Delivering a major insurer’s biggest acquisition during lockdown is tough enough, having to achieve this working with a new CEO is quite another.
Rakesh Thakrar, CFO of Phoenix Group, was faced with this predicament when the consolidator took on its biggest purchase when it acquired ReAssure Group at the end of 2019.
The £3.2bn purchase of the asset from Swiss Re was completed last July, by which time the pandemic was heavily impacting global markets. At the same time Andy Briggs – who had started as CEO of Phoenix Group in March – was finding his feet.
Thakrar says he had the advantage of having worked at Phoenix Group for 20 years – a period in which the group has undertaken numerous transactions in a model focused on acquiring and managing closed books of business for life and pension funds no longer actively marketed to customers. During that period, the group has grown to become a business with a market cap of over £7bn.
“If you just look at that journey over 20 years with the backdrop of those external macro events it was a huge experience for me personally, being in the middle of that and driving the company forward,” says Thakrar.
While the UK’s biggest consolidator continued to grow, in the face of some occasionally challenging headwinds, Thakrar was playing increasingly important roles to ensure the business had the right capital and infrastructure to stay on track.
“The experience you get when you know when you’ve got a constantly changing environment is really exciting, but it also means that you need to make sure that you progress as well,” he says.
The big career moves for Thakrar came when he was appointed group financial controller in 2012 and then deputy finance director two years later, with increasing responsibility in a finance function of a listed business.
But there was also the additional issue of managing the expectations of financial industry regulators who were grappling with a business model of consolidating books of business to become a large listed entity.
“They are really keen to see how that business is progressing, asking: ‘what does the future look like in the next two to three years? How are you forecasting?’ says Thakrar.
There was also a substantial amount of engagement with banks, given the significant scale of loans required to buy up large insurance books. “A lot of the acquisitions that we’ve done, in particular the acquisition of Resolution in 2008, involved taking on debt close to £3bn. So there were also questions of ‘how are you managing in terms of paying that off and what will the maturity profile look like?’” he adds.
“There’s a lot of thinking and anticipating of how our business will evolve and what we need to think about and really trying to bring in what we need to do and have that plan in place so that we can deliver and make sure we meet our requirements, as and when.
“For me that was probably the most difficult time, really thinking about what could happen, and what we needed to do to make sure we deliver on our new strategy going forward,” says Thakrar.
Under the leadership of Jim McConville, whose retirement last year led to Thakrar taking on the top finance role, the finance team worked on strengthening the group’s balance sheet to make big acquisitions.
“We looked at deleveraging significantly, we looked at debt refinancing and sold our asset management business in 2014 and a £5bn annuity portfolio, and gained an investment grade rating in that time,” he says.
The onset of Solvency II, a European Union directive demanding insurers have sufficient capital and then the Brexit referendum result, both in 2016, were tests that Thakrar says the group was able to come through following years of work developing resilience.
A sense of how far the group has come is that the consolidator model was once dubbed ‘zombie funds’ because they were composed of mostly inactive funds. Thakrar says Phoenix Group has worked hard to overcome this image, having invested significantly in IT and other systems. “We’ve outsourced to experts who understand IT, who can deliver and make sure we keep up to date.
“We were probably labelled unfairly back in those days. I think people now realise that consolidating a lot of these funds together really gives us an operating model that delivers cost efficiency, that we can share with our customers,” he says.
Efficiencies particularly come from scale, which the Standard Life Assurance and ReAssure Group acquisitions were able to provide. “IT, customer service and control operations all in one gives you this cost efficiency and allows you to ensure all your systems and processes are all up to date.” says Thakrar.
But how was Thakrar able to not only take up the CFO seat with the combine challenges discussed earlier? He says working under McConville, who had had senior roles previously at Lloyds Bank and Northern Rock was invaluable.
“It allowed me to really get the learning to then be able to implement the changes that I would want to see in a finance function, whether it be in the tax, treasury or reporting areas. It really helped me set up the team below me when the opportunity came for me to take on the role of CFO,” he says.
When Thakrar took on the group CFO position last May 2020, “pretty much in lockdown”, he says what helped was the Board’s decision to invest in his training and development. “I went on the Deloitte CFO programme and the Korn Ferry leadership initiative to ensure I was in the right position when I took over,” he reveals.
When it came to the crunch, the impact of the pandemic was tempered by a combination of operational and financial resilience. Thakrar says 99 percent of staff were working from home within the first 10 days and a hedging strategy secured the group’s balance sheet.
“We did deep dives on our credit portfolio to understand what bonds potentially could be impacted by this pandemic and we were trading out of them as and when we could, to really minimise the impact.” says Thakrar.
Given that the ReAssure takeover was still in progress, Thakrar says the hedging strategy also applied to that business, on which financing hadn’t been completed, when markets closed in mid-March.
“What was really pleasing, is when that market reopened, Phoenix was issuing more debt, during April and May. So we were in a position to complete the Reassure transaction in July, and we got from the regulators’ confirmation that we could complete that transaction without any conditions attached to it,” reveals Thakrar.
He was also keen to ensure Phoenix Group paid out both its year- end and interim dividends in May and September respectively. “I was really keen to deliver them in a market downturn,” says Thakrar. At interims, Phoenix Group delivered operating profit of £361m for the first half of 2020 compared to £325m in H1 2019 and cash generation rose from £287m to £433m over the same period.
When it came to the challenge of working with a new CEO, Thakrar says he spent plenty of time with Andy Briggs, even though the incumbent Clive Bannister was still in situ, “understanding the processes and changes he wanted to bring about and evolving strategy,” he says.
Despite lockdown they frequently stayed in touch. When Phoenix Group delivered half year results remotely in July both worked hard on their joint presentation “It’s really important that people see how well we get on,” says Thakrar.
Looking forward, Thakrar says he is keen to maintain resilience through ensuring a strong cash position. “We are now focusing on a growth strategy with finance playing a critical role in driving Phoenix forward by looking to shape our overall strategy and the direction of the group, by implementing a new capital allocation framework,” he says.
“In terms of our change agenda, I’m keen to make sure we can drive improved performance from previous acquisitions re systems and processes,” he adds.
Thakrar says he is also determined to pursue sustainability by putting in place TCFD Task Force on Financial Disclosures (TCFD) requirements. “Compliance in this space will be an enabler to deliver the group’s overall sustainability agenda, so we’re really passionate about this remains at the heart of our purpose.
“As part of our capital market day we announced we would be looking to be net carbon zero by 2025 in relation to our operations, and by 2050 in relation to our investments, which is in line with the Paris Agreement (COP 21),” says Thakrar.
He says Phoenix Group has made big strides in this area. “We are on the track of achieving our targets, but sustainability is a lot wider than just investments because it also reflects our impact on the environment and delivering for our customers, our people and making sure we also support our community.
“You’ll see a lot of the progress that we’ve made in our sustainability report in March, and also disclosures in relation to TCFD and climate change. In 2021 we will continue to drive that agenda forward,” he says.