The Part VII Transfer of the Business of Phoenix Life Assurance

MILLIMAN REPORT

The Part VII Transfer of the Business

of Phoenix Life Assurance Limited,

Standard Life Assurance Limited and

Standard Life Pension Funds Limited

to Phoenix Life Limited

The Supplementary Report of the Independent Expert

20 September 2023

John A Jenkins FIA

 
 
Contents 
1.   PURPOSE AND SCOPE .................................................................................................................................. 1 
2.  EXECUTIVE SUMMARY ................................................................................................................................... 2 
3.  THE SCHEME ................................................................................................................................................... 4 
4.  UPDATES TO FINANCIAL ASPECTS ............................................................................................................. 5 
5.  UPDATES TO NON-FINANCIAL ASPECTS .................................................................................................. 14 
6.  POLICYHOLDER CORRESPONDENCE, COMPLAINTS, AND OBJECTIONS ............................................ 20 
7.  OTHER CONSIDERATIONS .......................................................................................................................... 30 
8.  CONCLUSIONS .............................................................................................................................................. 32 
APPENDIX A DOCUMENTS AND DATA RELIED ON ........................................................................................ 33 
APPENDIX B CORRECTED CERTIFICATE ........................................................................................................ 34 
APPENDIX C ANSWERS PROCESS WORDING ON THE SLAL AND SL INTL WEBSITES ............................ 35 
APPENDIX D GLOSSARY ................................................................................................................................... 38 
APPENDIX E SHAREHOLDER SOLVENCY COVERAGE RATIOS ................................................................... 51 
 
   

1. Purpose and scope

INTRODUCTION

1.1. It is proposed to transfer all of the long-term insurance business from PLAL, SLAL, and SLPF to Phoenix.

1.2. I am the Independent Expert in relation to this proposed transfer of long term business. I have produced a report

on the transfer dated 18 April 2023 and I now refer to that report as my Main Report.

1.3. My Main Report makes a number of references to matters being updated or considered further in my Supplementary

Report, and this report is my Supplementary Report. This Supplementary Report must be read in conjunction with

my Main Report.

1.4. The terms and abbreviations used in my Main Report are also used (without further definition) in this Supplementary

Report. Appendix D contains the glossary of terms used throughout my Main Report and this Supplementary

Report.

1.5. My appointment as Independent Expert and considerations of my independence were covered in my Main Report.

1.6. The purpose of this Supplementary Report is to provide the updates that I said I would provide in my Main Report

(including in relation to updated financial information), and to consider matters arising including the complaints,

objections and correspondence from policyholders following the policyholder communications process, and to

consider further whether the conclusions which I reached in my Main Report remain valid. Appendix A sets out the

main items of new documentation and information which I have used in preparing this Supplementary Report. The

parties for whom this Supplementary Report has been prepared are the same as set out in my Main Report.

1.7. Since the finalisation of my Main Report, there have been Directions (or equivalent) hearings at the High Court (in

London) and the Royal Court of Jersey (in Jersey). No such equivalent hearing is applicable in Guernsey.

Additionally, the Scottish Notes have been presented to the Court of Session. Each of these courts have issued

the relevant orders or approvals for the process of considering the Scheme to proceed to the next stage, and the

dispensations sought by the Companies in respect of policyholder communications were granted. The Companies

thus proceeded with the mailings, communications, website updates, advertisements, and notifications as set out

in my Main Report.

1.8. This Supplementary Report will be made available on the relevant Phoenix and Standard Life websites prior to the

final Court hearings. In addition any person who objects to or makes a representation in respect of the Scheme,

any person who states they will attend the Court Hearings, and any person who requests a copy of my Main Report

will be contacted and advised that this Supplementary Report is available on the website and that a hard copy will

be sent to them free of charge on request.

RELIANCES AND LIMITATIONS

1.9. This Supplementary Report is subject to the same reliances and limitations as set out in my Main Report. This

Supplementary Report has been prepared on a basis agreed with the PRA and the FCA and must not be relied

upon for any other purpose. No liability will be accepted by Milliman, or me, for any application of this

Supplementary Report to a purpose for which it was not intended, nor for the results of any misunderstanding by

any user of any aspect of this Supplementary Report. In particular, no liability will be accepted by Milliman or me

under the terms of the Contracts (Rights of Third Parties) Act 1999.

REGULATORY AND PROFESSIONAL GUIDANCE

1.10. This Supplementary Report has been prepared subject to the terms of TAS 200 Insurance as applicable to

Insurance transformations issued by the Financial Reporting Council. In my opinion, this Supplementary Report

complies with TAS 200. This Supplementary Report is also compliant with TAS 100: General Actuarial Standards,

and in particular those aspects that are applicable to transformations.

1.11. In complying with these requirements, I note that a number of the new key documents listed in Appendix A have

been prepared or reviewed by individuals who were subject to professional standards in undertaking their work,

including, where appropriate, TAS requirements.

1.12. Actuarial Profession Standard X2, as issued by the IFoA, requires members to consider whether their work

requires an independent peer review.

1.13. In my view this Supplementary Report does require independent peer review and this has been carried out by an

appropriate senior actuary in Milliman LLP who has not been part of my team working on this assignment.

2. Executive summary

2.1. The financial analyses set out in my Main Report have been updated to 30 June 2023, and I have also

considered the effects of changes in financial markets between 30 June 2023 and the time of finalising this

Supplementary Report. Updates to the key tables from my Main Report are included in this Supplementary

Report. The updated financial and risk positions of the Companies, both pre-Scheme and post-Scheme, are

fundamentally similar to those set out in my Main Report and I have highlighted and commented on the changes

arising.

2.2. An application has been made to the UK Office of Financial Sanctions Implementation to allow the

policies/plans held by the three sanctioned individuals (as referred to in paragraphs 8.108 and 14.36 of my

Main Report) to be transferred from SLAL to Phoenix. At the time of finalising this Supplementary Report, no

such approval has been received. It is thus expected that these policies/plans will remain in SLAL with their

benefits being reinsured to Phoenix under an Excluded Policies Reinsurance Agreement, as provided for by

the Scheme. In the event that approval from the UK Office of Financial Sanctions Implementation is received

prior to the Transfer Date, or the sanctions on these customers are lifted, this process will not be necessary

and the relevant policies/plans would be transferred as normal.

2.3. My Main Report (commencing at paragraph 9.37) set out my considerations arising from the events in

September and October 2022 when there was a sudden and significant increase in long term UK interest rates.

Phoenix has provided me with updated progress reports in relation to the enhancements to its modelling and

interest rate hedging management information and I have discussed these with Phoenix and raised questions

as necessary. I am satisfied that Phoenix has made substantial progress in line with its plans. I note that

Phoenix continues to maintain the additional amounts of capital (over and above its capital management policy)

referred to in my Main Report, and that these amounts will be revised going forwards once Phoenix has

confidence that the level of mis-estimation risk (as explained in paragraph 9.40 of my Main Report) has actually

been reduced in practice, subject to the approval of the Phoenix Board. I also note that Phoenix has, since the

finalisation of my Main Report, introduced a similar concept of holding additional required amounts as part of

its liquidity management process whilst further developments in this area are being undertaken. This will ensure

that additional liquid assets are maintained during this period.

2.4. My Main Report set out a number of regulatory approvals and additional regulatory permissions and rule

waivers which Phoenix was going to seek in conjunction with the Scheme. All of the relevant applications have

now been made to the PRA and/or the FCA as necessary. I note that the relevant waiver being sought has

now been granted by the FCA, as has the “change in control” application for two subsidiaries of SLAL. I note

further that the additional regulatory permissions needed in respect of the SIPP business being transferred

from SLAL to Phoenix have also now been received from the PRA and the FCA. The application for the post-

Scheme recalculation of the Phoenix TMTP has been approved by the PRA, conditional on the Scheme

proceeding. My Main Report also set out the position in relation to the contractual consents being sought by

Phoenix where this is necessary. I note that Phoenix is making progress in this area, and that there is a fallback

approach (as described in paragraph 14.49 of my Main Report) under the Scheme for any non-UK consents

which cannot be obtained by the Transfer Date. I have also provided updates in this Supplementary Report in

relation to certain other regulatory matters, none of which in my opinion have any adverse impact on

policyholders. All of the regulatory approvals and permissions which are a pre-requisite of the Scheme

proceeding have now been received.

2.5. Phoenix has now received the main tax clearances sought from HMRC in relation to the Scheme.

2.6. No new material risks or events affecting the Companies have emerged since the date of my Main Report.

There has been some volatility in financial markets, and UK short term and long term interest rates have risen

over recent months. The potential for future volatility remains given current global events. Such events and

future volatility are to be expected, and the purpose of the regulatory capital framework and the capital

management policies of the Companies is to allow the Companies to deal with such events and emerging

volatility.

2.7. I have been provided with Phoenix’s updated position in relation to its operational readiness plans to implement

the Scheme. I have raised questions on this as necessary, and I am satisfied with the position which Phoenix

has set out and with the operational readiness position of the Companies in relation to the Scheme.

2.8. I have provided an updated certificate in respect of the modifications to the Phoenix 2011 Scheme in order to

correct a discrepancy in the certificate given in my Main Report.

2.9. I have reviewed and discussed with the Companies the policyholder correspondence, complaints and

objections received following the mailing and policyholder communications process. In particular, I have

considered each objection raised. Summarised information is contained within this Supplementary Report,

including a summary of those types of objections which are relevant to the Scheme and how the Companies

have responded to them. I am satisfied that the areas covered by all these objections have been considered

in my Main Report, and I am satisfied that Phoenix has responded to the objections fully and appropriately. I

have provided an update in this Supplementary Report in relation to the ways which can be used by

policyholders to raise objections with the Court of Session in Scotland, and I am satisfied that policyholders

have been made aware of the various options available to them.

2.10. I have considered and discussed with the Companies a mailing incident which resulted in some 23,600 SLAL

policyholders being mailed in relation to the Scheme when they should not have been (for the deceased cases)

or did not need to be (for the remaining cases). Although this may have caused confusion and/or distress to

the policyholders (or their relatives) in question, I am satisfied that it has not caused any adverse impact on the

policyholders who are subject to the Scheme. I am similarly satisfied in relation to two other mailing incidents

which have occurred.

2.11. I have considered and taken into account the latest available information and consultation papers from His

Majesty’s Treasury (“HMT”) and the PRA in relation to the ongoing review of Solvency II in the UK post Brexit.

I have also considered what is currently expected in the consultations that are yet to be released. The main

fundamental changes are expected to be beneficial from a solvency viewpoint, and I note that these changes

will apply whether or not the Scheme proceeds. I have also taken into account the latest information published

by HMT in relation to the development in the UK of an Insurer Resolution Regime.

2.12. I can confirm that, taking into account the further analyses and updates set out in this Supplementary Report

(as summarised above), the conclusions set out in Section 16 of my Main Report remain unchanged. For ease

of reference I have set out those conclusions in Section 8 of this Supplementary Report. Should any material

events or issues of relevance to the Scheme and its effects arise between finalising this Supplementary Report

and the dates of the final Court hearings, I will make arrangements via Phoenix to inform the Court accordingly

of my views and opinions.

3. The Scheme

3.1. Subject to the two minor updates set out below, there have been no changes to the wording of the Scheme,

the Jersey Scheme, or the Guernsey Scheme since the date of my Main Report and since the Directions (or

equivalent) hearings at the courts in London and Jersey and the presentation of the Scottish Notes to the Court

of Session.

3.2. A further subsidiary of SLAL, previously omitted, has been added to the list of transferring subsidiaries in

Schedule 3 of the Scheme.

3.3. A previously incorrect Effective Date within the Guernsey Scheme has been corrected.

3.4. The two minor changes set out above have no impact on my conclusions.

4. Updates to financial aspects

INTRODUCTION

4.1. The financial analyses carried out and presented in my Main Report were based on financial information as at

31 December 2022. The Companies have now provided me with a complete set of updated financial

information as at 30 June 2023, including analyses of the changes in the key financial results between 31

December 2022 and 30 June 2023. I have considered this updated financial information and am satisfied with

the explanations of the changes in the key financial results since 31 December 2022. I have set out below

updated versions of the key analysis tables from my Main Report, together with my comments and conclusions

arising from these updated tables. I have not considered it necessary to include an update to each and every

table in my Main Report as the with-profits fund detail within such updated tables essentially shows a very

similar position to those in my Main Report. I am satisfied that the changes which have arisen since my Main

Report are adequately conveyed and explained by the updates to the key analysis tables together with the

commentaries and explanations that I set out in this Supplementary Report.

4.2. I note that the 31 December 2022 financial information contained in my Main Report has been subject to audit

(as explained in my Main Report). The 30 June 2023 financial information contained in this Supplementary

Report has not been subject to audit, but has been prepared on fundamentally the same bases subject to the

normal processes of updates, and has been subject to the normal internal review processes followed by the

Companies. The analyses of the changes referred to above link the 30 June 2023 financial information back

to the latest audited position. I am thus satisfied that this 30 June 2023 financial information is appropriate for

the purposes of this Supplementary Report.

4.3. In addition to the updated 30 June 2023 position, I have also considered the financial position of the Companies

after this date based on management information provided by the Companies. I will continue to monitor the

financial position of the Companies (based on management information provided by the Companies) up to the

dates of the final Court hearings.

UPDATED SOLVENCY II POSITION

4.4. Table 4.1 below is an update to the key balance sheet and solvency coverage analysis for the Companies as

at 30 June 2023, as shown in Table 2.1 and Table 9.5 in my Main Report. For the sake of clarity, the post-

Scheme values in Table 4.1 below include the small amounts of assets which would be initially retained under

the Scheme within PLAL and SLAL/SLPF pending their de-authorisations post-Scheme, or due to the need to

retain authorisation for SLAL as a result of any Excluded Policies needing to be retained in SLAL, or pending

the cessation of the Instructing Parties Agent arrangement for SLPF. Table 4.1 thus shows the final (pro-forma)

post-Scheme position once these initially retained assets have been transferred to Phoenix.

4.5. Arising from the 30 June 2023 financial results, the Companies have under their normal processes remitted

certain amounts (which would in principle be dividends) up to PGH (via the intermediate holding companies

where applicable). The amounts in question are £150m in respect of PLAL, £50m in respect of SLAL, and £nil

in respect of Phoenix itself. This aspect is not relevant to SLPF as it is owned by the Heritage WPF within

SLAL. These remittances are to be expected as part of the normal operation of the Companies, and the

amounts remitted have been determined by the Companies taking into account all relevant financial and

business considerations.

4.6. Amounts can only be remitted as formal dividends if the Companies have sufficient accounting distributable

reserves, this being a requirement under the UK Companies Act. A new accounting regime (known as

“IFRS17”) came into force on 1 January 2023 which PGH is now subject to. The Companies themselves are

now carrying out their entity accounting using the UK regime known as UK Generally Accepted Accounting

Principles (“UKGAAP”) as opposed to IFRS17, and currently there is some uncertainty in relation to the level

of accounting distributable reserves which are available. For this reason the remittances which would have

been paid as dividends have actually been paid up to PGH (via the intermediate holding companies where

applicable) by PLAL and SLAL in the form of loans, with the expectation that these loans will be converted to

dividends (or equivalent) in due course. Within Table 4.1 below, the relevant Own Funds are not reduced as a

result of these loans (as they are technically still assets), but the SCRs have been increased by the amount of

the loans in order to ensure that the Excess Own Funds are the correct values, as if dividends of the same

amounts as the loans had been paid. The various shareholder SCR ratios shown in Table 4.1 have been

adjusted appropriately (as explained in the notes below the table) to show the true position as if the loans had

actually been paid as dividends as at 30th June 2023.

4.7. I am satisfied as to Phoenix’s rationale for making these remittances as loans rather than dividends and that

there is no impact on my conclusions as a result of this approach being adopted. I have referred to these loans

in several places below as loans in lieu of dividends. For the avoidance of doubt, I can confirm that I see no

reason or need for me to consider any of the accounting results of PGH or of the Companies (either under

IFRS17 or UK GAAP). My consideration of the financial effects of the Scheme is correctly based solely on the

Solvency II position of the Companies and the capital management policies which are associated with the

Solvency II position.

Table 4.1 - Phoenix, SLAL and PLAL UK Solvency II balance sheet as at 30 June 2023

£m

Pre-Scheme

Post-

Scheme

Difference

Phoenix

PLAL

SLAL

Total

Phoenix

Own Funds (A)

3,929

1,485

4,396

9,809

9,791

(18)

RFF Restriction (B)

358

311

1,398

2,067

2,009

(58)

SCR (C)*

2,275

751

1,900

4,927

4,434

(493)

Excess Own Funds

(D=A-B-C)

1,295

422

1,097

2,815

3,347

532

Solvency Coverage Ratio – as per regulatory returns ((A-B)/C)

157%

156%

158%

N/A

175%

N/A

Solvency Coverage Ratio – Shareholder (Actual)**

175%

230%

184%

N/A

220%

N/A

Solvency Coverage Ratio – Shareholder (Actual, Adjusted for Comparison with Capital Policy

Target)***

175%

230%

163%

N/A

210%

N/A

Solvency Coverage Ratio – Shareholder (Capital Policy Target)***

139%

146%

135%

N/A

138%

N/A

Source: Phoenix Information summarised by Milliman

* The SCRs for PLAL pre-scheme, SLAL pre-scheme and Phoenix post-scheme incorporate an amount included for the loans

in lieu of dividends. The inclusion of these amounts within the SCRs ensures that the Excess Own Funds are the same as if

equivalent dividends had been paid.

** “Solvency Coverage Ratio – Shareholder (Actual)” is calculated as the ratio of Total Own Funds to Total SCR as follows

(this being as set out in my Main Report with the addition of the final point below):

• For the non-profit funds, the value of Own Funds is included in the Total Own Funds and the value of the SCR is

included in the Total SCR.

• For the With-Profits Funds with Excess Own Funds less than zero prior to any support loans (i.e. the Supported Funds),

the value of Own Funds is included in the Total Own Funds and the value of the SCR is included in the Total SCR.

• For the With-Profits Funds with Excess Own Funds greater than or equal to zero (i.e., the Unsupported Funds), the

value of Excess Own Funds is included in the Total Own Funds, nothing is included in the Total SCR.

• The loans in lieu of dividends are deducted from both the Total Own Funds and the Total SCR.

*** The Capital Policy Target ratios are considered excluding the Group Loan capital which exists in SLAL pre-Scheme and,

as a result, in Phoenix post-Scheme. The Shareholder (Actual) Solvency Coverage Ratios adjusted to exclude the Group Loan

capital, and to compare with the Capital Policy Target Ratios, are shown in the row above the Capital Policy Target Ratios.

These adjusted ratios also exclude the loans in lieu of dividends.

4.8. I note that the pre-Scheme results for SLPF are incorporated into the SLAL pre-Scheme position in Table 4.1,

as SLPF is a subsidiary of SLAL and the business of SLPF is fully reinsured into SLAL. The pre-Scheme

position of SLPF at 30 June 2023 is Own Funds of £11.0 million, an MCR of £3.4 million and a Solvency

Coverage Ratio of 319%. The post-Scheme SLPF position is incorporated within the post-Scheme Phoenix

results shown in Table 4.1.

4.9. The loans in lieu of dividends paid to PGH (£150m from PLAL and £50m from SLAL) were put in place on 17

July 2023. These loans arose from the results of the 30 June 2023 valuation and have thus been incorporated

into the 30 June 2023 results shown above as an overlay in order to show the most realistic position for the

purposes of this analysis.

4.10. For ease of reference I have set out the equivalent of Table 4.1 as at 31 December 2022 (i.e. Table 2.1 from

my Main Report) below in Table 4.2. The changes arising over the period from 31 December 2022 to 30 June

2023 will include the effects of writing new business, the unfolding of actual experience relative to previous

assumptions, changes in financial conditions (including the rises in interest rates which have taken place), and

updates to methodologies and assumptions as necessary under the usual governance processes for such

updates. Changes in assets, technical provisions, other liabilities, Own Funds and SCRs are thus to be

expected. Of greater relevance to my considerations are the changes in the various Solvency Coverage Ratios,

and these are set out in Table 4.3 below.

Table 4.2 - Phoenix, SLAL and PLAL UK Solvency II balance sheet as at 31 December 2022

£m

Pre-Scheme

Post-Scheme

Difference

Phoenix

PLAL

SLAL

Total

Phoenix

Own Funds (A)

3,996

1,560

4,385

9,942

9,905

(37)

RFF Restriction (B)

401

346

1,225

1,973

1,914

(59)

SCR (C)

2,293

666

1,985

4,945

4,433

(512)

Excess Own Funds

(D=A-B-C)

1,302

547

1,175

3,024

3,558

534

Solvency Coverage Ratio – as per regulatory returns ((A-B)/C)

157%

182%

159%

N/A

180%

N/A

Solvency Coverage Ratio – Shareholder (Actual) *

173%

255%

193%

N/A

225%

N/A

Solvency Coverage Ratio – Shareholder (Actual, Adjusted for Comparison with Capital Policy Target)**

173%

255%

168%

N/A

215%

N/A

Solvency Coverage Ratio – Shareholder (Capital Policy Target)*

138%

144%

131%

N/A

136%

N/A

Source: Phoenix Information summarised by Milliman

* “Solvency Coverage Ratio – Shareholder (Actual)” is calculated as described in ** under Table 4.1, but without adjustment

for the loans in lieu of dividends as these were not applicable as at 31 December 2022.

** The Capital Policy Target ratios are considered excluding the Group Loan capital which exists in SLAL pre-Scheme and, as

a result, in Phoenix post-Scheme. The Shareholder (Actual) Solvency Coverage Ratios are adjusted to exclude the Group

Loan capital, and to compare with the Capital Policy Target Ratios, are shown in the row above the Capital Policy Target

Ratios.

Table 4.3 - Change in Solvency Coverage Ratios from 31 December 2022 to 30 June 2023

Change in Ratios

from 31 December

2022 to 30 June

2023

Pre-Scheme

Post-Scheme

Phoenix

PLAL

SLAL

Phoenix

Solvency Coverage Ratio – as per regulatory returns ((A-B)/C)

-26%

-1%

-5%

Solvency Coverage Ratio – Shareholder (Actual) **

+2%

-25%

-9%

-5%

Solvency Coverage Ratio – Shareholder (Actual, Adjusted for Comparison with Capital Policy Target)***

+2%

-25%

-5%

Solvency Coverage Ratio – Shareholder (Capital Policy Target)***

+1%

+2%

+4%

+2%

Source: Phoenix Information summarised by Milliman

(The ** and *** notes for Table 4.3 are as set out above under Table 4.1)

4.11. As indicated in my Main Report, the Capital Policy Target Ratios have now been updated by Phoenix as a

result of its annual review process. There have been no changes to the underlying principles and approaches

used to determine these ratios, and the final rows of Table 4.1 and Table 4.3 show that the updated ratios are

similar to the previous ratios. The Phoenix Capital Policy Target Ratio has increased from 138% to 139%, the

PLAL Capital Policy Target Ratio has increased from 144% to 146% and the SLAL Capital Policy Target Ratio

has increased from 131% to 135%. The Phoenix post-scheme Capital Policy Target Ratio has increased from

136% to 138%.

4.12. As shown in Table 4.1, Phoenix continues to meet both its regulatory capital requirements and the quantitative

requirements of its capital management policy post-Scheme. On a post-Scheme pro-forma basis, Phoenix has

an Adjusted Shareholder Solvency Coverage Ratio of 210% which is materially above its capital management

policy requirement post-Scheme of 138%. Both Phoenix and SLAL policyholders will see an increase in the

relevant regulatory and shareholder coverage ratios as a result of the Scheme, and this will also effectively

apply to SLPF policyholders who currently benefit (indirectly) from the pre-Scheme position of SLAL. PLAL

policyholders will see an increase in the regulatory ratio but decreases in the shareholder ratios. The position

is thus similar to that set out in my Main Report, and it remains the case that the key consideration is the

comparison against the Capital Policy Targets, both pre-Scheme and post-Scheme. The reduction seen in the

shareholder ratios in respect of PLAL policyholders is thus not a concern (as was also set out in my Main

Report).

4.13. Table 4.3 shows that for Phoenix pre-Scheme, SLAL pre-Scheme, and Phoenix post-Scheme the changes in

the ratios over the first half of 2023 are small. The changes for SLAL pre-Scheme are marginally larger and

take into account the £50m loan in lieu of dividend. The reductions in the ratios for PLAL are significant as they

take into account and are largely explained by the £150m loan in lieu of dividend. However, it remains the case

that pre-Scheme PLAL’s Adjusted Shareholder Solvency Coverage Ratio remains materially above its Capital

Policy Target – more so in fact than is the case pre-Scheme for Phoenix and SLAL. I am thus content that the

reduction in the coverage ratios for PLAL are explainable and are not a concern in relation to the Scheme

proceeding. The key consideration remains the comparison of the post-Scheme position with the post-Scheme

Capital Policy Target.

4.14. In addition to the above considerations, the fact that (absent the loans in lieu of dividends) the changes in the

Actual Shareholder Solvency Coverage Ratios are small, and the changes to the Capital Policy Target ratios

are also small, indicates to me a reasonable degree of resilience in the pre-Scheme financial positions of the

Companies, and of the post-Scheme financial position of Phoenix, particularly given the increase in interest

rates which has taken place over the first half of 2023.

4.15. As outlined in paragraph 9.40 of my Main Report, Phoenix, PLAL and SLAL continue to maintain additional

capital amounts over and above the capital management policy requirements (known as true-up risk triggers)

whilst certain process enhancements are being undertaken. Further details on this area are given from

paragraph 5.10 below. I note that based on the 30 June 2023 financial position set out above (which is after

allowing for the loans in lieu of dividends), the Companies pre-Scheme and Phoenix post-Scheme can cover

these additional amounts and still meet the relevant capital management policy requirements.

4.16. I have analysed further the changes arising on implementation of the Scheme as set out in Table 4.1. Table

4.1 shows that on a pro-forma basis:

• Combined Own Funds decrease by £18 million post-Scheme. This includes the remaining project costs

associated with the Scheme (most of which have now actually been incurred within the Companies) net

of the applicable tax relief. This value also includes a number of minor technical adjustments to the

liabilities which arise as a result of the consolidation of the three main companies, including the reduction

in the Risk Margin which arises from the reduction (see below) in the SCR.

• The RFF Restriction falls by £58 million. Phoenix will not be continuing with the Volatility Adjustment in

the post-Scheme Phoenix Heritage WPF. This increases the SCR for this WPF by £58 million and reduces

the RFF Restriction by the same amount. As this WPF has a large RFF Restriction pre-Scheme, these

changes are essentially just changes of presentation.

• The combined SCR reduces by £493 million as a result of diversification benefits generated through the

consolidation of the three main companies and through an increased level of LACDT. Of this £493 million,

£354 million is a reduction in respect of the basic diversification of risks arising on combining the

Companies, £197 million is a reduction in respect of the additional LACDT, and £58 million is the increase

due to the Volatility Adjustment change explained above.

The changes in the last bullet point above can be further analysed as follows:

• The basic SCR diversification benefit arising as a result of the Scheme has decreased from £418 million

as at 31 December 2022 to £354 million as at 30 June 2023. This change has been driven by

enhancements made by Phoenix to the SCR treatment of certain derivatives which have reduced its SCR,

and has therefore reduced the corresponding diversification benefit as a result of the Scheme. However

the SCR diversification benefit as a result of the Scheme remains significant, and the fundamental

explanation of this diversification benefit remains as described in Appendix F of my Main Report.

• The reduction in the SCR in respect of the additional LACDT has increased from £153 million as at 31

December 2022 to £197 million as at 30 June 2023. This has been mainly driven by the release of a

previously held prudence margin as a result of there now being greater certainty in relation to this post-

Scheme LACDT calculation. Additionally, an allowance for future profits on a class of business not

previously allowed for has offset a fall in the value of future profits (due to normal market and business

changes) that was allowed for in the 31 December 2022 calculation.

• The RFF restriction fall remains almost the same at £58 million at 30 June 2023 (as compared with £59

million at 31 December 2022).

The Companies have provided me with detailed technical notes which provide further details in relation to the

changes summarised above, and I can confirm that I am satisfied that the changes have been fully analysed,

explained, and justified.

4.17. In relation to which with-profits funds are now supported:

• In PLAL the SERP WPF, the London Life WPF, and the NPL WPF are Supported Funds, as was the case

in my Main Report.

• No with-profits funds in SLAL require support, as was the case in my Main Report.

• The Phoenix Britannic WPF no longer requires the small capital support loan that was referred to in my

Main Report and this loan is expected to be repaid once the relevant governance process has completed.

The Phoenix SAL WPF no longer requires the use of assets in the Phoenix NPF to cover the additional

amount required by the PCP.

4.18. I note that the pre-Scheme additional capital quality requirement being held in respect of PLAL continues to

bite, as was the case in my Main Report, albeit at a lower level than as at 31 December 2022. It remains the

case, as described in my Main Report, that the capital quantity requirement, rather that the capital quality

requirement, is expected to bite for the enlarged Phoenix post-Scheme. I note for completeness that the capital

quantity requirement being the biting requirement for Phoenix post-Scheme is reliant on the assumed use of a

management action to perform unit matching on unit-linked business allocated to the Heritage WPF, which is

enabled under the Scheme and which is referred to further from paragraph 5.35 of this Supplementary Report.

This new unit matching is expected to be put in place (if the Scheme proceeds and subject to the appropriate

governance) following the Transfer Date and prior to 31 December 2023. Allowing for this increases the

resources available under the relevant capital quality metrics for the durations in question, and I am satisfied

that the use of this assumed management action post-Scheme is consistent with Phoenix’s overall approach

to management actions in relation to its liquidity metrics. I note also that the Companies’ capital quality metrics

(both pre-Scheme and Phoenix post-Scheme) now also allow for additional liquidity buffers which have been

put in place subsequent to the date of my Main Report (i.e. 18 April 2023) as described further below.

4.19. Paragraphs 9.31 to 9.33 of my Main Report set out my consideration of the regular sensitivity tests which the

Companies carry out, including my consideration of the results of these tests as at 31 December 2022. The

Companies have provided me with updated sensitivity test results as at 30 June 2023, and I can confirm that

these show a similar position to those as at 31 December 2022.

4.20. Appendix E sets out further numerical details on the derivation as at 30 June 2023 and as at 31 December

2022 of the Solvency Coverage Ratios (Actual, Adjusted for Comparison with the Capital Policy Target). These

are the key ratios used in the analyses as set out in Table 4.1 and Table 4.2 above. For the sake of

completeness I note that other than an immaterial amount in respect of deferred tax assets, all of the capital of

the Companies as at 31 December 2022 and as at 30 June 2023, both pre-Scheme and post-Scheme, is

categorised as Tier 1, this being the highest quality of capital under the Solvency II categorisation.

UPDATE ON LIQUIDITY POSITION

4.21. Since finalising my Main Report, Phoenix has undertaken a review to ascertain if any enhancements to its

liquidity framework were necessary in light of the events during September / October 2022. These events were

described in paragraph 9.38 of my Main Report and an update is provided from paragraph 5.10 of this

Supplementary Report. The consideration of liquidity forms part of the capital quality assessment.

4.22. This review, and the normal annual review of the liquidity framework, have now been completed. Various

enhancements have been identified, including the establishment of two new committed liquidity facilities as

follows:

• A committed liquidity support facility from PGH to the Companies. This facility will continue to be available

to Phoenix post-Scheme and will equate to the sum of the facilities available to Phoenix, PLAL and

SLAL/SLPF pre-scheme. The facility will be reviewed in the 3 months following the implementation of the

Scheme to ascertain whether any amendments are required.

• A committed liquidity support facility from the SLAL PBF to the SLAL German WPF. This facility was

created to support ongoing derivative collateral requirements. The liquidity facility will be available to

Phoenix post-Scheme with the facility providing liquidity from the Phoenix NPF to the newly-established

Phoenix German WPF.

4.23. In relation to the above, the term “committed” refers to the fact that legal agreements are now in place which

allow the Companies to call on the facilities when needed at their own option. I note also that PGH itself has

in place significant revolving credit facilities with a syndicate of banks which it can use if necessary to satisfy

any liquidity demands from the Companies under the new committed facilities referred to above. I understand

that PGH has full rights to call upon these bank facilities entirely at its own option. These new committed

facilities, considered in conjunction with the existing PGH bank facilities, thus constitute in my opinion an

enhancement to the facilities and protections which the Companies have (both pre-Scheme and post-Scheme)

in the area of liquidity. As referred to in my Main Report (from paragraph 3.20), care is needed in taking account

of any support from a group company to an insurance company subsidiary. However, as the facilities now

being provided by PGH are committed facilities (i.e. on a legal basis with arm’s length legal agreements), and

given PGH’s own bank facilities as referred to here, it is appropriate in my view to acknowledge these new

committed facilities as adding to the liquidity protections available to the Companies.

4.24. Similarly to the additional capital amounts being retained under the capital quantity assessments, the

Companies are now maintaining additional amounts over and above the normal capital management policy

requirements within the capital quality liquidity assessments. These additional amounts will continue to be held

immediately post-Scheme, and will be subject to review (along with the equivalent additional quantity amounts)

as Phoenix completes the programme of process enhancements which it has commenced as identified by the

reviews undertaken. These additional amounts will ensure that appropriate additional liquid assets will be

maintained whilst the programme of enhancements is being completed.

4.25. I note that these additional liquidity requirements have been taken into account in determining the loans in

lieu of dividends arising from the 30 June 2023 financial results.

UPDATED PGH SOLVENCY II POSITION

4.26. Table 4.4 below is an update as at 30 June 2023 to the PGH Solvency II balance sheet position as shown in

Table 9.6 of my Main Report.

Table 4.4 - PGH Solvency II balance sheet as at 30 June 2023

£bn

PGH

Own Funds (A)

8.7

SCR (B)

4.8

Excess Own Funds (C=A-B)

3.9

Solvency Coverage Ratio – Shareholder (actual)

(%) (A / B)

180%

Solvency Coverage Ratio – Shareholder (Capital

Policy target range)

140% to 180%

Source: PGH published half year 2023 results

4.27. Table 4.4 shows that PGH’s Solvency Coverage Ratio – Shareholder as at 30 June 2023 lies within its target

range, and is actually at the top of the range. As previously explained in my Main Report, the PGH solvency

position will not be impacted by the Scheme.

UPDATED RISK PROFILE

4.28. Table 11.5 of my Main Report set out a summary of the pre-Scheme and post-Scheme risk profiles of the

Companies, based on the post-diversification SCR. Table 4.5 below shows the updated position as at 30 June

2023, and Table 4.6 below shows the changes in the percentages since 31 December 2022.

Table 4.5 - The percentage breakdown of the post-diversification SCR of the Companies (excluding

Unsupported Funds) pre- and post-Scheme as at 30 June 2023

Risk Type

Pre-Scheme

Post-

Scheme

Phoenix

PLAL

SLAL

Total

Phoenix

Credit Risk

45%

17%

11%

28%

30%

Market Risk

20%

12%

– Residential Property

16%

– Other

Insurance Risk

22%

59%

53%

38%

37%

– Longevity

11%

51%

13%

14%

– Financial Guarantee Persistency

– Dependent Persistency

36%

17%

16%

– Other

Operational Risk

20%

11%

Other Modelled Risks

10%

11%

12%

11%

13%

Total*

100%

Source: Phoenix information summarised by Milliman.

*Some columns do not actually sum to 100% due to rounding.

Table 4.6 – Change in the percentage breakdown of the post-diversification SCR of the Companies

(excluding Unsupported Funds) pre- and post-Scheme between 31 December 2022 and 30 June 2023

Risk Type

Pre-Scheme

Post-

Scheme

Phoenix

PLAL

SLAL

Total

Phoenix

Credit Risk

+5%

-1%

-2%

Market Risk

-3%

+2%

-1%

+3%

– Residential Property

+4%

+1%

+2%

+1%

– Other

-6%

+1%

+2%

-2%

+1%

Insurance Risk

+3%

-5%

+3%

+2%

– Longevity

+1%

-3%

-1%

-2%

– Financial Guarantee Persistency

-3%

– Dependent Persistency

+3%

+2%

– Other

+1%

Operational Risk

-1%

-2%

-1%

Other Modelled Risks

-2%

-1%

Total

Source: Phoenix information summarised by Milliman.

4.29. All of the percentage changes shown in Table 4.6 above are small, with the maximum change at the main risk

level (shown in bold font) being +/-5%. This demonstrates that Table 4.5 above shows a very similar position

to Table 11.5 in my Main Report, and thus that there have been no material changes in the pre-Scheme or

post-Scheme risk profiles of the Companies that I regard as key to my analyses and considerations.

UPDATED SL INTL POSITION

4.30. Table 13.1 of my Main Report sets out the Solvency II position of SL Intl as at 31 December 2022. Table 4.7

below sets out the updated Solvency II position of SL Intl as at 30 June 2023.

Table 4.7 - SL Intl EU Solvency II position as at 30 June 2023

€m

SL Intl total

Own Funds (€m) (A)

732

SCR (€m) (B)

352

Excess Own Funds (€m)

(C=A-B)

380

Solvency Coverage Ratio – as per regulatory

returns (A/B)

208%

Source: Phoenix / SL Intl information summarised by Milliman

4.31. SL Intl have confirmed the effect of the Scheme would (as set out in my Main Report) increase the SCR by

approximately €4 million, reduce Own Funds by approximately €5 million, and thus reduce Excess Own Funds

by €9m. The resulting reduction in the Solvency Coverage Ratio would be from 208% to 204%, this being

materially above the minimum under the SL Intl Capital Target Framework.

FINANCIAL DEVELOPMENTS SINCE 30 JUNE 2023

4.32. Phoenix has provided me with its monthly solvency monitoring information as at end July 2023 and as at end

August 2023. This information shows, for each of Phoenix, PLAL, and SLAL (incorporating SLPF), the Solvency

II Excess Own Funds (i.e. the excess over the SCR) and the excess over the relevant capital management

policy. I have discussed these results with the Chief Actuaries of Phoenix/PLAL, and SLAL/SLPF. The results

are similar to the positions set out in Table 4.1 above, and the excess amounts over the relevant capital

management policies are sufficient to cover the additional retained amounts referred to both above and in

paragraph 5.11. I will continue to liaise with the Companies to monitor their solvency positions up to the dates

of the final Court hearings.

CONCLUSIONS IN RELATION TO UPDATED FINANCIAL ASPECTS

4.33. I have carried out a full review and analysis of the updated financial position of the Companies as at 30 June

2023, and I have set out above updates to the key tables shown in my Main Report. I have covered

developments arising in the area of liquidity management. I have also taken into account changes in financial

conditions and the financial positions of the Companies since 30 June 2023. I am satisfied that the conclusions

which I reached in my Main Report remain unchanged.

5. Updates to non-financial aspects

INTRODUCTION

5.1. There are various non-financial aspects in my Main Report where I stated that I would provide an update in my

Supplementary Report. In the paragraphs below I have provided an update on these aspects, as well as on

various other matters arising.

EXCLUDED POLICIES AND SANCTIONED INDIVIDUALS

5.2. As set out in paragraph 8.106 of my Main Report, it was not expected at that time that there would be any

Excluded Policies, other than potentially in respect of three customers of SLAL who are subject to UK

government sanctions arising from the conflict between Ukraine and Russia. This aspect was covered in

paragraph 14.36 of my Main Report. At the time of finalising this Supplementary Report, this remains the case,

and the only potential Excluded Policies are those held by the three sanctioned individuals.

5.3. The SLAL policies/plans held by the three sanctioned individuals cannot be transferred to Phoenix under the

Scheme unless consent is given by the UK Office of Financial Sanctions Implementation. Phoenix has

submitted an application for this consent, but at the time of finalising this Supplementary Report no such

consent has been received. Hence it is currently expected that these policies/plans will remain behind in SLAL

as Excluded Policies and an Excluded Policies Reinsurance Agreement will be put in place between Phoenix

and SLAL to fully reinsure the liabilities of these policies/plans from SLAL to Phoenix, with a reinsurance

premium being paid equal to the assets which would have otherwise been transferred (and hence making the

total assets transferred under the Scheme the same as if these policies/plans had been transferred). The

transfer of assets from SLAL to Phoenix pursuant to the Scheme will thus be deemed to satisfy the obligation

for SLAL to pay Phoenix the Reinsurance Premium under the Excluded Policies Reinsurance Agreement. I

have reviewed a draft of the Excluded Policies Reinsurance Agreement, and this agreement covers all the

benefits and rights to which these policies/plans are entitled. This agreement also takes into account which

SLAL funds the Excluded Policies are currently allocated to and ensures that the reinsured liabilities of the

Excluded Policies will be allocated to the appropriate funds within Phoenix post-Scheme. These policies/plans

would thus be treated in all material respects as if they had been transferred from SLAL to Phoenix. I note that

all three Excluded Policies have no with-profits benefits and hence post-Scheme SLAL will no longer maintain

any with-profits funds and so will not need to retain a WPA or a WPC. For completeness I note that one of the

Excluded Policies has an option to switch to with-profits benefits, but while this policy is subject to sanctions

such a switch is not permitted. In the event of the sanctions being lifted, the policy would immediately transfer

to Phoenix under the terms of the Scheme.

5.4. I note that if and when sanctions are lifted from these policyholders (or the relevant consent from the UK Office

of Financial Sanctions Implementation is received), then the Scheme contains provisions for these

policies/plans to subsequently be transferred to Phoenix, and SLAL could then apply to be de-authorised as an

insurer. Not transferring these policies/plans and executing instead the Excluded Policies Reinsurance

Agreement will not have any impact on the residual assets that need to be held back within SLAL in order to

meet the minimum regulatory capital requirements immediately post-Scheme as such assets must be retained

in any case pending de-authorisation. The only impact would be that the de-authorisation of SLAL and the final

transfer of the residual assets to Phoenix would be delayed. Depending on how long the Excluded Policies

Reinsurance Agreement is in force for, and depending on the level of any residual ongoing expenses borne by

SLAL post-Scheme, it may become necessary for SLAL’s capital resources to be topped-up from elsewhere

within the Phoenix Group in order to ensure that SLAL continues post-Scheme to meet the relevant minimum

regulatory capital requirements.

5.5. I can confirm that none of the above constitutes a material issue in relation to the Scheme and there is no

impact on the conclusions which I reached in my Main Report and which I have reconfirmed in this

Supplementary Report. There will also be no material adverse impact on the sanctioned policies/plans

themselves in the event that consent to transfer them is not received. In the event that the relevant consent is

received from the UK Office of Financial Sanctions Implementation prior to the Transfer Date then the need for

the Excluded Policies Reinsurance Agreement will fall away and the policies/plans can be transferred as

normal.

ASSETS RELATED TO RUSSIA

5.6. In addition to the issue of Excluded Policies and sanctioned individuals as set out above, a further consideration

arises in relation to the transfer under the Scheme of assets related to Russia which are also subject to UK

government sanctions. These assets fall into two groups – those assets which are held indirectly in collective

investment funds of various types which are managed by PLAL’s and SLAL/SLPF’s external third party

investment managers, and those assets which are held directly and which are listed on the Moscow Stock

Exchange (MOEX).

5.7. For the first group (i.e. the indirectly held assets), all but two of the external third party investment managers

have confirmed that the relevant portfolios do not contain any sanctioned assets. For one third party investment

manager (which manages certain SLAL assets), the investment manager in question is in administration. The

administrator has however published a list of all the underlying assets as at 30 September 2022 for the (one)

investment fund in question, and I understand that this list contains no sanctioned assets. The investment fund

in question is stated publicly to be in the process of being liquidated as at 30 September 2022, with no new

assets being purchased. The remaining (one) third party investment manager (which also manages certain

SLAL assets) has indicated that the relevant portfolios may contain sanctioned assets, but that the transfer of

the collective investment fund holdings under the Scheme will not give rise to any transaction or dealing in any

underlying sanctioned assets, and thus that there will be no breach of the sanctions. I note that, in respect of

this manager, collective investment fund holdings are still being bought and sold by SLAL in the normal course

of business as premiums are received and as claims are paid on the relevant policies. I also note that the

relevant collective investment funds managed by this manager are not exclusive to SLAL, and that other

investors are able to buy and sell units in these funds as they wish. I am thus able to concur with this investment

manager that the transfer of these collective fund holdings under the Scheme will not give rise to any transaction

or dealing in any underlying sanctioned assets – in the same way that the transfer under the Scheme will not

give rise to any transaction or dealing in any other underlying assets of these collective investment funds. In

summary, therefore, all of the indirectly held assets will be transferred under the Scheme, and I am satisfied

based on the facts presented to me that there will be no transaction or dealing in any sanctioned asset as a

result of the implementation of the Scheme.

5.8. For the second group (i.e. the MOEX assets), the UK government sanctions regulations will allow these assets

to be transferred (from SLAL to Phoenix) provided MOEX is open on the Transfer Date. If MOEX is not open

on the Transfer Date, or if transfer is not possible due to any other reason, then these assets will be retained

within SLAL under the Residual Assets provision within the Scheme, and subsequently transferred to Phoenix

if and when circumstances permit. I note that all of these assets are allocated to a single unit-linked fund within

SLAL and are currently valued at £nil within that unit-linked fund. In the event of these assets being retained

within SLAL as Residual Assets, and in the event that Phoenix/SLAL were to place any non-zero value on these

assets post-Scheme, then Phoenix would ensure that its determination of the unit price for the unit-linked fund

in question takes into account the value of these Residual Assets within SLAL.

5.9. I am satisfied that the Companies have taken all reasonable steps to deal appropriately with these assets

related to Russia, and I am satisfied that the approaches being adopted will not lead to the Scheme giving rise

to any adverse policyholder impact in this area.

CONSIDERATIONS ARISING FROM SEPTEMBER/OCTOBER 2022

5.10. Paragraph 9.38 of my Main Report outlined a project that is in progress within Phoenix to deliver certain

enhancements to its modelling approaches and to its interest rate hedging management information. The need

for the enhancements was identified following the sudden and significant increase in UK long term interest

rates experienced at the end of September 2022. I have reviewed the latest progress reports on these

enhancements and I note that substantial progress has been made with the relevant phase of their

implementation. In particular, I have been provided with a progress update report dated 13 July 2023. This

shows that all except one of the thirteen improvements applicable to the Companies which were due to be

completed by 30 June 2023 have been completed. The timescale for the outstanding improvement has been

extended to September 2023 (arising from the UKGAAP accounting aspects referred to in paragraph 4.6) and

I am content with this.

5.11. As described in paragraph 9.40 of my Main Report, Phoenix has also established a framework to retain

additional capital over and above its capital management policy requirements within each of Phoenix, PLAL,

and SLAL (including SLPF). The additional amounts being retained pre-Scheme are, at the time of finalising

this Supplementary Report, unchanged since my Main Report. Since my Main Report however, Phoenix has

taken the decision to maintain the total pre-Scheme amount immediately post-Scheme, and to not take into

account any immediate reduction post-Scheme as a result of the offsetting of risks (as described in paragraph

9.41 of my Main Report). Instead, a review of the total additional amount held within Phoenix will take place

post-Scheme prior to 31 December 2023. This represents an additional degree of caution. Further phases of

the enhancement project referred to in paragraph 5.10 above have yet to complete in accordance with the

plans which Phoenix has set out. The additional amounts retained will be revised going forwards into 2024 as

the further enhancements are implemented and once Phoenix has confidence that the level of mis-estimation

risk has actually as a result been reduced in practice, subject to the approval of the Phoenix Board.

5.12. As described in paragraph 4.21, Phoenix has also now undertaken a review to ascertain if any enhancements

to its liquidity and funding framework were necessary in light of the events during September / October 2022.

I note that this review has been completed with both internal and external advice being received, and a number

of enhancements are being progressed within the liquidity framework, with additional amounts being retained

in the meantime. In relation the immediate and on-going review of these additional amounts post-Scheme,

Phoenix will follow the same approach as set out above in relation to the additional capital quantity amounts. I

note that a number of other UK life companies are also reviewing and enhancing their approach to their liquidity

and funding frameworks in the light of recent changes to UK interest rates. I am not aware of any aspect of the

Scheme which will be impacted by these enhancements.

APPLICATIONS FOR REGULATORY APPROVAL

5.13. Phoenix requires PRA approval for the use of the MA in the Phoenix Heritage WPF post-transfer. This will be

an exact replication of the MA that exists within SLAL Heritage WPF currently. The application for PRA approval

has been submitted and is I understand progressing but it remains the case that approval may not be obtained

prior to the Transfer Date. As outlined in paragraph 11.64 of my Main Report, this will not give rise to any

impact on Phoenix overall post-Scheme or on any policyholder benefits because of the ring fencing under

Solvency II of the Heritage WPF and the use of the Notional Company approach (which will not be affected by

the timing of this approval), in determining policyholder benefits.

5.14. Phoenix presented a paper to the Board on 1 August 2023 which provided an update on the post-Scheme

TMTP methodology application, with the aim of carrying out a recalculation of the TMTP, under its proposed

methodology, as at 30 September 2023. This paper was approved by the Board and an application for the

TMTP recalculation was submitted to the PRA. The PRA has now provided its approval (conditional on the

Scheme proceeding) for a TMTP recalculation as at 30 September 2023 using the methodology proposed by

Phoenix. This methodology, which is essentially a continuation of the current approach, is that used for the

post-Scheme financial analyses within both my Main Report and this Supplementary Report. This (conditional)

approval from the PRA thus removes any remaining uncertainty as to the post-Scheme financial position of

Phoenix in relation to TMTP.

TAX

5.15. In paragraph 14.20 of my Main Report, I noted that Phoenix was seeking confirmation from HMRC in respect

of the impact of the Scheme on taxation matters affecting the companies. Phoenix has now received this

confirmation from HMRC, which stated that none of the main purposes of entering into the transfer

arrangements is an unallowable purpose within section 132 of the Finance Act 2012. This is effectively the

HMRC “clearance” confirmation that Phoenix was seeking. The remainder of the points made in my Main

Report in respect of taxation, including those arising from the PwC tax report, remain unchanged.

EMERGING RISKS & VOLATILITY

5.16. No new material risks or events affecting the Companies have emerged since the date of my Main Report.

The potential for future volatility in financial markets or other events still exists given current global events.

Such volatility is to be expected, and the purpose of the regulatory capital framework and the capital

management policies of the Companies is to allow the Companies to deal with such volatility and events. It

thus remains my view that it is appropriate for the Companies to continue to pursue the Scheme.

INVESTMENT PATHWAYS

5.17. Investment Pathways refers to a product feature in connection with drawdown pension policies. Drawdown

is the term used when a policyholder does not wish to purchase a conventional annuity with their retirement

funds, but instead wishes to draw a flexible income from time to time from the retirement funds. Under FCA

rules, such customers entering a drawdown phase who are not in receipt of financial advice must be offered a

facility known as Investment Pathways in order for such customers to select (if they so wish) from a discrete

number of pre-determined investment and drawdown strategies. There is however a regulatory easement

which allows a company not to have to offer Investment Pathways if the number of potentially affected

customers is small. Phoenix currently avails itself of this regulatory easement in respect of its Phoenix Wealth

branded Retirement Wealth Account as most of the actual and potential drawdown customers in this group are

financially advised. It does however refer non-advised customers to a third party who may be able to help with

an Investment Pathways solution. To put this issue into context, I understand that the number of non-advised

cases within Phoenix wishing to enter into drawdown is typically around 4 cases per month.

5.18. Post-Scheme, the increased number of customers within Phoenix will mean that the regulatory easement will

no longer apply. SLAL has an Investment Pathways product solution for its customers and this product solution

(known as the Active Money Personal Pension) will become available post-Scheme to the current Phoenix

customers. Phoenix will thus make Investment Pathways available to the policyholders in question via this

product, and I have discussed this product with Phoenix. I note that policyholder communication in relation to

this solution will commence in each case when the policyholder first considers entry into a drawdown phase,

this being the normal communication approach in respect of drawdown and Investment Pathways. I note also

that Phoenix will be ready to implement this solution for policyholders wishing to enter drawdown and make

use of Investment Pathways from immediately after the Transfer Date.

5.19. I am satisfied that Phoenix’s proposed solution to this issue is fair and reasonable for the policyholders in

question.

OPERATIONAL READINESS FOR THE SCHEME

5.20. As outlined in paragraph 14.33 of my Main Report, the implementation of the Scheme is a significant

operational exercise for the Companies, and I have continued to monitor the state of operational readiness for

the implementation of the Scheme since my Main Report.

5.21. I have been provided with the latest operational readiness progress report for the Scheme (dated September

2023), and I have reviewed this and raised questions on it with the Companies. Of the nine operational

readiness workstreams, seven are showing as fully on track, including the “Customer Day 1” workstream which

is clearly of immediate key importance to policyholders should the Scheme proceed. The “Compliance”

workstream notes that certain regulatory approvals were still outstanding as described in paragraph 5.22 below,

but these have now been received. The “Finance” workstream is showing a small number of tasks still to be

fully completed in readiness for financial reporting post-Scheme, but this is not in my view unexpected or

unusual for a project of this nature, and I note that these tasks are all internally related and non-customer-

facing. I am satisfied based on the information provided by Phoenix and their responses to my questions that

the Companies will be operationally ready to implement the Scheme if sanctioned by the High Court and the

other relevant courts.

OTHER REGULATORY MATTERS

5.22. As outlined in paragraph 14.44 of my Main Report, Phoenix post-Scheme will require additional regulatory

permissions in respect of pensions and investments, each covering dealing in investments as an agent and

managing investments. These arise from the administration of the SLAL SIPP business transferring to Phoenix.

Applications to the PRA and the FCA for these additional permissions have been made by Phoenix, and these

additional permissions have now been received.

5.23. As described in paragraph 14.45 of my Main Report, Phoenix needed to apply for only one waiver in

connection with the Scheme. This was a waiver under the FCA COBS rules (currently granted to SLAL) in

relation to the benefit illustrations which are provided to policyholders under what is commonly known as the

“statutory money purchase” basis. This waiver has been applied for and has now been granted by the FCA.

5.24. Paragraph 14.46 of my Main Report referred to “change in control” applications to the regulators in respect of

the change of ownership of SLPF and Standard Life Lifetime Mortgages Limited (both of which are subsidiaries

of SLAL) from SLAL to Phoenix. These applications were submitted and have now been approved by the

regulators.

5.25. As a legacy of Phoenix Group's model of acquiring insurance companies, the Companies currently have three

service companies: PGS, SLAESL and PGMS. Paragraph 12.14 of my Main Report stated that Phoenix Group

is planning to merge PGS and SLAESL into PGMS to form a single service company, and that this could occur

either before or after the Transfer Date. I noted that I was satisfied that this change should not have any impact

on policyholder servicing, and this remains my view. In the event this change occurs before the Transfer Date,

no additional regulatory approvals or permissions are needed as PGMS is itself a regulated entity. In the event

that this change does not occur before the Transfer Date, it will be necessary for SLAESL to be an Appointed

Representative of Phoenix given that SLAESL is not a regulated entity and will still be providing administration

services to the former SLAL business of Phoenix. Phoenix has thus submitted an application to the FCA for

SLAESL to become an Appointed Representative of Phoenix. My understanding is that this process requires

no formal approval from the FCA, just appropriate notification at least 30 days in advance (and this condition

will have been met by the Transfer Date).

5.26. I note that there is no equivalent of the Appointed Representative requirement set out in paragraph 5.25 in

respect of PGS providing administration services post-Scheme to the former PLAL business of Phoenix. This

is because (unlike SLAESL but similar to PGMS) PGS is itself a regulated entity.

5.27. I note that an order from the High Court to sanction the Scheme will likely constitute a triggering event in

relation to The Pension Regulator’s (“TPR’s") regulation of certain master trust arrangements which are

currently operated by SLAL and which will transfer under the Scheme to Phoenix. Post-Scheme, Phoenix will

be prevented from increasing administration charges, or allowing new employers to enter the master trust

arrangement until after TPR has confirmed that the triggering event has been resolved. These triggering event

conditions are I understand intended to provide protection for members of the master trusts in times of financial

difficulty, as opposed to impinging on a Part VII Transfer such as the one in question. I understand that SLAL

has liaised with TPR and that TPR is aiming to provide prompt confirmation that the triggering event has been

resolved following sanction of the Scheme. I am satisfied that this procedure will not give rise to any adverse

impact on any existing members or policyholders who have benefits via these SLAL master trust arrangements.

CONTRACTUAL CONSENTS FOR TRANSFER OF NON-UK CONTRACTS

5.28. As described in paragraph 14.49 of my Main Report, Phoenix is seeking to agree with its relevant

counterparties to novate certain contracts to Phoenix. These contracts are those that are held by PLAL, SLAL,

or SLPF (not being long term insurance policies) which are not subject to the laws of England and Wales,

Scotland, Jersey and Guernsey, and where the sanction of the Scheme by the High Court may not be effective

in transferring the contracts to Phoenix.

5.29. This exercise remains ongoing. The Scheme contains fallback provisions to transfer the economic benefits

and the liabilities of the contracts to Phoenix pending full legal transfer, by way of the Residual Assets and

Residual Liabilities facility, should any novation not be complete by the time of the Transfer Date. I understand

that this approach is the usual one in such situations, and I am content that there will be no detriment to any

policyholders should it be necessary to use the fallback provisions in any particular case.

EXPOSURE TO CREDIT SUISSE

5.30. In relation to the Phoenix Group exposures to Credit Suisse outlined in paragraphs 14.51 and 14.52 of my

Main Report, Phoenix is not taking any further action or performing any further analysis in this area. I note that

any further progress in obtaining confirmations from Phoenix’s major investment managers that their portfolios

did not hold the Additional Tier 1 bonds issued by Credit Suisse has not been possible due to a lack of the

necessary look-through investment data. However, any material impact should any external funds have held

these investments to a material extent will now have been realised and reported via the usual regular market

valuations. I understand from Phoenix that there has been no material adverse impact on investment values

observed by Phoenix as a result. I am therefore satisfied that the situation in relation to Credit Suisse is not

material for the Companies or for any of their policyholders, and I note further that the position in relation to

Credit Suisse is effectively the same both pre-Scheme and post-Scheme.

INDEPENDENT EXPERT CERTIFICATE IN RESPECT OF MODIFICATIONS TO THE PHOENIX 2011

SCHEME

5.31. Since the completion of my Main Report, a discrepancy has been identified between the wording of the

Phoenix 2011 Scheme modification provisions and the relevant Independent Expert Certificate contained within

my Main Report (Appendix C, paragraphs C10 and C11).

5.32. The discrepancy related to the inclusion of the word “material” in the Independent Expert Certificate, and this

word was not included in the wording of the Phoenix 2011 Scheme modification provisions. The relevant

correct wording from the Phoenix 2011 Scheme modification provisions is “I certify that, in my opinion, the

proposed amendments to the Phoenix 2011 Scheme will not adversely affect the reasonable expectations of

the policyholders of Phoenix, ….”. This does not contain the word “materially”.

5.33. A replacement and corrected Independent Expert Certificate in respect of modifications to the Phoenix 2011

Scheme is provided in Appendix B. I do not consider this discrepancy to have been significant or potentially

misleading to policyholders. Appendix C to my Main Report explains that some of the required certificates

incorporate the word “materially” and some do not, but in any case I have considered all issues in the round

when providing the certificates with the required form of words.

THE PROPOSED TRANSFER OF CERTAIN BUSINESS FROM PHOENIX TO ABRDN

5.34. My Main Report considered the proposed future transfer of certain business from Phoenix to abrdn should the

Scheme proceed. The relevant sections of my Main Report are those which commence at paragraphs 8.89

and 10.79. The position in relation to this proposed future transfer and the opinions and views which I

expressed on it have not changed and remain as set out in my Main Report.

UNIT MATCHING

5.35. My Main Report (commencing at paragraph 8.70) explains the concept of unit matching and explains that the

Scheme will provide the necessary clarification to allow Phoenix to carry out unit matching in respect of the

unit-linked business allocated to the Heritage WPF. Any such new use of unit matching in respect of that

business would be subject to the appropriate governance processes within Phoenix, including approval by the

Phoenix Board, with support from the post-Scheme Heritage WPF WPA and the post-Scheme single WPC. As

part of these requirements, any decision to implement such unit matching must not negatively impact the

policyholders of the Heritage WPF, or (for the avoidance of doubt) any other policyholders.

5.36. Although no specific timescale for any actual implementation of unit matching on the unit-linked business

allocated to the Heritage WPF was envisaged at the time of finalising my Main Report, Phoenix has now

informed me that if the Scheme proceeds then it would expect to implement unit matching on some of this

business prior to 31 December 2023, subject to the governance process outlined above. I can confirm that this

does not give rise to any concern and that I am satisfied that the governance processes in place in relation to

this new unit matching are appropriate. I can confirm further that this has no impact on the conclusions set out

in my Main Report.

6. Policyholder correspondence, complaints, and objections

INTRODUCTION

6.1. At the Directions Hearing for the Scheme on 5 May 2023, all of the dispensations applied for were granted by

the High Court. The relevant communications (as described in my Main Report) were then sent to the various

groups of policyholders in accordance with the agreed mailing plans, and the various advertisements in the

press were made. All of the various documents were put onto the relevant parts of the Phoenix and Standard

Life websites.

6.2. All of the relevant policyholder mailings and communications were completed by 18 August 2023, thus ensuring

that all of the relevant policyholders have had at least six weeks notification prior to the final Court hearings, in

accordance with the FCA’s guidance. For the avoidance of doubt, I confirm that this takes into account the

aspects of the mailing and communications exercise that are discussed further below.

MANAGEMENT OF POLICYHOLDER CORRESPONDENCE

6.3. Following the mailings, the Companies have maintained a detailed management information (“MI”) record of

all correspondence (including letters, emails, electronic enquiry forms and telephone calls) received from

policyholders in relation to the Scheme, and which sets out which of the following categories the

correspondence falls into: documentation request, Part VII general enquiry, technical enquiry, complaints,

objections, or business as usual (“BAU”) correspondence. Table 6.1 shows a summarised position as at 15

September 2023.

Table 6.1 – Phoenix policyholder correspondence volumes in relation to the Scheme, as at 15 September

2023

Document

request

Part VII General

Enquiry

Technical

Enquiry

Complaint *

Objection

BAU

Correspondence

236

5,534

207

36,007

Source: Phoenix information summarised by Milliman

*Note that should a complaint about the transfer be subsequently reclassified as an objection, it is included in

both the complaint and the objection count.

6.4. As can be seen from the above table, the majority of correspondence cases are BAU related or are general or

technical enquiries or requests for documentation. In responding to complaints about the transfer, the

Companies ask the customer whether they wish their case to be regarded as an objection, and where this is

the case the objection process is then followed. For each of the objections received, the MI provides details

on the nature of each individual objection, the relevant entity involved and whether the policyholder has

indicated that they will attend the High Court Sanction Hearing and/or the Court of Session hearing. Where

possible the MI groups the objections into themes. To put the above volumes into context, the total number of

policyholders contacted (via mailings or other means) is approximately 5 million.

6.5. The MI also tracks the nature of the general and technical enquiries being raised. The themes of the most

common enquiries are:

• Enquiries around the details of the Scheme and which policies are transferring.

• Enquiries as to whether the customer’s policy will change as a result of the scheme, for example will their

benefits be affected, or will their policy terms and conditions change.

• Enquiries due to a lack of awareness that Standard Life is now part of the Phoenix Group.

• Enquiries due to a lack of awareness that their policy was part of PLAL.

• Enquiries on the rationale for the Scheme.

• For customers holding an annuity, queries as to whether their annuity payments will be affected.

• Queries as to why the policyholder has not received a letter, despite having a Phoenix policy.

• Queries as to why an individual has received a letter addressed to a deceased policyholder.

• Enquiries as to what action the policyholder needs to take.

• Enquiries as to why the policyholder was asked to confirm their address when they didn’t believe they had

a policy with the Companies.

• Enquiries not directly related to the Scheme, for example a question or complaint about their policy.

6.6. The MI has been updated on a weekly basis since the start of the mailing exercise to reflect the most recent

correspondence received, and was provided weekly to the PRA, to the FCA and to me. I have reviewed the

MI updates, discussed them regularly with Phoenix, and in particular I have considered the objections raised.

6.7. I note that for approximately 5,000 SLAL policyholders who have opted for paperless communications, a

technical issue prevented these policyholders from seeing the relevant notification letter in their online

document store. To address this, these policyholders were sent the appropriate mailing pack in paper form,

with all of these being dispatched by 18 August 2023.

SUMMARY OF POLICYHOLDER OBJECTIONS

6.8. At the time of finalising this Supplementary Report, there have been 68 policyholder objections to the Scheme.

Seven of the objecting policyholders have indicated that they may or will appear at the High Court sanction

hearing on the 5 October 2023, one policyholder has requested that their objection is presented at the High

Court sanction hearing on the 5

October 2023, and no policyholders have indicated that they may or will appear

at the Court of Session hearing on 3 October 2023. These numbers include cases which were initially classed

as complaints and, following further contact from the policyholder, have been deemed to be an objection as

explained above.

MY REVIEW OF POLICYHOLDER OBJECTIONS

6.9. For each objection received (including those initially classed as complaints) I have reviewed the full

correspondence between the policyholder and the Companies. I have then concluded as to whether the

objection is:

a) Not relevant to the Scheme and/or its effects; or

b) A point which is addressed and covered in my Main Report and where the response given by the

Companies to the policyholder also addresses the objection comprehensively, but is of interest and is

therefore noted and discussed further below; or

c) An objection that is of relevance to the Scheme, not addressed in my Main Report, and thus needs to be

addressed in this Supplementary Report.

6.10. At the time of finalising this Supplementary Report, the majority of objections have been of no relevance to

the Scheme and/or its effects. These relate for example to matters of business-as-usual (as opposed to the

Scheme) or to general complaints (as opposed to anything related to the Scheme).

6.11. There have been no objections of relevance to the Scheme that have not already been addressed in my Main

Report.

6.12. There have been 36 objections (arising from 30 policyholders) which have all been addressed in my Main

Report and in the responses given by the relevant Companies to the relevant policyholder. For the sake of

transparency and completeness, I have noted a summary of my responses to each of these 36 objections in

Table 6.2 below.

Table 6.2 – objections of relevance to the Scheme (addressed and covered in my Main Report), as at 15

September 2023

Case No.(s)

Summary of objection

Independent Expert response

SLAL 2,

PLAL 32,

SLAL 151

The definition of “material adverse

effect”.

My Main Report covers the concepts of materiality and

material adverse effect in paragraphs 3.20 to 3.26. My

working definition of and my approach to materiality is

consistent with that set out by the Court of Appeal in the

Prudential and Rothesay Life case. The correspondence

from the Companies to the objecting policyholders also

outlines this definition.

SLAL 22,

SLAL 44,

SLAL 74,

SLAL 85,

SLAL 92,

SLAL 102,

SLAL 126,

SLAL 129,

PLAL 57,

PLAL 71

The benefit of the Scheme to

policyholders.

The Scheme will benefit policyholders indirectly through

the long-term operational and capital efficiencies

achieved. This benefit is effectively explained in

paragraphs 8.1 to 8.4 of my Main Report. However, it is

not a requirement of the Part VII Transfer process that the

Scheme must benefit policyholders either directly or

indirectly. Additionally, my Main Report concludes that I

am satisfied that the Scheme will not have a material

adverse impact on the reasonable benefit expectations of

the policyholders of the Companies, on the security of

benefits of the policyholders of the Companies or on the

levels of administration and customer service that apply to

the policyholders of the Companies.

SLAL 22

The shareholder benefit of reduced

administration costs should be

passed on to policyholders.

The correspondence from the Companies to the objecting

policyholder outlines the reason for the shareholders

benefiting directly from any reduced administration costs.

In summary, shareholders provide capital to allow the

company to operate and therefore take the risk that the

company may not be able to repay this capital, for which

they receive a return. The Companies hold capital to meet

regulatory capital requirements and the relevant company

capital policy requirements. Excess capital may be

returned to shareholders, and does not reduce

policyholder security (as compared with the pre-Scheme

position) where it is in excess of the required protections.

I am satisfied that the Companies’ response addresses

this objection fully, and that the explanation is consistent

with the contents of my Main Report. Note: This objection

was raised by a SLAL policyholder and the reply was

framed in terms of Phoenix and SLAL, but is of wider

relevance to all the policyholders involved in the Scheme.

SLAL 44

Objection to taking capital out of the

Heritage WPF.

There will be no material changes in this area as a result

of the Scheme, and the proposed transfer does not result

in additional capital being extracted from the Heritage

With-Profits Fund. Paragraph 10.64 of my Main Report

sets out my view that the changes to the payments out of

the Heritage WPF (the Reference Period Transfer Amount

(RPTA) and Recourse Cashflow (RCF)) would not be

material and would not have any material adverse impact

on the reasonable benefit expectations of the with-profits

policyholders in the Heritage WPF.

SLAL 62

Objection to removal of various

certification requirements.

Paragraph 12.30 of my Main Report sets out and explains

my view that the certification process no longer offers any

real additional benefit, given the governance and

regulatory compliance processes now in place.

Additionally, all funds should be operated in accordance

with the schemes that apply to them as a matter of law,

regardless of whether or not a certificate is required. The

removal of the current annual certification requirements

would not, in isolation, have any effect on the reasonable

benefit expectations of policyholders. My Main Report

also sets out that the absence of the certification

requirements within the Scheme would not have a

material adverse effect on the governance applying to the

affected policies.

SLAL 62

Objection based on a perceived

lack of scrutiny to the process for

making minor or technical

amendments to the Scheme.

Minor or technical amendments to the Scheme can only

be made without the consent of the High Court if Phoenix

has regard to appropriate actuarial advice and if the

regulators have been notified. Any proposed amendment

will therefore be subject to external scrutiny.

SLAL 85,

SLAL 92,

SLAL 118,

SLAL 110,

SLAL 131,

SLAL 49,

SLAL 157

Objection based on the standards of

service post-Scheme as opposed to

pre-Scheme.

As outlined in paragraph 12.34 of my Main Report, I am

satisfied that the implementation of the Scheme would not

have any material adverse impact on the standards of

service, administration, management and governance

applicable to policyholders of the Companies.

SLAL 88

Asking if the rationale for the

Scheme relates to financial difficulty

of the Companies.

The correspondence from the Companies to the objecting

policyholder confirms that the Companies are not in financial

difficulty. As demonstrated in Table 9.5 of my Main Report,

the companies hold sufficient capital to cover their regulatory

capital requirements and capital management policies, and

will continue to do so post-Scheme.

SLAL 88

Impact of reduced overhead

expenses on resources, particularly

staffing levels.

As outlined in paragraph 12.34 of my Main Report, I am

satisfied that the implementation of the Scheme would not

have any material adverse impact on the standards of

service, administration, management and governance

applicable to policyholders of the Companies. The

correspondence from the Companies to the objecting

policyholder confirms that the Scheme will not result in job

losses in Edinburgh.

SLAL 88,

SLAL 132

Post-Scheme policy values.

My Main Report concludes that I am satisfied that the

Scheme will not have a material adverse impact on the

reasonable benefit expectations of the policyholders of the

Companies, or on the security of benefits of the

policyholders of the Companies.

SLAL 97,

SLAL 128,

SLAL 148

Impact of the Scheme on cyber

security and data privacy.

The correspondence from the Companies to the objecting

policyholders confirms that there will be no change of

systems on which data is stored, no transfer of data as a

result of the Scheme and no change in the teams or

processes used in servicing the policies. The Phoenix

Group operates a single risk management framework across

the Companies; the cyber security and data privacy policies

are therefore the same within each company, and will be the

same pre and post-Scheme. The Phoenix Group carries out

an external cyber audit annually, whilst its information

security policy is reviewed annually. My Main Report does

not address cyber security and data privacy explicitly, but

the issue is covered by paragraph 12.34, in which I state that

I am satisfied that the implementation of the Scheme would

not have any material adverse impact on the standards of

service, administration, management and governance

applicable to policyholders of the Companies.

SLAL 95

Object to transfer unless customers

resident overseas are provided with

the same right to flexible drawdown

as UK residents.

The correspondence from the Companies to the objecting

policyholder confirms that there will be no changes to the

policy terms and conditions and hence to the available

options in relation to flexible drawdown. As an overseas

resident, the policyholder is currently not able to take flexible

drawdown on their policy, and the Scheme does not change

this. This is effectively covered in paragraph 10.13 of my

Main Report.

Phoenix 26

Impact of the Scheme on the uplift

in respect of the estate.

Paragraph 10.13 of my Main Report lists the factors relevant

to determining policy benefits (including estate distribution),

which will remain the same. Additionally, with-profit funds

will continue to be managed in line with their PPFMs.

SLAL 135

Concerns over standards of

governance.

In paragraphs 12.15 and 12.16 of my Main Report I highlight

that the governance frameworks of the Companies are

already harmonised and so there will be no material changes

to governance arrangements under the Scheme.

PLAL 32

Concerns covering:

a) The definition of policyholder

reasonable expectations;

b) The Companies’ solvency;

c) Does the Scheme ensure

compliance with Consumer Duty

rules;

d) Impact of the proposed new

insurer resolution regime;

e) Interpretation of the phrase within

my Main Report 'this [IE] report

must be considered in its entirety as

sections of this report, if considered

in isolation, may be misleading'.

My Main Report covers all of these concerns. Specifically:

a) Paragraphs 3.11 – 3.13 of my Main Report discuss

“Policyholders’ reasonable expectations in relation to their

benefits”.

b) The Companies are all solvent. Paragraph 2.1 of my Main

Report covers the provision of capital support by PLAL to the

SERP WPF, London Life WPF and NPL WPF.

c) In paragraph 14.29 of my Main Report I note that any

impacts arising from the process to ensure compliance with

Consumer Duty will be the same whether or not the Scheme

is implemented.

d) Paragraph 9.45 of my Main Report states that I am

satisfied that the implementation of the Scheme would not

have any material adverse impact on the ability of Phoenix

Group carry out a resolution process should the need arise.

e) This refers to matters of detail within the report and is

there to ensure that readers do not overlook the fact that

many aspects of the report are inter-connected.

Phoenix 41

Concerns as to whether Phoenix is

taking on too much work, by taking

on the transfer and therefore the

additional policyholders.

In paragraphs 12.11 and 12.12 of my Main Report I state

that the Scheme itself would not have any direct effect on

the standards and level of service that the companies

require and would not have an adverse effect on the

standards of service and administration applicable to the

policies of the Companies.

I also considered any temporary impact of the Scheme on

customer service provided to policyholders of the

Companies due to increased activity as a result of the

transfer, and in 12.6 of my Main Report I conclude that I am

satisfied that the provisions in place will minimise the risk of

disruptions to customer service over the communication

period for the Scheme.

Essentially, although Phoenix is taking on additional work, it

will have access to additional resources with which to carry

out that work.

SLAL 49

Asking whether policies will be

governed by English or Scottish law

post-Scheme.

In paragraph 10.13 of my Main Report I state that there will

be no changes to policy terms and conditions, which will

include the law under which the policy is governed and which

post-Scheme will remain unchanged.

PLAL 57

Will the excess capital in Phoenix

post-Scheme be proportionately

more or less than currently in PLAL

pre-Scheme?

The proportionate excess capital can be measured using the

‘Solvency Coverage Ratio’. In paragraph 2.38 of my Main

Report I show the Solvency Coverage Ratios pre-scheme

for the Companies and post-scheme for Phoenix as at 31

December 2022. Updated figures as at 30 June 2023 are

provided in Table 4.1 of this report. This issue is thus

addressed.

PLAL 76

Query in relation to the closure of

with-profit funds.

This policyholder raised an objection in relation to the

closure of with-profit funds. No with-profit funds will be

closed to new business under the Scheme. However, the

NPI WPF within Phoenix will be left with no assets and

liabilities and will therefore cease to exist post-Scheme. This

is because the with-profits investment element of policies in

the Phoenix NPF that are currently allocated to the NPI WPF

and reinsured on to the Pearl WPF within PLAL will be

allocated to the newly created Phoenix Pearl WPF post-

Scheme, and thus the reinsurance arrangement currently in

place between the NPI WPF and the Pearl WPF, together

with the NPI WPF itself, will fall away. For completeness, I

note that the Heritage WPF will be closed to new business

around the same time that the Scheme is implemented,

though not as a result of the Scheme.

PLAL 77

Impact of potential contagion risk.

In paragraph 11.12 to 11.15 of my Main Report I state that I

am satisfied that the contagion risk post-Scheme is not

materially greater than pre-Scheme within the Companies.

This risk will continue to be mitigated through the holding of

capital in line with the Solvency II requirements and the

Phoenix capital policy going forwards.

PLAL 78

Does Phoenix assume all of the

Companies’ liabilities post-Scheme,

including any in relation to awards

by the Financial Ombudsman or

liabilities for compensation?

In my Main Report, paragraphs 8.8, and paragraphs 10.1 to

10.22 state that liabilities of all types are transferred under

the Scheme. As confirmed by the correspondence from the

Companies to the objecting policyholder, this includes the

financial consequences of any complaint. Any such

liabilities that PLAL, SLAL or SLPF may have will become

liabilities of Phoenix post-Scheme.

6.13. I have received one piece of correspondence directly from a policyholder, who contacted me via the Milliman

website to confirm the capacity in which I prepared my Main Report as the Independent Expert in this case. I

responded by email to this policyholder that I prepared my Main Report in my capacity as a Principal of Milliman

LLP. I also stated in my response that the opinions and conclusions in my Main Report are entirely my own

and I noted that my Main Report has been subject to professional peer review as set out in paragraphs 1.41

and 14.2 of my Main Report. I have not (at the time of finalising this Supplementary Report) received any other

correspondence directly from any other policyholders or interested parties. However, a SLAL policyholder has

copied to me a technical query letter which he has sent to SLAL. I have reviewed the SLAL response to this

policyholder and am satisfied that the response to this policyholder is correct and appropriate.

6.14. I am satisfied that the policyholder objections received do not raise any issues that were not considered in the

work I have carried out, and I am satisfied that my Main Report deals with the issues raised by these

policyholders. I am also satisfied that the Companies have responded to the objections raised fully and in an

appropriate manner.

ADDITIONAL CONSIDERATION ARISING

6.15. A PLAL policyholder (whose policy is allocated to a PLAL WPF) has raised a point in relation to benefit

expectations arising from the fact that their policy has previously been transferred into PLAL under the PLAL

2015 Scheme. This is PLAL Case No 32 in Table 6.2. The policyholder has raised other points which have

been covered by my Main Report and by Phoenix’s response, as included where applicable in Table 6.2. The

additional point raised which I discuss here is whether more than one Part VII Transfer of the same policy,

each subject to an Independent Expert opinion that the transfer in question will have no material adverse effect

on policyholders could, taken together, give rise to a material adverse effect on benefit expectations.

6.16. Under the Part VII Transfer process, each proposed transfer is considered separately by an Independent

Expert, the regulators and the relevant Court(s). The full framework for my work is as set out in paragraphs

3.20 to 3.26 of my Main Report. The Independent Expert needs to be aware of the current pre-transfer position

of the companies and/or policies in question, and in many cases that current position will have arisen (fully or

partly) from previous Part VII Transfer(s). However, there is no requirement to compare the post-Scheme

position with the position prior to any previous Part VII Transfer(s). To seek to do so would be wholly

impractical (not least because of the number of prior schemes which can apply to some lines of business and

the time which may have elapsed since the prior schemes) and would likely render the Part VII process

unworkable, which could be to the ultimate disadvantage of policyholders generally. Further, it is not in practice

possible in my view for an Independent Expert to assess and compare the current position with the position

had the prior schemes not occurred.

6.17. Paragraphs 3.20 to 3.26 (and in particular paragraph 3.24) of my Main Report cover the concept of materiality

in relation to Independent Expert opinions for Part VII Transfers. Although the framework set out in those

paragraphs has been clarified and stated following the outcome of the Prudential/Rothesay Life case, the

fundamental approach used by Independent Experts in relation to the concept of materiality has not, in my

opinion, changed over the years that the Part VII Transfer regime (and its various predecessor legislative

forms) has been in force.

6.18. As the Independent Expert for the Scheme under consideration, it is only possible for me to give my opinion

on the effects of the Scheme under consideration, under the framework as referred to above. However, based

on my experience of acting as Independent Expert on many occasions over a significant number of years, the

likelihood of more than one Part VII Transfer giving rise to a combined material adverse effect on benefit

expectations is, in my opinion, remote. I am furthermore aware of no aspect of the current Scheme or its

implementation which would be contrary to this.

6.19. Additionally, I note that the UK regulatory framework provides significant ongoing protections for policyholders

in relation to their benefit expectations, including the FCA COBS rules, the recently introduced and forthcoming

FCA Consumer Duty Rules, and (for with-profits policies) the WPC and WPA regimes.

CLARIFICATION IN RELATION TO THE COURT OF SESSION PROCESS

6.20. Policyholders who wish to raise objections with the Court of Session in Scotland have, under the Court’s

present practice, two possible routes available to them to raise an objection. Although in theory any

policyholder of the Companies who has an interest in the existing SLAL schemes could seek to raise an

objection with the Court of Session, in practice any such objections are most likely to arise from the

policyholders of SLAL, SLPF, or SL Intl, and relate either to the superseding of the two existing SLAL-related

schemes by the Scheme, or to the modifications to the SLAL Brexit Scheme. These changes are being

considered by the Court of Session prior to the High Court’s consideration of the Scheme itself.

6.21. The first and most straightforward way for a policyholder to raise an objection with the Court of Session is to

notify Phoenix/Standard Life of the objection, in which case Phoenix/Standard Life will pass the objection to the

Court of Session. Alternatively, the policyholder could notify the Court directly. As Independent Expert I will

also consider the objection, and this Supplementary Report sets out my consideration of the objections

received. Policyholders can appear in person at the Court of Session hearing if they so wish. Under this

approach no fees are payable by the objecting policyholders, and objections may be raised right up to the day

of the Court of Session hearing. Although this way of objecting is in fact less formal, the Court of Session has

for many years been prepared to consider such objections to insurance schemes, as does the High Court under

its procedure.

6.22. In the Court of Session, the formal way of a policyholder raising an objection is known as the “Answers”

process. Under this process, a written objection is submitted directly to the Court of Session and a fee (currently

£332) is payable to the Court of Session by the policyholder. Answers are almost always prepared by an

appropriately qualified lawyer. If a policyholder objects using the Answers process, then that policyholder

becomes, in effect, formally party to the Court of Session legal proceedings. My understanding is that this

formal process is primarily intended for and used in relation to contentious or adversarial litigation cases. It is

in practice unknown in an insurance transfer scheme for individual policyholders to use this formal process,

and instead they use the informal process described above.

6.23. The relevant Scheme Guides and the areas of the Standard Life Part VII Transfer website explain the above

two routes for making an objection to the Court of Session. For any policyholders wishing to use the formal

“Answers” process, Phoenix/Standard Life recommends that the policyholder obtains legal advice – which of

itself provides an indication of the more formal nature of the “Answers” process.

6.24. Objections raised under the “Answers” process needed to have been submitted at the latest by 1 August 2023,

this being the agreed 42 days after the last publication date of the Court of Session Notice. However, I

understand that the Court of Session would accept formal “Answers” after 1 August in certain circumstances -

for example because a customer received their notification pack after 1 July 2023. If the Court of Session did

not accept the objection under the formal “Answers” process, a policyholder may still raise their objection under

the process described in paragraph 6.21.

6.25. I have considered this question of timescales should any policyholder wish to object to the Court of Session

using the “Answers” process, and I have concluded that there is no material issue or detriment to the

communication and objection process arising from some policyholders receiving their mailings after (or only a

short time before) the relevant “Answers deadline” of 1 August 2023. I have arrived at this conclusion having

taken into account the following:

• Given the need for legal advice and the need to pay a not insignificant fee, I believe that it is most unlikely

that any policyholder would use the formal process described above.

• Although policyholders raising objections can stipulate whether they wish to object to the Court of Session

or the High Court, in practice it is highly likely that they will make no such stipulation and just wish their

objection to be considered by the Court process in general. This is the case for the majority of the

objections received from policyholders of SLAL.

• Even if “Answers” were submitted to the Court of Session after 1 August 2023, as noted in paragraph 6.24

I understand that in practice the Court of Session would still consider them if the reason for it being

submitted after 1 August 2023 was explained.

6.26. In addition to the above, and as the deadline for “Answers” is a fixed period (42 days) after the last publication

date of the Court of Session Notice, the Companies have needed to balance:

• Giving SLAL policyholders more time to object under the “Answers” process (which would have implied

delaying the publication of the Notice given the necessarily long mailing timescale for the very large

number of SLAL policyholders); and

• Giving as much general notice as possible (via the earlier publication of the Notice) of the proposed

transfer and changes to the previous SLAL Schemes, which is particularly relevant to those policyholders

who may not receive individual notifications or mailings (e.g. goneaway policyholders).

In my opinion, the balance between the above two aspects which the Companies have sought to achieve is a

reasonable one.

6.27. I note that the relevant SLAL Scheme Guide (as sent to SLAL policyholders and available on the Standard

Life Part VII Transfer website) states:

“The practice of the Court of Session in applications like this is also to take into account all objections or

representations which are made to it in writing or in person at the Court hearing, even if they're not formal

answers.”

6.28. I note that on 18 July 2023 Phoenix/Standard Life made an update to the relevant section of the Standard Life

Part VII Transfer website to provide additional clarity on the “Answers” process and to emphasise that the

typical way of objecting will ensure that any objection is fully and properly considered by the Court of Session.

The wording added to the SLAL and SL Intl website pages is contained within Appendix C. I note that the

update for the SL Intl website was made a few days later on 21 July 2023. I have reviewed these website

updates and I am satisfied that they do provide additional clarity to policyholders.

6.29. I also note that at the time of finalising this Supplementary Report, no formal “Answers” have been submitted

to the Court of Session.

UPDATE ON GONEAWAY CASES

6.30. Paragraphs 15.14 to 15.19 of my Main Report considered the position of goneaway policies. As a result of

the mailing exercise carried out, Phoenix has identified some 40 addresses (with five or more industrial branch

policies attaching to them) which were previously not classified as goneaway cases but which are now expected

to be so classified due to the current occupiers of these addresses having no knowledge of the cases. I am

satisfied that this change is not a material one, and the proportion of goneaways for PLAL and Phoenix

(excluding the Phoenix Wealth, PCIS and SunLife branded business) remains at approximately 23% as quoted

in paragraph 15.16 of my Main Report.

6.31. Paragraph 15.15 of my Main Report described the approach of sending a generic letter (without any

policyholder or policy specific information) to addresses which the Companies were reasonably confident were

correct but which could not be validated. Paragraph 15.18 of my Main Report referred to additional tracing

activity in respect of certain Phoenix Life branded policies. This additional tracing was carried out and resulted

in the Companies being able to send generic letters to some additional 10,000 non-industrial branch Phoenix

Life cases, which is clearly of material benefit to the policyholders in question. The generic mailing exercise

(including these additional cases) was completed by 18 August 2023.

MAILING INCIDENTS

6.32. Due to a systems error, mailings were sent to a batch of SLAL annuity policies where they should not have

been sent. Phoenix was alerted to this error via calls made to its call centre.

6.33. The number of policyholders incorrectly mailed comprised some 4,400 deceased annuitants, and some

19,200 named spouses with contingent annuity benefits where the primary annuitant is alive (i.e. where annuity

benefits would commence if the named spouse was pre-deceased by the primary annuitant).

6.34. Clearly, the deceased annuitants should not have been mailed. For the named spouses, although it was not

the intention for these cases to be mailed (because communications are not normally sent to the named

spouse), these cases do have a contingent interest in the Scheme and hence arguably the unintentional mailing

of these cases is less of a potential concern.

6.35. Phoenix has taken action to ameliorate the effects of these unintentional mailings. Complaints were managed

through SLAL’s formal business-as-usual complaints procedure, with input provided by the Part VII Transfer

team, and with explanations being provided as necessary as to what has occurred. For the avoidance of doubt,

complaints in relation to this mailing incident have been excluded from the MI referred to above.

6.36. It is of course unfortunate that this mailing error occurred, and I note that it could have caused confusion

and/or distress to the policyholders in question, and in particular to the relatives of the deceased policyholders.

At the same time, I note that the unintentional mailing did not result in any incorrect or inappropriate information

being mailed (beyond the fact that it should not actually have been mailed).

6.37. In addition to the above, I note that some mailing packs were sent to Phoenix customers where the relevant

policy is no longer in force, and I note that some SLAL non-profit policyholders received the with-profits form of

the SLAL mailing pack when they should have received the (narrower) non-profit form (noting also that the

scheme guide is the same for both of these SLAL groups).

6.38. I am satisfied that the mailing incidents referred to above will not have any adverse effects on any

policyholders in the context of the Scheme. Of greater potential concern is whether any policyholders or groups

of policyholders have unintentionally been excluded from the mailing exercise as a result of similar (or other)

systems errors to the one in question. I have raised this question with Phoenix, and Phoenix has confirmed to

me that (other than the mailing incidents in question), it believes that the mailing and communications

programme has progressed (and has now been completed) as planned within the relevant regulatory

timescales, and that it sees no reason why any policyholders or groups of policyholders who should have been

mailed will not have been. On this basis I am satisfied that the mailing incidents in question are not material to

the overall progression of the Scheme and its effects on policyholders.

CONCLUSIONS

6.39. I confirm that I have reviewed the policyholder correspondence MI supplied by the Companies and that I have

reviewed each of the policyholder objections and the Companies’ responses. I am satisfied that the Companies

have responded to the objections raised fully and in an appropriate manner, and I am satisfied that all of the

objections raised which are of relevance to the Scheme and its effects relate to areas and aspects which are

covered in my Main Report.

6.40. I have also considered the issues arising as set out above in relation to the Scottish Court process and in

relation to goneaway policies. I confirm that the conclusions which I have reached in my Main Report remain

unaltered in the light of these reviews and considerations. I can in particular confirm my view that policyholders

who have wished to raise objections have had appropriate and clearly signposted opportunities to do so, both

in respect of the various options for the Court of Session and in respect of the High Court and the other courts

involved.

6.41. I confirm that the mailing incidents (as referred to above) are not material in my opinion to the overall

progression of the Scheme and its effects on policyholders. I note that the full mailing and communication

exercise was completed by 18 August and thus all policyholders have received the requisite notice of at least

six week prior to the final Court hearings, in line with FCA guidance.

6.42. Any objections regarding the Scheme raised by policyholders before the High Court Sanction Hearing but

after this Supplementary Report has been finalised will be provided to the PRA, the FCA and myself, and will

also be presented to the High Court Sanction Hearing. For completeness, I note that this will include Phoenix’s

responses to further submissions from the policyholder referred to above as PLAL Case 32 once those

responses have been finalised.

7. Other considerations

UK SOLVENCY II REVIEW

7.1. Paragraphs 14.24 to 14.28 of my Main Report covered the progress made on the UK’s review of Solvency II

post-Brexit. Solvency UK is the new terminology for this. HMT and PRA have now progressed further and

issued new draft statutory instruments and consultation papers, in particular consultation paper CP12/23. The

main proposed changes of relevance to the Companies are:

• A significant reduction (of at least one-third) in the Risk Margin, noting that in many cases this will be partly

offset by a reduction in TMTP. The cost of capital rate within the Risk Margin is reducing from 6% p.a. to

4% p.a. (which gives rise to a one-third reduction), and the introduction of a tapering factor into the

calculation will give rise to a further reduction depending on the outstanding term of the business in

question.

• A significant simplification in the way that TMTP is calculated, unless the insurer in question wishes to

retain the current more complex approach and can justify this to the PRA.

• Simplification of the approval process for internal models, internal model changes, and capital add-ons.

• Reduced regulatory reporting requirements.

7.2. The proposed reduction in the Risk Margin will be beneficial in terms of reduced technical provisions held under

Solvency UK, and this change is due to come into effect by 31 December 2023. The other changes, which are

more focussed on simplifications rather than major changes to numerical outcomes, are due to be effective by

31 December 2024. The Companies (which will just be Phoenix if the Scheme proceeds) will need to evaluate

the changes and decide on the options they will take where such options are available. As with other companies

in the industry, it will likely take some time for the effects of some of the changes to flow through into actual

practice. It should also be noted that at this stage these other changes are consultation proposals and are not

yet confirmed.

7.3. I am satisfied that these changes, if and when implemented, will not have any effect on the conclusions which

I reached in my Main Report and which I have reconfirmed in this Supplementary Report. This is on the basis

that I am content that the Scheme has no material adverse effects on policyholder benefits or policyholder

security based on the current regulatory regime, and thus I can remain content based on a regulatory regime

which has the above proposed reduction in Risk Margin and simplifications. The reduction in the Risk Margin

will result in a reduction in technical provisions, but it has been recognised for some time now within the UK life

insurance industry (and acknowledged by the PRA) that the current Risk Margin is unduly onerous (particularly

in low interest rate conditions) and the proposed change addresses this.

7.4. I note that the PRA is due to issue a further consultation later in September 2023 which is expected to focus

on certain aspects related to the Matching Adjustment. Based on HMT and PRA announcements to date, it is

not currently expected that this will involve any fundamental changes to the current approach, and the changes

are expected to be mainly a number of refinements to the current approach, together with the introduction of a

new process whereby a senior role-holder within an insurer has to provide an attestation to the PRA related to

the Matching Adjustment. In the event that the further consultation gives rise to anything that would call into

question the conclusions which I have reached in relation to the effects of the Scheme, then I will make

appropriate arrangements via Phoenix to inform the Court.

INSURANCE CAPITAL STANDARDS

7.5. Paragraph 9.47 of my Main Report explained (in the context of Resolution Plans) that Phoenix Group is an

IAIG as defined by the IAIS and the PRA. During June 2023, the IAIS issued a public consultation document

setting out the next stage of its development of an Insurance Capital Standard (“ICS”) which would apply to

insurance groups worldwide designated as an IAIG. It is currently intended that ICS will come into force in

December 2024 (subject to the outcome of the consultation) and will exist as an additional set of requirements

alongside the relevant local requirements for IAIG insurance groups. However, it should be noted that the ICS

is solely a group capital standard and it will not have any application to any of the insurance entities within a

group. Based on current information, it is expected that on coming into force the ICS would apply to Phoenix

Group at the PGH level only. The general approaches to the assessment of solvency and capital requirements

for long term and life assurance business are mostly broadly similar under the proposed ICS to the current

approaches under Solvency II in the UK and in the EU, but there are differences in some key areas.

7.6. The Scheme in question transfers PLAL, SLAL, and SLPF into Phoenix and thus constitutes an intra-group

scheme. Phoenix Group also has within it a number of other insurance entities (as covered in my Main Report)

which are not impacted by the Scheme. As the ICS is currently still under development and subject to

consultation, it is not currently known what (if any) the capital impact on PGH would be and how this would

compare to the PRA group capital requirements which PGH is currently subject to. However, it is clear from

the group-only scope of the ICS that, by definition, implementation of the Scheme would not have any impact

on the final ICS position whatever that turns out to be. It is also relevant to note (as covered and assessed in

my Main Report and as updated in this Supplementary Report) that although some additional security is

provided by the Phoenix Group, the primary security of policyholder benefits derives from the applicable

solvency and capital requirements, and the applicable capital management policies, of the insurance entities

themselves.

7.7. I can thus conclude that the implementation of the Scheme would not have any impact on the outcomes of ICS

assessments under the ICS approach currently under consideration.

FCA CONSUMER DUTY

7.8. Further to paragraph 14.29 of my Main Report, the FCA Consumer Duty rules came into force on 31 July 2023

in respect of new and existing products or services which are open to new business. The Companies have

confirmed to me that they believe they are now complying with the new rules in respect of these products and

services, and that their project in respect of the closed products and services (for which the new FCA Consumer

Duty rules come into force on 31 July 2024) is continuing as planned. In relation to that part of the FCA

Consumer Duty rules which came into force on 31 July 2023, the Companies have provided me with a copy of

the relevant Board paper dated July 2023 which confirms this compliance.

INSURER RESOLUTION REGIME

7.9. Paragraph 9.47 of my Main Report noted that HMT was carrying out a consultation exercise in relation to the

next stage of the development of the UK resolution framework for financial services firms. In August 2023 HMT

published the outcome of the consultation in relation to insurers, comprising a summary of the consultation

responses received and how HMT intends to take forward the various aspects of the new regime. HMT stated

that it plans to legislate when parliamentary time allows and that it will set out further information on its plans in

due course. No specific changes are thus imminent, and the position in relation to resolution plans for the

Companies remains as set out from paragraph 9.43 in my Main Report.

DEAUTHORISATION OF PHOENIX IRISH BRANCH

7.10. Paragraph 5.10 of my Main Report explained that on 1 January 2023 the EEA business of Phoenix was

transferred to PLAE (an Irish life company) under the Phoenix Brexit Scheme. As a result, the Irish branch of

Phoenix no longer contains any long term insurance business and Phoenix has thus applied to the CBI to have

this branch deauthorised. The CBI provided its consent to the deauthorisation on 31 August 2023.

8. Conclusions

MY CONCLUSIONS IN RESPECT OF THE SCHEME

8.1. In this Supplementary Report, I have updated my financial analyses based on the latest financial positions of

the Companies, and I have provided updates on the various matters which were identified for updates in my

Main Report. I have further considered various matters which have arisen since finalising my Main Report.

8.2. I have considered the policyholder correspondence MI provided by the Companies over the period since the

policyholder mailings and communications took place, and I have in particular considered all the objections

raised by policyholders. I am satisfied that the policyholder objections received do not raise any issues that

were not considered in the work I have carried out, and I am satisfied that my Main Report deals with the issues

raised by these policyholders. I am also satisfied that the Companies have responded to the objections raised

fully and in an appropriate manner.

8.3. The conclusions which I reached in my Main Report remain unchanged. Hence, in my opinion, the

implementation of the Scheme will not have any material adverse effect on any of the following:

• The reasonable benefit expectations of the policyholders of Phoenix, PLAL, SLAL, and SLPF.

• The security of the benefits of the policyholders of Phoenix, PLAL, SLAL, and SLPF.

• The levels of administration and customer service that apply to the policyholders of Phoenix, PLAL, SLAL,

and SLPF.

8.4. In addition to the above conclusions, I can also confirm that, as stated in paragraph 12.34 of my Main Report,

the implementation of the Scheme will not in my opinion have any material adverse effect on the standards of

governance applicable to policyholders of the Companies.

8.5. Considerations of fairness and equity to all of the policyholders of the Companies as a result of the

implementation of the Scheme are effectively set out in various parts of my Main Report, and in particular in

Section 10 which covers the effects of the Scheme on the reasonable benefit expectations of policyholders.

For the avoidance of doubt, I can confirm that in my opinion the Scheme is equitable to all classes and

generations of policyholders within Phoenix, PLAL, SLAL, and SLPF.

8.6. I have provided in Appendix B a corrected certificate in relation to the modification of the Phoenix 2011 Scheme.

MY CONCLUSIONS IN RESPECT OF SL INTL

8.7. In this Supplementary Report I have updated my financial analyses in respect of SL Intl. The conclusions which

I reached in respect of SL Intl in my Main Report remain unchanged. Hence, in my opinion, the amendments

to the SLAL Brexit Scheme will not have any material adverse effect on the reasonable benefit expectations or

the security of the benefits of any of the policyholders of SL Intl.

FUTURE EVENTS OR ISSUES

8.8. Should any material events or issues of relevance to the Scheme and its effects arise between finalising this

Supplementary Report and the dates of the final Court hearings, I will make arrangements via Phoenix to inform

the Court accordingly of my views and opinions.

John A Jenkins

Fellow of the Institute and Faculty of Actuaries

Principal, Milliman LLP

20 September 2023

Appendix A Documents and data relied on

A.1 In addition to discussions (comprising face-to-face meetings, video and telephone calls, and emails) with the

staff of the Companies, I have relied upon the information shown in the list below in formulating my

conclusions described in this Supplementary Report. The list below (which is in addition to the list within

Appendix E of my Main Report) comprises the main items of information and is not a complete list of all

items.

• Scheme document – v18.0;

• 2023 Capital Policy Refresh – vAprBoard;

• 2023 Capital Policy Refresh – vJunBoard;

• Post-Scheme Capital Policy Board paper – visssued;

• 2023 Life Co Capital Risk Appetite Framework review - vIssued;

• 2023 Q1 Solvency II Results Board Paper – v1 13;

• 2023 Q2 Solvency II Results Board Paper – v1 1;

• Financial results spreadsheets and an accompanying note, the latest being as at 30 June 2023, including

the split of the SCR pre and post-Scheme and explanation of the sources of diversification benefit arising

under the Scheme;

• Phoenix Group Holdings plc half-year 2023 results presentation;

• Solvency II Pillar 1 results reports as at 31 March 2023 for each entity;

• Solvency II Pillar 1 results reports as at 30 June 2023 for each entity;

• Chief Actuary Supplementary Reports for Phoenix, PLAL, and SLAL/SLPF;

• Second Witness statement of Brid Mary Meaney as at 19 September 2023;

• Witness statement of Liam Webster as at 18 September 2023;

• Operational readiness report for September 2023;

• Annual Refresh of LifeCo Liquidity Framework – vBoard;

• Committed Liquid facilities - GWPF Liquidity Facility from SLAL (Board paper - Final);

• Committed Liquid facilities - New Liquidity Facility from PGH (PGH Board paper –v2.1);

• Committed Liquid facilities - Allocation of new Liquidity Facility from PGH (Board paper – 17

July 2023)

• Committed Facility Agreement between PGH and Phoenix;

• Board paper on proposed cash remittances from the Life Companies to the Group for H1 (July 2023);

• HMRC tax clearance letter as at 23

June 2023;

• Update on enhancements made as a result of events during September / October 2022 – dated 13-07-2023

V1.0 (1B slides);

• Excluded policies reinsurance agreement draft dated 17

August 2023;

• Explanatory note accompanying the Excluded policies reinsurance agreement (v1.0);

• Board paper to approve the TMTP recalculation for Phoenix under the Scheme dated 1 August 2023;

• Board paper to approve Phoenix’s Statement of Compliance with the FCA’s Consumer Duty rules dated July

2023;

• Note covering current position of Solvency II approvals v03 (final);

• PRA conditional approval notice in relation to the post-Scheme recalculation of TMTP;

• Written notice from the PRA to vary the permissions of Phoenix under the FSMA (required for the SIPP

business);

• Updated sensitivity results as at Q2 2023;

• Solvency monitoring MI results as at end July 2023 and as at end August 2023.

Appendix B Corrected certificate

PHOENIX 2011 SCHEME – CORRECTED CERTIFICATE

B.1 I certify that, in my opinion, the proposed amendments to the Phoenix 2011 Scheme will not adversely affect

the reasonable expectations of the policyholders of Phoenix, including those whose policies transferred from

Phoenix & London Assurance Limited under the Phoenix 2011 Scheme.

B.2 Accordingly, this certificate complies with paragraph 32.2(B) of the Phoenix 2011 Scheme.

John A Jenkins

Fellow of the Institute and Faculty of Actuaries

Principal, Milliman LLP

20 September 2023

Appendix C Answers process wording on the SLAL and SL Intl

websites

SLAL WEBSITE

C.1 The following was added at to the SLAL website on 18

July 2023.

WEBSITE BANNER AT HTTPS://WWW.STANDARDLIFE.CO.UK/BUSINESSTRANSFER/COURTS

If you have concerns about the transfer or the changes to the three existing Standard Life Assurance Limited

(SLAL) transfer schemes and believe you may be adversely affected you have the right to raise an objection. The

process for objections is detailed below and includes the process for the High Court and the Court of Session in

Scotland as well as Jersey and Guernsey. Different processes exist for the different courts and we explain this in

more detail below.

“WHAT TO DO IF YOU WANT TO OBJECT” AT

HTTPS://WWW.STANDARDLIFE.CO.UK/BUSINESSTRANSFER/COURTS

Court of Session in Scotland

Please note that there are two routes for objections to the Court of Session. One route is similar to the High Court

process for objections and is almost always used by a customer or other interested party for this type of process.

The other is the formal route that requires written “answers” to be submitted to the Court. It requires a Court fee

of (we understand) £332 to be paid and we also recommend you take independent legal advice from a solicitor

qualified in Scots law. We explain both routes below.

Objection route 1

If you have concerns and believe you may be adversely affected by the changes to the three existing SLAL

transfer schemes you can raise an objection, which will be presented to the Court of Session. The Court of

Session will consider all objections made when reaching its decision. You can raise any objections in the

following ways:

• By calling our dedicated helpline on 0808 196 6804

If you live outside the UK please call; +44 (0)1234 298 298 (there will be a charge for this number). All lines

are open 9am to 5pm (UK time) Monday to Friday, excluding bank holidays. This helpline will close at 5pm

on 4 October.

• Via our website by submitting an enquiry form

• By writing to us quoting reference FM23. Our address can be found on our Get in touch page

• By presenting your objection in person at the Court of Session hearing. Please note that presentation of your

objection in person is subject to the agreement of the Judge.

If you intend to come to the Court of Session final hearing it would be helpful (but is not necessary) to give five

working days’ written notice of your intention to attend and the reasons for any objection to the Changes to the

Existing Schemes. You should send this notice to Standard Life’s solicitors in Scotland, Burness Paull LLP at 50

Lothian Road, Festival Square, Edinburgh, EH3 9WJ, quoting reference PM/STA3038/00011 ideally before 8

September.

Objection route 2

There is an alternative, formal route to object under the procedure of the Court of Session which the Court

requires us to explain. You are entitled to submit directly to the Court of Session what are called formal written

“answers” to SLAL’s applications to the Court. The answers follow the Rules of the Court.

What do I need to know if I want to submit formal ‘answers’?

If you would like to submit answers, you must do this before 1 August. Any formal written answers must be

submitted within 42 days of the last publication of the applications notice in the press (which took place on 20

June). If you wish to submit written answers after that date, for example because you received the guide after 1

July, then our understanding is that the Court of Session would allow this.

If you want to submit answers, we recommend that you take independent legal advice from a solicitor qualified in

Scots law. They’ll also be able to tell you about the Court fee payable which we understand is £332. The

applications that you would ‘answer’ are included in the table of Important Documents (under Legal Documents).

Answers are formal legal responses to each numbered statement contained in the applications. In practice

answers are written by lawyers who are qualified in the Court of Session.

Anyone who has submitted answers has the right to attend the hearing at the Court of Session at Parliament

House, Parliament Square, Edinburgh, EH1 1RQ to object to the changes to the three existing SLAL transfer

schemes. You can also ask your legal representative to attend on your behalf.

We expect the final hearing at the Court of Session will take place on 3 October. If this date changes, we’ll post

the new date on this website.

SL INTL WEBSITE

C.2 The following was added at to the SL Intl website on 21st July 2023. Below I reference the Irish SL Intl

website, however there are in total three websites for SL Intl, covering Ireland, Germany and Austria.

“WHERE CAN I FIND MORE INFORMATION?” AT

HTTPS://WWW.STANDARDLIFE.IE/UKBUSINESSTRANSFER

*If you have concerns about the changes to the 2019 Scheme, also known as the Brexit Scheme, and believe

you may be adversely affected you have the right to raise an objection. The process for objections is detailed in

the Q&A guide, which you can download below.

WORDING FOR QUESTION 7 OF THE SL INTL GUIDE AT

HTTPS://WWW.STANDARDLIFE.IE/DAM/GLOBAL-BLUEPRINT/GEO-IE/STANDARDLIFE_IE/IE-PDFS/NILE-

SLINTL-GUIDE-P7T23-G-SLINTL.PDF

What if I wish to object to the Proposed Variation to the 2019 Scheme?

There are two routes for objections to the Court of Session. One route is almost always used by a customer or

other interested party for this type of process. The other is the formal route that requires written “answers” to be

submitted to the Court of Session. It requires a court fee of (we understand) £332 to be paid and we also

recommend you take independent legal advice from a solicitor qualified in Scots law. We explain both routes

below.

Objection route 1

If you have concerns and believe you may be adversely affected by the Proposed Variation to the 2019 Scheme

you can raise an objection, which will be presented to the Court of Session. The Court of Session will consider all

objections made when reaching its decision. You can raise any objections in the following ways:

• By calling or writing to us using the contact details set out at question 11 below.

• By presenting your objection in person at the Court of Session hearing. Please note that presentation of

your objection in person is subject to the agreement of the Judge.

If you intend to come to the Court of Session final hearing it would be helpful (but is not necessary) to

give five working days’ written notice of your intention to attend and the reasons for any objection to the Proposed

Variation to the 2019 Scheme. You should send this notice to Standard Life’s solicitors in Scotland, Burness

Paull LLP at 50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ, quoting reference PM/STA3038/00011

ideally before 8 September 2023.

Objection route 2

There is an alternative, formal route to object under the procedure of the Court of Session which the court

requires us to explain. You are entitled to submit directly to the Court of Session what are called formal written

“answers” to the Proposed Variation to the 2019 Scheme. The answers follow the Rules of the Court.

What do I need to know if I want to submit formal ‘answers’?

If you would like to submit answers, you must do this before 1 August. Any formal written answers must be

submitted within 42 days of the last publication of the applications notice in the press (which took place on 20

June). If you wish to submit written answers after that date, for example because you received the guide after 1

July, then our understanding is that the Court of Session would allow this.

If you want to submit answers, we recommend that you take independent legal advice from a solicitor qualified in

Scots law. They’ll also be able to tell you about the court fee payable which we understand is £332. The

applications that you would ‘answer’ are included in the list of Important Documents (under the Legal Documents

heading)on our websites at standardlife.ie/businesstransfer, standardlife.de/businesstransfer and

standardlife.au/businesstransfer. Answers are formal legal responses to each numbered statement contained in

the applications. In practice answers are written by lawyers who are qualified in the Court of Session.

Anyone who has submitted answers has the right to attend the hearing at the Court of Session at Parliament

House, Parliament Square, Edinburgh, EH1 1RQ to object to the Proposed Variation to the 2019 Scheme. You

can also ask your legal representative to attend on your behalf.

We expect the final hearing at the Court of Session will take place on 3 October 2023. If this date changes, we’ll

post the new date on this website.

Appendix D Glossary

D.1 A glossary of the abbreviations used throughout my Main Report and this Supplementary Report is set out

below. This is the same as the glossary within Appendix D of my Main Report, with the addition of new

abbreviations used in this Supplementary Report.

100% WPF

The 100% With-Profits Fund. A Phoenix ring-fenced with-profits fund,

established under the Phoenix 2005 Scheme and containing business

transferred from Phoenix Assurance Limited, Bradford Insurance

Company Limited, and Swiss Life (UK) plc.

90% WPF

The 90% With-Profits Fund. A Phoenix ring-fenced with-profits fund,

established under the Phoenix 2005 Scheme and containing business

transferred from by Swiss Life (UK) plc and Britannic Unit-Linked

Assurance Limited, which were policies originally sold by Allianz Cornhill.

ABBEY LIFE

Abbey Life Assurance Company Limited. A company acquired by the

Phoenix Group in 2016.

ABRDN

abrdn plc and its subsidiaries (previously known as Standard Life

Aberdeen plc and rebranded in 2021).

ABRDN TRANSFER

A scheme that proposes to transfer long-term insurance business from

SLAL (which will effectively be Phoenix post-Scheme) to ALPL, following

completion of this Scheme through a separate Part VII Transfer process.

ABRDN TRANSFER POLICIES

Policies that would be transferred under the abrdn Transfer.

ALBA WPF

The Alba With-Profits Fund. A Phoenix ring-fenced with-profits fund,

established under the Phoenix 2006 Scheme and containing fully

participating and smoothed business transferred from Alba Life Limited.

ALPL

abrdn Life and Pensions Limited, a company and subsidiary of abrdn.

AMCS

Annual management charges. These are fees charged by the company

to the policyholders annually in proportion to the level of funds invested.

AMP

AMP Limited. An Australian company that acquired Pearl Assurance

Limited in 1990.

APE

Annual premium equivalent. A measure of new business sales, equal to

total regular premiums written during the year, plus 10% of single

premiums written during the year.

APPOINTED REPRESENTATIVE

Under the UK Financial Services legislation, an insurer may appoint an

individual or a company as an Appointed Representative in order to

provide it with certain services and/or to distribute its policies.

BEL

Best Estimate Liabilities. One of the components of the Technical

Provisions under Solvency II (including UK Solvency II). The BEL is

calculated by projecting the expected future obligations of the insurer

over the lifetime of the insurance contracts using the most up-to-date

financial information and best-estimate actuarial assumptions. The BEL

represents the present value of those projected cashflows.

BIB WPF

The Britannic Industrial Branch With-Profits Fund. A Phoenix ring-fenced

with-profits fund, containing industrial branch endowments and whole of

life assurance policies originally sold by Britannic Assurance plc.

BPA

Bulk Purchase Annuity. A method of de-risking pension plans. Either an

insurance policy is purchased by pension scheme trustees to secure all

or part of all future pensions and benefits due to be paid to members

(buy-in) or an insurance company buys all the liabilities from a pension

scheme thus removing all risk for the scheme and employer (buy-out).

BRITANNIC WPF

The Britannic With-Profits Fund. A Phoenix ring-fenced with-profits fund,

established under the Phoenix 2006 Scheme and containing Ordinary

Branch business originally sold by Britannic Assurance Plc, as well as

former Century Life policies originally sold by National Employers Life,

Sentinel Life and Prosperity Life.

BUFFER RESERVE

This specific term is used to refer to the BIB WPF IB Buffer Reserve

Account and Britannic WPF’s equivalent WP Buffer Reserve Account.

These accounts are held as a result of previous schemes which apply to

these with-profits funds.

BUFFER

This general term refers to an amount of capital held in addition to the

regulatory capital requirements. The purpose of this additional capital is to

seek to ensure that regulatory capital requirements can still be met after an

adverse event.

BURNESS PAULL

Legal adviser, Burness Paul LLP.

CAPITA

Capita Life & Pensions Regulated Services Limited. A pension fund

administrator company.

CAPITAL EVENT

This relates to a particular aspect of the SLAC Demutualisation Scheme

which is being incorporated into the Scheme applying to the whole of

Phoenix post-Scheme.

CAPITAL POLICY TARGET RATIO

The minimum level of the Shareholder Solvency Coverage Ratio for the

capital policy to be met.

CBI

The Central Bank of Ireland, responsible for central banking and financial

regulation in Ireland.

COBS

The Financial Conduct Authority’s Conduct of Business Sourcebook,

which applies to firms with respect to designated investment business

and long-term insurance business carried out in the United Kingdom.

COBS 20

Section 20 of COBS that covers the management of with-profits

business.

COMPANIES

Phoenix, PLAL, SLAL and SLPF collectively.

CORE PRINCIPLES

Core principles setting out how SLAL board should manage the Heritage

WPF business as defined by the SLAC Demutualisation scheme. The

principles include its investment and bonus policy, the role of asset

shares in the management of the fund and the role of the estate and

criteria for distribution of residual estate.

COURT OF SESSION

The supreme civil court in Scotland.

CURRENTLY APPLICABLE SCHEMES

The in-force schemes that would be superseded and disapplied by the

Scheme that is the subject of this Supplementary Report if it is

implemented. The schemes are the Phoenix 2009 Scheme, the Phoenix

2011 Scheme, the Phoenix 2012 Scheme, the Phoenix 2017 Scheme,

the Phoenix 2018 Scheme, the PLAL 2012 Scheme, the PLAL 2015

Scheme, the SLAC Demutualisation Scheme and the SLAL 2011

Scheme.

CWP

Conventional With-Profits. CWP business typically refers to policies

where policyholders’ premiums are fixed, and they have a benefit that is

guaranteed at the outset in monetary terms if the policy is held to

maturity. This benefit can subsequently be increased by annual bonuses

that are awarded at the discretion of the insurer, depending upon the

amount of surplus emerging in the insurance fund in which the policies

are invested. Once they have been awarded, bonuses are typically

guaranteed, and the insurer is not able to take them away. A final bonus

may also be awarded at the time of claim.

DILIGENTA

Diligenta Limited. A UK based FCA regulated entity that specialises in

the provision of business process services for the Life and Pensions

Industry.

DIRECTIONS HEARING

An initial court hearing at which the Companies' plans for notifying

policyholders are considered.

EEA

The European Economic Area. An international agreement which

enables the extension of the European Union's single market to member

states of the European Free Trade Association. The EEA comprises the

EU together with Iceland, Liechtenstein and Norway.

EFFECTIVE DATE

The date from which the Scheme will be effective for the purposes of

financial and regulatory reporting. Expected to be 30 September 2023.