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Phoenix tests 2-month high after dodging LDI bullet

By Geoffrey Smith

Investing.com -- Phoenix Group (LON:PHNX) stock rose over 2% to test a two-month high in morning trading in London on Tuesday as the insurance and pensions group said it had largely dodged the volatility in U.K. bond markets at the end of September.

Phoenix stock rose 2.5% by 05:50 ET (10:50 GMT) in London, making it the second best performer in the FTSE 100 after it said it remains on track to hit the top end of its target range for cash generation this year and announcing new targets for the coming years. It has previously said it expects to generate between £1.3 billion and £1.4B (£1=$1.2162) in cash this year.

The group, which specializes in buying and managing annuities and other pension products, said it expects to generate some £1.2B in new cash-generating business this year, more than offsetting the run-off of £800M of existing business.

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"This once again demonstrates that we are a growing, sustainable business," chief executive Andy Briggs said.

U.K. pension managers had come under pressure from the ill-fated 'mini-budget' of former Prime Minister Liz Truss, which stoked fears of runaway inflation and triggered a disorderly rout in U.K. government bonds, the staple holding of long-term pension funds. The episode was particularly hard on funds that operated so-called 'liability-driven investment' strategies, which require leverage and heavy use of collateral.

Phoenix, which has never used LDI strategies, said its 'conservative' liquidity framework allowed it to meet all collateral calls on its hedging instruments during periods of volatility "and was not at any point a forced seller of assets." As a result, it said, it expects only a "limited" impact on its Solvency II capital position.

"Despite the change in economic conditions seen in the second half of this year, our balance sheet remains as resilient as ever, thanks to our comprehensive hedging approach," Briggs said in a statement.

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