Phoenix Group announces the cash funded acquisition of Sun Life UK and a 2.5%…

• Phoenix Group to acquire SLF of Canada UK ("Sun Life UK"), a closed book UK life insurance company, for £248 million, funded from existing cash resources
• Attractive transaction pricing with a price to shareholder Own Funds ratio of 83%¹
• Acquisition is expected to deliver c.£470 million of incremental long-term cash generation
• Targeting c.£125 million of cost and capital integration synergies, net of costs
• Supports a 2.5% inorganic dividend increase payable from and including the 2022 Final Dividend

Acquisition highlights

The Board of Phoenix Group Holdings plc ("Phoenix Group" or the "Group") is delighted to announce the acquisition of Sun Life UK, a closed book UK life insurance company, from Sun Life Financial Inc. ("Sun Life") for cash consideration of £248 million. This equates to an attractive price to shareholder Own Funds ratio of 83%1, in line with the Board's disciplined approach to the deployment of shareholder capital.

The acquisition is expected to deliver c.£470 million of incremental long-term cash generation, with approximately 30% of this cash generation to emerge in the first three years.

Sun Life UK operates a predominantly outsourced business model with the majority of its policy administration already undertaken by our strategic outsourcing partner (TCS Diligenta), which supports a simplified operational integration programme. We are targeting the delivery of c.£125 million of integration synergies, net of costs, from cost efficiencies and capital management actions, representing c.50% of the consideration paid.

In line with our strategy to diversify our credit portfolio, we have also agreed a new long-term strategic asset management partnership with Sun Life that complements our existing relationships. This will further enhance and diversify our liquid and illiquid credit origination capabilities in North America, building on Sun Life's strong presence in the region.

The acquisition is subject to regulatory approvals and is expected to complete in Q1 2023.

M&A remains an ongoing strategic priority

Sun Life UK represents c.£10 billion of the estimated £480 billion UK Heritage M&A market. This is our first acquisition to be financed solely from existing cash resources, reflecting the surplus cash and capital available for reinvestment into growth. Such additions to our Heritage business can deliver significant shareholder value by leveraging our market-leading expertise in delivering accretive M&A and realising material integration synergies. The Board continues to see M&A as a strategic priority going forward and a core part of the Group's growth strategy.

Financial impact

This transaction will be funded from existing cash resources as we utilise our surplus cash and capital available for growth opportunities, while maintaining our balance sheet strength and resilience. The estimated key financial impacts are:

• c.£470 million of incremental long-term cash generation inclusive of cost and capital integration synergies
• c.£0.2 billion reduction in our Group Solvency II Surplus; pro forma of £5.1 billion as at 31 December 2021
• 7%pts reduction in our Shareholder Capital Coverage Ratio ('SCCR'); pro forma of 173%² as at 31 December 2021
• No change to our Fitch leverage ratio of 28% as at 31 December 2021
• Resilience will be maintained through hedging Sun Life UK's market risks in line with Phoenix Group's unique approach

Proposed dividend increase

The value and cash flow generated through this acquisition support a sustainable 2.5% inorganic increase in the Group's dividend, to take effect from and including the 2022 Final Dividend, subject to completion. This demonstrates the significant value to shareholders of smaller, cash funded M&A.

Ahead of the Full Year results, the Board will assess if organic business growth delivered over the year can fund a further sustainable dividend increase for 2022.

In future years, we intend to simplify our dividend communications by announcing any dividend increase at the time of our Full Year results, which will combine both organic and inorganic growth, rather than providing separate dividend guidance on announcement of future M&A.

Commenting on the acquisition, Phoenix Group CEO, Andy Briggs said:

"The acquisition of Sun Life UK is highly attractive for Phoenix Group and demonstrates the significant value that smaller cash funded M&A transactions can deliver for our shareholders. We expect this acquisition to deliver incremental long-term cash generation of around £470 million, inclusive of cost and capital synergies. This supports a 2.5% dividend increase, in line with our ambition to sustainably grow our dividend over time.

We welcome the colleagues who will join us from Sun Life UK, and as the UK's largest long-term savings and retirement business with a strong track record of closed book integrations, we look forward to offering a safe home for Sun Life UK's customers over the long term. I am pleased that we will also be able to offer Sun Life UK's customers access to our broad range of Standard Life products in our Open division."

About Sun Life UK

Sun Life UK operates a life company, Sun Life Assurance Company of Canada (U.K.) Limited, which is a closed book with life, pensions and annuity business. It does not write new business, other than offering increments on current policies to existing customers on a passive basis. At 31 December 2021, Sun Life UK had c.480,000 in-force policies and c.£10 billion of assets under administration, of which c.£2.5 billion are annuities that will remain reinsured with Sun Life.

The person responsible for arranging for the release of this announcement on behalf of Phoenix is Kulbinder Dosanjh, Group Company Secretary.

Enquiries

Investors/analysts:

Claire Hawkins, Director of Corporate Affairs, Phoenix Group

+44 (0)20 4559 3161

Andrew Downey, Investor Relations Director, Phoenix Group

+44 (0)20 4559 3145

BofA Securities (Financial Advisor and Corporate Broker), Matthew Cannon, Ed Peel, James Gill, Oliver Elias, Tom Brown, Marin Georgiev

+44 (0)20 7628 1000

HSBC (Corporate Broker), Simon Alexander, Sam McLennan, Louis Davies

+44 (0)20 7991 8888

Media:

Douglas Campbell, Teneo

+44 (0)7753 136 628

Shellie Wells, Corporate Communications Director, Phoenix Group

+44 (0)20 4559 3031

Footnotes

1. Based on consideration of £248 million and shareholder Own Funds on Sun Life UK's Standard Formula basis as at 31 December 2021, net of adjustment for expected items as at completion.
2. The Shareholder Capital Coverage Ratio excludes Solvency II Own Funds and Solvency Capital Requirements of unsupported with-profit funds and unsupported pension schemes.

Legal Disclaimers

This announcement in relation to Phoenix Group Holdings plc and its subsidiaries (the 'Group') contains, and the Group may make other statements (verbal or otherwise) containing, forward-looking statements and other financial and/or statistical data about the Group's current plans, goals, ambitions and expectations relating to future financial condition, performance, results, strategy and/or objectives.

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

Other factors which could cause actual results to differ materially from those estimated by forward-looking statements include, but are not limited to: domestic and global economic, social, environmental and business conditions; asset prices; market related risks such as fluctuations in interest rates and exchange rates, the potential for a sustained low-interest rate environment, and the performance of financial markets generally; the policies and actions of governmental and/or regulatory authorities, including, for example, initiatives related to the financial crisis, the COVID-19 pandemic, climate change and the effect of the UK's version of the "Solvency II" requirements on the Group's capital maintenance requirements; the impact of inflation and deflation; the political, legal, social and economic effects of the COVID-19 pandemic and the UK's exit from the European Union; information technology or data security breaches (including the Group being subject to cyberattacks); the development of standards and interpretations including evolving practices in ESG and climate reporting with regard to the interpretation and application of accounting; the limitation of climate scenario analysis and the models that analyse them; lack of transparency and comparability of climate-related forward-looking methodologies; climate change and a transition to a low-carbon economy (including the risk that the Group may not achieve its targets); market competition; changes in assumptions in pricing and reserving for insurance business (particularly with regard to mortality and morbidity trends, gender pricing and lapse rates); the timing, impact and other uncertainties of proposed or future acquisitions, disposals or combinations within relevant industries; risks associated with arrangements with third parties; inability of reinsurers to meet obligations or unavailability of reinsurance coverage; the impact of changes in capital, solvency or accounting standards, and tax and other legislation and regulations in the jurisdictions in which members of the Group operate.

As a result, the Group's actual future financial condition, performance and results may differ materially from the plans, goals, ambitions and expectations set out in the forward-looking statements and other financial and/or statistical data within this announcement. The Group undertakes no obligation to update any of the forward-looking statements or data contained within this announcement or any other forward-looking statements or data it may make or publish. Nothing in this announcement constitutes, nor should it be construed as, a profit forecast or estimate.

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