returns, performance and growth to deliver long term shareholder value. This measure is included in the 2024 LTIP.	FY23 £ bn Own Funds component of OCG                                                 0.6 Less Financing costs                                                                (0.2) Recurring Management actions                                                  0.3 Total Own Funds                                                                      0.7 Divided by                                                   Opening Shareholder UT1 +                                                      5.0 Opening DTA                                                                             0.4 Opening Total Capital                                                             5.4 ROC=                                                                                     12.8%   The Own Funds component of OCG and recurring management actions are a subset of OCG as described previously.  Financing costs are sourced directly from the segmental result on page 182.    Opening Shareholder UT1 is directly sourced from the borrowings analysis on page 209 and the Tier 1 notes classified as equity on page 194.  The opening DTA is a component of the Solvency II balance sheet within the Own Funds balance in the diagram on page 34.
Shareholder Capital Coverage Ratio	Represents total Eligible Own Funds divided by the Solvency Capital Requirements ('SCR'), adjusted to a shareholder view through the exclusion of amounts relating to those ring-fenced with-profit funds and Group pension schemes whose Own Funds exceed their SCR.	The unsupported with-profit funds and Group pension funds do not contribute to the Group Solvency II surplus. However, the inclusion of related Own Funds and SCR amounts dampens the implied Solvency II capital ratio. The Group therefore focuses on a shareholder view of the capital coverage ratio which is considered to give a more accurate reflection of the capital strength of the Group.	Further details of the Shareholder Capital Coverage Ratio and its calculation are included in the business review on pages 34 and 35.
Solvency II Leverage   NEW	Solvency II leverage is calculated as the Solvency II value of debt divided by the value of  Solvency II Regulatory Own Funds. Values for debt are adjusted to allow for the impact of currency hedges in place over foreign currency denominated debt.	The Group are targeting a £500m reduction in debt over the medium term to deliver a SII leverage ratio of c30%	FY23 £bn Solvency II Leverage Regulatory Eligible Own Funds                                               10.9 Total Debt                                                                                   3.9 Solvency II Leverage                                                             36%   Regulatory Eligible Own Funds is a component of the calculation of the Group's regulatory Solvency II surplus as set out on page 34.    Total debt is that taken from borrowings analysis on page 209.   Both amounts are adjusted for the value of the foreign currency hedges used to hedge foreign currency exposure on the Group's borrowings as described on page 193.
Total cash generation (formerly referred to as operating companies' cash generation)	Cash remitted by the Group's operating companies to the Group's holding companies.	The statement of consolidated cash flows prepared in accordance with IFRS combines cash flows relating to shareholders with cash flows relating to policyholders, but the practical management of cash within the Group maintains a distinction between the two. The Group therefore focuses on the cash flows of the holding companies which relate only to shareholders. Such cash flows are considered more representative of the cash generation that could potentially be distributed as dividends or used for debt repayment and servicing, Group expenses and pension contributions.   Total cash generation is a key performance indicator used by management for planning, reporting and executive remuneration.	Total cash generation is not directly reconcilable to an equivalent GAAP measure (IFRS statement of consolidated cash flows) as it includes amounts that eliminate on consolidation.   Further details of holding companies' cash flows are included within the business review on pages 32 to 33, and a breakdown of the Group's cash position by type of entity is provided in the additional life company asset disclosures section on page 306.

 

 

 

Additional information

 

Statutory results

 

Financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 ('the Act'). The statutory accounts for the year ended 31 December 2022 have been filed with the Registrar of Companies and those for the year ended 31 December 2023 will be filed with the register of companies following the Annual General Meeting. The report of the auditor on those statutory accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Act.