LONDON (ShareCast) - (Sharecast News) - Phoenix Group reported "strong" cash generation in its first half on Thursday, of £433m, up from £287m year-on-year, as its Solvency II surplus improved to £4bn on 30 June, from £3.1bn at the end of December.

The FTSE 100 life and pensions insurer said its shareholder capital coverage ratio was 169% at period end, rising from 161% as at 31 December.

It described its shareholder debt portfolio as "high quality" at £21.6bn, with 16% of that graded BBB.

There were no defaults in the first half, and 0.1% of bonds in the matching adjustment portfolios were downgraded to sub investment grade.

Phoenix said that resilience supported an interim dividend of 23.4p per share, consistent with its "stable and sustainable" dividend policy.

New business delivered £358m of incremental long-term cash generation in the first half, up from £254m a year earlier, underpinning the sustainability of the dividend.

Group operating profit stood at £361m for the six months ended 30 June, up from £325m a year earlier, while assets under administration remained stable compared to the end of December at £248bn.

Phoenix said its leverage ratio stood at 27% as at 30 June 2020, up from 22% as at 31 December.

Post-period end, Phoenix Group completed the acquisition of ReAssure Group on 22 July, making it the UK's largest long-term savings and retirement business with around 14 million policies and £324bn of assets under administration.

Pro-forma cash generation of the enlarged group totalled £1.1bn in the first half, with the 2020 cash generation target range increased from between £800m and £900m, to £1.5bn to £1.6bn.

The enlarged group's proforma Solvency II surplus was £4.4bn as at 30 June, down from £4.49bn at the end of December, while its proforma shareholder capital coverage ratio was 150%, down from 152%.

Phoenix said the larger group had a "high quality" £16.6bn shareholder debt portfolio, with 29% at BBB.

There were no defaults in the first half, with 0.2% of bonds in the matching adjustment portfolios downgraded to sub investment grade.

Cost synergies of the acquisition totalled £11m per annum, or 28% of £40m annual target, with £120m of capital synergies, or 27% of the £450m target, delivered by the first day post completion.

Finally, looking at its strategic priorities, Phoenix reported £1.2bn of net inflows in the UK open business, up from £0.8bn year-on-year, driven by the resilience of the workplace business.

A total of £1.1bn of bulk purchase annuity liabilities were contracted in the first half, rising from £0.5bn, while £0.8bn of illiquid assets were sourced, up from £0.5bn, with £340m of environmental, social and governance investments.

"Covid-19 has resulted in an unprecedented global crisis which has challenged each and every one of us," said chief executive officer Andy Briggs.

"The resilience of Phoenix's business model has been evidenced through this period and ensured the continued delivery of cash and growth, which underpins our ability to continue to pay dividends in accordance with our stable and sustainable dividend policy."

Briggs said that, despite the challenges of the pandemic, the company had successfully completed the ReAssure acquisition, which established Phoenix as the UK's largest long-term savings and retirement business.

"I am extremely grateful to my colleagues for the unwavering commitment they have shown throughout this challenging time and look forward to what we will achieve together in the future.

"Although there remains much uncertainty as the pandemic continues to unfold, I am confident that Phoenix remains well positioned to continue to deliver cash, resilience and growth."

At 0842 BST, shares in Phoenix Group were up 2.55% at 708p.

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