Closed life fund consolidator Phoenix Group has admitted that looming Solvency II capital requirements are likely to hit its cash generation this year.
In its annual results, the closed book life insurer stated that “there remains considerable uncertainty with regard to the implementation of and transition to Solvency II”, but the group is currently on track to formally apply for regulatory approval of its internal model in June 2015.
“Given the current uncertainty in relation to the transition to Solvency II capital regime, 2015 cash generation target range is £200-250m due to the retention of capital in the life companies in the short term,” read the document.
The long-term cash generation target for 2014-2019 remains unchanged at £2.8bn, supporting the group’s sustainable dividend policy.
Operating companies’ cash generation fell to £567m from £817m in 2013, although this was above the top end of the previously set £500-550 million target range.
A further £390 million was received on completion of the sale of Ignis to Standard Life, resulting in full year cash generation of £957m.
Group chief executive Clive Bannister said that the group met or exceeded all financial targets, while making considerable strategic progress, significantly reducing gearing and achieving a comprehensive debt restructuring.
“All of this leaves the group in a sound financial position as we transition to Solvency II, enabling us to focus our efforts on seeking an investment grade rating and growing Phoenix through closed life acquisitions, thereby delivering more value to both customers and shareholders.”
Gearing was reduced to 34 per cent at the end of the year, down from 44 per cent in 2013, while the group made £300m from an unsecured seven-year bond issue.
During 2014 it distributed £185m of estate to a total of 95,000 policyholders through final bonuses on their with-profits policies.