IMPORTANT: You must read the following disclaimer before continuing. This electronic transmission applies to the attached document and you are therefore advised to read this disclaimer carefully before reading, accessing or making any other use of the attached combined circular and prospectus relating to Phoenix Group Holdings (the ''Company'') accessed from this page or by electronic communication or otherwise received as a result of such access or electronic communication. You are advised to read this disclaimer carefully before reading, accessing or making any other use of the attached document. In accessing the attached document, you agree to be bound by the following terms and conditions, including any modifications to them from time to time, each time you receive any information from us as a result of such access. You acknowledge that this electronic transmission and the delivery of the attached document is confidential and intended for you only and you agree you will not forward, reproduce or publish this electronic transmission or the attached document to any other person.

SECURITIES MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES UNLESS THEY ARE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE ''SECURITIES ACT'') OR ARE EXEMPT FROM SUCH REGISTRATION. THE NEW ORDINARY SHARES AND THE NEW DEPOSITARY INTERESTS DESCRIBED IN THE ATTACHED DOCUMENT (THE ''NEW ORDINARY SHARES'' AND THE ''NEW DEPOSITARY INTERESTS'') HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OR UNDER ANY SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES. THE NEW ORDINARY SHARES AND THE NEW DEPOSITARY INTERESTS MAY NOT BE OFFERED, SOLD, TAKEN UP, EXERCISED, RESOLD, TRANSFERRED OR DELIVERED, DIRECTLY OR INDIRECTLY, WITHIN AUSTRALIA, CANADA, JAPAN, SOUTH AFRICA OR THE THE UNITED STATES EXCEPT UNDER CERTAIN CIRCUMSTANCES.

SUBJECT TO CERTAIN EXCEPTIONS, THIS ELECTRONIC TRANSMISSION AND THE ATTACHED DOCUMENT DO NOT CONSTITUTE, NOR WILL CONSTITUTE, NOR FORM PART OF ANY OFFER OR INVITATION TO SELL OR ISSUE, OR ANY SOLICITATION OF ANY OFFER TO PURCHASE OR ACQUIRE, THE NEW ORDINARY SHARES OR THE NEW DEPOSITARY INTERESTS, TO ANY SHAREHOLDER WITH A REGISTERED ADDRESS IN, OR WHO IS RESIDENT OR LOCATED IN (AS APPLICABLE), AUSTRALIA, CANADA, JAPAN, SOUTH AFRICA OR THE THE UNITED STATES. THE NEW ORDINARY SHARES AND THE NEW DEPOSITARY INTERESTS OFFERED OUTSIDE THE UNITED STATES ARE BEING OFFERED IN RELIANCE ON REGULATION S UNDER THE SECURITIES ACT. ANY PERSON IN AUSTRALIA, CANADA, JAPAN, SOUTH AFRICA OR THE THE UNITED STATES WHO OBTAINS A COPY OF THE ATTACHED DOCUMENT IS REQUIRED TO DISREGARD IT.

In relation to each member state of the European Economic Area (each, a ''relevant member state'', except for the United Kingdom) which has implemented the Prospectus Directive (Directive 2003/71/EC, as amended, including by Directive 2010/73/EU, and includes any relevant implementing measure in a relevant member state) (the ''Prospectus Directive'') no New Ordinary Shares or New Depositary Interests have been offered or will be offered pursuant to the offering described in the attached document to the public in that relevant member state prior to the publication of a prospectus in relation to the New Ordinary Shares and the New Depositary Interests which has been approved by the competent authority in that relevant member state or, where appropriate, approved in another relevant member state and notified to the competent authority in that relevant member state, all in accordance with the Prospectus Directive, except that offers of New Ordinary Shares and New Depositary Interests may be made to the public in that relevant member state at any time under the following exemptions under the Prospectus Directive: (a) to any legal entity which is a qualified investor as defined under the Prospectus Directive; (b) to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive); or (c) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of New Ordinary Shares or New Depositary Interests shall result in a requirement for the Company to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive in that relevant member state. The expression an ''offer of any New Ordinary Shares or New Depositary Interests to the public'' means the communication to persons in any form and by any means presenting sufficient information on the terms of the offer and the New Ordinary Shares and the New Depositary Interests to be offered, so as to enable an investor to decide to subscribe or purchase any New Ordinary Shares or New Depositary Interests as the same may be varied in that relevant member state by any measure implementing the Prospectus Directive in that relevant member state.

Confirmation of Your Representation: This electronic transmission and the attached document is delivered to you on the basis that you are deemed to have represented to the Company and HSBC Bank plc, Morgan Stanley & Co. International plc, J.P. Morgan Securities plc (which conducts its UK investment banking business as J.P. Morgan Cazenove), Commerzbank Aktiengesellschaft, London Branch and Natixis (together, the ''Banks'') that (i) you are not a resident or located in Australia, Canada, Japan, South Africa or the United States, or acquiring such securities in ''offshore transactions'', as defined in, and in reliance on, Regulation S under the Securities Act; or (ii) if you are in any member state of the European Economic Area (other than the United Kingdom) you are a ''qualified investor'', and in each case, you consent to the delivery of this document by electronic transmission.

You are reminded that you have received this electronic transmission and the attached document on the basis that you are a person into whose possession this document may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not nor are you authorised to deliver this document, electronically or otherwise, to any other person. This document has been made available to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and consequently neither the Company, the Banks nor any of their respective affiliates accepts any liability or responsibility whatsoever in respect of any difference between the document distributed to you in electronic format and the hard copy version. By accessing the linked document, you consent to receiving it in electronic form. None of the Banks nor any of their respective affiliates accepts any responsibility whatsoever for the contents of this document or for any statement made or purported to be made by it, or on its behalf, in connection with the Company, the New Ordinary Shares or the New Depositary Interests. The Banks and each of their respective affiliates, each accordingly disclaims all and any liability whether arising in tort, contract or otherwise which they might otherwise have in respect of such document or any such statement. No representation or warranty express or implied, is made by any of the Banks or any of their respective affiliates as to the accuracy, completeness or sufficiency of the information set out in this document.

The Banks are acting exclusively for the Company and no one else in connection with the offering described in the attached document. They will not regard any other person (whether or not a recipient of this document) as their client in relation to the offering described in the attached document and will not be responsible to anyone other than the Company for providing the protections afforded to its clients nor for giving advice in relation to the offering described in the attached document or any transaction or arrangement referred to herein.

THIS DOCUMENT AND ANY ACCOMPANYING DOCUMENTS ARE IMPORTANT AND REQUIRE YOUR IMMEDIATE ATTENTION. If you are in any doubt as to what action you should take, you are recommended to seek immediately your own financial advice from your stockbroker, bank manager, solicitor, accountant, fund manager or other appropriate independent financial adviser, who is authorised under the Financial Services and Markets Act 2000 (''FSMA'') if you are resident in the UK or, if not, from another appropriately authorised independent financial adviser.

This document comprises (i) a circular prepared in accordance with the Listing Rules of the Financial Conduct Authority (the ''FCA'') made under section 73A of the FSMA and (ii) a prospectus relating to Phoenix Group Holdings (the ''Company'' and, together with its consolidated subsidiaries from time to time, the ''Group'') prepared in accordance with the Prospectus Rules of the FCA made under section 73A of the FSMA. This document has been approved by the FCA in accordance with section 85 of the FSMA, will be made available to the public and has been filed with the FCA in accordance with the Prospectus Rules. This document together with the documents incorporated into it by reference (as set out in Part XV (''Documents Incorporated by Reference'') of this document) will be made available to the public in accordance with Prospectus Rule 3.2.1 by the same being made available, free of charge, at www.thephoenixgroup.com and at the Company's registered office at c/o Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.

If you sell or have sold or have otherwise transferred all of your Existing Shares (other than ex-rights) held in certificated form before 8.00 a.m. (London time) on 25 October 2016 (the ''Ex-Rights Date''), please send this document, together with any Provisional Allotment Letter, if and when received, at once to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for delivery to the purchaser or transferee except that such documents should not be sent to any jurisdiction where to do so might constitute a violation of local securities laws or regulations, including but not limited to the Restricted Territories or the Excluded Territories. If you sell or have sold or otherwise transferred only part of your holding of Existing Shares (other than ex-rights) held in certificated form before the Ex-Rights Date, you should refer to the instruction regarding split applications in Part III (''Terms and Conditions of the Rights Issue'') of this document and in the Provisional Allotment Letter. If you sell or transfer or have sold or otherwise transferred all or some of your Depositary Interests (other than ex-rights) before the Ex-Rights Date, a claim transaction will automatically be generated by Euroclear, which, on settlement, will transfer the appropriate number of Nil Paid Rights to the purchaser or transferee.

The distribution of this document, the Provisional Allotment Letter and the transfer of Nil Paid Rights, Fully Paid Rights, New Shares and New Depositary Interests into jurisdictions other than the UK may be restricted by law and therefore persons into whose possession this document comes should inform themselves about and observe any such restrictions. Any failure to comply with any such restrictions may constitute a violation of the securities laws or regulations of such jurisdictions. In particular, subject to certain exceptions, this document, the enclosures and the Provisional Allotment Letter and any other such documents should not be distributed, forwarded to or transmitted into the Restricted Territories or the Excluded Territories.

Phoenix Group Holdings

(a company incorporated as an exempted company with limited liability under the laws of the Cayman Islands with registered number 202172)

Proposed acquisition of Abbey Life

and

7 for 12 Rights Issue of 144,722,989 New Shares at 508 pence per New Share

Notice of General Meeting

Joint Sponsors and Global Coordinators

HSBC Morgan Stanley

Global Coordinator

J.P. Morgan Cazenove

Co-Bookrunners

COMMERZBANK Natixis

A Notice of General Meeting of the Company, to be held at 10.00 a.m. on 24 October 2016, is set out at the end of this document. Whether or not you intend to be present at the General Meeting, you are asked to complete and return the enclosed Form of Proxy in accordance with the instructions printed on it as soon as possible and, in any event, so as to be received by the Registrar, Computershare Investor Services (Cayman) Limited c/o Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZY, by not later than 10.00 a.m. on 20 October 2016 (or, in the case of an adjournment, not later than 48 hours before the time fixed for the holding of the adjourned meeting).

The Shares are listed on the Official List maintained by the FCA and traded on the London Stock Exchange's main market for listed securities. Application will be made to the UK Listing Authority and to the London Stock Exchange for the New Shares to be admitted to the Official List of the UK Listing Authority and to trading on the main market for listed securities of the London Stock Exchange, respectively. It is expected that Admission will become effective and that dealings on the London Stock Exchange in the New Shares (nil paid) will commence at 8.00 a.m. (London time) on 25 October 2016.

Your attention is drawn to the letter of recommendation from the Chairman which is set out in Part I (''Letter from the Chairman of Phoenix Group Holdings'') of this document. Your attention is also drawn to the section headed ''Risk Factors'' at the beginning of this document which sets out certain risks and other factors that should be considered by Shareholders when deciding on what action to take in relation to the Rights Issue, and by others when deciding whether or not to purchase Nil Paid Rights, Fully Paid Rights, New Shares or New Depositary Interests.

The Nil Paid Rights, the Fully Paid Rights, the New Shares, the New Depositary Interests and the Provisional Allotment Letters have not been and will not be registered under the US Securities Act of 1933, as amended (the ''US Securities Act'') or under any securities laws of any state or other jurisdiction of the United States and may not be offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within the United States except pursuant to an applicable exemption from or in a transaction not subject to the registration requirements of the US Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. There will be no public offer of the Nil Paid Rights, the Fully Paid Rights, the New Shares or the New Depositary Interests in the United States.

The Nil Paid Rights, the Fully Paid Rights, the Provisional Allotment Letters, the New Shares and the New Depositary Interests will not be registered under the securities laws of any Excluded Territory or Restricted Territory and may not be offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within such jurisdictions except pursuant to an applicable exemption from, and in compliance with, any applicable securities laws. There will be no public offer in any of the Excluded Territories or the Restricted Territories.

HSBC, J.P. Morgan Cazenove and Morgan Stanley, each of which is authorised by the PRA and regulated in the United Kingdom by the PRA and the FCA, Commerzbank, which is authorised under German Banking Law by BaFin (the Federal Financial Supervisory Authority) and is authorised and subject to limited regulation by the PRA and the FCA in the United Kingdom, and Natixis, which is regulated in France by ACPR and the AMF and supervised by the European Central Bank (and together with HSBC, J.P. Morgan Cazenove, Morgan Stanley and Commerzbank, the ''Banks''), are each acting for the Company and no one else in connection with the Acquisition, the Rights Issue and Admission and will not regard any other person (whether or not a recipient of this document) as a client in relation to the Acquisition, the Rights Issue and Admission and will not be responsible to anyone other than the Company for providing the protections afforded to their respective clients or for providing advice in relation to the Acquisition, the Rights Issue, Admission or any matters referred to in this document.

Apart from the responsibilities and liabilities, if any, which may be imposed on the Banks by FSMA or the regulatory regime thereunder, none of the Banks nor any of their respective affiliates accepts any responsibility whatsoever or makes any representation or warranty, express or implied, for the contents of this document, including its accuracy, completeness or verification, or for any other statement made or purported to be made by it, or on its behalf, in connection with the Company, the Nil Paid Rights, the Fully Paid Rights, the New Shares or the New Depositary Interests, the Acquisition or the Rights Issue or Admission. Each of the Banks and their respective affiliates accordingly disclaim all and any liability whether arising in tort, contract or otherwise (save as referred to above) which they might otherwise have in respect of this document or any such statement.

Subject to the passing of the Resolutions, it is expected that Qualifying Non-CREST Shareholders other than, subject to certain exceptions, those with registered addresses in the Excluded Territories or the Restricted Territories will be sent a Provisional Allotment Letter on 24 October 2016, and that Qualifying Depositary Interest Holders will receive a credit to their appropriate stock accounts in CREST in respect of the Nil Paid Rights to which they are entitled on 25 October 2016. The Nil Paid Rights so credited are expected to be enabled for settlement by Euroclear as soon as practicable after Admission.

Qualifying Depositary Interest Holders should note that they will receive no further written communication from the Company in respect of the Rights Issue. They should accordingly retain this document for, amongst other things, details of the action they should take in respect of the Rights Issue. Qualifying Depositary Interest Holders who are CREST-sponsored members should refer to their CREST sponsors regarding the action to be taken in connection with this document and the Rights Issue. Holdings of Shares in certificated and uncertificated form as Depositary Interests will be treated as separate holdings for the purpose of calculating entitlements under the Rights Issue.

The Banks and their respective affiliates may, in accordance with applicable legal and regulatory provisions and subject to the Sponsors and Underwriting Agreement, engage in transactions in relation to the Nil Paid Rights, the Fully Paid Rights, the Shares, the Depositary Interests and/or related instruments for their own account for the purpose of hedging their underwriting exposure or otherwise. Except as required by applicable law or regulation, the Banks and their respective affiliates do not propose to make any public disclosure in relation to such transactions.

The latest time and date for acceptance and payment in full for the New Shares or New Depositary Interests by holders of the Nil Paid Rights is expected to be 11.00 a.m. on 8 November 2016. The procedures for delivery of the Nil Paid Rights, acceptance and payment are set out in Part III (''Terms and Conditions of the Rights Issue'') of this document and, for Qualifying Non-CREST Shareholders other than, subject to certain exceptions, those with registered addresses in the Restricted Territories or the Excluded Territories only, also in the Provisional Allotment Letter. Qualifying Depositary Interest Holders other than, subject to certain exceptions, those with registered addresses in the Restricted Territories or the Excluded Territories should refer to paragraph 2.2 (''Action to be taken by Qualifying Depositary Interest Holders in relation to Nil Paid Rights and Fully Paid Rights in CREST'') of Part III (''Terms and Conditions of the Rights Issue'') of this document.

The Nil Paid Rights, the Fully Paid Rights, the New Shares, the New Depositary Interests and the Provisional Allotment Letters have not been approved or disapproved by the US Securities and Exchange Commission, any state's securities commission in the United States or any US regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of the Nil Paid Rights, the Fully Paid Rights, the New Shares or New Depositary Interests or the accuracy or adequacy of this document. Any representation to the contrary is a criminal offence.

This document does not constitute an offer of Nil Paid Rights, Fully Paid Rights, New Shares or New Depositary Interests to any person with a registered address, or who is located, in the Restricted Territories or the Excluded Territories or in any other jurisdiction in which such an offer or solicitation is unlawful. The Nil Paid Rights, the Fully Paid Rights, the New Shares, the New Depositary Interests and the Provisional Allotment Letters have not been and will not be registered under the relevant laws of any state, province or territory of the Restricted Territories or any Excluded Territory and, subject to certain limited exceptions, may not be offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within any Restricted Territory or any Excluded Territory except pursuant to an applicable exemption under relevant securities laws.

None of the New Shares, the New Depositary Interests, the Nil Paid Rights and the Fully Paid Rights have been or will be registered under the US Securities Act, or under the applicable securities laws of any state or other jurisdiction of the United States. The New Shares, the New Depositary Interests, the Nil Paid Rights and the Fully Paid Rights offered outside the United States are being offered in reliance on Regulation S under the US Securities Act solely to non-US persons.

In addition, until 40 days after the commencement of the Rights Issue, an offer, sale or transfer of the Nil Paid Rights, the Fully Paid Rights, the Provisional Allotment Letters, the New Shares or the New Depositary Interests within the United States by a dealer (whether or not participating in the Rights Issue) may violate the registration requirements of the US Securities Act.

All Overseas Shareholders and any person (including, without limitation, a nominee or trustee) who has a contractual or legal obligation to forward this document or any Provisional Allotment Letter, if and when received, or other document to a jurisdiction outside the UK should read the information set out in paragraph 2.5 (''Overseas Shareholders'') of Part III (''Terms and Conditions of the Rights Issue'') of this document.

Notice to all investors

Any reproduction or distribution of this document, in whole or in part, and any disclosure of its contents or use of any information contained in this document for any purpose other than considering an investment in the Nil Paid Rights, the Fully Paid Rights, the New Shares or the New Depositary Interests is prohibited. By accepting delivery of this document, each offeree of the Nil Paid Rights, the Fully Paid Rights, the New Shares and/or the New Depositary Interests agrees to the foregoing.

The distribution of this document and/or the Provisional Allotment Letters and/or the transfer of the Nil Paid Rights, the Fully Paid Rights, the New Shares and/or the New Depositary Interests into jurisdictions other than the UK may be restricted by law. Persons into whose possession these documents come should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. In particular, such documents should not be distributed, forwarded to or transmitted in or into the Restricted Territories or the Excluded Territories. The Nil Paid Rights, the Fully Paid Rights, the New Shares, the New Depositary Interests and the Provisional Allotment Letters are not transferable, except in accordance with, and the distribution of this document is subject to, the restrictions set out in paragraph 2.5 (''Overseas Shareholders'') of Part III (''Terms and Conditions of the Rights Issue'') of this document. No action has been taken by the Company or by the Banks that would permit an offer of the New Shares or the New Depositary Interests or rights thereto or possession or distribution of this document or any other offering or publicity material or the Provisional Allotment Letters, the Nil Paid Rights or the Fully Paid Rights in any jurisdiction where action for that purpose is required, other than in the UK.

No person has been authorised to give any information or make any representations other than those contained in this document and, if given or made, such information or representations must not be relied upon as having been authorised by the Company or by the Banks. Neither the delivery of this document nor any subscription or sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Group since the date of this document or that the information in this document is correct as at any time subsequent to its date.

Without limitation, the contents of the websites of the Group do not form part of this document.

Capitalised terms have the meanings ascribed to them, and certain technical terms are explained in Part XVI (''Definitions'') of this document.

WHERE TO FIND HELP

Part II (''Some Questions and Answers about the Rights Issue'') of this document answers some of the questions most often asked by Shareholders about rights issues. If you have further questions, please telephone the Shareholder Helpline on the numbers set out below. This helpline is available from 9.00 a.m. to 5.00 p.m. (London time) on any Business Day.

Shareholder Helpline

0370 707 4040 (from within the United Kingdom) or

+44 (0)370 707 4040 (from outside the United Kingdom)

Calls may be recorded and monitored randomly for security and training purposes. Please note that, for legal reasons, the Shareholder Helpline will only be able to provide information contained in this document and information relating to your shareholding and will be unable to give advice on the merits of the Rights Issue or to provide legal, financial, tax or investment advice.

This document is dated 4 October 2016.

	Page
SUMMARY	1
SECTION A—INTRODUCTION AND WARNINGS	1
SECTION B—ISSUER	1
SECTION C—SECURITIES	12
SECTION D—RISKS	14
SECTION E—OFFER	16
RISK FACTORS	18
IMPORTANT INFORMATION	43
RIGHTS ISSUE STATISTICS	49
EXPECTED TIMETABLE FOR THE RIGHTS ISSUE	50
DIRECTORS, COMPANY SECRETARY AND ADVISERS	51
PART I—LETTER FROM THE CHAIRMAN OF PHOENIX GROUP HOLDINGS	53
PART II—SOME QUESTIONS AND ANSWERS ABOUT THE RIGHTS ISSUE	67
PART III—TERMS AND CONDITIONS OF THE RIGHTS ISSUE	76
PART IV—BUSINESS OVERVIEW OF THE COMPANY	100
PART V—BUSINESS OVERVIEW OF ABBEY LIFE	114
PART VI—REGULATORY OVERVIEW	122
PART VII—OPERATING AND FINANCIAL REVIEW OF THE COMPANY	132
PART VIII—FINANCIAL INFORMATION OF THE COMPANY	179
PART IX—FINANCIAL INFORMATION OF ABBEY LIFE	181
PART X—UNAUDITED PRO FORMA IFRS FINANCIAL INFORMATION OF THE
ENLARGED GROUP	231
PART XI—UNAUDITED PRO FORMA SOLVENCY INFORMATION OF THE ENLARGED
GROUP	238
PART XII—TAXATION	242
PART XIII—TERMS OF THE ACQUISITION	246
PART XIV—ADDITIONAL INFORMATION	250
PART XV—DOCUMENTS INCORPORATED BY REFERENCE	313
PART XVI—DEFINITIONS	315
NOTICE OF GENERAL MEETING	328

SUMMARY

Summaries are made up of disclosure requirements known as ''Elements''. These Elements are numbered in Sections A–E (A.1–E.7). This summary contains all the Elements required to be included in a summary for this type of security and issuer. Because some Elements are not required to be addressed, there may be gaps in the numbering sequence of the Elements.

Even though an Element may be required to be inserted in the summary because of the type of securities and issuer, it is possible that no relevant information can be given regarding the Element. In this case a short description of the Element is included in the summary with the mention of ''not applicable''.

	SECTION A—INTRODUCTION AND WARNINGS
A.1	Warning
	This summary should be read as an introduction to this document.
	Any decision to invest in the new ordinary shares with a nominal value of A0.0001 each in the share capital of the Company (''New Shares'') and/or the new depositary interests related to them (''New Depositary Interests'') in nil paid form (''Nil Paid Rights''), and/or rights to acquire the New Shares and/or the New Depositary Interests fully paid (''Fully Paid Rights'') and/or New Shares and/or New Depositary Interests pursuant to the rights issue announced by the Company on 28 September 2016 (the ''Rights Issue'') should be based on consideration of this document as a whole by the investor. Where a claim relating to the information contained in this document is brought before a court, the plaintiff investor might, under the national legislation of the Member States of the European Economic Area, have to bear the costs of translating this document before the legal proceedings are initiated.
	Civil liability attaches only to those persons who have tabled the summary including any translation thereof, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of this document or it does not provide, when read together with the other parts of this document, key information in order to aid investors when considering whether to invest in the Nil Paid Rights and/or Fully Paid Rights and/or New Share and/or New Depositary Interests.
A.2	Consent for intermediaries
	Not applicable. No consent has been given by the Company or any person responsible for drawing up this document to use this document for subsequent sale or placement of securities by financial intermediaries.

	SECTION B—ISSUER
B.1	Legal and commercial name
	Phoenix Group Holdings (the ''Company'').
B.2	Domicile, legal form, legislation and country of incorporation
	The Company, previously named Liberty International Acquisition Company and then Liberty Acquisition Holdings (International) Company and then Pearl Group, is a company incorporated on 2 January 2008 under the laws of the Cayman Islands as an exempted company with limited liability, under registration number 202172.
	The Company's registered office is at c/o Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands and its principal place of business is at 1st Floor, 32 Commercial Street, St. Helier, Jersey, JE2 3RU, Channel Islands.
	The principal legislation under which the Company operates is the Companies Law (as amended) of the Cayman Islands (''Companies Law'') and the New Shares are issued pursuant to the terms of the Articles of Association of the Company (the ''Articles of Association'') and the Companies Law.

	SECTION B—ISSUER
B.3	Business description
	The Group specialises in the management and acquisition of closed life and pension funds and operates primarily in the UK. As at 30 June 2016, the Group had approximately 4.5 million policyholders, £52 billion of assets under management and Solvency II Own Funds of £6.1 billion. Measured by total assets, the Group is the UK's largest specialist consolidator of closed life insurance funds. The Group is primarily focused on the efficient management of in-force policies and writes limited new policies (currently as increments to existing policies and annuities for current policyholders when their policies mature).
	On 27 May 2016, the Group announced its entry into conditional agreements with AXA UK plc to acquire AXA Wealth Limited's pensions and protection businesses for £375 million in cash (prior to any adjustment for certain items as at completion) (the ''AXA Transaction''), which is expected to add £12 billion of assets under management and over 910,000 policyholders to the Group and generate cashflows of approximately £300 million in aggregate between 2016 and 2020 and approximately £200 million in aggregate from 2021 onwards. Following completion of the AXA Transaction, the Group will write a limited set of direct protection policies.
	On 28 September 2016, the Group announced the proposed acquisition of the entire issued share capital of Abbey Life Assurance Company Limited (''ALAC''), Abbey Life Trustee Services Limited and Abbey Life Trust Securities Limited (together ''Abbey Life'') from Deutsche Holdings No. 4 Ltd., a wholly owned subsidiary of Deutsche Bank AG for total consideration of £935 million in cash payable on completion, subject to customary adjustments (the ''Acquisition''). Abbey Life is a life insurance group that specialises in the management of closed life and pension funds predominantly comprising unit-linked life and pensions policies and annuities in payment. Abbey Life also manages two with profit funds, other non-profit funds and a small permanent health insurance book. ALAC is authorised by the PRA and regulated by the FCA and the PRA to carry on long term insurance business in the UK. As at 31 December 2015, Abbey Life had approximately 735,000 policyholders and £10 billion of assets under
	management. ALAC's Solvency II Own Funds as at 30 June 2016 was £1,047 million and ALAC's MCEV as at 31 December 2015 was £1,218 million.
B.4a	Significant recent trends affecting the Group and the industry in which it operates
	Significant recent trends that that have affected the Group include:
	• the performance of financial markets, in particular gilt and bond yields;
	• the implementation of the Solvency II regulatory regime and other changes to the UK's regulatory system;
	• the discontinuance of the presentation of results on an MCEV basis; and
	• increased mortality and longevity rates and assumptions.
	Going forward, the Company expects the UK life insurance and pensions industry to be impacted principally by the following factors:
	Pensions reform: • The requirement to spend pensions savings on an annuity has been removed. The ease with which customers can switch providers has also increased, reducing customer retention.
	• Interest rates: Reductions in interest rates, such as the decision by the Bank of England to reduce interest rates from 0.50 per cent. to 0.25 per cent. on 4 August 2016, will impact investment returns for life insurance companies.
	• Brexit: Following the outcome of the referendum on the UK's membership of the European Union, uncertainty over the UK's continued access to the single market and 'passporting' rights for UK firms across the EEA, and potential related regulatory change, will impact the UK life insurance industry.

	SECTION B—ISSUER
B.5	Group structure
	The Company is the ultimate parent company of the Group. The Group has two operating life insurance companies, Phoenix Life Limited (''PLL'') and Phoenix Life Assurance Limited (''PLAL''), which are referred to in this document as the ''Life Companies''.
	The Group's two principal management service companies, Pearl Group Services Limited (''PGS'') and Pearl Group Management Services Limited (''PGMS''), aim to provide all administrative services required by the Life Companies (or manage the provision of such services through outsourcing arrangements), including policy administration, information technology, finance and facility management services.
B.6	Major shareholders
	Information provided to the Company pursuant to the Disclosure Guidance and Transparency Rules regarding its substantial Shareholders is published on a Regulatory Information Service and on the Company's website.
	As at 3 October 2016 (being the latest practicable date prior to the publication of this document), the Company has been notified in accordance with Chapter 5 of that Disclosure Guidance and Transparency Rules of the following interests in the Company's issued share capital:
			As at 3 October 2016
	Name	Number of voting rights	Percentage of issued share capital(1)
	Artemis Investment Management LLP Prudential plc group of companies Aviva plc and its subsidiaries Ameriprise Financial Inc.	22,477,890 12,649,238 11,360,988 11,277,894	9.06% 5.10% 4.58% 4.55%
	Note:
	(1) There exist 5 million outstanding redeemable Lender Warrants in the Company. Each Lender Warrant is exercisable into 1.027873 Shares of the Company at a warrant price of £14.59 per share. If they are exercised, the Company will be required to issue up to 5,139,365 additional Shares.
	Insofar as is known to the Company, the Company is not directly or indirectly owned or controlled by another corporation, any foreign government, or any other natural or legal person, severally or jointly, nor is it aware of any arrangements the operation of which may at a subsequent date result in a change of control of the Company.
	None of the major Shareholders referred to above has different voting rights from other Shareholders.
B.7	Selected historical key financial information of Phoenix
	The tables below set out the Company's summary selected consolidated financial information as at and for the six months ended 30 June 2016 and 2015 and the years ended 31 December 2015, 2014 and 2013. The data has been extracted without material adjustment from the Company's historical financial statements for the six months ended 30 June 2016 and the years ended 31 December 2015, 2014 and 2013.

Six months ended 30 June 2016 (unaudited)	2015	2015		Year ended 31 December


			2014	2013 (Restated)(1)
			(audited)
		(£ million)
4,926	810	692	5,330	4,272
				(3,801)
				(230)
60	48	152	465	241
70		(33)		(27)
13		64		(26)
	30	97		1

3	78	249	314	242
—	—	—	92	(35)
3	78	249	406	207

				145
				62
				207
	Net income Total operating expenses Finance costs Tax attributable to policyholders' returns . Tax (charge)/credit attributable to owners . Profit for the year attributable to owners Owners of the parent 2 Non-controlling interests 1 3	(62) (57) 51 27 78	(69) (136) (31) (1) 201 48 249	(4,804) (693) (404) (4,709) (156) (129) (22) (151) 310 96 406

Note:

(1) The relevant figures have been restated due to the adoption of IFRS 10 Consolidated Financial statements and IFRS 11 Joint Arrangements. In addition, following the divestment of Ignis Asset Management on 1 July 2014, the 2013 figures have been restated to disclose the results of Ignis Asset Management as discontinued operations.

Summary selected consolidated statement of financial position

				As at 31 December
		As at 30 June			2013
	2016	2015	2015	2014	(Restated)(1)
		(unaudited)		(audited)
			(£ million)
Total assets	69,997	67,270	64,514	68,803	74,469
Total liabilities	67,191	64,438	61,510	65,525	71,782
Equity attributable to owners of the parent	2,806	2,296	2,434	2,365	1,909
Non-controlling interests .	—	536	570	913	778
Total equity	2,806	2,832	3,004	3,278	2,687

Note:

There has been no significant change to the Company's financial condition and operating results in the period post 30 June 2016 to the date of publication of this document.

A summary of the significant factors impacting the Company's financial condition and operating results during the six months ended 30 June 2016 and the years ended 31 December 2015, 2014 and 2013 is set out below.

SECTION B—ISSUER
The Group's profit after tax for the six months ended 30 June 2016 was £3 million (30 June 2015: £78 million). The reduction of £75 million from the prior year reflects the recognition of a provision to reflect the impact of a continued low interest rate environment on the Group's expectations of persistency for products with guarantees of £64 million, and the adverse impacts of economic factors including falling yields, widening credit spreads and losses on equity hedging positions. The comparative period result benefited from positive investment variances driven by rising yields and increased property returns. On 1 June 2016, the Group completed an equity placing in connection with the AXA Transaction which raised proceeds of £190 million net of deduction of commissions and expenses. Also in connection with the financing for the AXA Transaction, in May 2016, the Group entered into a £220 million AXA Bridge Facility Agreement. The facility matures twelve months after the transaction closes (subject to extension) and accrues interest at LIBOR plus 0.85 per cent. (increasing to 1.25 per cent. six months after closing of the AXA Transaction, 2.00 per cent. 12 months after closing of the AXA Transaction, and 2.75 per cent. 18 months after closing of the AXA Transaction). As at 3 October 2016, the facility had not been drawn down. In March 2016, the Group agreed an amendment of its £900 million five year unsecured bank facility into a £650 million unsecured revolving credit facility, maturing in June 2020. There are no mandatory or target amortisation payments associated with the facility and it currently accrues interest at LIBOR plus 1.35 per cent., with the margin linked to the credit rating of the Company.
The Group's profit after tax for the year ended 31 December 2015 was £249 million (2014: £406 million). The reduction of £157 million from the prior year reflects lower positive impacts of actuarial modelling enhancements and balance sheet reviews, together with the recognition in 2014 of a gain on disposal of the Group's interest in Ignis Asset Management of £110 million and a gain of £68 million arising on the restructuring of the Group's exposure to longevity risk in the PGL Pension Scheme. These factors were partly offset by the recognition of a gain of £49 million (net of a £64 million impairment of associated acquired value of in-force business) in 2015 arising on the external reinsurance of a portfolio of annuity liabilities with RGA International.
On 23 January 2015, the Group exchanged 99 per cent. of the Perpetual Reset Capital Securities issued by Pearl Group Holdings (No.1) Limited for £428 million of new subordinated notes, issued by PGH Capital Limited and £3 million of cash. The new subordinated notes have a maturity date in 2025 and pay a coupon of 6.625 per cent. per annum.
The Group's profit after tax for the year ended 31 December 2014 was £406 million (2013: £207 million). The increase of £199 million from the prior year reflects the gain on disposal of Ignis Asset Management, the gain on the restructuring of longevity exposure to the PGL Pension Scheme and the positive impact of modelling enhancements and balance sheet reviews carried out in 2014. These items were partly offset by the adverse economic impacts of falling yields in 2014, compared to the increase in yields and narrowing of credit spreads experienced in 2013.
The Group also carried out a significant debt restructuring in 2014, issuing a £300 million senior unsecured bond, and using the net proceeds to prepay debt facilities. The Group was left with a single five year £900 million unsecured bank facility.
The Group's profit after tax for the year ended 31 December 2013 was £207 million. The result benefited from a gain of £65 million arising on the Part VII transfer of a portfolio of annuity liabilities to Guardian Assurance Limited.
In February 2013, the Group completed an equity raising with gross proceeds of £250 million through the issuance of 50 million Shares. The net proceeds of £232 million enabled the re-terming and repayment of the Group's bank facility.

SECTION B—ISSUER
Selected historical key financial information of ALAC
The tables below set out ALAC's summary selected financial information as at and for the years ended 31 December 2015, 2014 and 2013. The data has been extracted without material adjustment from ALAC's historical financial statements for the years ended 31 December 2015, 2014 and 2013. The historical financial information of ALAC has been prepared on a basis consistent with the accounting policies disclosed in the Company's consolidated IFRS financial statements for the year ended 31 December 2015.
Summary selected statement of comprehensive income
		Year ended 31 December
	2015	2014	2013
Total revenue	414.2	(audited) (£ million) 948.3	1,346.3
Total expenses including changes in contract liabilities (net of reinsurance)	(293.4)	(821.7)	(1,093.1)
Profit for the year before taxation	120.8	126.6	253.2
Taxation	(22.1)	(29.5)	(77.5)
Profit for the year after taxation	98.7	97.1	175.7
Summary selected statement of financial position
		As at 31 December
	2015	2014	2013
Total assets	11,134.9	(audited) (£ million) 11,923.9	11,930.0
Total liabilities	10,342.7	11,074.9	11,050.2
Total equity	792.2	849.0	879.8
Total equity and liabilities	11,134.9	11,923.9	11,930.0
There has been no significant change to ALAC's financial condition and operating results in the period post 31 December 2015 to the date of publication of this document.
A summary of the significant factors impacting ALAC's financial condition and operating results during the years ended 31 December 2015, 2014 and 2013 is set out below.
ALAC's profit after tax for the year ended 31 December 2015 was £99 million (2014: £97 million). The increase of £2 million comprises of the positive impact of an increase in gilt yields and changes in interest rate hedges on the value of reserves held for guaranteed annuity options (''GAOs''). This was partly offset by the adverse impact of rising yields on negative reserves and a reduction in investment returns obtained on free assets and shareholders funds managed on an active basis.
ALAC's profit after tax for the year ended 31 December 2014 was £97 million (2013: £176 million). The reduction compared to the prior year of £79 million principally reflects the relative adverse impact of market movements following falling yields and flat credit spread movements in 2014. The 2013 results benefited from an increase in yields and a narrowing of credit spreads, together with the positive impact of mortality assumption changes in the period.
On 12 December 2014, ALAC entered into an insurance transaction with Scottish Power Pension

		SECTION B—ISSUER
	ALAC's profit after tax for the year ended 31 December 2013 was £176 million. The result benefited from market movements in the period, with a significant increase in yields contributing to a reduction in the reserves held for GAOs. Narrowing credit spreads also had a positive impact in the period. The 2013 results also benefited from the positive impact of a change in mortality assumptions and a reduction in reserves held against asset liability mismatching.
	On 28 March 2013, ALAC entered into an insurance transaction with Rolls Royce and Bentley Pension Schemes to insure the longevity risk on 4,400 lives.
B.8	Selected key pro forma financial information
	Unaudited pro forma IFRS financial information
	The unaudited pro forma IFRS income statement and unaudited pro forma statement of IFRS net assets of the Enlarged Group (together, the ''unaudited pro forma IFRS financial information'') have been prepared for illustrative purposes only in accordance with Annex II of the PD Regulation and on the basis of the notes set out therein. The unaudited pro forma IFRS income statement has been prepared to illustrate the effect on the earnings of the Company as if the proposed Acquisition and the Rights Issue had taken place on 1 January 2015. The unaudited pro forma statement of IFRS net assets has been prepared to illustrate the effect on the net assets of the Company as if the proposed Acquisition and the Rights Issue had taken place on 30 June 2016. The unaudited pro forma IFRS financial information has been prepared for illustrative purposes only and, because of its nature, addresses a hypothetical situation and does not, therefore, represent the Company's or the Enlarged Group's actual financial position or results. The unaudited pro forma IFRS financial information is stated on the basis of the accounting policies expected to be adopted by the Company in preparing its consolidated financial statements for the year ending 31 December 2016. The unaudited pro forma IFRS financial information does not illustrate the effects of the AXA Transaction. Summary selected unaudited pro forma statement of consolidated IFRS income for the year ended
	31 December 2015
		Phoenix(1)	ALAC(2)	Adjustments to conform disclosures(3)	Pro forma adjustments for the Group Acquisition adjustments(4)	Pro forma total
	Net income . Total operating expenses Finance costs	692 (404) (136)	415 (287) (7)	(£ million) — — —	— (40) (5)	1,107 (731) (148)
	Profit before tax Tax credit attributable to policyholders' returns . Profit before tax attributable to owners	152 33 185	121 — 121	— 2 2	(45) — (45)	228 35 263
	Tax credit/(charge) Add: Tax attributable to policyholders' returns	97 (33)	(22) —	— (2)	3 —	78 (35)
	Tax credit/(charge) attributable to owners Profit for the year attributable to owners	64 249	(22) 99	(2) —	3 (42)	43 306

	Attributable to: Owners of the parent Non-controlling interests	201 48	99 —	— —	(42) —	258 48
	Notes:
	(1) The financial information for the Company has been extracted, without material adjustment, from the Company's Annual Report and Accounts for the year ended 31 December 2015.
	(2) The financial information for ALAC has been extracted, without material adjustment, from the audited historical financial information for ALAC for the year ended 31 December 2015.

				SECTION B—ISSUER
(3)			This column reflects adjustments to align the presentation of ALAC's income statement to that of the Company. The Company discloses tax attributable to policyholder returns separately on the face of the income statement, whereas ALAC includes this within the Tax credit for the year. A reclassification of £2 million has therefore been made between the aforementioned line items.
(4)			This column represents the following adjustments:
	(a)		An adjustment of £22 million has been made to ''Total operating expenses'' to reflect an estimate of the one off transaction costs incurred. No tax relief is expected to be available on these expenses.
	(b)		As described in note 5(d) to the summary selected unaudited pro forma statement of net assets, a fair valuation exercise of the assets and liabilities as at the date of acquisition will be performed on Completion. This will include a fair valuation of the future cash flows associated with ALAC's in-force insurance contracts. The resultant asset will be recognised as Acquired Value of In-Force business (''AVIF'') in the statement of consolidated financial position.
			An adjustment has been made for the indicative annualised effect of amortising the estimated AVIF asset and related deferred tax liability shown in the pro forma statement of net assets over the estimated weighted average life of the acquired contracts of 9 years.
			This has resulted in the following adjustments:
			(i) A net £18 million charge within ''Total operating expenses'', representing the indicative amortisation of AVIF charge of £29 million, partly offset by the reversal of the £11 million charge recognised by ALAC pertaining to the change in the ''Investment contracts intangible'' asset. This ''Investment contracts intangible'' asset is replaced by the ''AVIF'' asset on consolidation; and
			(ii) A £3 million credit within the line item ''Tax attributable to owners'', representing the unwind of the deferred tax liability on the AVIF of £5 million, net of the £2 million charge relating to the reversal of the deferred tax credit recognised on the movement in the ALAC ''Investment contracts intangible'' asset.
	(c)		A charge of £5 million has been recognised in ''Finance costs'' to reflect the estimated annual interest charges calculated under the effective interest method and payable under the Abbey Life Bridge Facility Agreement entered into to finance part of the Acquisition.
(5)			In preparing the unaudited pro forma IFRS income statement, no account has been taken of the trading activity or other transactions of the Group or ALAC since 31 December 2015.
(6)			In preparing the unaudited pro forma IFRS income statement, no account has been taken of the amortisation of other intangibles or items subject to fair value acquisition accounting, on the basis that the actual amortisation charges will not be known until completion of the fair valuation exercise.
(7)			All of the adjustments described in Notes 4 and 5 to the unaudited pro forma income statement will have a continuing impact, with the exception of the adjustment in relation to the estimated one-off transaction costs.
			Summary selected unaudited pro forma statement of IFRS net assets as at 30 June 2016
								Pro forma adjustments for the Group
				Phoenix(1)	ALAC(2)	Rights Issue(3)	Adjustments to conform disclosures(4)	Acquisition adjustments(5)	Pro forma total
							(£ million)
	Total assets		Total liabilities	69,997 67,191	11,135 10,343	718 —	— —	(516) 298	81,334 77,832
	Net assets			2,806	792	718	—	(814)	3,502

Notes:
(1)			The financial information for the Company has been extracted, without material adjustment, from the Company's Unaudited Interim Report for the six months ended 30 June 2016.
(2)			The financial information for ALAC has been extracted, without material adjustment, from the audited historical financial information for ALAC for the year ended 31 December 2015 prepared in accordance with IFRS.
(3)			The Acquisition will be funded in part by the proceeds of the Rights Issue. The expected gross proceeds of the Rights Issue are £735 million. Fees associated with the Rights Issue are estimated at £17 million, giving net proceeds of £718 million. The Rights Issue equates to the issuance of 144,722,989 Shares at 508 pence per Share.
(4)		Liabilities'' level.	This column reflects that certain adjustments to align the presentation of the ALAC statement of net assets with that of the Group are required, although these items have no net impact at either a ''Total Assets'' or ''Total

	SECTION B—ISSUER
(5)	This column represents the following adjustments:
	(a) An adjustment of £22 million has been made to ''Total Liabilities'' to reflect provision for estimated one-off transaction costs. No tax relief is expected to be available on these expenses.
	(b) An adjustment of £246 million has been made to both ''Total Assets'' and to ''Total Liabilities'' to reflect the borrowings and receipt of proceeds under the £250 million Abbey Life Bridge Facility Agreement entered into to finance part of the Acquisition, net of associated expenses of £4 million.
	(c) Payment of the consideration of £935 million results in a decrease in ''Total Assets'' of that amount.
	(d) Under the requirements of IFRS 3 Business Combinations, it is necessary to fair value the consideration paid and all assets and liabilities acquired as at the acquisition date. This fair valuation exercise will not be performed until completion of the Acquisition, and therefore no adjustments have been made to the fair values of the individual assets and liabilities of ALAC when preparing the unaudited pro forma statement of net assets.
	A significant part of the resultant fair value adjustment would be expected to be the valuation of the future cash flows associated with ALAC's in-force insurance contracts and the subsequent recognition of an acquired value of in-force business asset.
	Whilst the fair value of the projected cash flows will not be known until completion of the acquisition accounting exercise, an indication of the acquired value of in-force to be recognised on Completion has been provided. This has resulted in an increase of £173 million to ''Total Assets'' reflecting recognition of the AVIF asset of £257 million, partly offset by the derecognition of the £84 million ''Investment contracts intangible'' asset previously recognised by ALAC. ''Total liabilities'' have increased by £30 million reflecting the net increase in the deferred tax liability associated with the AVIF and ''Investment contracts intangible'' adjustments detailed above.
(6)	In preparing the unaudited pro forma IFRS net asset statement, no account has been taken of the trading activity or other transactions of the Group since 30 June 2016, and of ALAC since 31 December 2015.
	Unaudited pro forma solvency information
	unaudited pro forma solvency information has been prepared to illustrate the effect on the group solvency position at the level of the highest EEA insurance group holding company, PLHL, as if the proposed Acquisition and Rights Issue had taken place on 30 June 2016. The unaudited pro forma solvency information has been prepared for illustrative purposes only and, because of its nature, addresses a hypothetical situation and does not, therefore, represent the Company or the Enlarged Group's actual financial position, results or solvency position. The unaudited pro forma
	solvency information is stated on the Company's basis of Solvency II reporting (the ''Solvency accounting policies'') expected to be applied by the Company for the year ending 31 December 2016. The unaudited pro forma solvency information does not illustrate the effects of the AXA Transaction.
	Summary unaudited pro forma statement of Enlarged Group Solvency II Surplus as at 30 June 2016
				Pro forma adjustments Financing	Pro forma Enlarged
	Own Funds (£ billion) .	Group(1) 6.1	ALAC(2) 1.0	adjustments(3) (0.2)	6.9
	Solvency Capital Requirement (£ billion)	(5.0)	(0.4)	—	Group total (5.4)
	Solvency II Surplus (£ billion)	1.1	0.6	(0.2)	1.5
	Shareholder Capital Coverage Ratio(4)	144%	—	—	151%
Notes: (1)	In accordance with the PRA's specifications, the Group's Solvency II capital is measured at the level of the highest EEA insurance group holding company, which is PLHL, and includes all of PLHL's subsidiaries. The solvency information for PLHL has been extracted, without material adjustment, from the Company's unaudited Interim Report for the six months ended 30 June 2016.

(2) The Solvency II Own Funds and SCR in respect of ALAC on a standard formula basis have been extracted from the Quantitative Reporting Template submissions to the regulator as at 31 December 2015.

	SECTION B—ISSUER
	Regulatory approval is required to bring the ALAC business onto the Phoenix Internal Model and to recognise transitional measures. The Group does not intend to make the relevant applications until the second half of 2017 (and such approval is within the discretion of the PRA). Until such time, the standard formula will continue to apply to ALAC. Accordingly, no adjustments have been made to recognise the impact on ALAC's SCR of Phoenix's Internal Model, nor the benefit to ALAC's Own Funds of the transitional measures for technical provisions which apply to the Life Companies. In addition, no adjustments have been made to recognise ALAC's Own Funds under the methodologies of the Company's Solvency accounting policies as the impact of these adjustments is immaterial.
(3)	The financing adjustments in connection with the Acquisition include the following items which impact Group Own Funds. These adjustments have no impact on SCR:
	(a) As part of the Rights Issue, the cash receipt of £0.7 billion will be contributed in the form of a capital contribution into PLHL, with a corresponding increase in Group Own Funds.
	(b) The payment of the consideration reduces Group Own Funds by £0.9 billion.
	(c) The receipt of debt financing in the form of on-lending from PGH Capital of the Abbey Life Bridge Facility, increases both cash and borrowings by £0.2 billion respectively. The impact on Group Own Funds is therefore net neutral.
	(d) Expenses incurred in association with the Acquisition and the Rights issue have been borne by Group companies above PLHL in the Phoenix corporate structure and therefore these expenses do not impact on the Group Solvency II Surplus.
(4)	The Shareholder Capital Coverage Ratio represents the ratio of Own Funds to SCR, after elimination of amounts related to unsupported with profit funds and the PGL Pension Scheme. Unsupported with profit funds and pension schemes are those whose Own Funds exceed their SCR.
	As detailed in the table below, the Group Own Funds of £6.1 billion and Group SCR of £5.0 billion include amounts in respect of unsupported with profit funds and the PGL Pension Scheme of £2.4 billion. Excluding these amounts gives a Group Shareholder Capital position of £3.7 billion of Own Funds, £2.6 billion of SCR and a ratio of 144%. The Group Solvency II Surplus is unchanged at £1.1 billion. All of these amounts have been extracted from the Company's unaudited Interim Report for the six months ended 30 June 2016.
	PLHL	Base Solvency II position	Unsupported with profit funds and PGL Pension Scheme	Shareholder Capital
	Own Funds (£ billion) .	6.1	(2.4)	3.7
	SCR (£ billion)	(5.0)	2.4	(2.6)
	Solvency II Surplus (£ billion) Shareholder Capital Coverage Ratio	1.1	—	1.1 144%
	ALAC does not have material with profits businesses and therefore £2.4 billion in relation to PLHL is also excluded from the Enlarged Group's Own Funds and SCR to give a pro forma Shareholder Capital position. As detailed in the table below, for the Enlarged Group this corresponds to Own Funds of £4.5 billion, SCR of £3.0 billion and a ratio of 151%. Again, the Enlarged Group's Solvency II Surplus is unchanged at £1.5 billion.
	Pro forma Enlarged Group	Base Solvency II position	Unsupported with profit funds and PGL Pension Scheme	Shareholder Capital
	Own Funds (£ billion) .	6.9	(2.4)	4.5
	SCR (£ billion)	(5.4)	2.4	(3.0)
	Solvency II Surplus (£ billion)	1.5	—	1.5
	Shareholder Capital Coverage Ratio			151%
(5)	In preparing the unaudited pro forma statement of Group Solvency II Surplus, no account has been taken of the trading activity or other transactions of the Group since 30 June 2016, and of ALAC since 31 December 2015.

	SECTION B—ISSUER
B.9	Profit forecast
	Not applicable. There is no profit forecast or estimate included in this document.
B.10	Qualifications in the audit report on the historical financial information
	Not applicable. There are no qualifications to the auditors' report on the historical financial information of the Company.
B.11	Working capital
	Not applicable. The Company is of the opinion that, taking into account the net proceeds of the Rights Issue and the bank and other facilities available to Group, the Group has sufficient working capital for its present requirements, that is for at least 12 months from the date of publication of this document.

	SECTION C—SECURITIES
C.1	Type and class of securities
	The Rights Issue is being made to all Qualifying Shareholders on the register of members of the Company at close of business on 20 October 2016 (the ''Record Date''), other than, subject to limited exceptions, to Shareholders with a registered address, or resident in, one of the Excluded Territories or one of the other Restricted Territories. Pursuant to the Rights Issue, the Company is proposing to offer 144,722,989 New Shares and the New Depositary Interests related to them to Qualifying Shareholders at 508 pence per New Share. Each New Share is expected to be issued at a premium of 507.9999 pence to its nominal value of A0.0001. When admitted to trading, the New Shares will be registered with ISIN: KYG7091M1096 and SEDOL: B45JKK9.
	The ISIN for the Nil Paid Rights is KYG7091M1740 and the ISIN for the Fully Paid Rights is KYG7091M1823.
C.2	Currency
	The New Shares will be issued with a nominal value of A0.0001 each and the Issue Price will be 508 pence per New Share.
C.3	Issued share capital
	On the 3 October 2016 (being the last practicable date prior to the publication of this document), the Company had 248,098,643 Shares of A0.0001 each (fully paid) and the nominal share capital of the Company amounted to A24,809.86.
C.4	Rights attaching to the Shares
	The New Shares will, when issued and fully paid, rank equally in all respects with the Existing Shares, including the right to receive all dividends and other distributions made, paid or declared after the date of issue of the New Shares.
C.5	Restrictions on transferability
	There are no restrictions on the transferability of the New Shares.
C.6	Admission to trading
	Application will be made to the FCA and to the London Stock Exchange for the New Shares to be admitted to the premium listing segment of the Official List and to trading on the London Stock Exchange's main market for listed securities respectively. It is expected that Admission (nil paid) will become effective on 25 October 2016 and that dealings in the New Shares will commence, nil paid, as soon as practicable after 8.00 a.m. on that date.
C.7	Dividend policy
	Given the long-term run-off nature of the Group's business, the Directors believe it is prudent to maintain a stable, sustainable dividend.

SECTION C—SECURITIES The Company's dividend per share was 53.4 pence in respect of each of the years ended 31 December 2013, 2014 and 2015. The Company paid an interim dividend in respect of 2016 in line with the 2015 dividend of 26.7 pence per share. As a result of the AXA Transaction, the Board is expecting to increase the final dividend in respect of 2016 by 5 per cent., equivalent to 28.0 pence per share before adjusting the dividend per share for the bonus element of the Rights Issue. This would result in a full year dividend in respect of 2016 equivalent to 54.7 pence per share and would increase dividends to the equivalent of 56.0 pence per share on an annualised basis (in each case, before adjusting the dividend per share for the bonus element of the Rights Issue). Holders of New Shares will be eligible to receive the 2016 final dividend, which the Group expects to declare in March 2017. The incremental cashflow generation from the Acquisition supports (subject to regulatory approval) a proposed further 5 per cent. increase in the dividend per share with effect from the interim dividend payable in respect of 2017, equivalent to a total increase in the dividend per share of 10 per cent. from the 2015 level. The percentage increases in dividend per share have been stated after adjusting the 2015 dividend per share for the bonus element of the Rights Issue and are based on the Closing Price per share of 838.5 pence as at 27 September 2016. All dividends are subject to the non-objection of the PRA. In connection with the AXA Transaction, the Group entered into the AXA Bridge Facility Agreement in an aggregate amount of £220 million (the ''AXA Bridge Facility''). The Group intends to repay the AXA Bridge Facility in full by the end of March 2017 using cashflows from the Group's business or the proceeds from longer term debt issuances. In the event that the AXA Bridge Facility is not repaid in full by March 2017 when the Board expects to approve the Company's final dividend for the year ending 31 December 2016, the Directors may review the appropriate level of the final dividend for such year. The Group currently maintains a significant regulatory capital surplus and has £921 million of cash at the holding company level (including £190 million from an equity placing in connection with the AXA Transaction) as at 30 June 2016, providing further support for a stable and sustainable dividend policy. The incremental cashflow generation from the Acquisition supports (subject to regulatory approval) the proposed further 5 per cent. increase in dividend per share, meaning a total increase in the dividend per share of 10 per cent. from the 2015 level after adjusting for the bonus element of the Rights Issue. The Directors believe this is a sustainable level at which to rebase the dividend going forward. The Group has received confirmation from the PRA that the PRA will adopt ''other methods'' to ensure that it has appropriate supervision at the level of the Company and the Solvency II group supervision regime will apply at the EEA parent level (i.e., to PLHL and its subsidiaries). Such ''other methods'' include, amongst other things, the need for the Company to seek the PRA's non-objection before declaring dividends. The ''other methods'' restrictions and conditions are due to expire on 30 June 2017.

			SECTION D—RISKS
D.1			Key risks specific to the Group, the Enlarged Group and their industry
	•		The Group's business is subject to the following key risks stemming from the economy and the performance of financial markets generally:
		•	risks arising from economic conditions in the United Kingdom and other markets in which it operates or in which its and its policyholders' investments are invested;
		•	risks arising from the continuing global economic weakness, such as those associated with the Eurozone crisis and Brexit; and
		•	declines in equity markets, bond markets or property prices, significant movements in swap yields relative to gilt yields, changes in interest rates and inflation risks.
	•		The Group's business is subject to the following key regulatory risks:
		•	changes in law and regulation and/or industry wide changes in approach to law and regulation;
		•	the risk of potential intervention by the FCA, the PRA and other regulators, including on industry-wide issues, and individual and groups of customers referring disputes with the Group to the FOS;
		•	changes in regulatory capital requirements;
		•	the expiry of the Group's ''other methods'' waiver that may result in a reduction in the Own Funds available to match the group regulatory capital requirement;
		•	the thematic review on the fair treatment of long standing customers in the life insurance sector; and
		•	the thematic review on annuity sales practices.
	•		The Group's business is subject to the following key operational risks:
		•	changes in accounting standards that may lead to increases in the level of provisioning or additional provisions being made;
		•	dependence of the Holding Companies upon distributions from their subsidiaries to cover operating expenses, debt payments, pension scheme contributions and dividend payments;
		•	restrictions on the ability of certain members of the Group to pay dividends, or a failure to pay dividends according to the Group's dividend policy;
		•	changes in actuarial assumptions that may lead to increases in the required level of reserving and regulatory capital;
		•	failure to reduce the expenses of managing long-term business in line with the run-off profile of the Group's funds;
		•	risk management policies and procedures being ineffective;
		•	liabilities relating to product guarantees increasing;
		•	failure to attract, motivate and retain key personnel of the Group; and
		•	further contributions, in addition to those already agreed, being required to be made to the Group's defined benefit pension schemes.
	•		The Group's business is subject to the following key risks as a result of the actions of third parties and other counterparties involved in its business:
		•	reliance by the Group on third party asset management firms to manage the Group's assets;
		•	difficulties arising from the Group's outsourcing relationships;
		•	a failure to maintain the availability of the Group's systems and to safeguard the security of the Group's data;

	SECTION D—RISKS
	• third party reinsurers being unwilling or unable to meet their obligations under reinsurance contracts, or varying or reducing the nature and scope of their cover; and
	• legal and arbitration proceedings that could cause the Group to incur significant expenses.
	• The Group's business is subject to risks as a result of the level of its indebtedness. The Group's finance facilities and debt instruments also include covenants restricting the Group from taking certain actions.
	• The Group's business is subject to certain risks that could arise as a result of changes in taxation law, including future changes in the tax legislation affecting specific products offered by the Group and changes to the current VAT rules if they were to result in VAT being chargeable on certain of the Group's outsourcing agreements.
	Key risks specific to the Acquisition
	• The Acquisition is subject to a number of conditions which may not be satisfied or waived.
	• There can be no assurance that regulators or authorities will approve the Acquisition or the AXA Transaction or not seek to impose new or more stringent conditions on the Group.
	• The Enlarged Group may fail to realise the expected benefits of the Acquisition and/or the AXA Transaction, and the value of Abbey Life may be less than the consideration paid.
	• The Company has limited management resources and thus may become distracted or overstretched by the process of integrating and managing the Enlarged Group.
	• The Acquisition may not complete and, if the Directors fail to identify alternative acquisitions, shareholders may be returned amounts from the net proceeds of the Rights Issue that are less than the original amounts paid.
D.3	Key risks specific to the Shares, the Nil Paid Rights or the Fully Paid Rights
	• The price of the Nil Paid Rights, the Fully Paid Rights, the Shares and/or the Depositary Interests could be subject to significant fluctuations.
	• There may not be an active trading market for the Nil Paid Rights, the Fully Paid Rights, the New Shares or the New Depositary Interests.
	• Shareholders who do not acquire New Shares and/or New Depositary Interests in the Rights Issue will experience dilution in their ownership of the Company.
	• Shareholders outside the UK may not be able to subscribe for New Shares and/or New Depositary Interests in the Rights Issue.

	SECTION E—OFFER
E.1	Net proceeds and estimated expenses
	The net proceeds of the Rights Issue are expected to be approximately £718 million (net of expenses). The total costs, charges and expenses payable by the Company in connection with the Rights Issue are estimated to be approximately £17 million (inclusive of VAT). No expenses will be charged by the Company to the purchasers of the New Shares.
E.2a	Reasons for the Rights Issue and use of proceeds
	The proceeds of the Rights Issue will be used to fund part of the consideration for the Acquisition, together with the associated transaction and acquisition costs. The net proceeds of the Rights Issue will either be placed on deposit pending Completion or lent to other companies within the Group and used in repayment of external debt which can be redrawn on a certain funds basis prior to Completion. If Completion does not take place before the Long Stop Date, the Directors intend to retain the net proceeds of the Rights Issue for use within the next 12 months on alternative acquisitions consistent with the Group's acquisition criteria and strategy. Failing this, the Directors will either seek to return the net proceeds of the Rights Issue to shareholders in a tax efficient and practicable manner or seek shareholders approval to continue to hold the net proceeds of the Rights Issue for general corporate purposes. Returning the net proceeds to shareholders by way of dividend or by certain other means would be subject to the non-objection of the PRA.
E.3	Terms and conditions of the Rights Issue
	Pursuant to the Rights Issue, the Company is proposing to offer 144,722,989 New Shares and New Depositary Interests by way of a Rights Issue to Qualifying Shareholders other than, subject to limited exceptions, to Shareholders with a registered address, or resident in, one of the Excluded Territories or one of the other Restricted Territories. The offer is to be made at 508 pence per New Share, payable in full on acceptance by no later than 11.00 a.m. on 8 November 2016. The Directors intend to apply the proceeds of the Rights Issue to fund part of the consideration for the Acquisition, together with the associated transaction and acquisition costs. The net proceeds of the Rights Issue will either be placed on deposit pending Completion or used in repayment of debt which can be redrawn on a certain funds basis prior to Completion. The Rights Issue is expected to raise approximately £718 million (net of expenses). The Issue Price represents a 39.4 per cent. discount to the Closing Price of 838.5 pence per Share on 27 September 2016 (being the last Business Day before the announcement of the Acquisition and the terms of the Rights Issue) and a 29.1 per cent. discount to the theoretical ex-rights price of 716.7 pence per Share calculated by reference to the Closing Price on 27 September 2016. The Rights Issue will be made on the basis of:
	7 New Shares at 508 pence per New Share for every 12 Existing Shares
	held by Qualifying Shareholders at the close of business on the Record Date.
	Entitlements to New Shares and/or New Depositary Interests will be rounded down to the nearest whole number and fractional entitlements will not be allotted to Shareholders but will be aggregated and issued into the market for the benefit of the Company. Holdings of Existing Shares in certificated and uncertificated form will be treated as separate holdings for the purpose of calculating entitlements under the Rights Issue.
	The Rights Issue will result in 144,722,989 New Shares being issued (representing approximately 58.3 per cent. of the existing issued share capital and, assuming no additional Shares are issued prior to the Rights Issue, approximately 36.8 per cent. of the enlarged issued share capital immediately following completion of the Rights Issue).
	The Rights Issue is fully underwritten by the Banks pursuant to the Sponsors and Underwriting Agreement.
	The Rights Issue is conditional, inter alia, upon:

	SECTION E—OFFER
	(i) the Sponsors and Underwriting Agreement having become unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms prior to Admission;
	(ii) Admission becoming effective by not later than 8.00 a.m. on 25 October 2016 (or such later time and/or date as the Company may agree with the Global Coordinators); and
	(iii) the passing, without material amendment, of the Resolutions.
	The New Shares, when issued and fully paid, will rank pari passu in all respects with the existing issued Shares, including the right to receive dividends or distributions made, paid or declared after the date of this document. Application will be made to the FCA and to the London Stock Exchange for the New Shares to be admitted to the Official List and to trading on the London Stock Exchange. It is expected that Admission will occur and that dealings in the New Shares (nil paid) on the London Stock Exchange will commence at 8.00 a.m. on 25 October 2016.
E.4	Material interests
	Not applicable. There are no interests, including conflicting interests, that are material to the Rights Issue.
E.5	Selling Shareholder and details of any lock-up agreement
	Not applicable. The Rights Issue comprises an offer of New Shares to be issued by the Company and no lock-up agreement has been executed in respect of the Rights Issue.
E.6	Dilution
	Qualifying Shareholders who do not take up their entitlements to New Shares and/or New Depositary Interests will have their proportionate shareholdings in the Company diluted by up to approximately 36.8 per cent. as a consequence of the Rights Issue.
E.7	Estimated expenses charged to the investor
	Not applicable. Qualifying Shareholders will not be charged expenses by the Company in respect of the Rights Issue.

RISK FACTORS

The Rights Issue and any investment in the Shares, New Shares or the New Depositary Interests are subject to a number of risks. Accordingly, Shareholders and prospective investors should carefully consider the factors and risks associated with any investment in the Shares, the New Shares or the New Depositary Interests, the Group's and the Enlarged Group's business and the industry in which it operates, together with all other information contained in this document and all of the information incorporated by reference into this document, including, in particular, the risk factors described below, and their personal circumstances, prior to making any investment decision. Some of the following factors relate principally to the Group's and the Enlarged Group's business. Other factors relate principally to the Rights Issue and an investment in the Shares, the New Shares or the New Depositary Interests. The Group's business and the Enlarged Group's business, operating results, financial condition and prospects could be materially and adversely affected by any of the risks described below. In such case, the market price of the Nil Paid Rights, the Fully Paid Rights, the Shares, the New Shares and/or the New Depositary Interests may decline and investors may lose all or part of their investment.

Prospective investors should note that the risks relating to the Group and the Enlarged Group, its industry and the Shares, the New Shares and the New Depositary Interests summarised in the section of this document headed ''Summary'' are the risks that the Directors believe to be the most essential to an assessment by a prospective investor of whether to consider an investment in the Shares, the New Shares or the New Depositary Interests. However, as the risks which the Group and the Enlarged Group face relate to events and depend on circumstances that may or may not occur in the future, prospective investors should consider not only the information on the key risks summarised in the section of this document headed ''Summary'' but also, among other things, the risks and uncertainties described below.

The following is not an exhaustive list or explanation of all risks which investors may face when making an investment in the Shares, the New Shares or the Depositary Interests and should be used as guidance only. Additional risks and uncertainties relating to the Group and the Enlarged Group that are not currently known to the Group, or that it currently deems immaterial, may individually or cumulatively also have a material adverse effect on the Group's and the Enlarged Group's business, prospects, operating results and financial position and, if any such risk or risks should occur, the price of the Shares, the New Shares and the New Depositary Interests may decline and investors could lose all or part of their investment. Investors should consider carefully whether an investment in the Shares, the New Shares or the New Depositary Interests is suitable for them in the light of the information in this document and their personal circumstances.

References in this section to the Group include references to the Group following completion of the Acquisition and the AXA Transaction (the ''Enlarged Group'').

RISKS RELATING TO THE ACQUISITION

The Acquisition is subject to a number of conditions which may not be satisfied or waived.

Completion is subject to the satisfaction (or waiver, where applicable) of a number of conditions, including PRA approval, the approval by Shareholders of the Acquisition as a Class 1 transaction under the Listing Rules and the Company receiving the proceeds of the Rights Issue. Although the Company and each of the other parties to the Sale and Purchase Agreement has agreed to use reasonable efforts to satisfy each condition as promptly as practicable after signing the Sale and Purchase Agreement, there is no assurance that these (or other) conditions will be satisfied (or waived, if applicable) either at or before the Long-Stop Date, in which case the Acquisition may not be completed. No assurance can be given that all necessary approvals, clearances or conditions will be obtained, satisfied or waived and that Completion will take place. If the Acquisition does not complete, the Company would nonetheless have incurred approximately £8 million of costs (primarily due diligence, advisory and financing fees) in connection with the Acquisition. Failure to complete the Acquisition may materially adversely affect the business and financial condition of the Group and, accordingly, the Group's operating results and the trading price of the Shares.

There can be no assurance that regulators or authorities will approve the Acquisition or the AXA Transaction or not seek to impose new or more stringent conditions on the Group.

If the PRA's consent is given for the Acquisition or the AXA Transaction, the PRA may impose conditions to either completion, changes to the terms of the Acquisition or the AXA Transaction, or additional requirements, limitations or costs on the business of the Group. There can be no assurance that any such conditions or other legal or regulatory conditions or undertakings will not materially limit the revenues of the Group, impose additional regulatory capital requirements on the Group, restrict the ability of the

Group to distribute or release cash, increase the costs of the Group, reduce the ability of the Group to achieve cost synergies and/or lead to the abandonment of the Acquisition or the AXA Transaction or otherwise affect the Group's practices. Such conditions and/or undertakings may materially adversely affect the Group's business, results, financial condition and prospects.

The Enlarged Group may fail to realise the expected benefits of the Acquisition and/or the AXA Transaction.

The Group, following completion of the Acquisition and/or the AXA Transaction, may not realise the expected benefits and synergies from the Acquisition or may encounter difficulties or higher costs in achieving those expected benefits and synergies. For example, due diligence investigations prior to the Acquisition and/or the AXA Transaction may not have identified material liabilities or risks within Abbey Life and/or the SunLife Embassy Business or adequately assess the value of Abbey Life and/or the SunLife Embassy Business. Realisation of the expected benefits of the Acquisition will depend largely on integrating the risk, financial, technological and management standards, processes, procedures and controls of Abbey Life and/or the SunLife Embassy Business with those of the Group's existing operations and there may be challenges in managing the increased scope and complexity of the Enlarged Group's operations. In addition, some actions may require consent or non-objection from the PRA, or another regulator, and such consent or non-objection (as applicable) may not be forthcoming or be subject to conditions which limit the expected benefits of the Acquisition and/or the AXA Transaction. Any changes to the structure of the Group as a result of the Acquisition and/or the AXA Transaction may also result in a reduction in brought forward tax losses.

The Enlarged Group may also face difficulties integrating the business of Abbey Life and/or the SunLife Embassy Business, including incorporating Abbey Life's and/or the SunLife Embassy Business' management, employees, structures, systems and other operational functions into the existing operations of the Group, particularly where such businesses differ from the Group's existing businesses. There is also no assurance that the integration of Abbey Life and/or the SunLife Embassy Business as part of the Enlarged Group will be successful. The expected cost synergies from the Acquisition are also based upon assumptions about the Enlarged Group's ability to integrate Abbey Life in a timely fashion and within certain cost parameters. The Enlarged Group's ability to achieve the planned cost synergies is dependent upon a significant number of factors, some of which may be beyond its control. If one or more of the underlying assumptions regarding the integration of Abbey Life and/or the SunLife Embassy Business prove to be incorrect, it may not be possible to achieve the expected cost synergies.

Any failure to realise the increased earnings, cost savings and synergies for the Enlarged Group described in Part I (''Letter from the Chairman of Phoenix Group Holdings'') of this document and elsewhere in this document could have a material adverse effect on the Group's business, results, financial condition and prospects.

The value of Abbey Life may be less than the consideration paid.

Prior to Completion, the Company has limited rights to terminate the Acquisition. Accordingly, in the event that there is an adverse event affecting the value of Abbey Life or the value of the Abbey Life business declines prior to Completion, the value of the Abbey Life business purchased by the Group may be less than the consideration agreed to be paid and, accordingly, the net assets of the Enlarged Group could be reduced. There can be no assurance that the Company will be able to renegotiate the consideration paid for Abbey Life and the Company may therefore pay an amount in excess of market value for Abbey Life, which could have an adverse effect on the business and financial condition of the Enlarged Group.

The Company has limited management resources and thus may become distracted or overstretched by the process of integrating and managing the Enlarged Group.

The Company is concurrently executing the Acquisition and the AXA Transaction. The Group will be required to devote significant management attention and resources to executing the Acquisition and the AXA Transaction and subsequently integrating the business practices and operations of Abbey Life and the SunLife Embassy Business concurrently. While the Group has carried out significant planning in respect of these acquisitions, there is a risk that the challenges associated with integrating and managing the Enlarged Group (including in respect of systems and controls) may result in management distraction or overstretch and the deferral of certain planned management actions. Consequently the Group's businesses may not

perform in line with management or shareholder expectations, which could have an adverse effect on the Group's business, results, financial condition and prospects.

The Acquisition may not complete and, if the Directors fail to identify alternative acquisitions, Shareholders may be returned amounts from the net proceeds of the Rights Issue that are less than the original amounts paid by Shareholders in connection with the Rights Issue.

The Directors intend to apply the proceeds of the Rights Issue to fund part of the consideration for the Acquisition, together with the associated transaction and acquisition costs. The net proceeds of the Rights Issue will either be placed on deposit pending Completion or lent to other companies within the Group and used in repayment of external debt which can be redrawn on a certain funds basis prior to Completion. If Completion does not take place before the Long Stop Date, the Directors intend to retain the net proceeds of the Rights Issue for use within the next 12 months on alternative acquisitions consistent with the Group's acquisition criteria and strategy. Failing this, the Directors will either seek to return the net proceeds of the Rights Issue to shareholders in a tax efficient and practicable manner or seek shareholders approval to continue to hold the net proceeds of the Rights Issue for general corporate purposes. Returning the net proceeds to shareholders by way of dividend or by certain other means would be subject to the non-objection of the PRA. There can be no assurance that the Directors would be able to identify suitable alternative acquisitions, in which case the sums eventually returned to Shareholders from the net proceeds of the Rights Issue may be less than the original amounts paid by Shareholders in connection with the Rights Issue.

RISKS RELATING TO THE GROUP

Economy and Financial Markets

The Group's business is subject to risks arising from economic conditions in the United Kingdom and other markets in which it operates or in which its and its policyholders' investments are invested and from risks arising from the continuing global economic weakness, such as those associated with the Eurozone crisis and the vote by the United Kingdom to leave the European Union, also known as ''Brexit''.

The Group's business is subject to risks arising from general and sector-specific economic conditions in the markets in which it operates or invests, particularly the United Kingdom, in which the Group's earnings are and will be predominantly generated and in which its and its policyholders' investments are predominantly invested. Although investment risks are often borne, in whole or in part, by its policyholders in accordance with the terms of the relevant policies, fluctuations in investment markets and the general rate of inflation will, directly and indirectly, affect the Group's financial position, including its value, its reserving and regulatory capital requirements and its results. Substantial decreases in the value of investments could lead to shareholder capital of the Life Companies and the AXA Life Company being required to meet obligations to policyholders and reserving and regulatory capital requirements and could restrict the ability of the Life Companies and the AXA Life Company to distribute dividends or release capital to service or pay down debt. Such decreases may also encourage policyholder retention to decrease, and withdrawals to increase, as policyholders seek to reduce their exposure to the Group's investments. Decreases in the value of investments could also require further capital to be held to cover pension scheme obligations.

The exact impact of market risks faced by the Group is uncertain, difficult to predict and respond to, in particular, in view of (i) the unpredictable consequences of the vote by the United Kingdom to leave the European Union, also known as ''Brexit'', (ii) difficulties in predicting the rate at which any economic deterioration may occur, and over what duration and (iii) the fact that many of the related risks to the business are totally, or partly, outside the control of the Group.

Economic conditions in the United Kingdom and other markets in which the Group operates or in which the Group's and its policyholders' investments are invested could therefore have a material adverse effect on the Group's business, results, financial condition and prospects.

Competition, regulatory restrictions and an inability to raise acquisition financing in the future may make it difficult for the Group to execute its M&A strategy and future acquisitions and disposals, which could have an adverse effect on the Group.

The Group's strategy includes the disciplined acquisition of closed life fund companies and portfolios in order to offset the natural decline inherent in a largely closed book business as well as to grow the business and create additional value from scale advantages.

The Group's ability to acquire closed life fund companies and portfolios will depend upon a number of factors, including its ability to identify suitable acquisition opportunities, its ability to consummate acquisitions on favourable terms and the Group's ability to obtain financing to make acquisitions and support growth. Additionally the Group's ability to obtain required regulatory consents from the FCA and PRA and other relevant regulatory authorities for acquisitions, disposals and insurance business transfers under Part VII of FSMA will depend on, amongst other things, the financial condition of the Group, the AXA Life Company and the Life Companies, the financial implications of any acquisition on the Group, the impact of such implications on new and existing policyholders and wider risks to policyholder security as a result of the financial condition of the Group.

There are other closed life fund consolidators as well as a number of other potential purchasers, including other insurance companies, banks, hedge funds and private equity firms, which may result in increased competition (and therefore prices paid) for acquisitions of closed life companies. External factors which influence sector participants' decisions to seek to dispose of their insurance interests could also impact the Group's ability to make acquisitions.

In connection with any future acquisitions, the Group may experience unforeseen difficulties as it integrates the acquired companies and portfolios into its existing operations. These difficulties may require significant management attention and financial resources.

In addition, future acquisitions involve risks more generally, including:

due diligence investigations not identifying material liabilities or risks within the acquired business or adequately assessing the value of the acquired business;
difficulties in integrating the risk, financial, technological and management standards, processes, procedures and controls of the acquired business with those of the Group's existing operations;
challenges in managing the increased scope and complexity of the Group's operations;
triggering or assuming liabilities, including employee pension liabilities;
failure to achieve the anticipated benefits and synergies from acquisitions;
distraction of management from existing businesses;
unexpected losses of key employees of the Group and the acquired business;
the value of any acquired business being less than the consideration paid as a result of adverse events affecting the value;
changing the structure of the Group, which may result in a reduction in brought forward tax losses; and
the Company being placed under negative watch by rating agencies and losing its investment grade rating due to the inherent risks of acquisitions such as an increase in leverage ratio and the failure to successfully integrate acquisitions.

If the Group decides to dispose of a company which it owns, or the business or assets of such a company, such as a block of annuities, there is no guarantee that it will find a purchaser for such a company, business or assets, or that a potential purchaser will have the same view of the value of such company, business or assets. In addition, significant acquisitions and disposals by the Group may require the consent of the Group's bank lenders and there can be no assurance that the Group would be able to obtain such consents. Any of these factors may mean that the Group is unable to realise the target value of such company, business or assets.

If the Group is unable to acquire additional closed life fund companies and portfolios in line with its strategy in the medium term or successfully meet the challenges associated with any future acquisitions or disposals, this could have a material adverse effect on the Group's business, results, financial condition and prospects.

Significant declines in equity markets, bond markets or property prices, or significant movements in swap yields relative to gilt yields, could have an adverse effect on the Group.

As at 30 June 2016, funds of the Life Companies were invested as follows: 48 per cent. in government, supranational, corporate debt and other fixed income securities; 19 per cent. in cash and cash equivalents; 24 per cent. in equity securities; 2 per cent. directly in property; and 7 per cent. in other investments. AXA Wealth Limited (the ''AXA Life Company'') and Abbey Life Assurance Company Limited (''ALAC'') also have significant equity holdings within their unit-linked portfolios, as well as exposures to government and other fixed interest securities through their investment holdings.

Although, subject to certain guaranteed benefits (see paragraph below), policyholders bear most of the impact of falls in equity, debt and property values in accordance with the terms of their policies, significant decreases in the market prices of the Group's equity, debt and property investments could reduce the amounts available to fund its long-term policyholder obligations. This, in turn, could increase liquidity risks and could lead to shareholder capital of the Life Companies and the AXA Life Company being retained or shareholder capital available within the Group being required to be injected into the Life Companies and the AXA Life Company to meet obligations to policyholders and regulatory capital requirements. Further capital could also be required to cover the Group's pension scheme obligations.

Certain of the benefits due to policyholders do not track the performance of the underlying investments held in respect of their policies, in particular some of the Group's with-profit policies and a number of the Group's unit linked policies offer guaranteed benefits. These policies increase the Group's financial exposure to investment risk because it is exposed to the mismatch between performance and the benefits it has to offer policyholders. The Group has implemented hedging arrangements which seek to protect it to an extent against declines in equity markets but not all investment exposure is hedged and it may not be possible, feasible or desirable to hedge such exposure in the future. To the extent that these exposures have not been hedged, the Group may have to meet the mismatch between the benefits to be paid under the policies and the performance of the underlying assets.

Relative movements in credit spreads, gilt yields and swap yields may affect the calculated value of the assets and liabilities of the Group and different financial and actual metrics which are applied to the Group (including those in this document) will respond in different ways. For example, the market value of the Group's holdings in gilts will move in line with changes in gilt yields, whereas the Group's holdings in certain other assets such as swaps, swaptions and other derivatives will move in line with swap yields. For Solvency II reporting, and the calculation of reserving and regulatory capital, the Group's liabilities generally move in line with swap yields. Changes in the relative swap yields versus gilt yields could therefore have adverse impacts on the Group's regulatory capital position and its Own Funds, and the impacts may not move in a linear fashion. The Group implements hedging arrangements which seek to partially mitigate some changes in relative yields but not all exposure is hedged and it may not be possible, feasible or desirable to hedge all such exposures in the future. Similarly, movements in credit spreads may also adversely impact on the Group's capital and profit positions. Asset valuations change by reference to the entire change in the credit spread, whereas the liability calculation may only reflect part or none of the movement in credit spread depending on the type of business and the metric being considered.

Other EU countries may seek to conduct their own referenda on their continuing membership of the European Union. Brexit and other referenda could adversely affect UK, European or worldwide economic or market conditions and could contribute to instability and volatility in global financial markets, which could act as a drag on the relative valuations of UK equities or other companies making use of the single market from the United Kingdom, with a negative impact on insurers, such as the Group, whose assets are exposed to UK and other markets. Brexit may also impact on foreign exchange and interest rates, which will also have an impact on the value of an insurer's investment portfolio, or any collateral that it holds.

Any significant declines in equity markets, bond markets, interest rates (including for sovereign debt) or property prices, or significant movements in swap yields relative to gilt yields or credit spreads, and corresponding changes to reserving and regulatory capital requirements, could therefore have a material adverse effect on the Group's business, results, financial condition and prospects.

The Group may be adversely affected by changes in interest rates and inflation risks.

The Group's exposure to interest rate and inflation risks relates primarily to the variability of market prices and cashflow of assets relative to liabilities associated with changes in interest and inflation rates.

The Group's obligations to pension schemes and policyholders vary as interest rates fluctuate as they are discounted based on the level of long-term interest rates. As a result, a reduction in long-term interest rates or negative interest rates increases the amount of the Group's liabilities. The Group attempts to match a significant proportion of its liabilities with assets whose sensitivity to interest rates is the same as, or similar to, that of the underlying liabilities. However, to the extent that such asset-to-liability matching is not practicable or fully achieved, there may be differences in the impact of changes in interest rates on assets and liabilities, which could have a material adverse effect on the Group's business, results, financial condition and prospects. Changes to inflation rates could also have an adverse impact on the Group, primarily as a result of increased pension scheme obligations.

The Group's with-profit funds are exposed to additional interest rate risk as the funds' guaranteed liabilities are valued based on market interest rates, with the funds' investments including fixed-interest investments and derivatives. As a result, declines in interest rates or negative interest rates could materially decrease the amount of distributions from the Group's with-profit funds which are available to policyholders or Shareholders, and this could have a material adverse effect on the Group's business, results, financial condition and prospects.

The Life Companies and the AXA Life Company are required to hold a risk margin under Solvency II. This risk margin will increase significantly if there is a material fall in long term interest rates. The Life Companies and the AXA Life Company expect to be able to offset the impact of such a fall through applying to the PRA for a recalculation of the transitional measures on technical provisions. If the PRA does not approve such a recalculation, then the impact of such a fall would be greater.

On 23 July 2014, the Group entered into the Revolving Credit Agreement, as amended and restated on 21 March 2016. Under the Revolving Credit Agreement, the lenders have made available a multicurrency revolving loan facility in an aggregate amount equal to £650 million, which bears a floating rate of interest.

On 27 May 2016, the Group entered into the £220 million AXA Bridge Facility Agreement. The Group has also entered into the £250 million Abbey Life Bridge Facility Agreement to finance part of the Acquisition. Increases in interest rates, to the extent not hedged, may lead to material increases in the Group's interest payments, which could have a material adverse effect on the Group's business, results, financial condition and prospects.

Due to the long-term nature of the liabilities of the Life Companies and the AXA Life Company, sustained declines in long-term interest rates and negative interest rates may also subject the Group to reinvestment risks and increased hedging costs. Declines in credit spreads may also result in lower spread income. During periods of declining interest rates, issuers may prepay or redeem debt securities that the Group owns, which could force the Group to reinvest the proceeds at materially lower rates of return. This could, in the absence of other countervailing changes, cause a material increase in the net loss position of the Group's investment portfolio, which could have a material adverse effect on the Group's business, results, financial condition and prospects.

Defaults in relation to investments and financial investments and by trading counterparties may adversely affect the Group.

The Group is exposed to counterparty risk. Such counterparty risk may be manifested in deterioration in the actual or perceived creditworthiness of, or default by, issuers of the securities or other financial instruments forming part of the Group's investments. For instance, assets held to meet obligations to policyholders include corporate bonds and other debt securities. Counterparty risk may also include the risk of trading counterparties failing to meet all or part of their obligations, such as reinsurers failing to meet obligations assumed under reinsurance arrangements, or derivative counterparties or stockborrowers failing to pay as required. Counterparty defaults could have a material adverse effect on the Group's business, results, financial condition and prospects. An increase in credit spreads, particularly if it is accompanied by a higher level of issuer defaults, could have a material adverse impact on the Group's financial condition although some of this risk is shared with policyholders.

Furthermore, securities which have been loaned could be redelivered and it may then prove difficult or impossible to return collateral held against those securities in the event that this collateral had been reinvested in assets which have become illiquid.

Additionally, the underlying cash collateral supporting a counterparty's securities-redelivery obligation could be invested by collateral managers in a manner that breaches the terms of their investment mandates, causing the Group to incur losses on its securities-lending transactions, with potential material adverse effects on the Group's business, results, financial condition and prospects.

Regulatory Risks

The Group operates in a regulated sector and its operations and practices may be affected by changes in law and regulation, changes in interpretation or emphasis with respect to existing law and regulation and/or industry wide changes in approach to law and regulation.

The Group operates in the life and pensions sector, which is the subject of continued legal and regulatory change. The legal and regulatory environment in which the Group operates may change, meaning that the Group has to change its practices. Such change can come in the form of a change in law or regulation. For example, Solvency II (which became effective on 1 January 2016) increased the capital requirements on the Life Companies. Alternatively, a relevant regulator may reinterpret or place new emphasis on an existing piece of law or legislation. A good example of this is the thematic review on long term customers. See ''The thematic review on the fair treatment of long standing customers in the life insurance sector may affect the Group's business'' and ''The thematic review on annuity sales practices may affect the Group's business''.

In the United Kingdom, a number of significant changes to law and regulation are currently being proposed or have relatively recently been implemented. In the pensions sector, the effect of certain new laws and regulations has not yet been fully realised, in part because the new laws and regulations may change customer behaviours. Of particular note are the series of legal, tax and regulatory current and forthcoming changes that are described as ''pensions freedoms''. The primary business of the Group is the management of customers' pension policies and the provision of annuities. Historically, the UK's tax regime provided favourable tax treatment for individuals who saved using their pension policies, but then limited the manner in which that tax treatment could be preserved except through the purchase of an annuity. In 2014, the government set in train reforms relating to how people are able to access their pension savings, part of the so called ''pension freedoms''. On 1 April 2015, wide-ranging reforms of UK pensions legislation came into effect, including the cessation of the requirement for pension benefits to be taken in the form of an annuity and a requirement for customers to receive guidance on their options at the time of retirement. The UK government has also consulted on proposals that, if adopted, would, from April 2017, allow a policyholder to sell his or her existing annuity (i) to a third party or (ii) back to the annuity provider. It is expected that there may be a reduction in customer retention in particular when a customer with a pension policy decides to buy an annuity. In addition, the UK government has announced a ''pensions dashboard'' proposal, which is expected to apply from 2019. This will allow customers to view all of their pension policies (across multiple providers). The Group is monitoring and projecting the impact of these reforms on its business, but the true impact will only become clear once relevant laws and regulations are implemented and, following that, a stable pattern of customer experience has emerged.

In addition to the already changing regulatory landscape, it is anticipated that Brexit may result in changes to the United Kingdom and European Union's regulatory system. While the business of the Group primarily is situated in the United Kingdom, some of the changes to the regulatory system may affect the business of the Group. Brexit negotiations are likely to commence to determine the future terms of the United Kingdom's relationship with the European Union. The effects of Brexit will depend on any agreements (or lack thereof) the United Kingdom makes to retain access to EU markets either during a transitional period or more permanently. For example, the Group may have to take mitigating action to allow for the continued operation of its Irish branch in the same manner as it carried out its business prior to Brexit. Similarly, the Life Companies make use of their passporting rights to service a small number of existing customers based in member states of the European Union. These rights may be limited or cancelled in the future. Changes may also affect the regulation of UK business if the United Kingdom and European Union regulatory systems diverge. As a result, it is possible that Brexit may require the Group to take mitigating action, or to change parts of its business.

While the Group's main regulators are the PRA and the FCA in the United Kingdom, it has operations outside the United Kingdom and the law and regulations of a number of other jurisdictions also apply to the Group. These jurisdictions include Ireland, Hong Kong, Jersey, the Cayman Islands, the United States and Bermuda.

As a result, existing law and regulation (where the economic or other impact has not yet been fully realised), changes in law and regulation, changes in interpretation or emphasis in respect to existing law and regulation and/or industry wide changes in approach to regulation, may individually or together have a material adverse effect on the Group's business, results, financial condition and prospects.

The Group is subject to potential intervention by the FCA, the PRA and other regulators on industry-wide issues and to other specific investigations, reports and reviews.

Members of the Group are regulated by the PRA and FCA. The PRA and FCA each has significant statutory powers in respect of the regulation of the Life Companies, the AXA Life Company and ALAC. While regulating the Life Companies, the AXA Life Company and/or ALAC, the PRA and FCA may make regulatory interventions using such powers, including through investigations, requests for data and analysis, interviews or reviews (including skilled persons reports under section 166 of FSMA). In recent years, the PRA and FCA have each adopted an approach of intensive supervision in respect of the life and pensions sector. This is expected to continue. As a result, the Directors believe the incidence of regulatory interventions is likely to increase or remain the same.

The PRA and FCA may also carry out formal ''thematic reviews'' which are sector wide reviews or other informal sector wide inquiries in respect of a theme or common issue or a particular type of product. While these are not expressly targeted at only the Group, the Group has participated and expects to continue to participate in such reviews from time to time.

Regulatory intervention, including of the sort described above, may lead to the FCA and/or PRA (and other relevant regulators or bodies) requiring:

specific remediation in respect of historic practices (which could include compensating customers, fines or other financial penalties);
changes to the Group's practices;
public censure; and/or
the loss, or restriction, of regulatory permissions necessary to carry on the Group's business in the same manner as before, as well as changes to the Group's existing practices.

Certain of the Group's companies, including the Life Companies, the AXA Life Company and ALAC, are subject to regulation in foreign jurisdictions resulting in potential policyholder claims and regulatory intervention in those jurisdictions.

Such regulatory interventions could have a material adverse effect on the Group's business, results, financial condition and prospects, as well as damaging the Group's reputation.

Individual and groups of customers may refer their disputes with the Group to the FOS.

Disputes relating to the sale of financial services products by the Group in the UK are subject to the FOS regime. The FOS exists to resolve disputes involving individual or small business policyholder disputes. While decisions are not currently made public, applicants may pursue customary legal remedies if decisions of the FOS are considered unacceptable. In addition to the FOS, certain of the Life Companies, the AXA Life Company and ALAC are subject to foreign regulation and may fall under the jurisdiction of a non-UK body similar to the FOS.

From time to time, decisions taken by the FOS (or its UK equivalent) may, if extended to a particular class or grouping of policyholders, have a material adverse effect on the Group's business, results, financial condition and prospects.

Regulatory capital and other requirements may change.

Firms that are authorised to underwrite insurance in the UK, like the Life Companies, the AXA Life Company and ALAC, are required to maintain reserves of assets to match their best estimate of their liabilities under the insurance policies they have written (which includes annuities). The excess of assets over liabilities is called ''Own Funds''. The Life Companies, the AXA Life Company and ALAC are also required to maintain sufficient Own Funds to meet the solvency capital requirements (''SCR'') under the

Solvency II regime. In addition, the Group has agreed with the PRA (and may agree in the future) to maintain additional Own Funds to meet capital management policies. In the event of a breach in capital management policies, cash or assets within certain Group companies cannot be used for discretionary purposes (including the payment of dividends or the prepayment of debt) without PRA non-objection.

Since 1 January 2016, the Life Companies, the AXA Life Company and ALAC have been required to carry out regulatory capital calculations under Solvency II, as described under ''Solvency II'' in Part VI (''Regulatory Overview'') of this document. The supervision of the Life Companies, the AXA Life Company and ALAC's regulatory capital requirements is carried out by the PRA. Under existing regulations, stricter regulatory capital requirements may apply to the Group. In addition, existing regulations may be amended in the future or new regulations may be implemented. See ''Regulation applicable to the Group's and Enlarged Group's insurance business'' in Part VI (''Regulatory Overview'') of this document. In particular, the regulatory capital and/or reserving position applicable to the Life Companies are modified by three matters which are within the PRA's discretion and which the Life Companies could lose the benefit of: (i) a Solvency II Internal Model; (ii) the Matching Adjustment; and (iii) the application of transitional provisions, as described below.

Solvency II Internal Model: Solvency II requires that a separate ''solo'' regulatory capital requirement is determined for each Life Company. In addition, Solvency II applies a group regulatory capital requirement, which takes into account the regulatory capital requirements of the Life Companies and also certain features, strengths and weaknesses of the wider Group. The PRA has approved a Solvency II Internal Model in respect of the Group, which ensures that the standard solo and group regulatory capital requirements reflect the features of the Group and the Life Companies. While this Solvency II Internal Model has been approved by the PRA and the Group intends to work with the PRA to further develop the Solvency II Internal Model in the future, it is possible the Group will be unable to agree a major change to the Solvency II Internal Model with the PRA in the future, which could mean the Standard Formula regulatory capital requirements could apply and an additional capital requirement to reflect the risk profile of the Group might be applied by the PRA. This could significantly increase the amount of regulatory capital the Life Companies have to hold. Alternatively, the Group may be required in the future to adopt a partial or more onerous internal model which may also increase the solo and/or group regulatory capital requirements.
Matching Adjustments: The Life Companies apply a ''matching adjustment'' to certain long term liabilities that are closely matched by an assigned matching adjustment portfolio of assets of equivalent nature, term and currency. This also partially mitigates the sensitivity of the balance sheet to changes in the market prices of assets held in the assigned matching adjustment portfolio, in funds where the matching adjustment is approved. The matching adjustment is subject to strict criteria and ongoing compliance in relation to maintenance of close matching, asset and liability characteristics and segregation of the management of the assigned matching adjustment portfolios. The Life Companies have permission from the PRA to apply the matching adjustment in respect of the agreed portfolio of liabilities, thereby reducing the reserves and capital requirements associated with such liabilities and assigned portfolio of assets. This may change in the future.
Transitional Provisions: Solvency II increased the regulatory capital requirements and reserving requirements on the Life Companies. However, some of these increases have been partly mitigated by the introduction of transitional provisions, which are designed to ensure a smooth transition from Solvency I (the old regime) to Solvency II (the new regime). The benefit of the transitional provisions will be phased out over a 16 year period. There remains some uncertainty over the pace of run-off within that period, in particular in circumstances where the transitional provisions are required to be recalculated due to a future material change in the risk profile of the Life Companies. Removal of the transitional provisions could increase the relevant Life Company's and the Group's regulatory capital and reserving requirement.

The Group will seek to agree with the PRA the application of these three elements to Abbey Life's business and the SunLife Embassy Business. If they are not agreed, then some of the anticipated benefits of the Acquisition and the AXA Transaction may not be realised.

The Directors are not aware of any current matters or circumstances that might reasonably be expected to result in the Group losing the benefit of the discretionary matters set out above.

An increase in the regulatory capital and/or reserving requirements of an entity or a restriction on the use of capital within the Group, or a reduction in the value of the Own Funds that can be used to meet such requirements, may reduce the profits of the Group or trap cash or assets in certain Group Companies. There are also circumstances where the Group may choose to move cash or assets from another part of the Group to meet an increased regulatory capital requirement. Consequently, a change in the regulatory capital and/or reserving requirements applied to certain Group Companies, and in particular the loss of certain discretionary reductions in those requirements in respect of the Life Companies (and ultimately, the AXA Life Company and ALAC), could have a material adverse effect on the Group's business, results, financial condition and prospects.

The expiry of the ''other methods'' waiver may result in a reduction in the Own Funds available to match the group regulatory capital requirement.

The PRA has granted the Group an ''other methods'' waiver which allows for an amendment to the standard methodology for Solvency II group supervision. This means the Solvency II group supervision regime will only apply below the EEA parent level (i.e., to PLHL and its subsidiaries) and not at the level of the ultimate parent (i.e., including the Company and all of its subsidiaries). This is important because the Company and certain of its subsidiaries currently have obligations in connection with certain debt instruments which would, if the calculation was to be applied at the level of the Company (and so include the Company and all of its subsidiaries), reduce the Solvency II group Own Funds available to meet the group regulatory capital requirement. In other words, the Own Funds deemed to be held by the Solvency II group would reduce as a result of the inclusion of the Company and certain of its subsidiaries within the group regulatory capital calculation.

The ''other methods'' waiver is due to expire on 30 June 2017. The Directors are not aware of any matters or circumstances which might reasonably be expected to result in the Group losing the benefit of the ''other methods'' wavier prior to its expiry on 30 June 2017. Based on the information and business projections currently available to the Directors, even without the mitigating actions below, the inclusion of the Company and all of its subsidiaries within the group regulatory capital calculation would not result in a breach of the group regulatory capital requirement at the time the waiver expires, although the level of surplus Own Funds above the group regulatory capital requirement may well be affected as a result.

The Group is taking steps to mitigate the effect of the inclusion of the Company and all its subsidiaries on the surplus group Own Funds which exist above the group regulatory capital requirement, so that when the waiver expires the negative effect on the surplus is limited. While issuing Shares pursuant to the Rights Issue will increase the Solvency II group Own Funds, the Group may also consider taking other actions. The Group is considering issuing additional subordinated debt to replace the existing senior debt, because, unlike senior debt, the issue of subordinated debt which meets certain regulatory requirements will increase the Solvency II group Own Funds used to meet the Solvency II group regulatory capital requirement. In connection with the ''other methods'' waiver, but also as a result of a number of other factors, the Board is considering the optimal holding company structure for the Group and intends to establish a new holding company incorporated under English law for the Group in due course. The Directors believe that this will provide the Group with a streamlined internal governance structure, reducing operating expenses and complexity, and providing greater clarity for the Group's stakeholders, including shareholders, bondholders and other providers of debt. It will also simplify the supervision of the Group by its regulators, including the PRA. To establish a new holding company incorporated under English law, the Company may need to obtain the consent of shareholders and various regulatory approvals, which are not wholly within the control of the Directors. Any mitigating management actions, including any streamlining of the corporate structure, may not fully mitigate the impact of the Company and its subsidiaries being included within the group regulatory capital calculation.

In addition, even under the existing holding company structure, if the Company is treated as being resident in the UK for corporation tax purposes, there is a risk that the Company would need to be included within the group regulatory capital calculation. The Company is not incorporated in the UK, and therefore for it to be treated as resident in the UK for UK tax purposes requires its central management and control to be exercised in the UK. The Directors operate governance of the Company in a manner intended to ensure that the Company's central management and control is not exercised in the UK.

If the management actions outlined above are not fully effective, then the inclusion of the Company and all of its subsidiaries within the group regulatory capital calculation may reduce Solvency II group Own Funds that are available for discretionary purposes, for example for the payment of dividends or the early repayment of debt. This could have a material adverse effect on the Group's business, results, financial condition and prospects.

The thematic review on the fair treatment of long standing customers in the life insurance sector may affect the Group's business.

The Life Companies and ALAC charge customers ''exit charges'', when switching their pension policies to another provider or realising their pension benefits prior to their specified retirement date and ''paid up charges''. On 3 March 2016, the FCA published a thematic review report on the fair treatment of long standing customers in the life insurance sector. The FCA found a ''mixed picture'' where most firms reviewed demonstrated good practice in some areas but poor practice in others. A small number of firms were found to be delivering poor customer outcomes across a majority of the areas assessed. In particular, the FCA had concerns about:

the lack of board and senior management oversight of closed book customers and outcomes;
whether customers were aware of the effect of exit and paid-up charges on their policies and the quality of information provision on the economic effect of exit and paid-up charges;
firms' behaviour, policies and attitude towards applying exit charges;
the impact of exit and paid-up charges on customers shopping around and customer choice;
the absence, within most firms, of a review of products (and related charges) to assess whether customers were getting fair outcomes; and
where there are product reviews, over-reliance or overemphasis on compliance with contractual terms and conditions even where actual customer detriment is identified.

The review does not draw final conclusions as to what changes for the future and/or remediation in respect of historic practices might be necessary and the FCA has undertaken to carry on further work in this area. It is possible that the FCA may take the view that increasing the level of information provided to the customer will not mitigate the concerns listed above, meaning that a reduction or restructuring in the charges may be required. Given that the Group's operations apply exit charges, the Group anticipates that these proposals, if put forward, are likely to have an impact on the Group.

More recently, the FCA launched in May 2016 a consultation on proposals to cap early exit pension charges, both for existing contracts that contain an early exit charge (where it is proposed the cap would be 1 per cent. of policy value) and also new contracts (where no exit charge would be permitted).

The review may result in a change of law, regulation and/or regulatory emphasis, changes in the Group's practices and/or future interventions by the regulator. In particular, it seems likely the practices of ALAC may have to change. Whilst the Group has estimated the costs of implementing such changes on ALAC, such costs may be material and may exceed the Group's current estimate of such costs.

The Group continues to cooperate with the FCA review. The Directors believe that any changes which result from this review would be applied industry-wide.

A number of the firms which are the subject of the review are now the subject of additional investigations, including ALAC. ALAC is one of six firms in respect of which the FCA is exploring whether remedial and/or disciplinary action is necessary or appropriate in respect of exit or paid-up charges being applied. Additionally, ALAC is one of two firms being investigated for potential contravention of regulatory requirements across a number of other areas assessed in the thematic review. This investigation into wider contraventions of regulatory requirements will also focus on behaviour from December 2008. The FCA has confirmed that these investigations have been commenced in order to enable the FCA to establish the reasons for the practices within firms, whether customers have suffered detriment as a result and how widespread any practices are within the six firms. No conclusion has been reached as to whether there have been any breaches of regulatory requirements. The commencement of investigations should therefore not be taken to indicate that they will necessarily result in disciplinary action against the firms subject to investigations, nor does it indicate that a penalty will inevitably be imposed or that redress will be payable.

The FCA has not yet notified ALAC of its final conclusions regarding the effect of the review and any connected follow up work in respect of ALAC. The Directors believe such final conclusions may be reached in 2017, although completion of any follow up work (which may include any necessary customer remediation) is likely to take longer. It is possible that, as a result of the outcome of the review, ALAC may incur costs as a result of financial penalties (which may be incurred shortly after the FCA publishes its final conclusions) and/or providing compensation or remediation to customers (which may incurred over a longer period depending on the nature of the FCA's final conclusions). Deutsche Bank has provided PLHL

with an indemnity, with a duration of six years, in respect of such exposures. The maximum amount that can be claimed under the indemnity (when aggregated with claims under the indemnity in respect of the thematic review on annuity sales practices, as discussed further below) is £175 million and it applies to all regulatory fines and 60 to 90 per cent. of the costs of customer remediation and 80 per cent. of certain professional fees and redress programme costs. While this indemnity may mitigate ALAC's costs (and accordingly, the Group's costs), some costs will fall outside the scope of the indemnity and/or may exceed the maximum amount PLHL can claim under the indemnity and/or become irrecoverable should Deutsche Bank become subject to insolvency or any other analogous events, meaning that ALAC (and accordingly, the Group) will ultimately retain liability for them. In addition, ALAC may also be the subject of private censure, public censure, adverse publicity and/or resulting reputational damage, which may in turn damage the Group, the effect of which will not be mitigated by any indemnity.

For further information regarding the FCA thematic review, see ''FCA thematic review'' in Part VI (''Regulatory Overview'') of this document.

Any of the above could have a material adverse effect on the Group's, business, results, financial condition and prospects.

The thematic review on annuity sales practices may affect the Group's business.

Currently, across the sector, a large number of customers who have pension policies with the Group buy an annuity from the firm that holds their pension policies. In other words, customers with pension policies often chose to use their savings to buy an annuity issued by the Group.

The FCA has conducted a number of reviews and studies in respect of the issue of annuity sales. On 11 December 2014, the FCA published the findings of its thematic review into annuity sales practices. In relation to the annuity sales practices report, the FCA concluded that firms need to improve the way in which they communicate with their customers, particularly during the period when customers are coming up to retirement and making their choices as to their retirement income provision. In particular, the FCA found that:

consumers did not shop around and/or switch providers when they chose to invest their pension pot in an annuity;
firms' sales practices curtailed shopping around and product switching;
the code of conduct on retirement choices, which is produced by the Association of British Insurers (''ABI''), was not being applied consistently (or in some cases, at all); and
some consumers were buying the wrong type of annuity (e.g., not buying an enhanced annuity when they were eligible for one).

As a result of the above, the FCA concluded that some consumers within the sector might be suffering detriment because they were not receiving potentially higher income.

The FCA published examples of good and poor practice and is continuing its review of these themes, including through the acquisition of more data and sampling. The FCA has asked certain relevant firms to carry out further work and gather more evidence to allow the FCA to reach conclusions on the basis of statistically significant information (rather than anecdotal or small sampling), focusing on whether customers have shopped around and purchased a standard, rather than an enhanced, annuity. The review may result in a change in law, regulation and/or regulatory emphasis, changes in the Group's practices and/or prompt future regulatory interventions.

The FCA is still gathering information and data from firms in respect of this review and has not published final conclusions regarding either the outcome of the review or any connected follow up work. Following this review the FCA may consider that firms have not met the relevant regulatory requirements and may investigate their conduct. The Directors do not currently have a view on when such conclusions are likely to be reached. If breaches are identified, it is possible that the Life Companies and/or ALAC may incur costs as a result of financial penalties (which will be incurred shortly after the FCA publishes its final conclusions) and/or providing compensation or remediation to customers (which may be incurred over a longer period depending on the nature of the FCA's final conclusions). Deutsche Bank has provided PLHL with an indemnity, with a duration of eight years, in respect of such exposures to the extent they arise and apply to ALAC. The maximum amount that can be claimed under the indemnity (when aggregated with claims under the indemnity in respect of the thematic review on the fair treatment of long standing customers, as discussed further above) is £175 million and it applies to all regulatory fines and 80 to 90 per cent. of the costs of customer remediation. While this indemnity may mitigate ALAC's costs (and accordingly, the Group's costs), some costs will fall outside the scope of the indemnity and/or may exceed the maximum amount PLHL can claim under the indemnity and/or become irrecoverable should Deutsche Bank become subject to insolvency or any other analogous events, meaning that ALAC (and accordingly, the Group) will ultimately retain liability for them. In addition, the Life Companies and/or ALAC may also be the subject of private censure, public censure, adverse publicity and/or resulting reputational damage, which may in turn impact the Group, the effect of which will not be mitigated by any indemnity.

Any or all of these may affect the business and so could have a material adverse effect on the Group's business, results, financial condition and prospects.

Internal Operations and Management

Changes in accounting standards and assumptions may lead to increases in the level of provisioning or additional provisions being made in respect of a range of actual, contingent and/or potential liabilities including, but not limited to, tax, and changes in the determination of fair value could have a material adverse effect on the estimated fair value amounts of financial instruments.

A provision is recognised when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation. Where the Group has a present legal or constructive obligation, but it is not probable that there will be an outflow of resources to settle the obligation or the amount cannot be reliably estimated, this is disclosed as a contingent liability. Provisions held by the Group, including those relating to tax, may be subject to estimates and may prove inadequate or inaccurate resulting in a material liability. Liabilities may also arise where no provision has been made. In particular, there is a time lag between acquisitions, disposals and other corporate transactions undertaken by the Group, and the review of their tax treatment by HM Revenue & Customs (''HMRC''). While significant transactions are discussed with HMRC on an ongoing basis, in some cases formal confirmation of HMRC's position cannot be obtained until the relevant tax returns are submitted, which can lead to uncertainty. If a liability, including tax, were to arise in respect of which there is inadequate or no provision, this could have a material adverse effect on the Group's business, results, financial condition and prospects.

In addition, as at 30 June 2016, the Group had derivative assets of £3,881 million and derivative liabilities of £1,780 million. As at 31 December 2015, ALAC had derivative assets of £76 million and derivative liabilities of £267 million. Determination of fair value is made at a specific point in time, based on available market information and judgments about financial instruments, including estimates of the timing and amounts of expected future cashflows and the credit standing of the issuer or counterparty. The use of different methodologies and assumptions could have a material adverse effect on the estimated fair value amounts of financial instruments, which could affect the Group's business, results, financial condition and prospects.

The Holding Companies are dependent upon distributions from their subsidiaries to cover operating expenses, debt interest and repayments, pension scheme contributions and dividend payments. In times of severe market turbulence, the Group may not in the longer term have sufficient capital or liquid assets to make sufficient distributions to the Holding Companies, or to meet its payment obligations, or it may suffer a loss in value.

The Group's insurance operations are conducted through subsidiaries. The Holding Companies ultimately rely on distributions and other payments from their subsidiaries, including in particular the Life Companies, to meet the funding requirements of Group companies, as the Holding Companies do not generate a cash surplus from their operations and other activities. The Holding Companies' principal sources of funds are dividends from subsidiaries, inter-company loans from subsidiaries, repayment of inter-company loans that have been made by the Holding Companies to subsidiaries and any amounts that may be raised through the issuance of equity or debt instruments or bank financing. As a result, deterioration in the liquidity and solvency position of the Life Companies or other members of the Group could, in addition to its impact on the liquidity or solvency position of the individual Life Companies or the Insurance Group, have in the longer term an adverse impact on the Group's funding or liquidity, which could have a material adverse effect on the Group's financial condition and prospects.

PGH Capital P.L.C. (''PGH Capital'') has ongoing principal repayment and interest payment obligations in respect of a senior bond issue (being the Senior Bonds, which are described in paragraph 12.1.9 (''The Senior Bonds'') of Part XIV (''Additional Information'') of this document, a subordinated bond issue (being the Subordinated Bonds which are described in paragraph 12.1.8 (''The Subordinated Bonds'') of Part XIV (''Additional Information'') of this document, a credit facility (being the Revolving Credit Agreement, which is described in paragraph 12.1.4 (''Credit facilities—Revolving Credit Agreement'') of Part XIV (''Additional Information'') of this document, a new credit facility for the purposes of the AXA Transaction (being the AXA Bridge Facility Agreement, which is described in paragraph 12.1.4 (''Credit facilities—AXA Bridge Facility Agreement'') of Part XIV (''Additional Information'') of this document, and a bridge facility for the purposes of the Acquisition (being the Abbey Life Bridge Facility Agreement, which is described in paragraph 12.1.4 (''Credit facilities—Abbey Life Bridge Facility Agreement'') of Part XIV (''Additional Information'') of this document, which obligations are expected to be funded by the release of capital, profits and liquidity from the Group's operating units. The Holding Companies also have ongoing commitments to make contributions to the Group's pension schemes in accordance with the agreed contribution schedules and to meet their general operating expenses. The availability and amounts of cashflows from subsidiaries, in particular the Life Companies, may be impacted during periods of severe market turbulence by the need to maintain appropriate levels of regulatory capital in the Group. Although the Holding Companies maintain cash buffers to reduce the reliance on emerging cashflows in any particular year, in the event that cashflows from the Group's subsidiaries are limited as a consequence of periods of severe market turbulence, this may in the longer term impair the Group's ability to service these obligations, which would have a material adverse effect on the Group's business, results, financial condition and prospects.

Certain members of the Group are restricted by applicable regulatory and other requirements in their ability to pay dividends. Dividends may not be paid according to the Group's dividend policy and the Group's dividend policy may change in the future.

Any decision to declare and pay dividends will be made at the discretion of the Board and will depend on, among other things, applicable regulatory, insurance, foreign exchange and tax laws, rules and regulations that limit the payment of dividends or require approval for their payment; the Company's and the Group's financial position and the availability of cash and distributable reserves within the Group; there being sufficient excess above certain regulatory capital requirements; Board approved capital management policies and buffers agreed with the PRA; working capital requirements; asset and cash liquidity within the Group; gearing levels within the Group; the covenants within the Group's finance and senior debt arrangements; the potential impact on the maintenance of the Group's investment grade rating; finance costs; general economic conditions and other factors the Directors deem significant from time to time. Accordingly, unforeseen adverse circumstances may restrict the ability of the Company to adhere to its dividend policy and there can be no assurance that the Company will pay dividends in the future. It is also possible that the dividend policy may change in the future as a consequence of further acquisitions.

In certain circumstances, such as if a Group Company was unable to meet applicable regulatory capital requirements or significant threats to policyholder protection were identified, the PRA could intervene in the interests of policyholder security, for example, by imposing restrictions on the fungibility or movement of capital between members of the Group, including the payment of dividends by the Company. Moreover, the Company may elect to reduce or forgo dividend payments as a means of maintaining or enhancing its capital position.

In addition, the Company has agreed that, as part of its ''other methods'' waiver, it will seek the PRA's non-objection before declaring a dividend.

In connection with the AXA Transaction, the Group entered into the AXA Bridge Facility Agreement in an aggregate amount of £220 million. The Group intends to repay the AXA Bridge Facility in full by the end of March 2017 using cashflows from the Group's business or the proceeds from longer term debt issuances. As a result of the AXA Transaction, the Board is expecting to increase the final dividend in respect of 2016 by 5 per cent., equivalent to 28.0 pence per share before adjusting the dividend per share for the bonus element of the Rights Issue. This would result in a full year dividend in respect of 2016 equivalent to 54.7 pence per share and would increase dividends to the equivalent of 56.0 pence per share on an annualised basis (in each case, before adjusting the dividend per share for the bonus element of the Rights Issue). However, in the event that the AXA Bridge Facility is not repaid in full by March 2017 when the Board expects to approve the Company's final dividend for the year ending 31 December 2016, the Directors may review the appropriate level of the final dividend for such year.

Changes in actuarial assumptions driven by experience and estimates may lead to changes in the level of reserving and regulatory capital required to be maintained.

The Group has liabilities under annuities and other policies that are sensitive to future mortality and longevity rates. In particular, annuities are subject to the risk that annuity holders live longer, or longevity rates increase, compared to what was projected at the time their policies were issued, with the result that the issuing Life Company must continue paying out to the annuitants for longer than anticipated and, therefore, longer than was reflected in the price of the annuity. There may also be increases in the cost of meeting guarantees on policies with a right to convert their policy value into an annuity at a fixed rate and the contributions required to be paid under the Group's defined benefit pension schemes may also increase. Conversely, increased mortality, or higher mortality rates, may increase the number of death claims on term-insurance products.

The Life Companies and the AXA Life Company monitor their actual liability experience against the actuarial assumptions they use and apply the outcome of such monitoring to refine their long-term assumptions. Based on these assumptions, the Life Companies and the AXA Life Company make decisions aimed at ensuring an appropriate build-up of assets and liabilities relative to one another. These decisions include the allocation of investments among fixed-income, equity, property and other asset classes, the setting of policyholder bonus rates (some of which are guaranteed) and the setting of surrender terms. However, because of the underlying risks inherent in actuarial assumptions, it is not possible to determine precisely the amounts that will ultimately be paid to meet policyholder liabilities. Actual liabilities may vary from estimates, particularly when those liabilities do not occur until well into the future. The Life Companies and the AXA Life Company evaluate their liabilities allowing for changes in the assumptions used to establish their liabilities, as well as for the actual claims experience. Changes in assumptions may lead to changes in the level of capital that is required to be maintained. In the event that the Group's regulatory capital requirements are significantly increased, the amount of cash or other assets available for other business purposes, for distribution to Shareholders or to meet the Group's financing commitments, may decline.

To the extent that actual mortality, longevity and morbidity rates or other insurance risk experience are less favourable than the underlying assumptions about such rates or experience and it is necessary to increase reserves for policyholder liabilities as a consequence, the amount of additional capital required (and therefore the amount of capital that can be released from the Life Companies and the AXA Life Company in order to service and pay down debt or to finance distributions to their shareholders) and the ability of the Group to manage the Life Companies and the AXA Life Company in an efficient manner may all be materially adversely affected. In particular, there is considerable uncertainty over the rate at which mortality rates will continue to improve in the future. Over time, the Group could incur significant losses if mortality rates improve faster than has been assumed.

In addition, the Group makes assumptions about the rates at which policyholders will surrender or otherwise terminate their policies prior to their maturity date. For products with guarantees at maturity, the Group is exposed to the risk that fewer policyholders will terminate their policies prior to their maturity date than assumed, since this will increase the volume of guarantees that are required to be met at maturity. Conversely, for policies with no guarantees, the anticipated future profits obtained from those policies may be curtailed if more policyholders terminate their policies prior to their maturity date than assumed. Surrender rates may also be affected by changes in law and/or regulation.

If the assumptions underlying calculations of reserves are shown to be incorrect (e.g., if policyholders do not die at the rate assumed in actuarial calculations or if the volume of guarantees that are required to be met at maturity is greater than assumed), the Group may have to increase the amount of its reserves or the amount of risk reinsured. The Group also has obligations towards pensions schemes that are sensitive to longevity experience rates. If members live longer than expected, additional capital may need to be held to cover increased pension scheme obligations. Any of these factors could have a material adverse impact on the Group's business, results, financial condition and prospects.

The Group needs to reduce the expenses of managing long-term business in line with the run-off profile of its funds. The inability to adjust these costs could have an adverse effect on the Group.

The Life Companies, by their nature, are in long-term run-off meaning that their policy portfolios should become smaller over time. In order to protect with-profit policyholder benefits and shareholder returns, it will be necessary to reduce the costs of managing the Group's long-term business at least in line with the run-off profile, which the Group partly does through the use of outsourcing arrangements. The Group is exposed to the risk that it may be unable to reduce costs proportionately or to make changes to achieve an appropriate new balance of fixed and variable costs. This exposure could arise, for example, from deficient management, contractual restrictions, significant changes in the regulatory environment, material sectorspecific inflationary pressures or an unexpected increase in policy lapses. The current expense assumptions for policy charges are based on anticipated governance costs and the run-off profile of the Group's funds. An inability to adjust these costs could therefore have a material adverse effect on the Group's business, results, prospects and financial condition.

The Group's risk management policies and procedures may not be effective and may leave the Group exposed to unidentified or unexpected risks.

The Group's policies, procedures and practices used to identify, monitor and control a variety of risks may fail to be effective. As a result, the Group faces the risk of losses, including losses resulting from human error, the payment of incorrect amounts to policyholders due to incorrect administration, market movements and fraud. The Group's risk management methods rely on a combination of technical and human controls and supervision that can be subject to error and failure. Some of the Group's methods of managing risk are based on internally developed controls and observed historical market behaviour, and also involve reliance on industry standard practices. These methods may not adequately prevent future losses, particularly if such losses relate to extreme or prolonged market movements, which may be significantly greater than the historical measures indicate. These methods also may not adequately prevent losses due to technical errors if the Group's testing and quality control practices are not effective in preventing technical software or hardware failures.

Ineffective risk management policies and procedures may have a material adverse effect on the Group's business, results, financial condition and prospects.

The Group is vulnerable to adverse market perception arising as a result of reputational damage, especially as it operates in a highly regulated industry.

The Group must display a high level of integrity and have the trust and the confidence of its customers and their advisers. Any mismanagement, fraud or failure to satisfy fiduciary responsibilities, or any negative publicity resulting from the Group's activities, the activities of a third party to whom the Group has licensed its brands or has outsourced any services, or any accusation by a third party in relation to the Group's activities (in each case, whether well founded or not) that is associated with the Group or the industry generally (such as those that arose in respect of mortgage endowments, split-capital investment trusts or payment protection insurance), could have a material adverse effect on the Group's results, financial condition and prospects, including:

reducing public confidence in the Group;
decreasing its ability to retain current policyholders;
adversely affecting the willingness of insurance companies to sell closed-book companies or portfolios to the Group;
increasing the likelihood that the FCA and PRA or non-UK regulators will not approve acquisitions or insurance business transfers necessary to effect intragroup consolidations of closed-book companies or portfolios or will subject the Group to closer scrutiny than would otherwise be the case;
increasing costs of borrowing, including in debt capital markets transactions;
adversely affecting the Group's ability to obtain reinsurance or to obtain reasonable pricing on reinsurance; and
decreasing customers' willingness to invest in or acquire particular products.

There have been a number of highly publicised cases involving fraud or other misconduct by employees in the financial services industry in recent years. It is not always possible to deter or prevent employee misconduct and the precautions the Group takes to prevent and detect this activity may not be effective in all cases. The Group therefore runs the risk that employee misconduct could occur, with possible adverse effects on the Group as set out above.

Any of the above could have a material adverse effect on the Group's business, results, financial condition and prospects.

Increases in liabilities relating to product guarantees may adversely affect the Group.

In the 1970s and 1980s, when interest rates were higher than they currently are or have been in recent years, UK life insurance companies (including the Life Companies within the Group) sold pension contracts that contained certain guarantees or options, including guaranteed annuity options (''GAOs'') that allowed the policyholder to elect to take the lump sum payable upon the maturity of the pension and apply the funds to purchase an annuity at a minimum guaranteed rate. During the last decade, average interest and inflation rates have been lower and life expectancy has increased more rapidly than originally anticipated. As a result, the Group may have to meet the cost of the mismatch between the performance of the underlying assets and the guaranteed annuity which it is obliged to provide to relevant policyholders.

The Life Companies have existing liabilities relating to guarantees and options contained in policies, which are increased by adverse movements in interest rates, increasing life expectancy and the proportion of customers exercising their options. The Group has purchased derivatives that provide some hedge protection against movements in interest rates but not all such interest rate risk is hedged and it may not be possible, feasible or desirable to hedge such risks in the future. The Group is also exposed to counterparty risk in respect of such financial instruments. The most significant factors affecting the cost of these liabilities relating to guarantees and options relative to the provisions made are the number of customers electing to exercise their option to take the more favourable annuity rates, the relative values of any hedge derivatives that may be maintained from time to time, interest rates and the longevity rates of annuity holders.

If the existing mismatch between the performance of the underlying assets and the guaranteed annuity benefits increases, the Group's business, results, financial condition and prospects could be materially adversely affected.

The Group may encounter new risks when it starts to write protection policies.

At present, the Group is primarily focused on the efficient management of in-force policies and writes a limited number of new policies (currently as increments to existing policies and annuities for current policyholders when their policies mature). Following completion of the AXA Transaction, the Group will write a limited set of directly marketed protection policies, including Guaranteed Over 50s policies (life insurance policies available to people over 50 years of age, which pay out upon the death of the life assured). Whilst the value of this new business is relatively small in proportion to the value of the rest of the Group, there are significant risks associated with the distribution of life insurance products and the sale of these types of products which are not associated with the Group's current business model. The risks associated with new business include underwriting risk, operational risk from processing new business, conduct risk, the risk of increased FCA (and other regulatory) supervision in respect of marketing activities and regulatory capital requirements. If the Group is unable to successfully meet the challenges of these new and/or increased risks, this could have a material adverse effect on the Group's business, results, financial condition and prospects.

The Group's success will depend upon its ability to attract, motivate and retain key personnel.

The calibre and performance of the Group's senior management and other key employees, taken together, is critical to the success of the Group. The continued success of the Group will depend on its ability to attract, motivate and retain highly skilled management and other personnel, including lawyers, actuaries, portfolio and liability managers, analysts and executive officers. Competition for qualified, motivated and skilled personnel in the life insurance industry remains significant. Moreover, in order to retain certain key personnel, the Group may be required to increase compensation to such individuals, resulting in additional expenses.

If the Group is unable to attract, motivate and retain key personnel, its business, results, financial condition and prospects could be materially adversely affected.

The Group may be required to make further contributions, in addition to those already agreed, to its defined benefit pension schemes for employees if the value of or cashflows from pension fund assets is not sufficient to cover future obligations under the schemes.

The Group operates several different pension schemes. The two main pension schemes are the pension scheme covering the past and present employees of the Group prior to the acquisition of the Resolution Group (the ''Pearl Group Staff Pension Scheme'') and the pension scheme covering the past and present employees of Impala's subsidiaries and, following completion of the AXA Transaction, the present employees of the SunLife Embassy Business (the ''PGL Pension Scheme''). Each of those schemes has both defined benefit and defined contribution sections. The defined benefit sections of each scheme are closed to new entrants and contain no active members. For further information, see paragraphs 12.1.5 (''Pearl Group Staff Pension Scheme Agreements'') and 12.1.6 (''PGL Pension Scheme Guarantees'') of Part XIV (''Additional Information'') of this document.

The pension schemes' trustees are required to undertake triennial valuations of the schemes and agree with the Group's statutory funding plans, although the trustees are free to call for a further valuation on an earlier date if they see fit. The interaction of, among other things, increased life expectancy, poorlyperforming equity markets and low interest rates over the past several years has had a significant negative impact on the funding levels of the Group's pension schemes. This has materially increased the Group's funding obligations in respect of the pension schemes. Any future decline in the value of scheme assets, changes in mortality and/or morbidity rates, future changes in interest rates, changes in inflation rates or changes in the current investment strategies of the pension schemes could increase or contribute to the pension schemes' funding deficits and require the Group to make additional funding contributions in excess of those currently expected.

The most recent triennial valuation for the PGL Pension Scheme as at 30 June 2015 was completed in June 2016. This showed a surplus of £164 million on the agreed technical provisions basis as at 30 June 2015. The trustees of the PGL Pension Scheme and Pearl Group Holdings (No. 1) Limited (''PGH1'') have agreed that PGH1 will pay contributions of £1.25 million per month until August 2017.

The most recent triennial valuation for the Pearl Group Staff Pension Scheme as at 30 June 2015 was completed in September 2016. This showed a deficit of £300 million on the agreed technical provisions basis as at 30 June 2015. The trustees of the Pearl Group Staff Pension Scheme and Pearl Group Holdings (No. 2) Limited (''PGH2'') entered into the 2012 Pensions Agreement on 27 November 2012 under which the trustees agreed the technical provisions basis to be used for each triennial valuation and agreed the contributions payable to the scheme. The key terms of the 2012 Pensions Agreement are summarised in paragraph 12.1.5 (''Pearl Group Staff Pension Scheme Agreements'') of Part XIV (''Additional Information'') of this document.

As at 31 March 2015, the ALAC Pension Scheme had approximately 19 active members, 2,182 deferred members and 876 pensioner members. No new members have been admitted since 2003 except in a few exceptional cases. As at 31 March 2015, the ALAC Pension Scheme's assets were £221.9 million, with liabilities of £328.8 million and a deficit of £106.9 million on a scheme funding (technical provisions) basis. The estimated excess (cost/deficit) of buying insurance policies to secure the benefits on a wind-up of the ALAC Pension Scheme was £232.2 million as at 31 March 2015. A funding agreement between ALAC and the trustees of the ALAC Pension Scheme (the ''Trustees'') was entered into in 2013. ALAC and the Trustees entered into a new funding agreement dated 23 June 2016. If the funding agreements are triggered, both provide for payments to be made to the trustees out of assets held in escrow accounts so as to offset the deficit. The 2013 and 2016 funding agreements both contain change of control provisions on ALAC ceasing to be a subsidiary of Deutsche Bank AG. In these circumstances, the agreements provide for a process whereby ALAC must ensure that the assets held in the account are switched, with the consent of the Trustees, to investment grade government and corporate bonds (rather than following an investment strategy reflecting the ALAC Pension Scheme's statement of funding principles).

The Pensions Regulator has statutory powers to demand contributions from companies connected or associated with an employer in a defined benefit pension scheme (such as other entities within a group), including powers to issue Financial Support Directions or Contribution Notices. The powers may be exercised against any entity which is ''connected'' or ''associated'' with the company which participates in the scheme. These are referred to as ''moral hazard'' powers and enable the Pensions Regulator to take action—if reasonable to do so—where certain corporate activity has a materially detrimental effect on the security of members' benefits in a pension scheme. Broadly a Financial Support Direction requires the target to put in place arrangements for the financial support of the scheme. No element of fault is required but there is a reasonableness test and certain other statutory tests have to be satisfied. A Contribution Notice requires the target to pay a sum of money into the scheme where there has been an act or omission, one of the main purposes of which is to avoid any ''employer debt'' becoming due or to compromise or otherwise reduce the amount of that debt or which otherwise has a materially detrimental impact on the funding of the scheme. A change in the employer covenant supporting a scheme could therefore fall within the scope of the Pensions Regulator's powers.

The Pensions Regulator also has statutory powers to intervene in pension scheme funding if the employers and trustees fail to reach agreement or if it is not satisfied that the statutory funding plans will eliminate the funding deficit in a timely manner. In practice, the Pensions Regulator has not been known ever to exercise its statutory powers to intervene in scheme funding, but instead may seek to influence behaviour if the parties are struggling to reach agreement on the terms of the triennial actuarial valuation.

Any of the above could have a material adverse effect on the Group's business, results, financial condition and prospects.

Because the Company is incorporated under the laws of the Cayman Islands, Shareholders may need to enforce any judgment obtained against the Company in the courts of the Cayman Islands.

The Company is incorporated under the laws of the Cayman Islands and its corporate affairs are governed by its Memorandum and Articles of Association, the Companies Law and the common law of the Cayman Islands. To the extent that any Shareholder obtains a judgment against the Company from a court in England and Wales it should be noted that whilst there is no statutory recognition in the Cayman Islands of judgments obtained in England and Wales, the courts of the Cayman Islands will in certain circumstances recognise and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits at common law by an action commenced on the foreign judgment in the Grand Court of the Cayman Islands.

Third Parties and Other Counterparties

The Group relies predominantly on third party asset management firms outside the Group to manage its assets. Periods of underperformance of the asset management firms appointed by the Group could lead to disproportionate redemptions in the funds of the Group, and the performance of such firms (and therefore the performance of the Group's investments) may be adversely affected by mismanagement of client assets or liabilities and the loss of key investment managers.

The Group relies predominantly on third party asset management firms outside the Group to manage its assets. Members of the Group enter into investment management agreements when they appoint third party asset management firms to manage the Group's assets. Such investment management agreements typically contain provisions relating to performance conditions, the breach of which can permit the early withdrawal of assets from third party asset managers. The Group only enters into third party asset management relationships with firms which the Directors believe have the know-how, expertise and business models appropriate for the provision of asset management services to the Group. The Group aims to maintain effective systems and controls for third party asset management firms in compliance with the Group's ongoing obligations. However, there can be no assurance that such provisions would be successful in seeking to avoid or reduce the potential effects of underperformance by third party asset management firms.

If the investment performance of the third party asset management firms appointed by the Group represents underperformance relative to other asset management firms, the Group's policyholders may seek to redeem their policies. In addition, the Group derives a significant portion of its income from its share of the appreciation of investments held in shareholder, non-profit and with-profit funds. Therefore, where the Group experiences lower returns on those assets, this reduces the level of income which the Group would recognise. Any of these factors could have a material adverse effect on the Group's business, results, financial condition and prospects.

The performance of the third party asset management firms appointed by the Group is also subject to risks associated with the process of managing client assets and providing asset and liability management services, such as the risk of failure to manage the investment process or execute trading activities properly. Such failure could lead to poor investment decisions, incorrect risk assessments, poor asset allocation, inappropriate investments being bought or sold and incorrectly monitoring exposures. A failure by asset management firms to effectively manage the Group's assets, interest rate and liquidity risks could have a material adverse effect on the Group's business, results, financial condition and prospects.

If the Group experiences difficulties arising from outsourcing relationships, its ability to conduct business may be compromised.

Certain Group Companies outsource almost all of their key customer service, policy administration, accounts collection, human resource payroll and administration functions under formal outsourcing arrangements. The Group only enters into outsourcing relationships with firms which the Directors believe have the know-how, expertise and business models that put such services at the core of their offerings. The Group aims to maintain effective systems and controls for outsource providers in compliance with the Group's ongoing obligations. However, there can be no assurance that such systems and controls will be completely successful in seeking to avoid, or reduce the potential effects of, underperformance. In particular, while the outsourcing relationships are carefully monitored, underperformance may also result in breaches of applicable law and regulation, which could result in regulatory intervention. There is also a risk that the providers will not be able to keep up with the pace of legal and/or regulatory change, in which case the Group's operations may become non-compliant.

If the Group does not effectively develop, implement and monitor its outsourcing strategy, or outsourcing relationships do not perform as anticipated or the Group experiences problems with a transition of outsourcing arrangements, the Group may experience poor investment returns, operational difficulties, increased costs, reputational damage and a loss of business that may have a material adverse effect on the Group's business, results, financial condition and prospects. In addition, the failure or insolvency of, or inability to provide the relevant services by, one or more of the Group's third party service providers could have a material adverse effect on the Group's ability to sustain its ongoing operations, which could have a material adverse effect on the Group's business, results, financial condition and prospects.

If the Group is unable to maintain the availability of its systems and safeguard the security of its data, including customer and employee data, due to accidental loss, cyber-crime, the occurrence of disasters or other unanticipated events affecting the Group or its service providers, its ability to conduct business may be compromised, which may have an adverse effect on the Group.

The Group uses computer systems to store, retrieve, evaluate and utilise customer, employee and company data and information. The Group's computer, information technology and telecommunications systems, in turn, interface with and rely upon third party systems, including those of third party outsourced service providers. The Group's business is highly dependent on its ability, and the ability of certain third parties, to access these systems to perform necessary business functions, including, without limitation, processing premium payments, making changes to existing policies, filing and paying claims, administering annuity products, providing customer support and managing the Group's investment portfolios. Systems failures or outages could compromise the Group's ability to perform these functions in a timely manner, which could harm its ability to conduct business and hurt its relationships with its business partners and customers. In the event of a disaster, such as a natural catastrophe, an industrial accident, a blackout, a computer virus, a terrorist attack or war, the Group's systems may be inaccessible to its employees, customers or business partners for an extended period of time. The Group's systems could also be subject to physical and electronic break-ins, cyber-crime and subject to similar disruptions from unauthorised tampering. In addition, the Group is subject to the accidental loss of data by its employees or outsourced service providers, which could expose the Group to potential liabilities and could negatively impact its relationships with its business partners and customers. The factors described above may impede or interrupt the Group's business operations or lead to unauthorised disclosure or loss of data or data corruption, including customer data, which could lead to potential liabilities and damage the Group's reputation. Furthermore, because of the long-term nature of much of the Group's businesses, accurate records have to be kept for long periods of time.

Any of the above could have a material adverse effect on the Group's business, results, financial condition and prospects.

The Group may be adversely affected by third party reinsurers' unwillingness or inability to meet their obligations under reinsurance contracts, or potential variations and reductions in the nature and scope of cover through schemes of arrangement or portfolio transfers. In addition, the unavailability, adverse pricing and/or inadequacy of reinsurance arrangements may adversely affect the Group.

As an insurer, the Group seeks, through reinsurance with third parties, to transfer to reinsurers risk (and, in particular, in relation to the Life Companies and the AXA Life Company, mortality, longevity and morbidity risk) that can cause unfavourable outcomes to its business. As a result, the Group has substantial exposure to reinsurers through reinsurance (or retrocession) arrangements in relation to the Life Companies and the AXA Life Company. Under these arrangements, reinsurers assume all or a portion of the costs, losses and expenses associated with the reinsured (or retroceded) policies' claims and reported and unreported losses in exchange for a premium, or as part of a sale arrangement. However, the Life Companies and the AXA Life Company remain liable as the direct insurer (or reinsurer) on all risks

reinsured (or retroceded). Consequently, reinsurance arrangements do not eliminate the Group companies' obligation to pay claims. The Group's companies are subject to reinsurer credit risk with respect to their ability to recover amounts due from reinsurers. Even where the reinsurer has an obligation to put up collateral in support of its operations, there can be no certainty that such collateral will satisfy the full amount of the Group's liabilities.

While the Group regularly evaluates the financial condition of its reinsurers to minimise its exposure to significant losses from reinsurer defaults and insolvencies, reinsurers may become financially unsound or choose to dispute their contractual obligations when they become due. Reinsurers may also seek to ''cut off'' the obligations they owe under the reinsurance arrangements by schemes of arrangement. A scheme of arrangement allows an insurer or reinsurer to achieve finality for their exposure to certain policies by giving creditors a fair valuation of ultimate liabilities (i.e., settling all known claims balances and incurred but not reported balances). A scheme of arrangement may limit the benefit of reinsurance protections and ultimately the amount available to pay out subsequent claims.

In addition, market conditions beyond the Group's control determine the availability and cost of the reinsurance that the Group is able to purchase in the event that the existing reinsurance arrangements prove to be insufficient. Historically, reinsurance pricing has changed significantly from time to time. No assurances can be given that reinsurance will remain continuously available to the Group to the same extent and on the same terms as are currently available or which were available at the time that the current arrangements were established. If the Group were unable to maintain its current level of reinsurance or purchase new reinsurance protection in amounts that the Group considers sufficient and at prices that it considers acceptable, the Group would have to either accept an increase in its net liability exposure or develop other alternatives to reinsurance. The availability of reinsurance to UK insurers may also depend on the precise terms of the UK's Brexit arrangements.

Third party reinsurers' unwillingness or inability to meet their obligations under reinsurance contracts, or potential variations and reductions in the nature and scope of cover through schemes of arrangement and the unavailability, adverse pricing or inadequacy of reinsurance arrangements could have a material adverse effect on the Group's business, results, financial condition and prospects.

The divestment of Ignis Asset Management may expose the Group to purchase price adjustments and other costs or claims.

On 1 July 2014, the Group announced the completion of the divestment of Ignis Asset Management.

The divestment agreement contains certain warranties and indemnities in favour of Standard Life Investments. In addition, in the divestment agreement, the Company agreed with Standard Life Investments that it will guarantee the payment obligations of Impala under that agreement, including indemnities given by Impala to Standard Life Investments and Impala's obligations in respect of any purchase price adjustment referred to below. The extent to which the Group will be required in the future to incur costs under any of these warranties, agreements or indemnities is not predictable and, if the Group should incur such costs, these costs may have an adverse effect on the Group's business, results, financial condition and prospects.

As part of this divestment, Impala Holdings Limited (''Impala'') agreed to a purchase price adjustment for a period of 10 years in the event that assets held by the Life Companies are withdrawn from management by Ignis Asset Management, other than for specific reasons such as poor investment performance or for material breaches of the existing investment management agreements (the ''Investment Management Agreements'') between the Life Companies (and Opal Reassurance Limited (''Opal Re'')) and Standard Life Investments. A purchase price adjustment can only be triggered as a result of a decision by the relevant member of the Group to withdraw assets from management by Ignis Asset Management. The Company has also guaranteed Impala's obligations in respect of any purchase price adjustment. This price adjustment mechanism is calculated on the basis of the base management fees that would have been payable under the relevant Investment Management Agreement, assuming the assets had not been withdrawn and taking into account the expected run-off profile of the relevant assets.

The price adjustment mechanism could result in Impala incurring a cost which would need to be funded from its internal cash resources from time to time. In addition, the Group will hold regulatory capital against its potential liabilities under the price adjustment mechanism in its regulatory capital requirement. Any adjustments to the purchase price or any increased regulatory capital requirements in relation to the price adjustment mechanism may reduce the Company's cash resources and/or have an adverse effect on its financial condition and/or a material adverse effect on the Group's business, results, financial condition and prospects.

Legal and arbitration proceedings could cause the Group to incur significant expenses, which could have an adverse effect on the Group.

From time to time, the Group is party to various legal and arbitration proceedings (including the matters discussed in paragraph 17 (''Litigation and Arbitration Proceedings'') of Part XIV (''Additional Information'') of this document), in respect of which monetary damages are sometimes sought.

On 5 June 2015, PA (GI) Limited (''PA (GI)'') was subject to a judgment in the Chancery Division of the Companies Court. The judgment directed that PA (GI) is liable to the claimants for mis-selling complaints and claims relating to PPI policies within a book of creditor insurance business that PA (GI) underwrote until 2006. As a consequence, PA (GI) is liable for complaint handling and redress with regard to the complaints. The Company had paid a total of £1.9 million in respect of such complaints and claims as at 30 June 2016 and has recognised an accounting provision in this regard of a further £20 million as at 30 June 2016. Following an FCA consultation which is expected to be completed in December 2016, the FCA is expected to introduce a deadline for PPI claims of June 2019. The deadline will be preceded by a FCA publicity campaign, the purpose of which is to ensure persons with a right of claim are aware of their rights. Until that deadline has passed, the Company is unable to confirm its maximum exposure in respect of this matter. The campaign is likely to increase the number of complaints for which PA (GI) may have to pay redress. Such an increase could result in the total additional liability of the Group in respect of these complaints and claims being in excess of the £20 million for which provision has been made in the Company's financial statements as at 30 June 2016.

The Group's management cannot predict with certainty the outcome of pending legal and arbitration proceedings or potential future legal and arbitration proceedings, and the Group may incur substantial expense in pursuing or defending these proceedings. Potential liabilities may not be covered by insurance, the Group's insurers may dispute coverage or may be unable to meet their obligations, or the amount of the Group's insurance coverage may be inadequate. Moreover, even if claims brought against the Group are unsuccessful or without merit, the Group would have to defend itself against such claims. The defence of any such actions may be time consuming and costly, may distract the attention of management and potentially result in reputational damage. As a result, the Group may incur significant expenses and may be unable to effectively operate its business. Accounting provisions recognised by the Company in its financial statements may prove to be insufficient. Any of the above and any adverse outcomes and reputational damage arising out of such litigation could have a material adverse effect on the Group's business, results, financial condition and prospects.

Indebtedness

The Group could be materially adversely affected by its indebtedness.

The total principal amount outstanding under the Group's Senior Bonds, Subordinated Bonds, PLL Tier 2 Bonds and credit facilities as at 30 June 2016 was £1,578 million. Following completion of the Acquisition and the AXA Transaction, the total principal amount outstanding under the Group's Senior Bonds, Subordinated Bonds, PLL Tier 2 Bonds and credit facilities, including the principal amounts outstanding under the AXA Bridge Facility Agreement and the Abbey Life Bridge Facility Agreement, is expected to be £2,048 million. For more information on the Group's indebtedness, see Part VII (''Operating and Financial Review of the Company'') of this document.

The Group's indebtedness and restrictions on the Group under the terms of its bond and credit facilities could have a material adverse effect on the Group, including:

requiring the Group to dedicate a substantial portion of its cashflow to payments on its debt, thus reducing funds available for distribution to Shareholders;
restricting the Group from pursuing potential acquisition opportunities or preventing the Group from being able to obtain regulatory approval for a potential acquisition opportunity, which could impair the Group's ability to execute its acquisition strategy;
exposing the Group to increases in interest rates to the extent its variable rate debt is unhedged;
placing the Group at a competitive disadvantage compared to its competitors that have lower levels of indebtedness;
the Group losing its investment grade rating;
limiting the Group's flexibility in planning for, or reacting to, changes in its business and industry; and

• limiting, among other things, the Group's ability to borrow additional funds or raise equity capital in the future and increasing the costs of such additional financings.

The Group may need to refinance the remaining outstanding principal amount of its bonds and credit facilities either on terms which could potentially be less favourable than the existing terms or under unfavourable market conditions.

On the other hand, the Group's leverage has a positive effect on the Group's value through the beneficial impact of the tax deductibility of interest and so any significant reduction in its indebtedness and associated interest costs may have an adverse impact on the Group's value as a consequence of higher tax payments than currently projected by the Group. There can be no assurance that the Group will, in the future, continue to benefit from tax deductions for its interest costs to the same extent.

The level of the Group's indebtedness and its financing structure could therefore have a material adverse effect on the Group's business, results, financial condition and prospects.

The finance facilities and debt instruments that the Group has entered into include covenants that may restrict the Group from taking certain business actions and/or implementing its business strategy.

The agreements that govern the Group's finance facilities and debt instruments contain certain restrictions limiting its flexibility in operating its business. Such restrictions limit the Group's ability to:

create liens;
borrow money;
sell or otherwise dispose of assets; and
engage in mergers or consolidation.

These restrictions could in the longer term hinder the Group's ability to implement its business strategy. The Group is also subject to other financial and non-financial restrictions that may limit its ability to pay dividends. In addition, a breach of the terms of other finance facilities or debt instruments could cause a default under the terms of the Group's other financing arrangements, causing some or all of the debt under those financing arrangements to become due prior to its scheduled maturity date.

Taxation

Changes in taxation law may adversely impact the Group.

UK and overseas taxation law includes rules governing company taxes, business taxes, personal taxes, capital taxes, value added taxes and other indirect taxes. The Group's management cannot predict accurately the impact of future changes in UK and overseas tax law on its business. From time to time, changes in the interpretation of existing UK and overseas tax laws, amendments to existing tax rates, changes in the practice of tax authorities, or the introduction of new tax legislation in the UK or overseas may adversely impact the Group's business, results, financial condition and prospects.

There are specific rules governing the taxation of policyholders. The Group's management cannot predict accurately the impact of future changes in tax law on the taxation of life and pension policies in the hands of policyholders. Amendments to existing legislation (particularly if there is a withdrawal of any tax relief or an increase in tax rates) or the introduction of new rules may impact upon the decisions of policyholders, and could have a material adverse effect on the Group's business, results, financial condition and prospects.

The UK Government is currently consulting on the Reforms to Corporation Tax Loss Relief and the Tax Deductibility of Corporate Interest Expense. The nature of any changes to existing legislation arising from the consultations and therefore their potential impact on the Group is not yet fully known. However, it is possible that changes could be made to legislation that could affect the ability of the Group to obtain tax value for its interest costs and any tax losses. One of the proposed measures is that, as of 1 April 2017, relief for tax losses carried forward will broadly be restricted to 50 per cent. of a group's taxable profits arising in any future period, which contrasts with the current tax loss offset rules, which will broadly permit tax losses to be relieved in full against future taxable trading profits arising in the same company. A restriction in the ability to offset carried forward tax losses as a result of the above proposed change could potentially impact the regulatory capital requirements for insurers under Solvency II. The consultation acknowledges this and has invited suggestions on how such potential adverse impacts could be mitigated,

to which taxpayers generally, and the UK insurance industry specifically, have lobbied the UK Government for the rules to be deferred and/or amended to eliminate any impact of the regulatory capital requirements, particularly given the level of uncertainty now facing UK taxpayers in the wake of the EU referendum. Uncertainty therefore exists as to when and how any such rules might be introduced. The proposed changes when implemented could have an adverse effect on the Group's business, results, financial condition and prospects.

The effect of future changes in tax legislation on specific products may have an adverse effect on the Group and may lead to policyholders attempting to seek redress where they allege that a product fails to meet their reasonable expectations.

The design of long-term insurance products is predicated on tax legislation applicable at that time. However, future changes in tax legislation or in interpretation of the legislation may, when applied to these products, have a material adverse effect on the financial condition of the relevant long-term funds of the relevant Group companies in which the business was written and therefore have a material negative impact on policyholder and the Group's returns.

The design of long-term products takes into account, among other things, risks, benefits, charges, expenses, investment returns (including bonuses) and taxation. Policyholders may seek legal redress where a product fails to meet their reasonable expectations. An adverse outcome of such litigation and reputational damage arising out of such litigation could have a material adverse effect on the Group's business, results, financial condition and prospects.

Changes to the current VAT rules may result in VAT being chargeable on certain outsourcing agreements of the Group.

Group companies currently do not pay significant amounts of VAT in respect of services they receive under their outsourced services agreements for policy administration. If the amount of VAT payable were to increase then this would increase the Group's costs to the extent that the relevant agreements did not contain adequate protection against VAT being charged or increased. VAT charged on goods and services is largely irrecoverable for financial services groups such as the Group.

Services supplied under the outsourced services agreements are largely exempt from VAT under the UK's insurance intermediaries' exemption. However, the Court of Justice of the European Union has considered the scope of the insurance intermediaries' exemption in a number of cases, most recently in March 2016, and ruled that certain types of outsourced insurance services were subject to VAT. The UK's interpretation of the insurance intermediaries' exemption may therefore change, however it is not currently possible to predict with any accuracy how any change will be implemented into UK law and when it will take effect, particularly given the legal uncertainty following Brexit. If any such changes are effected, this may lead to the conclusion that certain services under the Group's outsourced services agreements for policy administration would be treated as subject to VAT. Although certain of the outsourced services agreements have a measure of protection against such changes, since VAT is largely irrecoverable by the Group, such treatment could have a material adverse effect on the Group's business, results, financial condition and prospects.

RISKS RELATING TO THE RIGHTS ISSUE

The price of the Nil Paid Rights, the Fully Paid Rights, the Shares and/or the Depositary Interests could be subject to significant fluctuations.

The market price of the Nil Paid Rights, the Fully Paid Rights, the Shares and/or the Depositary Interests could be subject to significant fluctuations due to a change in sentiment in the market regarding the Nil Paid Rights, the Fully Paid Rights, the Shares and/or the Depositary Interests (or securities similar to them), including, in particular, in response to various facts and events, such as any regulatory changes affecting the Group's operations, variations in the Group's operating results and/or business developments of the Group and/or its competitors. Stock markets have from time to time experienced significant price and volume fluctuations that have affected the market prices for securities and which may be unrelated to the Company's operating performance or prospects. Furthermore, the Group's operating results and prospects from time to time may be below the expectations of market analysts and investors. Any of these events could result in a decline in the market price of the Nil Paid Rights, the Fully Paid Rights, the Shares and/or the Depositary Interests.

There may not be an active trading market for the Nil Paid Rights, the Fully Paid Rights, the New Shares or the New Depositary Interests.

Application has been made to admit the New Shares (nil and fully paid) for trading on the London Stock Exchange's main market for listed securities. It is expected that dealings in rights to subscribe for the New Shares on the London Stock Exchange's main market for listed securities will commence at 8.00 a.m. on 25 October 2016. There can be no assurance, however, that an active trading market in the Nil Paid Rights, the Fully Paid Rights, the New Shares or the New Depositary Interests will develop upon or following Admission. In addition, because the trading price of the Nil Paid Rights depends on the trading price of the Shares, the price of the Nil Paid Rights may be volatile and subject to the same risks as noted above. The existing volatility of the Shares may also magnify the volatility of the Nil Paid Rights.

Shareholders who do not acquire New Shares and/or New Depositary Interests in the Rights Issue will experience dilution in their ownership of the Company.

If a Shareholder does not respond to the Rights Issue by 11.00 a.m. (London Time) on 8 November 2016, the expected latest time and date for acceptance and payment in full for that Shareholder's provisional allotment of New Shares and/or New Depositary Interests, that Shareholder's Nil Paid Rights to subscribe for New Shares and/or New Depositary Interests will lapse and the Company has made arrangements under which the Banks, within the two Business Day period following the expiration of the latest time and date for acceptance and payment, will endeavour (as agents of the Company) to find subscribers for New Shares and/or New Depositary Interests not taken up by Shareholders. If, however, the Banks are unable to find subscribers for such New Shares and/or New Depositary Interests or are unable to achieve a specified premium over the Issue Price and the related expenses of procuring such subscribers, Shareholders will not receive any consideration for the Nil Paid Rights they have not taken up.

If Shareholders, including Shareholders in the US and other jurisdictions where their participation is restricted for legal, regulatory and other reasons, do not take up the offer of New Shares and/or New Depositary Interests under the Rights Issue, their proportionate ownership and voting interests in the Company will be reduced and the percentage that their shares will represent of the total share capital of the Company will be reduced accordingly. Even if a Shareholder elects to sell his unexercised Nil Paid Rights, or such Nil Paid Rights are sold on his behalf, the consideration he receives may not be sufficient to compensate him fully for the dilution of his percentage ownership of the Company's share capital that may be caused as a result of the Rights Issue. Shareholders who do not take up their entitlements to New Shares (whether directly or through New Depositary Interests) will have their proportionate shareholdings in the Company diluted by approximately 36.8 per cent.

Shareholders outside the UK may not be able to subscribe for New Shares and/or New Depositary Interests in the Rights Issue.

In the case of an allotment of Shares for cash, Shareholders have certain pre-emption rights unless those rights are disapplied by a special resolution of the Shareholders at a general meeting and such an issue could dilute the interests of the then existing Shareholders. Securities laws of certain jurisdictions may restrict the Company's ability to allow participation by Shareholders in the Rights Issue. In particular, holders of Shares who are located in the US may not be able to exercise their pre-emption rights unless a registration statement under the US Securities Act is effective with respect to such rights or an exemption from the registration requirements is available thereunder. The Rights Issue will not be registered under the US Securities Act. Securities laws of certain other jurisdictions may restrict the Company's ability to allow participation by Shareholders in such jurisdictions in any future issue of shares carried out by the Company. Qualifying Shareholders who have a registered address in or who are resident in, or who are citizens of, countries other than the UK should consult their professional advisers as to whether they require any governmental or other consents or need to observe any other formalities to enable them to take up their Nil Paid Rights or to acquire Fully Paid Rights, New Shares or New Depositary Interests.

IMPORTANT INFORMATION

Cautionary note regarding forward-looking statements

This document includes statements that are, or may be deemed to be, ''forward-looking statements''. These forward-looking statements may be identified by the use of forward-looking terminology, including the terms ''believes'', ''estimates'', ''plans'', ''projects'', ''anticipates'', ''expects'', ''intends'', ''may'', ''will'' or ''should'' or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this document and include, but are not limited to, statements regarding the Group's intentions, beliefs or current expectations concerning, among other things, the Group business, results of operations, financial position, prospects, dividends, growth, strategies and the asset management business.

By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Forward-looking statements are not guarantees of future performance and the actual results of the Group's operations, its financial position and dividends, and the development of the markets and the industries in which the Group operates may differ materially from those described in, or suggested by, the forward-looking statements contained in this document. In addition, even if the Group's results of operations and financial position, and the development of the markets and the industries in which the Group operates, are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods. A number of risks, uncertainties and other factors could cause results and developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation:

the Acquisition or the AXA Transaction being made subject to additional conditions or failing to proceed at all;
the Enlarged Group failing to realise the expected benefits of the Acquisition and/or the AXA Transaction;
management of the Company being distracted or overstretched by the process of integrating and managing the Enlarged Group;
risks stemming from the economy and the performance of financial markets generally;
changes in the legal and regulatory environment in which the Group operates;
the FCA, the PRA or other regulators intervening in the Group's business on industry-wide issues, or conducting thematic reviews;
restrictions on the ability to pay dividends, or a failure to pay dividends according to the Group's dividend policy;
changes in regulatory capital requirements;
changes in accounting standards or in actuarial assumptions;
risk management policies and procedures being ineffective;
further contributions, in addition to those already agreed, being required to be made to the Group's defined benefit pension schemes;
third party asset management firms that manage the Group's assets underperforming or difficulties arising from the Group's outsourcing relationships;
the Group failing to maintain the availability of its systems and to safeguard the security of its data;
third party reinsurers being unwilling or unable to meet their obligations under reinsurance contracts;
legal and arbitration proceedings;
the level of the Group's indebtedness;
changes in taxation law, including future changes in the tax legislation affecting specific products offered by the Group and changes to the VAT rules; and
other factors discussed in the section of this document headed ''Risk Factors''.

Forward-looking statements may and often do differ materially from actual results. Any forward-looking statements in this document reflect the Group's current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Group's business, results of operations, financial condition, prospects, dividends, growth, strategies and the asset management business. Investors should specifically consider the factors identified in this document, which could cause actual results to differ, before making an investment decision. Subject to the requirements of the Listing Rules, the Prospectus Rules, the Market Abuse Regulation and the Disclosure Guidance and Transparency Rules, the Company undertakes no obligation publicly to release the result of any revisions to any forward-looking statements in this document that may occur due to any change in the Company's expectations or to reflect events or circumstances after the date of this document.

Presentation of financial information

Capitalisation and indebtedness information for the Group in this document is derived from unaudited interim condensed consolidated financial statements of the Group presented in pounds sterling and has been prepared in accordance with IFRS for the six months ended 30 June 2016. Other financial information, unless otherwise stated, has been extracted without material adjustment from the Annual Report and Accounts of the Group for the years ended 31 December 2015, 2014 and 2013, and from the unaudited interim condensed consolidated financial statements of the Company and its subsidiaries for the six months ended 30 June 2016. Where information has been extracted from the audited consolidated financial statements of the Group, the information is audited unless otherwise stated. Where the information has been extracted from the interim condensed consolidated financial statements, the information is unaudited.

Unless otherwise indicated, financial information for the Group in this document and the information incorporated by reference into this document is presented in pounds sterling and has been prepared in accordance with IFRS as issued by the International Accounting Standards Board (''IASB'').

Abbey Life financial information, unless otherwise stated, has been extracted without material adjustment from ALAC's audited financial statements for the financial years ended 31 December 2015, 2014 and 2013. Where information has been extracted from the audited financial statements of ALAC, the information is audited unless otherwise stated.

Unless otherwise indicated, financial information for ALAC in this document is presented in pounds sterling and has been prepared in accordance with IFRS consistent with that applied by the Company in its financial statements.

For accounting purposes, it is expected that Abbey Life will be consolidated into the Company's IFRS financial statements in the year ending 31 December 2016. A fair value exercise in respect of Abbey Life's assets and liabilities will be conducted following Completion, resulting in Abbey Life's assets and liabilities being included at fair value on the date of the Acquisition in the Enlarged Group's statement of financial position. Intangible assets will be expected to arise from the Acquisition and may include goodwill, acquired value of in-force business, and other intangibles.

The financial information presented in a number of tables in this document has been rounded to the nearest whole number or the nearest decimal. Therefore, the sum of the numbers in a column may not conform exactly to the total figure given for that column. In addition, certain percentages presented in the tables in this document reflect calculations based upon the underlying information prior to rounding, and, accordingly, may not conform exactly to the percentages that would be derived if the relevant calculations were based upon the rounded numbers.

Pro forma financial information

In this document, any reference to ''unaudited pro forma information'' is to information which has been extracted without material adjustment from the unaudited pro forma IFRS financial information contained in Part X (''Unaudited Pro Forma IFRS Financial Information of the Enlarged Group'') and the unaudited pro forma Solvency II information contained in Part XI (''Unaudited Pro Forma Solvency Information of the Enlarged Group'') of this document.

The unaudited pro forma IFRS income statement and unaudited pro forma statement of IFRS net assets of the Enlarged Group (together, the ''unaudited pro forma IFRS financial information'') contained in Part X (''Unaudited Pro Forma IFRS Financial Information of the Enlarged Group'') of this document have been prepared for illustrative purposes only in accordance with Annex II of the Prospectus Rules and on the basis of the notes set out therein. The unaudited pro forma IFRS income statement has been prepared to illustrate the effect on the earnings of the Company as if the proposed Acquisition and the Rights Issue had taken place on 1 January 2015. The unaudited pro forma statement of IFRS net assets has been prepared to illustrate the effect on the net assets of the Company as if the proposed Acquisition and the Rights Issue had taken place on 30 June 2016. The unaudited pro forma IFRS financial information has been prepared for illustrative purposes only and, because of its nature, address a hypothetical situation and does not, therefore, represent the Company or the Enlarged Group's actual financial position or results. The unaudited pro forma IFRS financial information is stated on the basis of the accounting policies expected to be adopted by the Company in preparing its consolidated financial statements for the year ending 31 December 2016. The unaudited pro forma IFRS financial information does not illustrate the effects of the AXA Transaction.

The unaudited pro forma statement of Group Solvency II Surplus of the Enlarged Group (the ''unaudited pro forma solvency information'') contained in Part XI (''Unaudited Pro Forma Solvency Information of the Enlarged Group'') of this document has been prepared for illustrative purposes only in accordance with Annex II of the PD Regulation and on the basis of the notes set out below. The unaudited pro forma solvency information has been prepared to illustrate the effect on the group solvency position at the level of the highest EEA insurance group holding company, PLHL, as if the proposed Acquisition and Rights Issue had taken place on 30 June 2016. The unaudited pro forma solvency information has been prepared for illustrative purposes only and, because of its nature, addresses a hypothetical situation and does not, therefore, represent the Company or the Enlarged Group's actual financial position, results or solvency position. The unaudited pro forma solvency information is stated on the Company's basis of Solvency II reporting expected to apply for the year ending 31 December 2016. The unaudited pro forma solvency information does not illustrate the effects of the AXA Transaction.

Presentation of certain key performance indicators and targets

Certain key performance indicators and targets referred to in this document are unaudited non-GAAP measures that are used by the Group, including those described below:

Solvency II Own Funds—Solvency II Own Funds are the aggregate of ''basic Own Funds'' (assets an insurer has on its balance sheet) and ''ancillary Own Funds'' (off-balance sheet resources that are loss absorbent, for example, unpaid share capital), all such assets are subject to eligibility criteria and weighting, as determined by reference to Articles 93 to 95 of Solvency II as well as to Articles 69 to 73, 76, 77, 79 and 82 of Commission Delegated Regulation (EU) 2015/35, as interpreted by EIOPA's ''Guidelines on Own Funds'' (BoS-14/168 EN). References to the Own Funds of a particular entity are references to the Own Funds held by an entity, whereas references to the Group's Own Funds, or the Enlarged Group's Own Funds, are references to the Own Funds within the scope of the Solvency II group.
Solvency Capital Requirement (''SCR'')—This is the standard Own Funds level that a UK life insurer is required to maintain by the PRA. A separate calculation also applies to Solvency II groups. SCR is determined by reference to a basic standard formula set out in Articles 103–111 of Solvency II, however, a life insurer may agree an amendment to the standard formula to create a bespoke calculation which more accurately reflects the risks applicable to that life insurer, that amendment is achieved by way of an Internal Model. Own funds held to meet the SCR requirement (and any additional amendment or add-on approved by the PRA) are also referred to as ''regulatory capital'' and any reference to an increase or decrease in a regulatory capital requirement is a reference to an increase or decrease in the amount of regulatory capital an entity has to hold. The amount by which an SCR requirement is exceeded by Own Funds is referred to as the ''Solvency II Surplus''.
Shareholder Capital Coverage Ratio—This is the ratio of Solvency II Own Funds to SCR, excluding Solvency II Own Funds and SCR of unsupported with-profit funds and Group pension schemes. Unsupported with-profit funds and Group pension schemes refer to those funds whose Solvency II Own Funds exceed their SCR. Where a with-profit fund or Group pension scheme has insufficient Solvency II Own Funds to cover its SCR, its Solvency II Own Funds and SCR are included within the Shareholder Capital Coverage Ratio Calculation.
Cashflows from the Acquisition 2016 to 2020—These are equal to the net cashflows expected to be remitted by each Abbey Life company to the Group Holding Companies, aggregated for the years 2016 to 2020.
Cashflows from the Acquisition for 2021 onwards—These are equal to the net cashflows expected to be remitted by each Abbey Life company to the Group Holding Companies, aggregated for the years from 2021 onwards.
Assets under management (''AUM'')—These are assets managed by the Group and held (i) in respect of actual or anticipated liabilities to policyholders under a policy, or (ii) on behalf of policyholders under the terms of a policy.
Holding Companies cash—This represents the cash and cash equivalents held in the Group Holding Companies and available to be used to meet future corporate expenses, pension scheme funding requirements, debt servicing and repayments, and the payment of shareholder dividends.
MCEV—This is an estimate of the economic worth of a life insurance business. It comprises the (i) net assets of the business under IFRS and (ii) the present value of future cashflows from in-force business, but excludes any value that may be generated by writing future new insurance business. A ''marketconsistent methodology'' is applied so that assets and liabilities are valued in line with market prices and consistently with each other. Details of the basis and components of the Group's MCEV measure are provided in section ''Group MCEV'' of Part VII (''Operating and Financial Review of the Company'') of this document. The Abbey Life MCEV is calculated on a basis consistent, in all material respects, with the MCEV principles and guidance published by the CFO Forum in June 2008 and amended in October 2009, with the exception that the Abbey Life MCEV allows for future annuity vestings within the value of in-force business.

Currencies

In this document and the information incorporated by reference into this document, references to ''£'', ''sterling'' or ''GBP'' are to the lawful currency of the United Kingdom, references to ''US dollars'', ''US\$'', ''\$US'', ''US¢'' or ''cents'' are to the lawful currency of the United States, and references to ''Euro'', ''euro'', ''A'' or ''e'' are to the euro, the European single currency.

No profit forecast

No statement in this document is intended as a profit forecast and no statement in this document should be interpreted to mean that earnings per Share for the current or future financial years would necessarily match or exceed the historical published earnings per Share.

Notice to investors in the United States of America

Neither this document nor the Provisional Allotment Letter constitutes, or will constitute, or forms part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, New Shares, New Depositary Interests, Nil Paid Rights and/or Fully Paid Rights to any Shareholder with a registered address in, or who is resident of, the United States. If you are in the US, you may not exercise your Nil Paid Rights or Fully Paid Rights and/or acquire any New Shares offered hereby. The Nil Paid Rights, the Fully Paid Rights and the New Shares being offered outside the US are being offered in reliance on Regulation S under the US Securities Act solely to non-US persons.

Any envelope containing a Provisional Allotment Letter and post-marked from the US will not be valid. Any Provisional Allotment Letter in which the exercising holder requests New Shares to be issued in registered form and gives an address in the US will not be valid.

The payment paid in respect of Provisional Allotment Letters and post-marked from the US will be returned without interest.

Any person in the US who obtains a copy of this document is required to disregard it.

Overseas territories other than the Excluded Territories

Qualifying Shareholders who have registered addresses in or who are resident in, or who are citizens of, all countries other than the UK (other than the Excluded Territories) should refer to paragraph 2.5 (''Overseas Shareholders'') of Part III (''Terms and Conditions of the Rights Issue'') of this document.

Volcker Rule

Section 619 of the Dodd-Frank Act Wall Street Reform and Consumer Protection Act of 2010 (the ''Volcker Rule'') prevents ''banking entities'' as defined under the Volcker Rule (which would include certain non-U.S. affiliates of U.S. banking entities) from, among other things, acquiring or retaining any equity, partnership, or other ownership interest in, or in sponsoring, any ''covered fund'' as defined in the Volcker Rule.

The Company may be treated as a ''covered fund'' under the Volcker Rule. If the Company is treated as a ''covered fund'' under the Volcker Rule, then in the absence of an exemption or regulatory relief, the provisions of the Volcker Rule and its related regulatory provisions may limit the ability of ''banking entities'' to hold an ownership interest in the Company or enter financial transactions with the Company.

Each prospective investor in the New Shares is required to independently consider the potential impact of the Volcker Rule in respect of any investment in the New Shares. To the extent that investment by banking entities in the New Shares is prohibited or restricted by the Volcker Rule, this may impair the marketability and liquidity of the New Shares.

Currency exchange rate information

Unless otherwise indicated, the financial information contained in this document has been expressed in pounds sterling. The functional currency of the Company is pounds sterling, as is the reporting currency of the Group. Transactions not already measured in pounds sterling have been translated into pounds sterling in accordance with the relevant provisions of IAS21. On consolidation, income statements of subsidiaries for which pounds sterling are not the functional currency are translated into pounds sterling, the presentation currency for the Company, at average rates of exchange. Balance sheet items are translated into pounds sterling at period-end exchange rates. These translations should not be construed as representations that the relevant currency could be converted into pounds sterling at the rate indicated, at any other rate or at all.

Indicative exchange rates of the pound sterling against the Euro(1)

Period	Period-end	Average	High	Low
2013	1.2041	1.1889	1.2041	1.1693
2014	1.2876	1.2576	1.2876	1.2099
2015	1.3571	1.3753	1.4103	1.3532
2016 (through 30 June 2016)	1.1984	1.2302	1.2619	1.1984

Note:

(1) Source: Bloomberg Historical Exchange-Rate Chart.

As at 5:00 p.m. (London time) on 3 October 2016 (being the latest practicable date prior to publication of this document), the exchange rate of the pound sterling against the Euro was £1.00 : A1.1454.

In addition to the convenience translations (the basis of which is described above), the basis of translation of foreign currency transactions and amounts contained in the audited and unaudited financial information included in this document is described therein and may be different to the convenience translations.

Enforcement of civil liabilities

The ability of an Overseas Shareholder to bring an action against the Company may be limited under law. The Company is a company incorporated as an exempted company with limited liability under the laws of the Cayman Islands. The rights of holders of Existing Shares are governed by Cayman Islands law and by the Company's Memorandum and Articles of Association. These rights may differ from the rights of shareholders in certain UK and non-UK corporations.

An Overseas Shareholder may not be able to enforce a judgment against some or all of the Directors and the Company's executive officers. The majority of the Directors and executive officers are residents of the United Kingdom. Consequently, it may not be possible for an Overseas Shareholder to effect service of process upon the Directors and the Company's executive officers within the Overseas Shareholder's country of residence. In addition, it may not be possible to enforce against the Directors and the Company's executive officers judgments of courts of the Overseas Shareholder's country of residence based on civil liabilities under that country's securities laws. There can be no assurance that an Overseas Shareholder will be able to enforce any judgments in civil and commercial matters or any judgments under the securities laws of countries other than the United Kingdom against the Directors or the Company's executive officers who are residents of the United Kingdom or countries other than those in which judgment is made. In addition, English or other courts may not impose civil liability on the Directors or the Company's executive officers in any original action based solely on the foreign securities laws brought against the Company or the Directors in a court of competent jurisdiction in England or other countries.

RIGHTS ISSUE STATISTICS

Price per New Share	508 pence
Basis of Rights Issue	7 New Shares for every
	12 Existing Shares
Number of Shares in issue at the date of this document	248,098,643
Number of New Shares to be issued by the Company(1)	144,722,989
Number of Shares in issue immediately following completion of the Rights
Issue(1)(2)	392,821,632
New Shares as a percentage of enlarged issued share capital of the
Company immediately following completion of the Rights Issue(2)	36.8 per cent.
Estimated net proceeds receivable by the Company after expenses	£718 million

Note:

⁽¹⁾ Calculated as at 28 September 2016 (being the date of announcement of the Acquisition and Rights Issue) on the basis of the number of Shares in issue as at such date.

⁽²⁾ Assuming that no Shares and/or Depositary Interests are issued, including as a result of the exercise of any options, between 3 October 2016 (being the latest practicable date prior to the publication of this document) and the completion of the Rights Issue.

EXPECTED TIMETABLE FOR THE RIGHTS ISSUE

	2016(1)(2)
Publication and posting of this document, the Notice of General Meeting, the Form of Proxy and the Form of Instruction	4 October
Latest time and date for receipt of General Meeting Forms of
Instruction	10.00 a.m. on 19 October
Record Date for entitlements under the Rights Issue	close of business on 20 October
Latest time and date for receipt of General Meeting Forms of Proxy .	10.00 a.m. on 20 October
General Meeting	10.00 a.m. on 24 October
Date of despatch of Provisional Allotment Letters (to Qualifying Non-CREST Shareholders only(3))	24 October
Dealings in New Shares, nil paid, commence on the London Stock
Exchange	8.00 a.m. on 25 October
Nil Paid Rights credited to stock accounts in CREST (Qualifying
Depositary Interest Holders only)	As soon as practicable after 8.00 a.m. on 25 October
Nil Paid Rights and Fully Paid Rights enabled in CREST	As soon as practicable after 8.00 a.m. on 25 October
Shares marked ex-Rights .	25 October
Recommended latest time for requesting withdrawal of Nil Paid Rights or Fully Paid Rights from CREST (i.e., if your Nil Paid Rights or Fully Paid Rights are in CREST and you wish to convert them into certificated form)	11.00 a.m. on 2 November
Latest time and date for depositing renounced Provisional Allotment Letters, nil paid or fully paid, into CREST or for dematerialising Nil Paid Rights into a CREST stock account	11.00 a.m. on 3 November
Latest time and date for splitting Provisional Allotment Letters	11.00 a.m. on 4 November

Latest time and date for acceptance and payment in full and registration of renounced Provisional Allotment Letters	11.00 a.m. on 8 November
Expected date of announcement of results of the Rights Issue through a Regulatory Information Service	9 November
New Depositary Interests credited to CREST stock accounts (uncertificated holders only(3)) and dealings in the New Shares to commence on the London Stock Exchange fully paid	by no later than 9 November
Despatch of definitive share certificates for New Shares in certificated form (to Qualifying Non-CREST Shareholders only(3))	by no later than 15 November

Notes:

⁽¹⁾ The times and dates set out in the expected timetable of principal events above and mentioned throughout this document, by announcement through a Regulatory Information Services, and in the Provisional Allotment Letter may be adjusted by the Company, in which event details of the new dates will be notified to the FCA and to the London Stock Exchange and, where appropriate, to Shareholders.

⁽²⁾ References to times in this document are to London time unless otherwise stated.

⁽³⁾ Subject to certain restrictions relating to Overseas Shareholders. See paragraph 2.5 (''Overseas Shareholders'') of Part III (''Terms and Conditions of the Rights Issue'') of this document.

DIRECTORS, COMPANY SECRETARY AND ADVISERS

Board of Directors

A list of the members of the Company's Board of Directors is set forth in the table below.

Name	Position
Henry Staunton	Chairman and Nomination Committee Chairman
Clive Bannister	Group Chief Executive Officer
James McConville	Group Finance Director
Ian Cormack	Senior Independent Non-Executive Director and Remuneration
	Committee Chairman
´ Rene-Pierre Azria	Independent Non-Executive Director
Alastair Barbour	Independent Non-Executive Director and Audit Committee Chairman
Isabel Hudson	Independent Non-Executive Director
Wendy Mayall	Independent Non-Executive Director
John Pollock	Independent Non-Executive Director
Nicholas Shott	Independent Non-Executive Director
Kory Sorenson	Independent Non-Executive Director
David Woods	Independent Non-Executive Director and Risk Committee Chairman

The business address of each of the Directors is 1st Floor, 32 Commercial Street, St. Helier, Jersey JE2 3RU, Channel Islands.

Group Company Secretary:	Gerald Watson
Registered office:	c/o Maples Corporate Services Limited Po Box 309 Ugland House Grand Cayman KY1-1104 Cayman Islands
Principal place of business of the Company:	1st Floor, 32 Commercial Street St. Helier Jersey JE2 3RU Channel Islands
Joint Sponsor and Global Coordinator:	HSBC Bank plc 8 Canada Square London E14 5HQ United Kingdom
Joint Sponsor and Global Coordinator:	Morgan Stanley & Co. International plc 25 Cabot Square Canary Wharf London E14 4QA United Kingdom
Global Coordinator:	J.P. Morgan Securities plc 25 Bank Street London E14 5JP United Kingdom
Co-Bookrunner:	Commerzbank Aktiengesellschaft, London Branch 30 Gresham Street London EC2V 7PG United Kingdom
Co-Bookrunner:	Natixis 30 Avenue Pierre Mendes France 75013 Paris France

Auditors to the Company:	Ernst & Young LLP 1 More London Place London SE1 2AF United Kingdom
Reporting accountant:	Ernst & Young LLP 1 More London Place London SE1 2AF United Kingdom
Legal advisers to the Company as to English law:	Skadden, Arps, Slate, Meagher & Flom (UK) LLP 40 Bank Street Canary Wharf London E14 5DS United Kingdom
Cayman Islands legal advisers to the Company:	Walkers 190 Elgin Avenue George Town Grand Cayman KY1-9001 Cayman Islands
Jersey legal advisers to the Company:	Walkers Walker House 28-34 Hill Street St. Helier Jersey JE4 8PN Channel Islands
Legal advisers to the Joint Sponsors and Global Coordinators as to English law:	Herbert Smith Freehills LLP Exchange House Primrose Street London EC2A 2EG United Kingdom
Registrar:	Computershare Investor Services (Cayman) Limited Windward 1 Regatta Office Park PO Box 897 Grand Cayman KY1-1103 Cayman Islands
Depositary and Receiving Agent:	Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZY United Kingdom

Henry Staunton, Chairman c/o Maples Corporate Services Limited Clive Bannister, Group Chief Executive Officer PO Box 309 Jim McConville, Group Finance Director Ugland House Ian Cormack, Senior Independent Director Grand Cayman Rene-Pierre Azria, Non-Executive Director KY1-1104 ´ Alastair Barbour, Non-Executive Director Cayman Islands Isabel Hudson, Non-Executive Director Wendy Mayall, Non-Executive Director John Pollock, Non-Executive Director Nicholas Shott, Non-Executive Director Kory Sorenson, Non-Executive Director David Woods, Non-Executive Director

1ST FLOOR T +44 (0) 20 3567 9169 32 COMMERCIAL STREET F +44 (0) 20 3567 9906

ST HELIER, JERSEY [email protected] JE2 3RU WWW.THEPHOENIXGROUP.COM

Directors: Registered Office:

4 October 2016

PROPOSED ACQUISITION OF ABBEY LIFE AND FULLY UNDERWRITTEN RIGHTS ISSUE

Dear Shareholder,

1. INTRODUCTION

On 28 September 2016, Phoenix Group Holdings (the ''Company'' and, together with its subsidiaries from time to time, the ''Group'') announced the proposed acquisition of the entire issued share capital of Abbey Life Assurance Company Limited (''ALAC''), Abbey Life Trustee Services Limited and Abbey Life Trust Securities Limited (together ''Abbey Life'') from Deutsche Holdings No. 4 Ltd., a wholly owned subsidiary of Deutsche Bank AG (the ''Seller'') for total consideration of £935 million in cash payable on Completion, subject to customary adjustments (the ''Acquisition'').

The Company proposes to finance the Acquisition and estimated expenses through a combination of (a) proceeds of a Rights Issue to raise a total of £735 million, and (b) £250 million from a new bank facility.

The Directors believe the Acquisition is strategically compelling for the Group as there is significant value creation which could result from the integration of Abbey Life into the Group.

The Group specialises in the management and acquisition of closed life and pension funds, operating primarily in the United Kingdom (''UK''). Measured by total assets, the Group is the largest UK consolidator of closed life insurance funds. The Group is focused on efficient capital management and the extraction of value through management actions, operational efficiency and optimised financing, which leads to the Group having the scale and expertise to create value. The Acquisition would provide the Group with the opportunity to significantly increase the scale of its existing operations, further strengthening its position as the pre-eminent UK closed life consolidator. The Acquisition of Abbey Life would also supplement Phoenix's in-force pensions policies, whose policyholders may choose Phoenix's annuities at vesting.

ALAC is authorised by the Prudential Regulation Authority (''PRA'') and regulated by the Financial Conduct Authority (''FCA'') and the PRA to carry on long term insurance business in the UK and is focused predominantly on a book of unit-linked life and pension policies and annuities in payment, with approximately 735,000 policyholders and £10 billion of assets under management as at 31 December 2015. ALAC's Solvency II Own Funds as at 30 June 2016 was £1,047 million and ALAC's MCEV as at 31 December 2015 was £1,218 million. The total consideration payable for the Acquisition is equal to 89 per cent. of ALAC's Solvency II Own Funds as at 30 June 2016 (before alignment with the Phoenix basis and the impact of management actions) and 77 per cent. of ALAC's MCEV as at 31 December 2015.

The Acquisition is expected to add approximately 735,000 policyholders and £10 billion of assets under management to the Group's existing business, based on Abbey Life's position as at 31 December 2015. The

Group is aiming to generate from the Acquisition cashflows of approximately £0.5 billion in aggregate between 2016 and 2020 and £1.1 billion in aggregate from 2021 onwards. This reflects the benefits from transitioning Abbey Life to the Group's Solvency II Internal Model, capital management policies and transitional measures (subject to relevant regulatory approval), as well as management actions.

The purpose of this letter is to: (i) explain the background to, and reasons for, the Acquisition and the Rights Issue; (ii) explain why the Directors believe that the Acquisition is in the best interests of the Company and its Shareholders as a whole; (iii) set out the terms and conditions of the Rights Issue; and (iv) recommend that you vote in favour of the Resolutions relating to the Acquisition and the Rights Issue to be proposed at the General Meeting. In this respect, this document should be read in its entirety and you should not rely solely on the information summarised in this Part I (''Letter from the Chairman of Phoenix Group Holdings''). Your attention, in particular, is drawn to the risk factors set out in the section titled ''Risk Factors''.

In view of its size in relation to the Company, the Acquisition is classified under the Listing Rules as Class 1 and accordingly requires the approval of the Shareholders. A notice of the General Meeting to be held on 24 October 2016, at which your approval will be sought for the Acquisition, is set out at the end of this document. The Board unanimously considers that the Resolutions are in the best interests of the Company and its shareholders and recommends that Shareholders vote in favour of the Resolutions as the Board has irrevocably undertaken to do in respect of its own shares in the Company.

As more fully described in paragraph 10 (''Principal Terms of the Rights Issue'') of this letter, the Company proposes to undertake a Rights Issue, the net proceeds of which will be used to fund part of the cash consideration for the Acquisition, to raise £735 million by the issue of 144,722,989 New Shares (representing approximately 58.3 per cent. of the existing issued share capital of the Company and, assuming no additional shares are issued by the Company prior to completion of the Rights Issue, approximately 36.8 per cent. of the enlarged issued share capital immediately following completion of the Rights Issue) through a 7 for 12 Rights Issue at 508 pence per New Share. Resolutions relating to the Acquisition and the Rights Issue will be proposed at the General Meeting. Dealings in the New Shares (nil-paid) are expected to commence on 25 October 2016, the first trading day after the approval of the Acquisition by Shareholders at the General Meeting.

The Directors intend to apply the proceeds of the Rights Issue to fund part of the consideration for the Acquisition, together with the associated transaction and acquisition costs. The net proceeds of the Rights Issue will either be placed on deposit pending Completion or lent to other companies within the Group and used in repayment of external debt which can be redrawn on a certain funds basis prior to Completion. If Completion does not take place before the Long Stop Date, the Directors intend to retain the net proceeds of the Rights Issue for use within the next 12 months on alternative acquisitions consistent with the Group's acquisition criteria and strategy. Failing this, the Directors will either seek to return the net proceeds of the Rights Issue to shareholders in a tax efficient and practicable manner or seek shareholders' approval to continue to hold the net proceeds of the Rights Issue for general corporate purposes. Returning the net proceeds to shareholders by way of dividend or by certain other means would be subject to the non-objection of the PRA.

Pursuant to the Rights Issue, the Company has entered into a Sponsors and Underwriting Agreement with the Banks in respect of all the New Shares to be issued, further details of which are found in paragraph 12.1.15 (''Sponsors and Underwriting Agreement'') of Part XIV (''Additional Information'') of this document. In view of the size of the Rights Issue, the Board is seeking your authority at the General Meeting to allot the required number of New Shares.

2. BACKGROUND AND REASONS FOR THE ACQUISITION AND RIGHTS ISSUE

2.1 Strategy

The Group is the UK's largest specialist closed life and pension fund consolidator measured by total assets, with £52 billion of assets under management and approximately 4.5 million policyholders as at 30 June 2016. The Group seeks to improve returns for its policyholders and customers, to deliver value for shareholders, and to be recognised as the leading solutions provider for the safe, innovative and profitable decommissioning of closed life funds in the UK. To enable this, the Group's strategy is to act as a consolidator of life and pensions books that are closed to new business and to deploy its specialist skills across operational efficiency, capital management, regulation and other key areas.

The Group's areas of strategic focus are:

Closed book consolidation: The Group is a consolidator of life and pensions books which are predominantly closed to new business. The Directors believe that such books of business are best managed within a specialist scale platform and that existing and anticipated market dynamics will generate a supply of potentially attractive acquisition targets. These dynamics include the impact of the regulatory framework for financial services companies, such as the Solvency II and Basel 3 regulations. In addition, the Directors believe that the opportunity is supported by ongoing capital pressure within the sector, the trend of recycling and refocusing capital from mature to growth markets, the decline in new with-profit business, changing customer demands and regulatory change driving consolidation in the mutual sector. The Directors believe that this opportunity is also supported by the migration of customers to alternative products, creating legacy products and their infrastructure which face cost challenges as the policies run off. The management of these books requires specialist skills, particularly in regulation, operational efficiency, capital management, governance and liability customised asset management. To maintain its competitive advantage and maximise the potential for value creation, the Group develops specialist expertise to identify, pursue and execute suitable opportunities in the closed life space. Given the opportunities and its experience, the Group remains predominantly focused on the UK.
Disciplined approach to M&A: The Group seeks to make acquisitions consistent with its strategic focus and which meet its acquisition criteria. In this regard, the Group seeks to create value by optimising its Solvency II capital position and to generate increased cashflows to support the payment of dividends, whilst targeting a level of debt that allows the Group to maintain its investment grade rating.
Capital management and management actions: The effective management of the Group's risks and the efficient allocation of capital against them is critical in allowing the Group to achieve its strategic and operational objectives. The Group's Solvency II Internal Model has been approved by the PRA as part of the Solvency II regime. In addition, the Group seeks to implement certain management actions to optimise its capital position and cashflows, such as fund mergers and de-risking. As the Group grows through acquisitions, the opportunities for capital management and management actions tend to increase. In addition, the Group is considering refinancing all or part of its existing senior debt through the issuance of longer-term, subordinated debt.
Realise the benefits of scale: Acquisitions are important to the Group's model not only to offset the natural decline of a business largely closed to new business, but also to grow the business and create additional value from scale advantages. Increased scale provides the Group with a number of key differentiating features including the ability to drive operational efficiencies and achieve diversification benefits, as well as ultimately enabling further acquisitions. To take advantage of acquisition opportunities, the Group has created a scalable operating model and adopts a disciplined pricing model which is supported by the Group's Solvency II Internal Model.
Operational efficiency: The Group routinely applies 'The Phoenix Way' to increase operational efficiency through the standardisation and streamlining of key processes, which will in turn reduce costs, improve performance and maximise value. As a result of 'The Phoenix Way', the Group seeks to eliminate unnecessary cost from its business model. In part this is achieved through outsourcing administrative tasks to selected third parties. When the Group acquires new books of business, this scalable outsourced model supports the delivery of cost savings.
Optimised financing structure: In managing the Group's capital, the Group seeks a level of debt that enables it to maintain an investment grade rating and optimise its funding costs and financial flexibility for further acquisitions. The Group's closed book business model allows it to operate with higher financial leverage than life insurance companies that are still writing new business, as the Group does not need to fund upfront capital requirements and new business acquisition expenses. As part of its financing strategy, the Group has simplified its financing arrangements, including the comprehensive refinancing of its senior debt structure in July 2014 to create a new £900 million single debt facility which was reduced to £650 million as at 30 June 2016.
Improving customer outcomes: The Group aims to improve customer experiences through its focus on its chosen market, high levels of governance and extensive experience. The Group has three key areas of focus in relation to its customers, namely:

Value: the Group aims to optimise customer outcomes;

Service: treating customers fairly, with empathy as well as respect, and all in a timely fashion; and

Security: ensuring customer investments are secure in a well-managed company.

By focusing on these areas proactively and responsibly, the Directors believe that the Group can create value in the long term in a highly regulated sector.

• Regulatory experience: The Group is regulated in the UK by the PRA and the FCA. The Group is aligned with the aims of both regulators, in seeking both to protect customers and their lifetime savings, and to manage its business with a prudent perspective on financial metrics including capital. It has a strong team of experienced individuals managing its regulatory relationships.

2.2 Reasons for the Acquisition

The Directors believe that the Acquisition represents an opportunity to acquire a significant closed life book which is consistent with the Group's areas of strategic focus and meets its acquisition criteria. The Acquisition delivers attractive strategic and financial benefits to the Group:

Transaction pricing: The total consideration payable for the Acquisition is equal to 89 per cent. of ALAC's Solvency II Own Funds as at 30 June 2016 (before alignment with the Phoenix basis and the impact of management actions) and 77 per cent. of ALAC's MCEV as at 31 December 2015. Assuming the Acquisition had completed on 30 June 2016 (including the impact of the proposed financing structure), the Group's Solvency II surplus would increase from £1.1 billion to £1.5 billion. This excludes the impact of the AXA Transaction, which is expected to increase the Group's Solvency II surplus by approximately £0.1 billion. Assuming the Acquisition had completed on 30 June 2016 (including the impact of the proposed financing structure), the Group's Shareholder Capital Coverage Ratio would increase from 144 per cent. to 151 per cent. This excludes the impact of the AXA Transaction, which is expected to increase the Group's Shareholder Capital Coverage Ratio by 2 percentage points.
An attractive cashflow profile which is predictable: The Acquisition is expected to generate cashflows of approximately £0.5 billion in aggregate between 2016 and 2020, and £1.1 billion in aggregate from 2021 onwards. Whilst the Abbey Life business is highly cash generative on a standalone basis, the Company is planning to increase and accelerate the cashflow generation from the Acquisition through the implementation of certain management actions. The Company expects the migration of Abbey Life to its Solvency II Internal Model and capital management policies to allow it to take advantage of de-risking opportunities. The Company will seek to implement changes to Abbey Life's existing asset strategy, apply for appropriate available transitional measures and improve the operating efficiency of the acquired business, actions which will cumulatively have a positive impact on the cashflow generation from the Acquisition. The Acquisition is expected to close around the end of 2016 and, while the Company intends for Abbey Life to be incorporated within the Group's Solvency II Internal Model as soon as possible, applications to obtain regulatory approval to do so are not expected to be made until the second half of 2017.
Materially accretive to the Group's cashflows: Over the years 2016 to 2020, the Company's stated annual cash generation target is £2.0 billion. For the same period, after implementing certain management actions, the expected cash generation from the AXA Transaction is £0.3 billion and from the Acquisition is £0.5 billion. From 2021 onwards, the Acquisition is expected to generate stable and sustainable cashflows, with the scope for incremental management actions. For this period, the Company's illustrative cash generation expectation is £3.1 billion, £0.2 billion from the AXA Transaction and £1.1 billion from the Acquisition.
Increase in the Group's dividend: The Company paid a full year dividend in respect of 2015 of £120 million, equating to 53.4 pence per share. In respect of 2016, the Company paid an interim dividend in line with the 2015 dividend of £66 million (or 26.7 pence per share), of which £6 million related to the additional dividend payable in respect of the shares issued in connection with the AXA Transaction. As a result of the AXA Transaction, the Board is expecting to increase the final dividend in respect of 2016 to £69 million (equating to an increase of 5 per cent. to the dividend per share). Given the additional shares to be issued in connection with the Rights Issue, the final dividend in respect of 2016 is expected to increase by a further £25 million to £94 million, resulting in a full year dividend in respect of 2016 of £160 million. The incremental cashflow generation from the Acquisition supports (subject to regulatory approval) a proposed increase in dividends in respect of 2017 to £197 million. Adjusted for the bonus element of the Rights Issue, calculated on the Closing Price per share

of 838.5 pence as at 27 September 2016, this is equivalent to a further 5 per cent. increase in the dividend per share with effect from the interim dividend payable in respect of 2017, and is in addition to the 5 per cent. increase in the dividend per share as a result of the AXA Transaction. The total dividend payable in respect of 2017 would represent an increase in the dividend per share of 10 per cent. from the 2015 level (after adjusting for the bonus element of the Rights Issue calculated on the Closing Price per share of 838.5 pence as at 27 September 2016). Due to the stable and long-dated nature of the Abbey Life cashflows, the Acquisition is also expected to further enhance the sustainability of the Group's dividend over time.

Significantly enhances scale: The Acquisition would bring to the Group an additional £10 billion of assets under management and approximately 735,000 policyholders, based on Abbey Life's position as at 31 December 2015. This would result in an increase to the Group's existing assets under management to £62 billion of life company assets and approximately 5.2 million policyholders. The AXA Transaction is expected to add £12 billion of assets under management and over 910,000 policyholders to the Group. The enhanced scale of the Group strengthens the Company's position as the largest consolidator in the UK closed life space and enhance the Group's capacity to create shareholder value.
Strengthens balance sheet and improves the Group's leverage: The proposed financing structure for the Acquisition further strengthens the Group's balance sheet and reduces financial leverage. The mix of debt and equity reflects the desire to maintain the Group's investment grade rating, which will over time contribute to a lower cost of funding for the Group. The proposed Acquisition is expected to result in a modest immediate reduction in the Group's Fitch leverage ratio, reinforcing the Group's investment grade rating.
Straightforward integration: There are significant similarities between the Group's and Abbey Life's operating models, with both groups deriving benefits through the utilisation of an outsourced model. This provides an opportunity for Abbey Life to adopt 'The Phoenix Way' with relatively few changes to the operating structure of either business. The Abbey Life business already operates as a largely standalone business within Deutsche Bank, which allows for a straightforward approach to separation and integration of customary transitional services, such as those that will be provided by Deutsche Bank for a limited duration post Completion. Other services which are more directly related to life assurance, such as certain collateral, custody and investment management services, are expected to be provided on an ongoing basis by Deutsche Bank. The contractual terms on which certain of those services are provided are expected to be amended to be provided on an arm's length basis.
Delivering operational benefits: The Directors believe that the Acquisition will result in certain operational improvements and benefits driven by the Group's ability and know-how in managing closed funds and supported by the Group's key outsourcing partnerships that have endured regulatory, industry, systems and process changes. At the same time, similarities between the Group's and Abbey Life's operating models will allow the Group to integrate Abbey Life into its business without incurring significant costs. The Directors believe that, based on their assessment of the operating expenses required to operate Abbey Life within the Enlarged Group, there is an opportunity, as a result of the Acquisition, to reduce annualised operating expenses of the Enlarged Group by approximately £7 million on a recurring basis by 31 December 2018. Approximately half of such savings are expected to be achieved in the year ending 31 December 2017. This is compared with the net operating expenses of Abbey Life of £38.7 million for the year ended 31 December 2015 as set out in Part IX (''Financial Information of Abbey Life'') of this document. The Directors believe that this estimated reduction of operating expenses could not be achieved without Completion of the Acquisition. The Directors expect to incur one-time expenditure of approximately £9.2 million, in addition to approximately £8.0 million of project costs for investment in Abbey Life's systems and operations, which are estimated to be incurred in 2017 and 2018. The estimated synergies as set out above (which may be subject to the prior approval of the PRA) reflect both the beneficial elements and the relevant costs.
By 2020, Acquisition expected to improve cash buffer: The Directors believe that the following illustrative uses of cash will result in an illustrative cash position at the Company of £0.8 billion as at 31 December 2020, as compared to the cash position at the Company of £0.7 billion as at 30 June 2016. Cash generation from 30 June 2016 to 2020 is expected to be £2.7 billion from existing operations following completion of the AXA Transaction and the Acquisition. This is expected to be off-set by the following cash outflows. From 30 June 2016 to 2020, the Directors envisage an

illustrative £30 million per annum in operating expenses. Pension scheme contributions are estimated in line with current funding agreements. In respect of the Pearl Scheme, these comprise £40 million per annum from 2016 to 2020 and, in respect of the PGL Pension Scheme, £8 million in the second half of 2016 and £10 million in 2017. From 30 June 2016 to 2020, the Directors envisage debt interest payments of £0.3 billion and aggregate debt repayments of £1.1 billion (which assumes repayment of acquisition debt funding of approximately £435 million and a £650 million revolving credit facility). Illustrative dividend payments are assumed at a cost of £66 million in the second half of 2016, £191 million in 2017, and £196 million per annum in 2018 to 2020.

• Beyond 2020, there is an expected £4.4 billion of cashflow to emerge: Total cash generation beyond 2021 is expected to be £4.4 billion excluding the benefit of any management actions. Payment of a £40 million pension contribution is due on the Pearl Scheme in 2021 and £0.9 billion of outstanding shareholder borrowing will be repaid. Consequently, the Directors believe that holding company cash over the period beyond 2021 available to meet dividends, interest and expense will be £4.3 billion.

Information on the expected pro forma impact of the Acquisition and the Rights Issue on the consolidated income statement and consolidated balance sheet of the Enlarged Group is set out in Part X (''Unaudited Pro Forma IFRS Financial Information of the Enlarged Group'') and Part XI (''Unaudited Pro Forma Solvency Information of the Enlarged Group'') of this document. The financial and other benefits set out above are contingent on the Acquisition completing and could not be achieved independently.

2.3 Reasons for the Rights Issue

The Directors decided on the Rights Issue as a means of raising capital as this would ensure that, if Qualifying Shareholders (other than, subject to limited exceptions, Shareholders with a registered address, or resident in, one of the Excluded Territories or one of the other Restricted Territories) buy all of the New Shares to which they are entitled, their shareholdings would not be diluted. This means that Shareholders who subscribe for all of the New Shares to which they are entitled under the Rights Issue will have the same percentage interest in the Company both before and after the Rights Issue, subject to the rounding down of fractions.

3. SUMMARY INFORMATION ON THE GROUP

The Group specialises in the management and acquisition of closed life and pension funds and operates primarily in the UK. As at 30 June 2016, the Group had approximately 4.5 million policyholders, £52 billion of assets under management and Solvency II Own Funds of £6.1 billion. Measured by total assets, the Group is the UK's largest specialist consolidator of closed life insurance funds. The Group is primarily focused on the efficient management of in-force policies and writes limited new policies (currently as increments to existing policies and annuities for current policyholders when their policies mature). Following completion of the AXA Transaction, the Group will write a limited set of direct protection policies.

The Group has two operating life insurance companies which hold policyholder assets, PLL and PLAL.

The Group's two principal management service companies, Pearl Group Services Limited (''PGS'') and Pearl Group Management Services Limited (''PGMS''), aim to provide all administrative services required by the Life Companies (or manage the provision of such services through outsourcing arrangements), including policy administration, information technology, finance and facility management services.

On 27 May 2016, the Group announced its entry into conditional agreements with AXA UK plc to acquire AXA Wealth Limited's pensions and protection businesses (the ''SunLife Embassy Business'') for £375 million in cash (prior to any adjustment for certain items as at completion) (the ''AXA Transaction''), which is expected to add £12 billion of assets under management and over 910,000 policyholders to the Group and generate cashflows of approximately £300 million in aggregate between 2016 and 2020 and approximately £200 million in aggregate from 2021 onwards. The AXA Transaction primarily relates to the purchase of the SunLife business, which specialises in the provision of life insurance known as ''Guaranteed Over 50s'' cover. This is life insurance for individuals over 50 years old which will pay out upon their death. The insurance liabilities connected with the acquired businesses will initially be reinsured into PLL. The Group expects significant diversification benefits from the AXA Transaction, with the mortality exposure of the acquired businesses offsetting the Group's existing longevity exposure from its annuity liabilities. In addition, the AXA Transaction includes the purchase of the Embassy business which is more similar to the Group's existing business as it provides corporate and individual pension policies.

The Group intends that the acquired businesses will be incorporated within the Group's Solvency II Internal Model within six months of completion, subject to regulatory approval.

The Group expects to deliver net capital synergies (which may be subject to the prior approval of the PRA) from the AXA Transaction of approximately £250 million within six months of completion on a non-recurring basis. This figure reflects both the beneficial elements and relevant costs as explained below. The Directors believe that the Company's management team has the appropriate skills and relevant industry experience to maximise the capital synergies arising from the AXA Transaction. In assessing the potential capital synergies, the management team received during the due diligence process relevant operating and financial information from the SunLife Embassy Group to facilitate an analysis of the estimated impacts of applying the Group's Solvency II Internal Model, methodologies and assumptions to the SunLife Embassy Business. This analysis has identified the synergy benefits that will emerge through diversification and applying the relevant Solvency II rules following the proposed reinsurance to PLL. Upon execution of the reinsurance, capital requirements of the Enlarged Group will reduce as a result of the offset of the mortality exposure of the SunLife Embassy Business against the Group's existing longevity exposure from its annuity liabilities (diversification). The impact of this diversification and the application of the Group's Solvency II Internal Model accounts for approximately half of the net capital synergies. The information received on the SunLife Embassy Business has also been used to analyse the expected reduction in technical provisions arising from the recalculation of transitional measures after applying the relevant Solvency II rules, which accounts for the remainder of the identified synergies. This analysis has been validated by a professional firm used by the Company in connection with the AXA Transaction.

Following the reinsurance of the SunLife Embassy Business into PLL, a material change in the risk profile of PLL arises. Under such circumstances, approval can be sought to recalculate the credit for transitional measures for technical provisions that can be recognised by PLL. No credit for transitional measures is recognised by the SunLife Embassy Business prior to acquisition, and therefore the PLL recalculation will deliver incremental capital benefits. Application of the Group's Solvency II Internal Model to the SunLife Embassy Business and the recalculation of transitional measures are subject to regulatory approval following completion of the AXA Transaction. The Group has also hedged certain benefits to be derived from the AXA Transaction against adverse market movements. One-off costs of £25 million (net of tax) are expected to be incurred until 31 December 2018 in association with the integration of the SunLife Embassy Business. The Enlarged Group is expected to benefit from further cost synergies (which may be subject to the prior approval of the PRA) which have been reflected in the cashflow generation figures detailed above. The Company has a proven track record in undertaking management actions to increase value and accelerate cashflows, having generated £1.6 billion of cash from its operating companies in the period from 2013 to 2015.

The Group has two main staff pension schemes for its employees, the Pearl Group Staff Pension Scheme and the PGL Pension Scheme. Details of the Group's pensions schemes can be found in Part IV (''Business Overview of the Company'') of this document.

4. SUMMARY INFORMATION ON ABBEY LIFE

Abbey Life is a life insurance group that specialises in the management of closed life and pension funds predominantly comprising unit-linked life and pensions policies and annuities in payment. Abbey Life also manages two with profit funds, other non-profit funds and a small permanent health insurance book. ALAC is authorised by the PRA and regulated by the FCA and the PRA to carry on long term insurance business in the UK. As at 31 December 2015, Abbey Life had approximately 735,000 policyholders and £10 billion of assets under management.

Abbey Life's business comprises three key areas:

Unit-linked: This area covers the pensions and life businesses and has been closed to new business since 2000. As at 31 December 2015, Abbey Life's unit-linked business had assets under management of £7.3 billion and approximately 457,000 policyholders.
Non-linked: This area predominantly constitutes annuities in payment. Deferred annuities constitute less than 1 per cent. of annuity liabilities. As at 31 December 2015, Abbey Life had £2.5 billion in non-linked assets under management and approximately 270,000 policyholders. Over 80 per cent. of the longevity risk is covered by reinsurance.
Other: This area includes five pensions de-risking transactions and a structured reinsurance transaction that have been undertaken since 2010 with more than 90 per cent. of the insurance risk being reinsured to third parties. In addition, Abbey Life manages two with profit funds, other non-profit funds and a small permanent health insurance book, with assets under management of £0.5 billion as at 31 December 2015.

ALAC enjoys significant headroom above the required solvency capital (£617 million above SCR), with a Solvency II Ratio of 240 per cent. as at 31 December 2015. Solvency II is embedded in the business and has been set based on the Standard Formula. Furthermore, ALAC has no regulatory capital add-ons and no reliance on transitional measures on technical provisions, and has not used the volatility adjustment. ALAC's Solvency II Own Funds as at 30 June 2016 was £1,047 million and ALAC's MCEV as at 31 December 2015 was £1,218 million.

There is a final salary pension scheme called the Abbey Life Assurance Company Limited Staff Pension Scheme that benefits certain employees of Abbey Life (the ''ALAC Pension Scheme''). A description of the ALAC Pension Scheme can be found in Part V (''Business Overview of Abbey Life'') of this document.

5. INTEGRATION AND COMPREHENSIVE REVIEW OF ABBEY LIFE

The Group intends to apply a disciplined approach to the separation and integration of Abbey Life. The Abbey Life business already operates as a largely standalone business within Deutsche Bank, which allows for a straightforward approach to separation and integration of customary transitional services, such as those that will be provided by Deutsche Bank for a limited duration post Completion. Other services which are more directly related to life assurance, such as certain collateral, custody and investment management services, are expected to be provided on an ongoing basis by Deutsche Bank. The contractual terms on which certain of those services are provided are expected to be amended to be provided on an arm's length basis. Furthermore, the Abbey Life operating model is very similar to the Group's operating model, utilising an outsourcing partnership based approach to increase variable costs whilst reducing fixed costs. Whilst Abbey Life utilises, and the Group intends to continue with, Capita as its main administration outsource partner, the Group's intention is to use the 'Phoenix Way' to enhance customer oversight, management information and governance by introducing additional Phoenix management and expertise. The 'Phoenix Way' would implement the consistent and enhanced management of closed funds by focusing on effective risk management, strong governance, leading outsourcing management and financial restructuring delivered by skilled and experience teams. The simplicity and similarity of Abbey Life's operating structure to the Group's would mitigate the risk of management stretch during the separation and integration phases, and allow such activity to run in parallel with the integration of the SunLife Embassy Business. In addition, the Directors believe that the similarity in business models will allow the Group to integrate Abbey Life into its business without incurring significant costs, while delivering certain operational improvements and benefits.

6. FINANCING THE ACQUISITION

The consideration to be paid by the Company at Completion will be £935 million, subject to customary adjustments. The Company proposes to finance the Acquisition and estimated expenses through a combination of (a) proceeds of a Rights Issue to raise a total of £735 million, and (b) £250 million from a new bank facility. Details of the Sponsors and Underwriting Agreement and the Abbey Life Bridge Facility Agreement can be found at paragraphs 12.1.15 (''Sponsors and Underwriting Agreement'') and 12.1.4 (''Credit facilities—Abbey Life Bridge Facility Agreement''), respectively, in Part XIV (''Additional Information'') of this document.

Recognition of the financing under the Abbey Life Bridge Facility Agreement is expected to increase shareholder borrowings recognised in the consolidated IFRS statement of financial position by £246 million (net of related expenses). Annual finance costs calculated on the effective interest method are expected to increase by approximately £5 million.

7. CURRENT TRADING, PROSPECTS AND TREND INFORMATION

7.1 Phoenix Group Holdings

The Group published its half year report and accounts for the period ended 30 June 2016 on 25 August 2016.

The Group's profit after tax for the six months ended 30 June 2016 was £3 million (30 June 2015: £78 million). The reduction of £75 million from the prior year reflects the recognition of a provision to reflect the impact of a continued low interest rate environment on the Group's expectations of persistency for products with guarantees of £64 million, and the adverse impacts of economic factors including falling yields, widening credit spreads and losses on equity hedging positions. The comparative period result benefited from positive investment variances driven by rising yields and increased property returns.

Against a full year cash generation target of £350 million to £450 million, £147 million was delivered in the first half of 2016. The Group remains on track to achieve its 2016 target.

On 1 June 2016, the Group completed an equity placing in connection with the AXA Transaction which raised proceeds of £190 million net of deduction of commissions and expenses. Also in connection with the financing for the AXA Transaction, in May 2016, the Group entered into a £220 million AXA Bridge Facility Agreement. The facility matures twelve months after the transaction closes (subject to extension) and accrues interest at LIBOR plus 0.85 per cent. (increasing to 1.25 per cent. six months after closing of the AXA Transaction, 2.00 per cent. 12 months after closing of the AXA Transaction, and 2.75 per cent. 18 months after closing of the AXA Transaction). As at 3 October 2016, the facility had not been drawn down.

In March 2016, the Group agreed an amendment of its £900 million five year unsecured bank facility into a £650 million unsecured revolving credit facility, maturing in June 2020. There are no mandatory or target amortisation payments associated with the facility and it currently accrues interest at LIBOR plus 1.35 per cent., with the margin linked to the credit rating of the Company.

Details of the Group's financial performance can be found in Part VII (''Operating and Financial Review of the Company'') and Part VIII (''Financial Information of the Company'') of this document.

7.2 Abbey Life

Abbey Life's profit after tax for the year ended 31 December 2015 was £99 million (2014: £97 million). The increase of £2 million comprises of the positive impact of an increase in gilt yields and changes in interest rate hedges on the value of reserves held for guaranteed annuity options (''GAOs''). This was partly offset by the adverse impact of rising yields on negative reserves and a reduction in investment returns obtained on free assets and shareholders funds managed on an active basis.

In the period post 31 December 2015, gilt yields have fallen across all durations and credit spreads have been volatile, impacting IFRS results and giving rise to increased volatility of results. Such volatility has been managed by ALAC principally through asset and liability matching and through derivative hedging. A portfolio of assets within the shareholder funds previously managed on an active basis was de-risked during February 2016, reducing investment returns compared to prior periods. During 2016, ALAC entered into a pensions de-risking transaction with the Manweb and electricity supply pension scheme trustees to insure the longevity risk on approximately 4,000 lives. Following issuance in March 2016 of the results of the FCA's thematic review on the fair treatment of long-standing customers in the life insurance sector, the FCA announced that it will commence investigations into ALAC and five other firms in relation to the disclosure of customer exit and paid-up charges. The FCA is also carrying out a thematic review of annuity sales practices but has not reached final conclusions as to the outcome of such review and any follow-up work.

Details of Abbey Life's financial performance can be found in Part IX (''Financial Information of Abbey Life'') of this document.

8. EMPLOYEES AND MANAGEMENT

Abbey Life employs 45 permanent employees as at 30 June 2016, all of whom are expected to transfer to the Group with the Abbey Life businesses. In addition, two further Deutsche Bank employees who are members of Abbey Life's management team are expected to transfer to the Group on Completion. The Group will work closely with Abbey Life and Deutsche Bank to effect separation and transfer actions as efficiently and expediently as possible and may enter into certain short term transitional services agreements, if necessary.

9. PRINCIPAL TERMS OF THE ACQUISITION

Under the terms of the Sale and Purchase Agreement dated 28 September 2016 between PLHL (as buyer), the Company (as the buyer's guarantor), the Seller and Deutsche Bank (as the seller's guarantor), PLHL will acquire the entire issued share capital of ALAC, Abbey Life Trustee Services Limited and Abbey Life Trust Securities Limited from the Seller. The aggregate amount payable by PLHL for the Acquisition will be £935 million in cash, subject to certain customary adjustments. At Completion, the Abbey Life entities will become wholly owned indirect subsidiaries of the Company.

The Sale and Purchase Agreement contains the customary representations and warranties, covenants, undertakings and conditions for a transaction of this nature. Abbey Life and its direct and indirect shareholders, the Seller and Deutsche Bank, have agreed not to solicit competing proposals or provide information or engage in discussions with third parties.

Completion is subject to certain conditions, including:

the approval of the Acquisition (as a Class 1 transaction under the Listing Rules) by a majority of votes cast by Shareholders at the General Meeting;
actual or deemed consent from the PRA for the acquisition of control of ALAC by PLHL and the Company (and any other relevant entities); and
Admission.

The Sale and Purchase Agreement provides for a long-stop date of 28 March 2017 (extendable in limited circumstances).

For further details of the terms of the Sale and Purchase Agreement, see Part XIII (''Terms of the Acquisition'') of this document.

10. PRINCIPAL TERMS OF THE RIGHTS ISSUE

Pursuant to the Rights Issue, the Company is proposing to offer 144,722,989 New Shares and New Depositary Interests by way of a Rights Issue to Qualifying Shareholders other than, subject to limited exceptions, to Shareholders with a registered address, or resident in, one of the Excluded Territories or one of the other Restricted Territories. The offer is to be made at 508 pence per New Share, payable in full on acceptance by no later than 11.00 a.m. on 8 November 2016. If the Rights Issue were to proceed but the Acquisition does not complete, the Directors intend to retain the net proceeds of the Rights Issue for use within the next 12 months on alternative acquisitions consistent with the Group's acquisition criteria and strategy. Failing this, the Directors will either seek to return the net proceeds of the Rights Issue to shareholders in a tax efficient and practicable manner or seek shareholders' approval to continue to hold the net proceeds of the Rights Issue for general corporate purposes. The Rights Issue is expected to raise approximately £718 million (net of expenses). The Issue Price represents a 39.4 per cent. discount to the Closing Price of 838.5 pence per Share on 27 September 2016 (being the last Business Day before the announcement of the Acquisition and the terms of the Rights Issue) and a 29.1 per cent. discount to the theoretical exrights price of 716.7 pence per Share calculated by reference to the Closing Price on 27 September 2016.

The Rights Issue will be made on the basis of:

7 New Shares at 508 pence per New Share for every 12 Existing Shares

held by Qualifying Shareholders at the close of business on the Record Date.

Entitlements to New Shares and/or New Depositary Interests will be rounded down to the nearest whole number and fractional entitlements will not be allotted to Shareholders but will be aggregated and issued into the market for the benefit of the Company. Holdings of Existing Shares in certificated and uncertificated form will be treated as separate holdings for the purpose of calculating entitlements under the Rights Issue.

The Rights Issue is fully underwritten by the Banks pursuant to the Sponsors and Underwriting Agreement. The principal terms of the Sponsors and Underwriting Agreement are summarised at paragraph 12.1.15 (''Sponsors and Underwriting Agreement'') in Part XIV (''Additional Information'') of this document.

The Rights Issue will result in 144,722,989 New Shares being issued (representing approximately 58.3 per cent. of the existing issued share capital and, assuming no additional Shares are issued prior to the Rights Issue, approximately 36.8 per cent. of the enlarged issued share capital immediately following completion of the Rights Issue).

The Rights Issue is conditional, inter alia, upon:

(i) the Sponsors and Underwriting Agreement having become unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms prior to Admission;

(ii) Admission becoming effective by not later than 8.00 a.m. on 25 October 2016 (or such later time and/or date as the Company may agree with the Global Coordinators); and
(iii) the passing, without material amendment, of the Resolutions.

The New Shares, when issued and fully paid, will rank pari passu in all respects with the existing issued Shares, including the right to receive dividends or distributions made, paid or declared after the date of this document. Application will be made to the FCA and to the London Stock Exchange for the New Shares to be admitted to the Official List and to trading on the London Stock Exchange. It is expected that Admission will occur and that dealings in the New Shares (nil paid) on the London Stock Exchange will commence at 8.00 a.m. on 25 October 2016.

Some questions and answers, together with details of further terms and conditions of the Rights Issue, including the procedure for acceptance and payment and the procedure in respect of rights not taken up, are set out in Part II (''Some Questions and Answers About the Rights Issue'') and Part III (''Terms and Conditions of the Rights Issue'') of this document and, where relevant, will also be set out in the Provisional Allotment Letter.

Overseas Shareholders should refer to paragraph 2.5 (''Overseas Shareholders'') of Part III (''Terms and Conditions of the Rights Issue'') of this document for further information on their ability to participate in the Rights Issue.

11. DIVIDENDS AND DIVIDEND POLICY

The Directors believe that the Acquisition meets the Group's four clear criteria by which it assesses transactions. An acquisition must have a UK closed life focus, be value accretive, maintain the Group's investment grade credit rating and support the current dividend per share. Given the long-term run-off nature of the Group's business, the Directors believe it is prudent to maintain a stable, sustainable dividend.

The Company's dividend per share was 53.4 pence in respect of each of the years ended 31 December 2013, 2014 and 2015. The Company paid an interim dividend in respect of 2016 in line with the 2015 dividend of 26.7 pence per share. As a result of the AXA Transaction, the Board is expecting to increase the final dividend in respect of 2016 by 5 per cent., equivalent to 28.0 pence per share before adjusting the dividend per share for the bonus element of the Rights Issue. This would result in a full year dividend in respect of 2016 equivalent to 54.7 pence per share and would increase dividends to the equivalent of 56.0 pence per share on an annualised basis (in each case, before adjusting the dividend per share for the bonus element of the Rights Issue). Holders of New Shares will be eligible to receive the 2016 final dividend, which the Group expects to declare in March 2017. The incremental cashflow generation from the Acquisition supports (subject to regulatory approval) a proposed further 5 per cent. increase in the dividend per share with effect from the interim dividend payable in respect of 2017, equivalent to a total increase in the dividend per share of 10 per cent. from the 2015 level. The percentage increases in dividend per share have been stated after adjusting the 2015 dividend per share for the bonus element of the Rights Issue and are based on the Closing Price per share of 838.5 pence as at 27 September 2016.

All dividends are subject to the non-objection of the PRA.

The Group currently maintains a significant regulatory capital surplus and has £921 million of cash at the holding company level (including £190 million from an equity placing in connection with the AXA Transaction) as at 30 June 2016, providing further support for a stable and sustainable dividend policy. The incremental cashflow generation from the Acquisition supports (subject to regulatory approval) the proposed further 5 per cent. increase in dividend per share, meaning a total increase in the dividend per share of 10 per cent. from the 2015 level after adjusting for the bonus element of the Rights Issue. The Directors believe this is a sustainable level at which to rebase the dividend going forward.

The Group has received confirmation from the PRA that the PRA will adopt ''other methods'' to ensure that it has appropriate supervision at the level of the Company and that the Solvency II group supervision regime will apply at the EEA parent level (i.e., to PLHL and its subsidiaries). Such ''other methods'' include, amongst other things, the need for the Company to seek the PRA's non-objection before declaring dividends. The ''other methods'' restrictions and conditions are due to expire on 30 June 2017.

12. FURTHER INFORMATION

Your attention is drawn to the further information set out in Part II (''Some Questions and Answers About the Rights Issue'') to Part XIV (''Additional Information'') of this document. Shareholders should read the whole of this document and not rely solely on the information set out in this letter. In addition, you should consider the risk factors in the section headed ''Risk Factors'' of this document.

13. OVERSEAS SHAREHOLDERS

The attention of Overseas Shareholders who have registered addresses outside the United Kingdom, or who are citizens or residents of or located in countries other than the United Kingdom, is drawn to the information in paragraph 2.5 (''Overseas Shareholders'') of Part III (''Terms and Conditions of the Rights Issue'') of this document.

New Shares and/or New Depositary Interests will be provisionally allotted (nil paid) to all Shareholders on the register at the Record Date, including Overseas Shareholders. However, Provisional Allotment Letters will only be sent to Qualifying Non-CREST Shareholders other than, subject to limited exceptions, those with a registered address, or who are resident or located (as applicable), in one of the Excluded Territories or one of the other Restricted Territories and, although the CREST stock accounts of all Qualifying Depositary Interest Holders, including Overseas Shareholders, will be credited, such crediting does not in itself constitute an offer.

Notwithstanding any other provision of this document or the Provisional Allotment Letter, the Company reserves the right to permit any Shareholder on the register at the Record Date to take up his rights if the Company in its sole and absolute discretion is satisfied that the transaction in question will not violate applicable laws.

The provisions of paragraph 2.3 (''Procedure in respect of rights not taken up (whether certificated or in CREST) and withdrawal'') of Part III (''Terms and Conditions of the Rights Issue'') of this document will apply generally to Overseas Shareholders who cannot or do not take up the New Shares and/or New Depositary Interests provisionally allotted to them.

14. TAXATION

Certain information about UK, Cayman Islands and Jersey taxation in relation to the Rights Issue is set out in Part XII (''Taxation'') of this document. If you are in any doubt as to your tax position, or you are subject to tax in a jurisdiction other than the UK, Cayman Islands and Jersey, you should consult your own independent tax adviser without delay.

15. GENERAL MEETING

The Notice of General Meeting to be held at 10.00 a.m. on 24 October 2016 at 1st Floor, 32 Commercial Street, St. Helier, Jersey JE2 3RU, Channel Islands, is set out at the end of this document. The purpose of this meeting is to seek Shareholders' approval to the following Resolutions set out in the Notice of General Meeting (collectively, the ''Resolutions''), which will be proposed as ordinary resolutions:

Resolution 1

''1. The proposed acquisition by the Company of Abbey Life, as described in the combined prospectus and circular to the shareholders of the Company dated 4 October 2016, substantially on the terms and subject to the conditions set out in the Sale and Purchase Agreement dated 28 September 2016 (the ''Acquisition'') be and is hereby approved.

The directors of the Company (the ''Directors'') be and are hereby authorised to take all necessary or appropriate steps and to do all necessary or appropriate things to implement, complete or to procure the implementation or completion of the Acquisition and give effect thereto with such modifications, variations, revisions, waivers or amendments (not being modifications, variations, revisions, waivers or amendments of a material nature) as the Directors may deem necessary, expedient or appropriate in connection with the Acquisition.''

Resolution 2

''2. Pursuant to Article 14 of the Fifth Amended and Restated Memorandum and Articles of Association of the Company, the Directors be generally and unconditionally authorised to allot and issue equity securities in connection with the Rights Issue, on the following terms:
(a) such authority to allot and issue equity securities shall be for a period expiring at the conclusion of the annual general meeting of the Company to be held in 2017;
(b) for the purposes of paragraph (a) of the definition of ''second prescribed amount'' in Article 13 of the Fifth Amended and Restated Memorandum and Articles of Association of the Company, the amount stated as such shall be a nominal amount of A14,472.30 (representing 144,722,989 ordinary shares with a nominal value of A0.0001 each in the share capital of the Company);
(c) unless previously revoked or varied by the Company, such authority to allot and issue equity securities shall extend to the making before the expiry of such authority of an offer or an agreement that would or might require equity securities to be allotted after such expiry and the Board of Directors may allot and issue equity securities of that offer or agreement as if the authority conferred hereby had not expired; and
(d) such authority applies in addition to the existing authority granted by ordinary resolution 3 passed by the Shareholders at the Company's annual general meeting held on 11 May 2016 which shall continue to apply and be in addition to the authority granted hereby.''

16. ACTION TO BE TAKEN IN RESPECT OF THE GENERAL MEETING

A Form of Proxy for use at the General Meeting is enclosed with this document. Whether or not you intend to be present at the General Meeting, you are requested to complete and return the Form of Proxy, in accordance with the instructions printed thereon, as soon as possible and in any event so that it may be received by the Registrar not later than 10.00 a.m. on 20 October 2016. Completion and return of the Form of Proxy will not preclude Shareholders from attending and voting in person at the General Meeting should they wish to do so.

17. ACTION TO BE TAKEN IN RESPECT OF THE ACQUISITION AND THE RIGHTS ISSUE

If the Resolutions are approved and the Rights Issue proceeds, you will be sent a Provisional Allotment Letter giving you details of your Nil Paid Rights by post on or about 24 October 2016 if you are a Qualifying Non-CREST Shareholder other than, subject to limited exceptions, a Shareholder with a registered address, or who is resident or located (as applicable), in one of the Excluded Territories or one of the other Restricted Territories. If you are a Qualifying Depositary Interest Holder, you will not be sent a Provisional Allotment Letter. Instead, you will receive a credit to your appropriate stock accounts in CREST in respect of Nil Paid Rights, which it is expected will take place as soon as practicable after 8.00 a.m. on 25 October 2016. Such crediting does not in itself constitute an offer of New Depositary Interests.

If you sell or have sold or otherwise transferred all of your Shares held (other than ex-rights) in certificated form before 25 October 2016, please forward this document and any Provisional Allotment Letter, if and when received, at once to the purchaser or transferee or the bank, stockbroker or other agent through whom the sale or transfer was effected for delivery to the purchaser or transferee, except that such documents should not be sent to any jurisdiction where to do so might constitute a violation of local securities laws or regulations, including, but not limited to, the Restricted Territories and the Excluded Territories.

If you sell or have sold or otherwise transferred all or some of your Shares (other than ex-rights) held in uncertificated form before the Ex-Rights Date, a claim transaction will automatically be generated by Euroclear which, on settlement, will transfer the appropriate number of Nil Paid Rights to the purchaser or transferee.

If you sell or have sold or otherwise transferred only part of your holding of Existing Shares (other than ex-rights) held in certificated form before the Ex-Rights Date, you should refer to the instruction regarding split applications in Part III (''Terms and Conditions of the Rights Issue'') of this document and in the Provisional Allotment Letter.

The latest time and date for acceptance and payment in full in respect of the Rights Issue is expected to be 11.00 a.m. on 8 November 2016, unless otherwise announced by the Company. The procedure for acceptance and payment is set out in Part III (''Terms and Conditions of the Rights Issue'') of this document and, if applicable, in the Provisional Allotment Letter.

For Qualifying Non-CREST Shareholders who take up their rights other than, subject to limited exceptions, Shareholders with a registered address, or resident in, one of the Excluded Territories or one of the other Restricted Territories, the New Shares will be issued in certificated form and will be represented by definitive share certificates, which are expected to be despatched by no later than 15 November 2016 to the registered address of the person(s) entitled to them.

For Qualifying Depositary Interest Holders who take up their rights, the Registrar will instruct CREST to credit the stock accounts of the Qualifying Depositary Interest Holders with their entitlements to New Depositary Interests. It is expected that this will take place by 8.00 a.m. on 25 October 2016.

Qualifying Depositary Interest Holders who are CREST sponsored members should refer to their CREST sponsor regarding the action to be taken in connection with this document and the Rights Issue.

If you are in any doubt as to the action you should take, you should immediately seek your own financial advice from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised under the FSMA or, if you are outside the United Kingdom, by another appropriately authorised independent financial adviser.

18. FINANCIAL ADVICE

The Board has received financial advice from HSBC and Morgan Stanley in relation to the Acquisition. In providing such financial advice to the Board, HSBC and Morgan Stanley have relied upon the Board's commercial assessments of the Acquisition.

19. DIRECTORS' INTENTIONS

The Directors are fully supportive of the Rights Issue. Each of the Directors who hold Shares intends, to the extent that he or she is able, either to take up in full his or her rights to subscribe for New Shares under the Rights Issue or to sell a sufficient number of their Nil Paid Rights during the nil paid trading period to meet the costs of taking up the balance of their entitlements to New Shares.

20. RECOMMENDATION AND VOTING INTENTIONS

The Directors believe the Acquisition and the Resolutions are in the best interests of the Group and Shareholders as a whole and, accordingly, unanimously recommend that the Shareholders vote in favour of the Resolutions as the Directors intend to do, or procure, in respect of their own beneficial holdings amounting to 504,704 Existing Shares representing approximately 0.2 per cent. of the Company's existing issued share capital.

Yours faithfully, for and on behalf of Phoenix Group Holdings

Henry Staunton Chairman

PART II—SOME QUESTIONS AND ANSWERS ABOUT THE RIGHTS ISSUE

The questions and answers set out in this Part II (''Some Questions and Answers About the Rights Issue'') are intended to be generic guidance only and, as such, you should also read Part III (''Terms and Conditions of the Rights Issue'') of this document for further details of what action you should take if you wish to participate in the Rights Issue. If you are in any doubt about the action to be taken, you are recommended to seek immediately your own personal financial advice from your stockbroker, bank manager, solicitor, accountant, fund manager or other appropriate independent financial adviser duly authorised under FSMA if you are in the United Kingdom, or if you are not, from another appropriately authorised financial adviser.

If you are an Overseas Shareholder, you should read the answer to question 4.7 (''What should I do if I live outside the United Kingdom?'') of this Part II (''Some Questions and Answers About the Rights Issue'') and you should take professional advice as to whether you are eligible and/or need to observe any formalities to enable you to take up your rights pursuant to the Rights Issue.

Shares in the Company can be held in certificated form or as Depositary Interests representing Shares in uncertificated form (that is, held through CREST). Accordingly, the questions and answers are split into four sections:

Section 1: (General);

Section 2: (Shares in certificated form) answers questions you may have in respect of the procedures for Qualifying Shareholders who hold their Shares in certificated form;

Section 3: (Depositary Interests held through CREST) answers questions you may have in respect of the equivalent procedures for Qualifying Shareholders who hold Depositary Interests in CREST; and

Section 4: (Further procedures for Shares in certificated form or Depositary Interests held through CREST) answers some detailed questions about your rights and the actions you may need to take and is applicable to Shares whether held in certificated form or as Depositary Interests representing Shares in CREST.

If you do not know whether you hold Shares in certificated form or Depositary Interests in uncertificated form (that is, through CREST), please contact Computershare Investor Services PLC on 0370 707 4040 or if calling from outside the UK on +44 (0)370 707 4040. The helpline is open between 9.00 a.m. to 5.00 p.m., Monday to Friday excluding public holidays in England and Wales. Please note that Computershare Investor Services PLC cannot provide any financial, legal or tax advice and calls may be recorded and monitored for security and training purposes.

1. GENERAL

1.1 What is a rights issue?

A rights issue is one way for companies to raise money. Companies do this by issuing shares for cash and giving their existing shareholders a right of first refusal to buy these shares in proportion to their existing shareholdings. For example, in a 1-for-4 rights issue, a shareholder is generally entitled to buy one new share for every four shares currently held. This Rights Issue is a 7-for-12 rights issue; that is, an offer of 7 New Shares for every 12 Shares held by Qualifying Shareholders at the close of business on 20 October 2016 (the ''Record Date'' for the Rights Issue). The Depositary holds Shares on behalf of the Depositary Interest Holders, as explained further in Part III (''Terms and Conditions of the Rights Issue'') of this document, and accordingly will receive a provisional allotment of New Shares on behalf of the Qualifying Depositary Interest Holders.

New shares are typically offered in a rights issue at a discount to the current share price. Because of this discount and while the market value of the shares exceeds the Issue Price, the right to buy the new shares is potentially valuable. In this Rights Issue, the Issue Price of 508 pence per New Share represents a 39.4 per cent. discount to the Closing Price of 838.5 pence per Share on 27 September 2016 (being the last Business Day before the announcement of the Acquisition and the terms of the Rights Issue) and a 29.1 per cent. discount to the theoretical ex-rights price of 716.7 pence per Share calculated by reference to the Closing Price on 27 September 2016.

If you do not want to buy the New Shares (or New Depositary Interests) to which you are entitled (if any), you can instead sell your rights to those shares (or Depositary interests) and receive the net proceeds, if any, of the sale or transfer in cash. This is referred to as dealing ''nil paid''.

2. SHARES IN CERTIFICATED FORM

2.1 How do I know if I am eligible to participate in the Rights Issue?

If you receive a Provisional Allotment Letter and you do not have a registered address nor are you a person located or resident in any of the Excluded Territories (save, in certain limited exceptions, in the Restricted Territories) then you should be eligible to participate in the Rights Issue through the Provisional Allotment Letter (as long as you have not sold all of your Shares before 8.00 a.m. on 25 October 2016 (the time when the Shares are expected to be marked ''ex-rights'' by the London Stock Exchange)).

However, if you receive a Provisional Allotment Letter and you have a registered address in, or are resident or a person located in, a country other than the United Kingdom, you must satisfy yourself as to the full observance of the applicable laws of such territory, including obtaining any requisite governmental or other consents, observing any other requisite formalities and paying any issue, transfer or other taxes due in such territories. Receipt of this document or a Provisional Allotment Letter does not constitute an offer in those jurisdictions in which it would be illegal to make an offer. Overseas Shareholders should refer to paragraph 2.5 (''Overseas Shareholders'') of Part III (''Terms and Conditions of the Rights Issue'') of this document for further details. Subject to certain limited exceptions, Provisional Allotment Letters will not be sent to Shareholders with a registered address in, or located or resident in, any Excluded Territory or Restricted Territory.

If you do not receive a Provisional Allotment Letter, and you do not hold any Depositary Interests, this probably means you are not eligible to acquire any New Shares. However, see question 2.3, below.

2.2 What are my options and what should I do with the Provisional Allotment Letter?

The Provisional Allotment Letter will show:

(i) In Box 1: the number of certificated Shares you held at the close of business on the Record Date;
(ii) In Box 2: the number of certificated New Shares you are entitled to buy pursuant to the Rights Issue; and
(iii) In Box 3: how much you need to pay if you want to take up your right to buy all the New Shares provisionally allotted to you in full.
(a) If you want to take up your Rights Issue Entitlement in full

If you want to take up in full your Rights Issue Entitlement to subscribe for the New Shares to which you are entitled, all you need to do is send the Provisional Allotment Letter, together with your cheque or banker's draft in pounds sterling for the full amount shown in Box 3, payable to ''Computershare re Phoenix Rights Issue'' and crossed ''A/C payee only'', by post or by hand (during normal business hours only) to the address shown on page 1 of the Provisional Allotment Letter so as to arrive before 11.00 a.m. on 8 November 2016. You can use the reply-paid envelope, which will be provided with the Provisional Allotment Letter within the United Kingdom only. Please allow sufficient time for delivery. Paragraphs 2.1.2 (''Action to be taken by Qualifying Non-CREST Shareholders in relation to Nil Paid Rights represented by Provisional Allotment Letters—Procedure for acceptance and payment'') and 2.2.2 (''Action to be taken by Qualifying Depositary Interest Holders in relation to Nil Paid Rights and Fully Paid Rights in CREST—Procedure for acceptance and payment'') of Part III (''Terms and Conditions of the Rights Issue'') of this document set out full instructions on how to accept and pay for your New Shares and/or New Depositary Interests. These instructions are also set out in the Provisional Allotment Letter. You will be required to pay in full for all the Rights Issue Entitlement you take up. A definitive share certificate will be sent to you for the New Shares you acquire and it is expected that such certificate(s) will be despatched to you on 15 November 2016.

Your Provisional Allotment Letter will not be returned to you unless you specifically request so by completing Box 4 on the Provisional Allotment Letter. You will only need your Provisional Allotment Letter to be returned to you if you want to deal in your Fully Paid Rights.

Cheques must be in pounds sterling and drawn on a UK bank account. Third party cheques may not be accepted with the exception of building society cheques or banker's drafts where the building society or bank has inserted details of the name of the account holder and have either added the building society or bank branch stamp or have provided a supporting letter confirming the source of funds. The name of the account holder should be the same as the name of the shareholder shown on page 1 or page 4 of the Provisional Allotment Letter.

(b) If you want to take up some but not all of your Rights Issue Entitlement

If you want to take up some but not all of your Rights Issue Entitlement and wish to sell some or all of those you do not want to take up, you should first apply for split Provisional Allotment Letters by completing Form X on page 2 of the Provisional Allotment Letter and then return it to the Receiving Agent by post at Computershare Investor Services PLC at Corporate Actions Projects, Bristol, BS99 6AH or by hand (during normal office hours only), to Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol, BS13 8AE, so as to be received by no later than 11:00 a.m. (London time) on 4 November 2016, the last time and date for splitting Provisional Allotment Letters, together with a covering letter stating the number of split Provisional Allotment Letters required and the number of Nil Paid Rights or Fully Paid Rights to be comprised in each split Provisional Allotment Letter. You can use the reply-paid envelope, which will be provided with the Provisional Allotment Letter within the United Kingdom. Please allow sufficient time for delivery. You should then deliver the split Provisional Allotment Letter representing the right to New Shares you wish to accept together with your cheque or banker's draft to the Receiving Agent by post at Computershare Investor Services PLC at Corporate Actions Projects, Bristol, BS99 6AH or by hand (during normal office hours only), to Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol, BS13 8AE, so as to be received by no later than 11:00 a.m. (London time) on 8 November 2016, the last time and date for acceptance and payment in full. The further split Provisional Allotment Letters (representing the New Shares the Qualifying Shareholder does not wish to take up) should be delivered to such transferee, or to the stockbroker, bank or other agent through whom the sale or transfer was effected for delivery to such transferee, and will be required in order to sell those rights not being taken up.

Qualifying Shareholders who wish to effect a cashless take-up of their Nil Paid Rights (which may be achieved through the sale of such portion of their Nil Paid Rights as will raise sufficient funds to allow the relevant Qualifying Shareholder to take up their remaining Nil Paid Rights) should contact their broker, who may be able to assist with such arrangements. Please note that your ability to sell your Rights Issue Entitlement is dependent on demand for such Rights Issue Entitlement and that the price for Nil Paid Rights may fluctuate. Please ensure that you allow enough time so as to enable the person acquiring your Rights Issue Entitlement to take all necessary steps in connection with taking up the entitlement prior to 11.00 a.m. on 8 November 2016.

Alternatively, if you want only to take up some of your Rights Issue Entitlement (and do not wish to sell some or all of those you do not want to take up), you should complete Form X on page 2 of the Provisional Allotment Letter and return it to the Receiving Agent by post at Computershare Investor Services PLC at Corporate Actions Projects, Bristol, BS99 6AH or by hand (during normal office hours only), to Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol, BS13 8AE, together with a covering letter confirming the number of New Shares you wish to take up and a cheque or banker's draft for the appropriate amount. In this case, the Provisional Allotment Letter and cheque must be received by the Receiving Agent by 11.00 a.m. on 4 November 2016, the last time for splitting nil-paid. You can use the reply-paid envelope, which will be provided with the Provisional Allotment Letter within the United Kingdom. Please allow sufficient time for delivery. Further details relating to payment and acceptance are set out in paragraphs 2.1.2 (''Action to be taken by Qualifying Non-CREST Shareholders in relation to Nil Paid Rights represented by Provisional Allotment Letters—Procedure for acceptance and payment'') and 2.2.2 (''Action to be taken by Qualifying Depositary Interest Holders in relation to Nil Paid Rights and Fully Paid Rights in CREST—Procedure for acceptance and payment'') of Part III (''Terms and Conditions of the Rights Issue'') of this document.

(c) If you want to sell all of your Rights Issue Entitlement

If you want to sell all of your Rights Issue Entitlement, you should complete and sign Form X on page 2 of the Provisional Allotment Letter (if it is not already marked ''Original Duly Renounced'') and pass the entire letter to your stockbroker, bank manager or other appropriate financial adviser or to the transferee (provided they are not in any of the Restricted Territories). Please note that your ability to sell your Rights Issue Entitlement is dependent on the demand for such Rights Issue Entitlement and that the price for the Nil Paid Rights may fluctuate.

The latest time and date for selling all of your Rights Issue Entitlement is 11.00 a.m. on 8 November 2016. Please ensure, however, that you allow enough time so as to enable the person acquiring your rights to take all necessary steps in connection with taking up the entitlement prior to 11.00 a.m. on 8 November 2016.

(d) If you do not want to take up your Rights Issue Entitlement at all, and want to let them lapse and potentially receive a sale of lapsed rights payment

If you do not want to take up any of your Rights Issue Entitlement and want to let them lapse and potentially receive a sale of lapsed rights payment, you do not need to do anything. If you do not return your Provisional Allotment Letter together with payment by 11.00 a.m. on 8 November 2016, the Company has made arrangements under which the Banks will endeavour to find investors to take up your Rights Issue Entitlements and the Rights Issue Entitlements of others who have not taken up their Rights Issue Entitlements by 5.00 p.m. on the second Dealing Day after the last date for acceptance of the Rights Issue. If the Banks find investors and are able to achieve a premium over the Issue Price and the related expenses of procuring those investors (including any applicable brokerage and commissions and amounts in respect of VAT), you will be sent a cheque for your share of the amount of that aggregate premium above the Issue Price less related expenses (including any applicable brokerage and commissions and amounts in respect of VAT), so long as the amount in question is at least £5. Cheques are expected to be despatched by 15 November 2016 and will be sent to your address as it appears on the Company's register of members (or to the first named holder if you hold Shares jointly). If the Banks cannot find investors who agree to pay a premium above the Issue Price and related expenses so that your entitlement would be £5 or more, you will not receive any payment. Any amounts of less than £5 will be aggregated and retained for the benefit of the Company.

2.3 What if I do not receive a Provisional Allotment Letter?

If you do not receive a Provisional Allotment Letter and you do not hold Depositary Interests in CREST, this probably means that your registered address is in or you are located or resident in a Restricted Territory or Excluded Territory. Some Qualifying Shareholders, however, will not receive a Provisional Allotment Letter.

If you do not receive a Provisional Allotment Letter but think that you should have received one (for instance, if you are a Qualifying Depositary Interest Holder who held your Shares as Depositary Interests in uncertificated form on 20 October 2016 and who has subsequently converted them to Shares in certificated form), please contact Computershare Investor Services PLC on 0370 707 4040 or if calling from outside the UK on +44 (0)370 707 4040. The helpline is open between 9.00 a.m. to 5.00 p.m., Monday to Friday excluding public holidays in England and Wales. Please note that Computershare Investor Services PLC cannot provide any financial, legal or tax advice and calls may be recorded and monitored for security and training purposes.

2.4 If I buy or have bought Shares after the Record Date but before 8.00 a.m. on 25 October 2016 (the date the New Shares start trading ex-rights), will I be eligible to participate in the Rights Issue?

If you buy or have bought Shares before 8.00 a.m. on 25 October 2016 (the date the New Shares start trading ex-rights (that is, without the right to participate in the Rights Issue, referred to as the Ex-Rights Date)) but are not registered as the holder of those Shares on the Record Date, you may still be eligible to participate in the Rights Issue. If you are in any doubt, please consult your stockbroker, bank or other appropriate financial adviser, or whoever arranged your share purchase, to ensure that you claim your entitlement.

You will not be entitled to participate in the Rights Issue or to Nil Paid Rights in respect of any Shares acquired on or after the Ex-Rights Date.

2.5 What should I do if I sell or have sold or transferred all or some of the Shares shown in Box 1 of the Provisional Allotment Letter before the Ex-Rights Date?

If you sell or have sold or transferred all of your Shares before the Ex-Rights Date, you should complete Form X on page 2 of the Provisional Allotment Letter and send the entire Provisional Allotment Letter to the purchaser or transferee or stockbroker, bank or other appropriate financial adviser through whom you made the sale or transfer (provided they are not in any of the Restricted Territories).

If you sell or have sold or transferred only some of your holding of Shares before the Ex-Rights Date, you will need to complete Form X on page 2 of the Provisional Allotment Letter and consult the stockbroker, bank or other appropriate financial adviser through whom you made the sale or transfer before taking any action with regard to the balance of Rights Issue Entitlement due to you.

2.6 How many New Shares will I be entitled to acquire?

Box 2 on page 1 of the Provisional Allotment Letter shows the number of New certificated Shares you will be entitled to buy if you are a Qualifying Non-CREST Shareholder and not an Excluded Overseas Shareholder. You will be entitled to buy 7 New Shares for every 12 Shares held at the close of business on the Record Date. All Qualifying Non-CREST Shareholders (other than Qualifying Non-CREST Shareholders who have their registered address in an Excluded Territory or, save in certain instances, a Restricted Territory, will be sent a Provisional Allotment Letter.

2.7 What should I do if I think my holding of Shares (as shown in Box 1 on page 1 of the Provisional Allotment Letter) is incorrect?

If you are concerned about the figure in Box 1, please contact Computershare Investor Services PLC on 0370 707 4040 or if calling from outside the UK on +44 (0)370 707 4040. The helpline is open between 9.00 a.m. to 5.00 p.m., Monday to Friday excluding public holidays in England and Wales. Please note that Computershare Investor Services PLC cannot provide any financial, legal or tax advice and calls may be recorded and monitored for security and training purposes.

2.8 If I take up my rights, when will I receive my New Share certificate?

If you take up your rights under the Rights Issue, share certificates for the New Shares are expected to be posted on 15 November 2016.

3. DEPOSITARY INTERESTS HELD THROUGH CREST

3.1 How do I know if I am eligible to participate in the Rights Issue?

The Depositary holds Shares on behalf of Depositary Interest Holders and accordingly will receive a provisional allotment of New Shares on behalf of Qualifying Depositary Interest Holders. The Depositary will pass on the provisional allotment made in is favour to Qualifying Depositary Interest Holders other than Qualifying Depositary Interest Holders who have their registered address in an Excluded Territory or a Restricted Territory and otherwise in accordance with the terms and conditions set out in this document and in accordance with the Deed Poll.

If you are a Qualifying Depositary Interest Holders (other than a Qualifying Depositary Interest Holders who is an Excluded Overseas Shareholder), and on the assumption that the Rights Issue proceeds as planned, your CREST stock account will be credited with your entitlement to Nil Paid Rights on 25 October 2016. The stock account to be credited will be the account under the participant ID and member account ID that apply to your Depositary Interests on the Record Date. The Nil Paid Rights are expected to be enabled as soon as practicable after 8.00 a.m. on 25 October 2016. If you are a CRESTsponsored member, you should consult your CREST sponsor if you wish to check that your account has been credited with your entitlement to Nil Paid Rights. The CREST stock accounts of Overseas Shareholders with a registered address or located or resident in (subject to certain limited exceptions) any of the Restricted Territories will not be credited with Nil Paid Rights. Overseas Shareholders should refer to paragraph 2.5 (''Overseas Shareholders'') of Part III (''Terms and Conditions of the Rights Issue'') of this document.

3.2 How do I take up my Rights Issue Entitlement using CREST?

You should refer to paragraph 2.2.2 (''Procedure for acceptance and payment'') of Part III (''Terms and Conditions of the Rights Issue'') of this document for details on how to take up and pay for your Rights Issue Entitlement.

If you are a Qualifying Depositary Interest Holder (other than a Qualifying Depositary Interest Holder who is an Excluded Territory Shareholder), you should ensure that a Many-to-Many (''MTM instruction'') has been inputted and has settled by 11.00 a.m. on 8 November 2016 in order to make a valid acceptance. If your Depositary Interests are held by a nominee or you are a CREST-sponsored member, you should speak directly to the agent who looks after your stock or your CREST sponsor (as appropriate), who will be able to help you. If you have further questions, particularly of a technical nature regarding acceptance through CREST, you should call the CREST Service Desk.

3.3 If I buy or have bought Depositary Interests after the Record Date but before 8.00 a.m. on 25 October 2016 (the date that the Shares start trading ex-rights), will I be eligible to participate in the Rights Issue?

If you buy or have bought Depositary Interests after the Record Date but before 8.00 a.m. on 25 October 2016, but are not registered as the holder of those Depositary Interests on the Record Date, you may still be eligible to participate in the Rights Issue. Euroclear will raise claims in the normal manner in respect of your purchase and your Nil Paid Rights will be credited to your stock account(s) on settlement of those claims.

You will not be entitled to participate in the Rights Issue or to Nil Paid Rights in respect of any Depositary Interests acquired at or after 8.00 a.m. on 25 October 2016.

3.4 What should I do if I sell or transfer all or some of my Depositary Interests before 8.00 a.m. on 25 October 2016 (the Ex-Rights Date)?

You do not have to take any action. A claim transaction in respect of that sale or transfer will automatically be generated by Euroclear which, on settlement, will transfer the appropriate number of Nil Paid Rights to the purchaser or transferee.

3.5 How many New Shares am I entitled to acquire?

If you are a Qualifying Depositary Interest Holder (other than a Qualifying Depositary Interest Holder who is an Excluded Overseas Shareholder), your stock account will be credited with Nil Paid Rights in respect of the number of Depositary Interests to reflect the New Shares which you are entitled to acquire. You will be entitled to acquire 7 New Shares for every 12 Depositary Interests held at the close of business on the Record Date. You can also view the claim transactions in respect of purchases/sales effected after this date, but before the Ex-Rights Date. If you are a CREST-sponsored member, you should consult your CREST sponsor.

3.6 What should I do if I think my holding of Depositary Interests is incorrect?

If you are concerned about the number of Nil Paid Rights with which your stock account has been credited, please contact Computershare Investor Services PLC on 0370 707 4040 or if calling from outside the UK on +44 (0)370 707 4040. The helpline is open between 9.00 a.m. to 5.00 p.m., Monday to Friday excluding public holidays in England and Wales. Please note that Computershare Investor Services PLC cannot provide any financial, legal or tax advice and calls may be recorded and monitored for security and training purposes.

3.7 If I take up my Rights Issue Entitlement, when will Depositary Interests representing my New Shares be credited to my CREST stock account(s)?

If you take up your Rights Issue Entitlement under the Rights Issue, it is expected that Depositary Interests representing your New Shares will be credited to the CREST stock account in which you hold your Fully Paid Rights on 25 October 2016.

4. FURTHER PROCEDURES FOR SHARES WHETHER IN CERTIFICATED FORM OR DEPOSITARY INTERESTS HELD THROUGH CREST

4.1 What happens if the number of New Shares and/or New Depositary Interests to which I am entitled is not a whole number? Am I entitled to fractions of New Shares and/or New Depositary Interests?

Your entitlement to New Shares and/or New Depositary Interests will be calculated at the close of business on the Record Date (other than in the case of those who bought Shares or Depositary Interests after the Record Date but before the Ex-Rights Date who are eligible to participate in the Rights Issue). If the result is not a whole number, your entitlement will be rounded down to the nearest whole number of New Shares and/or New Depositary Interests, meaning that you will not be provisionally allotted a New Share and/or New Depositary Interests in respect of the fractional entitlement. The New Shares and/or New Depositary Interests representing the aggregated fractions that would otherwise be allotted to Qualifying Shareholders will, if a price over the Issue Price and the expenses of sale can be obtained, be sold in the market for the benefit of Qualifying Shareholders who would otherwise have been entitled to such fraction of a New Share and/or New Depositary Interest, save that Qualifying Shareholders will not receive any proceeds in respect of a fractional entitlement in the event that such proceeds have a value of £5 or less.

4.2 Will I be taxed if I take up or sell my Rights Issue Entitlement or if my Rights Issue Entitlement is sold on my behalf?

If you are resident in the United Kingdom for tax purposes, you should not have to pay UK tax when you take up your Rights Issue Entitlement to subscribe for New Shares and/or New Depositary Interests, although the Rights Issue will affect the amount of UK tax you may pay when you subsequently sell your Shares and/or New Depositary Interests. However, you may be subject to capital gains tax on any proceeds you receive from the sale of your Rights Issue Entitlement.

Further information for certain Qualifying Shareholders is contained in Part XII (''Taxation'') of this document. Qualifying Shareholders who are in any doubt as to their tax position should consult their professional advisers as soon as possible. Please note that Computershare Investor Services PLC's helpline is unable to advise on any taxation issues.

4.3 I understand that there is a period when there is trading in the Nil Paid Rights. What does this mean?

If you are a Qualifying Shareholder and you do not want to buy the New Shares and/or New Depositary Interests being offered to you under the Rights Issue, you can instead sell or transfer your Nil Paid Rights and receive the net proceeds of the sale or transfer in cash. This is referred to as dealing ''nil paid''. During the nil paid trading period (between 8.00 a.m. on 25 October 2016 and 11.00 a.m. on 8 November 2016), subject to demand and market conditions, persons can buy and sell the Nil Paid Rights. Please note that your ability to sell your rights is dependent on demand for such rights and that the price of the Nil Paid Rights will fluctuate.

If you wish to sell or transfer all or some of your Nil Paid Rights and you hold your Shares in certificated form, you will need to complete Form X, the form of renunciation, on page 2 of the Provisional Allotment Letter and send it to the stockbroker, bank or other agent through or by whom the sale or transfer was effected, to be forwarded to the purchaser or transferee.

If you buy Nil Paid Rights, you are buying an entitlement to take up the New Shares and/or New Depositary Interests in respect of such Nil Paid Rights, subject to your paying for them in accordance with the terms of the Rights Issue. Any seller of Nil Paid Rights who holds their Shares in certificated form will need to forward to you their Provisional Allotment Letter (with Form X completed) for you to complete and return, with your cheque, by 11.00 a.m. on 8 November 2016, in accordance with the instructions in the Provisional Allotment Letter.

If you are a CREST member or CREST-sponsored member and have received a Provisional Allotment Letter and you wish to hold your Nil Paid Rights in uncertificated form in Depositary Interests in CREST, then (in the case of a CREST member) you should send the Provisional Allotment Letter with Form X and the CREST Deposit Form on page 2 of the Provisional Allotment Letter completed to the CREST courier and sorting service by 3.00 p.m. on 3 November 2016 at the latest, or (in the case of a CREST-sponsored member) you should contact your CREST sponsor.

Qualifying Depositary Interest Holders and, subject to dematerialisation of their Nil Paid Rights as set out in the Provisional Allotment Letter, Qualifying Non-CREST Shareholders who are CREST members or

CREST-sponsored members, can convert their Nil Paid Rights, in whole or in part, in Nil-Paid Rights in respect of Depositary Interests in CREST in the same manner as any other security that is admitted to CREST. Please consult your CREST sponsor or stockbroker, bank or other appropriate financial adviser, or whoever arranged your share purchase, for details.

4.4 What if I want to sell the New Shares for which I have paid?

If you are a Qualifying Shareholder, provided the New Shares have been paid for and you have requested the return of the receipted Provisional Allotment Letter, you can transfer the Fully Paid Rights by completing Form X, the form of renunciation, on page 2 of the receipted Provisional Allotment Letter in accordance with the instructions set out on pages 3 and 4 of the Provisional Allotment Letter until 11.00 a.m. on 8 November 2016.

After that time, you will be able to sell your New Shares in the normal way. However, the Share Certificate relating to your New Shares is expected to be despatched to you on 15 November 2016. Pending despatch of such share certificate, valid instruments of transfer will be certified by the Registrar against the register.

If you hold your Depositary Interests and/or rights in CREST, you may transfer them in the same manner as any other security that is admitted to CREST. Please consult your stockbroker, bank or other appropriate financial adviser, or whoever arranged your share purchase, for details.

4.5 What if I do nothing?

If you do not want to take up any of your rights, you do not need to do anything. If you do not take up your Rights Issue Entitlement, the number of Shares (or Depositary Interests representing Shares) you hold in the Company will stay the same but, following completion of the Rights Issue, the proportion of the total number of Shares (or Depositary Interests representing Shares) that you will hold relative to the total issued share capital of the Company will be lower than that held currently. If you are a Qualifying Shareholder and do not take up and make payment for the New Shares and/or New Depositary Interests to which you are entitled by 11.00 a.m. on 8 November 2016, the Company has made arrangements under which the Banks will endeavour to find investors to take up your Rights Issue Entitlement and those of other Qualifying Shareholders who have not taken up their Rights Issue Entitlements by 5.00 p.m. on the second Dealing Day after the last date for acceptance of the Rights Issue. If the Banks find investors and are able to achieve a premium over the Issue Price and the related expenses of procuring those investors (including any applicable brokerage and commissions and amounts in respect of VAT), you will be sent a cheque for your share of the amount of that aggregate premium above the Issue Price less related expenses (including any applicable brokerage and commissions and amounts in respect of VAT), so long as the amount in question is at least £5. Cheques are expected to be despatched by 15 November 2016 and will be sent to your address as it appears on the Company's register of members (or to the first named holder if you hold Shares jointly), provided that where any entitlement concerned was held in CREST, the amount due will, unless the Company (in its absolute discretion) otherwise determines, be satisfied by the Company procuring the creation of an assured payment obligation in favour of the relevant Qualifying Depositary Interest Holder's RTGS settlement bank in respect of the cash amount concerned in accordance with the RTGS payment mechanism. If the Banks cannot find investors who agree to pay a premium above the Issue Price and related expenses so that your entitlement would be £5 or more, you will not receive any payment, and any amounts of less than £5 will be aggregated and retained for the benefit of the Company.

4.6 What if I hold options and awards under the Share Schemes?

Participants in the Share Schemes will be contacted separately with further information on how their options and awards granted under such plans may be affected by the Rights Issue.

4.7 What should I do if I live outside the United Kingdom?

Your ability to take up your Rights Issue Entitlement to New Shares and New Depositary Interests may be affected by the laws of the country in which you live and you should take professional advice about any formalities you need to observe. Shareholders resident outside the United Kingdom, including those with a registered address or those located or resident in any Excluded Territory or Restricted Territory, should refer to paragraph 2.5 (''Overseas Shareholders'') of Part III (''Terms and Conditions of the Rights Issue'') of this document.

4.8 Will the Rights Issue affect the dividends the Company pays?

Following completion of the Rights Issue, future dividend payments will be adjusted for the Rights Issue. The adjustment will take account of the discount in the Issue Price to the share price at close of business on 27 September 2016, being the day prior to the announcement of the terms of the Rights Issue.

4.9 What do I do if I have any further queries about the Rights Issue or the action I should take?

If you have any other questions, please contact Computershare Investor Services PLC on 0370 707 4040 or if calling from outside the UK on +44 (0)370 707 4040. The helpline is open between 9.00 a.m. to 5.00 p.m., Monday to Friday excluding public holidays in England and Wales. Please note that Computershare Investor Services PLC cannot provide any financial, legal or tax advice and calls may be recorded and monitored for security and training purposes.

Your attention is drawn to the terms and conditions of the Rights Issue in Part III (''Terms and Conditions of the Rights Issue'') of this document and (in the case of Qualifying Non-CREST Shareholders) in the Provisional Allotment Letter.

PART III—TERMS AND CONDITIONS OF THE RIGHTS ISSUE

1. INTRODUCTION

The Company is proposing to raise gross proceeds of approximately £735 million by way of a rights issue of 144,722,989 New Shares. Subject to the fulfilment of the conditions of the Sponsors and Underwriting Agreement, the New Shares will be offered under the Rights Issue by way of rights at 508 pence per New Share. This offer will be on the basis of:

7 New Shares for every 12 Existing Shares

held on the Record Date (and so in proportion for any other number of Existing Shares then held) and otherwise on the terms and conditions as set out in this document and, in the case of Qualifying Non-CREST Shareholders other than, subject to limited exceptions, to Shareholders with a registered address, or located, in one of the Excluded Territories or one of the other Restricted Territories, the PALs.

The Depositary holds Shares on behalf of Depositary Interest Holders and accordingly will receive a provisional allotment of New Shares on behalf of Qualifying Depositary Interest Holders. The Depositary will pass on the provisional allotment made in its favour to Qualifying Depositary Interest Holders other than Qualifying Depositary Interest Holders who are in Excluded Territories or, save in certain instances, Restricted Territories and otherwise in accordance with the terms and conditions set out in this document and in accordance with the Deed Poll.

Times and dates referred to in this Part III (''Terms and Conditions of the Rights Issue'') have been included on the basis of the expected timetable for the Rights Issue set out on page 50.

The Issue Price of 508 pence per New Share represents a 39.4 per cent. discount to the Closing Price of 838.5 pence per Share on 27 September 2016 (being the last Business Day before the announcement of the Acquisition and the terms of the Rights Issue) and a 29.1 per cent. discount to the theoretical ex-rights price of 716.7 pence per Share calculated by reference to the Closing Price on 27 September 2016.

Qualifying Shareholders who do not take up their entitlements to New Shares (whether directly or through New Depositary Interests) will have their proportionate shareholdings in the Company diluted by approximately 58.3 per cent. Those Qualifying Shareholders who take up the New Shares provisionally allotted to them in full will, subject to the rounding down and sale of any fractions, retain the same proportionate voting and distribution rights as held by them at the close of business on the Record Date.

The Nil Paid Rights (also described as New Shares, nil paid) are entitlements to acquire the New Shares and/or New Depositary Interests subject to payment of the Issue Price. The Fully Paid Rights are entitlements to receive the New Shares and/or New Depositary Interests, for which a subscription and payment has already been made.

Holdings of Existing Shares in certificated form and holdings of Depositary Interests will be treated as separate holdings for the purpose of calculating entitlements under the Rights Issue. Entitlements to New Shares and/or New Depositary Interests will be rounded down to the next lowest whole number (or to zero in the case of shareholders holding fewer than 12 Existing Shares or Depositary Interests at the close of business on the Record Date) and fractions of New Shares will not be allotted to Qualifying Shareholders (and the Depositary will not make available fractions of New Depositary Interests to Qualifying Depositary Interest Holders). Such fractions will be aggregated and, if possible, placed as soon as practicable after the commencement of dealings in the New Shares, nil paid. The net proceeds of such placings (after deduction of expenses) will be aggregated and will ultimately accrue for the benefit of the Company.

Overseas Shareholders or any person (including, without limitation, custodians, nominees and trustees) who has a contractual or other legal obligation to forward this document into a jurisdiction other than the UK should consider paragraph 2.5 below. The offer of New Shares and New Depositary Interests under the Rights Issue will not be made into certain territories. Subject to the provisions of paragraph 2.5 below, Shareholders with a registered address in a Restricted Territory or an Excluded Territory are not being sent this document and will not be sent Provisional Allotment Letters.

Applications will be made to the UK Listing Authority and to the London Stock Exchange for the New Shares (nil paid and fully paid) to be admitted to the premium segment of the Official List and to trading on the London Stock Exchange's main market for listed securities, respectively. It is expected that Admission will become effective on 25 October 2016 and that dealings in the New Shares, nil paid, will commence on the London Stock Exchange by 8.00 a.m. on that date. The Shares are in registered form and can be held in certificated or uncertificated form via Depositary Interests in CREST. The Depositary Interests are already admitted to CREST. No further application for admission to CREST is required for the New Depositary Interests and all of the New Depositary Interests when issued and fully paid may be held and transferred by means of CREST.

Applications will be made for the Nil Paid Rights and the Fully Paid Rights to be admitted to CREST. Euroclear requires the Company to confirm to it that certain conditions (imposed by the CREST Manual) have been satisfied before Euroclear will admit any security to CREST. It is expected that these conditions will be satisfied, in respect of the Nil Paid Rights and the Fully Paid Rights, on Admission. As soon as practicable after satisfaction of the conditions, the Company will confirm this to Euroclear.

The ISIN for the New Depositary Interests will be the same as that of the Depositary Interests, being KYG7091M1096. The ISIN for the Nil Paid Rights will be KYG7091M1740 and for the Fully Paid Rights will be KYG7091M1823.

None of the New Shares or the New Depositary Interests are being offered to the public other than pursuant to the Rights Issue.

The Rights Issue has been fully underwritten by the Banks and is conditional, inter alia, upon:

(i) the Sponsors and Underwriting Agreement having become unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms prior to Admission;
(ii) Admission becoming effective by not later than 8.00 a.m. on 25 October 2016 (or such later time and/or date as the Company may agree with the Global Coordinators); and
(iii) the passing, without amendment, of the Resolutions.

The Sponsors and Underwriting Agreement is conditional upon certain matters being satisfied or not breached prior to the General Meeting and may be terminated by the Global Coordinators prior to Admission upon the occurrence of certain specified events, in which case the Rights Issue will not proceed. For the avoidance of doubt, Admission will not proceed in the event the conditions are not satisfied or the Sponsors and Underwriting Agreement is terminated. The Sponsors and Underwriting Agreement is not capable of termination following Admission. The Banks may arrange sub-underwriting for some, all or none of the New Shares. A summary of certain terms and conditions of the Sponsors and Underwriting Agreement is contained in paragraph 12.1.15 (''Sponsors and Underwriting Agreement'') of Part XIV (''Additional Information'') of this document.

The Banks and any of their respective affiliates may engage in trading activity in connection with their roles under the Sponsors and Underwriting Agreement and, in that capacity, may retain, purchase, sell, offer to sell or otherwise deal for their own account in securities of the Company and related or other securities and instruments (including Shares, Depositary Interests, Nil Paid Rights and Fully Paid Rights) for the purpose of hedging their underwriting exposure or otherwise. Accordingly, references in this document to Nil Paid Rights, Fully Paid Rights, New Shares or New Depositary Interests being issued, offered, subscribed, acquired, placed or otherwise dealt in should be read as including any issue or offer to, or subscription, acquisition, placing or dealing by, the Banks and any of their affiliates acting as investors for their own account. Except as required by applicable law or regulation, none of the Banks propose to make any public disclosure in relation to such transactions. In addition certain of the Banks or their affiliates may enter into financing arrangements (including swaps or contracts for differences) with investors in connection with which such Banks (or their affiliates) may from time to time acquire, hold or dispose of Shares or Depositary Interests.

Subject, inter alia, to the conditions referred to above being satisfied (other than the condition relating to Admission) and save as provided in paragraph 2.5 below, it is intended that:

(i) Provisional Allotment Letters in respect of Nil Paid Rights will be despatched on 24 October 2016 to Qualifying Non-CREST Shareholders, other than, subject to limited exceptions, to Shareholders with a registered address, or resident or located, in one of the Excluded Territories or one of the Restricted Territories;
(ii) the Depositary will instruct Euroclear to credit the appropriate stock accounts of Qualifying Depositary Interest Holders (other than, subject to limited exceptions, Qualifying Depositary Interest Holders with a registered address, or resident or located, in one of the Excluded Territories or one of the Restricted Territories) with such Shareholders' entitlements to Nil Paid Rights with effect from 8.00 a.m. on 25 October 2016;
(iii) the Nil Paid Rights and the Fully Paid Rights will be enabled for settlement by Euroclear as soon as practicable after the Company has confirmed to Euroclear that all the conditions for admission of such rights to CREST have been satisfied, which is expected to be by 8.00 a.m. on 25 October 2016;
(iv) New Depositary Interests will be credited to the appropriate stock accounts of the relevant Qualifying Depositary Interest Holders and/or purchasers of Nil Paid Rights (or their renouncees) who validly take up their right, and the purchasers of Fully Paid Rights, as soon as practicable after 8.00 a.m. on 25 October 2016; and
(v) share certificates for the New Shares will be despatched to relevant Qualifying Non-CREST Shareholders or their renouncees by no later than 15 November 2016.

The offer will be made to Qualifying Non-CREST Shareholders other than, subject to limited exceptions, to Shareholders with a registered address, or resident or located, in one of the Excluded Territories or one of the Restricted Territories by way of the Provisional Allotment Letter (as described in step (i) above) and to Qualifying Depositary Interest Holders other than, subject to limited exceptions, to Qualifying Depositary Interest Holders with a registered address, or resident, in one of the Excluded Territories or one of the other Restricted Territories by way of the enablement of the Nil Paid Rights and the Fully Paid Rights (as described in step (iii) above) (such Shareholders' stock accounts having been credited as described in step (ii) above).

The New Shares will, when issued and fully paid, rank pari passu in all respects with the Existing Shares, including the right to receive all dividends or other distributions made, paid or declared after the date of this document. There will be no restrictions on the free transferability of the New Shares save as provided in the Articles. The rights attaching to the New Shares are governed by the Articles, a summary of which is set out in paragraph 4.1 (''Fifth amended and restated memorandum and articles of association'') of Part XIV (''Additional Information'') of this document. The Depositary Interests are governed by the Deed Poll, a summary of which is set out in paragraph 13.1 (''Deed Poll'') of Part XIV (''Additional Information'') of this document.

Qualifying Shareholders will not be able to apply for New Shares (whether directly or through New Depositary Interests) in excess of their entitlement.

All documents, including Provisional Allotment Letters (which constitute temporary documents of title) and cheques and certificates posted to, by or from Qualifying Shareholders and/or their transferees or renouncees (or their agents, as appropriate) will be posted at their own risk.

Shareholders and/or Depositary Interest Holders taking up their rights by completing a Provisional Allotment Letter or by sending a MTM instruction to Euroclear will be deemed to have given the representations and warranties set out in paragraph 2.6 (''Representations and warranties relating to Shareholders'') of this Part III (''Terms and Conditions of the Rights Issue''), unless the requirement is waived by the Company with the consent of the Global Coordinators.

2. ACTION TO BE TAKEN

The action to be taken by Qualifying Non-Crest Shareholders in respect of the New Shares to be held in certificated form and Qualifying Depositary Interest Holders in respect of the New Depositary Interests, differs.

If you are a Qualifying Non-CREST Shareholder other than, subject to limited exceptions, a Shareholder with a registered address, or who is resident or located, in one of the Excluded Territories or one of the Restricted Territories, please refer to paragraphs 2.1, 2.3, 2.4 and 2.5 to 2.9 below.

If you are a Qualifying Depositary Interest Holder other than, subject to limited exceptions, a Depositary Interest Holder with a registered address, or who is resident or located, in one of the Excluded Territories or one of the Restricted Territories, please refer to paragraphs 2.2, 2.3, 2.4 and 2.5 to 2.9 below and to the CREST Manual for further information on the CREST procedures referred to below.

If you are a Qualifying Non-CREST Shareholder or a Qualifying Depositary Interest Holder, with a registered address in an Excluded Territory, or any other Restricted Territory, please refer to paragraph 2.5 below.

CREST-sponsored members should refer to their CREST sponsors, as only their CREST sponsors will be able to take the necessary actions specified below to take up the entitlements or otherwise to deal with the Nil Paid Rights or Fully Paid Rights of CREST-sponsored members.

All enquiries in relation to the Provisional Allotment Letters should be addressed to Computershare Investor Services PLC on 0370 707 4040 (from within the UK) or on +44 (0)370 707 4040 (if calling from outside the UK). The helpline is open between 9.00 a.m. to 5.00 p.m. Monday to Friday except public holidays in England and Wales. Please note that Computershare Investor Services PLC cannot provide any financial, legal or tax advice and calls may be recorded and monitored for security and training purposes.

2.1 Action to be taken by Qualifying Non-CREST Shareholders in relation to Nil Paid Rights represented by Provisional Allotment Letters

2.1.1 General

Provisional Allotment Letters are expected to be despatched to Qualifying Non-CREST Shareholders on 24 October 2016. Each Provisional Allotment Letter will set out:

(i) the holding at the close of business on the Record Date of Existing Shares in certificated form on which a Qualifying Non-CREST Shareholder's entitlement to New Shares has been based;
(ii) the aggregate number of New Shares which have been provisionally allotted to that Qualifying Non-CREST Shareholder with respect to the Existing Shares referred to in (i);
(iii) the amount payable by a Qualifying Non-CREST Shareholder at the Issue Price to take up his entitlement in full;
(iv) the procedures to be followed if a Qualifying Non-CREST Shareholder wishes to dispose of all or part of his entitlement or to convert all or part of his entitlement into Depositary Interests in uncertificated form; and
(v) instructions regarding acceptance and payment, consolidation, splitting and registration of renunciation (where applicable).

On the basis that Provisional Allotment Letters are posted on 24 October 2016, and that dealings in Nil Paid Rights commence on 25 October 2016, the latest time and date for acceptance and payment in full will be 11.00 a.m. on 8 November 2016.

If the Rights Issue is delayed so that Provisional Allotment Letters cannot be despatched on 24 October 2016 or if the timetable for the Rights Issue is otherwise amended, the expected timetable, as set out at the front of this document, will be adjusted accordingly and the revised dates will be set out in the Provisional Allotment Letters and announced through a Regulatory Information Service. All references to times and/or dates in this Part III (''Terms and Conditions of the Rights Issue'') should be read as being subject to such adjustment.

2.1.2 Procedure for acceptance and payment

(i) Qualifying Non-CREST Shareholders who wish to take up their entitlement in full

Holders of Provisional Allotment Letters who wish to take up all of their entitlement must complete and return the Provisional Allotment Letter, together with a cheque or banker's draft in pounds sterling, made payable to ''Computershare re Phoenix Rights Issue'' and crossed ''A/C payee only'', for the full amount payable on acceptance, in accordance with the instructions printed on the Provisional Allotment Letter, by post to Computershare Investor Services PLC at Corporate Actions Projects, Bristol, BS99 6AH or by hand (during normal office hours only), to Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol, BS13 8AE, so as to arrive as soon as possible and in any event so as to be received by not later than 11.00 a.m. on 8 November 2016. A reply-paid envelope will be enclosed with the Provisional Allotment Letter for this purpose and for use in the UK only. If you post your Provisional Allotment Letter within the UK by first-class post, it is recommended that you allow at least four days for delivery.

Once your Provisional Allotment Letter, duly completed, and payment have been received by the Receiving Agent in accordance with the above, you will have accepted the offer to subscribe for the number of New Shares specified on your Provisional Allotment Letter.

(ii) Qualifying Non-CREST Shareholders who wish to take up some (but not all) of their entitlement

Holders of Provisional Allotment Letters who wish to take up some but not all of their Nil Paid Rights and wish to sell some or all of those rights which they do not want to take up should first apply for split Provisional Allotment Letters by completing Form X on the Provisional Allotment Letter and returning it, together with a covering letter stating the number of split Provisional Allotment Letters required and the number of Nil Paid Rights or Fully Paid Rights (if appropriate) to be comprised in each split Provisional Allotment Letter, by post to Computershare Investor Services PLC at Corporate Actions Projects, Bristol, BS99 6AH or by hand (during normal office hours only), to Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol, BS13 8AE by 11.00 a.m. on 4 November 2016, the last date and time for splitting Provisional Allotment Letters. The Provisional Allotment Letter will then be cancelled and exchanged for the split Provisional Allotment Letters required. Such holders of Provisional Allotment Letters should then deliver the split Provisional Allotment Letter representing the rights they wish to take up together with a cheque or banker's draft in pounds sterling for this number of rights, payable to ''Computershare re Phoenix Rights Issue'' and crossed ''A/C payee only'' by 11.00 a.m. on 8 November 2016, the last date and time for acceptance. The further split Provisional Allotment Letters (representing the New Shares the Shareholder does not wish to take up) will be required in order to sell those rights not being taken up.

Alternatively, Qualifying Non-CREST Shareholders who wish to take up some of their rights, without selling or transferring the remainder, should complete Form X on the original Provisional Allotment Letter and return it, together with a covering letter confirming the number of rights to be taken up and a cheque or banker's draft in pounds sterling to pay for this number of Shares, by post to Computershare Investor Services PLC at Corporate Actions Projects, Bristol, BS99 6AH or by hand (during normal office hours only), to Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol, BS13 8AE. In this case, the Provisional Allotment Letter and payment must be received by Computershare Investor Services PLC by 11.00 a.m. on 4 November 2016, the last date and time for splitting Provisional Allotment Letters.

(iii) Company's discretion as to validity of acceptances

If payment is not received in full by 11.00 a.m. on 8 November 2016, the provisional allotment will (unless the Company has exercised its right to treat as valid an acceptance, as set out below) be deemed to have been declined and will lapse. The Company may elect, with the consent of the Global Coordinators, but shall not be obliged, to treat as valid Provisional Allotment Letters and accompanying remittances for the full amount due which are received prior to 5.00 p.m. on 8 November 2016.

The Company may elect, but shall not be obliged to treat as a valid acceptance, the receipt of appropriate remittance by 5.00 p.m. on 8 November 2016, from an authorised person (as defined in the FSMA) specifying the number of New Shares to be acquired and containing an undertaking by that person to lodge the relevant Provisional Allotment Letters, duly completed, in due course.

The Company may also (in its sole discretion) treat a Provisional Allotment Letter as valid and binding on the person(s) by whom or on whose behalf it is lodged even if it is not completed in accordance with the relevant instructions or is not accompanied by a valid power of attorney where required.

The Company reserves the right to treat as invalid any acceptance or purported acceptance of the New Shares that appears to the Company to have been executed in, despatched from or that provided an address for delivery of definitive share certificates for New Shares in a Restricted Territory or an Excluded Territory unless the Company is satisfied, and subject to approval by the Global Coordinators (acting in good faith) that such action would not result in the contravention of any registration or other legal requirement in any jurisdiction.

The provisions of this paragraph 2.1.2(iii) and any other terms of the Rights Issue relating to Qualifying Non-CREST Shareholders may be waived, varied or modified as regards specific Qualifying Non-CREST Shareholder(s) or on a general basis by the Company, with the agreement of the Global Coordinators.

A Qualifying Non-CREST Shareholder who makes a valid acceptance and payment in accordance with this paragraph 2.1.2 is deemed to request that the New Shares to which they will become entitled be issued to them on the terms and conditions set out in this document and subject to the Memorandum and Articles.

(iv) Payments

All payments must be in pounds sterling and made by cheque or banker's draft made payable to ''Computershare re Phoenix Rights Issue'' and crossed ''A/C payee only''. Cheques or banker's drafts must be drawn on a bank or building society or branch of a bank or building society in the UK or Channel Islands which is either a settlement member of the Cheque and Credit Clearing Company Limited or the CHAPS Clearing Company Limited or which has arranged for its cheques and banker's drafts to be cleared through the facilities provided by any of those companies or committees and must bear the appropriate sort code in the top right-hand corner. Cheques must be drawn on the personal account to which the Qualifying Non-CREST Shareholder (or their nominee) has sole or joint title to the funds. Third party cheques may not be accepted with the exception of building society cheques or banker's drafts where the building society or bank has inserted details of the name of the account holder and have either added the building society or bank branch stamp or have provided a supporting letter confirming the source of funds. The name of the account holder should be the same as the name of the shareholder shown on page 1 or page 4 of the Provisional Allotment Letter. Post-dated cheques will not be accepted. Cheques or banker's drafts will be presented for payment upon receipt. The Company reserves the right to instruct Computershare to seek special clearance of cheques and banker's drafts to allow the Company to obtain value for remittances at the earliest opportunity. No interest will be paid on payments made before they are due. It is a term of the Rights Issue that cheques shall be honoured on first presentation and the Company may elect to treat as invalid acceptances in respect of which cheques are not so honoured. Return of a completed Provisional Allotment Letter will constitute a warranty that the cheque will be honoured on first presentation. All documents, cheques and banker's drafts sent through the post will be sent at the risk of the sender. Payments via CHAPS, BACS or electronic transfer will not be accepted.

If the New Shares have already been allotted to a Qualifying Non-CREST Shareholder prior to any payment not being so honoured upon first presentation or such acceptances being treated as invalid, the Company may (in its absolute discretion as to manner, timing and terms) make arrangements for the sale of such New Shares on behalf of such Qualifying Non-CREST Shareholder and hold the proceeds of sale (net of the Company's reasonable estimate of any loss it has suffered as a result of the same and of the expenses of the sale, including, without limitation, any stamp duty or SDRT payable on the transfer of such New Shares, and of all amounts payable by such Qualifying Non-CREST Shareholder pursuant to the terms of the Rights Issue in respect of the acquisition of such New Shares) on behalf of such Qualifying Non-CREST Shareholder. Neither the Company nor the Banks nor any other person shall be responsible for, or have any liability for, any loss, expense or damage suffered by such Qualifying Non-CREST Shareholder as a result.

(v) Holders of Provisional Allotment letters who wish to take up any of their entitlements must make the representations and warranties set out in paragraph 2.6 below.

2.1.3 Money Laundering Regulations

It is a term of the Rights Issue that, to ensure compliance with the Money Laundering Regulations, the Receiving Agent, Computershare Investor Services PLC, may require verification of the identity of the person by whom or on whose behalf a Provisional Allotment Letter is lodged with payment (which requirements are referred to below as the ''verification of identity requirements''). If an application is made by a UK regulated broker or intermediary acting as agent and which is itself subject to the Money Laundering Regulations, any verification of identity requirements is the responsibility of such broker or intermediary and not of the Registrar. In such case, the lodging agent's stamp should be inserted on the Provisional Allotment Letter. The person(s) (the ''acceptor'') who, by lodging a Provisional Allotment Letter with payment, and in accordance with the other terms as described above, accept(s) directly or indirectly, the allotment of the New Shares (the ''relevant shares'') comprised in such Provisional Allotment Letter (being the provisional allottee or, in the case of renunciation, the person named in such Provisional Allotment Letter) shall thereby be deemed to agree to provide the Registrar and/or the Company with such information and other evidence as they or either of them may require to satisfy the verification of identity requirements and agree for the Registrar to make a search using a credit reference agency for the purpose of confirming such identity where deemed necessary. A record of the search will be retained.

If the Receiving Agent determines that the verification of identity requirements apply to an acceptance of an allotment and the verification of identity requirements have not been satisfied (which the Receiving Agent shall in its absolute discretion determine) by 11.00 a.m. on 8 November 2016, the Company may, with the consent of the Global Coordinators, and without prejudice to any other rights of the Company, treat the acceptance as invalid, in which event the application monies will be returned (at the applicant's risk) without interest to the account of the bank or building society on which the relevant cheque or banker's draft was drawn, or may confirm the allotment of the relevant shares to the acceptor but (notwithstanding any other term of the Rights Issue) such shares will not be issued to him or registered in his name until the verification of identity requirements have been satisfied (which the Receiving Agent shall in its absolute discretion determine). If the acceptance is not treated as invalid and the verification of identity requirements are not satisfied within such period, being not less than seven days after a request for evidence of identity is despatched to the acceptor, as the Company may in its absolute discretion allow, the Company will be entitled to make arrangements (in its absolute discretion as to manner, timing and terms) to sell the relevant shares (and for that purpose the Company will be expressly authorised to act as agent of the acceptor). Any proceeds of sale (net of expenses) of the relevant shares which shall be issued to and registered in the name of the purchaser(s) or an amount equivalent to the original payment, whichever is the lower, will be held by the Company on trust for the acceptor, subject to the requirements of the Money Laundering Regulations. The Receiving Agent is entitled in its absolute discretion to determine whether the verification of identity requirements apply to any acceptor and whether such requirements have been satisfied. Neither the Company, the Banks nor the Receiving Agent will be liable to any person for any loss suffered or incurred as a result of the exercise of any such discretion or as a result of any sale of relevant shares.

Return of a Provisional Allotment Letter with the appropriate remittance will constitute a warranty from the acceptor that the Money Laundering Regulations will not be breached by acceptance of such remittance and an undertaking to provide promptly to the Registrar such information as may be specified by the Registrar as being required for the purpose of the Money Laundering Regulations. If the verification of identity requirements apply, failure to provide the necessary evidence of identity may result in your acceptance being treated as invalid or in delays in the despatch of a receipted fully paid Provisional Allotment Letter, share certificate or other documents relating to the Rights Issue (as applicable).

The verification of identity requirements will not usually apply:

(i) if the acceptor is an organisation required to comply with the Money Laundering Directive 2005/60/EC of the European Parliament and of the EC Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing;
(ii) if the acceptor is a regulated UK broker or intermediary acting as agent and is itself subject to the Money Laundering Regulations;
(iii) the applicant is a company whose securities are listed on a regulated market subject to specified disclosure obligations;
(iv) if the acceptor (not being an acceptor who delivers his acceptance in person) makes payment by way of a cheque drawn on an account in the name of such acceptor; or
(v) if the aggregate subscription price for the relevant shares is less than A15,000 (approximately £12,000).

Where the verification of identity requirements apply, please note the following as this will assist in satisfying the requirements. Satisfaction of the verification of identity requirements may be facilitated in the following ways:

(a) if payment is made by cheque or banker's draft in pounds sterling drawn on a branch in the UK of a bank or building society and bears a UK bank sort code number in the top right-hand corner, the following applies. Cheques should be made payable to ''Computershare re Phoenix Rights Issue'' and crossed ''A/C payee only''. Third party cheques may not be accepted with the exception of building society cheques or banker's drafts where the building society or bank has inserted details of the name of the account holder and have either added the building society or bank branch stamp or have provided a supporting letter confirming the source of funds. The name of the account holder should be the same as the name of the shareholder shown on page 1 or page 4 of the Provisional Allotment Letter;
(b) if the Provisional Allotment Letter is lodged with payment by an agent which is an organisation of the kind referred to in (a) above or which is subject to anti money-laundering regulation in a country which is a member of the Financial Action Task Force (the non-EU members of which are Argentina,

Australia, Brazil, Canada, Hong Kong, Iceland, Japan, Mexico, New Zealand, Norway, the Russian Federation, Singapore, South Africa, Switzerland, Turkey, the United States of America and, by virtue of their membership of the Gulf Co-operation Council, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE), the agent should provide written confirmation with the Provisional Allotment Letter that it has that status and a written assurance that it has obtained and recorded evidence of the identity of the persons for whom it acts and that it will on demand make such evidence available to the Registrar or the relevant authority; or

(c) if a Provisional Allotment Letter is lodged by hand by the acceptor in person, he should ensure that he has with him evidence of identity bearing his photograph (for example, his passport) and evidence of his address (for example, a recent bank statement).

In order to confirm the acceptability of any written assurance referred to in (b) above or any other case, the acceptor should contact Computershare on the Shareholder Helpline on 0370 707 4040 (from within the UK) or on +44 (0)370 707 4040 (if calling from outside the UK). Calls may be recorded and randomly monitored for security and training purposes. Please note that the Shareholder Helpline operators cannot provide advice on the merits of the Rights Issue nor give financial, tax, investment or legal advice.

2.1.4 Dealings in Nil Paid Rights

Assuming the Rights Issue becomes unconditional, dealings on the London Stock Exchange in the Nil Paid Rights are expected to commence at 8.00 a.m. on 25 October 2016. A transfer of Nil Paid Rights can be made by renunciation of the Provisional Allotment Letter in accordance with the instructions printed on it and delivery of the letter to the transferee or to a stockbroker, bank or other appropriate financial adviser. The latest time and date for registration of renunciation of Provisional Allotment Letters, nil paid, is expected to be 11.00 a.m. on 8 November 2016.

2.1.5 Dealings in Fully Paid Rights

After acceptance of the provisional allotment and payment in full in accordance with the provisions set out in this document and the Provisional Allotment Letter, the Fully Paid Rights may be transferred by renunciation of the relevant Provisional Allotment Letter and delivering it, by post or by hand (during normal business hours) to Computershare, Corporate Actions Projects, Bristol BS99 6AH, by not later than 11.00 a.m. on 8 November 2016. To do this, Qualifying Non-CREST Shareholders will need to have their fully paid Provisional Allotment Letters returned to them after acceptance has been effected by Computershare. However, fully paid Provisional Allotment Letters will not be returned to Qualifying Non-CREST Shareholders unless their return is requested by ticking the appropriate box on the Provisional Allotment Letter. After 8 November 2016, the New Shares will be in registered form and transferable in the usual form (see paragraph 2.1.10 below), or if they have been issued or converted into uncertificated form as Depositary Interests, in electronic form under the CREST system.

2.1.6 Renunciation and splitting of Provisional Allotment Letters

Qualifying Non-CREST Shareholders who wish to transfer all of their Nil Paid Rights or, after acceptance of the provisional allotment and payment in full, Fully Paid Rights comprised in a Provisional Allotment Letter may (save as required by the laws of certain overseas jurisdictions) renounce such allotment by completing and signing Form X on the Provisional Allotment Letter (if it is not already marked ''Original Duly Renounced'') and passing the entire Provisional Allotment Letter to their stockbroker or bank or other appropriate financial adviser or to the transferee. Once a Provisional Allotment Letter has been renounced, the letter will become a negotiable instrument in bearer form and the Nil Paid Rights or Fully Paid Rights (as appropriate) comprised in the PAL may be transferred by delivery of the PAL to the transferee. The latest time and date for registration of renunciation of Provisional Allotment Letters, fully paid, is 11.00 a.m. on 8 November 2016, and after such date the New Shares will be in registered form, transferable by written instrument of transfer in the usual common form or, if they have been issued in or converted into uncertificated form as Depositary Interests, in electronic form under the CREST system. Qualifying Non-CREST Shareholders should note that fully paid Provisional Allotment Letters will not be returned to such Qualifying Non-CREST Shareholders unless their return is requested.

If a holder of a Provisional Allotment Letter wishes to have only some of the New Shares registered in his name and to transfer the remainder, or wishes to transfer all the Nil Paid Rights or (if appropriate) Fully Paid Rights but to different persons, he may have the Provisional Allotment Letter split, for which purpose he or his agent must complete and sign Form X on the Provisional Allotment Letter. The Provisional Allotment Letter must then be delivered by post or by hand (during normal business hours only) to Computershare, Corporate Actions Projects, Bristol BS99 6AH, by not later than 11.00 a.m. on 4 November 2016, to be cancelled and exchanged for the number of split Provisional Allotment Letters required. The number of split Provisional Allotment Letters required and the number of Nil Paid Rights or (if appropriate) Fully Paid Rights to be comprised in each split letter should be stated in an accompanying letter. Form X on split Provisional Allotment Letters will be marked ''Original Duly Renounced'' before issue. The aggregate number of Nil Paid Rights or (as appropriate) Fully Paid Rights comprised in the split Provisional Allotment Letters must equal the number of New Shares set out in the original Provisional Allotment Letter (less the number of New Shares representing rights that the holder wishes to take up if taking up his entitlement in part). The split Provisional Allotment Letter(s) (representing the New Shares the Shareholder does not wish to take up) will be required in order to sell those rights not being taken up.

The Company reserves the right to refuse to register any renunciation in favour of any person in respect of which the Company believes such renunciation may violate applicable legal or regulatory requirements, including (without limitation) any renunciation in the name of any person with an address outside the UK.

Alternatively, Qualifying Non-CREST Shareholders who wish to take up some of their rights, without transferring the remainder, should complete Form X on the original Provisional Allotment Letter and return it, together with a covering letter confirming the number of rights to be taken up and a cheque or banker's draft in pounds sterling to pay for this number of New Shares, by post or by hand (during normal business hours only) to Computershare, Corporate Actions Projects, Bristol BS99 6AH. In this case, the Provisional Allotment Letter and payment must be received by the Receiving Agent by 11.00 a.m. on 8 November 2016.

2.1.7 Registration in names of Qualifying Non-CREST Shareholders

A Qualifying Non-CREST Shareholder who wishes to have all the New Shares to which he is entitled registered in his name must accept and make payment for such allotment in accordance with the provisions set out in this document and the Provisional Allotment Letter but need take no further action. A share certificate in respect of the New Shares subscribed for is expected to be sent to such Qualifying Shareholders by no later than 15 November 2016.

2.1.8 Registration in names of persons other than originally entitled Qualifying Non-CREST Shareholders

In order to register Fully Paid Rights in certificated form in the name of someone other than the Qualifying Shareholders(s) originally entitled, the renouncee or his agent(s) must complete Form Y on the Provisional Allotment Letter (unless the renouncee is a CREST member who wishes to hold such New Shares in uncertificated form as Depositary Interests, in which case Form X and the CREST Deposit Form must be completed (see paragraph 2.2 below)) and deliver the entire Provisional Allotment Letter, when fully paid, by post or by hand (during normal business hours) to Computershare, Corporate Actions Projects, Bristol BS99 6AH, by not later than the latest time for registration of renunciations, is 11.00 a.m. on 8 November 2016. Registration cannot be effected unless and until the New Shares comprised in a Provisional Allotment Letter are fully paid.

The New Shares comprised in several renounced Provisional Allotment Letters may be registered in the name of one holder (or joint holders) if Form Y on the Provisional Allotment Letter is completed on one Provisional Allotment Letter (the ''Principal Letter'') and all the Provisional Allotment Letters are delivered in one batch. Details of each Provisional Allotment Letter (including the Principal Letter) should be listed in a separate letter.

2.1.9 Deposit of Nil Paid Rights or Fully Paid Rights into CREST

The Nil Paid Rights or Fully Paid Rights represented by the Provisional Allotment Letter may be converted into Nil Paid Rights or Fully Paid Rights in respect of New Depositary Interests, that is, deposited into CREST (whether such conversion arises as a result of a renunciation of those rights or otherwise). Similarly, Nil Paid Rights or (as appropriate) Fully Paid Rights held in respect of New Depositary Interests in CREST may be converted into certificated form, that is, withdrawn from CREST. Subject as provided in the next following paragraph or in the Provisional Allotment Letter, normal CREST procedures and timings apply in relation to any such conversion. You are recommended to refer to the CREST Manual and Deed Poll for details of such procedures.

The procedure for depositing the Nil Paid Rights or (as appropriate) Fully Paid Rights represented by the Provisional Allotment Letter into Nil Paid Rights or Fully Paid Rights in respect of New Depositary Interests into CREST, whether such rights are to be converted into uncertificated form in the name(s) of the person(s) whose name(s) and address appear on page 1 of the Provisional Allotment Letter or in the name of a person or persons to whom the Provisional Allotment Letter has been renounced, is as follows: Form X and the CREST Deposit Form (both on the Provisional Allotment Letter) will need to be completed and the Provisional Allotment Letter deposited with the CREST Courier and Sorting Service (''CCSS''). In addition, the normal CREST Stock Deposit procedures will need to be carried out, except that (a) it will not be necessary to complete and lodge a separate CREST Transfer Form (prescribed under the Stock Transfer Act 1963) with the CCSS and (b) only the whole of the Nil Paid Rights or (as appropriate) the Fully Paid Rights represented by the Provisional Allotment Letter may be converted into Nil Paid Rights or Fully Paid Rights in respect of New Depositary Interests in CREST. If you wish to deposit some only of the Nil Paid Rights or (as appropriate) the Fully Paid Rights represented by the Provisional Allotment Letter into Nil Paid Rights or Fully Paid Rights in respect of New Depositary Interests in CREST, you must first apply for split Provisional Allotment Letters by following the instructions in paragraph 2.1.2 above. If the rights represented by more than one Provisional Allotment Letter are to be deposited, the CREST Deposit Form on each Provisional Allotment Letter must be completed and deposited. The Consolidation Listing Form (as defined in the CREST Regulations) must not be used.

A holder of the Nil Paid Rights (or, if appropriate, the Fully Paid Rights) represented by a Provisional Allotment Letter who is proposing to convert those rights into Nil Paid rights or Fully Paid Rights in respect of the New Depositary Interests in CREST (whether following a renunciation of such rights or otherwise) is recommended to ensure that the conversion procedures are implemented in sufficient time to enable the person holding or acquiring the Nil Paid Rights (or, if appropriate, the Fully Paid Rights) in CREST following the conversion to take all necessary steps in connection with taking up the entitlement prior to 11.00 a.m. on 2 November 2016. In particular, having regard to processing times in CREST and on the part of the Receiving Agent, the latest recommended time for depositing a renounced Provisional Allotment Letter (with Form X and the CREST Deposit Form on the Provisional Allotment Letter duly completed) with the CCSS in order to enable the person acquiring the Nil Paid Rights (or, if appropriate, the Fully Paid Rights) in respect of New Depositary Interests in CREST as a result of the conversion to take all necessary steps in connection with taking up the entitlement prior to 11.00 a.m. on 8 November 2016.

When Form X and the CREST Deposit Form (on the Provisional Allotment Letter) have been completed, the title to the Nil Paid Rights or the Fully Paid Rights represented by the Provisional Allotment Letters will cease to be renounceable or transferable by delivery, and, for the avoidance of doubt, any entries in Form Y will not subsequently be recognised or acted upon by Computershare. All renunciations or transfers of Nil Paid Rights or Fully Paid Rights must be effected through the CREST system once such Nil Paid Rights or Fully Paid Rights have been deposited into CREST.

CREST-sponsored members should contact their CREST sponsor as only their CREST sponsor will be able to take the necessary action to take up the entitlement or otherwise to deal with the Nil Paid Rights or Fully Paid Rights of the CREST sponsored member.

2.1.10 Issue of New Shares in definitive form

Definitive share certificates in respect of the New Shares to be held in certificated form are expected to be despatched by post by 15 November 2016 at the risk of the persons entitled thereto to Qualifying Non-CREST Shareholders (or their transferees who hold Fully Paid Rights in certificated form), or in the case of joint holdings, to the first-named Shareholders, at their registered address (unless lodging agent details have been completed on the Provisional Allotment Letter). After despatch of the definitive share certificates, Provisional Allotment Letters will cease to be valid for any purpose whatsoever. Pending despatch of definitive share certificates, instruments of transfer of the New Shares will be certified by the Receiving Agent against the register.

2.2 Action to be taken by Qualifying Depositary Interest Holders in relation to Nil Paid Rights and Fully Paid Rights in CREST

2.2.1 General

It is expected that each Qualifying Depositary Interest Holder (who is not an Excluded Overseas Shareholder) will receive a credit to his stock account in CREST of his entitlement to Nil Paid Rights on 25 October 2016. It is expected that such rights will be enabled as soon as practicable after 8.00 a.m. on 25 October 2016. The CREST stock account to be credited will be an account under the participant ID and member account ID that apply to the Depositary Interests held at the close of business on the Record Date by the Qualifying Depositary Interest Holder in respect of which the Nil Paid Rights are provisionally allotted.

The maximum number of New Depositary Interests that a Qualifying Depositary Interest Holder may take up is that which has been provisionally allotted to that Qualifying Depositary Interest Holder and for which he receives a credit of entitlement into his stock account in CREST. The minimum number of New Depositary Interests a Qualifying Depositary Interest Holder may take up is one.

The Nil Paid Rights will constitute a separate security for the purposes of CREST and can accordingly be transferred, in whole or in part, by means of CREST in the same manner as any other security that is admitted to CREST.

If, for any reason, it is impracticable to credit the stock accounts of Qualifying Depositary Interest Holders, or to enable the Nil Paid Rights as soon as practicable after 8.00 a.m. on 25 October 2016, Provisional Allotment Letters shall, unless the Company determines otherwise, be sent out in substitution for the Nil Paid Rights which have not been so credited or enabled and the expected timetable as set out in this document will be adjusted as appropriate. References to dates and times in this document should be read as subject to any such adjustment. The Company will make an appropriate announcement to a Regulatory Information Service giving details of any revised dates but Qualifying Depositary Interest Holders may not receive any further written communication.

Depositary Interest Holders who wish to take up their entitlements in respect of or otherwise to transfer Nil Paid Rights or Fully Paid Rights held by them in CREST should refer to the CREST Manual for further information on the CREST procedures referred to below. If you are a CREST-sponsored member, you should consult your CREST sponsor if you wish to take up your entitlement, as only your CREST sponsor will be able to take the necessary action to take up your entitlements or otherwise to deal with your Nil Paid Rights or Fully Paid Rights.

2.2.2 Procedure for acceptance and payment

(i) MTM instructions

Qualifying Depositary Interest Holders who do not have a registered address in an Excluded Territory or a Restricted Territory and who wish to take up all or some of their entitlement in respect of Nil Paid Rights in CREST must send (or, if they are CREST-sponsored members, procure that their CREST sponsor sends) an MTM instruction to Euroclear that, on its settlement, will have the following effect:

(a) the crediting of a stock account of the Receiving Agent under the participant ID and member account ID specified below, with the number of Nil Paid Rights to be taken up;
(b) the creation of a settlement bank payment obligation (as this term is defined in the CREST Manual), in accordance with the RTGS payment mechanism (as this term is defined in the CREST Manual), in favour of the RTGS settlement bank of the Receiving Agent (on behalf of the Depositary) in pounds sterling in respect of the full amount payable on acceptance in respect of the Nil Paid Rights referred to in paragraph 2.2.2(i)(a) above; and
(c) the crediting of a stock account of the accepting CREST member (being an account under the same participant ID and member account ID as the account from which the Nil Paid Rights are to be debited on settlement of the MTM instruction) of the corresponding number of Fully Paid Rights to which the Qualifying Depositary Interest Holder is entitled on taking up his Nil Paid Rights referred to in paragraph 2.2.2(i)(a) above.

(ii) Contents of MTM instructions

The MTM instruction must be properly authenticated in accordance with Euroclear's specifications and must contain, in addition to the other information that is required for settlement in CREST, the following details:

(a) the number of Nil Paid Rights to which the acceptance relates;
(b) the participant ID of the accepting Qualifying Depositary Interest Holder;
(c) the member account ID of the accepting Qualifying Depositary Interest Holder from which the Nil Paid Rights are to be debited;
(d) the participant ID of the Receiving Agent, in its capacity as a CREST receiving agent. This is 3RA42;
(e) the member account ID of the Receiving Agent, in its capacity as a CREST receiving agent. This is Phoenix;
(f) the number of Fully Paid Rights that the Qualifying Depositary Interest Holder is expecting to receive on settlement of the MTM instruction. This must be the same as the number of Nil Paid Rights to which the acceptance relates;
(g) the amount payable by means of the CREST assured payment arrangements on settlement of the MTM instruction. This must be the full amount payable on acceptance in respect of the number of Nil Paid Rights referred to in paragraph 2.2.2(ii)(a) above;
(h) the intended settlement date. This must be on or before 11.00 a.m. on 8 November 2016;
(i) the Nil Paid Rights ISIN, which is KYG7091M1740;
(j) the Fully Paid Rights ISIN, which is KYG7091M1823;
(k) the Corporate Action Number for the Rights Issue. This will be available by viewing the relevant corporate action details in CREST;
(l) a contact name and telephone number in the shared note field; and
(m) a priority of at least 80.
(iii) Valid acceptance

An MTM instruction complying with each of the requirements as to authentication and contents set out in paragraph 2.2.2(ii) above will constitute a valid acceptance where either:

(a) the MTM instruction settles by not later than 11.00 a.m. on 8 November 2016; or
(b) at the discretion of the Company:
(1) the MTM instruction is received by Euroclear by not later than 11.00 a.m. on 8 November 2016; and
(2) a number of Nil Paid Rights at least equal to the number of Nil Paid Rights inserted in the MTM instruction is credited to the CREST stock member account of the accepting Qualifying Depositary Interest Holder specified in the MTM instruction at 11.00 a.m. on 8 November 2016; and
(3) the relevant MTM instruction settles by 11.00 a.m. on 8 November 2016 (or such later time and/or date as the Company may determine).

An MTM instruction will be treated as having been received by Euroclear for these purposes at the time at which the instruction is processed by the Network Providers' Communications Host (as this term is defined in the CREST Manual) at Euroclear of the network provider used by the Qualifying Depositary Interest Holder (or by the CREST-sponsored member's CREST sponsor). This will be conclusively determined by the input time stamp applied to the MTM UK instruction by the Network Providers' Communications Host.

As soon as practicable after 11:00 a.m. on 8 November 2016, the Receiving Agent (on behalf of the Depositary) will calculate the number of Nil Paid Rights which the Qualifying Depositary Interest Holders have indicated (pursuant to their respective MTM instructions) that they wish to take up and the Depositary will complete and submit its Provisional Allotment Letter to the Receiving Agent reflecting such instructions, together with a cheque drawn for the appropriate amounts (in respect of Nil Paid Rights), in accordance with the procedure set out in this paragraph 2.2.2.

The provisions of this paragraph 2.2.2(iii) and any other terms of the Rights Issue relating to Qualifying Depositary Interest Holders may be waived, varied or modified as regards specific Qualifying Depositary Interest Holder or on a general basis by the Company.

(iv) Representations, warranties and undertakings of CREST members

A Qualifying Depositary Interest Holder or CREST-sponsored member who makes a valid acceptance in accordance with this paragraph 2.2.2 represents, warrants and undertakes to the Depositary, the Company and the Banks that he has taken (or procured to be taken), and will take (or will procure to be taken), whatever action is required to be taken by him or by his CREST sponsor (as appropriate) to ensure that the MTM instruction concerned is capable of settlement at 11.00 a.m. on 8 November 2016. In particular, the Qualifying Depositary Interest Holder or CREST-sponsored member represents, warrants and undertakes that, at 11.00 a.m. on 8 November 2016 (or until such later time and date as the Company may determine), there will be sufficient Headroom within the Cap (as those terms are defined in the CREST Manual) in respect of the cash memorandum account to be debited with the amount payable on acceptance to permit the MTM instruction to settle. CREST-sponsored members should contact their CREST sponsor if they are in any doubt. Qualifying Depositary Interest Holders and CREST-sponsored members taking up entitlements must make the representations and warranties set out in paragraph 2.6 below.

If there is insufficient Headroom within the Cap (as those terms are defined in the CREST Manual) in respect of the cash memorandum account of a Qualifying Depositary Interest Holder or CRESTsponsored member for such amount to be debited or the Qualifying Depositary Interest Holder's or CREST-sponsored member's acceptance is otherwise treated as invalid and New Depositary Interests have already been allotted to such Qualifying Depositary Interest Holder or CREST-sponsored member, the Company may (in its absolute discretion as to the manner, timing and terms) make arrangements for the sale of such New Depositary Interests on behalf of that Qualifying Depositary Interest Holder or CREST-sponsored member and hold the proceeds of sale (net of the Company's reasonable estimate of any loss that it has suffered as a result of the acceptance being treated as invalid and of the expenses of sale, including, without limitation, any stamp duty or SDRT payable on the transfer of such New Depositary Interests, and of all amounts payable by the Qualifying Depositary Interest Holder or CREST-sponsored member pursuant to the Rights Issue in respect of the acquisition of such New Depositary Interests) on behalf of such Qualifying Depositary Interest Holder or CREST-sponsored member. Neither the Company nor any other person shall be responsible for, or have any liability for, any loss, expense or damage suffered by such Qualifying Depositary Interest Holder or CREST-sponsored member as a result.

(v) CREST procedures and timings

Qualifying Depositary Interest Holders and CREST sponsors (on behalf of CREST-sponsored members) should note that Euroclear does not make available special procedures in CREST for any particular corporate action. Normal system timings and limitations will therefore apply in relation to the input of an MTM instruction and its settlement in connection with the Rights Issue. It is the responsibility of the Qualifying Depositary Interest Holder concerned to take (or, if a CRESTsponsored member, to procure that his CREST sponsor takes) the action necessary to ensure that a valid acceptance is received as stated above by 11.00 a.m. on 8 November 2016. In connection with this, Qualifying Depositary Interest Holder and (where applicable) CREST sponsors are referred in particular to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.

(vi) Qualifying Depositary Interest Holders' undertaking to pay

Qualifying Depositary Interest Holder or CREST-sponsored member who makes a valid acceptance in accordance with the procedures set out in this paragraph 2.2.2 undertakes to pay to the Receiving Agent (on behalf of the Depositary), or procure the payment to the Receiving Agent (on behalf of the Depositary) of, the amount payable in pounds sterling on acceptance in accordance with the above procedures or in such other manner as the Receiving Agent (on behalf of the Depositary) may require (it being acknowledged that, where payment is made by means of the RTGS payment mechanism (as defined in the CREST Manual), the creation of a RTGS payment obligation in pounds sterling in favour of the Receiving Agent's RTGS settlement bank (as defined in the CREST Manual) in accordance with the RTGS payment mechanism shall, to the extent of the obligation so created, discharge in full the obligation of the Qualifying Depositary Interest Holder (or CREST-sponsored member) to pay the amount payable on acceptance) and (b) requests that the Fully Paid Rights and/or New Depositary Interests to which he will become entitled be issued to him on the terms set out in this document and subject to the Deed Poll.

If the payment obligations of the relevant Qualifying Depositary Interest Holder or CRESTsponsored member in relation to such New Shares are not discharged in full and such New Depositary Interests have already been allotted to the Qualifying Depositary Interest Holder or CRESTsponsored member, the Company, and the Depositary, may (in their absolute discretion as to manner, timing and terms) make arrangements for the sale of such New Depositary Interests on behalf of the Qualifying Depositary Interest Holder or CREST-sponsored member and hold the proceeds of sale (net of the Company's reasonable estimate of any loss it has suffered as a result of the same and of the expenses of the sale, including, without limitation, any stamp duty or SDRT payable on the transfer of such New Depositary Interests and underlying shares, and of all amounts payable by such Qualifying Depositary Interest Holder or CREST-sponsored member pursuant to the terms of the Rights Issue in respect of the acquisition of such New Depositary Interests or underlying shares) or an amount equal to the original payment of the Qualifying Depositary Interest Holder or CREST-sponsored member. Neither the Company, the Depositary nor the Banks nor any other person shall be responsible for, or have any liability for, any loss, expense or damage suffered by the Qualifying Depositary Interest Holder or CREST-sponsored member as a result.

(vii) Company's discretion as to rejection and validity of acceptances

The Company (as exercised by the Depositary) may agree with the consent of the Global Coordinators to:

(a) reject any acceptance constituted by an MTM instruction, which is otherwise valid, in the event of breach of any of the representations, warranties and undertakings set out or referred to in this paragraph 2.2.2. Where an acceptance is made as described in this paragraph 2.2.2, which is otherwise valid, and the MTM instruction concerned fails to settle by 11.00 a.m. on 8 November 2016 (or by such later time and date as the Company has determined), the Company shall be entitled to assume, for the purposes of its right to reject an acceptance contained in this paragraph 2.2.2, that there has been a breach of the representations, warranties and undertakings set out or referred to in this paragraph 2.2.2 unless the Company is aware of any reason outside the control of the Qualifying Depositary Interest Holder or CREST sponsor (as appropriate) for the failure to settle;
(b) treat as valid (and binding on the Qualifying Depositary Interest Holder or CREST-sponsored member concerned) an acceptance which does not comply in all respects with the requirements as to validity set out or referred to in this paragraph 2.2.2;
(c) accept an alternative properly authenticated dematerialised instruction from a Qualifying Depositary Interest Holder or (where applicable) a CREST sponsor as constituting a valid acceptance in substitution for, or in addition to, an MTM instruction and subject to such further terms and conditions as the Company and the Global Coordinators may determine;
(d) treat a properly authenticated dematerialised instruction (in this paragraph 2.2.2(vii)(d) (the ''first instruction'') as not constituting a valid acceptance if, at the time at which the Receiving Agent (on behalf of the Depositary) receives a properly authenticated dematerialised instruction giving details of the first instruction, either the Company or the Receiving Agent (on behalf of the Depositary) has received actual notice from Euroclear of any of the matters specified in Regulation 35(5)(a) of the CREST Regulations in relation to the first instruction. These matters include notice that any information contained in the first instruction was incorrect or notice of lack of authority to send the first instruction; and
(e) accept an alternative instruction or notification from a Qualifying Depositary Interest Holder or CREST-sponsored member or (where applicable) a CREST sponsor, or extend the time for acceptance and/or settlement of an MTM instruction or any alternative instruction or notification, if, for reasons or due to circumstances outside the control of any Qualifying Depositary Interest Holder or CREST-sponsored member or (where applicable) CREST sponsor, the Qualifying Depositary Interest Holder or CREST-sponsored member is unable validly to take up all or part of his Nil Paid Rights by means of the above procedures. In normal circumstances, this discretion is only likely to be exercised in the event of any interruption, failure or breakdown of CREST (or of any part of CREST) or on the part of facilities and/or systems operated by the Receiving Agent (on behalf of the Depositary) in connection with CREST.

2.2.3 Money Laundering Regulations

If you hold your Nil Paid Rights in CREST and apply to take up all or part of your entitlement as agent for one or more persons and you are not a UK or EU regulated person or institution (e.g. a UK financial institution), then, irrespective of the value of the application, the Receiving Agent (on behalf of the Depositary) is entitled to take reasonable measures to establish the identity of the person or persons (or the ultimate controller of such person or persons) on whose behalf you are making the application. and any submission of a MTM instruction is agreeing for Computershare to make a search via a credit reference agency where deemed necessary. A record of search results will be retained. You must therefore contact the Receiving Agent before sending any MTM instruction or other instruction so that appropriate measures may be taken.

Submission of an MTM instruction which constitutes, or which may on its settlement constitute, a valid acceptance as described above constitutes a warranty and undertaking by the applicant to provide promptly to the Receiving Agent (on behalf of the Depositary) any information the Receiving Agent (on behalf of the Depositary) may specify as being required for the purposes of the verification of the identity requirements in the Money Laundering Regulations or the FSMA. Pending the provision of such information and other evidence as Computershare may require to satisfy the verification of identity requirements, the Receiving Agent (on behalf of the Depositary), having consulted with the Company, may take, or omit to take, such action as it may determine to prevent or delay settlement of the MTM instruction. If such information and other evidence of identity has not been provided within a reasonable time, then the Receiving Agent (on behalf of the Depositary) will not permit the MTM instruction concerned to proceed to settlement but without prejudice to the right of the Company and/or the Banks to take proceedings to recover any loss suffered by any of them as a result of failure by the applicant to provide such information and other evidence.

2.2.4 Dealings in Nil Paid Rights in CREST

Assuming the Rights Issue becomes unconditional, dealings in the Nil Paid Rights on the London Stock Exchange are expected to commence as soon as practicable after 8.00 a.m. on 25 October 2016. A transfer (in whole or in part) of Nil Paid Rights can be made by means of CREST in the same manner as any other security that is admitted to CREST. The Nil Paid Rights are expected to be disabled in CREST after the close of CREST business on 8 November 2016.

2.2.5 Dealings in Fully Paid Rights in CREST

After acceptance of the provisional allotment and payment in full in accordance with the provisions set out in this document, the Fully Paid Rights may be transferred by means of CREST in the same manner as any other security that is admitted to CREST. The last time for settlement of any transfer of Fully Paid Rights in CREST is expected to be 11.00 a.m. on 8 November 2016. The Fully Paid Rights are expected to be disabled in CREST after the close of CREST business on 8 November 2016.

From 8 November 2016, the New Depositary Interests will be registered in the name(s) of the person(s) entitled to them in the Company's Depositary Interest Register and will be transferable in the usual way.

2.2.6 Withdrawal of Nil Paid Rights or Fully Paid Rights from CREST

Nil Paid Rights or Fully Paid Rights held in CREST may be converted into certificated form, that is, withdrawn from CREST. Normal CREST procedures (including timings) apply in relation to any such conversion.

The recommended latest time for receipt by Euroclear of a properly authenticated dematerialised instruction requesting withdrawal of Nil Paid Rights or, if appropriate, Fully Paid Rights from CREST is 11.00 a.m. on 2 November 2016, so as to enable the person acquiring or (as appropriate) holding the Nil Paid Rights or, if appropriate, Fully Paid Rights following the conversion to take all necessary steps in connection with taking up the entitlement prior to 11.00 a.m. on 8 November 2016. You are recommended to refer to the CREST Manual for details of such procedures.

2.2.7 Issue of New Depositary Interests in CREST

Fully Paid Rights in CREST are expected to be disabled in CREST after the close of CREST business on 8 November 2016 (the latest date for settlement of transfers of Fully Paid Rights in CREST). New Depositary Interests will be issued to those persons registered as holding Fully Paid Rights in CREST no later than the close of business on the Business Day after the date on which the Fully Paid Rights are disabled. The Receiving Agent (on behalf of the Depositary) will instruct Euroclear to credit the appropriate stock accounts of those persons (under the same participant ID and member account ID that applied to the Fully Paid Rights held by those persons) with their entitlements to New Depositary Interests with effect as soon as practicable after 8.00 a.m. on 25 October 2016).

The New Depositary Interests will be created and issued pursuant to the Deed Poll entered into by the Depositary, which governs the relationship between the Depositary and the holders of Depositary Interests. A summary of the Deed Poll is set out in paragraph 13.1 (''Deed Poll'') of Part XIV (''Additional Information'') of this document.

2.2.8 Right to allot/issue in certificated form

Despite any other provision of this document, the Company reserves the right to allot and/or issue any Nil Paid Rights, Fully Paid Rights or New Shares in certificated form if it has first obtained the Global Coordinators' consent. In normal circumstances, this right is only likely to be exercised in the event of an interruption, failure or breakdown of CREST (or of any part of CREST) or on the part of the facilities and/or systems operated by the Receiving Agent in connection with CREST.

2.3 Procedure in respect of rights not taken up (whether certificated or in CREST) and withdrawal

2.3.1 Procedure in respect of Rights Issue entitlements not taken up

If an entitlement to New Shares is not validly taken up by 11.00 a.m. on 8 November 2016, in accordance with the procedure laid down for acceptance and payment (including because Qualifying Depositary Interest Holders have not validly taken up their rights to New Depositary Interests), then that Provisional Allotment Letter will be deemed to have been declined and will lapse. The Banks will endeavour to procure, by not later than 4.30 p.m. on the second Dealing Day after the last date of acceptance of the Rights Issue, subscribers for all (or as many as possible) of those New Shares and New Depositary Interests not taken up at a price per New Share which is at least equal to the aggregate of the Issue Price and the expenses of procuring such subscribers (including any applicable brokerage and commissions and amounts in respect of value added tax).

Notwithstanding the above, the Banks may cease to endeavour to procure any such subscribers if, in their absolute opinion (acting in good faith), it is unlikely that any such subscribers can be procured at such a price and by such a time. If and to the extent that subscribers for New Shares and/or New Depositary Interests cannot be procured on the basis outlined above, the relevant New Shares and/or New Depositary Interests will be subscribed for by the Banks or sub-underwriters (if any) at the Issue Price pursuant to the terms of the Sponsors and Underwriting Agreement.

Any premium over the aggregate of the Issue Price and the expenses of procuring subscribers (including any applicable brokerage and commissions and amounts in respect of value added tax) shall be paid (subject as provided in this paragraph 2.3):

(i) where the Nil Paid Rights were, at the time they were not taken up, represented by a Provisional Allotment Letter, to the person whose name and address appeared on the Provisional Allotment Letter;
(ii) where the Nil Paid Rights were, at the time they were not taken up, in uncertificated form, to the person registered by the Depositary as being entitled to those Nil Paid Rights at the time of their disablement in CREST; and
(iii) where an entitlement to New Shares and/or New Depositary Interests was not taken up by an Overseas Shareholder, to that Overseas Shareholder.

New Shares and New Depositary Interests for which subscribers are procured on this basis will be re-allotted to the subscribers and the aggregate of any premiums (being the amount paid by the subscribers after deducting the Issue Price and the expenses of procuring the subscribers, including any applicable brokerage and commissions and amounts in respect of value added tax), if any, will be paid (without interest) to those persons entitled (as referred to above) pro rata to the relevant provisional allotments not taken up, save that amounts of less than £5 per holding will not be so paid but will be aggregated and ultimately paid to the Company. Holdings of Shares and in certificated form and uncertificated form as Depositary Interests will be treated as separate holdings for these purposes. Cheques for the amounts due (if any) will be sent by post, at the risk of the person(s) entitled, to their registered addresses (the registered address of the first-named holder in the case of joint holders), provided that, where any entitlement concerned was held in CREST, the amount due will, unless the Company (in its absolute discretion) otherwise determines, be satisfied by the creation of an assured payment obligation in favour of the relevant Qualifying Depositary Interest Holder's (or CREST-sponsored member's) RTGS settlement bank in respect of the cash amount concerned in accordance with the RTGS payment mechanism.

Any transactions undertaken pursuant to this paragraph 2.3 or paragraph 2.5.1 below shall be deemed to have been undertaken at the request of the persons entitled to the rights not taken up or other entitlements and neither the Company nor the Banks nor any other person procuring subscribers shall be responsible for any loss, expense or damage (whether actual or alleged) arising from the terms or timing of any such acquisition, any decision not to endeavour to procure subscribers or the failure to procure subscribers on the basis so described. The Banks will be entitled to retain any brokerage fees, commissions or other benefits received in connection with these arrangements.

It is a term of the Rights Issue that all New Shares validly taken up by subscribers under the Rights Issue may be allotted to such subscribers in the event that not all of the New Shares offered for subscription under the Rights Issue are taken up.

2.3.2 Withdrawal rights

Persons who have the right to withdraw their acceptances under Section 87Q(4) of the FSMA after a supplementary prospectus (if any) has been published and who wish to exercise such right of withdrawal must do so by lodging a written notice of withdrawal (which shall not include a notice sent by facsimile or any other form of electronic communication), which must include the full name and address of the person wishing to exercise such statutory withdrawal rights and, if such person is a Qualifying Depositary Interest Holder, the participant ID and the member account ID of such Qualifying Depositary Interest Holder, with the Receiving Agent by post at Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZY or by email to [email protected] so as to be sent no later than two Business Days after the date on which the supplementary prospectus was published, withdrawal being effective as at posting of the written notice of withdrawal. Notice of withdrawal given by any other means or which is deposited with or received by the Receiving Agent after the expiry of such period will not constitute a valid withdrawal. The Company shall treat as valid any notice of withdrawal received through the post which bears a legible postmark on its envelope dated not later than the date falling two Business Days after the date on which such supplementary prospectus was published. The Company will not permit the exercise of withdrawal rights after payment by the relevant person for New Shares and/or Depositary Interests in full and the issue of such New Shares and/or New Depositary Interests to such person becoming unconditional, save as required by statute. In such circumstances, Shareholders are advised to consult their professional advisers including their legal advisers as this may be a matter of law.

Provisional allotments of entitlements to New Shares and/or New Depositary Interests which are the subject of a valid withdrawal notice will be deemed to be declined. Such entitlements to New Shares and/or New Depositary Interests will be subject to the provisions of paragraph 2.3.1 above as if the entitlement had not been validly taken up.

2.4 Taxation

The information contained in Part XII (''Taxation'') of this document is intended only as a general guide to the current tax position in the United Kingdom, Cayman Islands and Jersey and Qualifying Shareholders should consult their own tax advisers regarding the tax treatment of the Rights Issue in light of their own circumstances.

2.5 Overseas Shareholders

2.5.1 General

The making or acceptance of the proposed offer of Nil Paid Rights, Fully Paid Rights and/or New Shares and/or New Depositary Interests to persons who have registered addresses outside the UK, or who are resident in, or citizens of, countries other than the UK may be affected by the laws of the relevant jurisdiction. Those persons should consult their professional advisers as to whether they require any governmental or other consents or need to observe any other formalities to enable them to take up their rights.

It is also the responsibility of any person (including, without limitation, custodians, nominees and trustees) outside the UK wishing to take up rights under or otherwise participate in the Rights Issue to satisfy himself as to the full observance of the laws of any relevant territory in connection therewith, including the obtaining of any governmental or other consents which may be required, the compliance with other necessary formalities and the payment of any issue, transfer or other taxes due in such territories. The comments set out in this paragraph 2.5 are intended as a general guide only and any Overseas Shareholder who is in doubt as to his position should consult his professional adviser without delay.

Having considered the circumstances, the Directors have formed the view that it is necessary or expedient to restrict the ability of persons in the Excluded Territories to take up rights to New Shares and/or New Depositary Interests or otherwise participate in the Rights Issue due to the time and costs involved in the registration of this document and/or compliance with the relevant local legal or regulatory requirements in those jurisdictions.

Receipt of this document and/or Provisional Allotment Letter or the crediting of Nil Paid Rights to a stock account in CREST will not constitute an offer in those jurisdictions in which it would be illegal to make an offer and, in those circumstances, this document and/or a Provisional Allotment Letter must be treated as sent for information only and should not be copied or redistributed.

New Shares will be provisionally allotted (nil paid) to all Shareholders on the register at the close of business on the Record Date, including Overseas Shareholders. However, Provisional Allotment Letters will not be sent to, and Nil Paid Rights will not be credited to CREST accounts of, Shareholders with registered addresses in any of the Restricted Territories or the Excluded Territories or their agent or intermediary, except where the Company is satisfied that such action would not result in the contravention of any registration or other legal requirement in any jurisdiction.

Although Nil Paid Rights will be credited to the CREST accounts of all Qualifying Depositary Interest Holders, such crediting of Nil Paid Rights does not constitute an offer to Shareholders and, specifically, subject to certain exceptions, no offer is being made to Shareholders (i) with a registered address, or resident or located, in any of the Restricted Territories or Excluded Territories or (ii) in any jurisdiction in which it is unlawful to make or accept an offer to acquire the Shares. Depositary Interest Holders will be entitled to take up rights in the Rights Issue only if such action would not result in the contravention of any registration or other legal requirement in any jurisdiction.

No person receiving a copy of this document and/or a Provisional Allotment Letter and/or receiving a credit of Nil Paid Rights to a stock account in CREST in any territory other than the UK may treat the same as constituting an invitation or offer to him nor should he in any event use the Provisional Allotment Letter or deal in Nil Paid Rights or Fully Paid Rights in CREST unless, in the relevant territory, such an invitation or offer could lawfully be made to him or the Nil Paid Rights and Fully Paid Rights (whether represented by a PAC or otherwise, may lawfully be used or dealt with without contravention of any registration or other legal requirements. In such circumstances, this document and the Provisional Allotment Letter are to be treated as sent for information only and should not be copied or redistributed.

Persons (including, without limitation, custodians, nominees and trustees) receiving a copy of this document and/or a Provisional Allotment Letter or whose stock account is credited with Nil Paid Rights or Fully Paid Rights should not, in connection with the Rights Issue, distribute or send the same or transfer Nil Paid Rights or Fully Paid Rights in or into any jurisdiction where to do so would or might contravene local security laws or regulations. If a Provisional Allotment Letter or a credit of Nil Paid Rights or Fully Paid Rights is received by any person in any such territory, or by his agent or nominee, he must not seek to take up the rights referred to in the Provisional Allotment Letter or in this document or renounce the Provisional Allotment Letter or transfer the Nil Paid Rights or Fully Paid Rights unless the Company determines that such actions would not violate applicable legal or regulatory requirements. Any person (including, without limitation, custodians, nominees and trustees) who does forward this document or a Provisional Allotment Letter or transfer Nil Paid Rights or Fully Paid Rights into any such territories (whether pursuant to a contractual or legal obligation or otherwise) should draw the recipient's attention to the contents of this paragraph 2.5.

Subject to paragraphs 2.5.2 to 2.5.5 below, any person (including, without limitation, agents, nominees and trustees) outside the UK wishing to take up his rights under the Rights Issue must satisfy himself as to full observance of the applicable laws of any relevant territory, including obtaining any requisite governmental or other consents, observing any other requisite formalities and paying any issue, transfer or other taxes due in such territories. The comments set out in this paragraph 2.5 are intended as a general guide only and any Overseas Shareholders who are in any doubt as to their position should consult their professional advisers without delay.

The Company reserves the right with the consent of the Global Coordinators to treat as invalid and will not be bound to allot or issue any New Shares and/or New Depositary Interests in respect of any acceptance or purported acceptance of the offer of New Shares and/or New Depositary Interests which:

(i) appears to the Company or its agents to have been executed, effected or despatched from the a Restricted Territory or an Excluded Territory unless the Company is satisfied that such action would not result in the contravention of any registration or other legal requirement; or
(ii) in the case of a Provisional Allotment Letter, provides an address for delivery of the share certificates or other statements of entitlement or advice in an Excluded Territory or any other jurisdiction outside the UK in which it would be unlawful to deliver such certificates, statements or advice or if the Company or its agents believe that the same may violate applicable legal or regulatory requirements; or
(iii) in or, in the case of a credit of New Depositary Interests in CREST, to a Qualifying New Depositary Interest Holder or CREST-sponsored member whose registered address would be in a Restricted Territory or an Excluded Territory or any other jurisdiction outside the UK in which it would be unlawful to make such a credit or if the Company or its agents believe that the same may violate applicable legal or regulatory requirements.

The attention of Overseas Shareholders with registered addresses in a Restricted Territory or the Excluded Territories is drawn to paragraphs 2.5.2 to 2.5.5 below.

The provisions of paragraph 2.3.1 above will apply to Overseas Shareholders who do not take up New Shares provisionally allotted to them or are unable to take up New Shares provisionally allotted to them because such action would result in a contravention of applicable law or regulatory requirements. Accordingly, such Shareholders will be treated as Shareholders that have not taken up their entitlement for the purposes of paragraph 2.3.1 above and the Banks will use reasonable endeavours to procure subscribers for the relevant New Shares. The net proceeds of such sales (after deduction of expenses) will be paid to the relevant Shareholders pro-rated to their holdings of Existing Shares and/or Depositary Interests at the close of business on the Record Date as soon as practicable after receipt, except that (i) individual amounts of less than £5 per holding will not be distributed but will be aggregated and paid to charity and (ii) amounts in respect of fractions will not be distributed but will be retained for the benefit of the Company. Holdings of Shares in certificated and uncertificated form as Depositary Interests will be treated as separate holdings for these purposes. None of the Company, the Banks or any other person shall be responsible or have any liability whatsoever for any loss or damage (actual or alleged) arising from the terms or the timing of the acquisition or the procuring of it or any failure to procure subscribers.

Notwithstanding any other provision of this document or the Provisional Allotment Letter, the Company reserves the right to permit any Shareholder to participate in the Rights Issue on the terms and conditions set out in this document as if it were a Qualifying Shareholder if the Company with the consent of the Global Coordinators is satisfied that the transaction in question is exempt from or not subject to the legislation or regulations giving rise to the restrictions in question. If the Company is so satisfied, the Company will arrange for the relevant Shareholder to be sent a Provisional Allotment Letter if he is a Qualifying Non-CREST Shareholder or, if he is a Qualifying New Depositary Interest Holder, arrange for Nil Paid Rights to be credited to the relevant CREST stock account.

Those Shareholders who wish, and are permitted, to take up their entitlement should note that payments must be made as described in paragraphs 2.1.2 and 2.2.2 above.

Overseas Shareholders should note that all subscription monies must be paid in pounds sterling by cheque or banker's draft and should be drawn on a bank in the UK, made payable to ''Computershare Investor Services (Cayman) Limited'' and crossed ''A/C payee only''.

2.5.2 Excluded Territories

(i) United States of America

offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within the United States except pursuant to an applicable exemption from the registration requirements of the US Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States.

None of this document and the Provisional Allotment Letter constitutes or will constitute an offer or an invitation to apply for or an offer or an invitation to acquire any Nil Paid Rights, Fully Paid Rights, New Shares or New Depositary Interests in the United States. Subject to certain exceptions, neither this document nor a Provisional Allotment Letter will be sent to any Shareholder with a registered address in the United States. Subject to certain exceptions, Provisional Allotment Letters or renunciations thereof sent from or post-marked in the United States will be deemed to be invalid and all persons acquiring New Shares and wishing to hold such Shares in registered form must provide an address for registration of the New Shares issued upon exercise thereof outside the United States.

Subject to certain exceptions, any person who acquires New Shares, New Depositary Interests, Nil Paid Rights or Fully Paid Rights will be deemed to have declared, warranted and agreed, by accepting delivery of this document or the Provisional Allotment Letter taking up their entitlement or accepting delivery of the New Shares, the New Depositary Interests, the Nil Paid Rights or the Fully Paid Rights, that they are not, and that at the time of acquiring the New Shares, New Depositary Interests, the Nil Paid Rights or the Fully Paid Rights they will not be, in the United States or acting on behalf of, or for the account or benefit of a person on a non-discretionary basis in the United States or any State of the United States.

The Company reserves the right with the consent of the Global Coordinators to treat as invalid any Provisional Allotment Letter (or renunciation thereof) that appears to the Company or its agents to have been executed in or despatched from the United States, or that provides an address in the United States for the acceptance or renunciation of the Rights Issue, or which does not make the warranty set out in the Provisional Allotment Letter to the effect that the person accepting and/or renouncing the Provisional Allotment Letter does not have a registered address and is not otherwise located in the United States and is not acquiring the Nil Paid Rights, the Fully Paid Rights, the New Shares or New Depositary Interests with a view to the offer, sale, resale, transfer, delivery or distribution, directly or indirectly, of any such Nil Paid Rights, Fully Paid Rights, New Shares or New Depositary Interests in the United States or where the Company believes acceptance of such Provisional Allotment Letter may infringe applicable legal or regulatory requirements. The Company will not be bound to allot (on a non-provisional basis) or issue any New Shares, New Depositary Interests, Nil Paid Rights, or Fully Paid Rights to any person with an address in, or who is otherwise located in, the United States in whose favour a Provisional Allotment Letter or any Nil Paid Rights, Fully Paid Rights or New Shares may be transferred or renounced. In addition, the Company and the Global Coordinators reserve the right to reject any MTM instruction sent by or on behalf of any CREST member with a registered address in the United States in respect of the Nil Paid Rights.

In addition, until 40 days after the commencement of the Rights Issue, an offer, sale or transfer of the New Shares, New Depositary Interests, the Nil Paid Rights, the Fully Paid Rights or the Provisional Allotment Letters within the United States by a dealer (whether or not participating in the Rights Issue) may violate the registration requirements of the US Securities Act.

The provisions of paragraph 2.3 above will apply to any rights not taken up. Accordingly, subject to certain exceptions Shareholders with a registered address in the United States will be treated as unexercising holders and the Banks will endeavour to procure on behalf of such unexercising holders subscribers for the New Shares.

(ii) Australia

No prospectus in relation to the New Shares has been or will be lodged with, or registered by, the Australian Securities Commission. Neither the New Shares or New Depositary Interests nor the Provisional Allotment Letters nor any Nil Paid Rights or Fully Paid Rights held in CREST may be offered for subscription or purchase, taken up, sold, renounced, transferred or delivered, directly or indirectly, nor may any invitation to subscribe for or buy or sell New Shares, New Depositary Interests or any Nil Paid Rights or Fully Paid Rights held in CREST be issued or any draft or definitive document in relation to any such offer, sale or invitation be distributed, in or into Australia or to or for the account or benefit of an Australian Person. Accordingly, no offer of New Shares or New Depositary Interests is being made under this document or the Provisional Allotment Letters to

Shareholders with registered addresses in, or to residents of, Australia. No Provisional Allotment Letters will be sent to, nor will any Nil Paid Rights be credited to a stock account in CREST of, Qualifying Shareholders who have registered addresses in Australia.

(iii) Canada

The Nil Paid Rights, the Fully Paid Rights, the New Shares, New Depositary Interests and the Provisional Allotment Letters have not been and will not be registered under the securities legislation of any province or territory of Canada. None of the Provisional Allotment Letter, Nil Paid Rights, Fully Paid Rights, New Shares or New Depositary Interests will be directly or indirectly offered for subscription or purchase, taken up, sold, delivered, renounced or transferred in or into Canada. Therefore, the Rights Issue will not be made within Canada and Provisional Allotment Letters will not be sent to, nor will any Nil Paid Rights be credited to a stock account in CREST on behalf of, any Shareholder with a registered address in Canada. Any person in Canada who obtains a copy of this document or a Provisional Allotment Letter is required to disregard them.

(iv) Japan

The relevant clearances have not been and will not be obtained from the Ministry of Finance of Japan and no prospectus has been or will be lodged with, or registered by, the Ministry of Finance of Japan. Therefore, neither the Provisional Allotment Letters nor the New Shares, the New Depositary Interests nor any Nil Paid Rights or Fully Paid Rights held in CREST may, directly or indirectly, be offered or sold, taken up, or renounced in or into Japan or its territories or possessions. No Provisional Allotment Letter will be sent to, nor will any Nil Paid Rights be credited to a stock account in CREST of, Qualifying Shareholders whose registered address is in Japan.

(v) Republic of South Africa

Due to restrictions under South African securities laws, no Provisional Allotment Letters in relation to the New Shares will be sent to Shareholders who have registered addresses, or are resident or located, in the Republic of South Africa. Similarly, Nil Paid Rights will not be credited to the CREST accounts of Qualifying Depositary Interest Holders who have registered addresses, or are resident or located in the Republic of South Africa. Qualifying Shareholders who have a registered address, or are resident or located in the Republic of South Africa will not be entitled to take up Rights in the Rights Issue. The Provisional Allotment Letters, the Nil Paid Rights, the Fully Paid Rights, the New Shares and the New Depositary Interests may not be transferred or sold to, or renounced or delivered in, the Republic of South Africa. No offer of New Shares or New Depositary Interests is being made by virtue of this document or the Provisional Allotment Letters into the Republic of South Africa.

2.5.3 Restricted Territories

Provisional Allotment Letters will be posted to Qualifying Non-CREST Shareholders other than, subject to limited exceptions, to Shareholders with a registered address, or resident, in one of the Excluded Territories or one of the other Restricted Territories and Nil Paid Rights will be credited to the CREST stock accounts of Qualifying New Depositary Interest Holders. Such Qualifying New Depositary Interest Holders may, subject to the laws of the relevant jurisdictions, participate in the Rights Issue in accordance with the instructions set out in this document and, if relevant, the Provisional Allotment Letter. In cases where Overseas Shareholders do not take up Nil Paid Rights, their entitlements will be sold if possible in accordance with the provisions of paragraph 2.3.1 (''Procedure in respect of Rights Issue entitlements not taken up'') of this Part III (''Terms and Conditions of the Rights Issue'').

Qualifying Shareholders who have registered addresses in or who are resident in, or who are citizens of, all countries other than the UK should consult their professional advisers as to whether they require any governmental or other consents or need to observe any other formalities to enable them to take up their rights.

(i) Member States of the European Economic Area (other than the UK)

In relation to each member state of the European Economic Area which has implemented the Prospectus Directive (each, a ''relevant member state'') (except for the UK), with effect from and including the date on which the Prospectus Directive was implemented in that relevant member state (the ''relevant implementation date'') no New Shares, New Depositary Interests, Nil Paid Rights or Fully Paid Rights have been offered or will be offered pursuant to the Rights Issue to the public in that relevant member state prior to the publication of a prospectus in relation to the New Shares, New Depositary Interests, Nil Paid Rights and Fully Paid Rights which has been approved by the competent authority in that relevant member state or, where appropriate, approved in another relevant member state and notified to the competent authority in the relevant member state, all in accordance with the Prospectus Directive, except that with effect from and including the relevant implementation date, offers of New Shares, New Depositary Interests, Nil Paid Rights or Fully Paid Rights may be made to the public in that relevant member state at any time:

(a) to any legal entity which is a qualified investor as defined in the Prospectus Directive;
(b) to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive;
(c) in any other circumstances falling within Article 3(2) of the Prospectus Directive,

provided that no such offer of New Shares, New Depositary Interests, Nil Paid Rights or Fully Paid Rights shall result in a requirement for the publication by the Company or any Bank of a prospectus pursuant to Article 3 of the Prospectus Directive.

For this purpose, the expression ''an offer of any New Shares, New Depositary Interests, Nil Paid Rights or Fully Paid Rights to the public'' in relation to any New Shares, New Depositary Interests, Nil Paid Rights and Fully Paid Rights in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the Rights Issue and any New Shares, New Depositary Interests, Nil Paid Rights and Fully Paid Rights to be offered so as to enable an investor to decide to acquire any New Shares, New Depositary Interests, Nil Paid Rights or Fully Paid Rights, as the same may be varied in that relevant member state by any measure implementing the Prospectus Directive in that relevant member state. ''Prospectus Directive'' means Directive 2003/71/EC (and amendments thereto, including by Directive 2010/73/EU), and includes any relevant implementing measure in the relevant member state.

Although Nil Paid Rights will be credited to the CREST accounts of all Qualifying Depositary Interest Holders (including Shareholders with registered addresses in relevant member states), such crediting of Nil Paid Rights does not constitute an offer to such Shareholders and any such Qualifying Depositary Interest Holders will not be entitled to take up rights in the Rights Issue unless such action would not result in the contravention of any registration or other legal requirement in any jurisdiction.

(ii) Hong Kong

The New Shares, New Depositary Interests, Nil Paid Rights or Fully Paid Rights will not be offered or sold in Hong Kong by means of any document, other than (a) to ''professional investors'' as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong (the ''SFO'') and any rules made under that Ordinance; or (b) in other circumstances which do not result in this document being a ''prospectus'' as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. This document is only directed at persons outside Hong Kong or ''professional investors'' as defined in the SFO and any rules made under that Ordinance.

(iii) Singapore

This document has not been registered as a prospectus with the Monetary Authority of Singapore. No person may offer or sell any New Shares, New Depositary Interests, Nil Paid Rights or Fully Paid Rights or cause such New Shares, New Depositary Interests, Nil Paid Rights or Fully Paid Rights to be made the subject of an invitation for subscription or purchase, and no person may circulate or distribute this document or any other document or materials in connection with the offer or sale, or invitation for subscription or purchase, of such New Shares, New Depositary Interests, Nil Paid Rights or Fully Paid Rights, whether directly or indirectly, to persons in Singapore other than: (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the ''SFA''); (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA; or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where New Shares, New Depositary Interests, Nil Paid Rights or Fully Paid Rights are subscribed or purchased under Section 275 of the SFA by a relevant person which is: (a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries' rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the New Shares, New Depositary Interests, Nil Paid Rights or Fully Paid Rights pursuant to an offer made under Section 275 of the SFA except: (i) to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; (ii) where no consideration is or will be given for the transfer; (iii) where the transfer is by operation of law; (iv) as specified in Section 276(7) of the SFA; or (v) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore.

2.5.4 Waiver

The provisions of this paragraph 2.5 and of any other terms of the Rights Issue relating to Overseas Shareholders may be waived, varied or modified as regards specific Shareholders or on a general basis by the Company in its absolute discretion. Subject to this, the provisions of this paragraph 2.5 supersede any terms of the Rights Issue inconsistent herewith. References in this paragraph 2.5 to Shareholders shall include references to the person or persons executing a Provisional Allotment Letter and, in the event of more than one person executing a Provisional Allotment Letter, the provisions of this paragraph 2.5 shall apply to them jointly and to each of them.

2.6 Representations and warranties relating to Shareholders

2.6.1 Qualifying Non-CREST Shareholders

Any person accepting and/or renouncing a Provisional Allotment Letter or requesting registration of the New Shares comprised therein represents and warrants to the Company and the Banks that, except where proof has been provided to the Company's satisfaction that such person's use of the Provisional Allotment Letter will not result in the contravention of any applicable regulatory or legal requirement in any jurisdiction, (a) such person is not accepting and/or renouncing the Provisional Allotment Letter, or requesting registration of the relevant New Shares, from within a Restricted Territory or the Excluded Territories; (b) such person is not in any territory in which it is unlawful to make or accept an offer to subscribe for New Shares or to use the Provisional Allotment Letter in any manner in which such person has used or will use it; (c) such person is not acting on a non-discretionary basis on behalf of, or for the account or benefit of, a person located within a Restricted Territory or any Excluded Territory or any territory referred to in (b) above at the time the instruction to accept or renounce was given; and (d) such person is not acquiring Nil Paid Rights, Fully Paid Rights or New Shares with a view to the offer, sale, resale, transfer, delivery or distribution, directly or indirectly, of any such Nil Paid Rights, Fully Paid Rights or New Shares into a Restricted Territory or any Excluded Territory or any territory referred to in (b) above. The Company may treat as invalid any acceptance or purported acceptance of the allotment of New Shares comprised in, or renunciation or purported renunciation of, a Provisional Allotment Letter if it (a) appears to the Company to have been executed in or despatched from a Restricted Territory or any Excluded Territory or otherwise in a manner which may involve a breach of the laws of any jurisdiction or if it believes the same may violate any applicable legal or regulatory requirement; (b) provides an address in a Restricted Territory or any Excluded Territory (or any jurisdiction outside the UK in which it would be unlawful to deliver share certificates or sales advice); or (c) purports to exclude the warranty required by this paragraph 2.6(i).

2.6.2 Qualifying Depositary Interest Holders

A Qualifying Depositary Interest Holder or CREST-sponsored member who makes a valid acceptance in accordance with the procedures set out in this Part III (''Terms and Conditions of the Rights Issue'') represents and warrants to the Company and the Banks that, except where proof has been provided to the Company's satisfaction that such person's acceptance will not result in the contravention of any applicable regulatory or legal requirement in any jurisdiction, (a) he is not within a Restricted Territory or any of the Excluded Territories; (b) he is not in any territory in which it is unlawful to make or accept an offer to

subscribe for New Depositary Interests; (c) he is not accepting on a non-discretionary basis for, on behalf of, or for the account or benefit of, a person located within a Restricted Territory or any Excluded Territory or any territory referred to in (b) above at the time the instruction to accept was given; and (d) he is not acquiring Nil Paid Rights, Fully Paid Rights or New Depositary Interests with a view to the offer, sale, resale, transfer, delivery or distribution, directly or indirectly, of any such Nil Paid Rights, Fully Paid Rights or New Depositary Interests into a Restricted Territory or any Excluded Territory or any territory referred to in (b) above.

The Depositary, as instructed by the Company, may treat as invalid any MTM instruction which appears to the Receiving Agent (on behalf of the Depositary) to have been despatched from any Restricted Territory or otherwise in a manner which may involve a breach of the laws of any jurisdiction of it or its agent believes the same may violate any applicable legal or regulatory requirement or purports to exclude the warranty required by this paragraph 2.6(ii).

2.7 Times and dates

The Company shall, in its discretion and after consultation with its financial and legal advisers, be entitled to amend the dates that Provisional Allotment Letters are despatched or dealings in Nil Paid Rights commence or amend or extend the latest date for acceptance under the Rights Issue and all related dates set out in this document and in such circumstances shall notify the UK Listing Authority, and make an announcement via a Regulatory Information Service approved by the UK Listing Authority. In the event such an announcement is made, Qualifying Shareholders may not receive any further written communication in respect of such amendment or extension of the dates included in this document.

If a supplementary prospectus is issued by the Company two or fewer Business Days prior to the latest time and date for acceptance and payment in full under the Rights Issue specified in this document (or such later date as may be agreed between the Company and the Banks), the latest date for acceptance under the Rights Issue shall be extended to the date that is three Business Days after the date of issue of the supplementary prospectus (and the dates and times of principal events due to take place following such date shall be extended accordingly).

2.8 Governing law

The terms and conditions of the Rights Issue as set out in this document and the Provisional Allotment Letter and any non-contractual obligations arising out of or in relation to the Rights Issue shall be governed by, and construed in accordance with, English law.

2.9 Jurisdiction

The courts of England and Wales are to have exclusive jurisdiction to settle any dispute which may arise out of or in connection with the Rights Issue, this document or the Provisional Allotment Letter and any non-contractual obligations arising out of or in connection with them. By accepting rights under the Rights Issue in accordance with the instructions set out in this document and, in the case of Qualifying Non-CREST Shareholders, other than, subject to limited exceptions, those with a registered address, or resident in, one of the Excluded Territories or one of the Restricted Territories Shareholders only, the Provisional Allotment Letter, Qualifying Shareholders irrevocably submit to the jurisdiction of the courts of England and Wales and waive any objection to proceedings in any such court on the ground of venue or on the ground that proceedings have been brought in an inconvenient forum.

PART IV—BUSINESS OVERVIEW OF THE COMPANY

Business overview

The Group has two operating life insurance companies which hold policyholder assets, Phoenix Life Limited (''PLL'') and Phoenix Life Assurance Limited (''PLAL''), which are referred to in this document as the ''Life Companies''.

On 27 May 2016, the Group announced its entry into conditional agreements with AXA UK plc (''AXA UK'') to acquire the SunLife Embassy Business for £375 million in cash (prior to any adjustment for certain items as at completion), which is expected to add £12 billion of assets under management and over 910,000 policyholders to the Group and generate cashflows of approximately £300 million in aggregate between 2016 and 2020 and approximately £200 million in aggregate from 2021 onwards.

History

Phoenix Group Holdings (the ''Company''), previously named Liberty International Acquisition Company and then Liberty Acquisition Holdings (International) Company and then Pearl Group, was incorporated on 2 January 2008 under the laws of the Cayman Islands as an exempted company with limited liability, under registration number 202172. The Company was originally formed as a non-operating special purpose acquisition company by Berggruen Acquisition Holdings II Ltd and Marlin Equities IV, LLC to acquire one or more operating businesses with principal activities outside North America.

Units of the Company, comprising both the ordinary shares (the ''Shares'') and Public Warrants, were initially admitted for trading on Euronext Amsterdam on 6 February 2008. However, the Shares and Public Warrants began to trade separately on 14 March 2008, following which the units ceased to exist as separate securities and were no longer listed.

On 29 June 2009, the Company announced that it had agreed to acquire the insurer Pearl Group Holdings (No.2) Limited (formerly Pearl Group Limited, ''PGH2'') and its subsidiaries (the ''Pearl Group Acquisition''). PGH2 was established in April 2005 in connection with the £1.1 billion acquisition of HHG plc's closed life companies by, amongst others, TDR Capital Nominees Limited and certain principals of Sun Capital Partners, and was further expanded in connection with the £5 billion acquisition of Resolution plc in May 2008 and the simultaneous sale of certain assets and companies held by Resolution plc to The Royal London Mutual Insurance Society Limited for £1.3 billion. The Pearl Group Acquisition completed on 2 September 2009 when the Company changed its name to Pearl Group.

The Shares were admitted to the Official List of the FCA and to trading on the London Stock Exchange on 17 November 2009. The Company achieved a Premium Listing of the Shares on the London Stock Exchange and admitted the Public Warrants to the Official List of the FCA and to trading on the London Stock Exchange on 5 July 2010. The Group achieved inclusion into the FTSE 250 index on 20 September 2010. The Shares and Public Warrants were delisted from Euronext Amsterdam on 17 November 2010.

On 30 January 2013, the Group announced an equity issuance raising gross proceeds of £250 million as part of the repayment and re-terming of certain of its debt facilities. The equity raising comprised equity placings and an open offer to raise aggregate gross proceeds of £250 million through the issuance on 21 February 2013 of 50 million Shares.

On 25 March 2014, as further described below in paragraph 12.1.12 (''Contracts relating to the Divestment of Ignis Asset Management'') of Part XIV (''Additional Information'') of this document, the Group agreed to dispose of the entire issued share capital of Ignis Asset Management to Standard Life Investments, in return for total consideration of £390 million which was paid in cash on completion of the divestment. Ignis

Asset Management was the Group's asset management business, providing asset management and asset and liability management services to the Life Companies as well as to a third party client base of retail, wholesale and institutional investors in the UK and overseas. Completion of the divestment occurred on 1 July 2014. A payment of £6 million was made to Standard Life Investments on 24 September 2014 in relation to certain contractual balance sheet adjustments which could not be calculated until after closing. The Company and Standard Life Investments have also reached agreement on a long-term strategic asset management alliance. The proceeds of the divestment were used to prepay £250 million of certain of the Group's debt facilities.

On 7 July 2014, PGH Capital, a finance subsidiary established by the Company, issued £300 million senior unsecured bonds due 2021 at an annual coupon of 5.75 per cent. The net proceeds of £296 million were used to prepay certain of the Group's debt facilities.

On 23 July 2014, the Group entered into the Revolving Credit Agreement, as amended and restated on 21 March 2016, as further described at paragraph 12.1.4 (''Credit facilities—Revolving Credit Agreement'') of Part XIV (''Additional Information'') of this document. Under the Revolving Credit Agreement, the lenders have made available a multicurrency revolving loan facility in an aggregate amount equal to £650 million.

On 3 September 2014, the Public Warrants expired and were delisted from the London Stock Exchange. As at the date of this document, 5 million outstanding redeemable Lender Warrants in the Company remain outstanding.

On 29 June 2015, the Group entered into an agreement to divest Scottish Mutual International Limited (''Scottish Mutual International'') (which had 3,000 remaining policyholders) for £14 million. This divestment was completed on 2 December 2015.

On 6 August 2015, the Company announced that each of the Life Companies had been assigned the Insurer Financial Strength rating of ''A'' with a stable outlook by Fitch Ratings Ltd.

On 9 November 2015, the Company entered into an agreement with RGA International Reinsurance Company Limited (''RGA International''), an external reinsurer, effective from 1 November 2015, to reinsure substantively all of the PLAL annuity liabilities previously ceded to Opal Re, a subsidiary undertaking of the Company. The Group paid a reinsurance premium of £1,346 million to RGA International.

Recent developments

Acquisition of the SunLife Embassy Business

On 27 May 2016, the Company announced the AXA Transaction, which is expected to add £12 billion of assets under management and over 910,000 policyholders to the Group and generate cashflows of approximately £300 million in aggregate between 2016 and 2020 and approximately £200 million in aggregate from 2021 onwards. The AXA Transaction primarily relates to the purchase of the SunLife business, which specialises in the provision of life insurance known as ''Guaranteed Over 50s'' cover. This is life insurance for individuals over 50 years old which will pay out upon their death. The insurance liabilities connected with the acquired businesses will initially be reinsured into PLL. The Group expects significant diversification benefits from the AXA Transaction, with the mortality exposure of the acquired businesses offsetting the Group's existing longevity exposure from its annuity liabilities. In addition, the AXA Transaction includes the purchase of the Embassy business which is more similar to the Group's existing business as it provides corporate and individual pension policies. The Group intends that the acquired businesses will be incorporated within the Group's Solvency II Internal Model within six months of completion, subject to regulatory approval.

The Group expects to deliver net capital synergies (which may be subject to the prior approval of the PRA) from the AXA Transaction of approximately £250 million within six months of completion on a non-recurring basis. This figure reflects both the beneficial elements and relevant costs as explained below. The Directors believe that the Company's management team has the appropriate skills and relevant industry experience to maximise the capital synergies arising from the AXA Transaction. In assessing the potential capital synergies, the management team received during the due diligence process relevant operating and financial information from the SunLife Embassy Group to facilitate an analysis of the estimated impacts of applying the Group's Solvency II Internal Model, methodologies and assumptions to the SunLife Embassy Business. This analysis has identified the synergy benefits that will emerge through diversification and applying the relevant Solvency II rules following the proposed reinsurance to PLL. Upon execution of the reinsurance, capital requirements of the Enlarged Group will reduce as a result of the offset of the mortality exposure of the SunLife Embassy Business against the Group's existing longevity exposure from its annuity liabilities (diversification). The impact of this diversification and the application of the Group's Solvency II Internal Model accounts for approximately half of the net capital synergies.The information received on the SunLife Embassy Business has also been used to analyse the expected reduction in technical provisions arising from the recalculation of transitional measures after applying the relevant Solvency II rules, which accounts for the remainder of the identified synergies. This analysis has been validated by a professional firm used by the Company in connection with the AXA Transaction.

In connection with the AXA Transaction, on 27 May 2016, the Group entered into the AXA Bridge Facility Agreement. The AXA Bridge Facility Agreement comprises a sterling term loan facility in an aggregate amount of £220 million. For a description of the AXA Bridge Facility Agreement, see paragraph 12.1.4 (''Credit facilities—AXA Bridge Facility Agreement'') of Part XIV (''Additional Information'') of this document.

Strengths and strategy of the Group

Strengths

The Directors believe that the Group's key strengths are as follows:

(a) As the Group is primarily focused on the efficient management of in-force policies and writes limited new policies, the Group has high visibility of its cashflows over the long term due to the predictable nature of the Group's funds.

The Group's closed life funds provide predictable fund maturity and liability profiles, generating expected long-term cashflows supporting payment of pension obligations, distributions to the Company's shareholders and payment of outstanding debt obligations. As the Group is primarily focused on the efficient management of in-force policies and writes limited new policies (currently as increments to existing policies and annuities for current policyholders when their policies mature), the Group does not incur significant costs of running sales and marketing or customer acquisition divisions and does not need to allocate significant capital to support the writing of new policies. Instead, the largest part of the costs of the Group's closed life funds are recurring expenses. Following completion of the AXA Transaction, the Group will write a limited set of direct protection policies.

The Group's cashflows are largely generated from the interest earned on capital, policyholder charges and participation in investment returns. Although the impact of the Group's participation in investment returns is not predictable, investment risks are mainly borne by policyholders in accordance with the terms of the relevant policies. In addition, as the Life Companies' policies run off, excess capital supporting these liabilities can be released from the Life Companies to their shareholders, the Holding Companies. The predictable stream of profits from the run-off of the closed life funds provides some certainty of tax relief on debt interest. In 2014 and 2015, £957 million and £225 million, respectively, of cash was distributed from the Life Companies to the Holding Companies. The distribution in 2014 included £390 million of proceeds from the divestment of Ignis Asset Management. The reduction in cash distribution in 2015 was a result of the retention of capital in the Life Companies in anticipation of the transition to the new Solvency II regime.

(b) The Group is the largest specialist closed life fund consolidator in the UK, with a simplified and scalable business model, allowing it to benefit from economies of scale, diversification benefits and the ability to save costs both internally and through outsourcing arrangements.

With approximately 4.5 million policyholders as at 31 December 2015, the Group is the largest UK specialist closed life fund consolidator by total assets. The Group has a track record and an expertise in creating value through integration of acquisitions and financial management, including through realising synergies from acquisitions and focusing on improving outcomes for policyholders of closed life funds. The Directors believe that these factors position the Group as a leading consolidator of closed life funds, resulting in a significant value creation opportunity.

The Directors believe that the Group's business model provides additional value and scalability, by using outsourced service providers to match its cost base to the run-off profile of the policies held within the Group's closed life funds, as the charges of outsourced service providers are generally based on a variable, per policy cost structure.

The Group seeks to manage the level of costs and required capital by combining life funds, allowing for greater diversification of risks.

(c) There is significant opportunity to create value and accelerate cashflows through the continued implementation of 'The Phoenix Way'.

'The Phoenix Way' characterises an approach and infrastructure for the efficient and effective structuring, integration and management of closed life funds and the investments they hold. By applying a consistent framework across the Group, the Directors believe that 'The Phoenix Way' reduces risk, complexity and cost; improves investment performance; enhances customer service through efficient cooperation with the Group's outsourced partners; increases Solvency II Own Funds; and releases capital to shareholders. An example of 'The Phoenix Way' involves the consolidation of a disparate collection of actuarial valuation models onto a single platform, the actuarial systems transformation programme, with the aim of reducing operational risk (and associated capital) of actuarial modelling, improving the quality and frequency of capital monitoring and improving cost efficiency through the simplification and standardisation of actuarial processes. The actuarial systems transformation programme is an essential part of managing the Group's life businesses under the Solvency II regime.

The Directors believe that there are opportunities to further increase value and cashflows to the Holding Companies through additional management actions. Further actions that can create value include the reduction of operational risk and the de-risking of investment strategy.

(d) The Group actively manages its assets and liabilities to help protect and enhance policyholder and shareholder returns.

The Group aims to manage its assets and liabilities to ensure a prudent approach to risk and to give it the ability to use capital efficiently whilst having more control over management of investment and market risk for both policyholders and Shareholders. This includes the matching of asset and liability cashflows to reduce capital requirements. In particular, the release of capital through the elimination of unrewarded risk can enable the achievement of higher risk adjusted returns.

Strategy

The Group's areas of strategic focus are:

• Closed book consolidation: The Group is a consolidator of life and pensions books which are predominantly closed to new business. The Directors believe that such books of business are best managed within a specialist scale platform and that existing and anticipated market dynamics will generate a supply of potentially attractive acquisition targets. These dynamics include the impact of the regulatory framework for financial services companies, such as the Solvency II and Basel 3 regulations. In addition, the Directors believe that the opportunity is supported by ongoing capital pressure within the sector, the trend of recycling and refocusing capital from mature to growth markets, the decline in new with-profit business, changing customer demands and regulatory change driving consolidation in the mutual sector. The Directors believe that this opportunity is also supported by the migration of customers to alternative products, creating legacy products and their infrastructure which face cost challenges as the policies run off. The management of these books requires specialist skills, particularly in regulation, operational efficiency, capital management, governance and liability customised asset management. To maintain its competitive advantage and maximise the potential for value creation, the Group develops specialist expertise to identify, pursue and execute suitable opportunities in the closed life space. Given the opportunities and its experience, the Group remains predominantly focused on the UK.

Disciplined approach to M&A: The Group seeks to make acquisitions consistent with its strategic focus and which meet its acquisition criteria. In this regard, the Group seeks to create value by optimising its Solvency II capital position and to generate increased cashflows to support the payment of dividends, whilst targeting a level of debt that allows the Group to maintain its investment grade rating.
Capital management and management actions: The effective management of the Group's risks and the efficient allocation of capital against them is critical in allowing the Group to achieve its strategic and operational objectives. The Group's Solvency II Internal Model has been approved by the PRA as part of the Solvency II regime. In addition, the Group seeks to implement certain management actions to optimise its capital position and cashflows, such as fund mergers and de-risking. As the Group grows through acquisitions, the opportunities for capital management and management actions tend to increase. In addition, the Group is considering refinancing all or part of its existing senior debt through the issuance of longer-term, subordinated debt.
Realise the benefits of scale: Acquisitions are important to the Group's model not only to offset the natural decline of a business largely closed to new business, but also to grow the business and create additional value from scale advantages. Increased scale provides the Group with a number of key differentiating features including the ability to drive operational efficiencies and achieve diversification benefits, as well as ultimately enabling further acquisitions. To take advantage of acquisition opportunities, the Group has created a scalable operating model and adopts a disciplined pricing model which is supported by the Group's Solvency II Internal Model.
Operational efficiency: The Group routinely applies 'The Phoenix Way' to increase operational efficiency through the standardisation and streamlining of key processes, which will in turn reduce costs, improve performance and maximise value. As a result of 'The Phoenix Way', the Group seeks to eliminate unnecessary cost from its business model. In part this is achieved through outsourcing administrative tasks to selected third parties. When the Group acquires new books of business, this scalable outsourced model supports the delivery of cost savings.
Optimised financing structure: In managing the Group's capital, the Group seeks a level of debt that enables it to maintain an investment grade rating and optimise its funding costs and financial flexibility for further acquisitions. The Group's closed book business model allows it to operate with higher financial leverage than life insurance companies that are still writing new business, as the Group does not need to fund upfront capital requirements and new business acquisition expenses. As part of its financing strategy, the Group has simplified its financing arrangements, including the comprehensive refinancing of its senior debt structure in July 2014 to create a new £900 million single debt facility which was reduced to £650 million as at 30 June 2016.
Improving customer outcomes: The Group aims to improve customer experiences through its focus on its chosen market, high levels of governance and extensive experience. The Group has three key areas of focus in relation to its customers, namely:

Value: the Group aims to optimise customer outcomes;

Service: treating customers fairly, with empathy as well as respect, and all in a timely fashion; and

Security: ensuring customer investments are secure in a well-managed company.

By focusing on these areas proactively and responsibly, the Directors believe that the Group can create value in the long term in a highly regulated sector.

Structure of the Group

The Group operates one business segment: life insurance business (including its management services operations), which is referred to as Phoenix Life. The Group's UK-based Group functions provide support and co-ordination for the delivery of the Group's strategic initiatives.

The holding company structure between the Company and the Life Companies includes several holding companies which were established in relation to the acquisitions of the Original Pearl Life Companies and their affiliates in 2005 and the Resolution Group in 2008.

Phoenix Life Holdings Limited is currently the ultimate insurance parent undertaking within the EEA for group capital purposes. The IGD calculation and the PLHL (Group) ICA were therefore historically prepared at that level and the Solvency II group SCR is also to be calculated at that level as at the date of this document. The current PRA ''other methods'' waiver which provides for this treatment applies from 1 January 2016 until 30 June 2017 (unless extended by the PRA and subject to its terms) and therefore from its expiry the Solvency II regime (including Group supervision) would apply at the Company level. See also the risk factor entitled ''Regulatory capital and other requirements may change'' in the section of this document headed ''Risk Factors''.

The following chart gives an overview of the legal structure of the Group and its principal companies as at the date of this document.

Notes:

(1) Shareholdings are 100 per cent., save in relation to Phoenix Life Holdings Limited which is owned 50 per cent. by PGH (LCA) Limited and 50 per cent. by PGH (LCB) Limited.
(2) The chart does not include the entities that are expected to be part of the Group following completion of the AXA Transaction or the Acquisition or any new entities that may be created in connection with the AXA Transaction or the Acquisition.

Phoenix Life is responsible for the financial and operational management of the closed life insurance fund business of the Group with the support of the management service companies and outsourced service providers.

Simplification of the Group's structure

The Company has taken significant steps in recent years to reduce the level of debt within the Group and to simplify its corporate structure. It continues to look for opportunities to further diversify away from senior bank debt and is considering issuing longer-term, subordinated debt. This will allow the Group to match the debt profile of payments it owes under its debt instruments to its long-term cashflows. In addition, replacing some of the Group's existing senior debt with subordinated debt will reduce the impact on capital if the Company were to be included in the Solvency II group regulatory capital calculation. This is not currently the case due to the Group's ''other methods'' waiver (which allows the Group to exclude the Company from its current group regulatory capital calculation). See the risk factor entitled ''Regulatory capital and other requirements may change'' in the section of this document headed ''Risk Factors''.

The current holding company structure was formed at the time of the Group's restructuring in 2009, with the Company being a company incorporated in the Cayman Islands and domiciled in Jersey. This structure is complex for the Company's stakeholders and imposes additional burdens on its internal governance processes. As part of the ongoing Group simplification process, the Group intends to establish a new holding company incorporated under English law for the Group in due course. The Directors believe that this will provide the Group with a streamlined internal governance structure, reducing operating expenses and complexity, and greater clarity for the Group's stakeholders, including shareholders, bondholders and other providers of debt. It will also simplify the supervision of the Group by its regulators, including the PRA.

Insurance business

Life Companies

The Life Companies are regulated entities that hold the Group's policyholder assets. The Life Companies are regulated by both the FCA and PRA. Over time, the Group has reduced the number of its individual life companies through insurance business transfers to optimise capital allocation and economies of scale, the most recent being the insurance business transfer of all of the business of National Provident Life Limited (''National Provident Life'') to PLAL in 2015.

Although the Life Companies are closed life fund companies and do not generally write new business, they do accept additional policyholder contributions on in-force policies and allow certain policies, such as pension savings plans, to be reinvested at maturity into annuities written by a Life Company. Writing annuities offers the Group a further opportunity to increase its value through profit margins and incremental investment returns, while also helping to better manage the liquidity position of the Group's individual Life Companies.

After completion of the AXA Transaction, the AXA Life Company (which is a regulated entity) will be part of the Group. It will continue to write life insurance known as ''Guaranteed Over 50s'' cover. This is ''protection'' insurance for individuals over 50 years old which will pay out upon their death. This will provide diversification benefit for the Group because trends towards increased life expectancy will increase liabilities under the annuities written by the Life Companies while delaying the payment of liabilities under life insurance policies written by the AXA Life Company.

Reinsurance

Overview

The Life Companies reinsure certain liabilities both to other companies in the Group and to third party reinsurers as part of their ongoing risk and capital management policies, as well as to benefit from operational synergies.

Internal reinsurance

PLAL acts as the reinsurer for various blocks of pensions annuity business as well as with-profit bond business and with-profit elements of unitised with-profit contracts reassured to it by PLL. PLAL reinsures a significant block of unit-linked business to PLL.

The various life funds within PLL and PLAL themselves hold a significant amount of intra-fund arrangements, mostly to achieve financial and operational synergies.

External reinsurance

The Group's external reinsurance arrangements are spread across a number of reinsurers. These reinsurance arrangements cover a range of policy risks, including annuity, mortality and morbidity, long-term disability, critical illness and some investment risk.

Management services

Overview

Each of the Life Companies is responsible to its policyholders for the administration of its policy portfolio and the provision of policyholder services, such as the collection of premiums, the provision of policyholder statements, the settlement of claims, the provision of website access and information, and the provision of policyholder information and other related support through contact service centres. If each Life Company separately provided these services and related infrastructure, this would involve significant additional costs and create impediments for the Life Company in managing the efficient run-off of its policies. A proportion of this incremental cost would likely be passed on as a cost to policyholders. In addition to these cost challenges, each Life Company is required to hold sufficient capital for its operational risks.

To allow the Life Companies to benefit from economies of scale, efficient outsourcing partnerships and an innovative integrated technology infrastructure, Phoenix Life's two UK management service companies, PGS and PGMS, provide, or manage the provision of, policyholder services for the Life Companies under management service agreements. PGS and PGMS are similar in the way they operate and are managed as a single unit. By using management service companies, the Life Companies benefit from increased price certainty and a transfer of some operational risks to the management service companies.

If the number of policies held by the Group gradually declines over time, the fixed cost base of the Group's operations as a proportion of policies may increase. The Group's management service companies manage this risk by putting in place long-term arrangements for third party policy administration. By paying a fixed price per policy to the outsourced service providers, the Group minimises the fixed cost element of its operations and allows for positive scalability following acquisitions.

Specialist roles such as finance, actuarial and risk management are retained in-house, ensuring the Group retains full control over the core capabilities necessary to manage and integrate closed life funds. The Life Companies continue to retain ultimate responsibility to their policyholders, actively manage service provision and aim to achieve improvement in the quality of services delivered to policyholders.

The Directors believe that consolidating policyholder services within Phoenix Life's two management service companies increases quality of service provision for policyholders. This also enables the Life Companies to share the costs of the provision of these services and other corporate overhead costs and allows the Group to benefit from efficiency savings, reductions in operational risks and the release of risk capital.

In addition, Phoenix Life also has a management service company incorporated in Ireland, PGMS Ireland, which provides administration services to Scottish Mutual International (a former Group company) under a management services agreement and a transitional services agreement.

Outsourcing relationships

Phoenix Life's outsourced service providers are specialist providers of life and pensions administration services, asset management and fund administration services. The services provided by outsourced service providers include policy administration, human resources, financial administration, asset management and fund administration services.

A key role for PGS, PGMS and PGMS Ireland is the management of relationships with the outsourced service providers on behalf of the Life Companies. The most significant outsourcing relationship for asset management services is that with Standard Life Investments (formerly Ignis Investment Services Limited). In addition, there are a number of other key outsourcing partners.

As closed life funds run-off, fees generated from the management of policies generally decrease over time. Therefore, the Group is best served by closely aligning its costs with the policy run-off profile of its book. Any costs that do not decline in line with a declining policy book create potential operating profit challenges. The use of outsourced service providers enables Phoenix Life to better shift its cost base from a largely fixed cost base to a more variable per-policy basis. The Group's outsourced service providers are also able to offer their services at a competitive price per policy due to their larger economies of scale and infrastructure investments.

Group functions

The Group operates centralised functions that provide Group-wide and corporate-level services and manage corporate activity. The Group-level operations include Group Finance, Treasury, Group Tax, Group Actuarial, Group Risk, Legal Services, HR, Corporate Communications, Strategy and Corporate Development, Investor Relations, Company Secretariat and Group Internal Audit.

Risk management

Risk management lies at the heart of what the Group does and is a source of value creation, making it a key component of the Group's strategic agenda. The Board seeks to ensure that the Group identifies and manages all risks accordingly, either to create additional value for its stakeholders or to mitigate any potentially adverse effects. See the ''Risk Factors'' section of this document for a discussion of certain risks relating to the Group.

The Group's Risk Management Framework

The Group operates a Risk Management Framework (''RMF'') which seeks to establish a coherent and interactive set of arrangements and processes to support the effective management of risk throughout the Group. The components of the framework are described below. The outputs of the RMF provide assurance that risks are being appropriately identified and managed and that an independent assessment of management's approach to risk management is being performed.

Risk strategy

The Group's risk strategy provides an overarching view of how risk management is incorporated consistently across all levels of the business, from decision-making to strategy implementation. It also sets out how overall risk management within the Group is proportionate to the nature, scale and complexity of the risks faced by the business.

Risk appetite

The Group's risk appetite framework consists of a set of statements and targets that articulate the level of risk the Group is willing to accept, in pursuit of shareholder value and achievement of the Group's strategic objectives. The statements encapsulate policyholder security, earnings volatility, liquidity and the internal control environment as follows:

Capital—The Group and each Life Company will hold sufficient capital to meet regulatory requirements in a number of asset and liability stress scenarios.
Cashflow—The Group will seek to ensure that it has sufficient cashflow to meet its financial obligations and will continue to do this in a volatile business environment.
Regulation—The Group and each Life Company will, at all times, operate a strong control environment to ensure compliance with all internal policies and applicable laws and regulations, in a commercially effective manner.

The risk appetite framework supports the Group in operating within the boundaries of these statements by seeking to limit the volatility of key parameters, defined with respect to the above statements, under a range of adverse scenarios agreed with the Board. Risk appetite limits are chosen which specify the maximum acceptable likelihood for breaching the agreed limits and assessment against the appetite targets is undertaken through scenario testing. Breaches of appetite are corrected through management actions where appropriate.

Risk universe

A key element of effective risk management is to ensure that the business has a complete and robust understanding of the risks it faces. Within the Group, these are set out, categorised and defined in the risk universe.

These risks are monitored and reported across the organisation to ensure that they are adequately managed.

External communication and stakeholder management

The Group has a number of internal and external stakeholders, each of whom has an active interest in the Group's performance, including how it is managing its risks. Significant effort is made to ensure that the Group's stakeholders have appropriate, timely and accurate information to support them in forming views of the Group.

Governance

Overall responsibility for approving, establishing and maintaining the RMF rests with the Board. The Board recognises the critical importance of having an efficient and effective RMF and appropriate oversight of its operation. There is a clear organisational structure in place with documented, delegated authorities and responsibilities from the Group Board to the Board of PLHL and the Executive Committee.

The RMF is underpinned by the operation of a three lines of defence model with clearly defined roles and responsibilities for statutory boards and their committees, management oversight committees, Group Risk and Group Internal Audit.

• First line—Management of risk is delegated from the Board to the Group Chief Executive Officer, Executive Committee members and through to business managers. A series of business unit management oversight committees operate within the Group. They are responsible for ensuring the risks associated with the business's activities are identified, assessed, controlled, monitored and reported.

Second line—Risk oversight is provided by the Group Risk function and business unit risk and compliance functions and the Board Risk Committee, which is responsible for the oversight of risk across the Group. The Board Risk Committee comprises four Non-Executive Directors, three of whom are independent. It is supported by the Chief Risk Officer.
Third line—Independent verification of the adequacy and effectiveness of the internal controls and risk management is provided by Group Internal Audit, under the oversight of the Audit Committee.

Risk organisation

The Chief Risk Officer manages the Group Risk function and has responsibility for the implementation and oversight of the Group's RMF. The Group Risk function has responsibility for financial and operational risk, risk governance, FCA and PRA relationship management and regulatory risk. Risk review functions across the Group manage the RMF in line with the Group's established standards. The risk functions ensure that business unit risk committees are provided with meaningful risk reports and that there is appropriate information to assess and aggregate risks.

Risk policies

The Group policy framework comprises a set of policies that support the delivery of the Group's strategy by establishing operating principles and expectations for managing the key risks to the Group's business. The policy set contains the minimum control standards that each business unit must adhere to and report compliance through the operation of local processes/procedures. The policies define:

the individual risks the policy is intended to manage;
the degree of risk the Group is willing to accept (which is set out in the policy risk appetite statements);
the minimum controls required in order to manage the risk to an acceptable level; and
the frequency of the control's operation.

Each policy is the responsibility of a member of the Executive Committee who is charged with overseeing compliance with the policy throughout the Group.

Business performance and capital management

Business unit plans are assessed to ensure that they do not breach any of the Board's risk appetite statements over the planning horizon. Business performance is routinely monitored at a business unit executive level with consolidated reporting against the annual operating plan approved by the Board and reviewed by the Executive Committee.

The impact of any proposed changes to the Group's operating plan and ongoing compliance with the Group's risk appetite statements are reviewed on a quarterly basis by the Board Risk Committee.

The Group's business units operate capital management processes that meet the Group's capital management policy. Under these processes, capital is allocated across risks where capital is held as a mitigant and, in turn, to individual risk owners who hold risk capital budgets. The amount of risk capital required is reviewed regularly to ensure the risk remains within budget. Any increases in capital allocation required are referred to the relevant business unit for approval to assess whether the increased capital allocation requested is within appetite for that particular risk type or whether further risk mitigation is required.

Risk and capital assessment

The Group operates an assessment framework for the identification and assessment of the different types of risk it may be exposed to and how much capital should be held in relation to those exposures. This framework is applicable across the Group and is the basis, not only for the approach to risk assessment, management and reporting but also for determining and embedding capital management at all levels of the Group. It has been updated to comply with the requirements of Solvency II. As part of that, the Group's Solvency II Internal Model is modified and weighted to address the particular risks that apply to the Group.

Risk assessment activity is a continuous process and is performed on the basis of identifying and managing the significant risks to the achievement of the Group's objectives. Stress and scenario tests are used to support the assessment of risk and analysis of their financial impact.

A Group level risk assessment process determines the most significant risks to the Group and the options available for their management.

Management information

Overall monitoring and reporting against the risk universe is undertaken by business unit management committees through to the relevant business unit executive committee and reported to the Executive Committee, PLHL Board and Group Board via regular risk reporting.

The Board Risk Committee receives a consolidated risk report on a quarterly basis, detailing the risks facing the Group and the overall position against risk appetite limits. The Board Risk Committee is also provided with regular reports on the activities of the Group Risk function.

People and reward

Effective risk management is central to the Group's culture and its values. Processes are operated that seek to measure both individual and collective performance and discourage incentive mechanisms which could lead to undue risk taking. Training and development programmes are in place to support employees in their understanding of the operation of the RMF.

Technology and infrastructure

The Group employs systems to support the assessment and reporting of the risks it faces as a business and to enable management to document its key risks and controls and evidence the assessment of them at a frequency appropriate to the operation of the control.

FCA thematic reviews

The Group and the thematic review on the fair treatment of long standing customers in the life insurance sector

The Life Companies continue to cooperate with the FCA in respect of its thematic review on the fair treatment of long standing customers in the life insurance sector.

The conclusions of this review and the FCA consultation on exit charges mean that the Board considers it reasonable to assume there will be further developments in this area, including, potentially, a change of law and/or regulation. The Directors believe that any changes which result from this review would be applied industry-wide. Given that the Group's operations apply exit charges on customers that switch to another provider or realise their pension assets in a cash payment, the Board anticipates that these proposals are likely to impact on the Group.

In addition, the FCA may require affected firms to carry out remediation in respect of detriment suffered by customers as a result of historic practices.

For further information regarding the FCA thematic review, see ''FCA thematic review'' in Part VI (''Regulatory Overview'') of this document and the risk factor entitled ''The thematic review on the fair treatment of long standing customers in the life insurance sector may affect the Group's business'' in the section of this document headed ''Risk Factors''.

The Group and the thematic review on annuity sales practices

The Life Companies continue to cooperate with the FCA in respect of this review. The FCA is still gathering information and data from firms in respect of this review and has not yet published its final conclusions regarding either the outcome of the review or any related follow-up work.

For further information regarding the FCA thematic review, see ''FCA thematic review'' in Part VI (''Regulatory Overview'') of this document and the risk factor entitled ''The thematic review on annuity sales practices may affect the Group's business'' in the section of this document headed ''Risk Factors''.

Pensions

The Group has two main staff pension schemes for its employees, the Pearl Group Staff Pension Scheme (the ''Pearl Scheme'') and the PGL Pension Scheme.

The Pearl Scheme

The Pearl Scheme comprises a final salary section, a money purchase section and a hybrid section (a mix of final salary and money purchase). The final salary and hybrid sections of the Pearl Scheme are closed to new members and since 1 July 2011 have also been closed to future accrual by active members.

A triennial funding valuation of the Pearl Scheme as at 30 June 2012 was completed in May 2013. This showed a deficit as at 30 June 2012 of £480 million on the agreed technical provisions basis. On 27 November 2012, PGH2 as principal employer and the trustee of the Pearl Scheme entered into a revised pensions funding agreement (the ''Pearl Pensions Agreement'') in connection with the 30 June 2012 triennial valuation. The principal terms of the Pearl Pensions Agreement are:

annual cash payments which were paid to the scheme of £70 million in 2013 and 2014, followed by payments of £40 million in September each year from 2015 to 2021. The Pearl Pensions Agreement includes a sharing mechanism, relating to the level of dividends paid out of PGH2, that in certain circumstances allows for an acceleration of the contributions to be paid to the Pearl Scheme;
increased and further contributions may become payable if the scheme is not anticipated to meet the two agreed funding targets: (i) to reach full funding on the technical provisions basis by 30 June 2022; and (ii) to reach full funding on a gilts flat basis by 30 June 2031;
the trustee of the Pearl Scheme continues to benefit from a first charge over shares in PLAL, Pearl Group Services Limited and PGS2 Limited. The value of the security claim granted under the share charges is capped at the lower of £600 million and 100 per cent. of the Pearl Scheme deficit (calculated on a basis linked to UK government securities) revalued every three years thereafter; and
covenant tests relating to the embedded value of certain companies within the Group.

A triennial valuation for the Pearl Group Staff Pension Scheme as at 30 June 2015 was completed in September 2016. This showed a deficit of £300 million as at 30 June 2015 on the agreed technical provisions basis.

The Revolving Credit Agreement restricts the Group's ability, with certain exceptions, to transfer assets into the companies over which the trustee of the Pearl Scheme holds a charge over shares.

The PGL Pension Scheme

The PGL Pension Scheme comprises a final salary section and a defined contribution section.

The defined benefit sections of the PGL Pension Scheme is a final salary arrangement which is closed to new members and since 1 July 2011 has also been closed to future accrual by active members.

The PGL Pension Scheme is administered by a separate trustee company, PGL Pension Trustee Ltd. The trustee company is comprised of two representatives from the Group, three member nominated representatives and one independent trustee in accordance with the trustee company's articles of association. The trustee is required by law to act in the interest of all relevant beneficiaries and is responsible for the investment policy with regard to the assets plus the day to day administration of the benefits.

A triennial funding valuation of the PGL Pension Scheme as at 30 June 2015 was completed in June 2016. This showed a surplus of £164 million on the agreed technical provisions basis as at 30 June 2015.

Following discussions with the trustee of the PGL Pension Scheme it was agreed that contributions to the PGL Pension Scheme amounting to £17.5 million in aggregate would be paid over the period from July 2016 to August 2017.

Employees

The Group

The Group operates across two primary locations in Wythall, Birmingham and St Paul's, London and had approximately 740 employees as at 30 June 2016 of which 52 were considered to be ''fixed term''

employees with specified end dates. In addition, as at 30 June 2016, the Group employed approximately 60 contractors or temporary staff to cover flexible resource requirements.

The office in St Paul's, London is home to the Group's corporate functions which includes approximately 100 people across finance, actuarial, legal, tax and treasury, risk and corporate development. The office in Wythall, Birmingham includes approximately 660 people from all of the Life Company functions across finance, actuarial, legal, tax, customer and operations, as well as the risk and compliance and human resource teams.

The following table shows the number of employees employed by the Group as at 30 June 2016, 31 December 2015, 31 December 2014 and 31 December 2013:

	Number of employees
As at 30 June 2016 .	740
As at 31 December 2015	742
As at 31 December 2014	752
As at 31 December 2013	810

The Group has collective consultation agreements in place with Unite, the largest UK trade union, covering certain categories of employees.

The SunLife Embassy Business

As a result of the AXA Transaction, the Group expects to acquire an additional 513 employees split across two sites. A site in Basingstoke will include approximately 380 people from the pensions and investments business and a site in Bristol will include approximately 140 people from the pensions and investments and protection business.

Properties

The Group

In the UK, the Group operates from leased office premises in one site in London and from premises owned by the Group in Wythall, which are primarily used as the core site for the Life Companies. The Group also has another site in Glasgow which it has provided primarily for the benefit of the Life Companies' outsourced service providers in order to enable them to provide services to the Life Companies' customers. In addition, the Group has a licence over a property in Jersey.

The SunLife Embassy Business

Completion of the AXA Transaction would introduce further premises in Basingstoke, which are intended to remain as a key facility from which outsourcing partners will provide customer services in respect of the individual and corporate pensions business. The Sun Life business will continue to operate from leased premises in the Bristol area.

PART V—BUSINESS OVERVIEW OF ABBEY LIFE

Business overview

ALAC has been closed to new retail business since February 2000 (other than increments and increases on existing policies, new members to some existing occupational pension schemes and new pension annuities resulting from vesting of in-force policies) and is therefore focused on the efficient ''run off'' of Abbey Life's policies.

Abbey Life however retains its regulatory permissions to write new business and in 2010 it commenced corporate transactions involving structured reinsurance and pension de-risking for corporate clients. Abbey Life has completed six such transactions.

Abbey Life comprises the following entities, all of which are 100 per cent. owned (directly or indirectly) by Deutsche Bank AG:

Abbey Life Assurance Company Limited—Abbey Life's life insurance company;
Abbey Life Trustee Services Limited—the trustee of a number of schemes and structures sold by Abbey Life (predominantly Small Self-Administered Schemes); and
Abbey Life Trust Securities Limited—the trustee of Abbey Life Staff Pension Scheme, a defined benefit pension scheme that has been closed to new entrants since 2003.

ALAC enjoys significant headroom above the required solvency capital (£617 million above SCR), with a Solvency II Ratio of 240 per cent. as at 31 December 2015 (the standard capital requirement is 200 per cent.). Solvency II is embedded in the business and has been set based on the Standard Formula. Furthermore, ALAC has no regulatory capital add-ons and no reliance on transitional measures on technical provisions, and has not used the volatility adjustment. ALAC's Solvency II Own Funds as at 30 June 2016 was £1,047 million and ALAC's MCEV as at 31 December 2015 was £1,218 million.

Recent trends and results of operations

ALAC's profit after tax for the year ended 31 December 2015 was £99 million (2014: £97 million). Key factors impacting Abbey Life's results for the year ended 31 December 2015 include the items set out below.

On 21 December 2015, ALAC entered into an insurance transaction to insure the longevity risk on approximately 5,000 lives. This generated profits of £1 million in the year ended 31 December 2015.
A rise in yields during 2015 drove an increase in the discount rate applied to negative reserves, generating a net £9 million loss on non-linked funds for the year ended 31 December 2015 (2014: £17 million profit).
ALAC's reserves for guaranteed annuity options (''GAOs'') were held on its balance sheet on a prudent basis in accordance with PRA guidance. Over time there is a natural release of these prudent reserves as the underlying contracts mature. This offsets the costs associated with writing annuities at guaranteed rates and releases the prudent margins to profit. In line with experience, the take-up rate was maintained which, when combined with the impact of the rise in gilt yields over 2015 and changes in interest rate hedges resulted in a reserves reduction. In aggregate, a gain of £37 million was generated in the year ended 31 December 2015 (2014: £6 million loss), of which £12 million was recognised by writing new annuities.
Relatively flat credit spread movements during 2015 resulted in there being no absolute change to the value of ALAC's credit default reserve. Mortality assumptions for valuing the annuity business were updated to reflect ALAC's latest experience. The combined impact of these factors on reserves backing annuity business generated an £8 million gain in the year ended 31 December 2015.
During 2015, Deutsche Asset Management (UK) Limited continued to more actively manage, within specified and monitored limits, £440 million of shareholders funds with the intention of enhancing returns. This contributed to investment returns on free assets and shareholders funds of £11 million for the year ended 31 December 2015 (2014: £35 million). During 2016, the portfolio was de-risked and invested in a money-market fund.

ALAC's profit after tax for the year ended 31 December 2014 was £97 million (2013: £176 million). Key factors impacting ALAC's results for the year ended 31 December 2014 include the items set out below.

On 12 December 2014, ALAC entered into an insurance transaction with SPPS Trustee Limited (the corporate trustee of the ScottishPower Pension Scheme) to insure the longevity risk on approximately 9,000 lives.
A fall in yields during 2014 reduced the discount rate applied to negative reserves, generating a net £17 million profit on non-linked funds for the year ended 31 December 2014 (2013: £6 million profit).
The fall in yields also reduced ALAC's reserves for GAOs and, when combined with the impact of changes in interest rate hedges and the natural run-off of these reserves, an aggregate loss of £6 million was generated in the year ended 31 December 2014 (2013: £54 million profit).
At the end of 2011, it was necessary for ALAC to hold a reserve against mismatching. In 2012 and 2013, ALAC invested surplus cash in order to reduce the mismatch position. The level of investment slowed in 2014 such that the mismatch reserve required strengthening, generating a loss of £2 million in the year ended 31 December 2014.
Relatively flat credit spread movements during 2014 resulted in there being no absolute change to the value of ALAC's credit default reserve. Mortality assumptions for valuing the annuity business were updated to reflect ALAC's latest experience. The impact of extended annuity reinsurance put in place in 2013 to cover business written since 2008 allowed for a minor release of prudent reserves. The

combined impact of these factors on reserves backing annuity business generated a £3 million gain in the year ended 31 December 2014.

• During 2014, Deutsche Asset Management (UK) Limited continued to actively manage, within specified and monitored limits, £440 million of shareholders funds with the intention of enhancing returns. This contributed to investment returns on free assets and shareholders funds of £35 million for the year ended 31 December 2014 (2013: £15 million).

ALAC's profit after tax for the year ended 31 December 2013 was £176 million. Key factors impacting ALAC's results for the year ended 31 December 2013 include the items set out below.

On 28 March 2013, ALAC entered into an insurance transaction with Rolls Royce and Bentley Pension Scheme Fund Trustee Limited to insure the longevity risk on approximately 4,400 lives.
A material increase in gilt yields during 2013 together with the impact of natural run-off reduced Abbey Life's reserves for GAOs during the period. This generated a gain of £54 million for the year ended 31 December 2013.
At the end of 2011, it was necessary for ALAC to hold a reserve against mismatching. In 2013, ALAC continued to invest surplus cash in order to reduce the mismatch position. This facilitated the release of nearly all of the provision, which contributed a £17 million profit to the results for the year ended 31 December 2013.
Over 2013, credit spreads continued to narrow and ALAC reduced the absolute value of ALAC's credit default reserve. Mortality assumptions were updated to reflect ALAC's latest experience. At the end of 2013, ALAC extended its annuity reinsurance to cover business written since 2008, and this allowed for a further release of prudent reserves. The combined impact of these items on the reserves backing annuity business generated a profit of £50 million for the year ended 31 December 2013.
In August 2013, ALAC amended its investment management agreement with Deutsche Asset Management (UK) Limited, allowing the more active management, within specified and monitored limits, of £400 million of shareholders funds in bonds and equities with the intention of enhancing returns. This contributed to investment returns on free assets and shareholders funds of £15 million for the year ended 31 December 2013.

History

ALAC was founded and incorporated on 12 December 1961, and started out as a direct sales force office in the UK led by Sir Mark Weinberg. Half of it was acquired by ITT in 1964, with the remaining half acquired in 1970. ALAC was one of the businesses comprising the Abbey Life Group, which was listed on the London Stock Exchange in 1986, with ITT selling its remaining shares a year later.

In 1988, the then Lloyds Bank acquired a majority stake in Abbey Life Group, which became known as Lloyds Abbey Life. In 1996, it became a wholly owned subsidiary of the newly formed Lloyds TSB Group. ALAC merged with the long term businesses of Ambassador Life in 1998 (which included London & Edinburgh Life and Excess Life) and Hill Samuel Life (which included Target Life).

In February 2000, ALAC closed its books to new retail business and subsequently transferred its sales capability to Allied Dunbar. Before closing to new retail business, ALAC's primary markets were personal and small business sectors, and sold most protection, pension and investment product categories.

In 2003, ALAC became a subsidiary of Scottish Widows. It was acquired by Deutsche Bank in 2007.

In addition to its own directly written business, the in-force business of ALAC includes portfolios of business transferred from the following former life companies:

London and Edinburgh Life, which merged with Excess Life in 1978;
Excess Life, renamed Ambassador Life, which merged with ALAC in 1998;
Target Life, which merged with Hill Samuel Life in 1995; and
Hill Samuel Life, which merged with ALAC in 1998.

ALAC wrote most of its business through its own direct salesforce and appointed representatives, but also accepted business via independent advisers. Ambassador Life's portfolio was generated via direct marketing. ALAC and Hill Samuel Life wrote business through their own direct salesforces and via independent advisers.

The business of ALAC primarily comprises unit-linked life and pension policies and annuities in payment. There are also two small with-profits funds, one in relation to certain ALAC policies and one in relation to certain Hill Samuel Life policies.

Structure of Abbey Life

The following chart gives an overview of the legal structure and transaction parameter for Abbey Life and its principal companies as at the date of this document.

Holding Operating Dormant

Abbey Life Trustee Services Limited is a dormant company that does not have any material assets or liabilities. It is the trustee of a number of schemes and structures that were sold by Abbey Life (predominantly Small Self-Administered Schemes).

Abbey Life Trust Securities Limited is a dormant wholly-owned subsidiary of ALAC that does not have any material assets or liabilities. It is the trustee of Abbey Life Staff Pension Scheme, a defined pension scheme that has been closed to new entrants since 2003. Abbey Life Trust Services Limited is accounted for as an investment in subsidiaries and is therefore not consolidated in ALAC's audited accounts for the years ended 31 December 2015, 2014 and 2013.

Business description

Abbey Life's business comprises three key areas:

Unit-linked: This area covers the pensions and life businesses and has been closed to new business since 2000. As at 31 December 2015, Abbey Life's unit-linked business had assets under management of £7.3 billion and approximately 457,000 policyholders.
Non-Linked: This area predominantly constitutes annuities in payment. Deferred annuities constitute less than 1 per cent. of annuity liabilities. As at 31 December 2015, Abbey Life had £2.5 billion in non-linked assets under management and approximately 270,000 policyholders. Over 80 per cent. of the longevity risk is covered by reinsurance.
Other: This area includes five pensions de-risking transactions and a structured reinsurance transaction that have been undertaken since 2010 with more than 90 per cent. of the risk being reinsured to third parties. In addition, Abbey Life manages two with profit funds, other non-profit funds and a small permanent health insurance book, with assets under management of £0.5 billion as at 31 December 2015.

Abbey Life's external reinsurance arrangements are spread across a number of reinsurers. These reinsurance arrangements cover a range of policy risks, including longevity, lapse, mortality and morbidity, long-term disability, critical illness and some investment risk.

Unit-linked overview

ALAC has unit-linked businesses. It has approximately 457,000 policies of unit-linked business.

The benefits received by policyholders in respect of the unit-linked business align with the performance of the underlying assets held by ALAC in respect of the policyholders' policies.

ALAC is regulated by both the FCA and PRA. Historically, the Abbey Life business was spread across a number of insurance companies. Over time, ALAC has reduced the number of its individual life companies through mergers to optimise capital allocation and economies of scale.

Although ALAC is a closed life fund business and does not generally write new retail business, it does accept increments and increases to existing policies and new members to some existing occupational pension schemes, and writes new pension annuities resulting from vesting of in-force policies. Writing annuities offers ALAC a further opportunity to increase its value through profit margins and incremental investment returns.

Non-linked

As at 31 December 2015, ALAC had a book of 187,000 annuities in payment and 83,000 deferred annuities, as well as a number of guaranteed annuities and guaranteed annuity options. Over 80 per cent. of the longevity risk is covered by reinsurance.

Other

As part of its corporate business, ALAC has undertaken the following pensions de-risking transactions:

2010: BMW (UK) Operations Pension Scheme trustee for notional liabilities of approximately £3 billion;
2013: Rolls Royce & Bentley Pension Fund trustee for notional liabilities of approximately £0.4 billion;
2014: ScottishPower Pension Scheme trustee for notional liabilities of approximately £2 billion; and
2015: A pensions de-risking transaction for notional liabilities of approximately £0.7 billion; and
2016: the Manweb and electricity supply pension scheme trustees for notional liabilities of approximately £1 billion.

Under these transactions, the pension trustees transferred the risk that certain pension scheme beneficiaries live longer than was projected (longevity risk) to ALAC, in return for which ALAC receives a fixed profile of payments and fees. Each of these is a long term transaction which may only be terminated in certain circumstances.

In addition, in 2012, ALAC participated in a structured reinsurance transaction with Grupo Santander, Axia Insurance Ltd (''Axia'') and a third-party reinsurer (the ''retrocessionaire'') whereby a single lump sum advance was paid to two Grupo Santander subsidiaries in return for a stream of premiums net of claims from a defined book of reinsured policies. It is anticipated that the bulk of the payments arising from the reinsured policies will be provided to Axia (who provided the funding for the transaction) and the retrocessionaire, while ALAC receives a margin to cover its expenses and the capital costs of the transaction. The risk of the reinsurance between ALAC and the Grupo Santander insurance subsidiaries not being sufficient to repay Axia is offset by a reinsurance agreement with the retrocessionaire. The participation of ALAC is likely to end once Axia has been paid back the lump sum advance.

More than 90 per cent. of the insurance risks have been reinsured by virtue of the above transactions, meaning that each reinsurer partly shares in the upside and downside of the transaction it is reinsuring.

In addition, under the above transactions, certain cashflow, interest rate and inflation exposures are hedged through derivative instruments with Deutsche Bank.

Outsourcing relationships

As ALAC manages closed life funds in run-off, fees generated from the management of policies generally decrease over time. Therefore, ALAC is well served by closely aligning its costs with its policy run-off profile. Any costs that do not decline in line with ALAC's overall declining policy book create potential operating profit challenges. The use of outsourced service providers enables ALAC to better shift its cost base from a largely fixed cost base to a more variable per-policy basis. Abbey Life's outsourced service providers are also able to offer their services at a competitive price per policy due to their larger economies of scale and infrastructure investments.

ALAC's outsourced service providers are specialist providers of life and pensions administration, asset management and fund administration services, with the know-how, expertise and business models that put asset management and administration at the core of their service offerings. The services provided by outsourced service providers include policy administration and related services, asset management and fund administration services.

ALAC retains ultimate responsibility to its policyholders for the administration of its policy portfolio and the provision of policyholder services, such as the collection of premiums, the provision of policyholder statements, the settlement of claims, the provision of website access and information and the provision of policyholder information and other related support through contact service centres.

Investment management

ALAC outsources investment management activities to:

Aberdeen Asset Investments Limited (''AAI''). AAI manages all unit linked funds, all with-profits funds and certain liquidity funds treated as non-linked. AAI has a discretionary mandate on the linked funds under guidelines specific for each sub-fund. AAI also manages ALAC's small with-profit funds on an execution only basis (i.e., transactions only occur on the written instruction of ALAC). In addition, AAI oversees a sterling liquidity fund also on an execution-only basis. The contract was initiated in 2007 for 10 years to 2017 (initially with Scottish Widows Investment Partnership) and charges were fixed until September 2017. As at 31 December 2015, AAI had £7.2 billion of assets under management on behalf of ALAC.
Deutsche Asset Management (UK) Ltd (''DAM''). DAM manages a portfolio of non-linked and shareholder's assets. These funds are primarily managed under a discretionary mandate with specific guidelines including guidelines on asset types, location of investments, credit ratings, cash level and counterparty exposure limits. DAM is mandated to follow duration and cashflow matching guidelines provided by ALAC. DAM manages certain other funds under execution-only and execution-plus mandates. As at 31 December 2015, DAM had £3.1 billion of assets under management on behalf of ALAC.

Policy administration

ALAC outsources a number of activities to Capita Life & Pensions Regulated Services Limited (''Capita''). The key business services provided by Capita are customer service, regulated policy administration and payments processing and related IT and ancillary services. These services have been provided since March 2009 and the contract was extended in 2013 on a perpetual basis with Abbey Life retaining the right to terminate on giving six months' notice.

In addition, State Street Bank and Trust Company provides ALAC with (1) custody services since October 2007 and (2) collateral management services since November 2011, in each case subject to terms of a written contract between the parties. As part of the investment management services AAI provides to ALAC, AAI sub-contracts unit pricing services, investment administration services and fund accounting services to State Street Bank and Trust Company. As part of the investment management services DAM provides to ALAC, DAM sub-contracts agent fund trading to State Street Bank and Trust Company.

ALAC functions

ALAC relies on a number of centralised functions at the Deutsche Bank level, including as follows:

• For processes that are not outsourced to Capita, Deutsche Bank provides the technology platforms and related support. These include desktop support, application management and server space to support back-office processes, reporting, corporate performance management and actuarial processes. • Certain group finance, tax, risk, human resources, company secretarial and internal audit functions.

Deutsche Bank will continue to provide certain services to ALAC following Completion pursuant to a transitional services agreement with the Company. For further information, see paragraph 12.3 (''Material Contracts—Abbey Life'') of Part XIV (''Additional Information'') of this document.

Risk management

For a description of the Enlarged Group's risk management following Completion, see ''Risk management'' in Part IV (''Business Overview of the Company'') of this document.

FCA thematic reviews

ALAC and the thematic review on the fair treatment of long standing customers in the life insurance sector

A number of the firms which are the subject of the review on the fair treatment of long standing customers in the life insurance sector are now the subject of additional investigations, including ALAC. ALAC is one of six firms in respect of which the FCA is exploring whether remedial and/or disciplinary action is necessary or appropriate in respect of exit or paid-up charges being applied. Additionally, ALAC is one of two firms being investigated for potential contravention of regulatory requirements across a number of other areas assessed in the thematic review. This investigation into wider contraventions of regulatory requirements will also focus on behaviour from December 2008. The FCA has confirmed that these investigations have been commenced in order to enable the FCA to establish the reasons for the practices within firms; whether customers have suffered detriment as a result and how widespread any practices are within the six firms. No conclusion has been reached as to whether there have been any breaches of regulatory requirements. The commencement of investigations should therefore not be taken to indicate that they will necessarily result in disciplinary action against the firms involved nor does it indicate that a penalty will inevitably be imposed or that redress will be payable.

ALAC takes the issues raised by the FCA extremely seriously. ALAC has taken a number of steps in response to the thematic review on the fair treatment of long standing customers in the life insurance sector.

The thematic review on the fair treatment of long standing customers in the life insurance sector has been completed; however, the FCA has not yet published the anticipated complete and final guidance in respect of the matters that it addressed.

ALAC and the thematic review on annuity sales practices

The FCA has not reached final conclusions as to the outcome of the annuity sales thematic review and any follow-up work. As a result of the integration of ALAC into the Enlarged Group ALAC's practices will be brought into line with those of the Life Companies. ALAC has taken a number of steps in response to the thematic review on annuity sales.

For further information regarding the FCA thematic reviews, see ''FCA thematic review'' in Part VI (''Regulatory Overview'') of this document and the risk factors entitled ''The thematic review on the fair treatment of long standing customers in the life insurance sector may affect the Group's business'' and ''The thematic review on annuity sales practices may affect the Group's business'' in the section of this document headed ''Risk Factors''.

Pensions

Overview

As at 31 March 2015, the ALAC Pension Scheme has approximately 19 active members, 2,182 deferred members and 876 pensioner members. No new members have been admitted since 2003 except in a few exceptional cases. As at 31 March 2015, the date of the most recent funding valuation, the ALAC Pension Scheme's assets were £221.9 million, with liabilities of £328.8 million and a deficit of £106.9 million on the scheme funding (technical provisions) basis.

Power to wind-up

Under the Trust Deed and Rules of the ALAC Pension Scheme, the Trustees can trigger wind up of the ALAC Pension Scheme if contributions of the principal employer are terminated and no other company

becomes the principal employer within 90 days. In this scenario, the Trustees have the discretion not to wind up the ALAC Pension Scheme but instead continue it on a closed basis (with no more accrual). Winding up the ALAC Pension Scheme would give rise to an immediate debt due from Abbey Life under section 75 of the Pension Act 1995.

Power to require additional contributions

Under the Trust Deed and Rules, the Trustees have the power to set the rate of employer contributions on the advice of the Scheme actuary. However, the position under the Trust Deed and Rules is subject to the provisions of the Occupational Pension Schemes (Scheme Funding) Regulations 2005.

2013 Funding Agreement

On 28 June 2013, ALAC and the Trustees entered into a contractual funding agreement (the ''2013 Funding Agreement''), which provides for certain payment triggers pursuant to which monies in a charged escrow account are released to the Trustees. The triggers are: (i) the insolvency of Abbey Life; (ii) a deficit in the ALAC Pension Scheme on a specifically defined basis as at 31 March 2021; (iii) failure to calculate that specifically defined deficit by 31 May 2022; and (iv) a debt becoming due from Abbey Life to the Trustees under Section 75 of the Pensions Act 1995 (broadly, on the winding up of the ALAC Pension Scheme). On payment trigger (i), (iii) or (iv) arising, Abbey Life must pay to the Trustees the lower of the Section 75 debt and the value of the assets in the escrow account. On payment trigger (ii), Abbey Life must pay to the Trustees the lowest of the deficit on the specifically defined basis, the Section 75 debt and the value of the assets in the escrow account. The escrow account contained £31.7 million as at 25 May 2016.

2016 Funding Agreement and 2015 actuarial valuation

On 23 June 2016, ALAC and the Trustees entered into a new recovery plan in respect of the actuarial valuation as at 31 March 2015 and a new contractual funding agreement (the ''2016 Funding Agreement'').

Under the terms of the recovery plan, ALAC made an initial payment of £15 million in June 2016 into the ALAC Pension Scheme and is also required to make monthly contributions of £246,000 between 1 July 2016 and 30 June 2026.

Under the terms of the 2016 Funding Agreement, ALAC is required to pay an additional £2.92 million (in cash or by agreed assets) by 31 July each year from 2016 to 2025 into a new charged escrow account. The payment triggers in the 2016 Funding Agreement are as in the 2013 Funding Agreement, though referring to a specified deficit as at 31 March 2027, and to determine whether a surplus arises, the assets in the 2013 charged account are also taken into account.

The 2013 Funding Agreement and the 2016 Funding Agreement both contain change of control provisions on ALAC ceasing to be a subsidiary of Deutsche Bank AG. In these circumstances, the 2013 Funding Agreement and the 2016 Funding Agreement provide for a process whereby ALAC must ensure that the assets held in the account are switched, with the consent of the Trustees, to investment grade government and corporate bonds (rather than following an investment strategy reflecting the ALAC Pension Scheme's statement of funding principles).

Employees

The Chief Financial Officer, Chief Risk Officer, Money Laundering Officer and Data Protection Officer are functions fulfilled by Deutsche Bank employees and are not expected to transfer with Abbey Life following Completion.

Properties

Abbey Life operates a site in Bournemouth, the freehold for which is owned by Abbey Life. Most of Abbey Life's management and functional team, as well as most of the Capita team, are based out of the Bournemouth site, with the exception of certain Deutsche Bank employees based out of a Deutsche Bank site in London. There are five main floors at the Bournemouth site, three of which have been leased or licensed to third parties.

PART VI—REGULATORY OVERVIEW

Overview

The Group's operations are, and the Enlarged Group's operations will be, subject to extensive government regulation, including FSMA and other UK laws, including, for example, the Data Protection Act 1998 in relation to the processing of customer data. Some of these laws require the relevant Group entity, and will require the relevant Enlarged Group entity, to be authorised, licensed or registered. Below is an overview of the regulatory framework for the insurance industry in the UK.

UK Financial Services and Markets Act 2000, as amended (''FSMA'')

All of the Life Companies in the UK are currently dual regulated by the FCA (for conduct matters) and the PRA (for prudential matters), whilst others are solely regulated by the FCA (for both conduct and prudential matters).

Approach to regulation

The FCA employs a risk-based and proportionate approach to supervision comprising a firm systemic framework, which focuses on the continuous assessment of how firms manage the risks they create and identifying the root causes of risk.

The PRA employs a judgement-based, forward-looking and focused approach to regulation using a proactive intervention framework to identify and respond to risks at an early stage. The position of each insurer is reviewed regularly to ensure that the PRA's level of supervision is appropriate.

The FCA and PRA expect firms to avoid actions that jeopardise compliance with their statutory objectives. When the FCA and PRA are concerned that a firm may present a risk this may lead to negative consequences, including the requirement to maintain a higher level of regulatory capital (via capital ''add-ons'' under Solvency II) to match the higher perceived risks, and enforcement action where the risks identified breach the FCA and PRA's high-level or more prescriptive rules.

Overview of FSMA regulatory regime: dual regulators

The FCA and PRA regulate persons carrying out regulated activities in the financial services sector. In this regard, the FCA and PRA are authorised to make rules and issue guidance in relation to a wide sphere of activities encompassing the governance of a firm, the way it conducts its business and the prudential supervision of firms. The PRA regulates banks, insurance companies and designated investment firms. These firms are referred to as ''dual regulated'' because they are authorised and regulated by the PRA (for prudential matters) and also regulated by the FCA (for conduct matters).

Permission to carry on ''Regulated Activities''

Under FSMA, no person may carry on or purport to carry on a regulated activity by way of business in the UK unless he is an authorised or exempt person. A firm that is authorised by the FCA (and PRA, if relevant) to carry on regulated activities becomes an authorised person for the purposes of FSMA. ''Regulated activities'' are currently prescribed in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (as amended) and include insurance and investment business (which includes managing investments), as well as certain other activities such as establishing, operating and winding-up stakeholder pension schemes, the mediation of general insurance and certain mortgage mediation and lending activities.

Authorisation procedure

In granting a firm's application for authorisation, the FCA and PRA (if applicable) may delineate the scope of, and include such restrictions on, the grant of permission as the relevant regulator deems appropriate. Dual-regulated firms must apply to the PRA for authorisation, whilst solo-regulated firms (i.e., firms regulated solely by the FCA), must apply to the FCA. In granting or varying the terms of a firm's permissions, the FCA and PRA must ensure that the firm meets certain threshold conditions, which, among other things, require the firm to have adequate resources for the carrying on of its business, and to be a fit and proper person, having regard to all the circumstances.

Once authorised, and in addition to continuing to meet the threshold conditions to authorisation, firms are obliged to comply with the FCA Handbook and the PRA Rulebook which contain detailed rules covering, among other things, systems and controls, conduct of business and prudential (i.e., capital) requirements.

Principles for Businesses

The FCA Handbook and the PRA Rulebook contain high-level standards for conducting financial services business in the UK, known as the Principles for Business (in the case of the FCA Handbook) and the Fundamental Rules (in the case of the PRA Rulebook). All firms are expected to comply with these standards, which cover the maintenance of adequate systems and controls, treating customers fairly, communicating with customers in a manner that is clear, fair and not misleading and being open and co-operative with the FCA and PRA.

Application of FSMA regulatory regime to the Group and the Enlarged Group

Each of the Group's principal UK insurance and investment businesses is, and each of the Enlarged Group's principal UK insurance and investment businesses will be, subject to regulation and supervision by the FCA (and additionally, for dual-regulated firms, the PRA) in the carrying on of the Group's and the Enlarged Group's regulated activities. The discussion below considers the main features of the regulatory regime applicable to the Group's, and that will be applicable to the Enlarged Group's, insurance and pensions business in the UK.

Regulation applicable to the Group's and Enlarged Group's insurance business

Supervision of management (''Management'') and change of control of authorised firms

One of the methods by which the FCA and PRA supervise the management of authorised firms is through the Approved Persons and Senior Manager regimes.

The Senior Manager regime became fully effective in April 2016. The Senior Manager regime is a new regulatory framework introduced by the FCA and PRA that aims to (i) make sure that insurance firms and groups have a clear and effective governance structure; and (ii) to enhance the accountability and responsibility of individual senior managers.

To some extent, the Senior Manager regime incorporates the existing Approved Persons regime, which provides that persons who hold positions of significant influence within an authorised firm must be pre-approved by the FCA and, if relevant, the PRA. For dual-regulated firms, certain Approved Persons, such as directors, are approved by the PRA and the PRA will consult with the FCA in relation to such approval. This was further enhanced following the implementation of Solvency II in early 2016.

Change of control of authorised firms

The FCA and PRA also regulate the acquisition and increase of control over authorised firms. Under FSMA, any person proposing to acquire control of, or increase (or decrease) control over, an authorised firm must first obtain the consent of the FCA and, if necessary, the PRA. In relation to dual-regulated firms, like the Life Companies, approval to the change of control is sought from the PRA which will consult with the FCA. In considering whether to grant or withhold its approval to the acquisition of control, the FCA and PRA must be satisfied both that the acquirer is a fit and proper person and that the interests of consumers would not be threatened by his acquisition of, or increase in, control.

A person (''A''), will acquire control (in accordance with section 181 FSMA, and be a ''controller'') of an authorised person (''B'') if they hold:

(a) 10 per cent. or more of the shares in B or a parent undertaking of B (''P'');
(b) 10 per cent. or more of the voting power in B or P; or
(c) shares or voting power in B or P, as a result of which A is able to exercise significant influence over the management of B.

In order to determine whether person A or a group of persons is a controller, the holdings (shares or voting rights) of A and other persons acting in concert with A, if any, are aggregated.

A person (''A'') will be treated as increasing (or decreasing) his control over an authorised firm (''B''), requiring prior approval from the FCA (and PRA, if appropriate) if:

(i) the level of his percentage shareholding or voting power in B or P crosses the 10 per cent., 20 per cent., 30 per cent. or 50 per cent. threshold; or
(ii) if A becomes a parent undertaking of B.

Intervention and enforcement

The FCA and PRA have extensive powers to intervene in the affairs of an authorised firm and monitor compliance with their objectives, including withdrawing a firm's authorisation, prohibiting individuals from carrying on regulated activities, suspending firms or individuals from undertaking regulated activities and fining firms or individuals who breach their rules.

The FCA can also sanction persons who commit market abuse and can apply to the Court for injunctions and restitution orders. In addition to its ability to apply sanctions for market abuse, the FCA has the power to prosecute criminal offences arising under FSMA, insider dealing under Part V of the Criminal Justice Act 1993 and breaches of money laundering regulations. The FCA has indicated that it is prepared to prosecute more cases in the criminal courts where appropriate.

The FCA and PRA may also vary or revoke a firm's permission to carry on regulated activities or of a Senior Manager's approved status for reasons including (i) if it is desirable to protect the interests of consumers or potential consumers, (ii) if the firm has not engaged in regulated activity for 12 months, or (iii) if it is failing to meet the threshold conditions for authorisation. The FCA and PRA have further powers to obtain injunctions against authorised persons and to impose or seek restitution orders where persons have suffered loss. Once the FCA and PRA have made a decision to take enforcement action against an authorised or Approved Person (other than in the case of an application to the court for an injunction or restitution order), the person affected may refer the matter to the Upper Tribunal (Tax and Chancery Chamber). Breaches of certain FCA and PRA rules by an authorised firm may also give a private person, who suffers loss as a result of the breach, a right of action against the authorised firm for damages.

The FCA and PRA, although not creditors, may seek administration orders under the Insolvency Act 1986 (as amended), present a petition for the winding-up of an authorised firm or have standing to be heard in the voluntary winding-up of an authorised firm. It should be noted that insurers carrying on long-term insurance business cannot voluntarily be wound up without the consent of the PRA.

FCA Conduct of Business Rules

The FCA's Conduct of Business Rules apply to every authorised firm carrying on regulated activities and regulate the day-to-day conduct of business standards to be observed by authorised persons in carrying on regulated activities. Whilst the FCA is primarily responsible for conduct regulation, the PRA will also seek to ensure that firms that it regulates conduct their business in a safe and sound manner.

The scope and range of obligations imposed on an authorised firm under the Conduct of Business Rules vary according to the scope of its business and the range of its clients. Generally speaking, however, the obligations imposed on an authorised firm by the Conduct of Business Rules will include the need to classify its clients according to their level of sophistication, provide them with information about the firm, meet certain standards of product disclosure, ensure that promotional material which it produces is clear, fair and not misleading, assess suitability when advising on certain products and managing portfolios, manage conflicts of interest, report appropriately to its clients and provide certain protections in relation to client assets.

The FCA's Supervision Manual contains specific requirements at Appendix 2.15 for insurers that have ceased to take on new business and are in run-off. Equally some of the FCA Conduct of Business Rules, for example in relation to the sale of new policies, have no relevance to such companies.

FCA ''Outcomes''

The FCA has three operational objectives: (i) to secure an appropriate degree of protection for consumers; (ii) to protect and enhance the integrity of the UK financial system; and (iii) to promote effective competition in the interests of consumers.

The first objective is central to the FCA's expectation of a firm's conduct and is underpinned by six Treating Customers Fairly outcomes: (i) consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture; (ii) products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly; (iii) consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale; (iv) where consumers receive advice, the advice is suitable and takes account of their circumstances; (v) consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect; and (vi) consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.

Prudential supervision

As set out above, in order to maintain authorised status under FSMA, a firm must continue to satisfy the threshold conditions, which, among other things, require the firm to have adequate resources for the carrying on of its business. The FCA and PRA have published detailed rules relating to the maintenance of minimum levels of regulatory capital for insurance and investment businesses in the Prudential Standards section of their Handbook and Rulebook, respectively.

The FCA's and PRA's regulatory capital rules for insurers and investment firms are primarily contained in the Solvency II prudential framework.

The Financial Ombudsman Service

Authorised firms must have appropriate complaints handling procedures. However, once these procedures have been exhausted, qualifying complainants may turn to the FOS which is intended to provide speedy, informal and cost effective dispute resolution of complaints made against authorised firms by individuals and small-business customers. The FOS is empowered to order firms to pay fair compensation for loss and damage and may order a firm to take such steps as it determines to be just and appropriate to remedy a complaint.

The Financial Services Compensation Scheme

The FSCS is intended to compensate individuals and small businesses for claims against an authorised firm where the authorised firm is unable or unlikely to be able to meet those claims (generally, when it is insolvent or has gone out of business). The scheme is also intended to promote confidence in the financial system by limiting the systemic risk that the failure of a single firm might trigger a wider loss of confidence in the relevant financial sector. The scheme covers banking, insurance, investment business and mortgage advice, reflecting the different kinds of business undertaken by authorised firms. It is funded primarily by levies on participating firms that consist of (i) a management expenses levy comprising a base costs levy that relates to the cost of running the FSCS each year and a specific cost for the running costs attributable to a specific funding class and (ii) a compensation costs levy which relates primarily to the costs incurred by the FSCS in paying compensation.

Insurance Guarantee Schemes

Currently there are no rules at the EEA level requiring EU Member States to adopt insurance guarantee schemes such as that established by the FSCS. The European Commission has, however, indicated that it is considering proposing a directive with regard to insurance guarantee schemes. This was scheduled to be introduced by the end of 2012, but no new proposals are forthcoming. It is possible that such a directive may affect the operation of the FSCS.

Conduct of Business requirements for insurance business

The Conduct of Business Rules issued by the FCA apply differing requirements to the sale of (i) general and (ii) long-term insurance contracts. Within (ii), more stringent requirements apply where the contract has an investment value or otherwise is a product which historically gave rise to mis-selling problems. Authorised firms which advise and sell packaged products (such as life insurance policies) are subject to detailed conduct of business obligations relating to product disclosure, assessment of suitability for private customers, the range and scope of the advice which the firm provides, and fee and remuneration arrangements.

As an insurer in run-off a number of the Conduct of Business Rules relating to the sale of new policies do not concern the Life Companies. However, there are certain rules relating to:

information to be provided to existing policyholders;
cancellation rights;
the handling of claims;
treating with-profit policyholders fairly; and
pensions transfers and the open market option,

which apply regardless of whether or not the insurer is actively selling its products.

Gender discrimination issues

In 2011, the Court of Justice of the European Communities ruled against the use of gender in setting premiums or benefits under insurance contracts. The effect of this ruling was postponed to 21 December 2012. The decision of the Court of Justice was implemented into UK law by the Equality Act 2010 (Amendment) Regulations 2012, which amends the Equality Act 2010. The amendments to the Equality Act 2010, which took effect on 21 December 2012, remove a provision in the Equality Act 2010 which had previously allowed gender-sensitive pricing of insurance premiums and benefits. It affects, among other things, the pricing of annuities, life insurance policies and the annuity rates which may be offered when pension policies mature.

With-profit business

The FCA and PRA co-ordinate their supervision of insurers. The FCA has responsibility for monitoring whether any changes to benefits or payments are consistent with the insurer's previous communications to policyholders, and the insurer's overriding obligation to treat customers fairly. The FCA and PRA have published a Memorandum of Understanding which sets out how the two regulators will co-operate in their supervision of insurers with policyholders who hold with-profits insurance policies. The FCA is responsible for satisfying itself that firms are behaving fairly in relation to the exercise of discretion whilst the PRA's focus is on ensuring that discretionary increases in liabilities do not adversely affect the insurer's ability to meet, and continue to meet, the PRA's standards for safety and soundness. Given the respective focuses of the PRA and FCA, as of 1 January 2016, the PRA deleted certain of its conduct-related rules relating to with-profits policyholders from its Rulebook and those rules now remain only in the FCA Handbook.

Changes were also made to the corresponding FCA rules on 1 January 2016 in order to implement Solvency II, including in relation to conduct issues and to make changes to certain definitions.

Actuarial functions

Every insurance company that carries on long-term business must appoint one or more actuaries to perform the ''actuarial function'' in respect of all classes of its long-term insurance business and, if it has any with-profit business, the ''with-profits actuary function'' in respect of all classes of that with-profit business.

The PRA Rulebook requires that an actuary appointed to perform the with-profits actuary function must, among other things, (i) advise the firm's management, at the level of seniority that is reasonably appropriate, on key aspects of the discretion to be exercised affecting those classes of the with-profits insurance business of the firm in respect of which he has been appointed, (ii) advise the firm's governing body as to whether the assumptions used to calculate the future discretionary benefits within the firm's relevant technical provisions are consistent with the firm's Principles and Practices of Financial Management (''PPFM'') in respect of those classes of the firm's with-profits insurance business and (iii) at least once a year, report to the firm's governing body on key aspects (including those aspects of the firm's application of its PPFM on which the advice described has been given) of the discretion exercised in respect of the period covered by his report affecting those classes of with-profits insurance business of the firm.

Distribution of profits and with-profit business

The PRA Rulebook requires firms engaged in with-profits business to ensure that their distribution strategies are affordable and sustainable. See ''Solvency II'' below.

The PRA Rulebook also mandates that firms carrying on with-profit business must:

define and make publicly available the PPFM applied in their management of with-profit funds;
ensure their governance arrangements offer assurance that they have managed their funds in line with the PPFM they have established and published;
produce annual reports for with-profit policyholders on how they have complied with this obligation, including how they have addressed any competing or conflicting rights, interests or expectations of policyholders and, if applicable, shareholders;
comply with (i) modified regulatory reporting requirements designed to achieve the PRA's objective of making directors and senior management more explicitly responsible for setting up technical provisions and other decisions taken on actuarial advice and (ii) new audit requirements for liabilities; and
comply with consequential changes to certification in the insurance returns.

Transfers of insurance business

Any transfer of UK insurance business must be effected in accordance with Part VII of FSMA, which requires a scheme of transfer to be prepared and approved by the High Court of England and Wales. As a practical necessity, PRA approval (which will involve consultation with the FCA) may also be required in addition to an order by the court approving the transfer, and a report of an independent expert is required on whether the proposed transfer would be prejudicial to policyholders. A Part VII scheme of transfer enables direct insurers and reinsurers to transfer all or part of their books of business to another approved insurer by operation of law without the need for individual policyholder consents, although policyholders have the right to object to the proposed scheme at the court hearing. A scheme of transfer may also allow for the transfer of assets and other contracts related to the business so as to give proper effect to the transfer. A transfer of insurance business means a transfer of insurance policies and should be distinguished from the change of control of a business effected by a transfer of shares in an insurance company.

Solvency II

Solvency II has applied since 1 January 2016.

The Financial Services Authority, and since April 2013, the PRA have required insurance companies to make preparations for the new EU Solvency II framework (the main aspects of this framework are described below and under ''Regulatory capital and other requirements may change'' in the section of this document headed ''Risk Factors'').

The Solvency II prudential framework has updated, among other things, the existing EU life, non-life, reinsurance and insurance groups directives. The main aim of the framework is to protect policyholders through establishing prudential requirements better matched to the true risks of the business, taking into account other regulatory objectives of ensuring the financial stability of the insurance industry and stability of the markets. Like the Basel 3 reforms introduced in relation to banks in 2014, the new approach is based on the concept of three pillars: quantitative requirements (the amount of regulatory capital an insurer should hold), qualitative requirements on undertakings such as risk management as well as supervisory activities; and enhanced disclosure and transparency requirements. It is also directionally consistent with Pillar 2, being on an economic capital basis.

Solvency II contains rules covering, among other things:

technical provisions against insurance and reinsurance liabilities;
the valuation of assets and liabilities;
the maintenance of a minimum regulatory capital requirement (''MCR'') and a higher and more risk sensitive solvency capital requirement (''SCR'');
what regulatory capital is eligible to cover technical provisions, the MCR and the SCR, and to what extent specific tiers of capital may so count;
what regulatory capital or assets are to be treated as being restricted to specific uses and not therefore fungible or transferable across the firm's entire operations;
to what extent a firm's regulatory capital models may be used to calculate the SCR;
governance requirements including risk management processes;
considerably expanded reporting requirements covering (i) matters to be reported privately to the firm's supervisor leading to a full supervisory review process and (ii) matters to be published in a ''Solvency and Financial Condition Report'';
rules providing for the SCR to be supplemented by a ''regulatory capital add-on'' in appropriate cases, the add-on to be imposed by the relevant supervisor (the PRA in the case of UK firms);
rules on insurance products which are linked to the value of specific property or indices (''unit linked products'');
the application of the above requirements across insurance groups, including a specific regime for insurance groups with centralised risk management and an enhanced role for the ''group supervisor'' of international groups, who will be required to work in conjunction with a ''college of supervisors'' responsible for specific solo members of the group; and
provision for the supervision of insurance groups headed by an insurance company or insurance holding company with a head office outside the EEA.

Level 2 rules, which supplement the Solvency II Directive with more detail, were adopted by the European Commission on 10 October 2014 and entered into force on 18 January 2015. The European Commission has proposed amendments to these rules as part its initiative to build a Capital Markets Union. These amendments would, amongst other things, alter certain regulatory capital requirements of Solvency II with the intention of providing insurance companies with incentives to invest for the long-term in infrastructure and European Long-Term Investment Funds.

The UK rules generally replicate the Level 2 implementing rules other than in certain instances, such as the need to provide for with-profit funds in the context of long-term insurance funds no longer being recognised under Solvency II. Under Solvency II, ''ring-fenced funds'' are funds the assets of which may have a reduced capacity to fully absorb losses in other parts of the insurer on a going concern basis. The PRA rules contain a requirement (which came into effect on 1 January 2016) that firms hold, within each of their with-profits funds, assets that are sufficient to meet the with-profits liabilities of such funds. Also, in March 2015, the FCA published a policy statement containing its own final rules to implement Solvency II. The final rules use a new definition of ''with-profits fund surplus'' in relation to Solvency II firms' with-profits business, being, in summary, the difference between the assets in the fund and the liabilities in the fund. Only the with-profits fund surplus may be distributed to policyholders and shareholders. The PRA has also stated in a supervisory statement that restrictions on assets and Own Funds resulting from the nature of, and regulatory regime for, with-profits insurance business in the UK will generally mean that each with-profits fund displays the characteristics of a ring-fenced fund for the purposes of Solvency II. In the same supervisory statement, the PRA also notes that firms sometimes have support arrangements in place which seek to provide support to a with-profits fund from financial resources outside that fund; the final rules require that the terms of any such support arrangement be clarified and codified. In addition, depending on the facts or circumstances, the Board may apply capital management policies to control the distribution of capital.

The Solvency II framework includes a new regime for insurance groups and specific provision for groups the parent undertakings of which have their head offices outside the EEA. This applies to the Company, as its head office is in Jersey, which is outside the EEA.

The treatment of such groups depends, among other things, on whether the jurisdiction in which the parent has its head office is determined to have an equivalent group regime. The equivalence of non-EEA countries is relevant to three distinct provisions of the Solvency II Directive:

• for the purpose of determining whether reinsurance ceded to a solo insurer or reinsurer authorised in that jurisdiction should be treated in the same way as reinsurance ceded to an EEA firm;

for the purpose of determining whether in applying the deduction/aggregation method of determining group regulatory capital adequacy a non-EEA firm should (i) be treated as if it were an EEA firm or whether (ii) its contribution to group regulatory capital adequacy may be determined by reference to local rules; and
for the purpose of determining whether the standard of group supervision in the jurisdiction concerned is equivalent to EEA standards.

A determination of 'equivalence' either by the European Commission generally, or by the group supervisor in relation to a specific group, confirms that a third country's insurance regime is deemed to have an equivalent level of protection to that provided by Solvency II. However, the Commission may also recognise equivalence on a transitional basis.

Such equivalence may be recognised for the following purposes:

for group solvency calculations: affecting the calculation of the group solvency of a participating undertaking in a third country (re)insurance firm. In that case a determination of equivalence allows the group solvency of the participating undertaking to be calculated taking into account, as regards the firm, its SCR and Own Funds eligible to satisfy that requirement as laid down by the third country concerned. This only applies where the deduction and aggregation method of calculating group solvency is used, rather than the default accounting consolidation-based method; and
for group supervision purposes: in relation to group supervision in the third country where the parent undertaking of the group has its head office. If that group supervision is deemed to be equivalent it shall be relied upon by EU Member States. However, in the absence of an equivalence determination (or in a temporarily equivalent third country where the ''balance sheet total'' of the EEA firm is greater than that of the third country parent undertaking), such groups will be supervised within the EEA either by applying Solvency II rules at the worldwide group level or by applying 'other methods' which ensure appropriate group supervision. Such methods may include a requirement for the establishment of an insurance holding company or mixed financial holding company within the EEA and the application of Solvency II rules to the group headed by that holding company.

An election for ''other methods'' might mean (on the assumption that Jersey remains non-equivalent for the purposes of Solvency II) that the regulatory capital regulation of the Group was unaffected by the changes to the group regime. However, if the PRA chooses to apply Solvency II rules at the worldwide group level, this would, among other things, result in the group regulatory capital calculation being performed at the Company level. The assessment at the Company level would bring into account a contribution to group capital adequacy from Opal Re, which is a subsidiary of the Company but which is not a subsidiary of PLHL. The assessment at the Company level could also bring the Group's external bank debt and the Senior Bonds into the calculation and remove capital instruments which currently qualify for the EEA parent level calculation. In any event, Jersey is not seeking to be treated as Solvency II equivalent. See also the risk factor entitled ''Regulatory capital and other requirements may change'' in the section of this document headed ''Risk Factors''.

Certain of the Group's subsidiaries are, and certain of the Enlarged Group's subsidiaries will be, authorised by the FCA to carry on investment business. These entities are, or will be, subject to regulation and supervision by the FCA and must comply with the FCA's conduct of business and prudential rules made under FSMA.

Many insurance companies and insurance groups expect to benefit from using internal models to calculate their SCR (or specific risks or major business units within the SCR). However, they require supervisory approval to do this. The process of obtaining that approval is a rigorous one involving a full review of the firm's governance arrangements and proof that the internal modelling is fully used within the firm's business. The PRA may also impose regulatory capital add-ons if it considers that the resultant regulatory capital requirement does not reflect the risk exposures of the relevant firm or insurance group. On 7 December 2015, the Company announced that the PRA had approved the Group's Solvency II Internal Model application.

The Group notes that the technical specifications resulted in a significant increase in the technical provisions and regulatory capital requirements of the Life Companies. However, these increases were mitigated to an extent by the introduction of transitional provisions, included in the Omnibus II Directive, which are designed to ensure a smooth transition to the new regime. On 17 December 2015 the PRA confirmed that it had approved an application by the Life Companies to apply certain transitional

measures. The benefit of the transitional provisions will be phased out over a 16 year period. There remains some uncertainty over the pace of run-off within that period. If the pace of run-off is faster than expected then this may defer the amount or timing of future cash releases from the Life Companies.

For further information, see also the risk factor entitled ''Regulatory capital and other requirements may change'' in the section of this document headed ''Risk Factors''.

Conduct of Business requirements for investment businesses and the Markets in Financial Instruments Directive

MiFID, sets out detailed and specific requirements in relation to organisational and conduct of business matters for investment firms and regulated markets. In particular, MiFID and its implementing measures make specific provision in relation to, among other things, organisational requirements, outsourcing, customer classification, conflicts of interest, best execution, client order handling and suitability and appropriateness, and investment research and financial analysis, pre- and post-trade transparency obligations, transaction reporting and substantial changes to the responsibility for the supervision of cross border investment services.

This regime will be changed by the proposed amendments to MiFID (''MiFID II''). The Directive on Markets in Financial Instruments will be applicable from January 2018.

Data protection

Data protection law in the UK is derived from the first data Protection Directive (Directive 95/46/EC). In January 2012, the European Commission published its proposals for reform of EU data protection law. The main proposal is a draft regulation that would replace the existing regime set out in Directive 95/46/EC on the protection of individuals with regard to the processing of personal data and on the free movement of such data. The regulation contains measures that would harmonise data protection procedures and enforcement across the EU, and achieve consistency with the existing system for ensuring privacy online. It would be directly binding on data controllers in all member states immediately upon coming into force without the need for implementation by the member states. Many of the new provisions contained in the draft regulation could be expected to have a significant impact on data controllers and processors who are active within the EU, including many who are located outside it but who monitor the behaviour of EU consumers, or offer them goods or services online. Importantly, the penalties for breach of the new regime will be much more substantial.

FCA thematic review

The thematic review on the fair treatment of long standing customers in the life insurance sector

The Life Companies, the AXA Life Company and ALAC charge customers ''exit charges'', when switching their pension policies to another provider or realising their pension benefits prior to their specified retirement date, and ''paid up charges''. On 3 March 2016, the FCA published a thematic review report on the fair treatment of long standing customers in the life insurance sector. The FCA found a ''mixed picture'' where most firms reviewed demonstrated good practice in some areas but poor practice in others. A small number of firms were found to be delivering poor customer outcomes across a majority of the areas assessed. In particular, the FCA had concerns about:

lack of board and senior management oversight of closed book customers and outcomes;
whether customers were aware of the effect of exit and paid-up charges on their policies and the quality of information provision on the economic effect of exit and paid-up charges;
firms' behaviour, policies and attitude towards applying exit charges;
the impact of exit and paid-up on customers shopping around and customer choice;
the absence, within most firms, of a review of products (and related charges) to assess whether customers were getting fair outcomes; and
where there are product reviews, over-reliance or overemphasis on compliance with contractual terms and conditions even where actual customer detriment is identified.

A number of the firms which are the subject of the review are now the subject of additional investigations, including ALAC.

The review may result in a change in law and/or regulation which will change practices in the sector. In addition, the FCA may require affected firms to carry out remediation in respect of detriment suffered by customers as a result of historic practices. The FCA may also decide to impose financial penalties or compulsory customer remediation (depending on circumstances and its findings).

The thematic review on annuity sales practices

The Life Companies and ALAC sell annuities. Currently, across the sector, a large number of customers who have pension policies with the Group buy an annuity from the firm that holds their pension policies. In other words, customers with pension policies often choose to use their savings to buy an annuity issued by the Group.

consumers did not shop around and/or switch providers when they chose to invest their pension pot in an annuity;
firms' sales practices curtailed shopping around and product switching;
the code of conduct on retirement choices, which is produced by the ABI, was not being applied consistently (or in some cases, at all); and
some consumers were buying the wrong type of annuity (e.g., not buying an enhanced annuity when they were eligible for one),

as a result of the above, some consumers might be suffering detriment because they were not receiving potentially higher income.

FCA market study into retirement income

The final findings of the FCA market study into retirement income were published in March 2015 and the FCA proposed remedies in light of those findings, some of which may lead to changes to FCA rules in the future. It is not clear what the effect of any required action might be.

PART VII—OPERATING AND FINANCIAL REVIEW OF THE COMPANY

The following operating and financial review is intended to convey the Director's perspective on the operating performance and financial condition of the Group from 1 January 2013 to 30 June 2016. The discussion should be read in conjunction with the rest of this document, the 2016 Half Year Report and Accounts and the Annual Report and Accounts for the years ended 31 December 2015, 2014 and 2013, each of which are incorporated by reference into this document. The following discussion contains forward-looking statements that involve risks and uncertainties that could cause the actual results of the Group to differ from those expressed or implied by such forward-looking statements. These risks and uncertainties are discussed in the section of this document headed ''Risk Factors'' and elsewhere in this document. See ''Cautionary note regarding forward-looking statements'' in the section of this document headed ''Important Information''.

The discussion contained herein relates to, and all financial information has been extracted without material adjustment from, the historical financial information incorporated by reference into this document, which has been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. The 2016 Half Year Report and Accounts and the Annual Report and Accounts for the years ended 31 December 2015, 2014 and 2013 have each been prepared on a historic cost basis except for investment property, owner-occupied property, and those financial assets and financial liabilities and investment contracts without discretionary participation features that have been measured at fair value.

This section also includes a discussion of the Group's liquidity and capital resources.

Key factors affecting results of operations and comparability

The following paragraphs describe the key factors which have affected the results of operations of the Group during the period from 1 January 2013 to 30 June 2016 and/or which may affect the results of operations of the Group in subsequent periods.

Market update

The FTSE All Share (Growth) Index increased by 16.7 per cent. to 3,610 as at 31 December 2013 from 3,093 as at 31 December 2012. Encouraging economic data from the US, receding fears over the state of the global economy and the continuation of the US Federal Reserve's quantitative easing programme resulted in the index increasing. Property markets also increased in 2013. The All Property Index showed an increase of approximately 10.9 per cent. as at 31 December 2013 as compared to 31 December 2012.

Gilt yields increased over 2013 across all durations reflecting increased investor confidence through the year. Greater stability in the financial markets also benefited credit spreads throughout the course of 2013.

In 2014, concerns about geopolitical tensions in the Ukraine, Russia and Middle East, falling oil prices and fears of a fresh Eurozone crisis held markets back. Reflecting this, the FTSE All Share (Growth) Index decreased by 2.2 per cent. to 3,533 as at 31 December 2014 from 3,610 as at 31 December 2013.

Gilt yields fell at all durations during 2014, with a 15 year gilt falling by 124 basis points during the year. Credit spreads widened across all ratings in 2014 with the exception of AAA which narrowed slightly. The All Property Index continued to see gains throughout 2014, finishing 19 per cent. ahead of its 31 December 2013 level.

UK equity markets fell during 2015, with the FTSE All Share (Growth) Index closing at 3,444, 2.5 per cent. down on its level at 31 December 2014 of 3,533.

Gilt yields increased at all durations during 2015, with the benchmark 15-years gilt yields increasing by 23 basis points. Credit spreads widened across all ratings, whilst the All Property Index closed 14 per cent. above its 31 December 2014 level.

In the first half of 2016, uncertainty prior to and following the referendum on 23 June 2016 on the UK's membership of the EU contributed to increased market volatility in the period. The initial reaction to the vote to leave the EU increased volatility in exchange rates between sterling and the dollar and euro and resulted in significant falls in equity markets and interest rates.

Despite the falls experienced in late June 2016, the FTSE All Share index increased by 4 per cent. during the period, increasing to 3,515 as at 30 June 2016 from 3,444 as at 31 December 2015.

In late June 2016, gilt yields fell significantly across all durations with the benchmark 15-years gilt yield decreasing by 89 basis points in the period. Credit spreads widened across all durations.

The Group's results and financial condition can be affected by changes in market levels, including risk-free rates, corporate bond credit spreads, equity values and property values. The 2013 results benefited from the positive impacts of narrowing credit spreads and property returns, partly offset by the impact of increasing yields and losses recognised on equity hedging positions on an IFRS basis. The 2014 results were adversely impacted by falling gilt yields and the widening of credit spreads, offset by positive property returns and lower inflation. The 2015 results benefited from increasing yields in the period together with continued property gains, partly offset by the adverse impacts of widening credit spreads. The 2016 interim results were adversely impacted by losses on equity hedging positions on an IFRS basis and the widening of credit spreads, partly offset by gains on the Group's interest rate hedging positions in light of the falling yields.

The long-term nature of much of the Group's operations means that the effects of short-term economic volatility are treated as non-operating items. In calculating the Group's IFRS operating profit, the Group incorporates expected returns on investments supporting its long-term business. Changes due to economic items, for example market value movements and interest rate changes, which give rise to variances between actual and expected investment returns, and the impact of changes in economic assumptions on liabilities, are disclosed separately outside operating profit as investment variances and economic assumption changes. The Group's investment return variances and economic assumption changes on long-term business on an IFRS basis were a negative £147 million for the six months ended 30 June 2016 compared with a positive £44 million for the six months ended 30 June 2015. It was a positive £13 million for the year ended 31 December 2015, compared with a positive £12 million for the year ended 31 December 2014 and a positive £64 million for the year ended 31 December 2013.

Implementation of Solvency II

In accordance with EIOPA and PRA requirements and the Group's ''other methods'' waiver, from 1 January 2016, the Group has undertaken a Solvency II group regulatory capital calculation (in respect of PLHL and its subsidiaries) and a solo assessment for each Life Company. Since that date, regulatory capital adequacy for the Group is no longer monitored under the European Union Insurance Group's Directive (''IGD'') or the PRA requirement for an Individual Capital Assessment (''ICA''). As such, 31 December 2015 was the last date on which the Group reported its regulatory capital adequacy under those metrics.

Calculation of the Solvency II group regulatory capital calculations involves a valuation in line with Solvency II principles of the Group's Own Funds and a risk based assessment using an internal model of the Group's solvency regulatory capital requirements (''SCR''). Further information is provided under ''Solvency II'' in Part VI (''Regulatory Overview'') of this document.

The group SCR is calibrated so that the likelihood of a loss exceeding the group SCR is less than 0.5 per cent. over one year. This is meant to ensure that capital is sufficient to withstand a broadly '1 in 200 year event' and is calculated in accordance with the Group's Solvency II Internal Model.

The Group's Own Funds differ materially from IFRS equity for a number of reasons, including the exclusion of the Group's bank debt held outside of the PLHL sub-group, the recognition of future shareholder transfers from the with-profit funds (but not the shareholder share of the estate), the treatment of certain subordinated debt instruments as capital items, and a number of valuation differences, most notably with regard to insurance liabilities and intangible assets.

Following the implementation of the Solvency II regulatory regime from 1 January 2016, the Group has made certain changes to the assumptions and estimates used in the IFRS valuation of insurance contracts, as follows:

In determining the discount rate to be applied when calculating participating and non-participating insurance contract liabilities, the Group has amended the risk-free reference curve from a gilt yield curve plus a liquidity premium of 10 basis points to the EIOPA swap curve plus 10 basis points.
For non-participating insurance contract liabilities, the Group has previously used a valuation rate of interest and adjusted the liability discount rate by reference to the yield on the assets backing the liabilities to account for credit, default and reinvestment risk. The Group now makes an explicit adjustment to the risk-free rate to adjust for illiquidity in respect of assets backing illiquid liabilities. The new approach does not take any additional credit for investment margins compared to the previous methodology.

• For non-participating insurance contract liabilities, the Group previously derived demographic assumptions by adding an implicit prudent margin to best estimate assumptions. The Group has amended its approach in this regard and now sets assumptions at management's best estimates and recognises an explicit margin for demographic risks. For participating business in realistic basis companies, the assumptions about future demographic trends continue to represent 'best estimates'.

The assumption changes have been made to align the IFRS basis more closely with the requirements of Solvency II and move the basis closer to management's expectations of the requirements under the anticipated new IFRS with respect to insurance contracts. As the Group manages its capital in accordance with Solvency II, the changes outlined above will mean the IFRS results will more closely reflect the way the business is managed and the Group's risk hedging strategies.

The amendments to the risk free reference rate and the approach to adjusting for illiquidity increased insurance liabilities by £77 million in the six months ended 30 June 2016. This was more than offset by the impact of the change in approach for determining the demographic prudence margin, which reduced insurance liabilities by £122 million. After allowing for other second order impacts of the changes (including the revaluation of certain current liabilities using the swap rather than gilt curve), the overall impact of the above changes in the six months ended 30 June 2016 is a benefit to IFRS profit before tax of £38 million.

Discontinuance of MCEV and financial leverage reporting

The Group has historically provided supplementary reporting information through the presentation of its results on an MCEV basis. MCEV was previously considered to provide a relevant means of determining the economic worth of the Life Companies and provided a measure to assess the Group's ability to increase value through the delivery of incremental management actions.

Following the implementation of the Solvency II regulatory regime, the need for an alternative reporting metric that recognises the value of future cashflows has been removed. Accordingly, the Group reported under its MCEV basis for the last time as at 31 December 2015 and will not report this metric going forward.

In addition, the Group's historically reported measure of financial leverage has not been (and will no longer be) reported after 31 December 2015. The achievement of the Group's investment grade credit rating during 2015 and the reliance of the calculation on MCEV information means that the metric will not be calculated going forward.

The Group will continue to focus on cash generation as its key reporting metric, and this will be driven by the Solvency II Own Funds of the Life Companies.

Mortality, longevity and persistency

The Group's results of operations and cashflows may be affected by increased mortality and longevity rates and by variances between assumed and actual experience in factors such as persistency levels. As the Group's term and annuity business are inversely related, fluctuations in mortality and longevity rates will positively impact one business while negatively impacting the other, with the Group's exposure to longevity rates having a more pronounced effect on the Group than the Group's exposure to mortality rates. Increased mortality rates increase death claims on the Group's term insurance products, while increased longevity rates result in pay-outs to holders of annuities over a longer period. The Group manages its exposure to changes in mortality and longevity rates by holding prudent reserves based on assumptions that reflect past experience and anticipated future trends.

In addition, the Group maintains reserves to compensate policyholders who choose to surrender their respective policies, the amount of such reserves being based on the assumed level of surrenders. Variances between the assumed level of surrenders and the actual level of surrenders expose the Group to persistency risk. In the case of policies providing a guaranteed payment at a future date, if the amount of surrenders falls below expectations, the Group will need to provide for the cost of the additional future payments. On the other hand, in the case of policies providing no guaranteed payment, if the amount of surrenders exceeds expectations, the anticipated future profits to be obtained from these policies could be curtailed.

Excluding the impact of changes to align the IFRS valuation of insurance contracts with Solvency II requirements as disclosed above, the Group's IFRS insurance liabilities increased by £1 million as a result of changes in assumptions with regard to mortality, longevity, persistency and expenses in the first half of 2016 (2015: increased by £6 million; 2014: decreased by £27 million; 2013: decreased by £7 million).

Divestment of Ignis Asset Management

On 1 July 2014, the Group completed the disposal of the entire issued share capital of Ignis Asset Management to Standard Life Investments, in return for total consideration of £390 million which was paid in cash on completion of the divestment. A payment of £6 million was made to Standard Life on 24 September 2014 in relation to certain contractual balance sheet adjustments which could not be calculated until after closing. For details on the financial effects of the divestment of Ignis Asset Management on the Group, see paragraph 12.1.12 (''Contracts relating to the Divestment of Ignis Asset Management'') of Part XIV (''Additional Information'') of this document.

The results of Ignis Asset Management for the period from 1 January 2014 to the date of completion of the divestment were consolidated in the financial statements of the Company for the year ended 31 December 2014, being disclosed as discontinued operations. Phoenix Life and Ignis Asset Management were reported as separate segments in those financial statements. The results for the year ended 31 December 2013 have been restated to present the results of Ignis Asset Management as discontinued operations.

Equity raise and debt refinancing

In January 2013, the Group announced the re-terming of the Impala Facility and an equity raising of £250 million. The equity raising comprised equity placings with certain affiliated investment funds of Och-Ziff Capital Management Group (''Och-Ziff Funds'') and an open offer to raise aggregate gross proceeds of £250 million through the issuance on 21 February 2013 of 50 million ordinary shares. The proceeds of the equity raising net of deduction of commissions, fees and expenses were £232 million.

This equity raising enabled the re-terming of the Impala Facility and contributed to a £450 million prepayment on 22 February 2013. Following the re-terming, the bullet repayments which were due in 2014, 2015 and 2016 were replaced by a single tranche repayable by June 2019 (assuming the option to extend the Impala Facility from its maturity on 31 December 2017 was exercised by the Impala Borrowers). The mandatory repayments on the Impala Facility were reduced from £125 million per annum to £60 million per annum.

Following completion of the divestment of Ignis Asset Management on 1 July 2014, £250 million of the proceeds were used to prepay existing bank debt under the Impala Facility.

On 7 July 2014, the Group issued a £300 million senior unsecured bond at a coupon of 5.75 per cent. per annum from the Group's new financing vehicle, PGH Capital (the ''Senior Bond'' or the ''Senior Bonds''). The net proceeds of £296 million were used to prepay the Impala Facility. For further information, see paragraph 12.1.9 (''The Senior Bonds'') of Part XIV (''Additional Information'') of this document.

On 23 July 2014, the Group unified the remaining senior bank debt and PIK Notes (Pearl Facility and Impala Facility) into a single five year £900 million unsecured bank facility at PGH Capital. As part of the bank refinancing, a further prepayment of £206 million of existing debt was made, financed by existing internal resources.

On 23 January 2015, the Group exchanged 99 per cent. of the Perpetual Reset Capital Securities issued by PGH1 for £428 million of new subordinated notes, issued by PGH Capital and £3 million of cash. The new subordinated notes have a maturity date in 2025 and attract a coupon of 6.625 per cent. per annum.

On 21 March 2016, the Group agreed an amendment of its £900 million five year unsecured bank facility into a £650 million unsecured revolving credit facility, maturing in June 2020. There are no mandatory or target amortisation payments associated with the facility but prepayments are permissible. The facility currently accrues interest at LIBOR plus 1.35 per cent. per annum, which would change if there were a change in the Company's credit rating. A utilisation fee of 0.40 per cent. per annum is payable in respect of the facility, which would reduce if the amount outstanding under the facility reduced to 67 per cent. or below.

In May 2016, the Group entered into a £220 million short term debt facility as part of the AXA Transaction. The facility matures 12 months after the AXA Transaction closes and, subject to fees, can be extended by two further six month periods. The facility accrues interest at LIBOR plus 0.85 per cent. for the first six months from draw down (increasing to 1.25 per cent. six months after closing of the AXA Transaction, 2.00 per cent. 12 months after closing of the AXA Transaction, and 2.75 per cent. 18 months after closing of the AXA Transaction). As at 30 June 2016, the facility remained undrawn.

On 1 June 2016, the Group completed an equity placing of 22.5 million new ordinary shares in connection with the AXA Transaction. The placing raised net proceeds of £190 million, after deduction of applicable commissions and expenses.

As a result of the refinancing actions undertaken by the Group, total shareholder borrowings has reduced by 19 per cent. to £1,495 million as at 30 June 2016 from £1,857 million as at 31 December 2013.

Transfer of annuity in-payment liabilities to Guardian Assurance Limited

On 27 June 2012, the Company announced an agreement to transfer approximately £5 billion of annuity in-payment liabilities to Guardian Assurance Limited (''Guardian Assurance''). The transaction was part of an ongoing management action programme to accelerate cash and significantly reduced the Group's sensitivity to longevity risk.

The Group realised further Group IGD benefits of £0.2 billion when the annuity liabilities were transferred to Guardian Assurance through a Part VII transfer on 1 October 2013. An IFRS gain on the transfer of £65 million was reported outside of operating profit in the consolidated financial statements for the year ended 31 December 2013.

On 31 July 2014, PLL entered into a second reinsurance agreement to transfer approximately £1.7 billion of in-payment liabilities from three with-profit funds to Guardian Assurance, effective 1 January 2014. This transaction removes a significant element of longer dated risk from three separate with-profit funds in PLL. The reinsurance transaction was recognised in the MCEV results for the year ended 31 December 2014, reducing MCEV by £12 million. There was no impact on the IFRS results.

It is expected that the reinsurance agreement will be replaced with a court-sanctioned insurance business transfer of the annuities to ReAssure Limited, which is a sister company of Guardian Assurance. The Directors currently expect the necessary approvals for the transfer will be in place by the end of 2016.

Reinsurance of annuity liabilities to RGA International

On 9 November 2015, the Group entered into an agreement with RGA International, effective from 1 November 2015, to reinsure substantively all of the PLAL annuity liabilities previously ceded to Opal Re, a subsidiary undertaking of the Company. The Group paid a reinsurance premium of £1,346 million to RGA International. Under the terms of the arrangement, RGA International holds assets in a collateral account over which the group has a floating charge. A gain of £49 million (net of a £64 million impairment of associated acquired value of in-force business) was recognised in the results for the year ended 31 December 2015.

Reduction in shareholding in UK Commercial Property Trust (''UKCPT'')

In February 2016, the Group reduced its holding in the issued share capital of UKCPT below 50 per cent. to 48.9 per cent. The Group deemed that it no longer exercised control over UKCPT. The reduction in its ownership percentage below 50 per cent. coupled with the existence of a relationship agreement and a lack of representation on the Board was considered to have removed the Group's unilateral power of veto in general meetings and placed additional restrictions on the Group's ability to exercise control. Consequently, UKCPT has been deconsolidated from the effective date of this loss of control. The Group's remaining interest in UKCPT is now treated as an associate and held at fair value.

The Group's interest in UKCPT continues to be held in the with-profit funds of the Life Companies. Therefore the shareholder exposure to fair value movements in the Group's investment in UKCPT continues to be limited to the impact of those movements on the shareholder share of distributed profits from the relevant fund.

There was no gain or loss recognised in the results on reduction of the holding in UKCPT.

Changes in accounting policies

In 2014, the Group changed the basis of preparation for the Group's consolidated financial statements from IFRS as adopted by the EU to IFRS as issued by the IASB, effective from 1 January 2014 and adopted IFRS 10 Consolidated Financial statements and IFRS 11 Joint Arrangements. As a result of adopting the new basis of preparation in 2014, IFRS 10 and IFRS 11 have an initial application date of 1 January 2013, resulting in the restatement of previous financial information. The impact of IFRS 10 is explained below. The adoption of IFRS 11 resulted in the presentation of a property investment structure as an investment in joint ventures within financial assets (previously disclosed as an equity investment) prior to its disposal in the six months ended 30 June 2016. As a result of the Group's accounting policy to value interests in joint ventures at fair value through profit or loss, there was no change in the measurement basis.

IFRS 10 replaces the parts of the previously existing IAS 27 Consolidated and Separate Financial Statements that dealt with consolidated financial statements and SIC-12 Consolidation—Special Purpose Entities, and establishes a single control model that applies to all entities including special purpose entities. IFRS 10 changes the definition of control such that an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

Subsidiary undertakings are those entities over which the Group has control. The Group controls an investee if and only if the Group has all the following:

power over the investee;
exposure, or rights, to variable returns from its involvement with the investee; and
the ability to use its power over the investee to affect its returns.

The Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: relevant activities, substantive and protective rights, voting rights and purpose and design of an investee. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control.

The Group is invested in a number of collective investment schemes which in turn invest in a range of financial assets. The Group's percentage ownership in these collective investment schemes can fluctuate according to the Group's and third party participation in them. When assessing the control over these collective investment schemes the Group considers the scope of its decision making authority including its ability to direct the relevant activities of the fund, powers of veto and exposure to variability of returns. The Group also assesses substantive removal rights that may affect the Group's ability to direct the relevant activities.

Tables summarising the financial effects on the consolidated income statement, statement of consolidated financial position and statement of consolidated cashflows on implementation of the new accounting policy can be found in the Annual Report and Accounts for the year ended 31 December 2014, which is incorporated by reference into this document. This change in accounting policy had no impact on net assets or on earnings per share as at 31 December 2013.

Recent developments, current trading and outlook

Acquisition of the SunLife Embassy Business

Acquisition of Abbey Life

On 28 September 2016, the Group announced the proposed acquisition of the entire issued share capital of ALAC, Abbey Life Trustee Services Limited and Abbey Life Trust Securities Limited from Deutsche Holdings No. 4 Ltd., a wholly owned subsidiary of Deutsche Bank AG, for total consideration of £935 million in cash payable on Completion, subject to customary adjustments. Abbey Life is a life insurance group that specialises in the management of closed life and pension funds predominantly comprising unit-linked life and pensions policies and annuities in payment. ALAC also manages two with profit funds, other non-profit funds and a small permanent health insurance book. ALAC is authorised by the PRA and regulated by the FCA and the PRA to carry on long term insurance business in the UK. As at 31 December 2015, Abbey Life had approximately 735,000 policyholders and £10 billion of assets under management. ALAC's Solvency II Own Funds as at 30 June 2016 was £1,047 million and ALAC's MCEV as at 31 December 2015 was £1,218 million.

Financial targets

The Group estimates that it is on track to meet its cash generation targets:

(i) operating companies' cash generation of £350 million to £450 million in 2016; and
(ii) operating companies' cash generation of £2.0 billion between 2016 and 2020.

Cash generation

The Group had a cumulative cash generation target for 2014 to 2019 of £2.8 billion, against which £1.2 billion had been achieved by 31 December 2015. In 2016, the Group announced a new five year cumulative cash generation target for 2016 to 2020 of £2.0 billion, of which the Group expects to achieve £350 million to £450 million in 2016. For the six months ended 30 June 2016, the Group generated £147 million of cash.

The resilience of the cash generation target is demonstrated by the following stress testing:

	1 January 2016 to 31 December 2020
	(£ billion)
Stress testing(1)
Base case five-year target	2.0
Following a 20 per cent. fall in equity markets .	2.0
Following a 15 per cent. fall in property values	2.0
Following a 75 basis points interest rates rise(1)	2.1
Following a 75 basis points interest rates fall(1) .	1.9
Following credit spread widening(2)	1.9
Following 5 per cent. decrease in annuitant mortality rates(3)	1.8

Notes:

(1) Assumes (i) stress occurs on 30 June 2016 and there is no market recovery during the cash generation target period; and (ii) recalculation of transitional measures, subject to PRA approval.

(2) Credit stress equivalent to an average spread of 100 basis points widening across ratings, 10 per cent. of which is due to defaults or downgrades.

(3) Equivalent of six months' increase in longevity.

One-off shocks would be expected to lead to a deferral of cash emergence rather than a permanent diminution.

Capital position

As at 30 June 2016, the Group reported a Group Solvency II Surplus of £1.1 billion.

As part of the Group's internal risk management processes, the regulatory capital requirements are tested against a number of financial scenarios. The results of that stress testing are provided below and demonstrate the resilience of the Group Solvency II Surplus:

	Estimated Group Solvency II Surplus as at 30 June 2016
	(£ billion)
Base: 30 June 2016	1.1
Following a 20 per cent. fall in equity markets	1.1
Following a 15 per cent. fall in property values	1.1
Following a 75 basis points interest rates rise(1)	1.1
Following a 75 basis points interest rates fall(1)	1.0
Following credit spread widening(2) .	1.0
Following 5 per cent. decrease in annuitant mortality rates(3)	0.9

Notes:

(1) Assumes recalculation applying transitional measures, subject to PRA approval.

(2) Credit stress equivalent to an average spread of 100 basis points widening across ratings, 10 per cent. of which is due to defaults or downgrades.
(3) Equivalent of six months' increase in longevity.

Description of key line items

The following descriptions of key line items in the 2016 Half Year Report and Accounts and the Annual Report and Accounts for the years ended 31 December 2015, 2014 and 2013 are relevant to the discussion of the results of operations.

Gross premiums written

Although the Group, as a consolidator of closed funds, is primarily focused on the efficient management of in-force policies and writes limited new policies (currently as increments to existing policies), it receives premiums in connection with its in-force policies. In addition, the Group allows the proceeds of certain policies, such as pension savings plans, to be reinvested at maturity into annuities with a Life Company. The relative levels of gross written premiums therefore largely depend on the persistency of products sold in previous years, particularly annual premium products.

For insurance contracts and investment contracts with discretionary participation features (''DPF''), premiums are accounted for on a receivable basis and exclude any taxes or duties based on premiums. The above mentioned reinvestments of proceeds (received at maturity) into annuities are classified as new business single premiums and, for accounting purposes, are included in both claims incurred and as single premiums within gross premiums written.

Receipts and payments on investment contracts without DPF are accounted for using deposit accounting, under which the amounts collected and paid out are recognised in the consolidated statement of financial position as an adjustment to the liability to the policyholder.

Premiums ceded to reinsurers

As part of its risk mitigation strategy, the Group reinsures certain policies with reinsurers. The premiums associated with such reinsurance are accounted for when they become payable.

Fees

Fees are primarily composed of (i) fund management fees and (ii) investment contract income.

Fund management fees are recognised as services are provided and, for each fund, are typically calculated as a percentage of the fair value of the investments managed by that fund.

Investment contract income is received from investment contract policyholders and is composed of charges for administration services, investment management services, surrenders and other contract fees. This income is recognised as revenue over the period in which the related services are performed. If the income relates to services to be provided in future periods, such income is deferred and recognised when such services are actually performed. In addition, the Group charges 'front end' fees in relation to some non-participating investment contracts. Where the non-participating investment contract is measured at fair value, fees relating to the provision of investment management services are deferred and are only recognised when such services are provided.

Net investment income

Net investment income comprises interest, dividends, rents receivable, net interest income/expense on defined benefit pension schemes, fair value gains and losses on financial assets and investment property and impairment losses on loans and deposits.

Net investment income includes both shareholder and policyholder income. Income attributable to policyholders is offset by increases in policyholder liabilities, which are reflected as expenses in the Group accounts.

Interest income is recognised as it accrues using the effective interest method. Dividend income is recognised on the date the right to receive payments is established, which, in the case of listed securities, is the ex-dividend date.

Rental income from investment property is recognised on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income.

Realised and unrealised gains and losses on financial assets designated at fair value through profit or loss are recognised in the consolidated income statement. Realised gains and losses reflect the difference between the net sale proceeds and the original cost. Unrealised gains and losses reflect the difference between the valuation at the period end date and their valuation at the previous period end or purchase price, if acquired during the year.

Policyholder claims

Policyholder claims on insurance contracts and on investment contracts with DPF reflect the cost of all claims arising during the period, including policyholder bonuses allocated in anticipation of a bonus declaration.

Claims payable on maturity are recognised when the claim becomes due for payment, and claims payable on death are recognised on notification of the death. Surrenders are accounted for at the earlier of the payment date or when the policy ceases to be included within insurance contract liabilities. Where claims are payable and the contract remains in force, the claim instalment is recognised when it becomes due for payment. Claims payable include the costs of settlement.

Reinsurance recoveries

Reinsurance recoveries are recognised when the related gross insurance claim is recognised, according to the terms of the relevant contract.

Change in insurance contract liabilities

The change in insurance contract liabilities is typically a credit, reflecting the reduction in the Group's liabilities from claims paid during the year. Such credit is equivalent to the amount the Group previously allocated (in preceding financial years) for policyholder claims that were paid during the present year (which are reflected in the Group's income statement under ''policyholder claims''). Since the Group is closed to new business, the settlement of liabilities is not offset by new liabilities associated with new business. The change in insurance liabilities also reflects increases or decreases in the liabilities due to changes in assumptions, discount rates and other methodology changes.

Transfer from unallocated surplus

The unallocated surplus comprises the shareholders' future share of with-profit bonuses (including associated tax balances). When transfers are made from the unallocated surplus, the amounts to be received by such shareholders in the future decrease accordingly.

Change in investment contract liabilities

The change in investment contract liabilities reflects the fluctuations in the fair value of the assets underlying the Group's investment contract liabilities.

Amortisation of acquired in-force business

Acquired in-force business represents the fair value of acquired insurance and investment contracts at the time of their acquisition (less the liabilities associated with those contracts measured in accordance with the Group's accounting policies for such contracts) and is recorded in the acquirer's balance sheet. Such amount is amortised over the estimated life of the contracts on a basis that recognises the emergence of the economic benefits.

Total administrative expenses

Total administrative expenses comprise primarily expenses relating to salaries for employees, depreciation on property and equipment, amortisation and impairment of intangible assets other than acquired in-force business.

Net (income)/expense attributable to unitholders

In accordance with IFRS, the Group consolidates the financial results of the unit trusts and collective investment schemes deemed to be controlled by the Group. Net (income)/expense attributable to unitholders represents the share of such unit trusts' and collective investment schemes' losses/gains that belongs to the non-controlling interests in such unit trusts and collective investment schemes.

Consequently, if unit trusts and collective investment schemes in which the Group holds a controlling stake collectively incur an investment loss, the Group will record a credit under ''net expense attributable to unitholders''. Alternatively, if such unit trusts and collective investment schemes collectively record an investment gain, the Group will record a charge under ''net income attributable to unitholders''.

Other operating expenses

Other operating expenses comprise ''Acquisition costs'', ''Change in present value of future profits'' and ''Amortisation of acquired in-force business''.

Finance costs

Finance costs comprise interest owed to banks and other credit institutions and other interest expenses due to financing arrangements during the period.

Results of operations for the Group for the six months ended 30 June 2016 and 2015

The table below sets forth the Group's results of operations for the six months ended 30 June 2016 and 2015.

	Six months ended 30 June
	2016	2015
	(£ million) (unaudited)
Gross premiums written Premiums ceded to reinsurers	449 (25)	415 (28)
Net premiums written Fees Net investment income	424 36 4,450	387 47 372
Total revenue, net of reinsurance payable Other operating income	4,910 16	806 4
Net income Net policyholder claims and benefits incurred Change in investment contract liabilities Administrative expenses(1) Net income attributable to unitholders Other operating expenses(2) .	4,926 (4,224) (277) (232) (25) (46)	810 (277) (126) (225) (12) (53)
Profit before finance costs and tax Finance costs	122 (62)	117 (69)
Profit for the period before tax Tax (charge)/ credit attributable to policyholders' returns Tax credit/(charge) attributable to owners	60 (70) 13	48 31 (1)
Tax (charge)/ credit	(57)	30
Profit for the period . Attributable to: Owners of the parent	3 2	78 51
Non-controlling interests .	1	27

Notes:

(1) Total administrative expenses comprise ''Administrative expenses'' and ''Amortisation of customer relationships''.

(2) Other operating expenses comprise ''Acquisition costs'', ''Change in present value of future profits'' and ''Amortisation and impairment of acquired in-force business''.

Net premiums written

The Group's net premiums written increased by £37 million, or 10 per cent., to £424 million for the six months ended 30 June 2016 from £387 million for the six months ended 30 June 2015. This increase largely reflects higher annuity premiums in line with pension product maturities in the period. The comparative was likely affected by policyholders delaying investment decisions until after implementation of the Pension Freedoms legislation that came into force in April 2015.

Fees

The Group's fees decreased by £11 million, or 23% per cent., to £36 million for the six months ended 30 June 2016 from £47 million for the six months ended 30 June 2015. This decrease principally reflects lower annual management charges on certain unit—linked funds.

Net investment income

The Group's net investment income increased by £4,078 million, to £4,450 million for the six months ended 30 June 2016 from £372 million for the six months ended 30 June 2015. This increase in net investment income compared to the prior period principally reflects the impact of falling yields in the period on the fair values of fixed interest securities, and gains on derivative positions entered into to protect the Group's capital position from the impact of falling interest rates.

Total revenue (net of reinsurance payable)

As a result of the foregoing factors, the Group's total revenue (net of reinsurance payable) increased by £4,104 million to £4,910 million for the six months ended 30 June 2016 from £806 million for the six months ended 30 June 2015.

Other operating income

The Group's other operating income increased by £12 million to £16 million for the six months ended 30 June 2016 from £4 million for the six months ended 30 June 2015.

Net income

As a result of the foregoing factors, the Group's net income increased by £4,116 million to £4,926 million for the six months ended 30 June 2016 from £810 million for the six months ended 30 June 2015.

Net policyholder claims and benefits incurred

The table below sets forth a breakdown of the Group's net policyholder claims and benefits incurred for the six months ended 30 June 2016 and 2015.

	Six months ended 30 June
	2016	2015
	(£ million) (unaudited)
Policyholder claims	(1,783)	(1,851)
Reinsurance recoveries .	218	150
Net policyholder claims	(1,565)	(1,701)
Change in insurance contract liabilities	(2,727)	1,617
Change in reinsurers' share of insurance contract liabilities	36	(233)
Transfer from unallocated surplus.	32	40
Net change in insurance contract liabilities	(2,659)	1,424
Net policyholder claims and benefits incurred	(4,224)	(277)

Net policyholder claims

The Group's net policyholder claims decreased by £136 million, or 8 per cent., to £(1,565) million for the six months ended 30 June 2016 from £(1,701) million for the six months ended 30 June 2015. The reduction in claims experience generally reflects the impact of run-off of the funds and an increase in reinsurance recoveries following the reinsurance of annuity liabilities to RGA International in the second half of 2015.

Net change in insurance contract liabilities

The net change in the Group's insurance contract liabilities was a decrease of £4,083 million to an expense of £2,659 million for the six months ended 30 June 2016 from income of £1,424 million for the six months ended 30 June 2015. This decrease was primarily due to the impact of falling yields in the period which have increased the value of insurance contract liabilities.

Change in investment contract liabilities

The change in the Group's investment contract liabilities was an increase in the expense of £151 million, to an expense of £277 million for the six months ended 30 June 2016 from an expense of £126 million for the six months ended 30 June 2015. Again, the change principally reflects the impact of falling yields in the period on investment contract liabilities.

Total administrative expenses

The table below sets forth a breakdown of the Group's total administrative expenses for the six months ended 30 June 2016 and 2015.

	Six months ended 30 June
	2016	2015
	(£ million) (unaudited)
Administrative expenses	(225)	(218)
Amortisation of customer relationships and other intangibles .	(7)	(7)
Total administrative expenses	(232)	(225)

The Group's total administrative expenses increased by £7 million, or 3 per cent., to £232 million for the six months ended 30 June 2016 from £225 million for the six months ended 30 June 2015. This increase was primarily as a result of providing for the £16 million cost of claims relating to creditor insurance underwritten by a subsidiary of the Group, PA(GI) Limited, prior to 2006.

Net income attributable to unitholders

The Group's net income attributable to unitholders increased by £13 million to £25 million for the six months ended 30 June 2016 from £12 million for the six months ended 30 June 2015. This increase reflects the impact of falling yields in the period which has given rise to fair value gains on fixed interest securities held by the Group's consolidated collective investment schemes.

Other operating expenses

Other operating expenses, which include acquisition costs, changes in present value of future profits (''PVFP'') and amortisation of acquired in-force business, decreased by £7 million, or 13 per cent., to £46 million for the six months ended 30 June 2016 from £53 million for the six months ended 30 June 2015. This decrease in expense is mainly due to a reduction in the amortisation charge on acquired in-force business in line with the run-off of the book.

Profit before finance costs and tax

As a result of the foregoing factors, the Group's profit before finance costs and tax increased by £5 million, or 4 per cent., to a profit of £122 million for the six months ended 30 June 2016 from a profit of £117 million for the six months ended 30 June 2015.

Finance costs

The Group's finance costs decreased by £7 million, or 10 per cent., to £62 million for the six months ended 30 June 2016 from £69 million for the six months ended 30 June 2015. The decrease reflects a reduction in shareholder finance costs due to lower debt principal balances following repayment and restructuring activity. The deconsolidation of UKCPT has also impacted this balance as finance costs associated with UKCPT borrowings were no longer included from February 2016.

Profit for the period before tax

As a result of the foregoing factors, the Group's profit for the period before tax increased by £12 million, or 25 per cent., to a profit of £60 million for the six months ended 30 June 2016 from a profit of £48 million for the six months ended 30 June 2015.

Tax (charge)/credit

In addition to paying tax on their profits (''Owners' tax''), the Group's life businesses pay tax on policyholders' investment returns on certain products at policyholder tax rates (''Policyholder tax''). Policyholder tax is included in the total tax charge.

The table below sets forth a breakdown of the Group's tax charge between Owners' tax and Policyholder tax for the six months ended 30 June 2016 and 2015.

	Six months ended 30 June
	2016	2015
	(£ million)
	(unaudited)
Owners' tax	13	(1)
Policyholder tax	(70)	31
Tax (charge)/credit	(57)	30

For the six months ended 30 June 2016, the Group had a tax credit attributable to owners of £13 million based on a loss (after policyholder tax) of £10 million. The actual credit was higher than the expected credit (based on the UK corporation tax rate of 20%) of £2 million primarily due to certain profit being either non-taxable or taxable at rates other than the standard rate and the recognition of previously unrecognised deferred tax assets.

For the six months ended 30 June 2015, the Group had a tax charge attributable to owners of £1 million based on a profit (after policyholder tax) of £79 million. This was lower than the expected charge (based on the UK corporation tax rate of 20.25 per cent.) of £16 million due to certain profit being either non-taxable or taxable at rates other than the standard rate and the recognition of previously unrecognised deferred tax assets.

Profit for the period

As a result of the foregoing factors, the Group's profit for the period decreased by £75 million to £3 million for the six months ended 30 June 2016 from a profit of £78 million for the six months ended 30 June 2015.

Non-controlling interests

The reduction in the profit attributable to non-controlling interests of £26 million to £1 million for the six months ended 30 June 2016 from £27 million for the six months ended 30 June 2015 reflects the deconsolidation of the Group's interest in the UKCPT from February 2016 and the repayment in April 2016 of the remaining Perpetual Reset Capital Securities.

Operating profit for the Group for the six months ended 30 June 2016 and 2015

Operating profit as presented by the Group is a non-GAAP financial measure and is not a measure of financial performance under IFRS. The Group presents operating profit because it is less affected by short-term external market impacts than IFRS measures of performance and therefore in the Group's view it provides a better basis for assessing trends in the operational performance of the Group over time. Operating profit represents the normalised long-term investment return in that it excludes short-term fluctuations in investment returns and other items considered to be non-operating by the Group's management. Operating profit should not be considered in isolation as an alternative to profit or loss for a period before tax or other data presented in the Group's financial statements as indicators of financial performance. As it is not determined in accordance with IFRS, operating profit as presented by the Group may not be comparable to other similarly titled measures of performance of other companies.

Operating profit is based on expected investment returns on financial investments backing owners and policyholder funds over the reporting period, with allowance for the corresponding expected movements in liabilities. Variances between actual and expected investment returns, and the impact of changes in economic assumptions on liabilities, are disclosed separately outside operating profit. Operating profit is presented before the deduction of the following non-operating items:

amortisation of acquired in-force business and other intangibles; and
non-recurring items.

For a reconciliation of operating profit to IFRS profit/(loss) for the period, see ''Reconciliation of the Group's operating profit for the six months ended 30 June 2016 and 2015'' of this section.

Analysis of the Group's operating profit

The following table is an analysis of the Group's operating profit for the six months ended 30 June 2016 and 2015.

	Six months ended 30 June
	2016	2015
	(£ million) (unaudited)
Phoenix Life .	108	141
Group costs	(1)	(6)
Operating profit before tax	107	135

Phoenix Life

Operating profit for Phoenix Life is based on expected investment returns on financial investments backing shareholder and policyholder funds over the reporting period, with consistent allowance for the corresponding expected movements in liabilities (being the release of prudential margins and the interest cost of unwinding the discount on the liabilities).

Operating profit includes the effect of variances in experience for non-economic items, such as mortality and expenses, and the effect of changes in non-economic assumptions. Changes due to economic items which give rise to variances between actual and expected investment returns, and the impact of changes in economic assumptions on liabilities, are accounted for outside of operating profit.

The following table sets forth a breakdown of the Group's operating profit for Phoenix Life for the six months ended 30 June 2016 and 2015.

	Six months ended 30 June
	2016	2015
	(£ million) (unaudited)
With-profit .	39	36
With-profit where internal capital support provided	(51)	9
Non-profit and unit linked	65	76
One-off impact of IFRS methodology change .	38	—
Longer term return on owners' funds	3	5
Management services	14	15
Phoenix Life operating profit	108	141

With-profit

The with-profit operating profit represents shareholders' one-ninth share of policyholder with-profit bonuses. The with-profit operating profit of £39 million for the six months ended 30 June 2016 is broadly in line with the comparative period for the previous year.

With-profit where internal capital support provided

The operating profit for with-profit funds where internal capital support has been provided decreased by £60 million to a loss of £51 million for the six months ended 30 June 2016 from a profit of £9 million for the six months ended 30 June 2015. The decrease compared to the prior period is principally driven by the recognition of a provision to reflect the impact of the continued low interest rate environment on the Group's expectations of persistency for products with guarantees, which resulted in an adverse impact of £64 million on the result for the period.

Non-profit and unit linked

The operating profit on non-profit and unit linked funds decreased by £11 million to £65 million for the six months ended 30 June 2016 from £76 million for the six months ended 30 June 2015. The decrease compared to the prior period reflects the adverse one-off impacts of actuarial modelling enhancements undertaken in the period to extend the products and liabilities eligible for matching adjustment.

One-off impact of IFRS methodology change

Following the implementation of Solvency II, certain changes have been made to the assumptions and estimates used in the valuation of insurance contract liabilities to more closely align the IFRS reserving methodology with Solvency II requirements. As the Group manages its capital on a Solvency II basis, the changes will mean that the IFRS results will more closely reflect the way the business is managed and the Group's risk hedging strategies. The changes resulted in an overall favourable impact of £38 million to Phoenix Life IFRS operating profit. The overall profile for the emergence of future IFRS operating profits is expected to be materially unchanged as a result of these updates.

Longer term return on owners' funds

The longer term return on owners' funds decreased by £2 million to £3 million for the six months ended 30 June 2016 from £5 million for the six months ended 30 June 2015. The return reflects the asset mix of owners' funds, primarily cash-based assets and fixed interest securities.

Management services

The operating profit for management services reduced by £1 million to £14 million for the six months ended 30 June 2016 from £15 million for the six months ended 30 June 2015. The decrease compared to the prior year principally reflects the impact of life company run-off.

Group costs

Group costs include head office expenses as well as the net interest income/expense on the Group's defined benefit pension schemes. Group costs decreased by £5 million to costs of £1 million for the six months ended 30 June 2016 from costs of £6 million for the six months ended 30 June 2015. The decrease in Group costs compared to the prior period reflects an increased return on the higher opening pension scheme surpluses of both the PGL Pension Scheme and the Pearl Group Staff Pension Scheme.

Reconciliation of the Group's operating profit for the six months ended 30 June 2016 and 2015

The following table reconciles the Group's operating profit before tax to the IFRS result after tax for the six months ended 30 June 2016 and 2015.

	Six months ended 30 June
	2016	2015
	(£ million) (unaudited)
Operating profit before adjusting items	107	135
Investment return variances and economic assumption changes on long-term business	(147)	44
Variance on owners' funds	130	(4)
Amortisation of acquired in-force business and other intangibles	(40)	(48)
Non-recurring items .	(14)	1
Profit before finance costs attributable to owners	36	128
Finance costs attributable to owners	(46)	(49)
(Loss)/profit before tax attributable to owners:	(10)	79
Tax charge attributable to owners	13	(1)
Profit for the period attributable to owners .	3	78

Investment return variances and economic assumption changes on long-term business

Overall, the Life Companies had negative investment variances and economic assumption changes of £147 million for the six months ended 30 June 2016, driven by adverse market movements during the period.

The majority of the negative variance is driven by the adverse impact of falling yields on the life funds. Offsetting impacts have arisen in the owners' funds which hold interest rate hedging positions.

The investment return variances have also been adversely impacted by losses arising on equity hedging positions held by the life funds following equity market gains in the period.

The Phoenix Life business had positive investment return variances and economic assumption changes of £44 million for the six months ended 30 June 2015, which includes the minority share of the result of the consolidated UKCPT property investment structure of £26 million. The remaining positive variance of £18 million reflects a gain on the purchase of a portfolio of equity release mortgages arising from the yield uplift available on assets to back annuity liabilities and the positive impact of increasing yields.

Variance on owners' funds

The positive variance on owners' funds of £130 million for the six months ended 30 June 2016 relates is principally driven by interest rate hedging positions held in the Life Companies' shareholder funds. The majority of the gain reflects the impact of falling yields on interest rate hedging positions undertaken to protect the Life Companies' capital position.

Amortisation of acquired in-force business and other intangibles

The amortisation of acquired in-force business and other intangible assets decreased by £8 million to £40 million for the six months ended 30 June 2016 from £48 million for the six months ended 30 June 2015. This decrease reflects the amortisation profile of the acquired business.

Non-recurring items

Non-recurring items for the six months ended 30 June 2016 of £14 million expense include a £14 million gain following completion of data review procedures associated with the reassurance of PLAL annuities in 2015 and the £3 million positive impact of a pension increase exchange exercise in respect of the PGL Pension Scheme. These items have been more than offset by the recognition of a £16 million cost of providing for claims relating to creditor insurance underwritten by a subsidiary of the Group, PA(GI) Limited, prior to 2006, £12 million of corporate project costs and the £3 million adverse impact of net other items.

Non-recurring items for the six months ended 30 June 2015 of £1 million income include an £11 million release of cost provisions associated with external regulatory changes, including the cap on workplace pension charges and the pension guidance levy, partly offset by £8 million of corporate project costs and the £2 million cost of net other items.

Finance costs attributable to owners

The Group's finance costs attributable to owners decreased by £3 million to £46 million for the six months ended 30 June 2016 from £49 million for the six months ended 30 June 2015. The reduction of £3 million reflects a £5 million reduction in bank finance costs primarily driven by restructuring and repayments of bank debt, and £2 million increase in other finance costs attributable to interest on the £428 million subordinated notes issued during the first half of 2015.

Tax charge attributable to owners

Tax charge attributable to owners is discussed in the ''Results of Operations for the Group for the six months ended 30 June 2016 and 2015'' above.

Results of operations for the Group for the years ended 31 December 2015, 2014 and 2013

The table below sets forth the Group's combined results of operations for the years ended 31 December 2015, 2014 and 2013.

		Year ended 31 December
	2015	2014	2013 (Restated)(1)
		(£ million)
Gross premiums written .	902	981	1,333
Premiums ceded to reinsurers	(1,376)	(1,792)	11
Net premiums written	(474)	(811)	1,344
Fees	95	94	93
Net investment income	1,064	6,034	2,786
Total revenue, net of reinsurance payable	685	5,317	4,223
Gain on transfer of business .	—	4	42
Other operating income	7	9	7
Net income	692	5,330	4,272
Net policyholder claims and benefits incurred	441	(3,733)	(1,742)
Change in investment contract liabilities	(232)	(408)	(1,156)
Total administrative expenses(2)	(445)	(444)	(460)
Net income attributable to unitholders	(7)	(8)	(331)
Other operating expenses(3)	(161)	(116)	(110)
Profit before finance costs and tax	288	621	471
Finance costs	(136)	(156)	(230)
Profit for the year before tax	152	465	241
Tax attributable to policyholders' returns .	(33)	129	(27)
Tax credit/(charge) attributable to owners	64	(22)	(26)
Tax credit/(charge) .	97	(151)	1
Profit from continuing operations for the year attributable to owners	249	314	242
Profit/(loss) from discontinued operations, net of tax	—	92	(35)
Profit for the year attributable to owners	249	406	207
Attributable to:
Owners of the parent .	201	310	145
Non-controlling interests	48	96	62
	249	406	207

Notes:

(2) Total administrative expenses comprises ''Administrative expenses'' and ''Amortisation of customer relationships''.

(3) Other operating expenses comprises ''Acquisition costs'', ''Change in present value of future profits'' and ''Amortisation and impairment of acquired in-force business''.

Net premiums written

The Group's net premiums written increased by £337 million, or 42 per cent., to negative £474 million for the year ended 31 December 2015 from negative £811 million for the year ended 31 December 2014. The negative net written premiums figure in 2015 is driven by reinsurance premiums of £1.3 billion paid to RGA International to reinsure substantively all of the PLAL annuity liabilities previously ceded to Opal Re. The increase in net written premiums compared to 2014 reflects that the comparative period included the impact of the £1.7 billion reinsurance premium paid to Guardian Assurance (see below).

⁽¹⁾ The relevant figures have been restated due to the adoption of IFRS 10 Consolidated Financial statements and IFRS 11 Joint Arrangements. See ''Changes in accounting policies'' above. In addition, following the divestment of Ignis Asset Management on 1 July 2014, the 2013 figures have been restated to disclose the results of Ignis Asset Management as discontinued operations. See ''Profit/(loss) from discontinued operations, net of tax'' above.

The Group's net premiums written decreased by £2,155 million, or 160 per cent., to negative £811 million for the year ended 31 December 2014 from positive £1,344 million for the year ended 31 December 2013. The decrease in 2014 was primarily as a result of the payment of reinsurance premiums of £1.7 billion associated with the reinsurance of certain portfolios of the Group's annuity liabilities held within its with-profit funds to Guardian Assurance. A reduction in annuity vestings following the March budget announcement on changes in pension freedoms legislation also contributed to the reduction in net written premiums.

Fees

The Group's fee income has remained stable throughout the period increasing by £1 million, or 1 per cent., to £95 million for the year ended 31 December 2015 from £94 million for the year ended 31 December 2014, which in turn was £1 million, or 1 per cent., higher than the £93 million for the year ended 31 December 2013. This increase principally reflects the impact on the Group's management charge income of the underlying performance on the assets backing the Group's investment contract liabilities.

Net investment income

The table below sets forth a breakdown of the Group's net investment income for the years ended 31 December 2015, 2014 and 2013.

			Year ended 31 December
	2015	2014	2013 (Restated)(1)
		(£ million)
Investment income
Interest income on loans and receivables at amortised cost	3	4	11
Interest income on financial assets designated at fair value through profit
or loss on initial recognition	1,076	1,156	1,348
Dividend income	911	1,098	1,005
Rental income	90	95	96
Net interest income/(expense) on Group defined benefit pension scheme
asset/liability	17	4	(1)
Investment income	2,097	2,357	2,459
Fair value (losses)/gains
Loans and receivables at amortised cost .	—	1	10
Financial assets at fair value through profit or loss
Designated upon initial recognition	(1,178)	2,333	560
Held for trading-derivatives	5	1,143	(315)
Investment property	140	200	72
Fair value (losses)/gains	(1,033)	3,677	327
Net investment income	1,064	6,034	2,786

Notes:

The Group's net investment income decreased by £4,970 million, or 82 per cent., to £1,064 million for the year ended 31 December 2015 from £6,034 million for the year ended 31 December 2014. This decrease reflects the impacts of widening credit spreads and increasing yields which drove the recognition of fair value losses on the Group's fixed interest securities. The year ended 31 December 2014 benefited from the impacts of decreasing yields which generated fair value gains in the period, and positive property returns.

The Group's net investment income increased by £3,248 million, or 117 per cent., to £6,034 million for the year ended 31 December 2014 from £2,786 million for the year ended 31 December 2013. This increase was primarily attributable to the fair value gains arising in 2014 on the Group's fixed interest securities

⁽¹⁾ As set out in the Interim Financial Statements, the relevant figures have been restated due to the adoption of IFRS 10 Consolidated Financial statements and IFRS 11 Joint Arrangements. See ''Changes in accounting policies'' above. In addition, following the divestment of Ignis Asset Management on 1 July 2014, the 2013 figures have been restated to disclose the results of Ignis Asset Management as discontinued operations. See ''Profit/(loss) from discontinued operations, net of tax'' above.

⁽²⁾ As set out in the Audited Financial Statements, the relevant figures have been restated due to a change in accounting policies for amendments to IAS 19 (Employee Benefits). See ''Changes in accounting policies'' above.

portfolio as a result of falling yields. By contrast, 2013 experienced an increase in yields, the impact of which was only partly offset by narrowing credit spread experience in the period.

Total revenue, net of reinsurance payable

As a result of the foregoing factors, the Group's total revenue, net of reinsurance payable decreased by £4,632 million, or 87 per cent., to £685 million for the year ended 31 December 2015 from £5,317 million for the year ended 31 December 2014. The Group's total revenue, net of reinsurance payable increased by £1,094 million, or 26 per cent., to £5,317 million for the year ended 31 December 2014 from £4,223 million for the year ended 31 December 2013.

Gain on transfer of business

The Group completed the sale of its entire interest in (BA) GI Limited to National Indemnity Company on 18 March 2014 for cash consideration of £21 million. The carrying value of the net assets transferred was £17 million, resulting in a pre-tax gain of £4 million in the results for the year ended 31 December 2014.

The Group entered into a reinsurance agreement, effective 1 July 2012, to reinsure certain portfolios of the Group's annuity liabilities to Guardian in exchange for the transfer of financial assets of £5.1 billion. The business was transferred to Guardian on 30 September 2013 using a scheme under Part VII of the FSMA approved by the High Court on 12 September 2013.

As part of the Part VII transfer, the Group paid £78 million consideration to Guardian in connection with the ongoing servicing of the transferred policies. Net liabilities disposed of were £143 million and the Group recognised a gain on transfer of £65 million in its results for the year ended 31 December 2013, comprising £42 million within gain on transfer of business and £23 million within tax credit /(charge) attributable to owners in the consolidated income statement.

Other operating income

The Group's other operating income decreased by £2 million, or 22 per cent., to £7 million for the year ended 31 December 2015 from £9 million for the year ended 31 December 2014. The decrease reflected the non-recurrence of a one-off receipt relating to a business transfer in 2014 (see below).

The Group's other operating income increased by £2 million, or 29 per cent., to £9 million for the year ended 31 December 2014 from £7 million for the year ended 31 December 2013. The increase was primarily as a result of the recognition of income in 2014 relating to a true-up of amounts relating to the Part VII transfer of annuity liabilities to Guardian completed in 2013.

Net income

As a result of the foregoing factors, the Group's net income decreased by £4,638 million, or 87 per cent, to £692 million for the year ended 31 December 2015 from £5,330 million for the year ended 31 December 2014.

The Group's net income increased by £1,058 million, or 25 per cent., to £5,330 million for the year ended 31 December 2014 from £4,272 million for the year ended 31 December 2013.

Net policyholder claims and benefits incurred

The table below sets forth a breakdown of the Group's net policyholder claims and benefits incurred for the years ended 31 December 2015, 2014 and 2013.

		Year ended 31 December
	2015	2014	2013 (Restated)(1)
		(£ million)
Policyholder claims	(3,931)	(3,724)	(4,830)
Reinsurance recoveries	326	341	464
Net policyholder claims	(3,605)	(3,383)	(4,366)
Change in insurance contract liabilities	2,959	(1,990)	3,411
Change in reinsurers' share of insurance contract liabilities	1,003	1,651	(710)
Transfer from/(to) unallocated surplus .	84	(11)	(77)
Net change in insurance contract liabilities	4,046	(350)	2,624
Net policyholder claims and benefits incurred	441	(3,733)	(1,742)

Net policyholder claims

The Group's net policyholder claims increased by £222 million, or 7 per cent., to £3,605 million for the year ended 31 December 2015 from £3,383 million for the year ended 31 December 2014. This increase in net policyholder claims was primarily due to the impact of the implementation of the revised pension freedoms legislation in 2015, which increased the volume of pension encashments compared to 2014, partly offset by the run-off of the business.

The Group's net policyholder claims decreased by £983 million, or 23 per cent., to £3,383 million for the year ended 31 December 2014 from £4,366 million for the year ended 31 December 2013. Net policyholder claims decreased primarily as a result of the budget announcement in March 2014 with regard to the revised pension freedoms legislation, which resulted in policyholders deferring taking benefits until the new rules came into force, together with the impact of claims experience run-off.

Net change in insurance contract liabilities

The net change in insurance contract liabilities was a change of £4,396 million, or 1,256 per cent., to income of £4,046 million for the year ended 31 December 2015 from an expense of £350 million for the year ended 31 December 2014. This increase was primarily as a result of the impact of economic factors, principally the significant fall in yields in 2014 which adversely impacted the valuation of insurance liabilities. Yields increased moderately in 2015.

The net change in insurance contract liabilities was a change of £2,974 million, or 113 per cent., to an expense of £350 million for the year ended 31 December 2014 from an income of £2,624 million for the year ended 31 December 2013, again primarily due to the impact of falling yields in 2014, compared to the increase in yields experienced in 2013.

Change in investment contract liabilities

The change in investment contract liabilities was a decrease of £176 million, or 43 per cent., to an expense of £232 million for the year ended 31 December 2015 from an expense of £408 million for the year ended 31 December 2014. The change was primarily due to the impact of investment performance on the assets underlying the Group's investment contract liabilities, notably lower equity returns in the period.

The change in the Group's investment contract liabilities was a decrease of £748 million, or 65 per cent., to an expense of £408 million for the year ended 31 December 2014 from an expense of £1,156 million for the year ended 31 December 2013. This change was again primarily due to the impact of investment performance on the assets underlying the Group's investment contract liabilities, with strong equity performance in 2013 compared to the moderate gains seen in 2014.

Total administrative expenses

The table below sets forth a breakdown of the Group's total administrative expenses for the years ended 31 December 2015, 2014 and 2013.

			Year ended 31 December
	2015	2014	2013 (Restated)(1)
		(£ million) (audited)
Administrative expenses	(430)	(429)	(444)
Amortisation of customer relationships and other intangibles	(15)	(15)	(16)
Total administrative expenses	(445)	(444)	(460)

Note:

The Group's total administrative expenses increased by £1 million to £445 million for the year ended 31 December 2015 from £444 million for the year ended 31 December 2014 as a result of increased investment management expenses following the disposal of Ignis Asset Management (reflecting that these expenses where previously eliminated on consolidation), offset by lower staff and outsourcer costs.

The Group's total administrative expenses decreased by £16 million, or 3 per cent., to £444 million for the year ended 31 December 2014 from £460 million for the year ended 31 December 2013 as a result of a reduction in professional fees (reflecting lower project activity), reductions in outsourcer costs in line with the run-off of the business, and the inclusion in 2013 of the £12 million curtailment loss on a liability management exercise conducted in respect of one of the Group's defined benefit pension schemes. This was partly offset by the recognition of increased investment management expenses following the disposal of Ignis Asset Management (where previously eliminated on consolidation).

Net income attributable to unitholders

The Group's net income attributable to unitholders increased by £1 million, or 13 per cent., to a net expense of £7 million for the year ended 31 December 2015 from a net expense of £8 million for the year ended 31 December 2014. This increase was primarily due to lower equity returns in the underlying consolidated collective investment schemes.

The Group's net income attributable to unitholders increased by £323 million, or 98 per cent., to a net expense of £8 million for the year ended 31 December 2014 from a net expense of £331 million for the year ended 31 December 2013. This change was primarily due to the positive equity returns experienced in 2013 which enhanced the minority share of the results of the consolidated collective investment schemes.

Other operating expenses

The table below sets forth a breakdown of the Group's other operating expenses for the years ended 31 December 2015, 2014 and 2013.

		Year ended 31 December
	2015	2014	2013
		(£ million)
Acquisition costs	(7)	(9)	(10)
Change in present value of future profits.	(6)	(9)	9
Amortisation and impairment of acquired in-force business	(148)	(98)	(111)
Total other operating expenses	(161)	(116)	(112)

Other operating expenses, which include acquisition costs, change in present value of future profits and amortisation and impairment of acquired in-force business, increased by £45 million, or 39 per cent., to £161 million for the year ended 31 December 2015 from £116 million for the year ended 31 December

This increase was primarily due to the recognition of a £64 million impairment of acquired in-force business following the reinsurance of annuity liabilities to RGA International.

Other operating expenses increased by £4 million, or 4 per cent., to £116 million for the year ended 31 December 2014 from £112 million for the year ended 31 December 2013. This increase was primarily due to the impact of falling yields on the present value of future profits which generated a loss in the year of £9 million compared to a gain of £9 million in 2013. This was partly offset by the lower amortisation charge on acquired in-force business, reflecting the run-off profile of the book.

Profit before finance costs and tax

As a result of the foregoing factors, the Group's profit before finance costs and tax decreased by £333 million, or 54 per cent., to a profit of £288 million for the year ended 31 December 2015 from a profit of £621 million for the year ended 31 December 2014. The Group's profit before finance costs and tax increased by £150 million, or 32 per cent., to a profit of £621 million for the year ended 31 December 2014 from a profit of £471 million for the year ended 31 December 2013.

Finance cost

The Group's finance costs decreased by £20 million, or 13 per cent., to £136 million for the year ended 31 December 2015 from £156 million for the year ended 31 December 2014. The decrease was primarily due to a reduction in interest charges on collateral received by the Group. Reductions in finance costs as a result of lower debt principal amounts following debt restructuring activities were offset by the recognition of interest charges on the £428 million subordinated debt following the exchange of the Perpetual Reset Capital Securities. The coupon on the Perpetual Reset Capital Securities was previously charged directly to equity.

The Group's finance costs decreased by £74 million, or 32 per cent., to £156 million for the year ended 31 December 2014 from £230 million for the year ended 31 December 2013. This reduction was primarily due to lower debt principal balances reflecting restructuring and repayment activities, lower interest rate swaps costs following closure of positions in 2013 and the inclusion of arrangement fees of £21 million in the 2013 results associated with the re-terming of the Impala Facility.

Profit for the year before tax

As a result of the foregoing factors, the Group's profit for the year before tax decreased by £313 million, or 67 per cent., to a profit of £152 million for the year ended 31 December 2015 from a profit of £465 million for the year ended 31 December 2014. The Group's profit for the year before tax increased by £224 million, or 93 per cent, to a profit of £465 million for the year ended 31 December 2014 from a profit of £241 million for the year ended 31 December 2013.

Tax charge/(credit)

In addition to Owners' tax, the Life Companies pay Policyholders' tax. Policyholders' tax is included in the total tax credit.

The table below sets forth a breakdown of the Group's tax credit between Owners' tax and Policyholders' tax for the years ended 31 December 2015, 2014 and 2013.

			Year ended 31 December
	2015	2014	2013 (Restated)(1)
		(£ million)
Owners' tax (credit)/charge	(64)	22	26
Policyholder tax (credit)/charge	(33)	129	(27)
Tax (credit)/charge	(97)	151	(1)

Note:

(1) The 2013 figures have been restated to disclose the results of Ignis Asset Management as discontinued operations. See ''Profit/ (loss) from discontinued operations, net of tax'' above.

For the year ended 31 December 2015, the Group received an owners' tax credit of £64 million, arising on a profit before the tax attributable to owners of £185 million. The difference between the actual tax credit of £64 million and the expected charge (based on the UK corporation tax rate of 20.25 per cent. per cent.) of £37 million is primarily driven by factors including a prior year tax credit (reflecting the utilisation of unprovided tax losses brought forward and the release of provisions following the settlement of previously uncertain tax positions with HMRC), the impact of enacted future corporate tax rate reductions on the Group's deferred tax position, and the impact of profit items that are either non-taxable or taxed at rates other than 20.25 per cent. (including the gain arising on the Opal Re reassurance recapture transaction and tax payable by the consolidated UK Commercial Property Trust).

For the year ended 31 December 2014, the Group incurred an owners' tax charge of £22 million, on a profit before the tax attributable to owners of £336 million. The difference between the actual tax charge of £22 million and the expected charge (based on the UK corporation tax rate of 21.5 per cent.) of £72 million was primarily due to certain profit being either non-taxable or taxable at rates other than the standard rate and the recognition of previously unrecognised deferred tax assets.

For the year ended 31 December 2013, the Group incurred an owners' tax charge of £26 million, on a profit before the tax attributable to owners' of £268 million. The difference between the actual tax charge of £26 million and the expected charge (based on the UK corporation tax rate of 23.25 per cent.) of £63 million primarily reflects the impact of enacted future corporate tax rate reductions on the Group's deferred tax position, and the impact of profit items that are either non-taxable or taxed at rates other than 23.25 per cent.

Profit from continuing operations for the year attributable to owners

As a result of the foregoing factors, the Group's profit from continuing operations for the year attributable to owners decreased by £65 million, or 21 per cent., to a profit of £249 million for the year ended 31 December 2015 from a profit of £314 million for the year ended 31 December 2014.

As a result of the foregoing factors, the Group's profit from continuing operations for the year attributable to owners increased by £72 million, or 30 per cent., to a profit of £314 million for the year ended 31 December 2014 from a profit of £242 million for the year ended 31 December 2013.

Profit/(loss) from discontinued operations, net of tax

On 25 March 2014, the Group and Standard Life Investments signed a disposal agreement under which Standard Life Investments agreed to acquire the entire issued share capital of Ignis Asset Management. This divestment was completed on 1 July 2014 and the results of Ignis Asset Management have been included as a discontinued operation in the 31 December 2014 and the restated 31 December 2013 results.

The profit/(loss) from discontinued operations, net of tax changed by £127 million, or 363 per cent., to a profit net of tax of £92 million for the year ended 31 December 2014 from a loss net of tax of £35 million for the year ended 31 December 2013. The results from discontinued operations exclude intra-group fee income received by Ignis Asset Management and eliminated on production of the consolidated financial statements, of £38 million for the year ended 31 December 2014 (year ended 31 December 2013: £102 million). The results for the year ended 31 December 2014 includes the gain on disposal of discontinued operations of £110 million.

Profit for the year attributable to owners

As a result of the foregoing factors, the Group's profit for the year attributable to owners decreased by £157 million, or 39 per cent., to a profit of £249 million for the year ended 31 December 2015 from a profit of £406 million for the year ended 31 December 2014.

The Group's profit for the year attributable to owners increased by £199 million, or 96 per cent., to a profit of £406 million for the year ended 31 December 2014 from a profit of £207 million for the year ended 31 December 2013.

Non-controlling interests

The £2 million, £21 million and £20 million profit attributable to the Perpetual Reset Capital Securities (the ''Notes'') in 2015, 2014 and 2013, respectively, relate to the interest coupon on the Notes. Such Notes receive coupon interest only and do not otherwise share in the profits of the Group. The reduced profit attributable to the Notes in 2015 reflects that the Group exchanged 99 per cent. of the Notes on 23 January 2015 for £428 million of new subordinated notes issued by PGH Capital and £3 million of cash.

As the Group's policyholder long-term funds held over 50 per cent. of the units of UK Commercial Property Trust Limited throughout 2013, 2014 and 2015, in accordance with IFRS, 100 per cent. of the trust's profits and losses are consolidated with the Group's financial results. The profit of £46 million, £75 million and £42 million for the years ended 31 December 2015, 2014 and 2013, respectively, represent the share of the profits of the trust that are attributable to the external investors who hold the remaining units in the trust. This share moved during the period reflecting the performance of the underlying property investments held by the Trust.

Operating profit for the Group for the years ended 31 December 2015, 2014 and 2013

Operating profit as presented by the Group is a non-GAAP financial measure and is not a measure of financial performance under IFRS. The Group presents operating profit because it is less affected by short-term external market impacts than IFRS measures of performance and therefore in the Group's view it provides a better basis for assessing trends in the operational performance of the Group over time. Operating profit represents the normalised long-term investment return in that it excludes short-term fluctuations in investment returns and other items considered to be non-operating by the Group's management. Operating profit should not be considered in isolation as an alternative to profit or loss for the year before tax or other data presented in the Group's financial statements as indicators of financial performance. As it is not determined in accordance with IFRS, operating profit as presented by the Group may not be comparable to other similarly titled measures of performance of other companies.

amortisation of acquired in-force business and other intangibles; and
non-recurring items.

For a reconciliation of operating profit to IFRS profit for the year attributable to owners, see ''Reconciliation of the Group's operating profit for the years ended 31 December 2015, 2014 and 2013'' of this Part VII (''Operating and Financial Review of the Company'').

Analysis of the Group's operating profit

The following table is an analysis of the Group's operating profit for the years ended 31 December 2015, 2014 and 2013.

		Year ended 31 December
	2015	2014	2013
		(£ million)
Phoenix Life	336	487	414
Ignis—discontinued operations .	—	17	49
Group costs	(12)	(21)	(24)
Total operating profit before adjusting items	324	483	439

Phoenix Life

The following table sets forth a breakdown of the Group's operating profit for Phoenix Life for the years ended 31 December 2015, 2014 and 2013.

		Year ended 31 December
	2015	2014	2013
		(£ million)
With-profit	92	89	106
With-profit where internal capital support provided .	84	33	20
Non-profit and unit linked .	124	320	243
Longer term return on owners' funds	6	9	13
Management services .	30	36	32
Phoenix Life operating profit .	336	487	414

With-profit

The with-profit operating profit represents shareholders' one-ninth share of policyholder with-profit bonuses. The with-profit operating profit increased by £3 million, or 3 per cent., to £92 million for the year ended 31 December 2015 from £89 million for the year ended 31 December 2014 primarily due to higher bonus rates.

The with-profit operating profit decreased by £17 million, or 16 per cent., to £89 million for the year ended 31 December 2014 from £106 million for the year ended 31 December 2013. This decrease was primarily due to lower levels of endowment policy maturities and the inclusion in the 2013 result of a one-off benefit of £10 million from shareholder transfers that were underestimated in previous years, partly offset by increased estate distribution.

With-profit where internal capital support provided

The operating profit on with-profit funds where internal capital support has been provided increased by £51 million, or 155 per cent., to a profit of £84 million for the year ended 31 December 2015 from a profit of £33 million for the year ended 31 December 2014. The increase in profit reflects the positive impact of modelling enhancements undertaken in the period of £49 million (2014: £2 million), including the implementation of the Group's new actuarial modelling system by the NPLL with-profit fund.

The operating profit on with-profit funds where internal capital support has been provided increased by £13 million, or 65 per cent., to a profit of £33 million for the year ended 31 December 2014 from a profit of £20 million for the year ended 31 December 2013. The increase compared to the prior period reflects lower take-up rates of policyholder guarantees in light of the pension reforms announced in the 2014 Budget which reduced the expected costs associated with those guarantees.

Non-profit and unit linked

The operating profit on non-profit and unit linked funds decreased by £196 million, or 61 per cent., to £124 million for the year ended 31 December 2015 from £320 million for the year ended 31 December 2014. The decrease compared with the prior period reflects the lower positive impact from modelling enhancements and balance sheet reviews of £17 million (2014: £167 million), together with the adverse impact of strengthening longevity and mortality assumptions.

The operating profit on non-profit and unit linked funds increased by £77 million, or 32 per cent., to £320 million for the year ended 31 December 2014 from £243 million for the year ended 31 December 2013. The increase compared to the prior period reflects higher one-off positive impacts of £167 million (2013: £88 million) from modelling enhancements and the impact of balance sheet reviews.

Longer term return on owners' funds

The longer term return on owners' funds decreased by £3 million, or 33 per cent., to £6 million for the year ended 31 December 2015 from £9 million for the year ended 31 December 2014. The change reflects the impact of lower opening risk-free yields used in the determination of the longer-term investment return assumptions.

The longer term return on owners' funds decreased by £4 million, or 31 per cent., to £9 million for the year ended 31 December 2014 from £13 million for the year ended 31 December 2013. The decrease reflects the impact of upstreaming of dividends from the life companies over the period.

Management services

The operating profit for management services decreased by £6 million, or 17 per cent., to £30 million for the year ended 31 December 2015 from £36 million for the year ended 31 December 2014. The decrease compared to the prior year reflects the impact of life company run-off and lower project activity during the period.

The operating profit for management services increased by £4 million, or 13 per cent., to £36 million for the year ended 31 December 2014 from £32 million for the year ended 31 December 2013. The increase compared to the prior year reflects lower staff and outsourcer partner costs and increased project activity, partly offset by the impacts of life company run-off and the transfer of annuity policies to Guardian Assurance in 2013.

Ignis Asset Management

There was no operating profit for Ignis Asset Management for the year ended 31 December 2015 as a result of the divestment of Ignis Asset Management during 2014.

The operating profit for Ignis Asset Management decreased by £32 million, or 65 per cent., to £17 million for the year ended 31 December 2014 from £49 million for the year ended 31 December 2013. This decrease was primarily due to the divestment of Ignis Asset Management on 1 July 2014.

Group costs

Group costs include head office expenses as well as the net interest income/(expense) on the Group's defined benefit pension schemes.

Group costs decreased by £9 million, or 43 per cent., to £12 million for the year ended 31 December 2015 from £21 million for the year ended 31 December 2014. The decrease in Group costs compared to the prior year relates primarily reflects an increased return on the higher opening pension scheme surplus for both the PGL Pension Scheme and the Pearl Group Staff Pension Scheme and a decrease in operating costs.

Group costs decreased by £3 million, or 13 per cent., to £21 million for the year ended 31 December 2014 from £24 million for the year ended 31 December 2013. The decrease again primarily reflects an increased net interest income across the Group's defined benefit pension schemes.

Reconciliation of the Group's operating profit for the years ended 31 December 2015, 2014 and 2013

The following table reconciles the Group's operating profit before tax to IFRS profit after tax for the years ended 31 December 2015, 2014 and 2013.

		Year ended 31 December
	2015	2014	2013
		(£ million)
Total operating profit before adjusting items	324	483	439
Investment return variances and economic assumption changes on long-term
business	13	12	64
Variance on owners' funds	(12)	(14)	(31)
Amortisation of acquired in-force	(75)	(88)	(99)
Amortisation of customer relationships	(15)	(15)	(19)
Non-recurring items	49	126	(11)
Profit before finance costs attributable to owners .	284	504	343
Finance costs attributable to owners	(99)	(88)	(126)
Profit before the tax attributable to owners	185	416	217
From continuing operations .	185	336	268
From discontinued operations	—	80	(51)
	185	416	217
Tax credit/(charge) attributable to owners from continuing operations	64	(22)	(26)
Tax credit attributable to owners from discontinued operations	—	12	16
Profit for the year attributable to owners .	249	406	207

Investment return variances and economic assumption changes on long-term business

Investment return variances and economic assumption changes on long-term business was £13 million for the year ended 31 December 2015. The variances include the minority share of the result of the consolidated UKCPT property investment structure of £46 million (2014: £75 million) and a £19 million gain on the purchase of a portfolio of equity release mortgages arising from the yield uplift on assets available to back annuity liabilities. Increases in yields during the period have also had a positive impact reflecting short asset positions that were held relative to the longer-term IFRS basis liabilities prior to the re-hedging activities that took place towards the end of 2015. These positive items have been partly offset by the adverse impacts of changes in asset portfolios undertaken in preparation for the implementation of the new Solvency II regime, together with the impact of widening credit spreads during the period.

Investment return variances and economic assumption changes on long-term business were £12 million for the year ended 31 December 2014. The variances include the minority share of the result of the UKCPT property investment structure of £75 million (2013: £42 million). The remaining negative variance of £63 million is principally driven by the impacts of falling yields, both on short asset positions held relative to the IFRS basis liabilities, adverse policyholder tax variances arising on resultant investment gains on fixed interest assets in the period, and from the negative impact of widening credit spreads. Partly offsetting these items are the positive impacts of lower inflation and improved property returns.

The Phoenix Life business had positive investment return variances and economic assumption changes of £64 million in 2013. The positive impacts of narrowing credit spreads, increasing yields and improved property returns were partly offset by losses on equity hedging positions held within the shareholder funds.

Variance on owners' funds

Variance on owners' funds decreased by £2 million, or 14 per cent., to negative variance on owners' funds of £12 million for the year ended 31 December 2015 as compared to negative variance on owners' funds of £14 million for the year ended 31 December 2014. The negative variance on owners' funds of £12 million for 2015 was principally driven by fair value losses on investments and hedging positions held by the shareholder funds and holding companies.

Variance on owners' funds decreased by £17 million, or 55 per cent., to negative variance on owners' funds of £14 million for the year ended 31 December 2014 as compared to negative variance on owners' funds of £31 million for the year ended 31 December 2013. The reduction in the negative variance compared to 2013 reflects lower losses on equity index futures and credit default swaps compared to the prior year. The majority of interest rate swaps held by the shareholder funds and holding companies in relation to the Group's bank debt were closed out in 2013.

The negative variance on owners' funds of £31 million for the year ended 31 December 2013 was driven by fair value losses on credit default swaps, futures and interest rate swaps held within the shareholder funds of the Life Companies as part of the Group's hedging strategies. This was partly offset by a fair value gain on interest rate swaps held by the Holding Companies. All interest rate swaps held by the shareholder funds and the Holding Companies were closed out during 2013.

Amortisation of acquired in-force business

The amortisation of acquired in-force business decreased by £13 million, or 15 per cent., to £75 million for the year ended 31 December 2015 from £88 million for the year ended 31 December 2014 in line with the run-off of the acquired businesses.

The amortisation of acquired in-force business decreased by £11 million, or 11 per cent., to £88 million for the year ended 31 December 2014 from £99 million for the year ended 31 December 2013 in line with the run-off of the acquired businesses.

Non-recurring items

Non-recurring items decreased by £77 million, or 61 per cent., to £49 million for the year ended 31 December 2015 from £126 million for the year ended 31 December 2014. Non-recurring items in 2015 include a gain of £49 million arising on the reassurance of a portfolio of PLAL annuities with RGA International (net of a £64 million impairment of associated acquired in-force business), and a £17 million release of cost provisions associated with external regulatory changes, including the cap on workplace pension charges and the pension guidance levy. These positive items have been partly offset by £11 million of corporate project costs and negative £3 million of net other items.

Non-recurring items increased by £137 million, or 1,245 per cent., to positive £126 million for the year ended 31 December 2014 from negative £11 million for the year ended 31 December 2013. Non-recurring items in 2014 included the gain on the disposal of Ignis Asset Management of £107 million and £68 million of income received by PGH1 in relation to the close-out of the PGL Pension Scheme longevity indemnity agreement with the with-profit funds. This was partly offset by £17 million of adverse financial impacts associated with external regulatory changes, corporate project costs of £15 million and net other one-off items of negative £17 million, including costs associated with the implementation of Solvency II and systems transformation projects.

Non-recurring items in 2013 of negative £11 million include the gain of £42 million on completion of the legal transfer of annuity liabilities to Guardian Assurance, offset by arrangement and structuring fees of £21 million associated with the extinguishment and re-terming of the Impala Facility, regulatory change and systems transformation costs of £25 million and a loss from a pension liability management exercise of £9 million. Net other items of positive £2 million include a gain on the reinsurance arrangement with Guardian Assurance as a result of data review procedures, offset by corporate project costs.

Finance costs attributable to owners

The Group's finance costs attributable to owners increased by £11 million, or 13 per cent., to £99 million for the year ended 31 December 2015 from £88 million for the year ended 31 December 2014. The increase reflects the inclusion of £27 million of finance costs relating to the new PGH Capital subordinated notes which were exchanged for the Perpetual Reset Capital Securities in January 2015. The coupon on the Perpetual Reset Capital Securities was previously recognised directly in equity and therefore not included in finance costs. This increase has been partly offset by a reduction in bank finance costs as a result of lower debt principal balances reflecting repayments and restructuring activity in the second half of 2014.

The Group's finance costs attributable to owners decreased by £38 million, or 30 per cent., to £88 million for the year ended 31 December 2014 from £126 million for the year ended 31 December 2013, reflecting lower debt principal balances following debt repayments and restructuring activity in the period, together with the impact of the closure of the Group's interest rate swap arrangements in the second half of 2013 which were responsible for a net finance charge in 2013.

Tax attributable to owners

Tax attributable to owners is discussed under ''Results of operations for the Group for the years ended 31 December 2015, 2014 and 2013'' above.

Liquidity and capital resources

The Company and the Holding Companies

The principal cash requirements of the Company and Phoenix Life Holdings Limited, PGH2, Impala Holdings Limited, PGH1, PGH (LCA) Limited, PGH (LCB) Limited and Pearl Life Holdings Limited (together, the ''Holding Companies'') are the payment of dividends to Shareholders, the servicing of debt of PGH Capital, contributions to the pension schemes and the payment of expenses. The principal sources of cash for the Holding Companies are loans and dividends from operating subsidiaries.

The amount of cash that the Holding Companies may distribute to the Guarantor depends on (i) the overall solvency position of the Group, which is calculated at the level of the highest EEA insurance group holding company, PLHL; and (ii) since the acquisition of the Original Pearl Business by the Company, the FSA (the Group's previous prudential regulator) required that £100 million of liquid assets are to be held at the level of Impala Holdings Limited and that £50 million of liquid assets are to be held at the level of PLHL in order to provide support to the Group's life and regulated service companies. These requirements are due to expire on 31 December 2016.

The Life Companies

The Life Companies' principal sources of liquidity are policyholder premiums, cash balances, net investment income received and proceeds from investments as they are repaid, redeemed or sold. The Life Companies principally use their liquidity to pay policyholder benefits (including withdrawals and surrender payments) and operating expenses and to purchase investments.

The Life Companies are subject to various regulatory restrictions on the maximum amount of payments, including dividends, loans or cash advances that they may make to their shareholders. The amount of cash that the Life Companies may distribute to the Holding Companies depends on the individual solvency position of each of the Life Companies. Cash may be distributed only to the extent that (i) the individual solvency positions of the Life Company is positive and (ii) there is excess capital over and above an additional solvency buffer determined by the respective Life Company board, subject to any regulatory limitations imposed.

Cashflows for the six months ended 30 June 2016 and 2015

The statement of cashflows prepared in accordance with IFRS combines cashflows relating to policyholders and cashflows relating to shareholders, but the practical management of cash within the Group maintains a distinction between the two, as well as taking into account regulatory and other restrictions on availability and transferability of capital. For this reason, the discussion and analysis of the Group's cashflows for the six months ended 30 June 2016 and 2015 and each of the financial years ended 31 December 2015, 2014 and 2013 focuses on the cashflows of the Holding Companies, which reflect cashflows relating only to Shareholders and are therefore more representative of the cash that could potentially be distributed to Shareholders. This cashflow information comprises the amounts that were remitted from the Group's operating subsidiaries to the Holding Companies, together with the Holding Companies' outflows.

The tables below set out, for the periods indicated, an analysis of the cash paid by the operating companies to the Holding Companies, as well as the uses of those cash receipts.

	Six months ended 30 June
	2016	2015
	(£ million) (unaudited)
Cash and cash equivalents at 1 January Operating companies' cash generation	706	988
Cash receipts from Phoenix Life	147	110
Total receipts of cash by Holding Companies	147	110
Net proceeds of the equity raise Uses of cash:	190	—
Operating expenses .	(15)	(13)
Pension scheme contributions	(8)	(8)
Debt interest	(8)	(32)
Total recurring cash outflows	(31)	(53)
Non-recurring cash outflows	(25)	(9)
Uses of cash before debt repayments and shareholder dividend	(56)	(62)
Debt repayment	(6)	(60)
Shareholder dividends .	(60)	(60)
Total uses of cash	(122)	(182)
Cash and cash equivalents at 30 June	921	916

Total receipts of cash by Holding Companies and net proceeds of the equity raise

Total receipts of cash by Holding Companies from the operating companies were £147 million for the six months ended 30 June 2016, which comprises cash receipts of £85 million from the sale of certain investments held by Opal Re and other receipts from Phoenix Life of £62 million (including amounts received by the holding companies in respect of tax losses surrendered to the operating companies of £44 million). The 2016 dividends from Phoenix Life have been largely deferred to the second half of 2016 pending delivery of management actions.

Total receipts of cash by Holding Companies from the operating companies were £110 million for the six months ended 30 June 2015 driven largely by the opening free surplus within the Life Companies and cash inflows of £20 million from management actions. Management actions increased cashflows through operational enhancements and de-risking activities.

Uses of cash

Total recurring outflows

Total recurring outflows decreased by £22 million, to £31 million for the six months ended 30 June 2016 from £53 million for the six months ended 30 June 2015. Operating expenses of £15 million are in line with the prior period and reflect costs of the corporate office, partly offset by investment income.

Pension scheme contributions of £8 million are consistent with the prior period and are in line with the 2012 Pensions Agreement.

Debt interest decreased by £24 million to £8 million for the six months ended 30 June 2016 from £32 million for the six months ended 30 June 2015, reflecting lower principal balances following repayments made in 2015. The comparative included payment of the £20 million coupon on the Perpetual Reset Capital Securities prior to the exchange for the PGH Capital Subordinated Notes. The coupon on the PGH Capital Subordinated Notes will be settled in the second half of 2016 in line with the terms and conditions of the notes.

Non-recurring outflows

Non-recurring outflows of £25 million for the six months ended 30 June 2016 and £9 million for the six months ended 30 June 2015 include Group costs associated with restructuring and corporate related projects. The increase of £16 million compared to the prior period reflects costs associated with hedging and acquisition activity undertaken in the first half of 2016.

Debt repayments

Debt repayments of £6 million for the six months ended 30 June 2016 relate to the redemption of the remaining Perpetual Reset Capital Securities.

Debt repayments of £60 million for the six months ended 30 June 2015 comprised a £30 million prepayment and a £30 million scheduled repayment of the PGH Capital Revolving Credit Agreement.

Cashflows for the years ended 31 December 2015, 2014 and 2013

The table below sets out the Holding Companies' cashflows for the years ended 31 December 2015, 2014 and 2013:

		Year ended 31 December
	2015	2014 (£ million)	2013
		(unaudited)
Cash and cash equivalents at 1 January	988	995	1,066
Operating companies' cash generation:
Cash receipts from Phoenix Life	225	446	794
Cash receipts from Ignis Asset Management	—	32	23
Other cash receipts	—	89	—
Total receipts of cash by Holding Companies(1)	225	567	817
Net proceeds of capital raising	—	—	211
Proceeds from the divestment of Ignis Asset Management	—	390	—
Total receipts	225	957	1,028
Uses of cash:
Operating expenses	(26)	(29)	(34)
Pension scheme contributions	(55)	(88)	(96)
Debt interest	(91)	(80)	(147)
Total recurring outflows	(172)	(197)	(277)
Non-recurring outflows .	(25)	(46)	(6)
Uses of cash before debt repayments and shareholder dividend	(197)	(243)	(283)
Debt repayment	(190)	(601)	(696)
Shareholder dividend	(120)	(120)	(120)
Total uses of cash	(507)	(964)	(1,099)
Cash and cash equivalents at 31 December(2)	706	988	995

Notes:

(1) Includes amounts received by the Holding Companies in respect of tax losses surrendered to the operating companies of £71 million (2014: £43 million, 2013: £53 million).

(2) Closing balance at 31 December 2015 includes required prudential cash buffer of £150 million (31 December 2014: £150 million, 2013: £150 million). Since the acquisition of the Original Pearl Business by the Company, the FSA (the Group's previous prudential regulator) required that £100 million of liquid assets are to be held at the level of Impala Holdings Limited and that £50 million of liquid assets are to be held at the level of PLHL in order to provide support to the Group's life and regulated service companies. These requirements are due to expire on 31 December 2016.

Total receipts of cash by Holding Companies

Total receipts of cash by Holding Companies were £225 million for the year ended 31 December 2015, including the £20 million impact of management actions implemented in the period. The reduction from the prior period reflects the retention of capital in the Life Companies in advance of the transition to the new Solvency II regulatory capital regime.

Total receipts of cash by Holding Companies were £567 million for the year ended 31 December 2014, including cash remitted by Phoenix Life during 2014 was £446 million, reflecting free surplus in the Life Companies and the benefit of management actions implemented during the period. Cash of £32 million was remitted by Ignis Asset Management prior to its divestment. Other cash receipts comprised £68 million from the buy-out of the pension indemnity from the with-profit funds and £21 million from the sale of BA(GI) Limited.

On 1 July 2014, the Group completed the divestment of Ignis Asset Management to Standard Life Investments (Holdings) Limited and received gross cash proceeds of £390 million.

Total receipts of cash by Holding Companies were £817 million for the year ended 31 December 2013, including cash remitted by Phoenix Life of £794 million, reflecting the benefit of management actions implemented during the period. Cash remitted by Ignis Asset Management was £23 million.

In January 2013, the Group announced the re-terming of the Impala Facility and an equity raising of £250 million. The equity raising comprised equity placings with certain Och-Ziff Funds and an open offer to raise aggregate gross proceeds of £250 million through the issuance on 21 February 2013 of 50 million ordinary shares. The proceeds of the equity raising net of associated fees and commission of £18 million, and after the deduction of £21 million of fees associated with the re-terming of the Impala Facility, were £211 million.

Uses of cash

Total recurring outflows

Total recurring outflows decreased by £25 million, or 13 per cent., to £172 million for the year ended 31 December 2015 from £197 million for the year ended 31 December 2014. The decrease was primarily due to a reduction in pension scheme contributions in line with the latest triennial funding agreements.

Total recurring outflows decreased by £80 million, or 29 per cent., to £197 million for the year ended 31 December 2014 from £277 million for the year ended 31 December 2013. The decrease was primarily due to lower debt interest costs as a result of lower debt principal balances following repayment and restructuring activities during the period, together with the impact of the closure of the Group's interest rate swap arrangements in the second half of 2013 which generated a net outflow.

Non-recurring outflows

Non-recurring outflows of £25 million, £46 million and £6 million for the years ended 31 December 2015, 2014 and 2013, respectively, reflect investments in the Group's transformation programmes. The 2014 outflow includes £14 million of consent fees paid in respect of the refinancing of the Group's banking facilities.

Regulatory capital requirements

Group Solvency II Surplus

Calculation of the Group Solvency II Surplus involves a valuation in line with Solvency II principles of the Group's Own Funds and a risk based assessment using an internal model of the Group's solvency regulatory capital requirements (''SCR''). Further information is provided under ''Solvency II'' in Part VI (''Regulatory Overview'') of this document.

The SCR is calibrated so that the likelihood of a loss exceeding the SCR is less than 0.5 per cent. over one year. This ensures that capital is sufficient to withstand a broadly '1 in 200 year event' and is calculated in accordance with the Group's PRA approved internal model.

The estimated PLHL Solvency surplus position as at 30 June 2016 and as at 31 December 2015 is set out below:

	As at 30 June 2016	As at 31 December 2015
		(£ billion)
Own funds(1)	6.1	5.7
Solvency regulatory capital requirement(2)	(5.0)	(4.4)
Solvency II surplus (estimated)(3) .	1.1	1.3

Notes:

(1) Own funds includes the net assets of the life and holding companies calculated under Solvency II rules, pension scheme surpluses calculated on an IAS19 basis not exceeding the holding companies' contribution to the Group SCR and qualifying subordinated liabilities. It is stated net of restrictions for assets which are non-transferrable and fungible between Group companies within a period of nine months.
(2) Solvency regulatory capital requirements relate to the risks and obligations to which the Group is exposed, calculated using an internal model, offset by Group diversification benefits.
(3) Equates to a Solvency II Shareholder Capital Coverage Ratio of 122 per cent. and 130 per cent. as at 30 June 2016 and as at 31 December 2015, respectively.

These figures exclude surpluses arising in the Group's with-profit funds and Group pension schemes of £0.3 billion and £0.5 billion as at 30 June 2016 and 31 December 2015, respectively. In the calculation of the Solvency II surplus, the SCR of the with-profit funds and Group pension schemes is included, but the related Own Funds are recognised only to a maximum of the SCR amount. Surpluses that arise in with-profit funds and Group pension schemes, whilst not included in the Group Solvency II Surplus, are available to absorb economic shocks. This means that the headline surplus is highly resilient to economic stresses.

Excluding the SCR and Own Funds relating to unsupported with-profit funds and Group pension schemes, the estimated Solvency II Shareholder Capital Coverage Ratio was 144 per cent. and 154 per cent. as at 30 June 2016 and as at 31 December 2015, respectively.

Phoenix Life free surplus

Phoenix Life free surplus represents the Solvency II surplus of the Life Companies that is in excess of their Board approved capital management policies. As at 30 June 2016, Phoenix Life's contribution to the Group Solvency II Surplus was £0.6 billion and was fully utilised to cover the capital management policies. As at 31 December 2015, the Phoenix Life contribution to the PLHL surplus was £0.7 billion, which corresponded to £0.1 billion of free surplus above capital management policies.

	Six months ended 30 June 2016
	(£ billion)
Opening free surplus (at 1 January 2016) .	0.1
Surplus generation and expected run-off of regulatory capital requirements	0.1
Management actions .	0.1
Economics, actuarial updates and other items	(0.2)
Free surplus before cash remittances	0.1
Cash remittances to holding companies	(0.1)
Closing free surplus (estimated) as at 30 June 2016	—

Regulatory capital metrics prior to 1 January 2016

The historic group capital measures described below ceased to be regulatory measures with effect from 1 January 2016 and are only provided in order to give context to the Group's last reported regulatory capital position prior to its entry into the Solvency II regime.

Until 1 January 2016, each UK life company was required to retain sufficient capital at all times to meet the more onerous of the EU-directive-based ''Pillar 1'' and ''Pillar 2'' risk-based capital requirements stipulated by the PRA. PRA regulated insurance groups (including their insurance holding companies) were also required to provide capital adequacy calculations on a group-wide basis, to enable the PRA to assess both the level of insurance and financial risk within the relevant insurance group and the resources available to cover this risk.

For more information regarding the UK regulatory capital framework, see Part VI (''Regulatory Overview'') of this document.

Pillar 1

The public Pillar 1 capital calculation was calculated by applying fixed percentages to liabilities and sums assured at risk or setting aside a proportion of expenses. There were further stress tests for with-profit business which may increase the required capital under these calculations.

Pillar 2

The private Pillar 2 capital calculation was based on a self-assessment methodology called the ICA. This methodology determined the capital requirement to ensure that the Life Company's realistic liabilities could be met in one year's time with a 99.5 per cent. confidence level, or in other words to be able to withstand a 1 in 200 year event. The PRA reviewed each Life Company's ICA and was able to impose additional regulatory capital requirements if necessary in the form of Individual Capital Guidance.

Group requirements

IGD Surplus

The Group's IGD assessment was historically made at the level of the highest EEA insurance group holding company, which is PLHL.

The Group's historic regulatory capital policy, agreed with the PRA, was to maintain group capital resources calculated at the PLHL level (i.e., including PLHL and its subsidiaries) at an amount in excess of:

105 per cent. of the WPICC, being an additional regulatory capital requirement of with-profit funds; plus
145 per cent. of the group capital resource requirement less the WPICC.

The group regulatory capital resource requirement was the sum of the individual capital resource requirements for each of the regulated undertakings in the insurance group.

The following table sets forth the components of the IGD calculation at PLHL as at the dates indicated.

		Year ended 31 December
	2015	2014	2013
		(£ billion)
Group capital resources (''GCR'')	5.9	5.5	5.4
Group capital resource requirement (''GCRR'')	(4.4)	(4.3)	(4.2)
IGD surplus (estimated)	1.5	1.2	1.2

The IGD surplus increased by £0.3 billion, or 25 per cent., to £1.5 billion as at 31 December 2015 from £1.2 billion as at 31 December 2014 as a result of the following factors:

£0.3 billion positive impact arising from the simplification of the Group's corporate structure, with PLHL now recognising 100 per cent. of the capital resources and requirements of Impala and its subsidiaries;
capital generation items of £0.3 billion, including capital benefits from management actions such as the Part VII transfer of the business of NPLL into PLAL and the acquisition of a portfolio of equity release mortgages; partly offset by
dividend payments, debt financing and repayments of £0.3 billion.

The IGD surplus remained stable at £1.2 billion as at 31 December 2014 and 2013 as a result of the following offsetting factors:

• positive impact of the divestment of Ignis Asset Management of £0.2 billion;

dividend payments, debt financing and repayments of £0.6 billion, including the £206 million debt prepayment associated with the £900 million debt facility refinancing and the £250 million payment associated with the divestment of Ignis; offset by
capital generation items of £0.4 billion, including capital benefits from management actions such as the close-out of the PGL Pension Scheme longevity indemnity agreement.

Individual Capital Assessment

The Group also historically undertook an ICA at the level of the highest EEA level insurance group holding company, which is PLHL. This involved an assessment, on a Pillar 2 basis, of the capital resources and requirements arising from the obligations and risks which existed outside the Life Companies. As agreed with the PRA, the Group has aimed to ensure that PLHL maintained capital resources in excess of its pension scheme and other capital requirements as assessed under Pillar 2, which was known as the Group's PLHL ICA surplus. The Group has historically restricted discretionary payments out of PLHL to the extent required to maintain an ICA surplus of at least £150 million.

The following table sets forth the components of the PLHL ICA surplus as at the dates indicated:

		Year ended 31 December
	2015	2014	2013
		(£ billion)
Capital resources(1)	0.8	1.0	1.5
Capital resource requirements(2)	(0.2)	(0.3)	(0.3)
PLHL ICA surplus (estimated)	0.6	0.7	1.2

Notes:

(2) Capital requirements relate to the risks arising outside of the Life Companies including those in relation to the Group's staff pension schemes, offset by Group diversification benefits.

Headroom over the Group's £150 million capital policy was £0.5 billion as at 31 December 2015 as compared to £0.6 billion as at 31 December 2014.

The PLHL ICA surplus decreased by £0.1 billion to £0.6 billion as at 31 December 2015 as compared to £0.7 billion as at 31 December 2014 reflecting:

dividend payments, debt financing and repayments of £0.3 billion;
the adverse impact of management actions undertaken to enhance the Group Solvency II position ahead of implementation of the new regime of £0.2 billion; partly offset by; and
capital generation items of £0.4 billion, including the positive impacts of other management actions delivered in the period of £0.2 billion.

The simplification of the Group structure undertaken in the period did not impact the PLHL ICA surplus as the risk-based calculation has historically recognised 100 per cent. of the capital resources and requirements of Impala and its subsidiaries.

The PLHL ICA surplus decreased by £0.5 billion to £0.7 billion as at 31 December 2014 from £1.2 billion as at 31 December 2013 reflecting:

the positive impacts of the divestment of Ignis Asset Management of £0.2 billion;
dividend payments, debt financing and repayments of £0.8 billion, including the £206 million debt prepayment associated with the £900 million debt facility refinancing and the £250 million payment associated with the divestment of Ignis Asset Management;
an adverse impact of £0.2 billion reflecting the strengthening of ICA stress assumptions related to longevity, credit and correlations; and
capital generation in the period of £0.3 billion, including the positive impact of management actions delivered in the period of £0.2 billion, partly offset by the adverse impact of falling yields on the PLHL ICA surplus.

⁽¹⁾ Capital resources includes the surplus over capital policy in the Life Companies and the net assets of the holding companies less pension scheme obligations calculated on an economic basis.

Group MCEV

The Group published results on an MCEV basis for the years ended 31 December 2015, 2014 and 2013. Following implementation of the Solvency II regulatory regime, as of 1 January 2016, the Group has discontinued reporting on an MCEV basis.

The following discussion provides an overview of the Group's historic results on the MCEV basis for the years ended 31 December 2015, 2014 and 2013.

Overview

Embedded value is an estimate of the economic worth of a life insurance business. It comprises the net assets of the business under IFRS and the present value of future cashflows from in-force business, excluding any value that may be generated by future new insurance business.

The key components of embedded value are:

assets available for distribution to shareholders, or free assets; plus
assets supporting the solvency requirements of the business, or required capital; plus
the present value of future profits arising from the in-force business, or the value of in-force business.

Further detail of each component is provided below.

Embedded value methodology

The Group's embedded value was based on a market-consistent methodology. Under this methodology, assets and liabilities are valued in line with market prices and consistently with each other.

The MCEV methodology adopted by the Group was in accordance with the MCEV Principles and guidance published by the CFO Forum in June 2008 and amended in October 2009, except that:

risk-free rates were defined as the annually compounded UK Government bond nominal spot curve plus 10 basis points rather than as a swap rate curve;
no allowance for the cost of residual non-hedgeable risk (''CNHR'') was made because, in the opinion of the Directors, the Group operates a robust outsourcer model in terms of operational risk, does not write new business, is focused entirely on the back book, and has succeeded in closing out significant legacy risks. The theoretical value of CNHR was disclosed; and
the asset management and management service companies values were calculated on an IFRS basis. Under CFO Forum principles and guidance, productivity gains should not be recognised until achieved. This treatment is inconsistent with the cost profile of a closed fund where continual cost reductions are expected to maintain unit costs as the business runs off. In the opinion of the Directors, if the MCEV Principles and guidance were to be applied to the asset management and the management service companies, it would not have provided a fair reflection of the Group's financial position. These companies were therefore reported alongside the Group's other holding companies at their IFRS net asset value.

Free surplus and required capital

Free surplus and required capital together comprise the net worth of the life insurance business.

For the Life Companies, net worth was defined as the market value of shareholder funds plus the shareholders' interest in surplus assets held in long-term business funds less the market value of any outstanding debt of the Life Companies.

For the Group's non-Life Companies, net worth was defined as the net assets of the companies on an IFRS basis less the market value of any outstanding debt of these companies.

MCEV allocates net worth between required capital, whose future distribution to shareholders is restricted, and free surplus, whose future distribution to shareholders is unrestricted.

For the Group, required capital was defined as the minimum regulatory capital requirement, which was the greater of the Solvency I Pillar 1 and Pillar 2 capital requirements plus the capital required under the Group's capital management policy.

Net worth in excess of required capital is free surplus.

Value of in-force business

The market consistent value of in-force businesses (''VIF'') represents the present value of profits attributable to shareholders arising from the in-force business, less an allowance for the time value of financial options and guarantees embedded within life insurance contracts and the frictional cost of required capital.

The approach adopted to calculate VIF combined deterministic and stochastic techniques (each of which is discussed in more detail below):

Deterministic techniques have been used to value cashflows whose values vary in a linear fashion with market movements. These cashflows are valued using discount rates that reflect the risk inherent in each cashflow. In practice, it is not necessary to discount each cashflow at a different discount rate, as the same result is achieved by projecting and discounting all cashflows at the risk-free rate. This is known as the ''certainty equivalent approach''.
Stochastic techniques have been used to value cashflows that have an asymmetric effect on cashflows to shareholders. Here, the calculation involves the use of stochastic models developed for the purposes of realistic balance sheet reporting.

Present value of future profits

The PVFP represents the present value of profits attributable to shareholders arising from the in-force business. The PVFP is calculated by projecting and discounting using risk-free rates, with an allowance for liquidity premiums where appropriate.

The projection is based on actively reviewed best estimate non-economic assumptions. Best estimate assumptions make appropriate allowances for expected future experience where there is sufficient evidence to justify it; for example in allowing for future mortality improvements on annuity business.

Cost of capital

Cost of capital is defined as the difference between the market value of shareholder-owned assets backing required capital and the present value of future releases of those assets allowing for future investment returns on that capital, investment expenses and taxes.

Time value of financial options and guarantees

The Group's embedded value included an explicit allowance for the time value of financial options and guarantees embedded within insurance contracts, including investment performance guarantees on participating business and guaranteed vesting annuity rates. The cost of these options and guarantees to shareholders was calculated using market-consistent stochastic models calibrated to the market prices of financial instruments as at the period end.

CNHR

The CNHR should allow for risks that can have an asymmetric impact on shareholder value to the extent these risks have not already been reflected in the PVFP or time value of financial options and guarantees. The majority of such risks within the Group are operational and tax risks.

Pension schemes

The Group's embedded value allowed for pension scheme deficits as calculated on an IFRS (IAS 19) basis, but no benefit is taken for pension scheme surpluses.

Under IFRIC 14, an interpretation of IAS 19, pension funding contributions are considered to be a minimum funding requirement and, to the extent that the contributions payable would result in a surplus that would not be recoverable, a liability is recognised when the obligation arises. The IFRS IFRIC 14 adjustments were not reflected in the Group MCEV as the Group does not anticipate that its ultimate contributions into the pension schemes will result in an unrecoverable surplus.

Group MCEV operating earnings for the years ended 31 December 2015, 2014 and 2013

		Year ended 31 December
	2015	2014	2013
		(£ million) (audited)
MCEV operating earnings
Life MCEV operating earnings(1) .	274	341	401
Management services operating profit	30	36	32
Ignis operating profit—discontinued operations	—	17	49
Group costs	(26)	(28)	(27)
Group MCEV operating earnings before tax	278	366	455
Tax on operating earnings .	(55)	(78)	(105)
Group MCEV operating earnings after tax	223	288	350

Note:

Life MCEV operating earnings after tax

Other than vesting annuities and increments to existing policies, the Group's life division is closed to new business. The principal underlying components of the life MCEV operating earnings are therefore the expected existing business contribution together with non-economic experience variances and assumption changes.

		Year ended 31 December
	2015	2014	2013
		(£ million) (audited)
Life MCEV operating earnings after tax
Expected existing business contribution .	109	137	125
New business value	2	11	18
Non-economic experience variances and assumption changes:
Experience variances	(21)	53	79
Assumption changes	20	(15)	3
Other operating variances	110	82	83
Total non-economic experience variances and assumption changes	109	120	165
Life MCEV operating earnings after tax	220	268	308

Expected existing business contribution

The Group uses long-term investment return assumptions in calculating the expected existing business contribution. The expected existing business contribution after tax decreased by £28 million, or 20 per cent., to £109 million for the year ended 31 December 2015 from £137 million for the year ended 31 December 2014, primarily due to a decrease in the long-term risk-free rate used to calculate operating earnings. The long-term risk-free rate is based on the opening position at 1 January 2015.

The expected existing business contribution after tax increased by £12 million, or 10 per cent., to £137 million for the year ended 31 December 2014 from £125 million for the year ended 31 December 2013, primarily due to an increase in the long-term risk-free rate used to calculate operating earnings. The long-term risk-free rate is based on the opening position at 1 January 2014.

⁽¹⁾ Life MCEV operating earnings are derived on an after tax basis. For presentational purposes Life MCEV operating earnings before tax have been calculated by grossing up the after tax Life MCEV operating earnings. Life MCEV operating earnings before tax of £274 million for the year ended 31 December 2015 (year ended 31 December 2014: £341 million; year ended 31 December 2013: £401 million) are therefore calculated as £220 million operating earnings (year ended 31 December 2014: £268 million; year ended 31 December 2013: £308 million) grossed up for tax at 20.25 per cent. (year ended 31 December 2014: 21.50 per cent.; year ended 31 December 2013: 23.25 per cent.).

New business value

The new business value after tax decreased by £9 million, or 82 per cent., to £2 million for the year ended 31 December 2015 from £11 million for the year ended 31 December 2014. The reduction reflects a decrease in volumes and lower margins following the implementation of the new rules on Pension Freedoms from 1 April 2015.

The new business value after tax decreased by £7 million, or 39 per cent., to £11 million for the year ended 31 December 2014 from £18 million for the year ended 31 December 2013. The volume of new annuity business reduced compared to 2013, reflecting the impacts of the announcement of the new rules on Pension Freedoms in the 2014 Budget and the deferral of policyholder retirement decisions until those rules came into force.

Non-economic experience variances and assumption changes

Non-economic experience variances and assumption changes increased MCEV by £109 million after tax for the year ended 31 December 2015, compared to £120 million for the year ended 31 December 2014. This amount included other operating variances of £110 million (2014: £82 million) which principally comprised the positive impacts of modelling enhancements undertaken in the period, including the extended roll-out of the Group's new actuarial system and the refinement of actuarial methodologies in a number of areas. Assumption changes increased MCEV by £20 million (2014: £15 million reduction). Changes in expense assumptions to reflect the implementation of revised agreements with the Management Services companies and the impact of corporate tax rate reductions positively impacted the MCEV. These changes more than offset the adverse impacts of the strengthening of the longevity and persistency assumptions. Experience variances in the year were negative £21 million (2014: £53 million positive), principally reflecting an increase in claims and a reduction in the value of future profits expected to be earned on guaranteed rate annuity vestings following the implementation of the new Pension Freedoms.

Non-economic experience variances and assumption changes increased MCEV by £120 million after tax for the year ended 31 December 2014, compared to £165 million for the year ended 31 December 2013. Other operating variances of £82 million (2013: £83 million) were recognised in the period, comprising the one-off positive impacts of actuarial modelling enhancements reflecting the implementation of the Group's new actuarial system and refinements to the modelling of credit default risk. Experience variances of £53 million (2013: £79 million) principally reflecting benefits from data cleansing projects and balance sheet reviews completed in the period and favourable longevity experience. This has been partly offset by negative assumption changes of £15 million (2013: positive £3 million) resulting from the adverse impact of the assumed reduction in take-up of guaranteed annuities following the Pensions Freedoms reforms announced in the 2014 Budget.

Non-economic experience variances and assumption changes increased MCEV by £165 million after tax in the year ended 31 December 2013. Other operating variances of £83 million reflected the benefits of modelling improvements made in the period. Experience variances of £79 million principally reflect favourable longevity experience during the year and benefits from data cleansing projects. The positive impact of assumption changes totalled £3 million.

Management services operating profit and Ignis operating profit—discontinued operations

Commentary on the management services operating profit and Ignis operating profit—discontinued operations is provided under ''Operating profit for the Group for the years ended 31 December 2015, 2014 and 2013'' above.

Group costs

Group costs decreased by £2 million, or 7 per cent., to £26 million for the year ended 31 December 2015 from £28 million for the year ended 31 December 2014 reflecting lower corporate operating costs.

Group costs increased by £1 million, or 4 per cent., to £28 million for the year ended 31 December 2015 from £27 million for the year ended 31 December 2014 reflecting increased corporate project spend in the period.

Reconciliation of Group MCEV operating earnings to Group MCEV earnings for the years ended 31 December 2015, 2014 and 2013

Group MCEV operating earnings are reconciled to Group MCEV earnings as follows:

		Year ended 31 December
	2015	2014	2013
		(£ million)
Group MCEV operating earnings after tax	223	288	350
Economic variances on life business	(221)	54	138
Economic variances on non-life business .	(8)	(64)	(48)
Other non-operating variances on life business	98	(94)	(35)
Non-recurring items on non-life business	(39)	317	(61)
Finance costs attributable to owners	(91)	(90)	(140)
Tax on non-operating earnings	64	—	(42)
Group MCEV earnings after tax	26	411	162

Economic variances on life business

Negative economic variances on life business of £221 million before tax for the year ended 31 December 2015 (2014: positive £54 million) include the negative impact of the difference between actual short-term returns and the long-term investment return assumptions used to determine operating earnings and the adverse impact of widening credit spreads during the year. Also included here is the £98 million adverse impact of changes in asset portfolios undertaken in preparation for the implementation of the new Solvency II regime. This has been partly offset by a gain on the purchase of a portfolio of equity release mortgages and the resultant increase in liquidity premium, together with positive policyholder tax and inflation variances.

Positive economic variances on life business of £54 million for the year ended 31 December 2014 reflect the impacts of falling yields, lower inflation and positive equity and property returns in the period. These have been partly offset by the adverse impacts of the difference between actual short-term returns and the long-term investment return assumptions used to determine operating earnings, widening credit spreads, adverse policyholder tax variances arising on investment gains in the period on the fixed interest portfolio and increases in the market value of the Phoenix Life Limited subordinated debt.

Positive economic variances on life business of £138 million for the year ended 31 December 2013 reflect the positive impacts of narrowing corporate bond spreads, improved equity and property returns and a reduced cost of capital due to improved life company solvency. These have been partly offset by the negative impact of the difference between actual short-term rates and the long-term investment return assumption on which operating earnings is based and the increased market value of the Phoenix Life Limited subordinated debt held as a liability in the MCEV.

Economic variances on non-life business

Economic variances on non-life business were negative £8 million for the year ended 31 December 2015, principally driven by a net increase in the market value of the PGH Capital debt instruments of £4 million.

Economic variances on non-life business of negative £64 million for the year ended 31 December 2014 included a net increase in the market value of the PGH Capital Senior Bond of £24 million and in the market value of the Perpetual Reset Capital Securities of £37 million.

Economic variances on non-life business of negative £48 million for the year ended 31 December 2013 reflect an £84 million increase in the market value of the Perpetual Reset Capital Securities, partly offset by £33 million of gains interest rate swaps held by the Group companies which were closed out in the second half of 2013.

Other non-operating variances on life business

Other non-operating variances on life business increased Group MCEV by £98 million for the year ended 31 December 2015 and principally comprise the partial release of provisions associated with external regulatory changes, including the cap on workplace pension charges and the pension guidance levy together with the positive impact arising on the reassurance of a portfolio of PLAL annuities with an external reinsurer of £19 million.

Other non-operating variances on life business decreased Group MCEV by £94 million for the year ended 31 December 2014 (£74 million on a net of tax basis) and comprise a loss of £20 million in relation to an anticipated reduction in future profits arising from external regulatory changes to the cap on workplace pension charges, £19 million relating to anticipated VAT costs on future management investment expenses and other implementation costs arising from the divestment of Ignis, a £12 million loss arising from the reinsurance agreement to transfer annuity in-payment liabilities held within the with-profit funds to Guardian Assurance and a £31 million reduction in the value of in-force business to reflect the impact of debt repayments, refinancing and other corporate activity on expected tax attributes available to the Group to relieve tax on emerging surpluses. This has been partly offset by a gain of £23 million arising from the restructure of Phoenix Life Limited's exposure to longevity risk from the PGL Pension scheme. Net other items decreased MCEV by £15 million.

Other non-operating variances on life business reduced Group MCEV by £35 million for the year ended 31 December 2013 and include the impacts of regulatory change and systems transformation costs incurred by the Life Companies, together with the impact of certain tax items including the impact of corporate tax rate reductions.

Non-recurring items on non-life business

Non-recurring items on non-life business decreased MCEV by £39 million before tax for the year ended 31 December 2015 and include a loss of £22 million recognised on the exchange of the Perpetual Reset Capital Securities and related transaction expenses, together with corporate project costs of £13 million. Net negative other one-off items total £4 million.

Non-recurring items on non-life business increased embedded value by £317 million before tax for the year ended 31 December 2014 and include a gain of £288 million on the divestment of Ignis Asset Management and £68 million of income received by PGH1 from the with-profits funds in relation to the close-out of the PGL Pension Scheme longevity indemnity agreement. Partly offsetting this income are £11 million of Group corporate project costs and debt issue costs of £16 million. Net other one-off items had a negative impact of £12 million and included costs associated with system transformation and regulatory change.

Non-recurring items on non-life business reduced embedded value by £61 million before tax for the year ended 31 December 2013 and include arrangement and structuring fees of £21 million associated with the re-terming of the Impala Facility, a loss from a pension liability management exercise of £9 million and £31 million of regulatory change, systems transformation and restructuring costs incurred by the management services companies, together with corporate project and other one-off costs.

Finance costs attributable to owners

Finance costs attributable to owners under MCEV include the coupon payable on the Perpetual Reset Capital Securities recognised when settled.

The Group's finance costs attributable to owners increased by £1 million, or 1 per cent., to £91 million for the year ended 31 December 2015 from £90 million for the year ended 31 December 2014. The increase reflects the inclusion of a full year's accrued interest on the PGH Capital Senior Bond issued in July 2014, together with the finance costs accrued on the PGH Capital subordinated bonds which were exchanged for the Perpetual Reset Capital Securities, as well as the coupon paid on the Perpetual Reset Capital Securities prior to the exchange. These increases have been partly offset by lower bank finance costs on reduced debt principals after repayment and restructuring activities.

The Group's finance costs attributable to owners decreased by £50 million, or 36 per cent., to £90 million for the year ended 31 December 2014 from £140 million for the year ended 31 December 2013. The decrease reflects lower debt principal balances following repayments and restructuring activity during the period, together with the impact of the closure of the Group's interest rate swap arrangements in the second half of 2013 which were responsible for a net finance charge in the comparative period.

Group MCEV as at 31 December 2015, 2014 and 2013

The movement from opening to closing Group MCEV is shown below:

		Year ended 31 December
	2015	2014	2013
		(£ million) (audited)
Movement in Group MCEV
Group MCEV at 1 January	2,647	2,378	2,122
Group MCEV earnings after tax	26	411	162
Other comprehensive expense	(40)	(27)	(16)
Capital and dividend flows	(120)	(115)	110
Group MCEV at 31 December	2,513	2,647	2,378

Other comprehensive expense increased by £13 million, or 48 per cent., to £40 million for the year ended 31 December 2015 from £27 million for the year ended 31 December 2014. The expense includes pension contributions of £12 million (net of tax) in respect of the PGL Pension Scheme (2014: £16 million) and £32 million (net of tax) in respect of the Pearl Group Staff Pension Scheme (2014: £54 million), partly offset by a revaluation gain of £4 million on owner occupied property.

The 2014 expense was partly offset by an actuarial gain of £43 million (net of tax) in respect of the Pearl Group Staff Pension Scheme, that was capped at the point at which the scheme returned to surplus on an IFRS basis.

The 2013 expense includes pension contributions of £18 million net of tax on the PGL Pension Scheme, partly offset by a £2 million actuarial remeasurement gain on the Pearl Staff Pension Scheme.

Capital and dividend flows in 2015 mainly comprised external dividend payments of £120 million.

Capital and dividend flows in 2014 mainly comprised external dividend payments of £120 million, net of movements in the own shares held balance.

Capital and dividend flows in 2013 mainly comprised ordinary share capital issued of £233 million (net of associated fees and commissions) less external dividend payments of £120 million.

Financial Leverage

The Group historically calculated its financial leverage as gross shareholder debt as a percentage of the gross MCEV. Gross shareholder debt was defined as the notional face value of the shareholder and hybrid debt. Gross MCEV is defined as the sum of the Group MCEV and the value of the shareholder and hybrid debt as included in the MCEV. As previously discussed, following the implementation of the Solvency II regime, MCEV will not be reported going forwards. This, together with the Group's achievement of an investment grade credit rating during 2015, means that the financial leverage calculation will also not be reported in future periods.

The table below sets out, for the periods indicated, the calculation of the components of the Group's financial leverage.

		As at 31 December
	2015	2014	2013
		(£ million, audited, except as otherwise indicated)
Group MCEV	2,513	2,647	2,378
Gross shareholder debt: Bank Facilities	—	—	1,585
Royal London PIK notes and facility	—	—	121
PGH Capital Facility	650	840	—
PGH Capital Senior bond	300	300	—
PGH Capital subordinated notes	396	—	—
PLL subordinated debt	200	200	200
Perpetual Reset Capital Securities	6	394	394
Difference between IFRS and MCEV carrying values of shareholder borrowings	40	27	(39)
Gross MCEV (unaudited) Financial leverage ratio (per cent.)	4,105 37.8%	4,408 39.3%	4,639 49.6%

The financial leverage ratio decreased by 1.5 per cent. to 37.8 per cent. as at 31 December 2015, reflecting debt repayments in the period.

The financial leverage ratio decreased by 10.3 per cent. to 39.3 per cent. as at 31 December 2014, reflecting debt repayment and restructuring activity undertaken in the year.

Off-balance sheet arrangements

The Group is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contingent liabilities

In the normal course of business the Group is exposed to certain legal issues, which involve litigation and arbitration. As at 30 June 2016, the Group had no material contingent liabilities.

Description of certain other indebtedness

Overview

The Group intends to manage leverage at a level consistent with maintaining an investment grade rating for the Company and the Group's senior and subordinated debt. The total principal amount outstanding under the Group's Senior Bonds, Subordinated Bonds, PLL Tier 2 Bonds and credit facilities as at 30 June 2016 was £1,578 million. Following completion of the Acquisition and the AXA Transaction, the total principal amount outstanding under the Group's Senior Bonds, Subordinated Bonds, PLL Tier 2 Bonds and credit facilities, including the principal amounts outstanding under the AXA Bridge Facility Agreement and the Abbey Life Bridge Facility Agreement, is expected to be £2,048 million. A description of the Group's indebtedness is set out below.

The Senior Bonds

On 7 July 2014, PGH Capital issued the Senior Bonds, being a £300 million senior unsecured bond with an annual coupon of 5.75 per cent, which is guaranteed by the Company on a senior basis. The Senior Bonds constitute direct, unconditional, unsubordinated and unsecured obligations of PGH Capital. Unless previously redeemed or purchased and cancelled, the Senior Bonds will mature on 7 July 2021. The Senior Bonds are listed on the London Stock Exchange.

The Subordinated Bonds

On 23 January 2015, PGH Capital issued £428,113,000 6.625 per cent. Guaranteed Subordinated Bonds due 2025 guaranteed on a subordinated basis by the Company. The Subordinated Bonds constitute direct, unsecured and subordinated obligations of PGH Capital. On a winding-up of PGH Capital or in the event that an administrator of PGH Capital is appointed and gives notice that it intends to declare and distribute a dividend, the claims of the holders of the Subordinated Bonds will rank junior in priority to the claims of all Senior Creditors of PGH Capital. Unless previously redeemed or purchased and cancelled, the Subordinated Bonds are scheduled to mature on 18 December 2025, subject to and in accordance with their terms. The Subordinated Bonds are listed on the London Stock Exchange.

PLL Tier 2 Bonds

See paragraph 12.1.7 (''PLL Tier 2 Bonds'') in Part XIV (''Additional Information'') of this document for a description of the PLL Tier 2 Bonds.

The Credit Facilities

Revolving Credit Agreement

The Company (as guarantor), PGH Capital (as borrower) and Commerzbank Finance & Covered Bond S.A. (as agent), among others, are party to a credit agreement dated 23 July 2014, as amended and restated on 21 March 2016 (the ''Revolving Credit Agreement'').

Under the Revolving Credit Agreement, the lenders have made available a multicurrency revolving loan facility in an aggregate amount equal to £650 million. The Revolving Credit Agreement includes an accordion feature which allows the Company to request, at any time, one or more lenders under the Revolving Credit Agreement to increase their existing commitments or invite other entities to provide new commitments, in order to increase the total commitments under the Revolving Credit Agreement by up to a maximum aggregate amount of the lesser of (i) £250 million and (ii) a leverage ratio based limit. The Revolving Credit Agreement further enables the Company to request that the additional commitments (together with any existing commitments under the Revolving Credit Agreement) are provided on a customary certain funds basis for a period of up to six months.

The final maturity date of the facility under the Revolving Credit Agreement is 30 June 2020. The Company is entitled to request two one year extensions to the term of the facility (which, together, could extend the maturity date to 30 June 2022). Each such one year extension option requires the consent of each extending lender. There are no mandatory or target amortisation payments associated with the facility and it currently accrues interest at LIBOR plus 1.35 per cent., with the margin linked to the credit rating of the Company.

The Revolving Credit Agreement includes a leverage ratio financial covenant which is tested semi-annually. The representations, undertakings and events of default under the Revolving Credit Agreement are customary for a credit agreement of this nature. In addition, the Revolving Credit Agreement: (i) permits one class 1 acquisition to be completed without lender consent, provided that certain conditions are satisfied; and (ii) includes an undertaking and an event of default relating to the Pearl Group Staff Pension Scheme, with the event of default occurring if certain acceleration steps are taken by the scheme's trustee under the security documents granted in its favour. The Revolving Credit Agreement also includes mandatory prepayment obligations in respect of change of control and illegality.

AXA Bridge Facility Agreement

The Company (as guarantor), PGH Capital (as borrower) and Commerzbank Finance & Covered Bond S.A. (as agent), among others, are party to a bridge facility agreement dated 27 May 2016 (the ''AXA Bridge Facility Agreement''). The purpose of the facility is to finance, directly or indirectly, the AXA Transaction and related fees, costs, expenses, taxes and other liabilities. The Group intends to repay the AXA Bridge Facility in full by the end of March 2017 using cashflows from the Group's business or from the proceeds of longer term debt issuances.

Under the AXA Bridge Facility Agreement, the lenders have agreed to make available a sterling term loan facility in an aggregate amount of £220 million. Once utilised, the utilised commitments will accrue interest at a rate per annum equal to LIBOR plus 0.85 per cent. (increasing to 1.25 per cent. six months after closing of the AXA Transaction, 2.00 per cent. 12 months after closing of the AXA Transaction, and 2.75 per cent. 18 months after closing of the AXA Transaction). The facility is available on a customary certain funds basis and utilisation of the facility is subject to the satisfaction of certain documentary conditions precedent linked to the AXA Transaction.

The final maturity date of the facility under the AXA Bridge Facility Agreement is the date falling 12 months after (but excluding) the closing date of the AXA Transaction. The Company is entitled to require the maturity date to be extended by two further six month periods, provided only that no event of default is continuing on the date on which the relevant extension request is made.

The representations, undertakings, financial covenant, mandatory prepayment obligations and events of default under the AXA Bridge Facility Agreement are substantially the same as those in the Revolving Credit Agreement. In addition, the AXA Bridge Facility Agreement includes the following two additional mandatory prepayment obligations: (i) an obligation to apply certain proceeds from the issuance of senior debt in mandatory prepayment of the facility; and (ii) an obligation to apply the net capital released as a consequence of net synergies realised as a result of the AXA Transaction in mandatory prepayment of the facility, with each mandatory prepayment obligation being subject to certain conditions and exceptions.

Abbey Life Bridge Facility Agreement

The Company (as guarantor), PGH Capital (as borrower) and Commerzbank Finance & Covered Bond S.A. (as agent), among others, are party to a bridge facility agreement dated 28 September 2016 (the ''Abbey Life Bridge Facility Agreement''). The purpose of the facility is to partially finance, directly or indirectly, the Acquisition, the repayment, replacement, cancellation, termination or backstopping of any indebtedness or other liabilities of Abbey Life, and related fees, costs, expenses, taxes and other liabilities. The Group intends to repay the Abbey Life Bridge Facility in full by using cashflows from the Group's business, through refinancing using the Revolving Credit Agreement accordion feature or the proceeds from longer term debt issuances.

Under the Abbey Life Bridge Facility Agreement, the lenders have agreed to make available a sterling term loan facility in an aggregate amount equal to £250 million. Once utilised, the utilised commitments will accrue interest at a rate per annum equal to LIBOR plus 0.85 per cent. (increasing to 1.25 per cent. six months after Completion, 2.00 per cent. 12 months after Completion, and 2.75 per cent. 18 months after Completion). The facility is available on a customary certain funds basis and utilisation of the facility is subject to the satisfaction of certain documentary conditions precedent linked to the Acquisition.

The final maturity date of the facility under the Abbey Life Bridge Facility Agreement is the date falling 12 months after (but excluding) the date of Completion. The Company is entitled to require the maturity date to be extended by two further six month periods, provided only that no event of default is continuing on the date on which the relevant extension request is made.

The representations, undertakings, financial covenant, mandatory prepayment obligations and events of default under the Abbey Life Bridge Facility Agreement are substantially the same as those in the Revolving Credit Agreement. In addition, the Abbey Life Bridge Facility Agreement includes the following two additional mandatory prepayment obligations: (i) an obligation to apply certain proceeds from the issuance of senior debt in mandatory prepayment of the facility; and (ii) an obligation to apply 50 per cent. of the net capital released as a consequence of net synergies realised as a result of the Acquisition in mandatory prepayment of the facility, with each mandatory prepayment obligation being subject to certain conditions and exceptions. In addition, the Abbey Life Bridge Facility Agreement includes an option enabling the Company to convert the commitments under the Abbey Life Bridge Facility Agreement into commitments under the accordion feature of the Revolving Credit Agreement (as described above).

Capitalisation and indebtedness

The following tables set out the Group's capitalisation and indebtedness as at 30 June 2016. The tables should be read in conjunction with the Group's consolidated financial information as at and for the six months ended 30 June 2016, and the years ended 31 December 2015, 2014 and 2013, each of which is incorporated by reference into this document as set out in Part XV (''Documents Incorporated by Reference'') of this document.

Indebtedness:

	As at 30 June 2016
	(£m)
Total current debt
Secured(1) .	11
Total current debt	11
Total non-current debt (excluding current portion of the long-term debt)
Guaranteed(2)	1,332
Secured(1) .	242
Unguaranteed / Unsecured(3) .	163
Total non-current debt	1,737

Notes:

(1) Secured debts relate to the £120 million 7.59% class A2 limited recourse bonds, with an outstanding principal of £83 million as at 30 June 2016, secured against embedded value on a block of policies within PLAL, and the Property Reversions loan from Santander UK plc, secured against related residential property reversions. These borrowings are classified as policyholder borrowings as they are attributable to with-profit operations and are held by the with-profit funds.

(2) The £650 million unsecured revolving credit facility and the £300 million senior unsecured bond are guaranteed by PGH, the ultimate parent. The £428 million subordinated notes are guaranteed by PGH on a subordinated basis.

(3) The PLL £200 million subordinated debt is undated and unsecured. The right of payment under the notes is subordinated to the rights of higher ranking creditors (notably policyholders).

Capitalisation:

	As at 30 June 2016
	(£m)
Shareholders' equity
Share capital	—
Share premium .	991
Shares held by the employee trust and Group entities .	(3)
Foreign currency translation reserve .	96
Owner-occupied property revaluation reserve	4
Retained earnings	1,718
Total capitalisation	2,806

There has been no material change in the issued share capital of the Company since 30 June 2016.

Quantitative and qualitative disclosures about market risk

Quantitative and qualitative disclosures about market risk are included in the ''Risk Management'' section on pages 34 to 39 of the Annual Report and Accounts for the year ended 31 December 2015 and note E6 to the audited consolidated financial statements included in the Annual Report and Accounts for the year ended 31 December 2015, incorporated by reference into this document.

Critical accounting policies

The critical accounting policies of the Company are set-out in note A3 of the audited consolidated financial statements included in the Annual Report and Accounts for the year ended 31 December 2015, incorporated by reference into this document.

PART VIII—FINANCIAL INFORMATION OF THE COMPANY

The tables below set out the Company's selected consolidated financial information as at and for the six months ended 30 June 2016 and the years ended 31 December 2015, 2014 and 2013. The data has been extracted without material adjustment from the 2016 Half Year Report and Accounts and the Annual Report and Accounts for the years ended 31 December 2015, 2014 and 2013, which are incorporated by reference into this Part VIII (''Financial Information of the Company'') as described in Part XV (''Documents Incorporated by Reference'') of this document. Investors should read the whole of this document, including the information incorporated by reference into this document, and not rely solely on the summarised financial information below.

Selected consolidated income statement

	Six months ended 30 June		Year ended 31 December
	2016	2015	2015	2014	2013 (Restated)(1)
	(unaudited)			(audited)
			(£ million)
Net income	4,926	810	692	5,330	4,272
Total operating expenses	(4,804)	(693)	(404)	(4,709)	(3,801)
Finance costs .	(62)	(69)	(136)	(156)	(230)
Profit for the year before tax	60	48	152	465	241
Tax credit/(charge) .	(57)	30	97	(151)	1
Add: Tax attributable to policyholders' returns .	70	(31)	(33)	129	(27)
Tax credit/(charge) attributable to owners	13	(1)	64	(22)	(26)
Profit from continuing operations for the year attributable
to owners	3	78	249	314	242
Profit/(loss) from discontinued operations, net of tax	—	—	—	92	(35)
Profit for the year attributable to owners	3	78	249	406	207
Attributable to:
Owners of the parent .	2	51	201	310	145
Non-controlling interests	1	27	48	96	62
	3	78	249	406	207

Note:

⁽¹⁾ The relevant figures have been restated due to the adoption of IFRS 10 Consolidated Financial statements and IFRS 11 Joint Arrangements. In addition, following the divestment of Ignis Asset Management on 1 July 2014, the 2013 figures have been restated to disclose the results of Ignis Asset Management as discontinued operations.

Selected consolidated statement of financial condition

	As at 30 June As at 31 December
	2016	2015	2015	2014	2013 (Restated)(1)
		(unaudited)		(audited)
			(£ million)
Total assets	69,997	67,270	64,514	68,803	74,469
Total liabilities	67,191	64,438	61,510	65,525	71,782
Equity attributable to owners of the parent	2,806	2,296	2,434	2,365	1,909
Non-controlling interests	—	536	570	913	778
Total equity	2,806	2,832	3,004	3,278	2,687

Note:

PART IX—FINANCIAL INFORMATION OF ABBEY LIFE

PART A—HISTORICAL FINANCIAL INFORMATION OF ALAC

The tables below set out ALAC's historical financial information for the years ended 31 December 2015, 2014 and 2013 from ALAC's audited accounts, which have been prepared on a basis consistent with the accounting policies disclosed in the Company's IFRS financial statements for the year ended 31 December 2015.

Statement of comprehensive income

			Year ended 31 December
	Notes	2015	2014	2013
			(£ million)
Revenue Gross premiums written Premiums ceded to reinsurers	5	89.7 (14.8)	124.6 (14.1)	171.3 (12.9)
Premiums written (net of reinsurance)		74.9	110.5	158.4
Fee income Net investment income Net realised gains on financial assets Net fair value (losses)/gains on assets/liabilities at fair value through	6 7 7	19.6 315.2 301.2	22.0 323.7 351.4	23.9 336.9 360.4
profit or loss	7	(296.7)	140.7	466.7
Total revenue (net of reinsurance)		414.2	948.3	1,346.3
Claims expense Claims and benefits paid Less: claims recoveries from reinsurers		(325.8) 6.3	(348.1) 7.7	(404.9) 8.5
Claims and benefits (net of reinsurance)		(319.5)	(340.4)	(396.4)
Changes in contract liabilities Change in insurance contract liabilities Change in fair value of investment contract liabilities . Change in reinsurance contracts Change in unallocated surplus within long term business fund	25 27 16 26	313.0 (182.0) (44.0) 1.1	(167.9) (260.0) 10.3 0.6	312.1 (847.0) (85.9) —
Total changes in contract liabilities		88.1	(417.0)	(620.8)
Net operating expenses Finance costs Expenses for asset management services	8	(38.7) (6.8) (16.5)	(38.7) (9.7) (15.9)	(47.5) (14.0) (14.4)
Total expenses		(62.0)	(64.3)	(75.9)
Total expenses including changes in contract liabilities (net of reinsurance)		(293.4)	(821.7)	(1,093.1)
Profit before tax Taxation	11	120.8 (22.1)	126.6 (29.5)	253.2 (77.5)
Profit after tax		98.7	97.1	175.7
Other comprehensive income Items that will not be reclassified to profit or loss:
Pension benefit plan actuarial gains/(losses) . Taxation on items of other comprehensive income	29 11	2.9 (2.4)	(34.9) 7.0	(4.8) (1.9)
Other comprehensive income after tax		0.5	(27.9)	(6.7)
Total comprehensive income after tax attributable to equity holders .		99.2	69.2	169.0

Balance sheet

			As at 31 December
	Notes	2015	2014	2013
			(£ million)
ASSETS
Investment properties	14	7.1	5.4	4.5
Intangible assets including insurance intangible assets	15	83.9	94.6	105.8
Reinsurers' share of insurance contract liabilities	16	107.8	151.8	141.5
Deferred tax assets	17	28.6	32.6	28.0
Investment in subsidiaries .	18	1,039.9	1,150.3	1,207.5
Investment in associates.	19	360.5	459.5	524.9
Financial assets:
Investments designated on initial recognition at fair value
through profit or loss	20	8,949.4	9,371.6	9,234.0
Loans and receivables .	21	438.1	530.4	574.0
Derivative financial instruments held for trading .	22	76.4	74.8	32.3
Cash and cash equivalents	23	43.2	52.9	77.5
Total assets		11,134.9	11,923.9	11,930.0
EQUITY AND LIABILITIES
Capital and reserves attributable to equity holders
Share capital	24	30.5	30.5	30.5
Share premium account		253.6	253.6	253.6
Other reserves .		6.1	6.1	6.1
Pension benefits actuarial losses reserve		(73.0)	(73.5)	(45.6)
Retained earnings		575.0	632.3	635.2
Total equity		792.2	849.0	879.8
Liabilities
Insurance contract liabilities	25	3,840.7	4,153.7	3,985.8
Unallocated surplus within long term business fund	26	5.8	6.9	7.5
Financial liabilities:
Investment contract liabilities	27	5,767.8	6,056.1	6,167.0
Derivative financial instruments held for trading .	22	267.0	298.1	264.0
Other financial liabilities .	28	229.3	290.1	350.9
Current tax payables	17	21.4	30.2	49.2
Deferred tax liabilities	17	36.9	46.5	52.4
Pension and other post-retirement benefit obligations	29	68.0	68.0	31.2
Provisions for other liabilities and charges .	30	0.3	0.4	0.5
Accruals and deferred income	31	105.5	124.9	141.7
Total liabilities		10,342.7	11,074.9	11,050.2
Total equity and liabilities		11,134.9	11,923.9	11,930.0

Cashflow statement

			Year ended 31 December
	Note	2015	2014	2013
Cashflows from operating activities			(£ million)
Profit before tax		120.8	126.6	253.2
Adjustments for:
Taxation paid		(38.9)	(52.1)	(46.1)
Interest paid		6.8	9.7	14.0
Depreciation and impairment of property and equipment	13	—	—	0.1
Fair value gain on investment properties	14	(1.7)	(0.9)	—
Amortisation of intangible assets .	15	11.3	11.8	12.6
(Increase) in intangible assets	15	(0.6)	(0.6)	(0.8)
Decrease/(increase) in financial assets at fair value through profit or
loss	20	422.2	(137.6)	(248.8)
(Increase) in derivative financial instruments—assets	22	(1.6)	(42.5)	(7.7)
Decrease/(increase) in reinsurance assets	16	44.0	(10.3)	85.9
Decrease/(increase) in investments in associates and subsidiaries .	18, 19	209.4	122.6	(97.0)
Decrease in loans and receivables	21	92.3	43.6	90.7
(Decrease)/increase in insurance contract liabilities .	25	(313.0)	167.9	(312.1)
(Decrease) in unallocated surplus	26	(1.1)	(0.6)	—
(Decrease)/increase in investment contract liabilities .	27	(288.3)	(110.9)	401.2
(Decrease)/increase in derivative financial instruments—liabilities	22	(31.1)	34.1	(20.4)
(Decrease) in other financial liabilities, accruals and deferred income	28, 31	(80.2)	(77.5)	(64.7)
(Decrease)/increase in employee benefits and other provisions Pension benefits actuarial gains/(losses) through other	29, 30	(0.1)	36.7	5.4
comprehensive income	29	2.9	(34.9)	(4.8)
Net cash from operating activities		153.1	85.1	60.7
Cashflows from financing activities
Dividends paid		(156.0)	(100.0)	—
Interest paid		(6.8)	(9.7)	(14.0)
Net cash from financing activities		(162.8)	(109.7)	(14.0)

Net change in cash and cash equivalents		(9.7)	(24.6)	46.7
Cash and cash equivalents at 1 January		52.9	77.5	30.8
Cash and cash equivalents at 31 December	23	43.2	52.9	77.5

Statement of changes in equity

	Share capital £ m	Share premium £ m	Other reserves £ m	Pension benefits actuarial (losses) reserve £ m	Retained earnings £ m	Total £ m
Balance at 1 January 2013	30.5	253.6	6.1	(38.9)	459.5	710.8
Profit after tax					175.7	175.7
Other comprehensive income: —Pension benefits actuarial losses net of taxation				(6.7)		(6.7)
Balance at 31 December 2013	30.5	253.6	6.1	(45.6)	635.2	879.8
Profit after tax					97.1	97.1
Other comprehensive income: —Pension benefits actuarial losses net of taxation —Dividends to equity holders				(27.9)	(100.0)	(27.9) (100.0)
Balance as at 31 December 2014	30.5	253.6	6.1	(73.5)	632.3	849.0
Profit after tax					98.7	98.7
Other comprehensive income: —Pension benefits actuarial losses net of taxation —Dividends to equity holders				0.5	(156.0)	0.5 (156.0)
Balance as at 31 December 2015	30.5	253.6	6.1	(73.0)	575.0	792.2

1. Reporting entity

Abbey Life Assurance Company Limited (''the Company'') is a company incorporated, registered and domiciled in the United Kingdom. The Company is a wholly owned subsidiary undertaking of Deutsche Bank AG, which is incorporated in the European Union (EU) and which publishes consolidated financial statements.

The address of the Company's registered office is Winchester House, 1 Great Winchester Street, London, EC2N 2DB. The financial statements of the Company are presented as at and for the years ended 31 December 2015, 2014 and 2013. The principal activity of the Company is the transaction of ordinary long-term insurance business in the United Kingdom. From 2000 until 2009 the Company had not accepted new business except for increments on existing policies and vesting annuities. Since 2000 the Company has maintained and serviced these policies largely through outsourced administration providers. The Company however retained its regulatory permissions to write new business, and in 2010 it commenced offering de-risking products for corporate clients. Technical and commercial support for this activity is provided by the parent, Deutsche Bank AG Group (''the Group'').

2. Basis of preparation

(a) Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and IFRS Interpretations Committee (IFRIC) guidance as adopted by the European Union and also in accordance with the provisions of section 396 of the Companies Act 2006 including applying the requirements set out in Schedule 3 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 relating to insurance companies.

As the Company is a wholly owned subsidiary undertaking of Deutsche Bank AG, which is incorporated in the EU and which publishes consolidated financial statements, and as its immediate parent undertaking is also incorporated in the EU it is exempt under sections 400, 401 and 402 of the Companies Act 2006 from the requirement to prepare group financial statements. Accordingly, these statutory financial statements present information about the Company as an individual undertaking only and not about its group.

The historical financial information of ALAC has been prepared on a basis consistent with the accounting policies disclosed in the Phoenix Group Holdings consolidated IFRS financial statements for the year ended 31 December 2015.

2. Basis of preparation (Continued)

(b) Financial reporting developments

The EU has endorsed the following amendments to IFRSs that are effective for these financial statements:

IFRS	Nature of change	Impact
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)	The amendments exempt an investment entity from the requirement to consolidate the investments that it controls. Instead, it accounts for these investments at fair value through profit or loss.	No impact
Offsetting Financial Assets and Financial Liabilities—Amendments to IAS 32	Clarification of offsetting criteria	No impact
Recoverable amount disclosures for non-financial assets—Amendments to IAS 36	Recoverable amount is required to be disclosed only when an impairment loss has been recognised or reversed.	No impact
IFRIC 21 Levies	Guidance on levies recognition	No impact
Continuing hedge accounting after derivative novations—Amendments to IAS 39	Guidance on discounting an existing hedging relationship	No impact
Defined Benefit Plans: Employee Contributions—Amendments to IAS 19	Reduce the complexity of accounting for certain contributions from employees or third parties	No material impact

A number of other new and amended IFRSs have been endorsed for future use. None are currently expected to have a material impact on the Company's financial statements but are being kept under review.

The International Accounting Standards Board has recently published a further exposure draft proposing changes to IFRS 4 ''Insurance Contracts'' in 2015. Further consultation is anticipated before the issue of a final standard, and if then adopted and endorsed by the EU it will result in material changes to the Company's financial statements in future years. The effective date of the standard is currently expected in either 2020 or 2021.

(c) Basis of measurement

The financial statements have been prepared on the historical cost basis except for the following:

subsidiaries, associates, derivatives, financial instruments at fair value through profit or loss, and other financial liabilities are measured at fair value
loans and receivables held at fair value, using forecast cashflows where the Company has elected to apply fair value accounting to remove accounting mismatch
other loans and receivables are initially measured at fair value, and subsequently at amortised cost
investment property is measured at fair value
intangible assets and deferred income are held at amortised cost
Investment contract liabilities are initially valued and subsequently valued at fair value. Insurance contract liabilities are valued by estimating the future cashflows, including fees, premiums and claims that are settled net, over the duration of the policy and discounting them back to the valuation date allowing for probabilities of occurrence

2. Basis of preparation (Continued)

(d) Functional and presentation currency

These financial statements are presented in pounds sterling (pounds), which is the Company's functional currency. Except where indicated, financial information presented in pounds has been shown in millions of pounds rounded to the nearest £0.1 million.

(e) Use of estimates and judgements

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

The accounting policies which relate to insurance contracts (Notes 3(a) and 3(i)), intangible assets (Note 3(j)), the ascertainment of fair values of financial assets and liabilities (Note 3(d)), the determination of impairment losses (Note 3(k)) and the setting of assumptions made in the evaluation of pension obligations under IAS 19R ''Employee Benefits'' (Note 3(n)) are those which may involve the most complex or subjective decisions or assessments. These estimates and assumptions affect the reported amounts of assets and liabilities, contingent or otherwise, at the balance sheet date as well as affecting the reported income and expenses for the year.

Disclosure of those estimates and judgements which are critical in preparing these financial statements is given in Note 4.

In each case the determination of these is fundamental to the financial results and position of the Company, and requires management to make complex judgments based on information and financial data that may change in future periods. The estimates are based on management's best knowledge of current facts as at the balance sheet date. Sensitivities to changes in these estimates are presented in Notes 6, 15, 29 and 32.

(f) Going concern basis

In considering the appropriateness of the going concern basis, the Board has reviewed the Company's ongoing financial commitments for the next 12 months. The Board's review included the Company's strategic plans and updated forecasts, capital position, liquidity and credit facilities and investment portfolio. As a result of the review the directors have satisfied themselves that it is appropriate to prepare these financial statements on a going concern basis.

3. Accounting policies

The Company has identified the accounting policies that are most significant to its business operations and the understanding of its results, and they are set out below.

(a) Classification as insurance contracts

Insurance contracts for the purposes of IFRSs are those contracts which transfer significant insurance risk. Significant insurance risk is the possibility, however remote, of having to pay on the occurrence of an insured event benefits which are significantly more than the benefits payable if the insured event had not occurred. A contract classified as an insurance contract at its inception will remain as such for the remainder of its lifetime, even if the insurance risk reduces significantly over time.

Long term contracts not considered to be insurance contracts under IFRS are classified as investment contracts, loans or derivatives as appropriate. Investment contracts may be reclassified as insurance contracts if they subsequently meet the definition above.

3. Accounting policies (Continued)

(b) Investment in subsidiaries

The Company's subsidiaries are those entities which it controls. The Company controls an entity where it has the power to govern the financial and operating policies of the entity, generally accompanying a shareholding, either directly or indirectly, of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered in assessing whether the Company controls another entity.

The Company owns 100% of the shares of one dormant company. This is shown as a subsidiary and is held at net asset value, which is equal to fair value.

In addition, the Company invests in certain open ended investment companies (''OEICs'') as part of its investment portfolio. Where the Company holds more than 50% of the shares in the underlying OEIC sub-fund, such investments have been presented as investment in subsidiaries. The Company's investments in these OEICs are held primarily by the Company's unit linked funds which are valued regularly for unit pricing purposes based on the Company's share of the fair value of the underlying assets held by the OEICs. Accordingly, the Company's investments in these subsidiaries are carried at fair value and changes in the fair value are reflected in the statement of comprehensive income, since this represents the way that these investments are managed and their performance is evaluated.

(c) Investment in associates

As set out in Note 3(b) the Company invests in certain OEICs as part of its investment portfolio. Where the Company holds between 20% and 50% of the shares in the underlying OEIC sub-fund, such investments have been classified as investment in associates. The Company's investments in these OEICs are held primarily by the Company's unit linked funds which are valued regularly for unit pricing purposes based on the Company's share of the fair value of the underlying assets held by the OEICs. Accordingly, the Company's investments in these associates are carried at fair value and changes in the fair value are reflected in the statement of comprehensive income, since this represents the way that these investments are managed and their performance is evaluated.

(d) Financial assets and liabilities

With the exception of certain loans and receivables which are stated at amortised cost (as described below), financial assets and liabilities are designated on initial recognition as being at fair value through profit or loss, as they are managed and their performance is evaluated on a fair value basis, and otherwise measurement inconsistencies would result. In particular, both insurance and investment contract unit linked liabilities are linked to the fair value of financial assets.

Investments at fair value through profit or loss

Investments are initially recognised and subsequently re-measured at fair value.

For investments that are actively traded in organised financial markets, fair value is determined by reference to quoted market bid prices at the close of business on the balance sheet date. These are classified as Level 1 in the IFRS 7 ''Financial Instruments: Disclosures'' hierarchy in Note 35.

For investments where there is no single quoted active market price or the price is illiquid, fair value is based on a valuation technique. OEICs and similar fund holdings are valued using their bid unit prices, which are derived by the funds' managers from observable market parameters, primarily the quoted market prices of their underlying investments. Other valuation techniques may be employed for other asset types, including using recent arm's length market transactions between knowledgeable, willing parties, if available, discounted cashflow analysis or other internal valuation models. Where these use observable market parameters, they are classified as Level 2 in the IFRS 7 hierarchy, while if there are significant unobservable inputs they are classified as Level 3.

All purchases and sales of financial assets are recognised on the trade date, i.e. the date the Company commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive

3. Accounting policies (Continued)

cashflows from the financial assets have expired or where the Company has transferred substantially all of the risks and rewards of ownership.

Investment contracts

Liabilities under unit linked long-term contracts not considered to be insurance contracts under IFRSs are classified as investment contracts where that is appropriate, and are designated on initial recognition as being at fair value through profit or loss.

Loans and receivables

Loans and receivables (other than loans held at fair value) are non-derivative financial assets with fixed or determinable payments initially recognised and measured at fair value plus directly attributable costs and are subsequently measured at amortised cost using the effective interest rate method where appropriate to avoid accounting mismatches.

Reinsurance and retrocession contracts not considered to be insurance contracts under IFRSs are classed as loans or debts held at fair value where that is appropriate. Such loans or debts are initially recognised and measured at fair value plus directly attributable costs and are subsequently measured at fair value (after reflecting such factors as valuation adjustments for liquidity and credit) using forecast cashflows to avoid accounting mismatches.

Derivative financial instruments

Derivative financial instruments are classified as held for trading in accordance with IAS 39. Derivative financial instruments are recognised initially at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Market prices are used where available for specific instruments, or are derived by modelling techniques from observable market parameters such as the overnight interest swap curve. Changes in the fair value are recognised immediately in the statement of comprehensive income.

Reinsurance and retrocession contracts not considered to be insurance contracts under IFRSs are classed as derivatives where that is appropriate.

Other financial liabilities

Other financial liabilities are initially recognised and subsequently re-measured at fair value. A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expired. Liabilities including claims which are time-barred under the statute of limitations are periodically written back through profit or loss when they are deemed by management no longer to be enforceable.

Offsetting of financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Investment income

Interest income from investments held at fair value is recognised on an accruals basis. Interest from loans and receivables held at amortised cost and from loans held at fair value is recognised on the effective interest rate method. Dividends are included as investment income on the date that the shares become quoted ex-dividend.

Net realised gains on assets at fair value through profit or loss

Realised gains and losses on investments are calculated as the difference between net sale proceeds and the original cost on a first in first out basis.

3. Accounting policies (Continued)

Net fair value gains on assets at fair value through profit or loss

The profit or loss in the period from unrealised gains and losses on assets is calculated as the difference between the current valuation of the asset at the balance sheet date and the cost at the date of acquisition or the last balance sheet date, whichever is the later. When assets are disposed of, cumulative unrealised gains and losses recognised in the current and earlier accounting periods in respect of such assets are reversed. All such movements in unrealised gains and losses arising in the year are shown in the statement of comprehensive income.

Stock lending

During the years ended 31 December 2014 and 2013, the Company undertook stock lending operations in which securities are loaned for a fee to counterparties under market-standard agreements. Under these arrangements, legal ownership of the securities is transferred to the borrower but the Company has the right to demand the return of the loaned securities at any time. It also retains the right to receive the income it would have been entitled to had the securities not been loaned. As all risks and rewards of ownership are retained by the Company, the securities continue to be recognised as investments in the balance sheet.

The Company requires all stock lending to be fully collateralised in an agreed form for the duration of the loan and equivalent collateral is returned at the completion of the loan period.

All stock lending and collateral operations are conducted by a third party which acts as agent for the Company and fully indemnifies the Company against any counterparty default on the transactions.

(e) Foreign currency translation

Items included in the financial statements are measured using the functional currency of the Company, which is pounds sterling as set out in Note 2(d) above.

Monetary assets and liabilities in foreign currencies are translated into sterling at the exchange rates ruling at the balance sheet date. Non-monetary assets and liabilities are translated at historic rates. Revenue transactions and those relating to the acquisition and realisation of investments are translated at rates of exchange ruling at the time of the respective transactions. Any exchange differences are dealt with in that part of the statement of comprehensive income in which the underlying transaction is reported.

(f) Cash and cash equivalents

Cash and cash equivalents are held at fair value through profit or loss and include cash at bank, short-term highly liquid investments with original maturities of three months or less.

(g) Investment properties

Properties owned but not occupied by the Company are held to earn long term rental and capital appreciation. Investment properties are initially measured at cost. Subsequently, at each balance sheet date, such properties are re-measured to a fair value as assessed by qualified external valuers. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If this information is not available, alternative valuation methods such as discounted cashflows or recent prices in less active markets are used.

Gains or losses arising from changes in the fair values of investment properties are included in the statement of comprehensive income in the period in which they arise.

All purchases and sales of investment properties are recognised on the date the Company commits to purchase or sell the asset.

Rental income from investment property is recognised in the statement of comprehensive income on a straight-line basis over the term of the lease.

3. Accounting policies (Continued)

(h) Property and equipment

Property (other than investment property) and equipment is stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-line basis to allocate the difference between the cost and the estimated residual value over the estimated useful lives of the property and equipment.

The periods generally applicable are:

•	Fixtures and fittings	15 years
•	Furniture	10 years
•	Computer equipment	3 years
•	Other equipment	4–5 years

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In the event that an asset's carrying amount is determined to be greater than the recoverable amount, it is written down immediately.

(i) Reinsurers' share of insurance contract liabilities

The Company cedes reinsurance in the normal course of business.

Reinsurance assets are recognised for contracts considered to be insurance contracts under IFRSs and are evaluated using methods consistent with the underlying insurance policies, with fees and premiums which are due under the same contract deducted from the value and settled net.

(j) Intangible assets

Directly incremental costs that vary with, and are related to, the securing of new investment contract business are capitalised as an intangible asset, in accordance with IAS 18 ''Revenue''. Such costs are primarily commissions paid on receipt of premiums. This asset is subsequently amortised for each investment contract remaining in force on a straight line basis over the expected life of each contract, this being the period of the provision of the investment management services. The amortisation expense is disclosed within net operating expenses in the statement of comprehensive income. Asset values relating to contracts that have terminated are written off immediately.

(k) Impairment

Financial assets

At each balance sheet date all financial assets not held at fair value, including those loans and receivables held at amortised cost, are assessed to determine whether there is any objective evidence that they are impaired. The identification of impairment and the determination of recoverable amounts is an inherently uncertain process involving various assumptions and factors, including the financial condition of the counterparty and expected future cashflows.

If there is objective evidence that an impairment loss has been incurred, a provision is established and is calculated as the difference between the balance sheet carrying value of the asset and the present value of estimated future cashflows discounted at the asset's original effective interest rate.

If there is no objective evidence of individual impairment, the asset is included in a group of financial assets with similar credit risk characteristics and collectively assessed for impairment.

If, in a subsequent period, the amount of the impairment loss decreases, and the decrease can be related objectively to an event occurring after the impairment was recognised, the provision is adjusted and the amount of the reversal is recognised in the statement of comprehensive income.

3. Accounting policies (Continued)

Non-financial assets

At each balance sheet date all non-financial assets (excluding deferred tax and investment properties) are assessed to determine whether there is any objective evidence that they are impaired. If such indication exists, the recoverable amount is estimated. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its estimated recoverable amount, being the higher of an asset's fair value less costs to sell and its value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cashflows.

(l) Provisions for other liabilities and charges

Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events, when it is probable that the obligation will result in an outflow of resources, and when reliable estimates of the amount of the obligation can be made. If a reliable estimate cannot be made, or when the outflow is, in the opinion of the Directors, 'possible' rather than 'probable', a contingent liability will be disclosed.

(m) Taxation

Tax for the year is recognised in the statement of comprehensive income and comprises current and deferred tax, on income and on capital gains. Tax is presented separately for profit or loss and for other comprehensive income.

Current tax

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date together with adjustments to tax payable in respect of prior years.

Deferred tax

Deferred tax is provided in full on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the balance sheet date. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date which are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

Deferred tax assets are only carried in the balance sheet to the extent that it is probable that future taxable profits will be available against which the temporary differences, carry-forward of unused tax assets and unused tax losses can be utilised.

The tax charge is analysed between tax that is payable in respect of policyholders' returns, under UK life company tax legislation, and tax that is payable on equity holder returns.

(n) Pension and other post-retirement benefit obligations

The majority of the Company's employees are members of the Abbey Life Pension Scheme, a defined benefit scheme funded by the Company which is closed to new entrants. The scheme is funded through payments to trustee-administered funds, which are legally separate from the Company, determined by periodic actuarial calculations.

3. Accounting policies (Continued)

A defined benefit scheme is a pension scheme that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

The asset or liability recognised in the balance sheet in respect of the defined benefit element of the pension scheme is the difference between the present value of the defined benefit obligation at the balance sheet date and the fair value of scheme assets, together with adjustments for past service costs. The defined benefit obligation is calculated annually by a qualified independent actuary using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity that approximate to the terms of the related pension liability.

An asset or surplus is recognised only if the employer has an unconditional right to realise it at a future date.

Actuarial gains and losses arising from experience adjustments and changes in the actuarial assumptions are presented in other comprehensive income for the year, together with the associated tax effects.

Other changes to past service liabilities are recognised immediately in income, unless the changes to the pension scheme are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortised on a straight-line basis over the vesting period.

Certain employees are members of the Group's DB Flexible Retirement Scheme which is a defined contribution scheme and costs are charged to the Company's statement of comprehensive income as the employee provides their service.

(o) Insurance contracts

Premium revenue

Premiums received in respect of insurance contracts are recognised as revenue when they become payable by the policyholder and are shown before deduction of commission. Risk margins under longevity insurance and reinsurance contracts are reported as premiums. Reinsurance premiums ceded are disclosed separately.

Claims

Claims are recorded as an expense when they are notified in the case of deaths and surrenders, or become due in the case of maturities and annuities. The net amounts due in respect of variances between the expected and actual benefit values under longevity insurance and reinsurance contracts are reported as claims. Reinsurance claims reimbursed are disclosed separately.

Liabilities for contracts which are not unit linked

A liability for the expected contractual benefits payable under each policy is recorded when the first premium is recognised. The liability is calculated by estimating the future cashflows, including fees, premiums and claims that are settled net, over the duration of the policy and discounting them back to the valuation date allowing for probabilities of occurrence. Assumptions are made in respect of all material factors affecting future cashflows, including future interest rates, mortality, morbidity and costs. The liability will vary over the lifetime of the policy contract when changes in these assumptions are made. The detailed rules for calculating liabilities are contained within Chapter 1.2 of the Prudential Regulatory Authority's (PRA's) Insurance Prudential Sourcebook (INSPRU). See Note 32 for an analysis of the non linked liabilities.

3. Accounting policies (Continued)

Unallocated surplus

The Company has issued certain contracts with discretionary participating features, which are also valued according to the PRA rules. The Company has an obligation to pay policyholders a portion of all interest and realised gains and losses arising from the assets backing the contracts. Any amounts in surplus not yet determined as being due to policyholders, but which are required to support future bonus declarations, are recognised as a liability which is shown separately from other liabilities.

Liabilities for contracts which are unit linked

Units are allocated to policies and are recognised as liabilities when premiums are applied to the policies. These unit liabilities are increased or reduced by the change in the unit prices which are linked to the fair value of the assets backing them, and are reduced by policy administration fees, mortality and surrender charges and any withdrawals. The mortality charges deducted in each period from the policyholders as a group are considered adequate to cover the expected total death benefit claims in excess of the contract account balances in each period and hence no additional liability is established for these claims. An additional reserve is held for liabilities in respect of guaranteed annuity options (GAOs). Margins arise from the policy administration fees and mortality and surrender charges. The changes in the unit liabilities and the cost of benefit claims incurred in the period in excess of the unit liabilities are charged as an expense in the statement of comprehensive income.

(p) Investment contracts

Contributions and withdrawals

Contributions received from policyholders are not recognised in revenue but are accounted for as deposits. Amounts withdrawn by policyholders are recorded as deductions from the investment contract liabilities and not as expenses.

Investment contract fee revenue

Investment contract policyholders are charged fees for policy administration, investment management, surrenders or other contract services. Such fees are recognised as revenue in the period in which they are charged unless they relate to services to be provided in future periods. Fees for services to be provided in future periods are deferred and held as a liability on the balance sheet. This liability is subsequently amortised for each investment contract remaining in force on a straight line basis over the expected period of the provision of the investment management services. Liabilities relating to contracts that have terminated are written back immediately.

Liabilities

All investment contracts issued by the Company are designated on initial recognition as at fair value through profit or loss, as set out in Note 3(d) above.

Valuation techniques are used to establish the fair value of the contracts, which are all unit linked, at initial recognition and at the balance sheet date. The fair value of the investment contract liabilities is based on the fair value of the financial assets held within the appropriate unit linked funds.

(q) Liability Adequacy test

At each balance sheet date, the actuarial valuation process includes liability adequacy tests to ensure the adequacy of the insurance contract liabilities. In performing these tests, current best estimates of future contractual cashflows, claims handling and policy administration expenses, as well as investment income from assets backing such liabilities, are used. Any deficiency is immediately recognised by increasing the carrying value of the liabilities, with a corresponding charge being made to the statement of comprehensive income.

3. Accounting policies (Continued)

(r) Dividends

Dividends payable on the Company's ordinary shares are recognised in equity in the period in which they are paid.

4. Critical accounting estimates and judgements in applying accounting policies

The Company routinely makes estimates and judgements that affect the reported amounts of assets and liabilities. Estimates and judgements are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The following categories are where estimates and judgements with critical effects on the financial statements are made.

(a) Liabilities for insurance contracts

The liabilities for insurance contracts are calculated using a projection of future cashflows after making prudent assumptions about matters such as investment return, expenses and mortality, in particular for annuities in force and pensions with guaranteed annuities. The insurance contract reserves amount to £3,840.7m at 31 December 2015 (2014: £4,153.7m; and 2013: £3,985.8m), as detailed in Note 32 where sensitivities to changes in key assumptions are shown. Discount rates used to value the liabilities are set with reference to the risk adjusted yields on the underlying assets. The most critical non-economic assumptions are mortality rates in respect of annuity business written and levels of future expenses. Such assumptions are based on recent actual experience and outsourcing contract costs, supplemented by industry information where appropriate.

At each reporting date, the estimates and assumptions referred to above are reassessed for adequacy and changes are reflected in adjustments to the liability.

(b) Investment contracts—deferred income and intangible assets

For investment contracts, the recognition of costs and income is governed by IAS 18. Under this standard, directly incremental costs that vary with and are related to securing new business are capitalised as an intangible asset, and are then subsequently amortised over the period of the provision of the investment management services (see Note 15). This asset is valued at £83.9m at 31 December 2015 (2014: £94.6m; and 2013: £105.8m).

Income received for services to be provided in future periods is deferred and capitalised, and subsequently recognised in the statement of comprehensive income as the service is provided (see Note 6). This deferred income is valued at £82.7m at 31 December 2015 (2014: £95.6m and 2013: £109.2m) (see Note 31).

For both items, estimation is required of the period that the business is expected to remain in force and consistent assumptions are required for contracts which do not have a fixed maturity date.

(c) Loans and debts at fair value and derivatives

The longevity contracts which are classified as loans, debts or derivatives as appropriate in accordance with Note 3(d) above are valued by models on actuarial bases. These use unobservable inputs and are classed as Level 3 under IFRS 7, as further detailed in Note 35.

(d) Critical judgements

Insurance and reinsurance contracts may be recognised as assets where this is in accordance with the PRA's guidance in policy statement PS06/14.

Management assesses whether a contract is an insurance contract under IFRS 4 by determining whether the contract transfers significant insurance risk as set out in Note 3(a). Contracts not considered insurance are treated as the most appropriate type of financial asset or liability as detailed in Note 3(d).

5. Premium analysis

The table below provides an analysis of the gross premiums received:

(a) Gross premiums received

	2015	2014	2013
	£ m	£ m	£ m
Regular premiums	42.3	46.9	53.9
Single premiums	47.4	77.7	117.4
Total	89.7	124.6	171.3

(b) Gross premiums from incremental business

	2015 £ m	2014 £ m	2013 £ m
Regular premium increments	—	—	—
Single premiums	47.4	77.7	117.4
Total	47.4	77.7	117.4

Where regular premium increments are received other than annually, the reported regular premiums are included on an annualised basis. Where premiums are subject to increases, any increase in the highest ever annualised premium for a contract is included.

All premiums are written in the United Kingdom.

6. Fee income

	2015	2014	2013
	£ m	£ m	£ m
Investment contracts	6.6	8.5	9.2
Deferred income arising during the period (Note 31)	—	(0.1)	(0.1)
Deferred income amortised during the period (Note 31)	13.0	13.6	14.8
Total	19.6	22.0	23.9

Deferred income is amortised over 9.5 years on average (2014: 10 years; and 2013: 11 years), assuming existing policy contracts remain in force to maturity. Based on current levels of lapses and mortality, 95% (2014: 95%; and 2013: 95%) of the balances will be amortised within 13 years (2014: 13 years; and 2013: 13 years). Part of the balance relates to whole of life contracts where there is no defined contract end date. In these cases, termination is assumed at age 120. The impact of a 10% decrease in lapse rates would be to decrease the amortisation credit by £0.2m (2014: £0.2m; and 2013: £0.2m). A 10% increase would have an equal and opposite effect on the amortisation credit.

7. Investment income and gains

	2015	2014	2013
	£ m	£ m	£ m
Interest income on investments at fair value through profit or loss	159.6	160.3	161.2
Interest income on deposits at effective interest rate	5.3	8.2	11.5
Dividend income	148.9	154.0	162.5
Income on investment properties (Note 14)	1.4	1.2	1.7
Net investment income	315.2	323.7	336.9
Net realised gains on financial assets	301.2	351.4	360.4
Net fair value (losses)/gains on assets at fair value through profit or loss	(296.7)	140.7	466.7
Total	319.7	815.8	1,164.0

7. Investment income and gains (Continued)

Net changes in the fair value of financial assets at fair value through profit or loss includes a loss of £62.3m based on measurements of OEICs' values calculated using valuation techniques as set out in Note 3(d) (2014: gain of £37.6m; and 2013: gain of £162.8m).

8. Net operating expenses

	2015	2014	2013
	£ m	£ m	£ m
Acquisition costs	0.7	0.8	1.2
Expenses for administration	27.3	26.8	34.5
Current year expenses	28.0	27.6	35.7
Add: Changes in deferred costs (Note 15)	10.7	11.1	11.8
Total	38.7	38.7	47.5

Current year expenses can be analysed as follows:

	2015	2014	2013
	£ m	£ m	£ m
Staff costs and other employee related costs (Note 9)	5.7	5.8	4.7
Commission payable	1.3	1.4	2.1
Professional fees including outsourcing	17.3	16.9	25.8
Auditor's remuneration (Note 10) .	0.6	0.5	0.7
Depreciation (Note 13)	—	—	0.1
Other expenses	3.1	3.0	2.3
Total	28.0	27.6	35.7

9. Staff costs and other employee related costs

	2015	2014	2013
	£ m	£ m	£ m
Wages and salaries	2.9	2.7	2.7
Social security costs .	0.3	0.3	0.3
Pension costs—defined benefit plan (Note 29)	2.5	2.8	1.7
Total	5.7	5.8	4.7

The average number of employees directly employed by the Company, analysed into business functions, is as follows:

	2015	2014	2013
Client service	11	11	11
Other support services .	28	29	29
Total	39	40	40

10. Auditor's remuneration

	2015	2014	2013
	£	£	£
Amounts receivable by KPMG LLP in respect of the audit of financial
statements of the Company	347,049	299,000	275,080
Amounts receivable by KPMG LLP and its associates for other services
Audit-related assurance services	55,500	103,500	109,220
Other assurance services	159,796	142,049	293,170
Total fees payable to KPMG LLP	562,345	544,549	677,470

11. Taxation

(a) Current year tax expense

	2015	2014	2013
	£ m	£ m	£ m
Current tax:
UK corporation tax	28.5	32.7	52.2
Overseas tax	4.0	3.4	2.9
Adjustment in respect of prior years	(2.4)	(3.2)	(3.1)
Total current tax	30.1	32.9	52.0
Deferred tax:
Deferred tax charge	(8.4)	(3.4)	26.9
Adjustments in respect of prior years	0.4	0.0	(1.4)
Total deferred tax	(8.0)	(3.4)	25.5
Total income tax expense	22.1	29.5	77.5

The tax benefit or expense attributable to UK life insurance policyholder earnings is included in income tax expense. The tax benefit attributable to policyholder earnings was £2.1m (2014: £5.3m expense; and 2013: £29.6m expense).

(b) Reconciliation of tax expense

	2015	2014	2013
	£ m	£ m	£ m
Profit before tax	120.8	126.6	253.2
Average tax at 20.25% (2014: 21.5%; and 2013: 23.25%)	24.5	27.3	58.9
Effects of:
Non-taxable income .	0.0	0.0	(0.5)
Policyholder tax items	(3.2)	2.7	22.7
Change in corporation tax rate on deferred tax	(0.4)	(0.1)	(2.0)
Overseas tax	3.2	2.8	2.9
Current and deferred tax adjustment in respect of prior years	(2.0)	(3.2)	(4.5)
Total income tax expense	22.1	29.5	77.5

The average tax rate of 20.25% in 2015 (2014: 21.5%; and 2013: 23.25%) reflects the reduction of corporation tax from 24% to 20% between April 2013 and April 2015.

(c) Taxation on items of other comprehensive income

	2015	2014	2013
	£ m	£ m	£ m
Deferred tax credit/(charge)	(2.4)	7.0	(1.9)

12. Dividends paid

An interim dividend of £156m was paid in 2015 (2014: £100m interim dividend; and 2013: interim dividend nil).

13. Property and equipment

	Cost	Depreciation	Carrying amount
	£ m	£ m	£ m
Equipment
At 1 January 2013	0.2	(0.1)	0.1
Additions	—	—	—
Depreciation charge for the year	—	(0.1)	(0.1)
Disposals	(0.2)	0.2	—
At 31 December 2013	—	—	—

The depreciation charge of £0.0m in 2014 (2013: £0.1m) is recognised within expenses. Equipment which is fully depreciated is treated as disposed of.

14. Investment properties

	2015	2014	2013
	£ m	£ m	£ m
At 1 January	5.4	4.5	4.5
Net gain from change in fair values	1.7	0.9	—
At 31 December .	7.1	5.4	4.5
Historic Cost	14.8	14.8	14.8

The Company's investment property was valued annually as at 31 December each year by the independent valuers Jones Lang LaSalle LLP, whose findings are included in determining the market value.

The income arising from the investment property during the year amounted to £1.4m (2014: £1.2m; and 2013: £1.7m), which is included in investment income. Direct operating expenses (included within expenses for asset management) borne by the Company in respect of the property which was fully let during the year were £2.7m (2014: £1.8m; and 2013: £2.2m).

15. Intangible assets including insurance intangible assets

Intangible assets relate to investment contracts as set out in Note 3(j) and Note 4(b).

	2015	2014	2013
	£ m	£ m	£ m
At 1 January	94.6	105.8	117.6
Amounts incurred during the year	0.6	0.6	0.8
Amortisation during the year	(11.3)	(11.8)	(12.6)
At 31 December	83.9	94.6	105.8

Intangible assets are amortised over 10 years on average (2014: 10 years; and 2013: 11 years), assuming existing policy contracts remain in force to maturity. Based on current levels of lapses and mortality, 95% (2014: 95%; and 2013: 96%) of the balances will be amortised within 13 years (2014: 13 years; and 2013: 15 years). Part of the balance relates to whole of life contracts where there is no defined contract end date. In these cases, termination is assumed at age 120. The impact of a 10% decrease in lapse rates would be to decrease the amortisation charge by £0.1 m (2014: £0.1m; and 2013: £0.2m). A 10% increase would have an equal and opposite effect on the amortisation charge.

16. Reinsurance contracts

An analysis of the change in reinsurance contracts is as follows:

	2015	2014	2013
	£ m	£ m	£ m
At 1 January	151.8	141.5	227.4
Changes in longevity business	(38.7)	15.7	(87.5)
Changes in other business	(5.3)	(5.4)	1.6
Total movement	(44.0)	10.3	(85.9)
At 31 December	107.8	151.8	141.5

17. Tax assets and liabilities

	2015	2014	2013
	£ m	£ m	£ m
Deferred tax assets	28.6	32.6	28.0
Total tax assets	28.6	32.6	28.0
Current tax payables	21.4	30.2	49.2
Deferred tax liabilities	36.9	46.5	52.4
Total tax liabilities	58.3	76.7	101.6

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised, based on the rate substantively enacted at the balance sheet date. Deferred tax is charged to the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. With effect from 1 April 2015 the UK corporation tax rate was reduced to 20%. Further reductions to 18% from 1 April 2015 have also been enacted with a further reduction to 17% proposed in the 2016 budget.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority.

The amounts are as follows:

	2015	2014	2013
	£ m	£ m	£ m
Deferred tax assets comprise:
Expenses deductible in future periods	0.2	0.4	0.5
Pension and other post-retirement benefit obligations	12.2	13.6	6.2
Other insurance related items including deferred income	16.0	18.4	21.1
Investment properties .	0.2	0.2	0.2
Total deferred tax assets	28.6	32.6	28.0

	2015	2014	2013
	£ m	£ m	£ m
Deferred tax liabilities comprise:
Unrealised gains on investment assets	20.5	27.7	31.2
Intangible assets	15.7	18.1	20.4
Other insurance related items .	0.7	0.7	0.8
Total deferred tax liabilities	36.9	46.5	52.4

18. Investment in subsidiaries

The Company owns the whole of the issued ordinary share capital of the following subsidiary at the balance sheet date, which operates in the United Kingdom. Antelope Pension Trustee Services Limited was dissolved on 18 August 2013.

Name	Class of Share or Stock	Percentage held	Country of Registration or Incorporation	Nature of Business
Abbey Life Trust Securities Limited	Ordinary	100	England	Dormant

The Company also invests in a number of OEIC funds managed by Aberdeen Asset Management PLC (previously Scottish Widows Investment Partnership Ltd) which have been classified as investments in subsidiaries as described in the accounting policy Note 3(b). The value of subsidiaries shown on the Balance Sheet relates to the composition and value of this classification. Details of the holdings are set out below.

			2015
	Class of Stock or Share	Country of incorporation	Assets	Liabilities	Gross Revenues	Profit/ (Loss)	Interest held
			£m	£m	£m	£m	%
Financial	Class A	Great Britain	40.4	(0.1)	—	(2.3)	85.66
Aberdeen Capital Trust	n/a	England	1,008.7	(4.1)	45.6	27.2	100.00
			2014
	Class of Stock or Share	Country of incorporation	Assets	Liabilities	Gross Revenues	Profit/ (Loss)	Interest held
			£m	£m	£m	£m	%
Financial	Class A	Great Britain	60.5	0.2	3.0	1.9	88.97
Global	Class A	England	20.9	0.1	0.4	0.0	50.98
Aberdeen Capital Trust* .	n/a	England	1,057.2	3.2	40.2	21.4	99.35
UK Smaller Companies Trust	Class C	Great Britain	72.7	0.1	(6.8)	(8.1)	53.54

* The name has changed from SWIP Capital Trust

			2013
	Class of Stock or Share	Country of incorporation	Assets	Liabilities	Gross Revenues	Profit/ (Loss)	Interest held
			£m	£m	£m	£m	%
Financial	Class A	Great Britain	63.4	0.3	14.0	12.8	88.43
Global	Class A	England	22.5	—	5.5	5.1	51.56
SWIP Capital Trust	n/a	England	1154.7	6.6	205.9	186.1	99.33

19. Investment in associates

Details of investments in OEIC funds managed by Aberdeen Asset Management PLC which have been classified as investments in associates, as set out in the accounting policy Note 3(c), are given below.

			2015
	Class of Stock or Share	Country of incorporation	Assets	Liabilities	Gross Revenues	Profit/ (Loss)	Interest held
			£m	£m	£m	£m	%
International Bond	Class A	Scotland	1,182.8	(4.5)	19.1	13.8	27.90
Ethical	Class X	Great Britain	93.5	(0.1)	1.9	1.7	24.89
Sterling Government Bond
Fund .	Class A	Great Britain	27.6	(0.0)	(0.7)	0.0	30.58

19. Investment in associates (Continued)

			2014
	Class of Stock or Share	Country of incorporation	Assets	Liabilities	Gross Revenues	Profit/ (Loss)	Interest held
			£m	£m	£m	£m	%
International Bond	Class A	Scotland	1,254.3	2.1	84.6	75.6	27.53
Ethical	Class X	Great Britain	94.3	0.0	(0.8)	(1.1)	27.08
North American	Class A	England	31.4	0.1	4.8	4.3	26.65
UK Income	Class A	Great Britain	60.3	1.1	(0.6)	(0.7)	47.15
European	Class A	England	64.8	0.4	(5.0)	(6.0)	49.73
Pacific Growth	Class X	Great Britain	59.1	1.5	6.0	5.4	20.02
Sterling Government Bond Fund . .	Class A	Great Britain	42.3	0.4	5.2	4.9	22.24

			2013
	Class of Stock or Share	Country of incorporation	Assets	Liabilities	Gross Revenues	Profit/ (Loss)	Interest held
			£m	£m	£m	£m	%
International Bond	Class A	Scotland	1365.1	4.5	(81.3)	(97.3)	27.37
Ethical	Class X	Great Britain	95.9	0.1	20.2	20.0	33.12
North American	Class A	England	30.0	0.1	7.3	6.9	27.03
UK Smaller Companies	Class A	England	86.6	0.1	24.0	22.8	33.27
UK Income	Class A	Great Britain	68.1	1.2	13.1	13.0	45.90
Pacific Growth	Class X	Great Britain	55.0	1.4	1.5	0.8	17.86
European	Class A	England	78.2	0.3	16.9	15.7	48.88

20. Investments designated on initial recognition at fair value through profit or loss

The basis of valuation of investments at fair value through profit or loss is set out in Note 3(d).

At fair value through profit or loss:	2015	2014	2013
	£ m	£ m	£ m
Shares and other variable yield securities:
Listed	4,193.9	4,571.3	4,602.0
Unlisted	2,021.8	1,896.6	1,949.5
	6,215.7	6,467.9	6,551.5
Debt and other fixed income securities:
Listed	2,719.7	2,888.1	2,667.2
Unlisted	14.0	15.6	15.3
	2,733.7	2,903.7	2,682.5
Total investments at fair value through profit or loss	8,949.4	9,371.6	9,234.0
At cost	2015	2014	2013
	£ m	£ m	£ m
Shares and other variable yield securities:
Listed	3,580.2	3,846.1	3,377.7
Unlisted	1,642.0	1,494.3	1,997.8
	5,222.2	5,340.4	5,375.5
Debt and other fixed income securities:
Listed	2,434.4	2,484.6	2,497.8
Unlisted	14.1	14.5	25.0
	2,448.5	2,499.1	2,522.8
Total investments at cost	7,670.7	7,839.5	7,898.3

20. Investments designated on initial recognition at fair value through profit or loss (Continued)

Unlisted securities primarily comprise holdings in OEICs which are neither subsidiaries nor associates, and which are valued as set out in Note 3(d).

21. Loans and receivables

	2015	2014	2013
	£ m	£ m	£ m
Insurance business:
Amounts receivable in respect of direct insurance business .	0.7	0.7	1.1
Amounts receivable under reinsurance contracts	2.9	2.3	3.1
Other loans and receivables:
Loans held at fair value	369.1	460.3	494.8
Prepayments	1.8	1.8	1.7
Accrued income	49.9	53.6	60.9
Receivable from unsettled trades	2.6	1.2	1.3
Others	11.1	10.5	11.1
Total loans and receivables	438.1	530.4	574.0

Certain reinsurance and retrocession contracts not qualifying for insurance accounting are classified as loans held at fair value to avoid accounting mismatches, as set out in Note 3(d).

Other balances are non-interest bearing. Prepayments, although not financial assets, are presented as such as permitted by IAS 1.30.

The fair value of other loans and receivables which are not held at fair value is not materially different to their cost.

22. Derivative financial instruments held for trading

In the normal course of business, the Company enters into certain derivative contracts. All such contracts are undertaken either for efficient portfolio management purposes or for risk reduction. In particular, interest rate swap contracts are held chiefly for the purpose of matching guaranteed annuity option liabilities, credit default swaps are held to offset risks on assets held, and retrocession contracts classified as derivatives as set out in Note 3(d) offset risks in loans where cashflows are subject to variation due to mortality changes. No derivatives held by the Company have been designated within hedge accounting relationships, as defined in IAS 39.

Details regarding derivative financial instruments are as follows:

		2015			2014
	Contract Amount	Fair value assets	Fair value liabilities	Contract Amount	Fair value assets	Fair value liabilities
	£ m	£ m	£ m	£ m	£ m	£ m
Index futures contracts	370.0	3.5	2.5	321.2	3.1	4.7
Forward foreign exchange contracts	343.3	2.6	8.2	312.9	1.5	1.2
Interest rate and credit swap contracts	166.9	32.8	—	186.1	32.7	—
Retrocession contracts	290.9	—	224.2	308.2	—	264.3
Longevity Swap Contracts	28.4	37.5	32.1	30.1	37.5	27.9
Total	1,199.5	76.4	267.0	1,158.6	74.8	298.1

22. Derivative financial instruments held for trading (Continued)

	2013 Contract Fair value Amount assets £ m £ m 125.1 10.1 708.5 11.4 219.2 5.5 329.7 — 6.9 5.3
			Fair value liabilities
			£ m
Index futures contracts			4.9
Forward foreign exchange contracts			7.3
Interest rate and credit swap contracts			8.0
Retrocession contracts			243.8
Longevity Swap Contracts			—
Total	1,389.4	32.3	264.0

23. Cash and cash equivalents

Cash and cash equivalents include the following:

	2015	2014	2013
	£ m	£ m	£ m
Cash at bank	43.2	52.9	77.5

Bank overdraft facilities of £2.5m are made available by Lloyds Bank Plc as the Company's primary banker.

24. Share capital

	2015	2014	2013
	£ m	£ m	£ m
Allotted, called up and fully paid share capital:
30,500,000 ordinary shares (2014: 30,500,000 ordinary shares; and 2013: 30,500,000
ordinary shares) of £1 each	30.5	30.5	30.5

25. Insurance contract liabilities

An analysis of the change in insurance contract liabilities is as follows:

	2015	2014	2013
	£ m	£ m	£ m
At 1 January	4,153.7	3,985.8	4,297.9
New business premiums	47.4	77.7	117.3
Renewal business premiums	42.3	46.9	54.0
Claims	(325.8)	(348.1)	(407.0)
Changes in existing business	(76.9)	391.4	(76.4)
Total change in insurance contract liabilities	(313.0)	167.9	(312.1)
At 31 December	3,840.7	4,153.7	3,985.8

26. Unallocated surplus within long term business

An analysis of the change in unallocated surplus is as follows:

	2015	2014	2013
	£ m	£ m	£ m
At 1 January .	6.9	7.5	7.5
Change recognised through the statement of comprehensive income	(1.1)	(0.6)	—
At 31 December	5.8	6.9	7.5

27. Investment contract liabilities

An analysis of the change in investment contract liabilities is as follows:

	2015	2014	2013
	£ m	£ m	£ m
At 1 January	6,056.1	6,167.0	5,765.8
New contributions	1.0	1.6	1.1
Renewal contributions	32.1	35.2	38.0
Withdrawals	(503.4)	(407.7)	(484.9)
Change in the fair value of investment contract liabilities	182.0	260.0	847.0
At 31 December	5,767.8	6,056.1	6,167.0

The change in the fair value of investment contract liabilities includes market effects of £165.3m (2014: £252.7m; and 2013: £827.2m). The carrying value represents not less than the amounts payable under the contracts if they terminated on the balance sheet date.

28. Other financial liabilities

	2015	2014	2013
	£ m	£ m	£ m
Insurance business:
Amounts payable in respect of direct insurance business	2.7	2.9	4.3
Amounts payable under reinsurance contracts	1.7	1.8	1.8
Other liabilities:
Debts held at fair value (Note 38(b))	114.1	163.6	227.0
Due to related parties (Note 38(b))	11.7	17.3	15.5
Claims outstanding	94.2	89.4	99.6
Outstanding broker settlements	0.9	13.1	1.1
Other	4.0	2.0	1.6
Total	229.3	290.1	350.9

Certain reinsurance and retrocession contracts not qualifying for insurance accounting are classified as debts held at fair value to avoid accounting mismatches, as set out in Note 3(d).

29. Pension and other post-retirement benefit obligations

The majority of the employees of the Company are members of the Abbey Life Pension Scheme (the ''scheme''), a defined benefit scheme. The 2015 lAS 19 results have been calculated based on a full valuation as at 31 March 2012, updated for latest scheme experience to 31 December 2015 by Aon Hewitt Limited. The results have been calculated using full membership data as at 31 March 2012 collected by the Scheme Actuary for the funding valuation as at the same date.

The Scheme is a Registered occupational pension scheme, set up under Trust, and legally separate from The Employer. The Scheme is administered by Abbey Life Trust Securities Limited (The Trustee), a corporate trustee. There are six Trustee Directors, two of whom are nominated by the Scheme Members and four of whom are appointed by the Employer. The Trustee is responsible for administering the Scheme in accordance with the Trust Deed and Rules and pensions law and regulations.

29. Pension and other post-retirement benefit obligations (Continued)

The principal assumptions used in determining the defined benefit obligation (DBO) for the Company are as follows:

	2015	2014	2013
	%	%	%
Rate of inflation	3.4	3.4	3.7
Rate of salary increases	4.4	4.4	4.7
Rate of increase for pensions
in payment .	3.3	3.2	3.5
in deferment	2.3	2.5	2.8
Discount rate	3.9	3.7	4.5
Commutation of benefits to lump sums on retirement	15.0	15.0	15.0

The expected rate of return on assets is based on the weighted average return by asset class.

The assumption made regarding commutation of benefits is in line with the results now available of the full valuation of the scheme, based on experience.

The rate of increase for pensions in deferment is linked to the Consumer Prices Index (CPI) subject to caps set out in the scheme documentation.

The mortality assumptions used are illustrated by the following years of life expectancy in retirement:

	2015 Years	2014 Years	2013 Years
Life expectancy for member aged 65, on the valuation date
—Men	23.7	23.6	23.6
—Women .	25.2	25.2	25.2
Life expectancy for member aged 65, 20 years after the valuation date
—Men	24.9	25.3	25.3
—Women .	27.1	27.1	27.0

The combined assets of the scheme and the expected rates of return are summarised as follows:

2015	Fair value of assets	Proportion of total assets
	£ m	%
Equities—UK	20.1	9.7
Fixed interest government bonds	72.5	35.1
Corporate bonds	133.7	64.8
Derivatives	(31.2)	(15.1)
Cash and cash equivalents .	5.2	2.5
Other .	6.1	3.0
Total fair value of scheme assets	206.4	100.0

2014	Fair value of assets	Proportion of total assets
	£ m	%
Equities—UK	21.2	9.4
Fixed interest government bonds	72.8	32.2
Corporate bonds	144.7	64.0
Derivatives	(19.4)	(8.6)
Cash and cash equivalents .	6.9	3.0
Total fair value of scheme assets	226.2	100.0

29. Pension and other post-retirement benefit obligations (Continued)

2013	Fair value of assets	Proportion of total assets
	£ m	%
Equities	23.2	9.9
Bonds	205.9	87.9
Other .	5.1	2.2
Total fair value of scheme assets	234.2	100.0

Derivative values above include interest rate and inflation rate swaps and foreign exchange forward contracts.

The deficit in the scheme arises, and is recognised in the balance sheet, as follows:

	2015	2014	2013
	£ m	£ m	£ m
Present value of defined benefit obligation	(274.4)	(294.2)	(265.4)
Fair value of scheme assets	206.4	226.2	234.2
(Liability) recognised in the balance sheet	(68.0)	(68.0)	(31.2)

Sensitivity analysis

Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown below.

		2015		2014
Effects in £'m	Increase	Decrease	Increase	Decrease
Discount rate (5% movement)	(21.7)	23.6	(23.8)	26.1
Future salary growth rate (5% movement)	0.5	(0.4)	0.4	(0.4)
Inflation rate (5% movement)	17.7	(17.6)	19.9	(18.1)

The analysis of the inflation rate sensitivities shown above are reflective of the pension growth rate and therefore this pension rate analysis has not been performed by the scheme actuary.

The Scheme has hedged its inflation risk through an inflation swap. It is also currently exposed to interest rate risk to the extent that the holdings in bonds are mismatched to the Scheme liabilities, but the long-term intention is to fully hedge through an interest rate swap. Further key risks that will remain are longevity and credit spreads.

The Trust Deed under which the scheme is established provides for the gradual settlement of the plan liabilities over time until all members have left the scheme. Where appropriate the excess value of the assets over the liabilities is therefore recognised on the balance sheet in accordance with IFRIC 14.

The amounts recognised in profit or loss within the statement of comprehensive income are as follows:

	2015	2014	2013
	£ m	£ m	£ m
Current service cost .	0.6	0.5	0.5
Interest cost on benefit obligation	10.8	11.8	11.2
Interest (income) on assets	(8.2)	(10.4)	(10.0)
Net expense recognised within expenses	3.2	1.9	1.7

29. Pension and other post-retirement benefit obligations (Continued)

The amounts recognised in other comprehensive income are as follows:

	2015	2014	2013
	£ m	£ m	£ m
Actuarial gains/(losses)	2.9	(34.9)	(4.8)

The total over the period 2010 to 2015 is a loss of £60.9m.

The estimated amount of contributions expected to be paid under the current schedule of contributions during the year ending 31 December 2016 in respect of the scheme is £0.6m.

The weighted average duration of the defined benefit obligation is 17 years (2014: 18 years).

Movements in the present value of defined benefit obligation liabilities during the year are as follows:

	2015	2014	2013
	£ m	£ m	£ m
At 1 January	294.2	265.4	246.5
Current service costs .	0.6	0.5	0.5
Interest cost on benefit obligation	10.7	11.8	11.2
Benefits paid	(12.7)	(7.8)	(7.0)
Actuarial (gains)/losses	(18.4)	24.3	14.2
At 31 December	274.4	294.2	265.4

Of the total actuarial losses above, the amount relating to experience adjustments is:

	2015	2014	2013
	£ m	£ m	£ m
Amount	7.4	1.6	0.3
Percentage of closing scheme assets at 31 December	3.6%	0.7%	0.1%

Movements in the fair value of scheme assets during the year are as follows:

	2015	2014	2013
	£ m	£ m	£ m
At 1 January	226.2	234.2	222.7
Expected return on scheme assets	7.0	9.0	8.4
Contributions received	1.4	1.4	0.7
Benefits paid	(12.7)	(7.8)	(7.0)
Actuarial (losses)/gains	(15.5)	(10.6)	9.4
At 31 December	206.4	226.2	234.2

The actual return on scheme assets amounted to loss of £8.5m, (2014: £1.6m loss; and 2013: £17.8m profit). Actuarial gains above relate wholly to experience adjustments:

	2015	2014	2013
	£ m	£ m	£ m
Movement in year	(15.5)	(10.6)	9.5
Percentage of closing scheme assets at 31 December	7.5%		4.7% 4.1%

30. Provisions for other liabilities and charges

Provisions are in respect of compensation due to customers where past sales practices regarding mortgage endowment and other long term savings products were found to be deficient. The movement in provisions during the. year was as follows:

	2015	2014	2013
	£ m	£ m	£ m
At 1 January	0.4	0.5	2.5
Provisions released	(0.1)	(0.1)	(2.0)
At 31 December	0.3	0.4	0.5

31. Accruals and deferred income

	2015	2014	2013
	£ m	£ m	£ m
Accrued expenses	22.8	29.3	32.5
Deferred income	82.7	95.6	109.2
Total	105.5	124.9	141.7

32. Insurance contract liabilities—terms, assumptions and sensitivities

Insurance contract terms

The Company has the following principal types of insurance contracts in force:

Unit linked assurance contracts—where the policyholder is insured against death or permanent disability, or against the risk of contracting a defined illness, usually for pre-determined amounts. The contracts are primarily unit linked, and the insured amount represents the excess of the pre-determined amount over the current value of units held.
Unit linked pension contracts with guaranteed elements—primarily guaranteed annuity options (GAOs).
Annuity contracts—where the policyholder is entitled to payments which cease upon death.
Longevity contracts—where the policyholder is insured against changes in longevity on in-force annuities.
With profit contracts—where policyholders are entitled to a share in pooled investment profits.

The value of insurance contract liabilities is analysed in the following general categories:

	2015	2014	2013
	£ m	£ m	£ m
Unit linked assurance contracts	1,077.4	1,184.5	1,278.7
Unit linked pension contracts with guaranteed elements	421.3	470.3	439.6
Annuity contracts	2,287.3	2,430.6	2,189.2
Longevity contracts	17.6	31.6	39.7
With profit contracts	37.1	36.7	38.6
Total insurance contract liabilities	3,840.7	4,153.7	3,985.8

Process used to derive assumptions

The insurance contract liabilities of the Company are determined on the basis of recognised actuarial methods.

Assumptions are made in respect of all material factors affecting future cashflows, including future interest rates, mortality and costs. All assumptions are set with a margin for adverse deviation. The assumptions to

32. Insurance contract liabilities—terms, assumptions and sensitivities (Continued)

which insurance contract liabilities are most sensitive are the rates used to discount the cashflows and the mortality assumptions, particularly those for annuities.

The assumptions are set as described below.

Discount rates

The rates used are chosen in accordance with PRA rules, applying a waiver granted in 2009 (updated in 2013) to permit the use of the internal rate of return of the relevant portfolio. The rules limit the discount rates that can be used by reference to a number of factors including the dividend and earnings yields on equities, rental income, and redemption yields on fixed interest assets at the valuation date.

Margins for risk are allowed for in the assumed discount rates. These are a combination of

the effect of the limits enshrined in the PRA rules, and
for rates based on fixed interest stock yields, reductions made for default risk based upon the credit rating of each stock; and
over-riding restrictions which are designed to limit rates based on yields from investments in equities, property and fixed interest stocks by reference to the yield from appropriate long-term gilts.

The rates used in the valuation of key contract types are:

	2015	2014	2013
Life: unit linked and with profit	1.62%	2.23%	2.23%
Guaranteed annuity options	2.36%	2.13%	3.21%
Annuities—standard	2.95%	2.69%	3.71%
Annuities—index linked (assuming zero future inflation)	(0.62)%	(0.79)%	(0.02)%
Longevity contracts	2.95%	2.69%	3.71%

Mortality and morbidity

The mortality and morbidity assumptions, including assumptions on improvements in longevity for annuitants are set with regard to the Company's actual experience where this provides a reliable basis, and relevant industry data otherwise, and are inclusive of a margin for adverse deviation.

Base tables are selected that are appropriate for the specified contract type, with percentages applied relating to the characteristics of the contract type. The most significant tables used are RMV00 and RFV00 with improvements projected to the valuation date.

Future improvements in annuitant mortality are based on a percentage of the CMI 2914. projection, subject to a long term rate' of improvement of 2.0% p.a. for male lives and 1.5% p.a. for female lives at age 90. The CMI 2013 with the same long term rate of improvements was previously used.

Expenses

For non linked contracts, allowance is made explicitly for expected future per-policy costs.

Expense loadings are determined by reference to an internal analysis of current and expected future expense levels, plus a margin for adverse deviation which reflects the degree of uncertainty in the assumptions. An allowance is made for expense inflation from the valuation date, which for costs that are expected to vary with policy volumes is set at 4.5%. An allowance for the effect of the outsourcing contract with Capita Life and Pensions Regulated Services Ltd effective from March 2009 has been included in these assumptions. No other allowance is made for any expected reductions in expense levels that have not occurred at the valuation date.

Investment expenses are assumed at rates which vary according to fund type between 0.05% and 0.16% of projected reserves.

These expense assumptions have been applied consistently since 2012.

32. Insurance contract liabilities—terms, assumptions and sensitivities (Continued)

Persistency

No lapses are assumed in the calculation of actuarial liabilities.

Other assumptions

The take-up rate of guaranteed annuity rate options on pensions business is assumed as 80%, determined in accordance with PRA guidance.

Negative reserves

When considered prudent, and in line with reserving in the PRA approach, the Company will recognise negative reserves on profitable insurance contracts in line with the assumptions laid out above.

Key changes in assumptions

Key changes in assumptions have had the following impacts:

		Increase/ (reduction) in profit before tax
	2015	2014	2013
	£ m	£ m	£ m
Mortality (annuity)	7.6	1.0	7.7
Mortality (longevity)	—	—	3.7
Expense reserves .	0.3	(0.2)	(5.7)
Statutory valuation rate .	0.7	(3.8)	4.5
GAO valuation rate	9.9	(41.9)	39.4
Valuation rate on reinsurance assets	(3.7)	17.7	1.8

Mortality assumptions were updated to reflect current experience

Expense reserves have been increased to cover new business, regulatory and systems costs.

The proportion of the spread assumed for default risk in the statutory valuation rate has decreased to 44% of spread from 48% in 2014 (2014: 45% unchanged from December 2013; and 2013: increased to 48% from 45% at December 2012). This corresponds to a default rate assumption of 2 times historic defaults, unchanged from December 2013.

The GAO valuation rate based on 15 year gilt yields increased to 2.36% (2014: 2.13%; and 2013: 3.21%), causing a decrease in reserves.

Sensitivity analysis

The table below shows the results of sensitivity testing for insurance contracts. For each sensitivity test the impact on overall profit after tax and equity of a reasonably possible change in a single factor is shown with other assumptions left unchanged.

			Impact on profit after tax
Variable	Change in variable	2015	2014	2013
		£m	£m	£m
Mortality—annuities	10% improvement	(16.8)	(16.9)	(13.3)
Mortality—life	10% worsening	(2.3)	(2.4)	(2.6)
Renewal expense .	+10% p.a.	(9.4)	(10.1)	(8.5)
Interest rate—guaranteed annuity options	1%	(9.2)	(12.8)	(5.2)
Interest rate—annuities in payment	1%	(6.7)	(21.2)	(18.0)

Opposite changes in each of the variables above would have similar but opposite impacts on profit and equity. Longevity reinsurance and derivative hedge contracts provide substantial mitigation against mortality and interest rate deviations, and their impacts are included in this analysis. Changes in interest rates affect both assets and liabilities and the net total effect is shown.

32. Insurance contract liabilities—terms, assumptions and sensitivities (Continued)

Options and Guarantees

Certain products have option and/or guarantee features which are set out below.

Guaranteed annuity options

The Company currently has a number of policies in force which have a guaranteed annuity option. In total it holds traditional regulatory reserves of £157m to cover this liability at 31 December 2015 (2014: £181m; and 2013: £147m). These reserves have been evaluated deterministically using conservative future interest rate, mortality rate and rate of annuity option take-up assumptions and exceed the value that would be placed on them using a market consistent stochastic model. It is estimated that a 1% reduction in future interest rates would increase the liability by some £43.4m before tax (2014: £49.7m; and 2013: £35.6m).

Derivative contracts have been entered into to create an economic hedge against movements in the GAO liability on a realistic basis, which differs from the regulatory basis used to measure the liability. A 1% reduction in future interest rates would result in a gain of £34.2m (2014: £36.9m; and 2013: £28.8m) before tax on these contracts. This mitigating effect results in the net impact on profit after tax of £(9.2)m (2014: £(12.8)m; and 2013: £(5.2)m) set out in the Sensitivity analysis above.

Maturity and surrender value options

Under some of the Company's older contracts, the maturity value or the surrender value at the end of the selected period is guaranteed to be not less than the total premiums paid or the sums assured. The total provision for these options was £3.3m at 31 December 2015 (2014: £3.8m; and 2013: £3.3m) and was established using stochastic techniques after making prudent assumptions.

Pensions review guarantee

Certain personal pension policyholders who were entitled to reinstatement in their occupational pension scheme, but where this was not possible, have been given a guarantee that their pension and other benefits will correspond in value to the benefits of the relevant occupational pension scheme. The key assumptions affecting the ultimate value of the guarantee are future salary growth, gilt yields at retirement, annuitant mortality at retirement, marital status at retirement and future investment returns.

The insurance contract liabilities include a provision, calculated on a deterministic basis, of £41.3m in respect of those guarantees (2014: £48.0m; and 2013: £36.5m). If future salary growth is 0.5% per annum greater than assumed, the liability would increase by £1.2m (2014: £1.5m; and 2013: £1.2m). If yields were 0.5% lower than assumed, the liability would increase by £6.4m (2014: £7.8m; and 2013: £5.7m).

33. Capital management

The Company manages its capital with the objectives of meeting regulatory requirements and of fulfilling its obligations to policyholders and creditors as a going concern.

The PRA, through its Prudential Sourcebooks, specifies the minimum amount of capital that insurance companies must hold based on a set of prudent assumptions (''Pillar 1''). The table below sets out this position. In setting the capital requirement, a range of stress scenarios are applied. Account is also taken of the Individual Capital Assessment, the Company's own assessment of its capital requirements, which considers some of the risks not covered by the Pillar 1 calculation. The PRA requires that sufficient capital resources are held at all times to cover the capital requirement. The Company currently has a target to maintain capital of at least 125% of the minimum requirement, and this was met at all times throughout 2013, 2014 and 2015.

33. Capital management (Continued)

The following table sets out this position.

	2015	2014	2013
	£ m	£ m	£ m
Shareholder capital per PRA Return	481.9	627.4	699.8
Long term capital per PRA Return	330.7	235.7	198.2
Total Regulatory Capital	812.6	863.1	898.0
Long term insurance capital requirement	167.3	179.2	172.1
Resilience reserve	12.0	20.0	20.0
Minimum Capital Requirement	179.3	199.2	192.1
Capital in excess of minimum requirement	633.3	663.8	705.9
Total Regulatory Capital as a percentage of the minimum requirement	453%	433%	468%

Movements in regulatory capital comprise:

	2015	2014	2013
	£ m	£ m	£ m
Regulatory capital at 1 January	863.1	898.0	699.8
Dividends paid	(156.0)	(100.0)	—
New business	(6.8)	18.3	(5.8)
Effect of changes in assumptions on regulatory reserves	8.7	3.9	48.0
Surplus in year	103.6	42.9	156.0
Regulatory capital at 31 December	812.6	863.1	898.0

The regulatory capital under PRA requirements differs from the net assets of the Company reported in these Statements, as certain assets and liabilities are recognised only in one or the other. The following table sets out these differences.

	2015	2014	2013
	£ m	£ m	£ m
Total regulatory capital	812.6	863.1	898.0
IFRS treatments recognised	50.9	52.8	25.6
PRA reserves derecognised	(63.0)	(53.0)	(19.4)
Deferred tax differences	(8.3)	(13.9)	(24.4)
Net assets per Financial Statements	792.2	849.0	879.8

34. Risk management policies

(a) Governance framework

The financial condition and operating results of the Company are affected by a number of key risks, including credit risk, liquidity risk, market risk (comprising price risk, interest rate risk and currency risk), insurance risk and operational risk. The performance of the Company, its continuing ability to write business and the strategic management of the business depends on its ability to identify and manage these risks. Responsibility for the management of all risks resides with the Board. The Board has documented a formal risk appetite statement. Supporting the Board on a day-to-day basis is a Risk Committee and a risk management function.

The Company has established the Risk Committee, comprising non-executive and executive Directors and senior management of the Company, with clear terms of reference giving it the responsibility for the design and operation of an effective risk management framework. This includes a risk management function and a defined governance structure with clear terms of reference for each operating committee of the Company and reporting lines into the Group.

34. Risk management policies (Continued)

The Company maintains a series of policies covering credit risk, market risk, derivative risk, insurance risk and liquidity risk. These policies are reviewed at least annually (and more frequently where circumstances require). Compliance with these polices, and with Group risk policies that are applicable to the Company, is monitored by the risk management function.

During the year the Board adopted an updated risk appetite statement which outlines the appetite of the Company to risk and the appropriate levels for escalation to the board for action.

Risk registers are maintained and subject to regular validation by designated risk owners and challenge by the Risk Committee.

Risk management as a concept is embedded within the organisation through the staff performance management process, training and ad hoc corporate communications.

(b) Capital management framework

The Company ensures that at all times it has sufficient capital to meet regulatory requirements with a margin to allow for adverse conditions. The Company's available and required capital is set out in Note 33 above. The Company has developed and implemented certain minimum stress and scenario tests for identifying the risks to which the business is exposed and quantifying their impact on capital. Specific categories of risk are set out below. Exposure to risk is maintained within prescribed limits set by the Board and monitored by the risk management function.

(c) Regulatory framework

Regulators are interested in protecting the rights of the policyholders and ensuring that the Company is satisfactorily managing affairs for the benefit of the policyholders. Regulators are also keen to ensure that the Company maintains appropriate solvency levels to meet unforeseen liabilities arising from economic shocks or natural disasters. As such the Company is subject to regulatory requirements which prescribe approval and monitoring of activities and can also impose certain company specific restrictive provisions. The Company is not currently subject to any such restrictions.

(d) Financial risks

(i) Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss.

Credit risk has been assessed under two categories. Investment credit risk arises primarily from holding assets (excluding equities and properties) to meet liabilities, and business credit risk arises from exposure to reinsurers and other trade debtors.

For investment holdings in non linked funds, limits on the exposure to a single entity are specified and monitored. Maximum exposures at date of purchase to individual bond assets are set by reference to credit rating bands. Non equity assets are restricted to securities in a specified list of countries. Exposures to industry sectors and asset classes are also monitored.

Shareholder funds are managed in line with the Company's credit risk policy whose principles are the same as those outlined above in respect of non linked funds.

For unit linked funds, the investment mandates specify acceptable credit risks for bond exposures. This risk falls primarily on the policyholders.

The following tables set out the analysis of bond holdings in both linked and non linked funds by credit rating, which is the key measure used by management to monitor credit risk. The total non linked holdings

34. Risk management policies (Continued)

represent the maximum exposure to the Company. The holdings that have not been rated are primarily local authority bonds which are considered investment grade.

Rating at 31 December 2015		AAA	AA		A	BBB	BB+ or lower	Not rated	Total
		£m	£m		£m	£m	£m	£m	£m
Debt Securities		305.0		—	—	—	—	—	305.0
Government stocks		—	165.1		—	2.8	—	—	167.9
Total Linked		305.0	165.1		—	2.8	—	—	472.9
Debt Securities		356.0	216.0		621.7	606.3	99.5	8.2	1,907.7
Government stocks		39.9	825.5		3.3	53.0	2.8	—	924.5
Total Non Linked		395.9	1,041.5		625.0	659.3	102.3	8.2	2,832.2
Debt Securities		661.0	216.0		621.7	606.3	99.5	8.2	2,212.7
Government stocks		39.9	990.6		3.3	55.8	2.8	—	1,092.4
Total Bonds		700.9	1,206.6		625.0	662.1	102.3	8.2	3,305.1
							BB+ or	Not
Rating at 31 December 2014		AAA	AA		A	BBB	lower	rated	Total
		£m	£m		£m	£m	£m	£m	£m
Debt Securities Government stocks		305.2 4.3	191.9		1.0 —	— 2.4	1.2	—	307.4 198.6

Total Linked		309.5	191.9		1.0	2.4	1.2	—	506.0
Debt Securities		455.4	211.1		653.4	623.0	90.7	10.8	2,044.4
Government stocks		42.4	873.3		3.4	53.9	2.9	—	975.9
Total Non Linked		497.8	1,084.4		656.8	676.9	93.6	10.8	3,020.3
Debt Securities		760.5	211.1		654.4	623.0	91.9	10.8	2,351.7
Government stocks		46.7	1,065.2		3.4	56.4	2.9	—	1,174.6
Total Bonds		807.3	1,276.3		657.8	679.3	94.8	10.8	3,526.3

Rating at 31 December 2013	AAA		AA	A		BBB	BB+ or lower	Not rated	Total
	£m		£m	£m		£m	£m	£m	£m
Debt Securities	329.4		0.6	1.0		1.3	—	—	332.3
Government stocks .	3.0		175.4	—		—	—	—	178.4
Total Linked	332.4		176.0	1.0		1.3	—	—	510.7
Debt Securities	588.0		220.3	658.1		496.6	89.8	24.4	2,077.2
Government stocks	65.7		763.2	4.1		45.8	2.8	—	881.6
Total Non Linked	653.7		983.5	662.2		542.4	92.6	24.4	2,958.8
Debt Securities	917.4		220.9	659.1		497.9.	89.8	24.4	2,409.5
Government stocks	68.7		938.6	4.1		45.8	2.8	—	1,060.0
Total Bonds	986.1		1,159.5	663.2		543.7	92.6	24.4	3,469.5

The table below sets out the maximum counterparty exposure limits permitted by the Company, as at 31 December 2015, in relation to any one counterparty. Limits are not applied to investments which are UK government securities, approved securities (as defined by the regulations of the PRA), investments in funds falling under the UCITS Directive or investments held within the Company's unit linked funds. The

34. Risk management policies (Continued)

figures reflect the maximum exposures allowed; lower limits may be applied on specific investments according to their rating.

Exposure limits to any one counterparty	£m
Debt and other fixed income securities	135
Deposits with credit institutions .	135
Other investments	135
Total overall investment classes	135

These limits are unchanged from 2014, remaining within the level permitted under the PRA's 1NSPRU rules. The limits and the guidelines above have been adhered to throughout the year, save that actionable limits have been waived where breached as a result of corporate actions, downgrades of existing holdings or changes in market values.

The Company has entered into securities lending agreements whereby blocks of securities are loaned to third parties, primarily major brokerage firms, and appropriate collateral is received from them. The loaned securities are retained within the appropriate investment classification in the balance sheet and conversely collateral received is not recognised on the balance sheet. Collateral typically consists of cash and eligible securities. At 31 December 2015, the Company had lent £292.8m (2014: £383.2m; and 2013: £515.9m) of securities and held collateral under such agreements of £306.0m (2014: £402.9m; and 2013: £539.1m).

At 31 December 2015 the collateral balance in respect of interest rate swaps held was a receipt of £34.0m (2014: £35.4m received; and 2013: £3.2m received). The collateral balance in respect of the funding swaps was an obligation of £1.3m (2014:£14.5m; and 2013:£6.3m)

£27.7m of assets (2014: £29.7m; and 2013: £26.3m) were held subject to a charge in respect of potential future contributions to the staff pension scheme.

In order to manage business credit risk, all new material reinsurance treaties are subject to Board approval and reinsurance arrangements are regularly reviewed, including an assessment of the full exposure including any lending. The contracts for annuity longevity insurance and reinsurance contain provision for collateral to be pledged or held by the Company in appropriate circumstances. At 31 December 2015 the Company had pledged £139.7m (2014: £134.6m; and 2013: £86.7m) and had received collateral of £290.8m (2014: £355.6m; and 2013: £189.7m) in respect of such contracts.

At 31 December 2015 the company held £57.8m (2014: £43.1m; and 2013: £70m) collateral in the form of government bonds and separately letters of credit of £20.2m from Canada Life (2014:£16.2m; and 2013:£17.6m). The contracts with Santander, Canada Life and Axia are structured such that limited uncollateralised credit risk is borne by the Company.

Exposure to other trade debtors is assessed on a case by case basis.

(ii) Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet its cash commitments as they fall due. Liquidity risk may result from either the inability to sell financial assets quickly at their fair values; or from a counterparty defaulting on repayment of a contractual obligation; or from an insurance liability falling due for payment earlier than expected; or from the inability to generate cash inflows as anticipated.

For shareholder funds liquidity risk is managed in line with the Company's liquidity risk policy. For non linked funds investments are arranged to minimise the possibility of being a distressed seller whilst at the same time investing to meet policyholder obligations. For unit linked business, deferral provisions in the policy terms are designed to give time to realise linked assets without being a forced seller, particularly for property-linked holdings.

34. Risk management policies (Continued)

The Company's liabilities under unit linked and with profit insurance and investment contracts are payable at short notice, subject to the policy terms' deferral provisions, either as surrender values or as transfer values in the case of pension contracts.

Derivative liabilities and other financial liabilities (Notes 22 and 28) are considered currently due. Benefit payments under annuity contracts fall due as follows:

£m	Up to 1 year	1 to 5 years	5 to 10 years	Over 10 years	Total
Payments due at 31 December 2015	151.9	577.1	641.5	1,442.7	2,813.2
Payments due at 31 December 2014	152.5	582.3	654.2	1,521.9	2,910.9
Payments due at 31 December 2013	151.1	579.0	655.8	1,541.6	2,927.5

Government and corporate bonds are held as assets to match these liabilities, and the projected cashflows from assets and liabilities are regularly monitored and exposures managed so that where appropriate they match the maturity profile of these assets.

The longevity contracts are structured such that no significant liquidity risk is retained by the Company.

(iii) Market risk

Market risk is the risk of fair value changes in the value of assets and liabilities from fluctuations in market prices (price risk), market interest rates (interest rate risk) and foreign exchange rates (currency risk), whether such changes are caused by factors specific to the individual instrument or its issuer or factors affecting all instruments traded in the market.

Within the Company investment holdings are diversified across markets and, within markets, across sectors. Holdings of individual assets are diversified to minimise specific risk and large individual exposures are monitored closely. For assets held out with unit linked funds, investments are only permitted in countries and markets which are sufficiently regulated and liquid. Market risk policy is dependent on the nature of the funds in question, and can be broadly summarised as follows:

Financial assets held in shareholder funds are invested in money market funds, gilts, equities and investment grade bonds so as to match regulatory capital requirements. The balance of the shareholder fund tangible assets are managed in line with the Company's policy to optimise shareholder risk and return.
Unit linked assets are invested in accordance with the mandate for the fund.
Conventional non-profit assets are monitored and managed in relation to currency, nature and duration.
With-profits assets are managed in line with the Company's Principles and Practices of Financial Management (''PPFM''). Benchmark and minimum holdings in asset classes are specified to allow limited investment management discretion whilst ensuring adequate diversification.

(1) Equity price risk

The Company holds equities which are subject to market price movements. They are primarily held to match unit linked and with-profits liabilities, and therefore price movements are matched with corresponding movements on contractual obligations with no direct impact on the Company's profit before tax. However, the Company makes management charges to policyholders based on overall fund values and these will vary with market movements. In 2015 £61.4m of gross charges were made (2014: £62.4m; and 2013: £64.0m): if markets had been 10% lower their impact on profit before tax would have been £(6.1)m (2014: £(6.2)m; and 2013: £(6.4)m). A 10% increase in markets would have an equal and opposite effect.

The unit linked funds' investment mandates specify limits on acceptable exposures.

34. Risk management policies (Continued)

(2) Interest rate risk

Interest rate risk is the risk that the value of future cashflows of a financial instrument will fluctuate because of changes in interest rates. The Company holds assets predominantly in the form of gilts and corporate bonds to match liabilities under annuity contracts.

The Company's market risk policy requires an appropriate mix of fixed and variable rate instruments. The policy also requires it to manage the maturity profile of interest-bearing financial assets and the guaranteed elements of the liabilities. The Company's gilt and bond holdings in the shareholder fund result in a direct exposure to interest rate risk.

Certain derivative contracts have been entered into with the objective of offsetting the interest rate risk relating to guaranteed annuities on the realistic economic basis. This differs from the regulatory basis used to measure the liabilities in these financial statements and a residual risk remains.

The sensitivity of the Company's result to interest rate changes is set out in Note 32 above.

(3) Currency risk

The Company's principal transactions are carried out in pounds sterling.

The Company's financial assets are primarily denominated in the same currencies as its insurance and investment liabilities. There remains a foreign exchange risk to the extent that any assets and their respective liabilities are not held in the same currency, which has been mitigated through the use of derivative financial instruments. However, this exposure is primarily within the unit linked funds where it falls upon the policyholders and does not impact the Company. Residual impacts upon the management charges are included in those shown in section (1) above. Risks attaching to certain reinsurance contracts denominated in foreign currency are also mitigated by derivative financial instruments.

Certain retrocession contracts, not accounted for as insurance, are all denominated in Euro. The exposure arising from the profit recognised on this arrangement has been retained in Euro.

(e) Insurance risk

Insurance risk is the risk that insured events will occur which adversely affect the financial position of the Company compared to expectations. The principal risk the Company faces under insurance contracts is that the actual claims and benefit payments exceed the amounts expected at the time of determining the insurance liabilities. This position is influenced by the frequency and severity of claims. The sensitivity to key variables is set out in Note 32.

The nature of insurance business involves the accepting of insurance and reinsurance risks which primarily relate to mortality or longevity, and morbidity. The Company has underwriting policies to ensure an appropriate premium is charged for the risk that has been accepted. New corporate business is reviewed by the Board for acceptance within the company's risk appetite.

The principal methods available to the Company to control or mitigate mortality and morbidity risk are reinsurance and claims management. Rates of mortality and morbidity are investigated annually. Reinsurance contracts have been entered into which substantially mitigate the longevity risks in the annuity portfolio. The contracts with Santander, Canada Life and Axia are structured such that they are classified as investment contracts.

It is considered that there are no significant concentrations of insurance risk that would adversely impact the cashflows of the Company.

(f) Operational risk

The Company is exposed to other operational risks, including persistency, expense increases, customer complaints, and of error and fraud.

Persistency risk is that policies will lapse faster than expected and result in the loss of anticipated future revenues. The policies which have been issued, by the Company, generally contain terms mitigating the

34. Risk management policies (Continued)

effect of exposure to persistency losses. Persistency rates are annually assessed by reference to appropriate risk factors. Reinsurance is held to cover persistency risk in cashflows for contracts.

Expenses are monitored by an analysis of the Company's experience relative to budget. Reasons for any significant divergence from expectation are investigated and remedial action taken.

Fluctuations in the pension benefit obligation of the staff pension scheme ultimately flow to profit or loss. The gross balance sheet value of the liability is £274.4m (2014: £294.2m; and 2013: £265.4m) and varies with interest and inflation rates and mortality assumptions. Assets of £206.1m (2014: £226.2m; and 2013: £234.2m) are held to offset the liability, resulting in the net liability of £68.0m (2014: net liability of £68.0m; and 2013: net liability of £31.2m) recognised in the balance sheet and detailed in Note 29.

In common with other companies providing savings and investment products to retail consumers, matters arise from time to time as a result of customer complaints or investigations by the regulator requiring remedial action to be taken, which may include the payment of compensation. Complaints are dealt with on a case by case basis and where appropriate compensation is paid.

Other operational risks include fraud and error. The financial impacts are mitigated for the Company by the outsourcing of policy administration, including receipt of premiums and payment of claims, and of investment management and administration. The outsourced service providers are responsible for losses caused by their activities. The Company has policies and procedures to manage the outsourced service contracts, and to control the remaining risks in its retained operations.

35. Level 1, 2 and 3 fair value measurement hierarchy of financial instruments

The fair value hierarchy analysis required by IFRS 7 ''Financial Instruments: Disclosure'' is based on the inputs to the fair value measurement and reflects the lowest level input that is significant to that measurement, as set out in Note 3(d). The classification criteria and their application to the Company are as follows.

Level 1—active quoted prices

Items in this category are valued using unadjusted quoted prices from active markets for identical assets and liabilities.

Level 1 principally includes UK and other exchange listed equities, exchange traded derivatives such as futures and options, and government bonds and equivalents, unless there is evidence that trading in a given instrument is so infrequent that the market cannot be considered active.

Level 2—other observable market-derived inputs

Items in this category are valued using inputs other than active market unadjusted quoted prices as included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 2 principally includes corporate bonds and other non-national government debt securities, OEICs, unit trusts and other non-quoted investment funds, and over-the-counter derivatives such as forward exchange contracts, all of which are valued with observable inputs but which are either subject to adjustment or modelling, or are not evidenced as being in active markets. It also includes investment contract liabilities that are valued using observable inputs.

The company holds a significant portfolio of corporate bonds, structured securities and other debt securities to back annuity and other non linked liabilities. These assets are valued by our independent investment managers and are subject to their monitoring controls. In line with market practice, they generally use third party broker quotes in the UK either directly or via providers such as iBoxx or Bloomberg. Where not available, primarily for unlisted debt securities, models using observable parameters are applied. Prices for OEICs and unit trusts are calculated daily by their managers from the underlying assets which are. valued at their market prices: The unit prices of internal funds from which investment contract liabilities are valued are calculated in a similar way.

35. Level 1, 2 and 3 fair value measurement hierarchy of financial instruments (Continued)

Level 3—unobservable inputs

Items in this category are valued using modelling techniques with' significant inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The longevity contracts are valued using stochastic modelling techniques within a Lee-Carter approach. For each stochastic scenario the cashflows of individual policies are conglomerated within their, respective pools. The resulting cashflows are discounted to arrive at a present value. The expected cashflows are modelled using actuarial techniques with assumption on the mortality and persistency of the underlying policies.

Management regularly review the appropriateness of the key assumptions used under this technique, for example persistency and mortality, to ensure that they remain suitable and are in line with experience.

The table below summarises the fair value measurement basis used for assets and liabilities held at fair value.

31 December 2015	Level 1— active quoted prices	Level 2— other observable inputs	Level 3— unobservable inputs	Total
Financial assets
Loans and receivables	—	—	369.1	369.1
Subsidiaries—OEICs/unit trusts	—	1,039.9	—	1,039.9
Associates—OEICs/unit trusts	—	360.5	—	360.5
Financial assets at fair value through profit or loss:
Gilts	1,251.6	—	—	1,251.6
Equities	4,193.9	—	—	4,193.9
Corporate debt	—	1,464.6	16.2	1,480.8
OEICs/unit trusts	—	2,021.8	—	2,021.8
Unlisted debt	—	1.2	—	1.2
Derivatives—assets	—	38.9	37.5	76.4
Other Assets
Investment Properties	—	—	7.1	7.1
Cash		43.2	—	43.2
Total	5,445.5	4,970.1	429.9	10,845.5
	50.2%	46.0%	3.8%	100.0%
Financial liabilities
Derivatives—liabilities	—	25.4	224.2	249.6
Investment contract liabilities	—	5,767.7	—	5,767.7
Other financial liabilities	—	—	114.1	114.1
Accrued Expenses	—	22.7	—	22.7
Total	—	5,815.8	338.3	6,154.1
	—	94.5%	5.5%	100.0%

35. Level 1, 2 and 3 fair value measurement hierarchy of financial instruments (Continued)

31 December 2014	Level 1— active quoted prices	Level 2— other observable inputs	Level 3— unobservable inputs	Total
Financial assets
Loans and receivables	—	—	460.3	460.3
Subsidiaries—OEICs/unit trusts	—	1,150.3	—	1,150.3
Associates—OEICs/unit trusts	—	459.5	—	459.5
Financial assets at fair value through profit or loss:	—	—	—	—
Gifts	1,165.0	—	—	1,165.0
Equities	4,571.3	—	—	4,571.3
Corporate debt	—	1,737.2	—	1,737.2
OEICs/unit trusts	—	1,896.6	—	1,896.6
Unlisted debt	—	1.5	—	1.5
Derivatives—assets	—	37.3	37.5	74.8
Other Assets held at fair value
Investment Properties		—	5.4	5.4
Cash		52.9		52.9
Total	5,736.3	5,335.3	503.2	11,574.8
	49.6%	46.1%	4.3%	100.0%
Financial liabilities
Derivatives—liabilities	—	18.5	264.3	282.8
Investment contract liabilities	—	6,056.1	—	6,056.1
Other financial liabilities	—	—	163.6	163.6
Other liabilities held at fair value	—	—	—	—
Accrued Expenses	—	29.3	—	29.3
Total	—	6,103.9	427.9	6,531.8
	—	93.4%	6.6%	100.0%

35. Level 1, 2 and 3 fair value measurement hierarchy of financial instruments (Continued)

31 December 2013	Level 1— Active quoted Prices	Level 2— other observable inputs	Level 3— unobservable inputs	Total
Financial assets
Loans & receivables	—	—	494.8	494.8
Subsidiaries—OEICs/unit trusts	—	1,207.5	—	1,207.5
Associates—OEICs/unit trusts	—	524.9	—	524.9
Financial assets at fair value through profit or loss:
Gifts	1,050.2	—	—	1,050.2
Equities	4,268.9	—	—	4,268.9
Corporate debt	—	1,630.3	1,630.3	—
OEICs/unit trusts	—	2,282.6	2,282.6	—
Unlisted debt	—	2.0	2.0	—
Derivatives—assets	—	27.0	5.3	32.3
Other Assets held-at fair value
Investment Properties		—	4.5	4.5
Cash		77.5	—	77.5
Total	5,319.1	5,751.8	504.6	11,575.5
	46.0%	49.7%	4.3%	100.0%
Financial liabilities
Derivatives—liabilities	—	20.1	243.9	264.0
Investment contract liabilities	—	6,166.9	—	6,166.9
Other financial liabilities	—	—	226.9	226.9
Other liabilities held at fair value
Accrued Expenses	—	32.5	—	32.5
Total	—	6,219.5	470.8	6,690.3
	—	93.0%	7.0%	100.0%

Change in measurement of Level 3 assets

Financial assets	2015	2014	2013
	£m	£m	£m
At 1 January	503.2	504.6	593.0
Transfers from Level 2	16.2	—	—
Settlements	(47.5)	(58.8)	(75.6)
Total (loss)/gains in profit or loss	(42.0)	57.4	(18.1)
At 31 December	429.9	503.2	499.3

Change in measurement of Level 3 liabilities

Financial liabilities	2015	2014	2013
	£m	£m	£m
At 1 January	(427.9)	(470.8)	(564.6)
Settlements	71.3	87.3	72.7
Total gains in profit or loss	18.3	(44.4)	21.1
At 31 December	(338.3)	(427.9)	(470.8)

36. IFRS 12 Unconsolidated Structured entities

Nature, purpose and extent of the interests in unconsolidated structured entities

As part of its investment activities, the Company invests in unconsolidated structured entities.

A structured entity is one that has been set up so that any voting rights or similar rights are not the dominant factor in deciding who controls the entity.

A structured entity often has some or all of the following features or attributes:

Restricted activities
A narrow and well defined objective
Insufficient equity to permit the structured entity to finance its activities without subordinated financial support
Financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches)

Below is a description of the Company's involvements in unconsolidated structured entities by type.

Third party funding entities

These are entities that offer clients funding opportunities at favourable rates where the funding is predominantly provided on a collateralized basis. The Company's investment in third party funding is in the form of Asset Backed Securities.

Third party sponsored securitizations

Third party sponsored entities are where the third party originates or purchases assets that are predominantly commercial or residential whole loans or mortgage backed securities. The entity funds these purchases by issuing multiple tranches of securities where the repayment is linked to the performance of the assets in the Special Purpose Entity. The Company's investment in the third party securitizations is in the form of corporate bonds and asset backed securities.

Funds

The Company also invests in funds. Funds hold assets (such as financial instruments, property, leases) and issue fund units to investors. Investors invest in units issued by the fund and the value of the units is linked to the performance of the assets held by the fund. The Company's investment in funds is in the form of corporate bonds, asset backed securities, mutual funds, liquidity and REIT.

As at 31 December 2015, the Company's total interest in unconsolidated structured entities was £2,780.9m (2014: £3,951.2m) on the Company's statement of financial position, which are classified as financial investments held at fair value through profit or loss.

All income received from the assets shown below is reflected within the net investment income figure in the Statement of Comprehensive Income on page 1.

The Company does not sponsor any of the unconsolidated structured entities.

36. IFRS 12 Unconsolidated Structured entities (Continued)

The following table shows, by type of structured entity, the carrying amounts of the Company's interests recognised in the statement of financial position

31 December 2015 £m		Third Party Sponsored Securitisations	Third Party Funding Entities	Group Sponsored Funds	Third Party Sponsored Funds	Total
Shares: Listed Debt Securities					15.0	15.0
	Corporate Bonds	—	94.2	—	101.7	195.9
	ABS	—	18.6	—	10.3	28.9
Investment Funds
	Mutual Funds	—	—	142.2	1,900.2	2,042.4
	Liquidity funds	—	—	198.8	274.2	473.0
	REIT	—	—	—	25.7	25.7
Total		—	112.8	341.0	2,327.1	2,780.9
31 December 2014 £m		Third Party Sponsored Securitisations	Third Party Funding Entities	Group Sponsored Funds	Third Party Sponsored Funds	Total
Debt Securities
	Corporate Bonds	56.9	—	—	54.4	111.3
	ABS	30.5	2.5	—	8.0	41.0
Investment Funds		—	—	—	—	—
	Mutual Funds	—	—	73.1	3,110.2	3,183.3
	Liquidity funds	—	—	314.1	279.1	593.2
	REIT	—	—	—	22.4	22.4
Total		87.4	2.5	387.2	3,474.1	3,951.2

The Company's maximum exposure to loss to the interest presented above is the carrying amount of the Company's investments.

The Company has not provided any financial or other support to unconsolidated structured entities during the year and there are no intentions to provide support in relation to any other unconsolidated structured entities in the foreseeable future.

37. Eurozone exposure

The following table sets out the analysis of Eurozone debt holdings in the Company's non-linked funds between government and non-government exposure, and their maturity profile, detailing those countries considered at greater risk. Holdings with no contractual maturity date are considered to mature in over 10 years. All holdings are stated at fair value and therefore no impairment is applicable.

The position at 31 December 2015 was:

					Contractual maturity
£m	Government	Non- government	Total	Up to 5 years	5 to 10 years	Over 10 years
Belgium	6.6	2.1	8.7	—	—	8.7
Portugal	2.8	—	2.8	2.8	—	—
Ireland	—	25.5	25.5	5.4	3.2	16.9
Italy	53.0	14.0	67.0	8.1		58.9
Sub-total	62.4	41.6	104.0	16.3	3.2	84.5
Others	0.6	212.7	213.3	38.0	79.3	96.0
Total	63.0	254.3	317.3	54.3	82.5	180.5

37. Eurozone exposure (Continued)

The comparable position at 31 December 2014 was as follows:

					Contractual maturity
£m	Government	Non- government	Total	Up to 5 years	5 to 10 years	Over 10 years
Belgium	6.7	9.1	15.8	—	—	15.8
Portugal	2.9	—	2.9	2.9	—	—
Ireland	—	26.0	26.0	5.6	3.3	17.1
Italy	53.9	27.2	81.1	8.3	12.8	60.0
Sub-total	63.5	62.3	125.8	16.8	16.1	92.9
Others	5.7	233.5	239.2	55.1	75.4	108.7
Total	69.2	295.8	365.0	71.9	91.5	201.6

The comparable position at 31 December 2013 was as follows:

					Contractual Maturity
£m	Government	Non- government	Total	Up to 5 years	5 to 10 years	Over 10 years
Belgium	5.7	8.7	14.3	—	—	14.3
Portugal	2.9	—	2.9	2.9	—	—
Ireland	—	23.8	23.8	5.6	3.2	15.0
Italy	45.8	24.4	70.3	8.2	11.6	50.5
Greece	—	—	—	—	—	—
Spain	—	3.7	3.7	—	—	3.7
Sub-total	54.4	60.6	115.0	16.7	14.8	83.5
Others	10.7	219.6	230.3	63.6	71.6	95.1
Total	65.1	280.2	345.3	80.3	86.4	178.6

Indirect and second order exposures are monitored by the Risk Committee on a monthly basis. The Company is not exposed to risks from holdings in the unit linked funds, as set out in Note 34 above.

38. Related party transactions

(a) Ultimate parent and shareholding

The Company's immediate parent undertaking is Deutsche Holdings No. 4 Ltd.

The Company's ultimate parent company is Deutsche Bank AG, incorporated in Germany, which is also the parent undertaking of the largest group of undertakings for which group accounts are drawn up and of which the Company is a member. The Group's consolidated financial statements are available from Winchester House, 1 Great Winchester Street, London, EC2N 2DB.

(b) Transactions and balances with related parties

Transactions with companies in the Deutsche Bank AG Group

The accounts payable function for the Company is performed by Deutsche Bank AG. Invoices of £27.4m in the period to 31 December 2015 (2014: £23.1m; and 2013: £29.8m) were initially paid by Deutsche Bank AG and subsequently reimbursed by the Company. In addition to the accounts payable function, services performed by Deutsche Bank AG and associated companies of £1.6m in the period to 31 December 2015 (2014: £1.0m; and 2013: £1.0m) were charged to the Company. As at the year end the total amount outstanding to be reimbursed was £10.8m (2014: £16.4m; and 2013: £15.1m).

In 2011 the Company acquired units in the Deutsche Global Liquidity Series Fund. At 2015 year end, £198.8m of units were held (2014: £314.9m; and 2013: £137.2m).

38. Related party transactions (Continued)

The Company has entered into interest derivative contracts with Deutsche Bank AG with contract amounts of £166.9m with a liability value of £32.6m as at 31 December 2015 (2014: £186.1m and liability value of £32.7m respectively; and 2013: £219.2m and asset value of £2.4m respectively), which are covered by daily collateral arrangements.

The Company has entered into a contract for investment management services with Deutsche Asset Management (UK) Ltd. Services provided during the year were valued at £4.7m (2014: £4.9m; and 2013: £2.2m). Fees due during the year, but not invoiced or paid at year end, amounted to £0.9m (2014: £0.9m; and 2013: £0.4m)

In 2012 the Company entered into retrocession contracts (classed as fair value debt) with Axia Insurance Ltd (part of the Group) with a value of £114.1m at 31 December 2015 (2014: £163.6m; and 2013: £226.9m).

All the above transactions are carried out on an at arm's length basis.

(c) Key management compensation apportioned to the Company

Key management compensation apportioned to the Company is £1,240,483 (2014: £1,148,342; and 2013: £814,000). Of that total, £1,240,483 (2014: £1,148,342; and 2013: £814,000) relates to salaries and other benefits, and £nil (2014: nil; and 2013: nil) is in connection with post-employment benefits. All amounts are in respect of the Directors of the Company, who are considered to be the key management personnel of the Company.

During the year two Directors received DB Group shares or payments under long term incentive schemes totalling £238,493 (2014: £148,149; and 2013: £46,000). No Directors exercised any DB Group share options under long term incentive plans (2014: nil; and 2013: nil).

The aggregate of the emoluments and amounts receivable under long term incentive schemes of the highest paid Director was £566,247 and the pension contribution was £nil (2014: £449,490 and £nil; and 2013: £338,000 and nil).

Retirement benefits accrued to one Director (2014: one; and 2013: one) under defined benefit pension schemes and one Directors under money purchase schemes (2014: nil; and 2013: nil).

During the year one Director paid premiums into critical illness policies and life protection policies issued by the Company with a total value of £1,066 (2014: £1,066; and 2013: £1,066).

Directors' interests in share capital

None of the Directors who held office during the year ended 31 December 2015 had any interest in the shares of the Company (2014: none; and 2013: none).

39. Lease and purchase commitments

With effect from 1 October 2007, the Company entered into an investment management contract with Scottish Widows Investment Partnership Ltd which incurs a commitment of approximately £107m over 10 years. During 2014 Aberdeen Asset Management Plc acquired Scottish Widows Investment Partnership Ltd and took over the provision of services under this contract.

With effect from 1 March 2009, the Company entered into an outsourcing contract with Capita Life and Pensions Regulated Services Ltd. which incurs a commitment of approximately £137m over 10 years.

During 2014, the Company elected to trigger an option on the outsourcing contract with Capita Life and Pensions Regulated Services Ltd which extended the current 10 year contract into perpetuity.

With effect from 26 November 2011, the Company entered into an investment management contract with Deutsche Asset Management (UK) Ltd which incurs a commitment of approximately £12.1m over 3 years.

40. Contingent Liabilities

Abbey Life as an insurance company is subject to regulation by both the PRA (for prudential regulation) and the FCA (for conduct regulation). Between them, the PRA and FCA have broad powers including the authority to grant, vary the terms of, or cancel a regulated firm's authorisation; to investigate marketing and sales practices; and to require the maintenance of adequate financial resources.

On the 3rd March 2016 the FCA issued the results of the thematic review of the fair treatment of long standing customers in life insurance. The FCA announced that it will commence investigations into Abbey Life and five other firms in relation to disclosure of customer exit and paid-up charges. At this stage, it is not possible to assess whether there will be any financial impact as a result of these investigations on these financial statements.

41. Post balance sheet events

On the 3rd March 2016 the FCA issued the results of the thematic review of the fair treatment of long standing customers in life insurance. The FCA announced that it will commence investigations into Abbey Life and five other firms in relation to disclosure of customer exit and paid-up charges. Further detail is included within the contingent liabilities disclosure in note 40.

PART B—ACCOUNTANTS' REPORT

The Directors Phoenix Group Holdings c/o Maples Corporate Services Limited PO Box 309 Ugland House Grand Cayman KY-1104, Cayman Islands

4 October 2016

Ladies and Gentlemen

We report on the financial information set out on pages 181 to 228 of the combined Class 1 circular and prospectus dated 4 October 2016 of Phoenix Group Holdings for the three years ended 31 December 2015. This financial information has been prepared on the basis of the accounting policies set out in note 2. This report is required by paragraph 20.1 of Annex I of the Prospectus Directive Regulation and is given for the purpose of complying with that paragraph and for no other purpose.

Responsibilities

The Directors of Phoenix Group Holdings are responsible for preparing the financial information in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

It is our responsibility to form an opinion on the financial information and to report our opinion to you.

Save for any responsibility arising under Prospectus Rule 5.5.3R (2)(f) to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with Listing Rule 13.4.1R(6) and paragraph 23.1 of Annex I of the Prospectus Directive Regulation, consenting to its inclusion in the combined Class 1 circular and prospectus.

Basis of Opinion

We conducted our work in accordance with Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts and disclosures in the financial information. It also included an assessment of the significant estimates and judgments made by those responsible for the preparation of the financial information and whether the accounting policies are appropriate to the entity's circumstances, consistently applied and adequately disclosed.

We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial information is free from material misstatement whether caused by fraud or other irregularity or error.

Opinion

In our opinion, the financial information gives, for the purposes of the combined Class 1 circular and prospectus dated 4 October 2016, a true and fair view of the state of affairs of ALAC as at 31 December 2013, 2014 and 2015 and of its profits or losses and other comprehensive income, cashflows and changes in equity for the three years ended 31 December 2015 in accordance with the basis of preparation set out in note 2 and in accordance with International Financial Reporting Standards as adopted by the European Union as described in note 2.

Declaration

For the purposes of Prospectus Rule 5.5.3R (2)(f) we are responsible for this report as part of the prospectus and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the prospectus in compliance with paragraph 1.2 of Annex I of the Prospectus Directive Regulation.

Yours faithfully

KPMG LLP

PART X—UNAUDITED PRO FORMA IFRS FINANCIAL INFORMATION OF THE ENLARGED GROUP

PART A—PRO FORMA IFRS FINANCIAL INFORMATION

The unaudited pro forma IFRS income statement and unaudited pro forma statement of IFRS net assets of the Enlarged Group (together, the ''unaudited pro forma IFRS financial information'') set out below have been prepared for illustrative purposes only in accordance with Annex II of the PD Regulation and on the basis of the notes set out below. The unaudited pro forma IFRS income statement has been prepared to illustrate the effect on the earnings of the Company as if the proposed Acquisition and the Rights Issue had taken place on 1 January 2015. The unaudited pro forma statement of IFRS net assets has been prepared to illustrate the effect on the net assets of the Company as if the proposed Acquisition and the Rights Issue had taken place on 30 June 2016. The unaudited pro forma IFRS financial information has been prepared for illustrative purposes only and, because of its nature, addresses a hypothetical situation and does not, therefore, represent the Company's or the Enlarged Group's actual financial position or results. The unaudited pro forma IFRS financial information is stated on the basis of the accounting policies expected to be adopted by the Company in preparing its consolidated financial statements for the year ending 31 December 2016. The unaudited pro forma IFRS financial information does not illustrate the effects of the AXA Transaction.

Unaudited pro forma statement of consolidated IFRS income for the Enlarged Group for the year ended 31 December 2015

			Pro forma adjustments for the Group
	Phoenix Note 1	ALAC Note 2	Adjustments to conform disclosures Note 3	Acquisition adjustments Note 4	Pro forma total
(£ million)
Gross premiums written .	902	90	—	—	992
Loss premiums ceded to reinsurers	(1,376)	(15)	—	—	(1,391)
Net premiums written	(474)	75	—	—	(399)
Fees .	95	20	—	—	115
Net investment income	1,064	315	5	—	1,384
Net realised gains on financial assets Net fair value losses on assets/liabilities at fair value through	—	301	(301)	—	—
profit or loss	—	(296)	296	—	—
Total revenue, net of reinsurance payables	685	415	—	—	1,100
Other operating income	7	—	—	—	7
Net income	692	415	—	—	1,107
Policyholder claims	(3,931)	(326)	—	—	(4,257)
Less: reinsurance recoveries	326	6	—	—	332
Change in insurance contract liabilities Change in reinsurers' share of insurance and contract	2,959	313	—	—	3,272
liabilities Transfer from/(to) unallocated surplus	1,003 84	(44) 1	— —	— —	959 85
Net policyholder claims and benefits incurred	441	(50)	—	—	391
Change in investment contract liabilities	(232)	(182)	—	—	(414)
Acquisition costs	(7)	—	(11)	11	(7)
Change in present value of future profits	(6)	—	—	—	(6)
Amortisation and impairment of acquired in-force business	(148)	—	—	(29)	(177)
Amortisation of customer relationships	(15)	—	—	—	(15)
Administrative expenses	(430)	—	(44)	(22)	(496)
Net operating expenses Expenses for asset management services	— —	(39) (16)	39 16	— —	— —
Net income attributable to unitholders	(7)	—	—	—	(7)
Total operating expenses	(404)	(287)	—	(40)	(731)
Profit before finance costs and tax	288	128	—	(40)	376
Finance costs	(136)	(7)	—	(5)	(148)
Profit before tax	152	121	—	(45)	228
Tax credit attributable to policyholders' returns	33	—	2		35
Profit before tax attributable to owners	185	121	2	(45)	263
Tax credit/(charge)	97	(22)	—	3	78

			Pro forma adjustments for the Group
	Phoenix Note 1	ALAC Note 2	Adjustments to conform disclosures Note 3	Acquisition adjustments Note 4	Pro forma total
(£ million)
Add: tax attributable to policyholders' returns	(33)	—	(2)	—	(35)
Tax credit/(charge) attributable to owners	64	(22)	(2)	3	43
Profit for the year attributable to owners	249	99	—	(42)	306
Attributable to: Owners of the parent Non-controlling interests	201 48	99 —	— —	(42) —	258 48

Notes:

Note 1—The financial information for the Company has been extracted, without material adjustment, from the Company's Annual Report and Accounts for the year ended 31 December 2015.

Note 2—The financial information for ALAC has been extracted, without material adjustment, from the audited historical financial information for ALAC for the year ended 31 December 2015.

Note 3—This column reflects adjustments to align the presentation of ALAC's income statement to that of the Company as follows:

(a) The Company discloses net realised gains and losses and net fair value gains and losses on assets and liabilities recognised at fair value through profit or loss within net investment income. ALAC discloses these items separately. Therefore reclassifications of £301 million and £(296) million have been made between the aforementioned line items.
(b) ALAC discloses the line items ''Expenses for asset management services'' and ''Net operating expenses'' which are not disclosed separately by the Company. The Company discloses these amounts within the line ''Administrative expenses'', with the exception of ''Acquisition costs'' and ''Changes in deferred costs'', which are disclosed within ''Acquisition costs'' by the Company and included within ''Net operating expenses'' by ALAC. Reclassifications of £39 million and £16 million have therefore been made, with £44 million into ''Administrative expenses'', and £11 million into ''Acquisition costs''.
(c) The Company discloses tax attributable to policyholder returns separately on the face of the income statement, whereas ALAC includes this within the Tax credit for the year. A reclassification of £2 million has therefore been made between the aforementioned line items.

Note 4—This column represents the following adjustments:

(a) An adjustment of £22 million has been made to the line item ''Administrative expenses'' to reflect an estimate of the one-off transaction costs incurred. No tax relief is expected to be available on these expenses.
(b) As described in note 5(d) to the unaudited pro forma statement of net assets, a fair valuation exercise of the assets and liabilities as at the date of acquisition will be performed on Completion. This will include a fair valuation of the future cashflows associated with ALAC's in-force insurance contracts. The resultant asset will be recognised as Acquired Value of In-Force business (''AVIF'') in the statement of consolidated financial position.

Under the Group's accounting policy, AVIF is amortised over the estimated life of the contracts on a basis which recognises the emergence of the economic benefits. The estimated life of the contracts will not be known until completion of the fair valuation exercise, and therefore the actual amortisation rate will not be known until completion of the Acquisition.

In order to provide an indication of the effect of amortising the estimated AVIF asset and related deferred tax liability shown in the pro forma statement of net assets, management has estimated the life of the acquired contracts to be 9 years. An estimated annual amortisation charge of £29 million has therefore been calculated on a straight line basis, with an estimated annual credit of £5 million relating to the unwind of the related deferred tax liability. The estimated useful life of 9 years represents the Company's assessment of the weighted average of the useful lifetime of the Abbey Life portfolio of contracts, based on an analysis of underlying Abbey Life management information with regards to the expected emergence of profits from the book of business.

This has resulted in the following adjustments:

(i) a £29 million charge within the line item ''Amortisation and impairment of acquired in-force business'';
(ii) an £11 million credit to ''Administrative expenses'' relating to the reversal of the charge recognised by ALAC pertaining to the change in the ''Investment contracts intangible''. The ''Investment contracts intangible'' asset is replaced by the ''AVIF'' asset on consolidation (see note 5(d) to the unaudited pro forma statement of net assets); and
(iii) a £3 million credit within the line item ''Tax attributable to owners'', representing the unwind of the deferred tax liability on the ''AVIF'' of £5 million, net of the £2 million charge relating to the reversal of the deferred tax credit recognised on the movement in the ALAC ''Investment contracts intangible'' asset.
(c) A charge of £5 million has been recognised in ''Finance costs'' to reflect the estimated annual interest charges calculated under the effective interest method and payable under the Abbey Life Bridge Facility Agreement entered into to finance part of the Acquisition.

Note 5—In preparing the unaudited pro forma IFRS income statement, no account has been taken of the trading activity or other transactions of the Group or ALAC since 31 December 2015.

Note 6—In preparing the unaudited pro forma IFRS income statement, no account has been taken of the amortisation of other intangibles or items subject to fair value acquisition accounting, on the basis that the actual amortisation charges will not be known until completion of the fair valuation exercise.

Note 7—All of the adjustments described in Note 4 to the unaudited pro forma income statement will have a continuing impact, with the exception of the adjustment in relation to the estimated one-off transaction costs.

Summary unaudited pro forma statement of IFRS net assets of the Enlarged Group as at 30 June 2016

		Pro forma adjustments for the Group
	Phoenix Note 1	ALAC Note 2	Rights Issue Note 3	Adjustments to conform disclosures Note 4	Acquisition adjustments Note 5	Pro forma total
(£ million)
Assets
Pension Scheme Asset Intangible Assets:	763	—	—	—	—	763
—Goodwill	39	—	—	—	—	39
—Acquired in-force business	1,227	—	—	—	257	1,484
—Customer relationships	195	—	—	—	—	195
—Investment contracts intangible	—	84	—	—	(84)	—
—Present value of future profits	12	—	—	—	—	12
	1,473	84	—	—	173	1,730
Property, plant and equipment	19	—	—	—	—	19
Investment property Financial Assets:	596	7	—	—	—	603
—Loans and receivables	928	438	—	—	—	1,366
—Derivatives	3,881	76	—	—	—	3,957
—Equities	12,322	4,194	—	1,040	—	17,556
—Investment in subsidiaries	—	1,040	—	(1,040)	—	—
—Investment in associates . —Fixed and variable rate income	458	361	—	(361)	—	458
securities	34,028	2,734	—	—	—	36,762
—Collective investment schemes	3,312	2,022	—	361	—	5,695
	54,929	10,865	—	—	—	65,794
Insurance assets:
—Reinsurers' share of insurance contract
liabilities	3,928	108	—	—	—	4,036
—Reinsurance receivables .	29	—	—	—	—	29
—Insurance contract receivables	6	—	—	—	—	6

	3,963	108	—	—	—	4,071
Current tax	2	—	—	—		2
Deferred tax	—	28	—	—	—	28
Prepayments and accrued income	369	—	—	—	—	369
Other receivables Cash and cash equivalents	663 5,621	— 43	— 718	— —	— (689)	663 5,693
Assets classified as held for sale	1,599	—	—	—	—	1,599

Total assets	69,997	11,135	718	—	(516)	81,334
Liabilities
Insurance contract liabilities:
—Liabilities under insurance contracts . .	42,642	3,841	—	—	—	46,483
—Unallocated surplus .	845	6	—	—	—	851
	43,487	3,847	—	—	—	47,334
Financial liabilities: —Investment contracts	7,867	5,768	—	—	—	13,635
—Borrowings	1,748	—	—	114	246	2,108
—Deposits received from reinsurers	414	—	—	—	—	414

		Pro forma adjustments for the Group
	Phoenix Note 1	ALAC Note 2	Rights Issue Note 3	Adjustments to conform disclosures Note 4	Acquisition adjustments Note 5	Pro forma total
(£ million)
—Derivatives	1,780	267	—	—	—	2,047
—Other financial liabilities	—	229	—	(229)	—	—
—Net asset value attributable to unit
holders	6,499	—	—	—	—	6,499
—Obligations for repayment of collateral
received	2,064	—	—	—	—	2,064
	20,372	6,264	—	(115)	246	26,767
Provisions	41	—	—	—	—	41
Pension and other post-retirement benefit
obligations	—	68	—	—	—	68
Deferred tax	355	37	—	—	30	422
Reinsurance payables	18	—	—	2	—	20
Payables related to direct insurance
contracts .	367	—	—	97	—	464
Current tax	17	22	—	—	—	39
Accruals and deferred income	146	105	—	—	—	251
Other payables .	717	—	—	16	22	755
Liabilities classified as held for sale	1,671	—	—	—	—	1,671
Total liabilities	67,191	10,343	—	—	298	77,832
Net assets	2,806	792	718	—	(814)	3,502

Notes:

Note 1—The financial information for the Company has been extracted, without material adjustment, from the Company's Unaudited Interim Report for the six months ended 30 June 2016.

Note 2—The financial information for ALAC has been extracted, without material adjustment, from the audited historical financial information for ALAC for the year ended 31 December 2015 prepared in accordance with IFRS.

Note 3—The Acquisition will be funded in part by the proceeds of the Rights Issue. The expected gross proceeds of the Rights Issue are £735 million. Fees associated with the Rights Issue are estimated at £17 million, giving net proceeds of £718 million. The Rights Issue equates to the issuance of 144,722,989 Shares at 508 pence per Share.

Note 4—This column reflects adjustments to align the presentation of the ALAC statement of net assets with that of the Group.

(a) ALAC recognises interests in Open Ended Investment Company (''OEIC'') funds where it has an ownership interest in excess of 50 per cent. as ''Investment in Subsidiaries''. In preparing its consolidated financial statements, where the Company concludes that it exercises control over an OEIC, it will consolidate the structure and recognise the interests of external third parties as a liability in ''Net asset value attributable to unitholders''. The full information necessary to consolidate ALAC's interests in such OEIC funds on a line by line basis is not available prior to Completion. Therefore an indicative reclassification adjustment has been recognised from ''Investments in Subsidiaries'' to ''Equities'', being the predominant asset class in which the OEICs are invested.
(b) ALAC recognises interests in OEIC funds where it has an ownership interest between 20 and 50 per cent. as ''Investment in Associates''. In preparing its consolidated financial statements, the Company would recognise such assets as ''Collective Investment Schemes'' where it concludes it does not exercise control over the fund. Accordingly, a reclassification adjustment of £361 million has been made from ''Investment in Associates'' to ''Collective Investment Schemes''.
(c) ALAC discloses a number of balances within the caption ''Other financial liabilities'' which Phoenix Group includes within other line items. Therefore reclassification adjustments of £229 million out of ''Other financial liabilities'' have been made into ''Borrowings'' for £115 million, ''Reinsurance payables'' for £2 million, ''Payables related to direct insurance contracts'' for £97 million and ''Other payables'' for £16 million.

Note 5—This column represents the following adjustments:

(a) An adjustment of £22 million has been made to ''Other Payables'' to reflect provision for estimated one-off transaction costs. No tax relief is expected to be available on these expenses.
(b) An adjustment of £246 million has been made to ''Borrowings'' and to ''Cash and Cash Equivalents'' to reflect the borrowings under the £250 million Abbey Life Bridge Facility Agreement entered into to finance part of the Acquisition, net of associated expenses of £4 million.
(c) Payment of the consideration of £935 million results in a decrease in ''Cash and Cash Equivalents'' of that amount.

(d) Under the requirements of IFRS 3 Business Combinations, it is necessary to fair value the consideration paid and all assets and liabilities acquired as at the acquisition date. This fair valuation exercise will not be performed until Completion, and therefore no adjustments have been made to the fair values of the individual assets and liabilities of ALAC when preparing the unaudited pro forma statement of net assets.

A significant part of the resultant fair value adjustment would be expected to be the valuation of the future cashflows associated with ALAC's in-force insurance contracts and the subsequent recognition of an AVIF asset.

Whilst the fair value of the projected cashflows will not be known until completion of the acquisition accounting exercise, an indication of the AVIF to be recognised on Completion has been provided.

The table below sets out the derivation of the AVIF balance:

	(£ million)
Total consideration	935
Less:
Value of the IFRS net assets of ALAC	792
Value of Investment contracts intangible, net of related deferred tax, of ALAC .	(68)
Indicative AVIF, net of deferred tax	211
Gross up for deferred tax at 18 per cent	46
Indicative AVIF	257

As such, the following adjustments have been made in the unaudited pro forma statement of net assets:

(i) an adjustment of £257 million has been recognised to ''Acquired in-force business'' as calculated above;
(ii) an adjustment of £84 million has been made to reduce the ALAC ''Investment contracts intangible'' asset, as this intangible is replaced by the value of the AVIF upon acquisition;
(iii) an adjustment of £30 million has been made to the caption ''Deferred tax'' to reflect the difference between the deferred tax liability arising on the recognised AVIF balance of £46 million (calculated using a tax rate of 18 per cent., reflecting future reductions in corporate tax rates where enacted in legislation) and the deferred tax liability recognised in respect of the ''Investment contract intangible'' balance of £16 million.

No other adjustments have been made to the fair values of assets and liabilities acquired, including the recognition of goodwill or other intangible assets, as the necessary remeasurements will not be known until Completion.

Note 5—In preparing the unaudited pro forma IFRS net asset statement, no account has been taken of the trading activity or other transactions of the Group since 30 June 2016, and of ALAC since 31 December 2015.

PART B—ACCOUNTANTS' REPORT

The Directors 4 October 2016 Phoenix Group Holdings c/o Maples Corporate Services Limited PO Box 309 Ugland House Grand Cayman KY-1104 Cayman Islands

Dear Sirs

We report on the pro forma IFRS financial information (the ''Pro Forma IFRS Financial Information'') set out in Part X (''Unaudited Pro Forma IFRS Financial Information of the Enlarged Group'') of the combined prospectus and Class 1 circular dated 4 October 2016, which has been prepared on the basis described in the notes to the unaudited Pro Forma IFRS Financial Information, for illustrative purposes only, to provide information about how the rights issue by Phoenix Group Holdings and Class 1 acquisition might have affected the financial information presented on the basis of the accounting policies expected to be adopted by Phoenix Group Holdings (the ''Company'') in preparing the financial statements for the period ending 31 December 2016. This report is required by item 7 of Annex II of Commission Regulation (EC) No 809/2004 and is given for the purpose of complying with that item and for no other purpose.

Save for any responsibility arising under Prospectus Rule 5.5.3R (2)(f) to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with item 23.1 of Annex I to Commission Regulation (EC) No 809/2004 and Listing Rule 13.4.1R (6), consenting to its inclusion in the combined prospectus and Class 1 circular.

Responsibilities

It is the responsibility of the directors of the Company to prepare the Pro Forma IFRS Financial Information in accordance with items 1 to 6 of Annex II of Commission Regulation (EC) No 809/2004.

It is our responsibility to form an opinion, as required by item 7 of Annex II of the Commission Regulation (EC) No 809/2004, as to the proper compilation of the Pro Forma IFRS Financial Information and to report that opinion to you.

In providing this opinion we are not updating or refreshing any reports or opinions previously made by us on any financial information used in the compilation of the Pro Forma IFRS Financial Information, nor do we accept responsibility for such reports or opinions beyond that owed to those to whom those reports or opinions were addressed by us at the dates of their issue.

Basis of opinion

We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. The work that we performed for the purpose of making this report, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro Forma IFRS Financial Information with the directors of the Company.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Pro Forma IFRS Financial Information has been properly compiled on the basis stated and that such basis is consistent with the accounting policies of the Company.

Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in other jurisdictions and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices.

Opinion

In our opinion:

the Pro Forma IFRS Financial Information has been properly compiled on the basis stated; and
such basis is consistent with the accounting policies of the Company.

Declaration

For the purposes of Prospectus Rule 5.5.3R (2)(f) we are responsible for this report as part of the combined prospectus and Class 1 circular and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the combined prospectus and Class 1 circular in compliance with item 1.2 of Annex I of Commission Regulation (EC) No 809/2004.

Yours faithfully

Ernst & Young LLP

PART XI—UNAUDITED PRO FORMA SOLVENCY INFORMATION OF THE ENLARGED GROUP

PART A—PRO FORMA SOLVENCY FINANCIAL INFORMATION

The unaudited pro forma statement of Group Solvency II Surplus of the Enlarged Group (the ''unaudited pro forma solvency information'') set out below has been prepared for illustrative purposes only in accordance with Annex II of the PD Regulation and on the basis of the notes set out below. The unaudited pro forma solvency information has been prepared to illustrate the effect on the group solvency position at the level of the highest EEA insurance group holding company, PLHL, as if the proposed Acquisition and Rights Issue had taken place on 30 June 2016. The unaudited pro forma solvency information has been prepared for illustrative purposes only and, because of its nature, addresses a hypothetical situation and does not, therefore, represent the Company or the Enlarged Group's actual financial position, results or solvency position. The unaudited pro forma solvency information is stated on the Company's basis of Solvency II reporting (the ''Solvency accounting policies'') expected to be applied by the Company for the year ending 31 December 2016. The unaudited pro forma solvency information does not illustrate the effects of the AXA Transaction.

Unaudited pro forma statement of Enlarged Group Solvency II Surplus as at 30 June 2016

			Pro forma adjustments
	Group Note 1	ALAC Note 2	Financing adjustments Note 3	Pro forma Enlarged Group total
Own Funds (£ billion) .	6.1	1.0	(0.2)	6.9
Solvency Capital Requirement (£ billion).	(5.0)	(0.4)	—	(5.4)
Solvency II Surplus (£ billion) Shareholder Capital Coverage Ratio (Note 4)	1.1 144%	0.6 —	(0.2) —	1.5 151%

Notes:

Note 1—In accordance with the PRA's specifications, the Group's Solvency II capital is measured at the level of the highest EEA insurance group holding company, which is PLHL, and includes all of PLHL's subsidiaries. The solvency information for PLHL has been extracted, without material adjustment, from the Company's unaudited Interim Report for the six months ended 30 June 2016.

Note 2—The Solvency II Own Funds and SCR in respect of ALAC on a standard formula basis have been extracted from the Quantitative Reporting Template submissions to the regulator as at 31 December 2015.

Regulatory approval is required to bring the ALAC business onto the Phoenix Internal Model and to recognise transitional measures. The Group does not intend to make the relevant applications until the second half of 2017 (and such approval is within the discretion of the PRA). Until such time, the standard formula will continue to apply to ALAC. Accordingly, no adjustments have been made to recognise the impact on ALAC's SCR of Phoenix's Internal Model, nor the benefit to ALAC's Own Funds of the transitional measures for technical provisions which apply to the Life Companies. In addition, no adjustments have been made to recognise ALAC's Own Funds under the methodologies of the Company's Solvency accounting policies as the impact of these adjustments is immaterial.

Note 3—The financing adjustments in connection with the Acquisition include the following items which impact Group Own Funds. These adjustments have no impact on SCR:

(a) As part of the Rights Issue, the cash receipt of £0.7 billion will be contributed in the form of a capital contribution into PLHL, with a corresponding increase in Group Own Funds.
(b) The payment of the consideration reduces Group Own Funds by £0.9 billion.
(c) The receipt of debt financing in the form of on-lending from PGH Capital of the Abbey Life Bridge Facility, increases both cash and borrowings by £0.2 billion respectively. The impact on Group Own Funds is therefore net neutral.
(d) Expenses incurred in association with the Acquisition and the Rights issue have been borne by Group companies above PLHL in the Phoenix corporate structure and therefore these expenses do not impact on the Group Solvency II Surplus.

Note 4—The Shareholder Capital Coverage Ratio represents the ratio of Own Funds to SCR, after elimination of amounts related to unsupported with profit funds and the PGL Pension Scheme. Unsupported with profit funds and pension schemes are those whose Own Funds exceed their SCR.

As detailed in the table below, the Group Own Funds of £6.1 billion and Group SCR of £5.0 billion include amounts in respect of unsupported with profit funds and the PGL Pension Scheme of £2.4 billion. Excluding these amounts gives a Group Shareholder Capital position of £3.7 billion of Own Funds, £2.6 billion of SCR and a ratio of 144%. The Group Solvency II Surplus is unchanged

at £1.1 billion. All of these amounts have been extracted from the Company's unaudited Interim Report for the six months ended 30 June 2016.

PLHL	Base Solvency II position	Unsupported with profit funds and PGL Pension Scheme	Shareholder Capital
Own Funds (£ billion)	6.1	(2.4)	3.7
SCR (£ billion)	(5.0)	2.4	(2.6)
Solvency II Surplus (£ billion) Shareholder Capital Coverage Ratio	1.1	—	1.1 144%

ALAC does not have material with profits businesses and therefore £2.4 billion in relation to PLHL is also excluded from the Enlarged Group's Own Funds and SCR to give a pro forma Shareholder Capital position. As detailed in the table below, for the Enlarged Group this corresponds to Own Funds of £4.5 billion, SCR of £3.0 billion and a ratio of 151%. The Enlarged Group's Solvency II Surplus is unchanged at £1.5 billion.

Pro forma Enlarged Group	Base Solvency II position	Unsupported with profit funds and PGL Pension Scheme	Shareholder Capital
Own Funds (£ billion)	6.9	(2.4)	4.5
SCR (£ billion)	(5.4)	2.4	(3.0)
Solvency II Surplus (£ billion)	1.5	—	1.5
Shareholder Capital Coverage Ratio			151%

Note 5—In preparing the unaudited pro forma statement of Group Solvency II Surplus, no account has been taken of the trading activity or other transactions of the Group since 30 June 2016, and of ALAC since 31 December 2015.

PART B—ACCOUNTANTS' REPORT

The Directors 4 October 2016 Phoenix Group Holdings c/o Maples Corporate Services Limited PO Box 309 Ugland House Grand Cayman KY-1104 Cayman Islands

Dear Sirs

We report on the pro forma solvency information (the ''Pro Forma Solvency Information'') set out in Part XI (''Unaudited Pro Forma Solvency Information of the Enlarged Group'') of the combined prospectus and Class 1 circular dated 4 October 2016, which has been prepared on the basis described in notes 1 to 5, for illustrative purposes only, to provide information on the solvency position at the level of the highest EEA insurance group holding company, Phoenix Life Holdings Limited, as if the rights issue by Phoenix Group Holdings and Class 1 acquisition had taken place on 30 June 2016. The unaudited Pro Forma Solvency Information is presented on the Solvency II reporting basis expected to be applied by Phoenix Group Holdings (the ''Company'') for the period ending 31 December 2016 (the ''Solvency Accounting Policies''). This report is required by item 7 of Annex II of Commission Regulation (EC) No 809/2004 and is given for the purpose of complying with that item and for no other purpose.

Save for any responsibility arising under Prospectus Rule 5.5.3R (2)(f) to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with item 23.1 of Annex I to Commission Regulation (EC) No 809/2004 and Listing Rule 13.4.1R (6), consenting to its inclusion in the combined prospectus and Class 1 circular.

Responsibilities

It is the responsibility of the directors of the Company to prepare the Pro Forma Solvency Information in accordance with items 1 to 6 of Annex II of Commission Regulation (EC) No 809/2004.

It is our responsibility to form an opinion, as required by item 7 of Annex II of the Commission Regulation (EC) No 809/2004, as to the proper compilation of the Pro Forma Solvency Information and to report that opinion to you.

In providing this opinion we are not updating or refreshing any reports or opinions previously made by us on any financial information used in the compilation of the Pro Forma Solvency Information, nor do we accept responsibility for such reports or opinions beyond that owed to those to whom those reports or opinions were addressed by us at the dates of their issue.

Basis of opinion

We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. The work that we performed for the purpose of making this report, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted solvency information with the source documents, considering the evidence supporting the adjustments and discussing the Pro Forma Solvency Information with the directors of the Company.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Pro Forma Solvency Information has been properly compiled on the basis stated and that such basis is consistent with the Solvency Accounting Policies of the Company.

Opinion

In our opinion:

the Pro Forma Solvency Information has been properly compiled on the basis stated; and
such basis is consistent with the Solvency Accounting Policies of the Company.

Declaration

Yours faithfully

Ernst & Young LLP

PART XII—TAXATION

1. UK TAXATION

The following comments broadly outline the taxation position of Shareholders who: (i) are UK tax resident and, in the case of an individual, domiciled in (and only in) the UK for tax purposes (except insofar as express reference is made to the treatment of non-UK tax residents); (ii) are the absolute beneficial owners of Shares, New Shares or New Depositary Interests (in particular Shareholders holding their Shares, New Shares or New Depositary Interests in a Depositary receipt system or clearance service should note that they may not always be the absolute beneficial owners thereof); (iii) are holding Shares, New Shares or New Depositary Interests as investments (other than under an individual savings account or former personal equity plans); and (iv) have not (and are not deemed to have) acquired their Shares, New Shares, New Depositary Interests, Nil Paid Rights or Fully Paid Rights by virtue of an office or employment (including any former or prospective office or employment) and who are not otherwise connected with the Company. The following comments do not constitute legal or tax advice and are intended as a general guide only to certain UK tax considerations and do not purport to be a comprehensive analysis of all UK tax considerations of acquiring, holding or disposing of Shares, New Shares or New Depositary Interests. In particular, they may not apply to certain classes of investor who may be subject to special rules (such as brokers, traders or dealers in securities, insurance companies, charities, collective investment schemes or pension providers). Each Shareholder's specific circumstances will impact on their taxation position. All Shareholders are recommended to obtain their own taxation advice. In particular, all Shareholders, including Shareholders who are tax resident in the UK, are advised to consider the potential impact of any relevant double tax agreements on their shareholding.

The following comments are based on current UK tax legislation, case law and published HMRC practice (which may not be binding) which are subject to change at any time, possibly with retrospective effect.

1.1 Taxation of chargeable gains

1.1.1 New Shares or New Depositary Interests issued and allotted pursuant to the Rights Issue

For the purposes of UK taxation of chargeable gains, the issue and allotment of the New Shares by the Company pursuant to the Rights Issue should constitute a reorganisation of the Company's share capital. On this basis, Shareholders should not be treated as making a disposal of all or any part of their holding of Shares by reason of taking up their rights to New Shares or New Depositary Interests. Instead, if Shareholders take up all or any part of their rights to the New Shares or New Depositary Interests, their existing holding of Shares and their New Shares or their New Depositary Interests should be treated as the same asset, acquired at the time they acquired their Existing Shares. The subscription amount paid by a Shareholder in consideration for the New Shares or New Depositary Interests should be added to the base cost of their Existing Shares when computing the gain or loss on any subsequent disposal but, for the purposes of calculating the indexation allowance (in the case of corporate Shareholders) on a subsequent disposal of Shares, the amount paid will generally be taken into account only from the time that the payment was made or the date upon which payment was liable to be made, not from the time the original holding was acquired. In the case of Shareholders who are individuals, the indexation allowance is not available.

1.1.2 Disposal of New Shares or New Depositary Interests

If Shareholders within the charge to UK taxation of chargeable gains sell or otherwise dispose of all or some of the New Shares or New Depositary Interests allotted to them (or their rights to acquire New Shares or New Depositary Interests), or if they allow or are deemed to have allowed all or some of their rights to acquire New Shares or New Depositary Interests to lapse and receive a cash payment in respect of them, they may, depending on their circumstances, incur a liability to UK taxation on any chargeable gain realised.

However, if the proceeds resulting from a lapse, sale or disposal of the New Shares or New Depositary Interests or the rights to acquire them are (a) ''small'' as compared with the market value (on the date of lapse, sale or disposal) of the Shares in respect of which the rights arose; and (b) not in excess of the base cost of the Shares in respect of which the rights arose, a Shareholder should not generally be treated as making a disposal for the purposes of UK taxation of chargeable gains. The proceeds will instead be deducted from the acquisition cost of the relevant Shares for the purposes of computing any chargeable gain or allowable loss on a subsequent disposal. The current practice of HMRC is to apply this treatment where either (i) the proceeds of the disposal, sale or lapse of rights do not exceed 5 per cent. of the market value (at the date of the disposal, sale or lapse) of the Shares in respect of which the rights arose or (ii) the amount of the proceeds is £3,000 or less, regardless of whether the 5 per cent. test is satisfied.

In the case where the proceeds are ''small'' but exceed the total base cost of the Existing Shares owned, the taxpayer may, in computing any chargeable gain, elect to deduct that base cost of the Existing Shares from the proceeds, reducing to nil the amount of such costs available for subsequent disposals.

Where the proceeds are not ''small'' or the proceeds exceed the total base cost of the Existing Shares owned, a part disposal is deemed to have occurred. Subject as set out below, the base cost used in the calculation of any resulting gain or loss as a result of the part disposal is apportioned by reference to the proceeds receivable and the market value of the Shares, New Shares or New Depositary Interests retained. Accordingly, Shareholders may, depending on their circumstances (including the availability of exemptions, reliefs and/or allowable losses), incur a liability to taxation on chargeable gains or realise an allowable loss.

Any proceeds on sale paid to a Shareholder in respect of fractional entitlements to New Shares or New Depositary Interests will be treated as a disposal of a part of such Shareholder's Shares and such Shareholder may, depending on the particular circumstances, incur a liability to UK capital gains tax (''CGT''). However, as mentioned above, if the proceeds are ''small'' the Shareholder should not generally be treated as making a disposal for the purposes of CGT.

Further information in relation to the liability to UK taxation on any chargeable gain for certain types of Shareholders is set out below.

(i) Individual Shareholders

An individual Shareholder has a CGT annual exemption (£11,100 for the tax year ending 5 April 2017) and so will only be subject to CGT to the extent his or her total chargeable gains in the year (including any gains on the disposal or deemed disposal of his or her New Shares or New Depositary Interests or his or her rights to acquire them) exceed this annual exemption.

The rate of CGT will depend on the individual Shareholder's total taxable income and gains in the relevant tax year. An individual Shareholder whose total taxable income and gains in a given tax year (including gains on a disposal or deemed disposal of New Shares or New Depositary Interests or his or her rights to acquire them) are less than or equal to the individual's basic rate band will generally be subject to CGT at 10 per cent. of the gain on the disposal or deemed disposal of the New Shares or New Depositary Interests or his or her rights to acquire them, however if any capital gains exceed the unused basic rate band, the applicable rate will be 20 per cent.

(ii) Corporate Shareholders

A Shareholder within the charge to UK corporation tax that sells or otherwise disposes of all or some of the New Shares or New Depositary Interests (or rights to acquire New Shares or New Depositary Interests), save to the extent that such disposal constitutes a ''small'' disposal, may, depending on its circumstances and subject to any available exemption or relief, incur a liability to corporation tax on chargeable gains. Such a Shareholder should be entitled to an indexation allowance which may reduce the chargeable gain.

(iii) Non-UK tax resident Shareholders

A Shareholder who is not resident for tax purposes in the UK will not generally be subject to CGT or UK corporation tax on a disposal of New Shares or New Depositary Interests (or rights to acquire New Shares or New Depositary Interests), unless the Shareholder is carrying on a trade, profession or vocation in the UK through a branch or agency (or, in the case of a corporate Shareholder, they are carrying on a trade through a permanent establishment) in connection with which the New Shares or New Depositary Interests (or rights to acquire New Shares or New Depositary Interests) are used, held or acquired. Such Shareholders may be subject to foreign taxation on any gain under local law and should seek their own local law tax advice.

An individual Shareholder who is not UK tax resident on a temporary basis (which, depending upon the individual's circumstances, can be up to six UK tax years) and who disposes of all or part of his or her New Shares or New Depositary Interests (or rights to acquire New Shares or New Depositary Interests) or who received a cash payment in respect of the lapse of such rights during that period may be liable to CGT on his or her return to the UK subject to any available exemptions or reliefs.

1.2 Taxation of dividends

Under current UK tax law, the Company is not required to withhold tax at source when paying a dividend. Liability to tax on dividends will depend upon the individual circumstances of a Shareholder.

An individual Shareholder who is resident for tax purposes in the UK and who receives a dividend from the Company on the New Shares or New Depositary Interests will pay no tax on the first £5,000 of dividend income received in a year (the ''dividend allowance''). The rates of income tax for the tax year ending 5 April 2017 on dividends received above the dividend allowance are: (i) 7.5 per cent. for dividends taxed in the basic rate band; (ii) 32.5 per cent. for dividends taxed in the higher rate band; and (iii) 38.1 per cent. for dividends taxed in the additional rate band. An individual Shareholder's dividend income that is within the dividend allowance counts towards an individual's basic or higher rate limits—and will therefore affect the level of savings allowance to which they are entitled, and the rate of tax this is due on any dividend income in excess of this allowance. In calculating into which tax band any dividend income over the £5,000 allowance falls, savings and dividend income are treated as the highest part of an individual's income. Where an individual has both savings and dividend income, the dividend income is treated as the top slice.

For UK resident corporate Shareholders, it is likely that most dividends paid on the New Shares or New Depositary Interests will fall within one or more of the classes of dividend qualifying for exemption from corporation tax (at a rate of 20 per cent. for the tax year ending 1 April 2017). However the exemptions are not comprehensive and are also subject to anti-avoidance rules. In particular, dividends paid on the New Shares or New Depositary Interests to Shareholders which are 'small' companies (broadly, companies which employ fewer than 50 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 10 million) will not qualify for exemption from corporation tax. Shareholders within the charge to corporation tax should consult their own professional advisers.

1.3 UK stamp duty and UK stamp duty reserve tax

No stamp duty or SDRT will be payable on the issue of Provisional Allotment Letters or split letters of allotment or the crediting of Nil Paid Rights or Fully Paid Rights to stock accounts in CREST.

The purchase of rights to New Shares represented by Provisional Allotment Letters or credited in CREST (whether nil paid or fully paid) on or before the latest time for registration of renunciation will not be liable to stamp duty. An agreement to transfer the rights to such New Shares, Nil Paid Rights or Fully Paid Rights will not give rise to a charge to SDRT, provided that the New Shares are not (and do not become) registered in any register kept in the UK nor paired with any UK shares (where paired means, broadly, that the non-UK shares and UK shares have to be dealt with as a single unit).

No SDRT will be payable on the issue of the New Depositary Interests and no SDRT will be payable on the transfer or sale of New Depositary Interests on the assumption that: (i) the Shares and the New Shares will be (and will remain) listed on the Official List of the London Stock Exchange and admitted to trading on its main market for listed securities; (ii) the Shares and the New Shares are not (and do not become) registered in any register kept in the UK; and (iii) the central management and control of the Company is not (and will not subsequently be) exercised in the UK.

No stamp duty will be payable on the issue of the New Shares and no stamp duty should be payable on the transfer or sale of the New Shares, or on any agreement to transfer an equitable interest in the New Shares, provided that any instrument of transfer, or agreement to transfer, is not executed in the UK, and does not relate to any property situated in or to any matter or thing done or to be done in the UK. No SDRT will be payable on the issue, transfer or sale of the New Shares, provided that the New Shares are not (and do not become) registered in any register kept in the UK nor paired with any UK shares.

The statements in this paragraph 1.3 (''UK stamp duty and UK stamp duty reserve tax'') apply to any holders of Shares or Depositary Interests irrespective of their residence, summarise the current position and are intended as a general guide only.

2. CERTAIN CAYMAN ISLANDS TAX CONSIDERATIONS

The Cayman Islands currently have no form of income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax.

The Company is registered as an ''exempted company'' pursuant to the Companies Law. The Company has received an undertaking from the Governor-in-Cabinet of the Cayman Islands that in accordance with section 6 of the Tax Concession Law (as amended) of the Cayman Islands that, for a period of 30 years from 11 May 2010, no law enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall apply to the Company or its operations; and in addition that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable (i) on or in respect of the Shares, New Shares, Depositary Interests, New Depositary Interests, Nil Paid Rights, Fully Paid Rights, PALs, debentures or other obligations of the Company or (ii) by way of the withholding in whole or in part of any payment of dividend or other distribution of income or capital by the Company to its members or any payment of principal or interest or other sums due under a debenture or other obligation of the Company. Accordingly, it is not envisaged that the Company will be subject to any taxation in the Cayman Islands other than in relation to incidental registry fees and stamp duties on certain instruments entered into by it.

There are no foreign exchange controls or foreign exchange regulations under the currently applicable laws of the Cayman Islands.

3. CERTAIN JERSEY TAX CONSIDERATIONS

The Company is subject to a zero per cent. rate of corporation/income tax in Jersey as a ''non-financial services company'' for the purposes of the Income Tax (Jersey) Law 1961, as amended (the ''Income Tax Law'').

Holders of the Shares, New Shares, Warrants, Depositary Interests, New Depositary Interests, Nil-Paid Rights, Fully-Paid Rights or PALs who are not resident for income tax purposes in Jersey are not subject to taxation in Jersey in respect of any income or gains arising in respect of the Shares, New Shares, Warrants, Depositary Interests, New Depositary Interests, Nil Paid Rights, Fully Paid Rights or PALs held by them. Holders of the Shares or Depositary Interests who are resident for income tax purposes in Jersey may be subject to income tax in Jersey on any dividends paid on Shares held by them or on their behalf. Under current law the Company is not obliged to withhold income tax from these payments. No duties are payable in Jersey on the issue, conversion, redemption or transfer of the Shares, New Shares, Lender Warrants, Depositary Interests, New Depositary Interests, Nil Paid Rights, Fully Paid Rights or PALs. Stamp duty is payable at a rate up to approximately 0.75 per cent. of the value of the Shares, New Shares, Lender Warrants, Depositary Interests, New Depositary Interests, Nil Paid Rights, Fully Paid Rights or PALs on the registration of Jersey probate or letters of administration which may be required in order to transfer, convert, redeem or make payments in respect of such instruments held by a deceased individual sole holder of the Shares, New Shares, Lender Warrants, Depositary Interests, New Depositary Interests, Nil Paid Rights, Fully Paid Rights or PALs. There is no capital gains tax, estate duty or inheritance tax in Jersey.

The Company has received approval as an International Services Entity under part 12 of the Goods and Services Tax (Jersey) Law 2007, as amended (the ''GST Law''), and as such, for so long as it maintains that status, is entitled, to purchase goods and services for business use, free of Goods and Services Tax, save that:

(a) where a taxable supply made to the Company by a person registered as a taxable person under the GST Law has a value of less than £1,000, the Company will be required to pay goods and services tax in Jersey (at 5 per cent. of the value of the supply) on such supply if the supply is made under the retail scheme established under Article 43 of the GST Law and the supplier elects to charge goods and services tax on such supply. The Company may be entitled to a refund of such goods and services tax, subject to compliance with the relevant provisions of the GST Law; and
(b) where a taxable supply made to the Company by a person registered as a taxable person under the GST Law is a supply of goods for onward re-supply of such goods in Jersey in the same state in which they existed when supplied to the Company, the Company will be required to pay goods and services tax in Jersey (at 5 per cent. of the value of the supply) on such supply.

PART XIII—TERMS OF THE ACQUISITION

1. PRINCIPAL TERMS OF THE SALE AND PURCHASE AGREEMENT

1.1 Document and parties

On 28 September 2016, PLHL (as buyer), the Company (as the buyer's guarantor), the Seller, Deutsche Holdings No.4 Limited and Deutsche Bank (as Seller's guarantor) entered into the Sale and Purchase Agreement. Under its terms, and subject to certain conditions, the entire share capital of ALAC and Abbey Life Trustee Services Limited shall transfer to PLHL.

1.2 Timing

While the Sale and Purchase Agreement was signed on 28 September 2016, the entire share capital of ALAC and Abbey Life Trustee Services Limited shall transfer to PLHL on Completion. Completion cannot occur until each of the following conditions is satisfied (or waived, under the terms of the Sale and Purchase Agreement):

the approval of the Acquisition (as a Class 1 transaction under the Listing Rules) by a majority of votes cast by Shareholders at the General Meeting;
actual or deemed consent from the PRA for the acquisition of control of ALAC by PLHL and the Company (and any other relevant entities); and
Admission.

Neither party may waive the condition relating to PRA approval.

If the PRA requires as a condition to its consent to the acquisition of control of ALAC that the Company or a member of the Group has to be subject to an undertaking or requirement, then the Sale and Purchase Agreement requires that the relevant entity must take all steps necessary to satisfy such undertaking or requirement.

If Completion has not occurred by 28 March 2017, or such later date as PLHL and the Seller may agree in writing (the ''Long Stop Date''), then, unless the Seller elects with the agreement of PLHL to extend the Long Stop Date, the Sale and Purchase Agreement will terminate and the Acquisition will not proceed. The Long Stop Date can be extended on that basis for 20 Business Day periods up to a maximum extension period of 60 Business Days.

1.3 Consideration

The total consideration payable to the Seller by PLHL is £935 million, which was determined by reference to the accounts of ALAC as at 31 December 2015 and the assumption that the Abbey Life business has been carried on in the ordinary course of business.

The consideration may be adjusted via a ''locked box'' mechanism. This means that if certain types of payments which are outside the ordinary course of business have been, or are, made to Deutsche Bank's group from Abbey Life, then this will result in a reduction in the purchase price. Where the nature and scope of these payments have not been determined or agreed by Completion then further price adjustments may occur after Completion.

In addition, if the Seller has to inject capital into ALAC before Completion then the price will be adjusted so that PLHL pays the Seller 90 per cent. of the value of any such capital injection.

1.4 Termination

The Sale and Purchase Agreement will terminate automatically if the conditions are not satisfied by the Long Stop Date.

1.5 Representations and warranties

PLHL and the Seller have offered each other certain customary representations and warranties.

1.6 Indemnification

PLHL has undertaken in the Sale and Purchase Agreement to indemnify the Seller and its group against any losses arising after Completion under the defined benefits pension scheme sponsored by ALAC, including losses resulting from the use of the statutory moral hazard powers of the Pensions Regulator against the Seller's group to order money to be paid into that scheme. The indemnity is capped at £150m and the potential powers of the Pensions Regulator are time-limited by the periods set out in the Pensions Act 2004.

The Seller has in the Sale and Purchase Agreement given an indemnity in favour of PLHL in respect of losses, liabilities or costs that ALAC or other target companies may incur relating to ALAC or another target company being treated as making unauthorised payments to certain members in respect of whom ALAC or another target company has a contractually vested annuity and was unable to trace at the time of the contractual vesting date, subject to the limitations outlined in paragraph 1.7 (''Limitations on liability'') of this Part XIII (''Terms of the Acquisition'') below.

For a description of certain other indemnities given by the Seller in favour of PLHL, please see the description of the Abbey Life Deed of Indemnity at paragraph 2 (''Principal Terms of the Abbey Life Deed of Indemnity'') of this Part XIII below.

1.7 Limitations on liability

The Seller's total liability in respect of all claims relating to the Acquisition by PLHL is not to exceed the net consideration paid to the Seller. This includes claims pursuant to the tax covenant, core warranties (e.g., related to the Seller's title to the shares) and core covenants (e.g., related to transfer of the shares, the Seller's parental guarantee and pre-completion conduct) in the Sale and Purchase Agreement. A subcap of £320 million applies to other claims in relation to the Acquisition, including pursuant to non-core warranty claims and the Abbey Life Deed of Indemnity described in paragraph 2 (''Principal Terms of the Abbey Life Deed of Indemnity'') of this Part XIII below.

1.8 Covenants until Completion

The Seller has undertaken that Abbey Life will be run on a business as usual basis until Completion and will not make any material change to the nature of the business. There are also a number of specific covenants which further limit the extent to which Abbey Life can make unusual or exceptional payments without PLHL's consent.

1.9 Ongoing arrangements with Deutsche Bank

Abbey Life has a number of existing arrangements with members of Deutsche Bank's group. These will be terminated on Completion. Any amounts due under them will be paid. One exception to this is the arrangements relating to certain corporate transactions undertaken by ALAC (see ''Business Description— Corporate Transactions'' in Part V (''Business Overview of Abbey Life'') of this document). ALAC has a number of derivatives and administrative arrangements with the Deutsche Bank group in respect of such corporate transactions. These will not be terminated on Completion and will continue to be operated in accordance with their terms. The other exception is the transitional services agreement described in paragraph 3 (''Principal Terms of the Transitional Services Agreement'') of this Part XIII (''Terms of the Acquisition'') below.

1.10 Guarantees

The Company has guaranteed PLHL's obligations under the Sale and Purchase Agreement so that if PLHL does not, or cannot, meet those obligations, then the Company has to meet them. Furthermore, the Seller can bring a claim against the Company for failing to comply with its obligations under the guarantee.

Deutsche Bank has guaranteed the Seller's obligations under the Sale and Purchase Agreement so that if the Seller does not, or cannot, meet those obligations, then Deutsche Bank has to meet them. Furthermore, PLHL can bring a claim against Deutsche Bank for failing to comply with its obligations under the guarantee.

1.11 Employee Incentives

Certain employees working on the Abbey Life business are incentivised using incentive schemes. Some of these incentives may vest after Completion. Where that happens, the Deutsche Bank group retain liability for such incentives.

2. PRINCIPAL TERMS OF THE ABBEY LIFE DEED OF INDEMNITY

2.1 Document and parties

On 28 September 2016, Deutsche Bank, the Seller, ALAC and PLHL entered into a deed of indemnity (the ''Abbey Life Deed of Indemnity'').

2.2 Indemnity

Under the Abbey Life Deed of Indemnity, the Seller provided an indemnity to PLHL with respect to: (i) the FCA's investigation into ALAC's fair treatment of long standing customers between 1 December 2008 and 31 December 2015 resulting from the FCA's thematic review (TR 16/2); and (ii) the issues arising from the FCA's thematic review into annuity sales practices (TR 14/20).

2.3 Liability

The Seller's liability under the Abbey Life Deed of Indemnity is limited to £175 million.

2.4 Guarantee

Deutsche Bank has guaranteed the due and punctual performance of the Seller's obligations under the Abbey Life Deed of Indemnity.

2.5 Risk sharing

The Abbey Life Deed of Indemnity provides for risk sharing between the Seller and PLHL.

Subject to the limit of liability referred to in paragraph 2.3 (''Liability'') of this Part XIII (''Terms of the Acquisition''), the Seller's share in relation to the FCA's long standing customer investigation is as follows:

Fines: the Seller is liable for 100 per cent. of all fines;
Customer redress: the Seller is liable for 60 per cent. of any amounts up to £10 million; 80 per cent. of any amounts in excess of £10 million and up to £30 million; and 90 per cent. of any amounts in excess of £30 million;
Professional fees: the Seller is liable for 80 per cent. of certain professional fees; and
Redress programme costs: the Seller is liable for 80 per cent. of certain redress programme costs.

The Seller's share in relation to the annuity sales investigation is as follows:

Fines: the Seller is liable for 100 per cent. of all fines;
Customer redress: the Seller is liable for 90 per cent. of all amounts for customer redress;
Professional fees: the Seller is liable for 80 per cent. of certain professional fees; and
Redress programme costs: the Seller is liable for 80 per cent. of certain redress programme costs.

2.6 Monitoring Committee

The parties will set up a monitoring committee which will consist of representatives from the Seller, Deutsche Bank, PLHL and ALAC. The monitoring committee will oversee the management of costs, assist the Seller in monitoring its liability and assist with setting up any redress programmes. ALAC is obligated to provide periodic updates, correspondence and other materials under the FCA investigations to the monitoring committee.

2.7 Term

The Abbey Life Deed of Indemnity will expire after six years (in respect of the long standing customer investigation) and eight years (in respect of the annuity sales investigation). The Seller also has certain other termination rights.

3. PRINCIPAL TERMS OF THE TRANSITIONAL SERVICES AGREEMENT

3.1 Introduction

Deutsche Bank and ALAC entered into a transitional services agreement on 28 September 2016 (the ''Abbey Life TSA''). Under the terms of the Abbey Life TSA, Deutsche Bank has agreed to continue to provide certain services or procure that certain services (each a ''Service'' and, together, the ''Services'') are provided to ALAC, other companies within ALAC's group and relevant third parties. The Services include arrangements relating to IT infrastructure, critical business applications, facilities management, property management, general ledger applications, archiving and cost accounting processes. Each Service will be provided by Deutsche Bank for an agreed term specified in the Abbey Life TSA (each such specified term, a ''Service Term'').

3.2 Consideration

In consideration for the provision of the Services by Deutsche Bank, ALAC has agreed to pay a monthly service charge. To the extent that a Service is no longer required by ALAC during the Service Term of the relevant Service, the monthly service charge will be reduced accordingly.

3.3 Term

The Abbey Life TSA is effective from Completion for an initial period of 12 months. ALAC may request a three month extension prior to the expiry of the initial period upon written notice to Deutsche Bank. Consent to any such extension request is at the discretion of Deutsche Bank, acting reasonably and in good faith. Deutsche Bank's obligation to provide each Service under the Abbey Life TSA will cease upon the expiry of the relevant Service Term.

3.4 Governance Arrangements and Warranties

Under the terms of the Abbey Life TSA, Deutsche Bank and ALAC agree to appoint individuals from each organisation to designated roles to coordinate the supply of the Services and the separation of ALAC from the Deutsche Bank group. Deutsche Bank and ALAC have offered each other customary warranties regarding, inter alia, their due incorporation and rights, powers and authorisations. In addition, ALAC has provided a warranty that it has all rights, capacity and authorisations to provide policyholder data to Deutsche Bank for the purposes of the Abbey Life TSA, and Deutsche Bank has provided a warranty that it has obtained (or will obtain prior to Completion) all the licenses and consents necessary to provide the Services.

3.5 Employees

Deutsche Bank and ALAC have concluded the supply, and the cessation of supply, of the Services under the Abbey Life TSA does not have the effect of transferring the employment contract of any employees of one to the other party, and both have agreed to indemnify the other in respect of any liabilities arising in connection therewith. The parties intend that certain third party supply contracts for services at ALAC's premises in Bournemouth will be transferred from Deutsche Bank to ALAC. If the third party contracts are not transferred before Completion, those services will be provided by Deutsche Bank's third party suppliers under the Abbey Life TSA until their transfer or termination.

PART XIV—ADDITIONAL INFORMATION

1. RESPONSIBILITY

The Company and the Directors, whose names appear in paragraph 5.1 (''Directors'') of this Part XIV (''Additional Information''), accept responsibility for the information contained in this document. To the best of the knowledge and belief of the Company and the Directors who have taken all reasonable care to ensure that such is the case, the information contained in this document is in accordance with the facts and contains no omission likely to affect its import.

2. INCORPORATION AND REGISTERED OFFICE

(a) Phoenix Group Holdings (defined above as the ''Company''), previously named Liberty International Acquisition Company, Liberty Acquisition Holdings (International) Company and Pearl Group, was incorporated under the laws of the Cayman Islands with registered Number 202172 as an exempted company with limited liability on 2 January 2008.
(b) On 13 February 2008, the Company changed its name to Liberty Acquisition Holdings (International) Company. On 2 September 2009, the Company changed its name to Pearl Group. On 15 March 2010, the Company changed its name to Phoenix Group Holdings.
(c) The Company's registered office is at c/o Maples Corporate Services Limited, PO Box 309, Ugland, House, Grand Cayman, KY1-1104, Cayman Islands and its principal place of business is at 1st Floor, 32 Commercial Street, St. Helier, Jersey, JE2 3RU, Channel Islands. The telephone number is +44 1 203 567 9169.
(d) The principal legislation under which the Company operates is the Companies Law and the Shares are issued pursuant to the terms of the Articles of Association and the Companies Law.

3. SHARE CAPITAL

3.1 History

The number of Shares authorised and issued and allotted as at 30 June 2016 and as at 31 December 2015, 2014 and 2013 was as follows:

	Authorised	Issued and allotted
As at 30 June 2016	410,000,000	248,066,581
As at 31 December 2015	410,000,000	225,419,446
As at 31 December 2014	410,000,000	225,090,284
As at 31 December 2013	410,000,000	224,818,301

During the year ended 31 December 2013, the issued share capital of the Company was increased by 50,231,153 ordinary shares. 50,000,000 shares were allotted as a result of the placing and open offer which took place in February 2013 and the balance related to the Company's Sharesave Scheme.

During the year ended 31 December 2014, the issued share capital of the Company was increased by 271,983 ordinary shares, which related to the Company's Sharesave Scheme.

During the year ended 31 December 2015, the issued share capital of the Company was increased by 329,162 ordinary shares, which related to the Company's Sharesave Scheme.

During the six months ended 30 June 2016, the issued share capital of the Company was increased by 22,647,135 ordinary shares. 22,542,000 shares were allotted as a result of a placing which took place in May 2016 and the balance related to the Company's Sharesave Scheme.

3.2 Existing shareholder authorities

At an AGM of the Company convened and held on 11 May 2016 (the ''2016 AGM''), the following resolutions, among others, were passed.

The third resolution provided the Directors the authority to allot Shares pursuant to the Articles of Association in accordance with the Share Capital Management Guidelines of the Investment Association. Paragraph A of the resolution provides the Directors with the authority to allot Shares up to an aggregate nominal amount equal to A7,514.01 (representing 75,140,077 Shares). This represents approximately one-third of the Company's issued ordinary share capital as at 21 March 2016 (being the last practicable

date prior to the publication of the 2016 AGM notice dated 8 April 2016 (the ''2016 AGM Notice'')). In line with the guidance issued by the IA, paragraph B of the resolution gives the Directors the authority to allot further Shares in connection with a rights issue in favour of holders of Shares (or interest therein) up to an aggregate nominal amount, including the Shares referred to in paragraph A of the resolution, of A15,028.02 (representing 150,280,154 Shares). This amount represents approximately two-thirds of the Company's issued ordinary share capital as at 21 March 2016 (being the last practicable date prior to the publication of the 2016 AGM Notice). The authority provided under the resolution will expire at the conclusion of the 2017 annual general meeting of the Company (or, if earlier, at the close of business on the date which is 15 months after 11 May 2016).

The fourth resolution provided the Directors the authority to allot equity securities (as that term is defined in Article 13 of the Articles of Association) for cash without first being required to offer such securities to existing holders of equity securities in proportion to their existing holdings. This authority has been split into two parts to reflect guidance on pre-emption rights issued by the Pre-Emption Group (''PEG'') on 12 March 2015 which is also supported by the Pensions and Lifetime Savings Association and the IA. The authority in paragraph A of the resolution is limited to allotments for cash pursuant to Articles 14(a) and 16(b) of the Articles of Association, up to (i) an aggregate nominal amount of A1,127,10 (representing 11,271,011 Shares) pursuant to paragraph A(i) (''the general authority'') as well as (ii) an additional amount of A1,127.10 (representing 11,271,011 Shares), pursuant to paragraph A(ii) of the resolution, where the allotment is connected with an acquisition or specified capital investment as further described below (the ''specific authority'').

The general authority in paragraph A(i) of the fourth resolution represents approximately 5 per cent. of the Company's issued ordinary share capital as at 21 March 2016 (being the last practicable date prior to the publication of the 2016 AGM Notice). In line with PEG guidance, it is intended that, within a rolling three year period, use of the authority in paragraph A(i) in excess of 7.5 per cent. of the Company's issued ordinary share capital should not take place without prior consultation with, or suitable explanation to, shareholders.

The additional specific authority in paragraph A(ii) of the fourth resolution was sought by the Company pursuant to the PEG guidance referenced above. This would allow the Company to disapply pre-emption rights for issues of securities representing a further 5 per cent. of ordinary share capital provided it is in connection with an acquisition or specified capital investment which is announced contemporaneously with the issue of the shares, or which has taken place in the preceding six-month period and is disclosed in the announcement of the issue. Sufficient information in respect of the effect of any such specified capital investment on the Company, the nature of the assets which make up the transaction, and any profits attributable to those assets, will be made available to shareholders where required by the PEG guidance. Specified capital investment includes using the proceeds of the issue for capital expenditure and will enable the Company to finance acquisition opportunities as and when they arise.

The authority granted by paragraph A(ii) of the fourth resolution was utilised in connection with the AXA Transaction.

3.3 Shareholder authorities proposed at the General Meeting

The Resolutions are set out in the Notice of General Meeting in the section of this document headed ''Notice of General Meeting'' and it is proposed that the Resolutions (set out below) will be voted on at the General Meeting on 24 October 2016.

Resolution 1

Resolution 2

''2. Pursuant to Article 14 of the Fifth Amended and Restated Memorandum and Articles of Association of the Company, the Directors be generally and unconditionally authorised to allot and issue equity securities in connection with the Rights Issue, on the following terms:
(a) such authority to allot and issue equity securities shall be for a period expiring at the conclusion of the annual general meeting of the Company to be held in 2017;
(b) for the purposes of paragraph (a) of the definition of ''second prescribed amount'' in Article 13 of the Fifth Amended and Restated Memorandum and Articles of Association of the Company, the amount stated as such shall be a nominal amount of A14,472.30 (representing 144,722,989 ordinary shares with a nominal value of A0.0001 each in the share capital of the Company);
(c) unless previously revoked or varied by the Company, such authority to allot and issue equity securities shall extend to the making before the expiry of such authority of an offer or an agreement that would or might require equity securities to be allotted after such expiry and the Board of Directors may allot and issue equity securities of that offer or agreement as if the authority conferred hereby had not expired; and
(d) such authority applies in addition to the existing authority granted by ordinary resolution 3 passed by the Shareholders at the Company's annual general meeting held on 11 May 2016 which shall continue to apply and be in addition to the authority granted hereby.''

3.4 Authorised share capital

The Company has one class of ordinary shares (the ''Shares''). The ISIN of the Shares is KYG7091M1096 and the SEDOL number is B45JKK9.

The number of Shares issued as at 1 January 2015, being the first day of the Company's last complete financial year, and as at 31 December 2015, being the last day of the Company's last complete financial year, is as follows:

	Authorised	Issued and allotted
As at 31 December 2015	410,000,000	225,419,446
As at 1 January 2015	410,000,000	225,090,284

Immediately prior to the publication of this document, the authorised share capital of the Company was A41,000, comprising 410,000,000 Shares of A0.0001 each, of which 248,098,643 Shares were issued (all of which were fully paid or credited as fully paid).

3.5 Outstanding Lender Warrants

As at the date of this document, there were 5 million Lender Warrants outstanding. Each Lender Warrant is exercisable into 1.027873 Shares of the Company at a warrant price of £14.59 per share. If they are exercised, the Company will be required to issue up to 5,139,365 additional Shares.

3.6 Share or loan capital

Save as disclosed in this document, including in paragraphs 3.5 (''Outstanding Lender Warrants''), 7 (''Interests of Major Shareholders'') and 12 (''Material Contracts'') of this Part XIV (''Additional Information''):

(a) no share or loan capital of the Company, other than intercompany loans, has, since the date of incorporation of the Company on 2 January 2008, been issued or agreed to be issued, or is now proposed to be issued, fully or partly paid, either for cash or for a consideration other than cash, to any person;
(b) no commissions, discounts, brokerages or other special terms have been granted by the Company in connection with the issue or sale of any share or loan capital of any such company; and
(c) no share or loan capital of the Company is under option or agreed conditionally or unconditionally to be put under option.

3.7 Description of the Company's share capital and Lender Warrants

Set out below is a description of the Shares and the Lender Warrants and summaries of certain provisions of the Articles of Association.

(i) Shares

Shareholders have voting rights for the election of the Directors and all other matters requiring Shareholder action. Shareholders are entitled to one vote per share on matters to be voted on by Shareholders and also are entitled to receive such dividends, if any, as may be declared from time to time by the Board in its discretion out of funds legally available therefore. There is no cumulative voting with respect to the election of Directors, with the result that the holders of more than 50 per cent. of the shares voted for the election of Directors can elect all of the Directors.

Other than as provided in the Articles of Association, the Shareholders have no conversion, pre-emptive or other subscription rights, and there are no sinking fund or redemption provisions applicable to the shares. For information on Shareholders' pre-emption rights, see paragraphs 4.1.10 (''Pre-emption rights'') and 4.1.11 (''Disapplication of pre-emption rights'') of this Part XIV (''Additional Information'') below.

The Shares are in registered form and may be held in certificated form or in uncertificated form as Depositary Interests in CREST.

(ii) Lender Warrants

On 2 September 2009, the Company issued 5 million warrants over its shares to the Lenders. These warrants entitled the holder to purchase one 'B' ordinary share at a price of £15 per share, subject to adjustment. Following the achievement of the Company's Premium Listing on 5 July 2010, the Lenders' warrants relate to ordinary shares rather than 'B' ordinary shares. At 31 December 2015 the terms of Lenders' warrants entitled the holders to purchase 1.027873 ordinary shares per Lenders' warrant for an exercise price of £14.59. The holder of the Lender Warrants may elect to exercise the warrant and pay the exercise price either in cash or by assigning to the Company an amount of outstanding principal and/or accrued but unpaid interest of any debt that is owed to the holder of the Lender Warrant by the Company or any subsidiary of the Company.

The Lender Warrants will expire at the close of trading on Euronext Amsterdam (5:30 p.m., Central European Time), or such other primary exchange on which the Company's Shares are traded, on the earliest to occur of (i) the first Business Day following the fifteenth anniversary of issuance of the Lender Warrants, (ii) the date fixed for redemption of the Lender Warrants as set forth below and (iii) the liquidation of the Company.

The Company may call the Lender Warrants for redemption: (i) in whole but not in part, (ii) at a price of A0.01 per Lender Warrant, (iii) upon not less than 30 days' prior written notice of redemption to each holder of Lender Warrants and (iv) if, and only if, the last sale price of the Shares equals or exceeds £18.97 (or the euro equivalent of that price) per share for any 20 consecutive trading days during the exercise period.

If the foregoing conditions are satisfied and the Company issues a notice of redemption of the Lender Warrants, each holder of Lender Warrants shall be entitled to exercise its warrant prior to the scheduled redemption date. Upon a redemption, the holder will have the opportunity to effect a cashless exercise of the Lender Warrants. If the holder elects to make a cashless exercise, the holder would pay the exercise price by surrendering the Lender Warrants for that number of Shares equal to the quotient obtained by dividing (i) the product of the number of Shares underlying the Lender Warrants multiplied by the difference between the exercise price of the Lender Warrants and the fair market value by (ii) the fair market value. For this purpose, ''fair market value'' means the average reported last sale price of the Shares for the ten consecutive trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of the Lender Warrants.

The exercise price and number of Shares issuable on exercise of the Lender Warrants may be adjusted in certain circumstances including in the event of a share dividend, sub-division of shares, reverse share split or a recapitalisation, reorganisation, merger or consolidation, provided that the Company shall not do anything that would give rise to an adjustment which would cause the exercise price of the Lender Warrants to be reduced to an amount that is less than the nominal value of an Share. The Rights Issue will not result in any adjustment to the exercise price or the number of Shares issuable on the exercise of the Lender Warrants.

The Lender Warrants have been created under, and their terms are governed by, the laws of the Cayman Islands.

3.8 CREST and Depositary Interests

The Company has entered into depositary arrangements to enable investors to settle and pay for interests in the Shares through the CREST system. CREST is a paperless settlement system allowing securities to be transferred from one person's CREST account to another without the need to use share certificates or written instruments of transfer. Securities issued by non-UK incorporated companies, such as the Company, cannot themselves be held electronically (i.e., in uncertificated form) or transferred in the CREST system. However, depositary interests, representing the securities, can be dematerialised and settled electronically. The Depositary holds, through a custodian, the Shares and issues dematerialised depositary interests representing the underlying Shares which are held on trust for the holders of the depositary interests.

Through the Custodian, the Depositary holds the beneficial title to the Shares on trust for participating members to whom it issues the dematerialised depositary interests or ''Depositary Interests''.

The Depositary Interests are independent securities constituted under English law which are held and transferred through the CREST system.

The Depositary Interests have been created pursuant to and issued on the terms of a deed poll executed by the Depositary in favour of the holders of the Depositary Interests from time to time (the ''Deed Poll''). Prospective holders of Depositary Interests should note that they will have no rights in respect of the underlying Shares or the Depositary Interests representing them against Euroclear UK & Ireland Limited or its subsidiaries.

Although the Company's register shows the Custodian as the legal holder of the Shares, the beneficial interest in the Shares remains with the Depositary Interest holder, who has the benefit of all the rights attaching to the Shares as if the Depositary Interest holder were named on the certificated Share register itself.

Under the Deed Poll, the Depositary may require any holder of Depositary Interests to disclose information as to the capacity in which it owns Depositary Interests and the nature of its interests. In addition, the Disclosure Guidance and Transparency Rules apply to holders of Depositary Interests in the same manner as if they held legal title to the Shares represented by their Depositary Interests.

Each Depositary Interest is treated as one Share for the purposes of determining the rights attaching to that Depositary Interest, for example, eligibility for any dividends. The Depositary Interests have the same security code (ISIN) as the underlying Shares and do not require a separate listing on the Official List. The Depositary Interests are capable of being traded and settlement is within the CREST system in the same way as any other CREST securities.

The documents relating to the Depositary Interests are described in paragraph 13 (''Depositary Contracts'') of this Part XIV (''Additional Information'').

4. ARTICLES OF ASSOCIATION AND MANDATORY TAKEOVER BIDS, SQUEEZE-OUT AND SELL-OUT RULES

The Company's current memorandum and articles of association are the fifth amended and restated Memorandum and Articles of Association.

4.1 Fifth amended and restated memorandum and articles of association

Clause 3 of the Memorandum of Association provides that the objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by law as provided by the Companies Law.

The Memorandum and Articles of Association are available for inspection at the address specified in paragraph 23 (''Documents Available for Inspection'') of this Part XIV (''Additional Information'').

Set out below is a summary of the provisions of the Articles of Association.

4.1.1 Share rights

Subject to the provisions of the Companies Law, and without prejudice to any rights attached to any existing shares or class of shares, any share may be issued with such rights or restrictions as the Company may by ordinary resolution determine or, subject to and in default of such determination, as the Board shall determine.

4.1.2 Voting rights

Subject to any rights or restrictions attached to any shares, every member who is present in person (or in the case of a corporation is present by a duly authorised representative) shall have one vote on a show of hands and on a poll every member present in person or by proxy shall have one vote for every share of which he is the holder.

4.1.3 Dividends and other distributions

Subject to any rights or restrictions attached for the time being to any shares and the Company obtaining any regulatory approvals, the Directors may from time to time declare dividends (including interim dividends) and other distributions on shares in issue and authorise payment of the same out of the funds of the Company lawfully available therefore (including, subject to the Companies Law, from the share premium account). Subject to any rights or restrictions attached for the time being to any shares, the Company by ordinary resolution may declare dividends (including interim dividends) in accordance with the respective rights of the members, provided that no dividend shall exceed the amount recommended by the Board.

Except as otherwise provided by the rights attached to shares, all dividends shall be declared and paid according to the amounts paid up on the shares on which the dividend is paid. All dividends shall be apportioned and paid proportionately according to the amounts paid up on the shares during any portion or portions of the period in respect of which the dividend is paid; but, if any share is allotted or issued on terms providing that it shall rank for dividend as from a particular date, that share shall rank for dividend accordingly.

The Board may make payments in cash or in specie and the Board may make arrangements as it sees fit to settle any difficulty arising in connection with such payments.

No dividend or other moneys payable in respect of a share shall bear interest against the Company unless otherwise provided by the rights attached to the share.

The Board may, if authorised by an ordinary resolution of the Company, offer any holder of shares the right to elect to receive shares, credited as fully paid, instead of cash in respect of the whole (or some part, to be determined by the Board) of all or any dividend specified by that resolution.

Any dividend or moneys payable in respect of the shares may be paid in any manner as the directors may determine, including by inter-bank transfer, electronic form, electronic means or other means approved by the directors directly to an account (of a type approved by the directors) nominated in writing by the member, or by cheque, warrant or other similar financial instrument made payable to the member entitled to it. Different methods of payment may apply to different members or groups of members. The directors may also decide the currency and the exchange rate for such currency.

If the directors decide that payments will be made by electronic transfer to an account (of a type approved by the directors) nominated by a member, but no such account is nominated by the member or an electronic transfer into a nominated account is rejected or refunded, the Company may credit the amount payable to an account of the Company to be held until the member nominates a valid account. An amount credited to an account under the foregoing is to be treated as having been paid to the member at the time it is credited to that account. The Company will not be a trustee of the money and no interest will accrue on the money.

The Company shall be entitled to cease sending dividend warrants and cheques by post or otherwise to a member if those instruments have been returned undelivered to, or left uncashed by, that member on at least two consecutive occasions, or, following one such occasion, reasonable enquiries have failed to establish the member's new address. The entitlement conferred on the Company by the Articles of Association in respect of any member shall cease if the member claims a dividend or cashes a dividend warrant or cheque.

Any dividend which has remained unclaimed for 12 years from the date when it became due for payment shall, if the Board so resolves, be forfeited and cease to remain owing by the Company.

4.1.4 Variation of rights

Subject to the provisions of the Companies Law, if at any time the capital of the Company is divided into different classes of shares, the rights attached to any class of shares may (unless otherwise provided by the terms of allotment of the shares of that class) be varied or abrogated (whether the Company is being wound up or not) either with the consent in writing of the holders of three quarters in nominal value of the issued shares of that class, or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class, but not otherwise.

4.1.5 Lien and forfeiture

The Company shall have a first and paramount lien on every share (not being a fully paid share) for all moneys payable to the Company (whether presently or not) in respect of that share. Subject to the terms of allotment, the Board may from time to time make calls on the members in respect of any moneys unpaid on their shares. If a payment is not made when due, the Board may give not less than 14 clear days' notice requiring payment of the amount unpaid together with any interest which may have accrued and any costs, charges and expenses incurred by the Company by reason of such non-payment. If that notice is not complied with, any share in respect of which it was given may, at any time before the payment required by the notice has been made, be forfeited by a resolution of the Board. The forfeiture shall include all dividends or other moneys payable in respect of the forfeited share which have not been paid before the forfeiture. The forfeited share shall be cancelled, sold, re-allotted or otherwise disposed of by the Company on such terms and in such manner as the Board determines and proceeds arising from such sale shall be deemed to be the property of the Company.

4.1.6 Transfer of shares

The instrument of transfer of a share may be in any usual form or in any other form which the Board may approve. An instrument of transfer shall be signed by or on behalf of the transferor. The Board may, in its absolute discretion and without giving any reason, refuse to register the transfer of a share which is not fully paid, provided that the refusal does not prevent dealings in shares in the Company from taking place on an open and proper basis. The Board may also refuse to register the transfer of a share unless the instrument of transfer:

(i) is lodged, duly stamped (if liable to be stamped), at the registered office or other place appointed by the Board accompanied by the certificate for the share to which it relates and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer;
(ii) is in respect of only one class of shares; and
(iii) is in favour of not more than four transferees.

The directors may suspend the registration of transfers provided that such registration shall not be suspended for more than 45 consecutive days in any year.

If it comes to the notice of the Board that a holder or beneficial owner of any share is a person whose holdings of, or to whom a transfer of, shares or an interest in shares would subject the Company to certain negative consequences (including, but not limited to, requiring the Company to register as an investment company under the US Investment Company Act 1940, as amended (the ''US Investment Company Act 1940'') or become subject to the registration and reporting requirements under the US Securities Exchange Act 1934, as amended, and the rules promulgated thereunder), the Board may serve notice on such persons requiring the transfer of the affected share(s) or the interest in such share(s). If the Board does not receive evidence of the transfer or is not otherwise satisfied that the requirement of the notice have been satisfied, the Company may instruct a stockbroker to sell the affected share(s).

The Board may refuse to honour any requests to transfer shares to a person whose holdings of, or to whom a transfer of, shares or an interest in shares would subject the Company to certain negative consequences (including, but not limited to, requiring the Company to register as an investment company under the US Investment Company Act 1940 or become subject to the registration and reporting requirements under the US Securities Exchange Act 1934, as amended, and the rules promulgated thereunder).

4.1.7 Depositary interests

Subject to the Companies Law and any applicable laws and regulations, the facilities and requirements of any relevant system concerned and the provisions of the Articles of Association, the directors have power to implement and/or approve any arrangements which they may, in their absolute discretion, think fit in relation to the evidencing of title to and transfer of depositary or similar interests in shares in the capital of the Company in the form of Depositary Interests or similar interests, instruments or securities. To the extent that such arrangements are implemented, subject always to the Companies Law, no provision of the Articles of Association shall apply or have effect to the extent that it is in any respect inconsistent with the holding or transfer of depositary interests or the shares in the capital of the Company represented thereby. The directors may from time to time take such actions and do such things as they may in their absolute discretion think fit in relation to the operation of any such arrangements.

If and to the extent that the directors implement and/or approve any such arrangements in relation to the evidencing of title to and transfer of depositary or similar interests in shares, then the directors shall ensure, in so far as practicable, that such arrangements provide:

(i) a holder of any such depositary or similar interests in shares with the same or similar rights as a member of the Company, including in relation to the exercise of voting rights and to the provision of information; and
(ii) the Company and the directors with similar powers as given under the Articles of Association in respect of a member of the Company, including the power of the board to deduct or retain any dividend or other moneys payable to any member under the Articles of Association, so that such power may be exercised against a holder of a depositary or similar interest in shares and the shares represented by such depositary or similar interest.

4.1.8 Redeemable shares and alteration of share capital

Subject to the provisions of the Companies Law, and without prejudice to any rights attached to any existing shares or class of shares, shares may be issued which are to be redeemed or are to be liable to be redeemed at the option of the Company or the holder on such terms, conditions and in such manner as the Board may determine.

The Company may by ordinary resolution increase, consolidate and divide or, subject to the provisions of the Companies Law, sub divide its share capital. The Company may, by ordinary resolution, also cancel shares which, at the date of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the shares so cancelled. The Company may by special resolution reduce its share capital in any manner authorised by the Companies Law.

4.1.9 Authority to issue shares

The directors have general and unconditional authority to exercise all powers of the Company to allot shares in the Company or to grant rights to subscribe to or to convert securities into shares in the Company up to the nominal amount equal to that, and for the period, for which they have authority in the form of an ordinary or special resolution of the members.

4.1.10 Pre-emption rights

The Company shall not allot any equity securities for cash without first having offered them to members holding Shares on a pro rata basis to the number of Shares held by such member in such manner as the Board may determine.

4.1.11 Disapplication of pre-emption rights

The pre-emption rights referred to above do not apply to certain types of issues including those pursuant to the Lender Warrants and may be disapplied in whole or modified provided the directors are given power by special resolution and subject to the terms of such resolution.

4.1.12 Purchase of own shares

The Company may, subject to the Companies Law, purchase its own shares (including any redeemable shares), provided the members have approved the purchase by ordinary resolution. The Company may make a payment in respect of the redemption or purchase of its own shares in any manner permitted by the Companies Law, applicable law or regulation, including out of capital, profits, share premium or the proceeds of a fresh issue of shares.

4.1.13 General meetings

The Board may call general meetings whenever and at such times and places as it shall determine. General meetings shall also be convened on the requisition in writing of any shareholder or shareholders entitled to attend and vote at general meetings of the Company holding five per cent. of the paid up voting share capital of the Company deposited at the head office, specifying the objects of the meeting. Having received the requisition to call a general meeting, the directors must call a meeting within 21 days from the date on which they become subject to the requirement, and the meeting must be held on a date not more than 28 days after the date of the notice convening the meeting.

The Company is required to call an annual general meeting each year to be held within six months following its financial year end and shall call it by at least 21 clear days' notice. Subject to the provisions of the Companies Law, all other general meetings shall be called by at least 14 clear days' notice. The notice will be sent to every member, director and the Company's auditors. The notice will specify, among other things, the time, date and place of the meeting and the general nature of the business to be dealt with. In the case of an annual general meeting, the notice shall specify the meeting as such. In the case of a meeting to pass a special resolution, the notice shall specify the intention to propose the resolution as a special resolution.

The members of the Company may require the Company to give, to the members entitled to receive notice of the next annual general meeting, notice of a resolution which may properly be proposed and is intended to be proposed at that meeting and any matter to be included in the business to be dealt with at the annual general meeting. A resolution may properly be proposed at an annual general meeting unless it would, if passed, be ineffective (whether by reason of inconsistency with any enactment or the Company's constitution or otherwise), defamatory of any person, or it is frivolous or vexatious. Any matter may properly be included in the business at an annual general meeting unless it is defamatory of any person, or it is frivolous or vexatious.

The Company shall give notice of a resolution and/or include such a matter once it has received requests that it do so from members representing at least five per cent. of the total voting rights of all the members who have a right to vote (and in the case of a notice of a resolution, the right to vote on the resolution) at the annual general meeting to which the requests relate, or at least 100 members who have a right to vote (and in the case of a notice of a resolution, the right to vote on the resolution) at the annual general meeting to which the requests relate and hold shares in the Company on which there has been paid up an average sum, per member, of at least £100.

The Company is also obliged to publish certain information in advance of a general meeting on its website.

4.1.14 Disclosure of interests in shares

The provisions of Chapter 5 (Vote Holder and Issuer Notification Rules) of the Disclosure Guidance and Transparency Rules apply to the Company as if the Company was a ''UK issuer'' (as defined in the Disclosure Guidance and Transparency Rules). This is in addition to, and separate from, any other rights or obligations arising under the Companies Law or otherwise.

The Board has power by notice to require any member or any other person it has reasonable cause to believe to be interested in shares or to have been so interested any time during the three years immediately preceding the date on which the notice is issued (an ''interested party''), to disclose to the Company the nature of such interest and any documents to verify the identity of the interested party as the Board deems necessary.

If at any time the Board is satisfied that any member or an interested party, has been duly served with a disclosure notice under these provisions and is in default for the prescribed period in supplying to the Company the information thereby required, or, in purported compliance with such a notice, has made a statement which is false or inadequate in a material particular, then the Board may, in its absolute discretion at any time thereafter by notice (a ''direction notice'') to such member or interested party direct that, in respect of the shares in relation to which the default occurred (the ''default shares''), the member shall not be entitled to attend or vote either personally or by proxy at a general meeting or at a separate meeting of the holders of that class of shares or on a poll. Also, where the default shares represent at least 0.25 per cent. (in nominal value) of the issued shares of their class, the direction notice may additionally direct that in respect of the default shares:

(i) any dividend (or any part of a dividend), distribution or other amount payable in respect of the default shares shall be withheld by the Company, which has no obligation to pay interest on it; and shall be payable (when the direction notice ceases to have effect) to the person who would but for the direction notice have been entitled to them; and/or
(ii) where an offer of the right to elect to receive shares of the Company instead of cash in respect of any dividend or part thereof is or has been made by the Company, any election made thereunder by such member in respect of such default shares shall not be effective; and/or
(iii) no transfer of any of the shares held by any such member shall be recognised or registered by the directors unless: (1) the transfer is an excepted transfer (as such term is defined in the Articles of Association) or (2) the member is not himself in default as regards supplying the requisite information required under the Articles of Association and, when presented for registration, the transfer is accompanied by a certificate by the member in a form satisfactory to the directors to the effect that after due and careful enquiry the member is satisfied that none of the shares the subject of the transfer are default shares.

The Company is also obliged to keep a register of the interested parties.

The Board may be required to exercise their powers on the requisition of holders of the Company holding at the date of the deposit of the requisition not less than 10 per cent. of such of the paid-up capital of the Company as carries at that date the right of voting at the general meetings of the Company. The requisition must state that the requisitionists are requiring the Company to exercise its powers under the relevant article, specify the manner in which they require those powers to be exercised, give reasonable grounds for requiring the Company to exercise those powers in the manner specified and must be signed by the requisitionists and deposited at the registered office.

Where a person who appears to be interested in shares has been served with a direction notice, and the shares he appears to be interested in are held by an approved depositary or nominee, then the direction notice will only apply to the shares held by the approved depositary or nominee in which that person appears to be interested and not to any other shares held by the approved depositary or nominee. Having been served with a direction notice, the obligations of an approved depositary or nominee as a member will be limited to disclosing to the Company any information relating to a person who appears to be interested in the shares held by it which has been recorded by it in accordance with the arrangement under which it was appointed as an approved depositary or nominee.

4.1.15 Distribution of assets on liquidation

If the Company is wound up, the liquidator may, with the sanction of an ordinary resolution, divide among the members all or any part of the Company's assets and may value any assets and determine how the division shall be carried out; vest all or any part of the assets in trustees for the benefit of the members; and determine the scope and terms of those trusts. No member shall be compelled to accept any asset on which there is a liability.

4.1.16 Directors' power to vote on contracts in which they are interested

Except as otherwise provided by the Articles of Association, a director shall not be entitled to vote on any resolution of the Board or a committee of the Board concerning a matter in which he has an interest (other than by virtue of his interests in shares or debentures or other securities of, or otherwise in or through, the Company) which (together with any interest of any person connected with him) can reasonably be regarded as likely to give rise to a conflict with the interests of the Company. This does not apply if his interest arises only because the resolution concerns one or more of the following matters:

(i) the giving of a guarantee, security or indemnity in respect of money lent or obligations incurred by him or any other person at the request of or for the benefit of, the Company or any of its subsidiary undertakings;
(ii) the giving of a guarantee, security or indemnity in respect of a debt or obligation of the Company or any of its subsidiary undertakings for which the director has assumed responsibility (in whole or part and whether alone or jointly with others) under a guarantee or indemnity or by the giving of security;
(iii) a contract, arrangement, transaction or proposal concerning an offer of shares, debentures or other securities of the Company or any of its subsidiary undertakings for subscription or purchase, in which offer he is or may be entitled to participate as a holder of securities or in the underwriting or sub underwriting of which he is to participate;
(iv) a contract, arrangement, transaction or proposal for the benefit of employees of the Company or of any of its subsidiary undertakings which does not award him any privilege or benefit not generally accorded to the employees to whom the arrangement relates; and
(v) a contract, arrangement, transaction or proposal concerning any insurance which the Company is empowered to purchase or maintain for, or for the benefit of, any directors of the Company or for persons who include directors of the Company.

The Company may by ordinary resolution suspend or relax any provision of the Articles of Association prohibiting a director from voting at a meeting of directors or of a committee of directors to any extent, either generally or in respect of any particular matter.

Where proposals are under consideration concerning the appointment (including without limitation fixing or varying the terms of appointment) of two or more directors to offices or employments with the Company or any body corporate in which the Company is interested, the proposals may be divided and considered in relation to each director separately. In such cases each of the directors concerned shall be entitled to vote in respect of each resolution except that concerning his own appointment.

4.1.17 Board authorisation of directors' interests

The Board may authorise any matter proposed to it which would, if not so authorised, involve a breach of duty owed by a director to the Company as a matter of law, including, without limitation, any matter which relates to a situation in which a director has, or can have, an interest which conflicts, or possibly may conflict, with the interests of the Company. Any such authorisation will be effective only if:

(i) any requirement as to quorum at the meeting at which the matter is considered is met without counting the director in question or any other interested director; and
(ii) the matter was agreed to without their voting or would have been agreed to if their votes had not been counted.

Provided that he has disclosed such office to the Board and where necessary such office has been approved by the Board, a director shall not be accountable to the Company for any remuneration or other benefit which he derives from any office or employment, from any transaction or arrangement or from any interest in any body corporate.

4.1.18 Borrowing powers

The Board may exercise all the powers of the Company to borrow money, to guarantee, to indemnify, to mortgage or charge its undertaking, property, assets (present and future) and uncalled capital, and to issue debentures and other securities whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.

4.1.19 Directors' duties in respect of the City Code

If and for so long as the Company shall not be subject to the City Code, the Board shall, in managing and conducting the business of the Company and in exercising or refraining from exercising any and all powers, rights and privileges use its reasonable endeavours to apply and to have the Company abide by the General Principles as set out in the City Code mutatis mutandis as though the Company were subject to the City Code.

In the event that circumstances arise where, if the Company were subject to the City Code, the Company would be an offeree or otherwise the subject of an approach or the subject of a third party statement of firm intention to make an offer, the Board shall use its reasonable endeavours to comply with, and procure that the Company complies with, the provisions of the City Code mutatis mutandis as though the Company were subject to the City Code.

In the event that the Board recommends to the shareholders of the Company or any class thereof any takeover offer made for shares in the Company from time to time, the Board shall use its reasonable endeavours to obtain the undertaking of the offeror(s) to comply with the provisions of the City Code in the conduct and the execution of the relevant offer mutatis mutandis as though the Company were subject to the City Code, but recognising that the Panel will not have jurisdiction (if and for so long as this may be the case).

These duties are subject to the Companies Law, to other applicable law, to any other regulation in respect of takeovers which applies to the Company at any time, and to the requirement that the Board must be satisfied that abiding by the General Principles as set out in the City Code is, in any particular case, in the best interests of the Company.

4.1.20 Remuneration of directors

The ordinary remuneration of the directors who do not hold executive office for their services including the Chairman of the Company (excluding amounts payable under any other provision of the Articles of Association) shall not exceed in aggregate £2 million per annum or such higher amount as the Company may from time to time by ordinary resolution determine. Should a director who does not hold executive office perform duties or services which are outside the scope of their ordinary duties they may be paid extra remuneration as the Board shall determine.

The emoluments of any director holding executive office for his services as such shall be determined by the Board, and may be of any description, including, without limitation, admission to, or continuance of, membership of any scheme (including any share acquisition scheme) or fund instituted or established or financed or contributed to by the Company for the provision of pensions, life insurance or other benefits for employees or their dependants, or the payment of a pension or other benefits to him or his dependants on or after retirement or death, apart from membership of any such scheme or fund.

The Board may provide benefits, whether by the payment of gratuities or pensions or by insurance or otherwise, for any past or present director or employee of the Company or any of its subsidiary undertakings or any body corporate associated with, or any business acquired by, any of them, and for any member of his family or any person who is or was dependent on him.

The directors may be paid all travelling, hotel and other expenses properly incurred by them in connection with their attendance at meetings of the Board or committees of the Board, general meetings or separate meetings of the holders of any class of shares or of debentures of the Company or otherwise in connection with the discharge of their duties.

A director shall not be required to hold any shares in the capital of the Company by way of qualification.

4.1.21 Appointment of directors

Unless otherwise determined by ordinary resolution, the number of directors (other than alternate directors) shall be not less than five but shall not be subject to any maximum number. Directors may be appointed by the Company by ordinary resolution or by the Board.

4.1.22 Retirement of directors

At every annual general meeting, all of the directors at the date of the notice convening the annual general meeting shall retire from office, in accordance with the rules set out in the Articles of Association.

A director who retires at an annual general meeting may, if willing to act, be re-appointed. If he is not re-appointed, he shall retain office until the meeting appoints someone in his place, or if it does not do so, until the end of the meeting. If however any resolution or resolutions for the appointment or re-appointment of the persons eligible for appointment or re-appointment as directors are put to the annual general meeting and lost and at the end of the meeting the number of directors is fewer than the minimum number required then all the retiring directors who stood for re-appointment at that meeting shall be deemed to have been re-appointed as directors and shall remain in office, but they may only:

(i) act for the purpose of filling vacancies and convening general meetings of the Company; and
(ii) perform such duties as are appropriate to maintain the Company as a going concern and to comply with the Company's legal and regulatory obligations,

but not for any other purpose.

4.1.23 Disqualification and removal of directors

A person ceases to be a director in a number of circumstances, including removal by notice from the Board signed by no less than three quarters of the other Directors stating that person should cease to be a director. The Company may also, by ordinary resolution, remove any director from office.

4.1.24 Indemnity

Subject to the provisions of, and so far as may be permitted by and consistent with the Companies Law and any other applicable law or regulation, but without prejudice to any indemnity to which the person concerned may already be properly entitled as at the date of the adoption of the Articles of Association, every director (including for the purposes of this paragraph any alternate director appointed pursuant to the provisions of the Articles of Association), secretary, assistant secretary or other officer for the time being and from time to time of the Company (but not including the Company's auditors) and the personal representatives of the same (each an ''Indemnified Person'') shall be indemnified and secured harmless out of the assets and funds of the Company against all actions, proceedings, costs, charges, claims, expenses, losses, damages or liabilities incurred or sustained by such Indemnified Person, other than by reason of such Indemnified Person's own dishonesty, wilful default or fraud, in or about the conduct of the Company's business or affairs (including as a result of any mistake of judgment) or in the execution, exercise or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such Indemnified Person in defending (whether successfully or otherwise) any civil proceedings concerning the Company or its affairs in any court whether in the Cayman Islands or elsewhere.

4.1.25 Takeover provisions

The Articles of Association adopt certain of the provisions of the City Code, including provisions dealing with compulsory takeover offers and shareholder treatment along the lines of the General Principles of the City Code (including ''equal treatment'') which are to be administered by the Board. These provisions (set out in Articles 150 and 250 to 258) have effect only during such times as the City Code does not apply to the Company.

Pursuant to the Articles of Association, a person (excluding a depositary, custodian or nominee) must not:

(i) acting by himself or with persons determined by the Board to be acting in concert, seek to acquire an interest in shares in the Company, which carry 30 per cent., or more of the voting rights attributable to the shares in the Company; or
(ii) acting by himself or with persons determined by the Board to be acting in concert, and holding not less than 30 per cent., but not more than 50 per cent., of the voting rights, seek to acquire, by himself or with persons determined by the Board to be acting in concert, additional interest in shares which, taken together with the interest in shares held by the persons determined by the Board to be acting in concert with him, increase his voting rights, or
(iii) effect or purport to effect an acquisition which would breach or not comply with Rules 4, 5, 6, 8 or 11 of the City Code, if the Company were subject to the City Code,

except, in the case of either (i) or (ii) above, as a result of a ''permitted acquisition'' (meaning an acquisition either consented to by the Board, or made in compliance with Rule 9 of the City Code (as if it so applied and with such amendments as the Board may consent to), or arising from the repayment of a stock borrowing arrangement).

Where the Directors have reason to believe that any of such circumstances has taken place, then it may take all or any of certain measures:

(i) require the person(s) appearing to be interested in the shares of the Company to provide such information as the Board considers appropriate;
(ii) have regard to such public filings as may be necessary to determine any of the matters under Articles 250 to 258;
(iii) make any determination under Articles 250 to 258 as it thinks fit, either after calling for submissions by the relevant person(s) or without calling for any;
(iv) determine that the voting rights attached to such shares acquired in breach of the Articles of Association are from a particular time incapable of being exercised for a definite or indefinite period;
(v) determine that some or all of the shares acquired in breach of the Articles of Association are to be sold either to a third party, to a member or to the Company for cancellation;
(vi) determine that some or all of the shares acquired in breach of the Articles of Association will not carry any right to any dividends or other distributions from a particular time for a definite or indefinite period; and
(vii) taking such actions as it thinks fit for the purposes of Articles 250 to 258, including prescribing rules not inconsistent with Articles 250 to 258, setting deadlines for the provision of information, drawing adverse inferences where information requested is not provided, making determinations or interim determinations, executing documents on behalf of a shareholder, paying costs and expenses out of proceeds of sale and changing any decision or determination or rule previously made.

The Board has the full authority to determine the application of Articles 150 and 250 to 258, including the deemed application of the whole or any part of the City Code, and such authority shall include all the discretion that the Panel would exercise if the whole or part of the City Code applied to the Company. Any resolution or determination made by the Board or the chairman of any meeting acting in good faith is conclusive and is not open to challenge as to its validity or as to any other ground. The Board is not required to give any reason for any decision, determination or exercise of discretion or power it makes. In exercising the powers under Article 150 and 250 to 258, the Board will comply with the principle that all holders of Shares that are in the same position shall be treated equally in respect of the rights attaching to their shares and otherwise in accordance with their duties under applicable law.

Subject to the Companies Law, any other applicable law or anything contained in the Articles of Association, an approved depositary holding shares in the capital of the Company in the form of depositary interests shall not be obliged to accept the issue or transfer to it of shares, if such issue or transfer would likely result in such depositary having to make a mandatory offer for other shares in the capital of the Company. In the event that such depositary is required to make a mandatory offer to purchase other shares in the capital of the Company under applicable law, the Company shall cooperate with such depositary in seeking an exemption or waiver of such requirement and the Company shall bear all reasonable costs of such depositary in connection with seeking such exemption or waiver.

4.1.26 Electronic communications

The Board may from time to time issue, endorse, adopt or amend terms and conditions relating to the use of electronic means for the sending of notices, other documents and proxy appointments by the Company to members or persons entitled by transmission.

4.1.27 Information rights

A member who holds shares on behalf of another person may nominate that person to enjoy ''Information Rights''. This is the right to receive a copy of all communications (including the accounts and reports) that the Company sends to its members generally or to any class of its members that includes the person making the nomination, and the rights of members under the Companies Law, any applicable law or regulation and the Articles of Association to require a single copy of the Company's last annual accounts, the last directors' report, the last directors' remuneration report and the auditor's report on those accounts and, free of charge, a hard copy version of a document or information provided to a member in another form. The effect of any nominations may be terminated or suspended in certain circumstances set out in the Articles of Association.

4.1.28 Right to inspect the register

Companies which are registered in the Cayman Islands are not required to file shareholder information with the Registrar of Companies in the Cayman Islands, in contrast to the requirement for companies registered in England and Wales to file certain changes to shareholder information with Companies House in the UK. Consequently, information on shareholders of Cayman Islands registered companies will not be available to the public or to shareholders of the Company. As a result of this, the Company has inserted a right within the Articles of Association of the Company to allow shareholders the right to inspect the Company's register of members during normal business hours.

5. DIRECTORS AND SENIOR MANAGERS

5.1 Directors

The Directors of the Company are listed below.

Name	Age	Position
Henry Staunton	68	Chairman and Nomination Committee Chairman
Clive Bannister	57	Group Chief Executive Officer
James McConville .	60	Group Finance Director
Ian Cormack	68	Senior Independent Non-Executive Director and Remuneration Committee
		Chairman
´ Rene-Pierre Azria .	59	Independent Non-Executive Director
Alastair Barbour	63	Independent Non-Executive Director and Audit Committee Chairman
Isabel Hudson	56	Independent Non-Executive Director
Wendy Mayall	58	Independent Non-Executive Director
John Pollock	57	Independent Non-Executive Director
Nicholas Shott	65	Independent Non-Executive Director
Kory Sorenson	47	Independent Non-Executive Director
David Woods.	68	Independent Non-Executive Director and Risk Committee Chairman

The business address of each of the Directors is 1st Floor, 32 Commercial Street, St. Helier, Jersey JE2 3RU, Channel Islands.

Rene-Pierre Azria will be leaving the Board on 30 November 2016. ´

5.1.1 Directors' biographies

Henry Staunton

Chairman

Henry Staunton was appointed Chairman of the Board of Directors and Chairman of the Nomination Committee with effect from 1 September 2015. Mr Staunton is Non-Executive Chairman of WH Smith plc, the leading FTSE 250 retail group, and a Non-Executive Director of Capital & Counties Properties plc. He is also Non-Executive Chairman of the privately owned BrightHouse Group, the rent-to-own company. From 2004 until 2013, Mr Staunton was a Non-Executive Director, Chairman of the Audit Committee and latterly Senior Independent Director and Vice Chairman of Legal & General Group plc, where he gained significant insight into the life and pensions industry. From 2008 to 31 December 2014 he was a Non-Executive Director of Merchants Trust plc, where he was the Senior Independent Director. During his executive career he was Finance Director of ITV plc from 2003 to 2006, and Finance Director of Granada plc from 1993 to 2003. Prior to that he joined Price Waterhouse as a graduate trainee, rising to become a Senior Partner of the audit practice.

Clive Bannister

Group Chief Executive Officer

Clive Bannister joined the Group in February 2011 as Group Chief Executive Officer. Mr Bannister is also an executive director of PLHL. Prior to this, Mr Bannister was Group Managing Director of Insurance and Asset Management at HSBC Holdings plc. He joined HSBC in 1994 and held various leadership roles in planning and strategy in the Investment Bank (USA) and was Group General Manager and CEO of HSBC Group Private Banking. He started his career at First National Bank of Boston and prior to working at HSBC was a partner in Booz Allen Hamilton in the Financial Services Practice providing strategic support to financial institutions including leading insurance companies, banks and investment banks. Mr Bannister is also Chairman of the Museum of London.

James McConville

Group Finance Director

James McConville was appointed to the Board of Directors of the Company as Group Finance Director on 28 June 2012. Mr McConville is also an executive director of PLHL. Between April 2010 and December 2011, Mr McConville was Chief Financial Officer of Northern Rock plc. Prior to that, between 1988 and 2010, he worked for Lloyds Banking Group plc (formerly Lloyds TSB Group plc) in a number of senior finance and strategy related roles, latterly as Finance Director of Scottish Widows Group and Director of Finance for the Insurance and Investments Division. During 2011 and 2012, Mr McConville was a Non-Executive Director of the life businesses of Aegon UK. In 2014, Mr McConville joined the board of Tesco Personal Finance plc as Non-Executive Director. Mr McConville qualified as a Chartered Accountant whilst at Coopers and Lybrand.

Ian Cormack

Senior Independent Director

Ian Cormack was appointed to the Board of Directors of the Company on 2 September 2009 and was appointed Senior Independent Director on 1 October 2013. Mr Cormack is also a director of PLHL. Mr Cormack is Non-Executive Chairman of Maven Income & Growth VCT 4 plc and a Non-Executive Director of JRP Group plc and Hastings Group Holdings plc. Mr Cormack was Chief Executive Officer of AIG, Inc. in Europe from 2000 to 2002 and prior to that he spent 32 years at Citibank where he was Chairman of Citibank International plc and Co-Head of the Global Financial Institutions Client Group at Citigroup. Mr Cormack is Chairman of the Remuneration Committee and a member of the Nomination Committee.

Ren´e-Pierre Azria

Independent Non-Executive Director

Rene-Pierre Azria is a senior partner at LionTree LLC, a US private advisory firm based in New York and ´ specialising in strategic analysis and mergers and acquisitions. Prior to joining LionTree LLC, Mr Azria founded and managed Tegris LLC, also a mergers and acquisitions firm based in New York. Prior to founding Tegris LLC, Mr Azria was a worldwide partner with Rothschild & Co., based in New York. Prior to joining Rothschild & Co. in 1996, Mr Azria served as Managing Director of Blackstone Indosuez and President of the Financiere Indosuez Inc. in New York. Mr Azria was appointed to the Board of Directors of the Company on 2 September 2009. He is a member of the Company's Board Risk Committee.

Alastair Barbour

Independent Non-Executive Director

Alastair Barbour has over 30 years audit experience with KPMG where he worked across the full spectrum of financial services clients from large general insurers and reinsurers to the life insurance and investment management sector, working on a range of operational and strategic issues. Mr Barbour is the former Head of Financial Services, Scotland for KPMG. He retired from KPMG in 2011 to build a Non-Executive career. He is a Director and Audit Committee Chairman of RSA Insurance Group plc, Standard Life European Private Equity Trust plc and Liontrust Asset Management plc (all London Stock Exchange listed companies). He is also a Director and Audit Committee Chairman of CATCo Reinsurance Opportunities Fund Ltd, a Bermuda-based investment company listed on the London Stock Exchange and of The Bank of N. T. Butterfield & Son Limited, a company listed in both Bermuda and New York. Mr Barbour was appointed to the Board of Directors of the Company on 1 October 2013 and is Chairman of the Board Audit Committee and a member of the Board Nomination Committee and Risk Committee. Mr Barbour is also a director of PLHL and a member of the PLHL Model Governance Committee.

Isabel Hudson

Independent Non-Executive Director

Isabel Hudson is Non-Executive Chairman of the National House Building Council and a Non-Executive Director of BT Group plc and RSA Insurance Group plc. Ms Hudson is a former Non-Executive Director of MGM Advantage, The Pensions Regulator, QBE Insurance and Standard Life PLC. Other roles previously held by Ms Hudson include Chief Financial Officer at Eureko BV and Executive Director of Prudential Assurance Company. Ms Hudson is an ambassador to Scope, a UK charity, and has 34 years of experience in the insurance industry in the UK and mainland Europe. She was appointed to the Board of Directors on 18 February 2010. She is a member of the Board Audit Committee and the Board Remuneration Committee of the Company.

Wendy Mayall

Independent Non-Executive Director

Wendy Mayall has over thirty years of asset management experience, including as Group Chief Investment Officer and later consultant at Liverpool Victoria from 2012 to 2015, having previously been Chief Investment Officer for Unilever's UK pension fund from 1996 to 2011 and holding management responsibility for Unilever's pension funds globally. From 2006 to 2009, Mrs Mayall was the Chair of the Investment Committee of the Mineworkers Pension Scheme, a British government appointment to one of the largest government backed pension schemes in the UK. Mrs Mayall is the non-executive Senior Independent Director of the Aberdeen UK Tracker Trust plc. Mrs Mayall was appointed to the Board of Directors with effect from 1 September 2016.

John Pollock

Independent Non-Executive Director

John Pollock had a career in life assurance at the Legal & General Group from 1980 to 2015, including as an executive director of Legal & General Group plc from 2003 to 2015. Mr Pollock held numerous senior roles, gaining wide strategic and technical experience, finally as Chief Executive Officer of LGAS (L&G Assurance Society), one of Legal and Generals' three primary business units. Prior to Mr Pollock's retirement from Legal and General in 2015, Mr Pollock held positions as Deputy Chair of the FCA Practitioner Panel, Chairman of investment platform Cofunds, and as a non-executive director of the Cala Homes Group. Mr Pollock was appointed to the Board of Directors with effect from 1 September 2016.

Nicholas Shott

Independent Non-Executive Director

Nicholas Shott is an investment banker, who has been European Vice Chairman of Lazard since 2007 and Head of UK Investment Banking at Lazard since 2009. Mr Shott joined Lazard in 1991 and became a partner in 1997. Mr Shott was appointed to the Board of Directors with effect from 1 September 2016.

Kory Sorenson

Independent Non-Executive Director

Kory Sorenson is currently a Non-Executive Director of SCOR SE and its US subsidiaries, Pernod Ricard SA, Uniqa Insurance Group AG and Aviva Insurance Limited. Ms Sorenson has over 20 years of experience in the financial services sector, most of which has been focused on insurance and banking. She was Managing Director, Head of Insurance Capital Markets of Barclays Capital from 2005 to 2010, and also held senior positions in the financial institutions divisions of Credit Suisse, Lehman Brothers and Morgan Stanley. Ms Sorenson volunteers as a Director of the Institut Pasteur in Paris. She was appointed to the Board of the Company on 1 July 2014 and is a member of the Company's Board Remuneration Committee and Board Audit Committee.

David Woods

Independent Non-Executive Director

David Woods is a Fellow of the Institute of Actuaries, Non-Executive Chairman of Standard Life UK Smaller Companies Trust plc and a Non-Executive Director of Murray Income Trust plc. He is also Chairman of the pension fund trustee companies responsible for the governance of all the UK defined benefits/pension schemes in the Sopra Steria Group. He was appointed to the Board of Directors of the Company on 18 February 2010 and is Chairman of the Company's Board Risk Committee and a member of the Company's Board Nomination Committee and Board Audit Committee. Mr Woods is also a director of PLHL and a member of the PLHL Model Governance Committee.

5.1.2 Other directorships/partnerships of the Board

In respect of each director, details are set out below of the companies (not including any member of the Group other than PLHL) of which such Directors has been a member of the administrative, management or supervisory bodies or partner at any time in the five years before the date of this document:

Name	Current	Previous
Henry Staunton	WH Smith plc	ICBC Standard Bank PLC
	BrightHouse Group plc	Legal & General Group plc
	Capital & Counties Properties plc	The Merchants Trust plc
	Caversham Finance Limited

Name	Current	Previous
Clive Bannister	Dreamchasing Doorfield Property Management Limited Punter Southall Group Limited Rougemont Management Limited Unigestion Holding SA Phoenix Life Holdings Limited	Ignis Asset Management Limited(1) Ignis Investment Management Limited(1) Ignis Fund Managers Limited(1) Ignis Investment Services Limited(1)
James McConville .	Tesco Personal Finance Group Limited Tesco Personal Finance plc Phoenix Life Holdings Limited	Gosforth Funding plc Gosforth Funding 2011-1 plc Gosforth Holdings Limited Guardian Assurance Limited Guardian Linked Life Assurance Limited Guardian Pensions Management Limited Ignis Asset Management Limited(1) Ignis Investment Services Limited(1) Ignis Fund Managers Limited(1) Northern Rock plc (now called Virgin Money PLC) Scottish Equitable Holdings Limited Scottish Equitable plc
´ Rene-Pierre Azria .	Abrams Inc. La Martiniere Groupe S.A. Liontree LLC	Jarden Corporation Immune Pharmaceuticals Inc. Tegris LLC
Alastair Barbour	RSA Insurance Group plc Standard Life European Private Equity Trust plc Liontrust Asset Management plc Markel CATCo Reinsurance Fund Ltd CATCo Reinsurance Opportunities Fund Ltd Bank of N.T. Butterfield & Son Limited CATCo Reinsurance Fund Limited Scottish Equitable Policyholders Trust Limited Phoenix Life Holdings Limited	None
Ian Cormack	Hastings Group Holdings PLC Maven Income & Growth VCT 4 PLC National Angels Limited Temporis Capital LLP JRP Group plc Phoenix Life Holdings Limited Just Retirement Solutions Limited Just Retirement Money Limited Just Retirement Limited Partnership Assurance Group PLC Partnership Home Loans Limited Partnership Life Assurance Company Limited	Bloomsbury Publishing Plc Cormack Tansey Partners Entertaining Finance Limited Europe Arab Bank PLC Qatar Financial Centre Authority Qatar Insurance Services LLC Arria NLG Plc Aspen Insurance Holdings Aspen Insurance UK Limited Xchanging plc

Name	Current	Previous
Isabel Hudson	National House-Building Council BT Group Plc RSA Insurance Group plc	Elders Insurance Limited Marine and General Mutual Life Assurance Society QBE Insurance (Australia) Limited QBE Insurance (International) Limited QBE Insurance Group Limited Standard Life PLC The Pensions Regulator
Wendy Mayall	Aberdeen UK Tracker Trust PLC	Highway Insurance Company Limited Highway Insurance Group Limited Liverpool Victoria General Insurance Group Limited Liverpool Victoria General Insurance Company Limited LV Insurance Management Limited
John Pollock	None	Lucida Limited Legal & General Group PLC Legal and General Assurance Society Limited Cala 1 Limited Cala Group (Holdings) Limited Legal and General Partnership Holdings Limited Legal & General International (Holdings) Limited Legal & General International Limited Legal & General Overseas Holdings Limited Cofunds Limited Legal & General Insurance Limited Cofunds Holdings Limited Legal & General Partnership Services Limited Legal & General Pensions Limited Legal & General Resources Limited
Nicholas Shott	Old Bailey 2005 LLP Lazard & Co., Holdings Limited Lazard & Co., Services Limited Lazard & Co., Limited 28 Smith Street Limited	None
Kory Sorenson .	Pernod Ricard SA SCOR SE SCOR Reinsurance Company (US) SCOR Global Life Americas Reinsurance Company Uniqa Insurance Group AG Aviva Insurance Limited Institut Pasteur Chateau Troplong Mondot	None

Name	Current	Previous
David Woods	Standard Life UK Smaller Companies Trust PLC Murray Income Trust plc Steria (Management Plan) Trustees Limited Steria (Pension Plan) Trustees Limited Steria (Pooled Investments) Trustees Limited Steria (Retirement Plan) Trustees	Barbon Holdings Limited Barbon Insurance Group Limited Caley Limited Property & Commercial Limited The Moller Centre for Continuing Education Limited Santander (UK) Group Pension Scheme Trustees Ltd
	Limited Steria Electricity Supply Pension Trustees Limited Capital Opportunities Trust plc Phoenix Life Holdings Limited

Note:

(1) The Director ceased to be a director of this company upon the completion of the divestment of Ignis Asset Management.

5.1.3 Conflicts of interest and other matters

The Company is not aware of any conflicts of interest between any duties owed by the Directors to the Company and their private interests or other duties.

During the five years immediately prior to the date of this document, except as disclosed under paragraph 5.1.2 (''Other directorships/partnerships of the Board'') of this Part XIV (''Additional Information''), none of the Directors has:

been convicted in relation to a fraudulent offence;
been associated with any bankruptcies, receiverships or liquidations whilst acting in his capacity as member of an administrative, management or supervisory body of a company, a partner with unlimited liability, a founder or a member of senior management of a company;
received an official public incrimination and/or sanction by a statutory or regulatory authority (including designated professional bodies) or has been disqualified by a court from acting as a member of the administrative, management or supervisory bodies of an issuer or from acting in the management or conduct of the affairs of any issuer; or
been appointed as (i) a member of the administrative, management or supervisory bodies of the Company, or (ii) a member of senior management of the Company, pursuant to an arrangement or understanding with major shareholders, customers, suppliers or others.

There are no family relationships between any of the Directors, or between any of the Directors and Senior Managers.

5.2 Senior Managers

Executive management of the Group is led by the Group Chief Executive Officer, Clive Bannister, who is supported by the Executive Committee (''ExCo''). ExCo oversees strategy matters relating to the implementation of the Group's strategy.

Clive Bannister

Group Chief Executive Officer

Leads the development of the Group's strategy for agreement by the Board;
Leads and directs the Group's businesses in delivery of the Group strategy and business plan;
Leads the Group to safeguard returns for policyholders and grow shareholder value;
Embeds a risk-conscious Group culture which recognises policyholder obligations in terms of service and security; and
Manages the Group's key external stakeholders.

James McConville

Group Finance Director

Develops and delivers the Group's financial business plan in line with strategy;
Ensures the Group's finances and capital are managed and controlled;
Develops and delivers the Group's debt capital strategy and other treasury matters;
Ensures the Group has effective processes in place to enable all reporting obligations to be met;
Supports the Group Chief Executive Officer in managing the Group's key external stakeholders; and
Maximises shareholder value through clear, rigorous assessment of business opportunities.

Andy Moss

Chief Executive, Phoenix Life

Leads development and delivery of the Phoenix Life business strategy, including the continued integration of life businesses;
Leads the Phoenix Life business to optimise outcomes for customers in terms of both value and security; and
Ensures Phoenix Life deploys capital efficiently and effectively, with due regard to regulatory requirements, the risk universe and strategy.

Fiona Clutterbuck

Head of Strategy, Corporate Development and Communications

Supports the Group Chief Executive Officer in the formulation of the strategy and the business planning for the Group;
Leads implementation of the Group's strategy as regards any potential acquisitions or disposals; and
Leads external Group Communications in liaison with the Group Finance Director and Head of Investor Relations.

Stephen Jefford

Group Human Resources Director

Leads the implementation of the Group's employee strategy in order to recruit, retain, motivate and develop high quality employees;
Provides guidance and support on all HR matters to the Group Chief Executive Officer, ExCo and the Group Board and Remuneration Committee; and
Delivers HR services to the Group.

Wayne Snow

Chief Risk Officer

Leads the Group's risk management function, embracing changes in best practice and regulation including Solvency II;
Oversees and manages the Group's relationship with the FCA and PRA; and
Oversees adherence to the Group's risk appetite.

Simon True

Group Chief Actuary

Ensures capital is managed efficiently across the Group;
Manages the Group's solvency position;
Leads development of the Group's investment strategy; and
Identifies and delivers opportunities to enhance shareholder value across the Group.

Quentin Zentner

General Counsel

Leads provision of legal advice to the Group Board, other Group company Boards, ExCo and senior management;
Oversees and co-ordinates maintenance of, and adherence to, appropriate corporate governance procedures across the Group; and
Designs and implements a framework to manage legal risk within the Group, including compliance by Group companies and staff with relevant legal obligations.

5.2.1 Senior Managers' biographies

Clive Bannister

See paragraph 5.1.1 (''Directors' biographies'') of this Part XIV (''Additional Information''), for Mr Bannister's biography.

James McConville

James McConville was appointed to the Board of Directors as Group Finance Director on 28 June 2012. See paragraph 5.1.1 (''Directors' biographies'') of this Part XIV (''Additional Information''), for Mr McConville's biography.

Andy Moss

Andy Moss was appointed to the role of Chief Executive of Phoenix Life on 19 May 2014 having previously been, since 2008, Phoenix Life Finance Director responsible for planning and target setting, statutory and regulatory reporting and financial control for all of the Life Companies. Prior to that Mr Moss was Deputy Finance Director of the Resolution Life business having started in the Group as Head of Finance at Britannic in 2004. Before joining the Group Mr Moss held a variety of roles across Nationwide Life Ltd, KPMG and Eagle Star Group.

Fiona Clutterbuck

Fiona Clutterbuck was appointed Head of Corporate Development in June 2010, and subsequently Head of Strategy, Corporate Development and Communications in January 2011. Ms Clutterbuck joined the Group in June 2008. Prior to working in the Group, she was Head of Financial Institutions Advisory at ABN AMRO between 2001 and 2008, where she advised on the acquisition of Pearl by Sun Capital and TDR Capital, and Pearl on the acquisition of Resolution plc. Ms Clutterbuck is currently the senior independent non-executive director at WS Atkins Plc and Paragon where she is also the chair of the risk committee. Ms Clutterbuck had previously worked at both HSBC Investment Bank and Hill Samuel. Ms Clutterbuck is a qualified Barrister.

Stephen Jefford

Stephen Jefford was appointed Group Human Resources Director on 1 October 2016. Mr Jefford has held senior human resources roles in financial services for the last 20 years, principally at HSBC. From 2011 to 2013, Mr Jefford was head of human resources at Ignis Asset Management.

Wayne Snow

Wayne Snow was appointed Chief Risk Officer in July 2013, having previously been Financial Risk Director responsible for financial and operational risk oversight and the function's responsibilities under Solvency II. Mr Snow is also a member of the PLHL Model Governance Committee. Prior to that Mr Snow was Head of Shareholder Value Management responsible for strategic initiatives to increase shareholder value. Before joining Phoenix in 2005, Mr Snow was a consultant with Tillinghast-Towers Perrin and is a Fellow of the Institute of Actuaries in the UK and the Society of Actuaries in the US.

Simon True

Simon joined the Phoenix Group on 1 May 2013 as Group Chief Actuary. Before joining the Group, Mr True ran the M&A team within Resolution Limited, having joined in 2008, and was actively involved in its creation through to its inclusion in the FTSE 100 following the acquisitions of Friends Provident, AXA UK (Life), and Bupa Health. Prior to Resolution Limited, Mr True was the Group Actuary at Resolution plc until the acquisition by Pearl Group Limited in 2008.

Quentin Zentner

Quentin Zentner was appointed as General Counsel in December 2014, having previously held the role of Director at Life Legal since August 2010. Mr Zentner was previously General Counsel at Nikko Principal Investments Ltd, a Japanese private equity company and before that was a Corporate Partner at Pinsents Curtis. Mr Zentner is a qualified solicitor.

5.2.2 Other directorships/partnerships of the Executive Committee

In respect of each Senior Manager, details are set out below of the companies and partnerships (not including any member of the Group) of which such Senior Manager has been a member of the administrative, management or supervisory bodies or partner at any time in the five years before the date of this document:

Name	Current	Previous
Clive Bannister(1)
Fiona Clutterbuck	Paragon Group of Companies PLC WS Atkins Plc	None
Stephen Jefford	None	None
James McConville(2) . .
Andy Moss	None	None
Wayne Snow	None	Clovermay Limited Seventy-One King Henry's Road Residents' Association Limited
Simon True	None	Christchurch Financial Solutions Limited
Quentin Zentner	P.A.T. (Pensions) Limited P.A.T. (Pensions) Nominee Company No.1 Limited P.A.T. (Pensions) Nominee Company No.2 Limited	None

Notes:

(1) For Clive Bannister's other directorships/partnerships, please see paragraph 5.1.2 (''Other directorships/partnerships of the Board'') of this Part XIV (''Additional Information'').

(2) For James McConville's other directorships/partnerships, please see paragraph 5.1.2 (''Other directorships/partnerships of the Board'') of this Part XIV (''Additional Information'').

5.2.3 Conflicts of interest and other matters

The Company is not aware of any conflicts of interest between any duties owed by the Senior Managers to the Company and their private interests or other duties. The Company has procedures in place to identify and manage conflicts that may arise.

During the five years immediately prior to the date of this document, except as disclosed under paragraph 5.2.2 (''Other directorships/partnerships of the Executive Committee'') of this Part XIV (''Additional Information''), none of the Senior Managers has:

• been convicted in relation to a fraudulent offence;

been associated with any bankruptcies, receiverships or liquidations whilst acting in his capacity as member of an administrative, management or supervisory body of a company, a partner with unlimited liability, a founder or a member of senior management of a company;
received an official public incrimination and/or sanction by a statutory or regulatory authority (including designated professional bodies) or has been disqualified by a court from acting as a member of the administrative, management or supervisory bodies of an issuer or from acting in the management or conduct of the affairs of any issuer; or
been appointed as (i) a member of the administrative, management or supervisory bodies of the Company, or (ii) a member of senior management of the Company, pursuant to an arrangement or understanding with major shareholders, customers, suppliers or others.

There are no family relationships between any of the Senior Managers, or between any of the Senior Managers and Directors.

5.2.4 Share dealing code

The Company has adopted a Share Dealing Code which is based on the Market Abuse Regulation.

5.3 Corporate Governance Code

The Company recognises the importance of, and is committed to, high standards of corporate governance. The Company's compliance with the Corporate Governance Code is described on pages 47 to 56 of the Company's Annual Report and Accounts for the year ended 31 December 2015, incorporated by reference into this document.

5.4 Board and management of the Group

The company is a member of the FTSE 250 Index, having achieved a Premium Listing on the London Stock Exchange in July 2010. The Board is committed to high standards of corporate governance and supports the Corporate Governance Code which sets standards of good practice for UK listed companies. The following diagram depicts the Group's governance structure as at 30 September 2016:

the Model Governance Committee is a joint committee of the Boards of Phoenix Life and Phoenix Life Holdings Limited

5.5 The Board

The Board comprises the Non-Executive Chairman, the Group Chief Executive Officer, the Group Finance Director and nine other independent Non-Executive Directors (the ''Non-Executive Directors''). Summary biographical details of each of the Directors are described at paragraph 5.1.1 (''Directors' biographies'') of this Part XIV (''Additional Information''). The Board considers that the following Directors are independent as they do not have any interest or business and other relationship which could, or could be perceived to, interfere materially with their ability to act in the best interests of the Company: Rene-Pierre Azria, Alastair Barbour, Ian Cormack, Isabel Hudson, Wendy Mayall, John Pollock, Nicholas ´ Shott, Kory Sorenson, and David Woods. The Board has considered the criteria proposed by the Corporate Governance Code in assessing the independence of the Directors.

Non-Executive Directors are appointed for a term of three years (subject to annual re-election at the AGM), and any subsequent terms are considered by the Nomination Committee and the Board. All Directors are subject to a vote for re-election at the AGM and all current directors were elected or re-elected at the AGM on 11 May 2016, other than Wendy Mayall, John Pollock and Nicholas Shott, who were appointed to the Board on 1 September 2016.

The Board is responsible to the Shareholders for the overall governance and performance of the Group. The Board's role is to provide entrepreneurial leadership within a framework of prudent and effective controls which enables risk to be assessed and managed. The Board has a schedule of matters reserved for its consideration and approval. These matters include:

Group strategy and business plans;
major acquisitions, investments and capital expenditure;
financial reporting and controls;
dividend policy;
capital structure;
the constitution of Board committees;
appointments to the Board and Board committees;
senior executive appointments; and
key Group policies.

Matters which are not reserved for the Board or its committees under their terms of reference, or for Shareholders in general meetings, are delegated to the Executive Committee under a schedule of delegated authorities approved by the Board.

Central management and control of the Company is in Jersey, where the Company's head office is located.

5.6 The Chairman, Group Chief Executive Officer and Senior Independent Non-Executive Director

There is a division of responsibility, approved by the Board, between the Chairman, Henry Staunton, who is responsible for the leadership and effective operation of the Board and the Group Chief Executive Officer, Clive Bannister, who is responsible to the Board for the overall management and operation of the Group. The Chairman's other significant commitments are set out in his biographical details which appear at paragraph 5.1.1 (''Directors' biographies'') of this Part XIV (''Additional Information'').

The Senior Independent Non-Executive Director, appointed by the Board, is Ian Cormack. His role is to be available to Shareholders whose concerns are not resolved through the normal channels or when such channels are inappropriate. He is also responsible for leading the appraisal of the Chairman's performance by the Non-Executive Directors.

5.7 Effectiveness of the Board

In accordance with the Corporate Governance Code, an evaluation of the performance of the Board and that of its committees and individual Directors was undertaken in November 2015.

The process involved completion by Directors of a questionnaire covering various aspects of Board, Committee and Director effectiveness, followed by individual meetings with each Director, concluding in a Board report which was discussed by the Board in November 2015. The following areas were covered:

Board performance;
Board structure and composition, including diversity;
Board dynamics and relationship;
Board processes;
Board committees;
Individual Director performances; and
Director induction and training.

The output from the Board and individual Director reviews informed the review of the Board composition which led to the Board's recommendations to shareholders regarding re-election of directors at the 2016 AGM.

All Directors receive a tailored induction on joining the Board and benefit from an ongoing training programme.

5.8 Operation of the Board

The terms of appointment for the Directors state that they are expected to attend in person regular (at least six per year) and extraordinary Board meetings of the Company and to devote appropriate preparation time ahead of each meeting. The Non-Executive Directors hold meetings with the Chairman without the Executive Directors being present.

5.9 Board's committees

The Board has delegated specific responsibilities to four standing committees of the Board.

5.9.1 Audit Committee

Alastair Barbour is the Chairman of the Audit Committee. The other members are Isabel Hudson, Kory Sorenson and David Woods. The composition of the Committee is in accordance with the requirements of the Corporate Governance Code that the Audit Committee should consist of at least three independent Non-Executive Directors of whom at least one has recent and relevant financial experience. Alastair Barbour and Kory Sorenson both have recent and relevant financial experience.

The Audit Committee is responsible for making recommendations to the Board on such matters as the appointment of the external auditors and their terms of engagement and for reviewing the performance, objectivity and independence of the external auditors. The Audit Committee is also responsible for assessing the effectiveness of the Group's internal audit function. The Audit Committee receives and reviews the annual report and accounts and other related financial disclosures, the ultimate responsibility for these matters remaining with the Board. It monitors the overall integrity of the financial reporting by the Company and its subsidiaries and reviews compliance with legal and regulatory requirements and the effectiveness of the Group's internal controls. The terms of reference of the Audit Committee state that it shall meet the external auditor at least once a year without management being present.

The Company has adopted a Charter of Statutory Auditor Independence, which requires both the Company and the external auditors to take measures to safeguard the objectivity and independence of the external auditors. These measures include a prohibition regarding non-audit services in respect of specific areas, such as secondments to management positions, or those which could create a conflict or perceived conflict. It also includes details of the procedures for the rotation of the external audit engagement partner.

5.9.2 Nomination Committee

Henry Staunton is Chairman of the Nomination Committee. The other members are Alastair Barbour, Ian Cormack and David Woods. The composition of the Nomination Committee is in accordance with the requirements of the Corporate Governance Code that a majority of its members should be independent Non-Executive Directors. The Nomination Committee is responsible for considering the size, composition and balance of the Board; the retirement and appointment of Directors; succession planning for the Board and senior management; and making recommendations to the Board on these matters.

5.9.3 Remuneration Committee

Ian Cormack is Chairman of the Remuneration Committee. The other members are Isabel Hudson and Kory Sorenson. The composition of the Remuneration Committee accords with the requirements of the Corporate Governance Code that the Remuneration Committee should consist of at least three independent Non-Executive Directors.

The Remuneration Committee is responsible for making recommendations to the Board on the Company's remuneration and compensation plans, policies and practices and for determining, within agreed terms of reference, specific remuneration packages for the Executive Directors. These include pension rights and executive incentive schemes to encourage superior performance.

FIT Remuneration Consultants provide advice to the Remuneration Committee and are independent of the Company.

5.9.4 Risk Committee

The establishment of a Risk Committee is not a requirement of the Corporate Governance Code. However, the Directors believe that a Risk Committee is important to ensure the robust oversight of the management of risk within the Group. The composition of the Risk Committee, with a majority of independent Non-Executive Directors, is in accordance with the final recommendations of the report by Sir David Walker titled 'A review of corporate governance in UK banks and other financial industry entities'.

David Woods is Chairman of the Risk Committee. The other members are Rene-Pierre Azria and Alastair ´ Barbour.

The Risk Committee advises the Board on risk appetite and tolerance in setting the future strategy, taking account of the Board's overall degree of risk appetite, the current financial situation of the Company and the Company's capacity to manage and control risks within the agreed strategy. It advises the Board on all high-level risk matters. Details of the Risk management Framework, for which the Risk Committee has oversight, are set forth in ''Risk management—The Group's Risk Management Framework'' in Part IV (''Business Overview of the Company'') of this document.

6. DIRECTORS' AND SENIOR MANAGERS' INTERESTS

The interests of the Directors and Senior Managers, and their immediate families, in the share capital of the Company (all of which, unless otherwise stated, are beneficial) on the date of this document and as they are expected to be immediately following the New Share Issue including as a percentage of the Enlarged Share Capital (assuming the issuance of 144,722,989 New Shares, full take up by the Directors and Senior Managers of their entitlements under the Rights Issue and no options granted under the Share

Schemes between 3 October 2016 (being the latest practicable date prior to the publication of this document) and the New Share Issue), are as follows:

	Shares beneficially held at the date of this document		Shares beneficially held immediately following the New Share Issue
Name	Number of Shares	Percentage of issued share capital(1)	Number of Shares	Percentage of Enlarged Share Capital(1)
Directors
Henry Staunton	20,000	0.01%	31,666	0.01%
Clive Bannister	330,195	0.13%	522,808	0.13%
James McConville	104,608	0.04%	165,629	0.04%
Ian Cormack	3,650	0.00%	5,779	0.00%
´ Rene-Pierre Azria	34,491	0.01%	54,610	0.01%
Alastair Barbour	3,000	0.00%	4,750	0.00%
Isabel Hudson	3,880	0.00%	6,143	0.00%
Wendy Mayall	—	—	—	—
John Pollock	—	—	—	—
Nicholas Shott	—	—	—	—
Kory Sorenson	1,380	0.00%	2,185	0.00%
David Woods	3,500	0.00%	5,541	0.00%
Senior Managers
Fiona Clutterbuck	38,153	0.02%	60,408	0.02%
Stephen Jefford	—	—	—	—
Andy Moss	46,241	0.02%	73,214	0.02%
Wayne Snow	33,313	0.01%	52,745	0.01%
Simon True	7,973	0.00%	12,623	0.00%
Quentin Zentner	18,058	0.01%	28,591	0.01%

Note:

(1) There exist 5 million outstanding redeemable Lender Warrants in the Company. Each Lender Warrant is exercisable into 1.027873 Shares of the Company at a warrant price of £14.59 per share. If they are exercised, the Company will be required to issue up to 5,139,365 additional Shares.

The Directors and the Senior Managers have the same voting rights as all other Shareholders.

Details of the Directors' and Senior Managers' non-beneficial interests in the Shares subject to options and awards under the Share Schemes are set out in paragraphs 10.7 (''Executive Directors'') and 10.8 (''Senior Managers'') of this Part XIV (''Additional Information'').

Other than as disclosed in paragraphs 10.7 (''Executive Directors'') and 10.8 (''Senior Managers'') of this Part XIV (''Additional Information''), there are no other persons to whom any capital of any member of the Group is under option, or agreed conditionally or unconditionally to be put under option.

No Director has or has had any interest in any transactions which are or were unusual in their nature or conditions or are or were significant to the business of the Group or any of its subsidiary undertakings and which were effected by the Group or any of its subsidiaries during the current or immediately preceding financial year or during an earlier financial year and which remain in any respect outstanding or unperformed.

There are no outstanding loans or guarantees granted or provided by any member of the Group to or for the benefit of any of the Directors.

Save as set out in this Part XIV (''Additional Information''), it is not expected that any Director will have any interest in the share or loan capital of the Company following the New Share Issue and there is no person to whom any capital of any member of the Group is under option or agreed unconditionally to be put under option.

7. INTERESTS OF MAJOR SHAREHOLDERS

Information provided to the Company pursuant to the Disclosure Guidance and Transparency Rules regarding its substantial Shareholders is published on a Regulatory Information Service and on the Company's website.

As at 3 October 2016 (being the latest practicable date prior to the publication of this document), insofar as is known to the Company: (i) the following persons are interested, directly or indirectly, in 3 per cent. or more of the Company's issued share capital, and (ii) immediately following the New Share Issue, the following persons will be interested, directly or indirectly, in 3 per cent. or more of the Company's issued share capital, assuming the issuance of 144,722,989 New Shares, full take up by such persons of their entitlements under the Rights Issue and no additional shares are issued by the Company or options granted under the Share Schemes are exercised between 3 October 2016 (being the latest practicable date prior to the publication of this document) and the New Share Issue.

	As at 3 October 2016		Immediately following the New Share Issue
Name	Number of voting rights	Percentage of issued share capital(1)	Number of voting rights	Percentage of Enlarged Share Capital(1)
Artemis Investment Management LLP	22,477,890	9.06%	35,589,992	9.06%
Prudential plc group of companies	12,649,238	5.10%	20,027,960	5.10%
Aviva plc and its subsidiaries	11,360,988	4.58%	17,988,231	4.58%
Ameriprise Financial Inc.	11,277,894	4.55%	17,856,665	4.55%

Note:

Insofar as is known to the Company, the Company is not directly or indirectly owned or controlled by another corporation, any foreign government, or any other natural or legal person, severally or jointly, nor is it aware of any arrangements the operation of which may at a subsequent date result in a change of control of the Company.

None of the major Shareholders referred to above has different voting rights from other Shareholders.

8. DIRECTORS' SERVICE AGREEMENTS AND LETTERS OF APPOINTMENT

Each of the Executive Directors are appointed to the Board for an unlimited term subject to a 12 month notice period. Certain Executive Directors have service agreements with PGMS under which they are appointed to the Board. Details of the service agreements are summarised below. The Non-Executive Directors, including the Chairman, entered into letters of appointment with the Company relating to their appointment to the Board, which are summarised below.

8.1 Service Agreements of the Executive Directors

Certain Executive Directors have entered into service agreements with PGMS. Details of these service agreements are set out below:

Name	Date of service agreement	Commencement date of appointment to the Board	Commencement date of employment	Expiry/Notice terms	Basic Annual Salary (2015)
Clive Bannister . (Group Chief Executive Officer)	7 February 2011	28 March 2011	7 February 2011	12 months	£700,000
James McConville . (Group Finance Director)	28 May 2012	28 June 2012	6 June 2012	12 months	£440,000

Details of the share options and awards held by Mr Bannister and Mr McConville are set out in paragraph 10.7 (''Employee Incentive Plans—Executive Directors'') of this Part XIV (''Additional Information'').

8.1.1 Clive Bannister's Service Agreement

Mr Bannister's service agreement will continue until terminated by either party giving 12 months' notice to the other, subject to earlier termination for cause.

Mr Bannister's service agreement provides that PGMS may terminate his employment by making a payment of a cash sum in lieu of notice equal to Mr Bannister's basic salary (at the rate applicable on the date on which notice to terminate was first given by either party), plus the cost of the provision of private medical and health insurance, life insurance, and pension contributions payable for any unexpired portion of the notice period, less any required deductions (the ''payment in lieu'').

As an alternative to the payment in lieu being paid as a lump sum, the Remuneration Committee may require the payment in lieu to be made in instalments (with 50 per cent. being paid on the termination date, 25 per cent. being paid six months following the termination date, with the remaining 25 per cent. being paid nine months following the termination date). If Mr Bannister finds alternative employment or engagement during the relevant periods, the amount of any outstanding instalments will be reduced by the amount of any basic salary or fees he receives from such employment or engagement. Payment of any such instalments would be subject to Mr Bannister using all reasonable endeavours to find suitable alternative employment and/or engagement.

On termination, Mr Bannister may be eligible for a payment under the Group's severance policy, the amount of which would be dependent on his length of service at the time of termination. Mr Bannister is entitled to be considered for an annual discretionary bonus. The amount of any bonus (which is payable by PGMS) will be determined by the Remuneration Committee. For 2016, Mr Bannister's bonus potential is 75 per cent. of salary for on target corporate and personal performance and 150 per cent. of salary for maximum performance. Any bonus payment will be subject to clawback if bonuses have been calculated on the basis of misstated or incorrect financial information. For the 2016 annual discretionary bonus, one third of any bonus declared will be deferred under a deferred bonus share scheme into an award of Shares for a period of three years, subject to Mr Bannister's continued employment. If Mr Bannister's employment is terminated (other than by way of summary termination, in which case no bonus is payable on termination), the Remuneration Committee has the discretion to pay Mr Bannister a pro rata bonus for the year in which the employment ends, payable at the same time as for other executives participating in the same scheme.

Mr Bannister is entitled to receive a car allowance of £15,000 per annum (which is payable monthly, less any required deductions), and to be provided with private medical and health insurance and life insurance cover.

Mr Bannister is subject to a confidentiality undertaking without limitation in time and to non-competition, non-dealing, and non-solicitation restrictive covenants for a period of six months following termination of employment.

Mr Bannister is not a member of the Company's Group Personal Pension or any other pension funded by the Group. In lieu of any Group contribution to a pension, Mr Bannister receives a non-contractual monthly allowance of £10,252 which is not counted towards Mr Bannister's total remuneration for the purposes of calculating any bonus payments.

8.1.2 James McConville's Service Agreement

Mr McConville's service agreement will continue until terminated by either party giving 12 months' notice to the other, subject to earlier termination for cause.

Mr McConville's service agreement provides that PGMS may terminate his employment by making a payment of a cash sum in lieu of notice equal to Mr McConville's basic salary (at the rate applicable on the date on which notice to terminate was first given by either party), plus the cost of the provision of private medical and health insurance, life insurance, and pension contributions payable for any unexpired portion of the notice period, less any required deductions (the ''payment in lieu'').

As an alternative to the payment in lieu being paid as a lump sum, the Remuneration Committee may require the payment in lieu to be made in instalments (with 50 per cent. being paid on the termination date, 25 per cent. being paid six months following the termination date, with the remaining 25 per cent. being paid nine months following the termination date). If Mr McConville finds alternative employment or engagement during the relevant periods, the amount of any outstanding instalments will be reduced by the amount of any basic salary or fees he receives from such employment or engagement. Payment of any such instalments would be subject to Mr McConville using all reasonable endeavours to find suitable alternative employment and/or engagement.

On termination, Mr McConville may be eligible for a payment under the Group's severance policy, the amount of which would be dependent on his length of service at the time of termination.

Mr McConville is entitled to be considered for an annual discretionary bonus. The amount of any bonus (which is payable by PGMS) will be determined by the Remuneration Committee. For 2016, Mr McConville's bonus potential is 75 per cent. of salary for on target corporate and personal performance and 150 per cent. of salary for maximum performance. Any bonus payment will be subject to clawback if bonuses have been calculated on the basis of misstated or incorrect financial information. For the 2016 annual discretionary bonus, one third of any bonus declared will be deferred under a deferred bonus share scheme into an award of Shares for a period of three years, subject to Mr McConville's continued employment. If Mr McConville's employment is terminated (other than by way of summary termination, in which case no bonus is payable on termination), the Remuneration Committee has the discretion to pay Mr McConville a pro rata bonus for the year in which the employment ends, payable at the same time as for other executives participating in the same scheme.

Mr McConville is entitled to receive a car allowance of £15,000 per annum (which is payable monthly, less any required deductions), and to be provided with private medical and health insurance and life insurance cover.

Mr McConville is not a member of the Company's Group Personal Pension or any other pension funded by the Group. In lieu of any Group contribution to a pension, Mr McConville receives a non-contractual monthly allowance of £6,444 which is not counted towards Mr McConville's total remuneration for the purposes of calculating any bonus payments.

Mr McConville is subject to a confidentiality undertaking without limitation in time and to non-competition, non-dealing, and non-solicitation restrictive covenants for a period of six months following termination of employment.

8.2 Letters of appointment of the Chairman and Non-Executive Directors

The Chairman and the Non-Executive Directors have each entered into letters of appointment with the Company. Details of these letters of appointment are set out below:

Non-Executive Director	Date of letter of appointment	Date of joining the Board	Appointment end date	Annual Fees (2015)(2)
´ (1) Rene-Pierre Azria	2 September 2009	2 September 2009	11 May 2017	£100,000
Alastair Barbour .	11 September 2013	1 October 2013	11 May 2017	£130,000(3)
Ian Cormack	2 September 2009	2 September 2009	11 May 2017	£125,000(4)
Isabel Hudson	11 December 2009	18 February 2010	11 May 2017	£100,000
Wendy Mayall .	24 August 2016	1 September 2016	1 September 2019	—
John Pollock .	24 August 2016	1 September 2016	1 September 2019	—
Nicholas Shott	24 August 2016	1 September 2016	1 September 2019	—
Kory Sorenson	9 May 2014	1 July 2014	1 July 2017	£ 90,000
Henry Staunton	19 August 2015	1 September 2015	1 September 2018	£108,000(5)
David Woods	21 December 2009	18 February 2010	11 May 2017	£130,000(6)

(1) Rene-Pierre Azria will be leaving the Board on 30 November 2016. ´

(2) The annual fees of the Non-Executive Directors increased with effect from 1 January 2016 (Rene-Pierre Azria: £105,000; ´ Alastair Barbour: £145,000; Ian Cormack: £140,000; Isabel Hudson: £105,000; Kory Sorenson: £105,000; David Woods: £145,000).
(3) Mr Barbour's annual fee includes £20,000 for serving on a subsidiary company board, £10,000 for chairing the Audit Committee and £10,000 for being a member of the Group's Model Governance Committee.
(4) Mr Cormack's annual fee includes £5,000 for serving as Senior Independent Director, £20,000 for serving on a subsidiary company board and £10,000 for chairing the Remuneration Committee.
(5) Mr Staunton joined the Board on 1 September 2015. Mr Staunton's annual fee for serving as Chairman of the Company is £325,000.
(6) Mr Woods' annual fee includes £20,000 for serving on a subsidiary company board, £10,000 for chairing the Risk Committee and £10,000 for being a member of the Group's Model Governance Committee.

The fee levels for 2016 are £325,000 for the Chairman, £105,000 for the role of Non-Executive Director with additional fees of: (i) £5,000 payable for the role of Senior Independent Director; and/or (ii) £10,000 payable where an individual also chairs the Audit, Remuneration or Risk Committee; and/or (iii) £20,000 payable where a Non-Executive Director also serves on the board of a subsidiary company and/or (iv) £10,000 payable for service on the Solvency II Model Governance Committee.

The appointment of the Chairman and each Non-Executive Director is for an initial term of three years (and is renewable for a further three year term), unless terminated earlier by either party with notice, or by the Company for cause. The appointment of the Chairman and each Non-Executive Director is also subject to re-election by the Company in general meeting, the Articles of Association, and continued satisfactory performance. If the Chairman or a Non-Executive Director is not re-elected by the Shareholders, their appointment terminates automatically no later than the end of the general meeting provided that the number of directors at the end of this meeting exceeds the minimum number of directors required by the Articles of Association. If this is not the case then all the retiring directors who stood for re-appointment at the general meeting shall be deemed to have been re-appointed as directors and shall remain in office, but they may only act for the purpose of filling vacancies and convening further general meetings of the Company and performing such duties as are appropriate to maintain the Company as a going concern and to comply with the Company's legal and regulatory obligations.

The Chairman and Non-Executive Directors are not entitled to receive any compensation on termination of their appointment and no fees will be payable in respect of any unserved portion of the term of their appointment. Further, Non-Executive Directors are not entitled to participate in the Group's share, bonus or pension schemes.

The Chairman and each Non-Executive Director is entitled to reimbursement from the Company of reasonable expenses incurred in the performance of their duties. The Chairman and each Non-Executive Director is subject to a confidentiality undertaking without limitation in time. The Chairman and Non-Executive Directors may, in certain circumstances, obtain independent professional advice in the furtherance of their duties as Directors at the Company's expense.

8.3 Other service agreements or letters of appointment

Save as set out in paragraphs 8.1 and 8.2 above, there are no existing or proposed service agreements or letters of appointment between the Directors and any member of the Group.

9. DIRECTORS' AND SENIOR MANAGERS' REMUNERATION

9.1 Directors' Remuneration

The aggregate amount of remuneration paid by the Company or its subsidiaries to the Directors in the year ended 31 December 2015 is set out below. For more information, see paragraphs 8.1 (''Service Agreements of the Executive Directors'') and 8.2 (''Letters of appointment of the Chairman and Non-Executive Directors'') of this Part XIV (''Additional Information'') above.

Director	Fees/salary(1)	Benefits(2)	Annual incentive(3)	2015 Total(4)
			(£)
´ Rene-Pierre Azria	100,000	—	—	100,000
Clive Bannister	700,000	16,000	861,000	1,577,000
Tom Cross Brown(5)	120,000	—	—	120,000
James McConville	440,000	16,000	566,000	1,022,000
Alastair Barbour	130,000	7,000	—	137,000
Ian Cormack	125,000	—	—	125,000
Howard Davies(6)	217,000	—	—	217,000
Isabel Hudson	100,000	—	—	100,000
Wendy Mayall	—	—	—	—
John Pollock	—	—	—	—
Nicholas Shott	—	—	—	—
Kory Sorenson	90,000	—	—	90,000
Henry Staunton(7)	108,000	—	—	108,000
David Woods	130,000	11,000	—	141,000

Notes:

(1) Where appropriate, this figure is pro rata to the period the individual was a Director.

(2) Benefits include car allowance, private medical insurance and life insurance, and reimbursements of expenses for travel and accommodation costs, as applicable.
(3) Annual incentive amounts are presented inclusive of any amounts which must be deferred in shares for three years (i.e., one-third of the 2015 incentive award). Of the amounts presented above, £287,000 of Clive Bannister's incentive payment is subject to 3-year deferral delivered in shares, and £188,650 of James McConville's incentive payment is subject to similar deferral.
(4) The annual fees of the Non-Executive Directors increased with effect from 1 January 2016 (Rene-Pierre Azria: £105,000; Tom ´ Cross Brown: £125,000; Alastair Barbour: £145,000; Ian Cormack: £140,000; Isabel Hudson: £105,000; Kory Sorenson: £105,000; David Woods: £145,000).
(5) Tom Cross Brown retired from the Board on 11 May 2016.
(6) Howard Davies retired from the Board on 31 August 2015.
(7) Henry Staunton joined the Board on 1 September 2015.

9.2 Senior Managers' Remuneration

For the year ended 31 December 2015, the total aggregate amount of remuneration paid by the Company or its subsidiaries to the senior management of the Group was approximately £5.8 million. This amount compromises salary, annual bonus, car allowance, pension contributions and private medical insurance. In addition to the amount above, each Senior Manager is entitled to death in service benefit of four times base salary.

10. EMPLOYEE INCENTIVE PLANS

The Group's Long-Term Incentive Plan, the Sharesave Scheme, the Share Incentive Plan (''SIP'') and the DBSS have been introduced for the purpose of incentivising and motivating the Company's employees by reference to the Company's shares. The Sharesave Scheme and the SIP are intended to give participants favourable tax treatment on the acquisition of the Company's shares under those plans. The DBSS has been introduced to facilitate the bonus deferral of all or part of any annual bonuses earned by members of the Executive Committee and those Senior Managers who receive LTIP Awards as part of their remuneration.

Options have been granted annually since 2010 to employees under the Sharesave Scheme. The SIP was launched in 2012 to all eligible employees with the first purchase of shares in May 2012. Details of the options and awards granted to Senior Managers under Long-Term Incentive Plan, the Sharesave Scheme and SIP are set out in paragraphs 10.7 (''Employee Incentive Plans—Executive Directors'') and 10.8 (''Employee Incentive Plans—Senior Managers'') of this Part XIV (''Additional Information'').

10.1 The Long-Term Incentive Plan

10.1.1 Overview

The LTIP was adopted on 2 July 2009 by the Board, approved by the Company's shareholders with effect from 2 September 2009 and subsequently amended by the Remuneration Committee on 30 January 2013 and 21 January 2015. An eligible employee may be granted a conditional share award (which entitles a participant to acquire or receive shares for no or only a nominal payment), a share option to acquire shares at a nil or nominal exercise price, an allocation of shares which may be forfeited in certain circumstances, or any combination of them (each an ''LTIP Award'').

The LTIP provides that, in countries where an award or option involving real shares or an allocation of forfeitable shares is not appropriate or feasible for legal, regulatory or tax reasons, a phantom award may be used. This delivers a cash payment equal to the net benefit a participant would have derived from the vesting or exercise of an LTIP Award. In certain circumstances, share based awards may be satisfied (in whole or in part) in cash.

10.1.2 Eligibility

All of the Company's employees, including its Executive Directors and those of its subsidiaries are eligible to participate in the LTIP at the discretion of the Remuneration Committee.

10.1.3 Grant of LTIP Awards

Subject to any applicable dealing restrictions, the Remuneration Committee may grant LTIP Awards under the LTIP at any time while the Company is listed on the Official List and admitted to trading on the London Stock Exchange's main market for listed securities. Grants may be made during the period of 42 days commencing on (i) the announcement of the Company's results for any period, or (ii) at such other time as the Remuneration Committee considers that exceptional circumstances exist which justify a grant.

No payment is required for the grant of an LTIP Award.

10.1.4 Individual limits

The Remuneration Committee determines the appropriate level of grant for participants. However, the maximum number of shares under LTIP Awards granted to a participant in any twelve month period will generally not have an aggregate market value, as measured at the date of grant, exceeding 300 per cent. of the participant's base salary. In exceptional circumstances, such as recruitment or retention, a limit of up to 400 per cent. of annual base salary will apply. Market value is based on the average of the closing price of a share as derived from the London Stock Exchange Daily Official List for the three Dealing Days preceding the date of grant. When determining the size of any individual grant, the Remuneration Committee, as far as possible, takes into account the likely impact of dividend enhancement, as described below. Where a participant is required to bear the costs of his employer's National Insurance Contributions on his LTIP Award, the number of shares under his award may, at the discretion of the Remuneration Committee, be increased to reflect this, subject to the maximum limit referred to above.

10.1.5 Dividend enhancement

The number of shares which vest under an LTIP Award is increased to reflect the value of dividends paid on shares during the vesting period.

10.1.6 Performance conditions

LTIP Awards are subject to performance conditions imposed by the Remuneration Committee at the date of grant. Performance conditions are generally measured over a period of three years. The extent to which the performance conditions are satisfied will determine how many (if any) of the shares under an LTIP Award a participant is entitled to acquire or in the case of an allocation of forfeitable shares, to retain. Performance conditions are not capable of being retested, so that any proportion of an LTIP Award which does not vest on the normal vesting date will lapse or be forfeited (as applicable).

The specific performance conditions applicable to a grant of an LTIP Award are determined by the Remuneration Committee at the date of grant. However, as a general matter, performance conditions will be demanding and stretching and, where appropriate, performance may be measured against a defined comparator group. Vesting levels are determined on a sliding scale by reference to achievement of the performance conditions. The Remuneration Committee may determine that an LTIP Award should be subject to multiple conditions or that an LTIP Award should be sub-divided and that each part be subject to a different condition. The Remuneration Committee is required to give due regard to best practice and any applicable codes published by regulators when setting performance conditions.

The Remuneration Committee may set different performance conditions for LTIP Awards granted in different years provided that, in the reasonable opinion of the Remuneration Committee, the targets are not materially less challenging in any year.

The Remuneration Committee may vary the performance conditions applying to existing LTIP Awards if an event occurs which results in the conditions no longer being a fair measure of performance provided that, in the reasonable opinion of the Remuneration Committee, the new conditions are not materially less challenging than the original conditions would have been but for the event in question.

10.1.7 Release or exercise of LTIP Awards

Subject to satisfaction of the applicable performance conditions the vesting period for LTIP Awards is three years after the date of their grant. For LTIP Awards made to executive directors from 2015 onwards, a holding period applies so that any LTIP Awards for which the performance vesting requirements are satisfied will not be released for a further two years from the third anniversary of the original award date. Vested share awards are released to participants automatically within 30 days of the date the shares vest. Vested share options are exercisable up until the tenth anniversary of the date of grant, after which they lapse. Vested forfeitable shares will cease to be subject to the risk of forfeiture on vesting.

LTIP Awards normally only vest if the participant remains in employment with the Company or any of its subsidiaries. If a participant leaves the Company's employment during the vesting period, vested and unvested parts of the LTIP Awards will normally lapse or be forfeited. However, if the reason for leaving is death, injury, disability, ill health, redundancy or any other reason at the Remuneration Committee's discretion, LTIP Awards will not lapse but will vest on the normal vesting date, to the extent that the Remuneration Committee determines that the performance conditions have been satisfied over the full vesting period but subject to a time pro rating reduction (based on the total number of complete months from the date of grant to the cessation of employment relative to a period of 36 months). Alternatively, the Remuneration Committee may, in its absolute discretion, determine that LTIP Awards should vest on the date of cessation of employment, subject to the satisfaction of the performance conditions at that date and to a time pro rating reduction. In either circumstance, the Remuneration Committee may determine that the pro rating reduction should not apply at all or should apply to a lesser extent. In the event of a participant's death, an LTIP Award will vest and the shares may be released or acquired by his or her personal representatives within twelve months of such event.

10.1.8 Corporate events

In the event of a change of control, scheme of arrangement or voluntary winding-up, unvested LTIP Awards will vest to the extent that the performance conditions have been satisfied at the time of the relevant event but subject to a time pro rating reduction (based on the number of complete months from the date of grant to the date of the relevant event relative to a period of 36 months). The Remuneration Committee may in its discretion disapply the application of time pro rating or determine that pro rating should apply to a lesser extent. The Remuneration Committee may also allow or require LTIP Awards to be exchanged for equivalent awards over shares in the acquiring company. In the event of an internal reorganisation which involves the creation of a new holding company, LTIP Awards will not vest and will be replaced by equivalent awards over shares in the new holding company.

If a demerger, special dividend or other similar event or transaction occurs which would affect the market value of a share to a material extent, then the Remuneration Committee may determine that LTIP Awards will vest as on a change of control.

10.1.9 Variation of share capital

In the event of any variation of share capital or reserves of the Company (including, without limitation, by way of capitalisation issue, rights issue, sub-division, consolidation or reduction) or the implementation by the Company of a demerger or payment of a super dividend which would otherwise materially affect the value of a LTIP Award) the Remuneration Committee may adjust the number of Shares subject to LTIP Awards (including vested shares in respect of which any LTIP Award has been realised but Shares have not been transferred to the participant) to such extent and in such manner as it thinks fit.

10.2 The Sharesave Scheme

10.2.1 Overview

The Sharesave Scheme was adopted on 2 July 2009 by the Board, approved by the Company's shareholders with effect from 2 September 2009 and subsequently amended by the Remuneration Committee on 21 January 2015. The Sharesave Scheme enables tax-favoured options to be granted over shares to UK resident employees. The Sharesave Scheme was approved by HMRC on 24 December 2009. As at 3 October 2016 (being the latest practicable date prior to publication of this document), there were 457 employees currently participating in the Sharesave Scheme who have options over a total of 908,496 Shares.

10.2.2 Eligibility

All of the Company's employees and full-time Directors who are UK resident taxpayers are eligible to participate provided that the Remuneration Committee may require any such person to have completed a qualifying period of employment of up to five years. The Remuneration Committee may allow other employees to participate.

10.2.3 Grant of options

Options can only be granted to employees who enter into an approved savings contract with a designated bank or building society, under which monthly savings are made as deductions from pay. The participant must select the date on which his or her savings will be repaid to him (the maturity date) which may be three or five years after the start of the contract provided that the Board may choose to offer only one of those repayment dates.

Invitations to participate in the Sharesave Scheme may be issued only during the period of 42 days commencing on any of the following: the day following the announcement of the Company's results for any financial period; any changes to the legislation affecting savings-related share option schemes being announced, made or coming into effect; or a resolution by the Directors that exceptional circumstances have arisen which justify the grant of options.

10.2.4 Individual limits

A participant's aggregate monthly savings under all savings contracts linked to options granted under any share save scheme must not exceed the statutory maximum (currently £500). The Remuneration Committee can set a lower limit in relation to any particular grant.

The number of shares over which an option is granted is such that the total exercise price payable will correspond to the proceeds on maturity of the related savings contract (i.e., the total savings plus accrued interest).

10.2.5 Exercise price

The price per share payable upon the exercise of an option must not be less than 80 per cent. of the market value of a share on a date which is determined by the Board (but which may be earlier than 30 days prior to the date of grant or 42 days if applications for options are scaled down where this is an oversubscription for options). If the option is granted over Shares which are admitted to trading on the London Stock Exchange, market value will be the average of the middle market quotations of such a share on the relevant exchange for the three consecutive Dealing Days immediately prior to the applicable valuation date. If the option relates to new issue shares, the exercise price must not be less than the nominal value of a share.

10.2.6 Exercise of options

Options are normally only exercisable during the six month period following the maturity date of the relevant savings contract. Earlier exercise is permitted if the participant leaves employment in certain specified circumstances, otherwise options will lapse on the cessation of employment.

Options granted under the Sharesave Scheme are not subject to performance conditions.

10.2.7 Leaving employment

Options lapse on cessation of employment with the Company or any subsidiary of the Company which has been nominated by the Board as a participating company for the purposes of the Sharesave Scheme unless the participant ceases employment for a specified reason. The participant may exercise options within six months of ceasing employment by reason of injury or disability, redundancy, retirement, the sale of the business or subsidiary company in which the participant is employed or, if the option has been held for at least three years, ceasing employment for any other reason. In respect of options granted prior to 17 July 2013, a participant may exercise his or her options within six months of reaching age 60 even though he or she does not leave employment. The personal representatives of a participant who dies may exercise his or her options within 12 months of the date of his or her death or if he or she dies within six months after the maturity of the relevant savings contract, 12 months from that maturity.

10.2.8 Corporate events

In the event of a change of control of the Company as a result of a general offer, or if a court approves a compromise or scheme of arrangement of the Company, or if there is a winding-up, options will become exercisable within limited specified periods of such events to the extent that they are exercisable with accrued savings. The Company will notify participants of the relevant corporate event so as to enable them to exercise their options or take other action. Alternatively, participants may be offered equivalent new options over shares in a new holding company in exchange for their existing options.

10.2.9 Variation of share capital

In the event of any variation of share capital or reserves of the Company (including, without limitation, by way of capitalisation issue, rights issue, sub-division, consolidation or reduction), the number of Shares under option and/or the exercise price may be adjusted as the Board (or a duly authorised committee thereof) may determine, provided that: (i) HMRC gives prior approval, (ii) in respect of options under which Shares are to be transferred, the person holding the Shares to which the Options relate has been given prior notification and gives their prior approval, (iii) the adjustment does not result in an increase to the aggregate exercise price of any option and (iv) the adjustment does not have the effect of reducing the exercise price to less than the nominal value of a Share.

10.3 The Share Incentive Plan

10.3.1 Overview

The SIP was adopted on 2 July 2009 by the Board, approved by the Company's shareholders with effect from 2 September 2009 and subsequently amended with effect from 17 July 2013. The SIP received HMRC approval on 11 January 2012. The acquisition of Shares under the SIP may attract tax-favoured treatment for UK resident employees.

10.3.2 Eligibility

All of the Company's employees who are UK resident taxpayers would be eligible to participate in the SIP provided they satisfy any minimum service requirement that is imposed. The Company may set a minimum service requirement but that requirement cannot exceed 18 months' service. All eligible employees must be invited to participate on similar terms.

10.3.3 Awards

In summary, the SIP allows participants to acquire shares under the terms of three types of awards: (i) an award of free shares (''Free Shares''), (ii) the opportunity for employees to purchase shares with deductions from their pre-tax salary (''Partnership Shares'') and (iii) an award of free shares (''Matching Shares'') to those employees who have purchased Partnership Shares.

These elements may be operated individually or in conjunction with each other except that Matching Shares may only be awarded in conjunction with Partnership Shares. In addition, employees can be required or allowed to reinvest dividends paid on their Free Shares, Partnership Shares and Matching Shares in further shares (''Dividend Shares''). Any shares acquired under the SIP must be held in a special trust on participants' behalf for a minimum period of time.

10.3.4 Free Shares

The Company may provide Free Shares to eligible employees up to a maximum value set from time to time by HMRC. The current maximum value is £3,600 per employee per annum. If the Company wishes, the award of Free Shares can be based on the achievement of personal, team, divisional or corporate performance targets which must be notified to all relevant employees. Otherwise, Free Shares must be awarded to eligible employees on the same terms subject only to variation according to an employee's remuneration, length of service or hours worked.

10.3.5 Partnership Shares

The Company may provide eligible employees with the opportunity to acquire Partnership Shares from their pre-tax salary up to a maximum value set from time to time by HMRC, currently the lesser of £1,800 per annum or 10 per cent. of salary. Salary for these purposes includes base salary and any bonus. The Company may set a minimum monthly deduction that may not be greater than £10. Shares are acquired on behalf of employees within 30 days after each deduction at a price equal to the market value of such shares on the date they are acquired. Alternatively, deductions can be accumulated for up to 12 months. In this case, shares are acquired on behalf of employees within 30 days of the end of the accumulation period, by reference to the market value of the shares on either the date the accumulation period commenced or the date the shares are acquired.

10.3.6 Matching Shares

The Company may award Matching Shares to those eligible employees who have purchased Partnership Shares. The Matching Shares must be offered on the same basis to all employees in such ratio as the Company may determine, but that ratio may not exceed two Matching Shares for every one Partnership Share purchased.

10.3.7 Dividend Shares

The Company may either give eligible employees the opportunity, or may require them, to re-invest dividends paid on their Free Shares, Partnership Shares and Matching Shares in further shares.

10.3.8 Holding period

Free Shares and Matching Shares must generally be held in the SIP trust for a minimum period set by the Company, which may not be less than three years nor more than five years from the date on which such shares are allocated to employees. Partnership Shares are not subject to any specific holding period. Dividend Shares must generally be held in the SIP trust for a minimum period of not less than three years.

10.3.9 Leavers

The Company can provide for Free Shares and Matching Shares to be forfeited if employees cease employment with the Group within a period of up to three years from the date on which the shares were allocated other than in specified circumstances including death, redundancy, disability, injury, retirement, or the sale of the business or subsidiary in which the participant is employed.

Employees may withdraw their Partnership Shares from the SIP trust at any time. However, the Company may stipulate that Matching Shares will be subject to forfeiture if the corresponding Partnership Shares are withdrawn within a specified period (not exceeding three years) of their purchase. The Company may also stipulate that Free Shares and Matching Shares may be forfeited if an employee withdraws them from the SIP trust within a specified period (not exceeding three years) from the date they were allocated. Forfeiture will not apply if the shares are withdrawn from the SIP as a result of a change of control of the Group.

10.3.10 Corporate events

In the event of any reconstruction or takeover of the Company, employees may direct the trustee of the SIP how to act in respect of any shares held on their behalf.

10.3.11 Capital raisings

Whenever rights to acquire shares or other rights of any nature are granted by the Company in respect of its Shares held in the SIP on behalf of participants, participants may instruct the trustee to take up all or part of the rights, to sell the rights and/or to allow all or part of the rights to lapse.

10.4 The Deferred Bonus Share Scheme

10.4.1 Overview

The Deferred Bonus Share Scheme (the ''DBSS'') was adopted by the Remuneration Committee on 1 February 2010 and subsequently amended by the Remuneration Committee on 12 January 2015, 13 March 2015, 18 August 2015 and 23 August 2016. The DBSS allows all or part of an employee's annual bonus to be awarded on a gross of tax basis in the form of a deferred share award, which will vest subject to the employee remaining in employment during a fixed vesting period. The Company may not issue new shares to satisfy deferred share awards. Instead, it may provide monies to an employee benefit trust to enable the trust to purchase existing shares in the market to be used to satisfy the awards.

10.4.2 Grant and vesting of deferred share awards

Participants will be granted an award of shares having a market value equal to the gross of tax element of the annual bonus that is to be deferred. The deferred award will normally vest and become exercisable at the end of a vesting period specified by the Remuneration Committee at the date of grant (which may not be less than three years or longer than five years) and is generally anticipated to be three years subject to the participant's continued employment. The participant may exercise the deferred award during the six months after the end of the vesting period.

10.4.3 Clawback

If it is determined that a bonus to which a deferred award relates was calculated on the basis of misstated or incorrect financial information, that deferred award, to the extent that it is unvested, will lapse (unless the Remuneration Committee decides otherwise) in respect of such number of shares as have a value equal to the difference between the excess bonus and the bonus that would have been calculated on the basis of the restated financial information.

10.4.4 Cessation of employment

If a participant resigns or gives notice of his resignation or is dismissed summarily before the vesting date, his entitlement to the deferred share award will automatically lapse unless the Remuneration Committee, in its discretion, determines otherwise. If the Remuneration Committee exercises its discretion in favour of such a leaver, or if a participant's employment ceases for any other reason, the participant's deferred award will be capable of exercise during the six months following his cessation of employment (or 12 months in the event of his death). If a participant ceases employment by reason of retirement with the consent of the Company, he may exercise a deferred award during the six months following the original vesting date.

10.4.5 Corporate events

In the event of a takeover, scheme of arrangement or winding-up of the Company (not being an internal reorganisation) deferred share awards will vest and be exercisable for a limited period after the change of control. An internal reorganisation to create a new holding company will not result in the accelerated vesting of deferred share awards; they will be exchanged for equivalent awards over shares in the holding company and vest at the normal vesting date.

10.4.6 Variation of share capital

In the event of any variation of the share capital of the Company, a demerger involving the Company or a subsidiary of the Company, or the payment of a capital or other dividend or distribution which is of an unusual nature (and which, in the opinion of the Remuneration Committee, has a material impact on the value of an Share), the Remuneration Committee may adjust, as it considers appropriate: (i) the number of Shares that may be acquired on the exercise of a deferred share award, (ii) the price payable for the Shares and (iii) the number of Shares which may be allotted or transferred pursuant to an award (where an award has been exercised or released but no Shares have been allotted or transferred pursuant to that exercise).

10.5 Terms Applicable to all of the Share Plans

The terms below apply to all the Share Plans.

10.5.1 Time limit for grants of options and awards

Options and awards may not be granted more than ten years after the date the LTIP, Sharesave Scheme and SIP were adopted by the Company's shareholders. The DBSS does not have an automatic termination date.

10.5.2 Satisfaction of options and awards

Options and awards (other than deferred awards granted under the DBSS) may be satisfied by the issue of new shares or the transfer of existing shares.

10.5.3 Overall plan limits

The Company may not grant options or awards under any of the Share Plans or any other share plans adopted by the Company or any other company under its control if such grant would cause the aggregate number of shares issued or issuable pursuant to options or awards granted in the preceding ten years under those plans to exceed 10 per cent. of the Company's issued ordinary share capital at the proposed date of grant.

In addition, the Company may not grant options or awards under the LTIP or any other discretionary share plan adopted by the Company or any other company under its control if such grant would cause the aggregate number of shares issued or issuable pursuant to options or awards granted in the preceding ten years under those plans to exceed 5 per cent. of the Company's issued ordinary share capital at the proposed date of grant.

If options and awards are to be satisfied by a transfer of existing shares, the percentage limits stated above will not apply.

Any options or awards granted, or shares allocated through trust arrangements, under the Share Plans before the Premium Listing which occurred on 5 July 2010, are not taken into account for the purposes of calculating the above limits.

10.5.4 Other features of options and awards

Options and awards are not transferable, except on death. Options and awards are not pensionable. Unless the Remuneration Committee determines otherwise, awards and options will lapse if a participant is declared bankrupt.

10.5.5 Rights attaching to shares

Any shares allotted when an option is exercised or an award vests will rank pari passu with shares then in issue (except for rights arising by reference to a Record Date prior to their allotment). At any time when the shares are admitted to listing on a recognised stock exchange, application will be made for any newly issued shares to be admitted to such listing and admitted to trading on the relevant exchange.

10.5.6 Alterations to the Share Plans

The Remuneration Committee may amend the Share Plans in any respect, provided that (save for the DBSS) the prior approval of shareholders is obtained for any amendment to the advantage of participants to the following provisions: the individuals who may participate in the plan, the limits on the number of shares available under the plan, the maximum entitlement of participants, the basis for determining a participant's entitlement and the adjustment of options or awards on a variation of the Company's share capital.

The requirement to obtain the prior approval of shareholders does not apply to any amendment to the DBSS nor to any minor amendment of the Share Plans made to benefit the administration of the Share Plans, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for eligible employees, participants or for any company in the Group. Shareholder approval is also not required for any amendment to any performance conditions, provided that any such amendment is made on the basis referred to above under paragraph 10.1.6 (''The Long-Term Incentive Plan—Performance conditions'') of this Part XIV (''Additional Information'').

Amendments that would adversely affect subsisting rights are subject to specified limitations.

The Company may modify or extend any of the Share Plans to apply in different jurisdictions, having regard to securities, exchange control and tax laws in such jurisdictions. Any such amendment must conform to the basic principles of the relevant Plan and cannot enlarge the individual or overall limits applicable to that Share Plan.

10.6 Impact of the Rights Issue

The Board intends to make such adjustments to the number of shares subject to share options and awards and the exercise price (if any) of such options as may be appropriate to take account of the Rights Issue in accordance with the rules of the Employee Share Schemes (subject, where appropriate, to HMRC approval). The Remuneration Committee may make such adjustments to the performance conditions which apply to outstanding awards under the LTIP as may be appropriate. Participants in the Employee Share Schemes will be contacted separately with further information on how their share options and/or awards will be affected by the Rights Issue. Participants in the SIP will be eligible to participate in the Rights Issue by instructing the trustee which administers the SIP. Participants in the SIP will receive a separate communication with information on what steps they may take.

10.7 Executive Directors

As at the date of this document, the interests of Clive Bannister and James McConville under the long-term share-based arrangements were as follows:

10.7.1 2013 LTIP Awards

Details of the nil cost options granted on 15 November 2013 under the LTIP to Mr Bannister and Mr McConville are set out in the table below.

	Number of Shares under 2013 LTIP Award	2013 LTIP Awards Normal Vesting Date
Clive Bannister	196,629	15 November 2016
James McConville	112,359	15 November 2016

The 2013 LTIP Awards were subject to two performance conditions. The performance condition attached to the first 40 per cent. of the shares comprised in an LTIP Award was based on embedded value growth targets measured over the three financial years from 1 January 2013 to 31 December 2015. 25 per cent. of these shares will vest if embedded value as calculated under the LTIP rules increases over the period by the relevant risk free rate plus 4 per cent., rising on a straight line basis to full vesting of this tranche of the LTIP Award if embedded value increases by the relevant risk free rate plus 6 per cent. The performance condition attaching to the 40 per cent. of the shares comprised in the LTIP Award were based on cash generation targets measured over the three financial years of the Company starting 1 January 2013. 25 per cent. of the shares comprised in this tranche of an award will vest if cash of £1,277 million is generated over the period, rising on a straight line basis to full vesting of this tranche of an LTIP Awards if cash of £1,517 million is generated.

The performance condition attaching to the remaining 20 per cent. of the shares in the LTIP Award was based on Total Shareholder Return (''TSR'') based on the median performance against the constituents of the FTSE 250 (excluding investment trusts) rising on a pro rata basis until full vesting for upper quartile performance. In addition, the Remuneration Committee must consider whether the TSR performance is reflective of the underlying financial performance of the Company.

10.7.2 2014 LTIP Awards

Details of the nil cost options granted in 2014 under the LTIP to Mr Bannister and Mr McConville are set out in the table below.

	Number of Shares under 2014 LTIP Award	2014 LTIP Awards Normal Vesting Date
Clive Bannister	188,806	26 March 2017
James McConville	118,678	26 March 2017

The 2014 LTIP Awards were subject to two performance conditions. The performance condition attached to the first 40 per cent. of the shares comprised in an LTIP Award will be based on embedded value growth targets measured over the three financial years from 1 January 2014 to 31 December 2016. 25 per cent. of these shares will vest if embedded value as calculated under the LTIP rules increases over the period by the relevant risk free rate plus 4 per cent., rising on a straight line basis to full vesting of this tranche of the LTIP Award if embedded value increases by the relevant risk free rate plus 6 per cent. The performance condition attaching to the 40 per cent. of the shares comprised in the LTIP Award were based on cash generation targets measured over the three financial years of the Company starting 1 January 2014. 25 per cent. of the shares comprised in this tranche of an award will vest if cash of £1,348 million is generated over the period, rising on a straight line basis to full vesting of this tranche of an LTIP Awards if cash of £1,548 million is generated.

The performance condition attaching to the remaining 20 per cent. of the shares in the LTIP Award will be based on TSR based on the median performance against the constituents of the FTSE 250 (excluding investment trusts) rising on a pro rata basis until full vesting for upper quartile performance. In addition, the Remuneration Committee must consider whether the TSR performance is reflective of the underlying financial performance of the Company.

10.7.3 2015 LTIP Awards

Details of the nil cost options granted in 2015 under the LTIP to Mr Bannister and Mr McConville are set out in the table below.

	Number of Shares under 2015 LTIP Award	2015 LTIP Awards Normal Vesting Date
Clive Bannister	169,150	28 September 2018
James McConville	106,322	28 September 2018

The 2015 LTIP Awards were subject to two performance conditions. The performance condition attached to the first 40 per cent. of the shares comprised in an LTIP Award will be based on embedded value growth targets measured over the three financial years from 1 January 2015 to 31 December 2017. 25 per cent. of these shares will vest if embedded value as calculated under the LTIP rules increases over the period by the relevant risk free rate plus 4 per cent., rising on a straight line basis to full vesting of this tranche of the LTIP Award if embedded value increases by the relevant risk free rate plus 6 per cent. The performance condition attaching to the 40 per cent. of the shares comprised in the LTIP Award were based on cash generation targets measured over the three financial years of the Company starting 1 January 2015. 25 per cent. of the shares comprised in this tranche of an award will vest if cash of £841 million is generated over the period, rising on a straight line basis to full vesting of this tranche of an LTIP Awards if cash of £991 million is generated.

10.7.4 2016 LTIP Awards

Details of the nil cost options granted in 2016 under the LTIP to Mr Bannister and Mr McConville are set out in the table below.

	Number of Shares under 2016 LTIP Award	2016 LTIP Awards Normal Vesting Date
Clive Bannister	159,544	2 June 2019
James McConville	100,284	2 June 2019

The 2016 LTIP Awards were subject to two performance conditions. The performance condition attaching to the 50 per cent. of the shares comprised in the LTIP Award were based on cash generation targets measured over the three financial years of the Company starting 1 January 2016. 25 per cent. of the shares comprised in this tranche of an award will vest if cash of £949 million is generated over the period, rising on a straight line basis to full vesting of this tranche of an LTIP Awards if cash of £1,049 million is generated.

The performance condition attaching to the remaining 50 per cent. of the shares in the LTIP Award will be based on TSR based on the median performance against the constituents of the FTSE 250 (excluding investment trusts) rising on a pro rata basis until full vesting for upper quartile performance. In addition, the Remuneration Committee must consider whether the TSR performance is reflective of the underlying financial performance of the Company.

Once the performance conditions have been measured, the 2014, 2015 and 2016 LTIP Awards will only vest if the Remuneration Committee is also satisfied that the levels of bank debt and associated interest costs have remained within parameters acceptable to the Remuneration Committee over the vesting period and that the Company has made progress considered to be reasonable by it in executing any strategy agreed by the Board on debt management and capital restructuring.

LTIP Awards made in 2015 and 2016 are subject to a holding period so that any LTIP Awards for which the performance vesting requirements are satisfied will not be released for a further two years from the third anniversary of the original award.

10.7.5 Deferred Bonus Share Scheme

Details of the nil cost options granted on 28 March 2014, 28 September 2015 and 2 June 2016 under the DBBS to Mr Bannister and Mr McConville are set out in the table below.

	Number of Shares under 2014 DBSS Award	2014 DBSS Awards Normal Vesting Date	Number of Shares under 2015 DBSS Award	2015 DBSS Awards Normal Vesting Date	Number of Shares under 2016 DBSS Award	2016 DBSS Awards Normal Vesting Date
Clive Bannister	34,029	28 March 2017	28,840	19 March 2018	32,706	2 June 2019
James McConville	20,417	28 March 2017	19,124	19 March 2018	21,498	2 June 2019

The DBSS Awards are subject to no performance conditions other than remaining in employment within the Group up to the date of vesting.

10.8 Senior Managers

10.8.1 2013 LTIP Awards

Details of the nil cost options granted in 2013 under the LTIP to the following Senior Managers are set out in the table below.

	Number of Shares under 2013 LTIP Awards	2013 LTIP Awards Normal Vesting Date
Fiona Clutterbuck	26,334	15 November 2016
Stephen Jefford	—	—
Andrew Moss	35,112	15 November 2016
Wayne Snow	44,241	15 November 2016
Simon True	66,362	15 November 2016
Quentin Zentner	18,960	15 November 2016

The performance condition attaching to the remaining 20 per cent. of the shares in the LTIP Award was based on TSR based on the median performance against the constituents of the FTSE 250 (excluding investment trusts) rising on a pro rata basis until full vesting for upper quartile performance. In addition, the Remuneration Committee must consider whether the TSR performance is reflective of the underlying financial performance of the Company.

10.8.2 2014 LTIP Awards

Details of the nil cost options granted in 2014 under the LTIP to the following Senior Managers are set out in the table below.

	Number of Shares under 2014 LTIP Awards	2014 LTIP Awards Normal Vesting Date
Fiona Clutterbuck	25,918	26 March 2017
Stephen Jefford	—	—
Andrew Moss	63,722	26 March 2017
Wayne Snow	48,550	26 March 2017
Simon True	65,315	26 March 2017
Quentin Zentner	18,712	26 March 2017

10.8.3 2015 LTIP Awards

Details of the nil cost options granted in 2015 under the LTIP to the following Senior Managers are set out in the table below.

	Number of Shares under 2015 LTIP Awards	2015 LTIP Awards Normal Vesting Date
Fiona Clutterbuck	23,220	28 September 2018
Stephen Jefford	—	—
Andrew Moss	57,088	28 September 2018
Wayne Snow	48,932	28 September 2018
Simon True	58,515	28 September 2018
Quentin Zentner	39,871	28 September 2018

10.8.4 2016 LTIP Awards

Details of the nil cost options granted in 2016 under the LTIP to the following Senior Managers are set out in the table below.

	Number of Shares under 2016 LTIP Awards	2016 LTIP Awards Normal Vesting Date
Fiona Clutterbuck	21,901	2 June 2019
Stephen Jefford	—	—
Andrew Moss	58,974	2 June 2019
Wayne Snow	46,153	2 June 2019
Simon True	55,192	2 June 2019
Quentin Zentner	39,316	2 June 2019

10.8.5 Deferred Bonus Share Scheme

Details of the nil cost options granted in 2013, 2014, 2015 and 2016 under the DBBS to the following Senior Managers are set out in the table below.

	Number of Shares under 2013 DBSS Award	2013 DBSS Awards Normal Vesting Date	Number of Shares under 2014 DBSS Award	2014 DBSS Awards Normal Vesting Date
Fiona Clutterbuck	13,599	27 March 2016	13,641	28 March 2017
Stephen Jefford	—	—	—	—
Andrew Moss	—	—	7,509	28 March 2017
Wayne Snow	—	—	5,586	28 March 2017
Simon True	—	—	7,392	28 March 2017
Quentin Zentner	—	—	5,331	28 March 2017

	Number of Shares under 2015 DBSS Award	2015 DBSS Awards Normal Vesting Date	Number of Shares under 2016 DBSS Award	2016 DBSS Awards Normal Vesting Date
Fiona Clutterbuck	11,138	28 September 2018	11,179	2 June 2019
Stephen Jefford	—	—	—	—
Andrew Moss	10,804	28 September 2018	14,396	2 June 2019
Wayne Snow	6,041	28 September 2018	7,692	2 June 2019
Simon True	9,843	28 September 2018	10,540	2 June 2019
Quentin Zentner	4,689	28 September 2018	6,006	2 June 2019

The vesting of DBSS Awards are subject to no performance conditions other than remaining in employment within the Group up to the date of vesting.

10.8.6 Share Incentive Plan

The SIP was launched on 14 March 2012, with shares being acquired on a monthly basis. Details of the share awards held in trust under the SIP on behalf of the Senior Managers as at 30 June 2016 (being the latest practicable date prior to publication of this document) are set out in the table below and cover the awards purchased or acquired (as applicable) on a monthly basis between May 2012 and June 2016:

	Total number of	Total number of	Total number of
	Partnership	Matching	Dividend
	Shares held in	Shares held in	Shares held in
	the SIP	the SIP	the SIP
Andrew Moss.	920	153	163

10.9 Share Dealing Code

The Company has adopted a Share Dealing Code in relation to the Shares which is based on the Market Abuse Regulation.

11. SUBSIDIARIES AND CORPORATE STRUCTURE

11.1 Corporate structure

The Company was incorporated in 2008 and is the ultimate parent company of the Group, which comprises the Company and its subsidiary undertakings.

11.2 Significant subsidiary and associated undertakings of the Company

The following is a list of the Company's significant subsidiaries as at the date of this document:

Wholly-owned subsidiaries

Name	Registered office/country of incorporation	Class of shares	Proportion of share capital held by the Group	Nature of business
Impala Holdings Limited	1 Wythall Green Way Wythall, Birmingham B47 6WG, United Kingdom	'A' ordinary shares of £1, 'B' ordinary shares of £1, 'C' ordinary shares of £1 and 'D' Ordinary shares of £1	100 per cent.	Holding company
Pearl Group Holdings (No. 1) Limited .	Juxon House, 100 St Paul's Churchyard, London EC4M 8BU, United Kingdom	Ordinary shares of £0.05	100 per cent.	Finance company
Pearl Group Holdings (No. 2) Limited .	1 Wythall Green Way Wythall, Birmingham B47 6WG, United Kingdom	Ordinary shares of £1	100 per cent.	Holding company
Pearl Group Management Services Limited	1 Wythall Green Way Wythall, Birmingham B47 6WG, United Kingdom	Ordinary shares of £1	100 per cent.	Service company

Name	Registered office/country of incorporation	Class of shares	Proportion of share capital held by the Group	Nature of business
Pearl Group Services Limited .	1 Wythall Green Way Wythall, Birmingham B47 6WG, United Kingdom	Ordinary shares of £1	100 per cent.	Service company
Pearl Life Holdings Limited	1 Wythall Green Way Wythall, Birmingham B47 6WG, United Kingdom	Ordinary shares of £1	100 per cent.	Holding company
PGH (LCA) Limited .	1 Wythall Green Way Wythall, Birmingham B47 6WG, United Kingdom	Ordinary shares of £1	100 per cent.	Finance company
PGH (LCB) Limited	1 Wythall Green Way Wythall, Birmingham B47 6WG, United Kingdom	Ordinary shares of £1	100 per cent.	Finance company
PGH (MC1) Limited .	1 Wythall Green Way Wythall, Birmingham B47 6WG, United Kingdom	Ordinary shares of £1	100 per cent.	Finance company
PGH (MC2) Limited .	1 Wythall Green Way Wythall, Birmingham B47 6WG, United Kingdom	Ordinary shares of £1	100 per cent.	Finance company
Phoenix Life Assurance Limited .	1 Wythall Green Way Wythall, Birmingham B47 6WG, United Kingdom	'A' Ordinary shares of £0.05 and 'B' ordinary shares of £1	100 per cent.	Insurance company
Phoenix Life Holdings Limited .	1 Wythall Green Way Wythall, Birmingham B47 6WG, United Kingdom	Ordinary shares of £1	100 per cent.	Holding company
Phoenix Life Limited .	1 Wythall Green Way Wythall, Birmingham B47 6WG, United Kingdom	Ordinary shares of £1	100 per cent.	Insurance company
PGH Capital P.L.C. (formerly PGH Capital Limited)	Arthur Cox Building, Earlsfort Building, Dublin 2, Ireland	Ordinary shares of £1	100 per cent	Finance Company

Investment

Name	Registered office	Class of shares	Partnership Interest	Proportion of share capital held	Nature of business
UK Commercial Property Trust Limited	Trafalgar Court, Les Banques St., Peter Port, Guernsey	Ordinary Shares of £0.25	Not applicable	48.86 per cent.	Commercial property company

For a full list of the Company's interests in subsidiaries and joint ventures please see note H at pages 168 to 175 in the notes to the consolidated financial statements in the Annual Report and Accounts for the year ended 31 December 2015, which is incorporated by reference into this document.

11.3 SunLife Embassy Business

The following is a list of the companies comprising the SunLife Embassy Business:

Name	Registered office/country of incorporation	Class of shares	Nature of business
AXA Sun Life Direct Limited . .	5 Old Broad Street, London EC2N 1AD, United Kingdom	Ordinary shares of £1	Service company

Name	Registered office/country of incorporation	Class of shares	Nature of business
Winterthur Life UK Holdings Limited	5 Old Broad Street, London EC2N 1AD, United Kingdom	Ordinary shares of £1	Holding company
AXA Wealth Services Limited	5 Old Broad Street, London EC2N 1AD, United Kingdom	Ordinary shares of £1	Service company
AXA Wealth Limited .	5 Old Broad Street, London EC2N 1AD, United Kingdom	Ordinary shares of £1	Insurance company
AXA Trustee Services Limited	5 Old Broad Street, London EC2N 1AD, United Kingdom	Ordinary shares of £1	Service company

11.4 Abbey Life

The following is a list of the Abbey Life companies:

Name	Registered office/country of incorporation	Class of shares	Nature of business
Abbey Life Assurance
Company Limited	Winchester House, 1 Great Winchester Street, London EC2N 2DB, United Kingdom	Ordinary shares of £1	Insurance company
Abbey Life Trustee
Services Limited	Winchester House, 1 Great Winchester Street, London EC2N 2DB, United Kingdom	Ordinary shares of £1	Service company
Abbey Life Trust Securities
Limited	Winchester House, 1 Great Winchester Street, London EC2N 2DB, United Kingdom	Ordinary shares of £1	Service company

12. MATERIAL CONTRACTS

12.1 The Company

The following contracts (not being contracts entered into in the ordinary course of business) (i) have been entered into by the Company or another member of the Group within the two years immediately preceding the date of this document and are or may be material or (ii) have been entered into prior to such period and contain provisions under which a member of the Group has an obligation or entitlement which is material to the Group.

12.1.1 Abbey Life Sale and Purchase agreement

For a description of the Sale and Purchase Agreement, see Part XIII (''Terms of the Acquisition'') of this document.

12.1.2 Abbey Life TSA

For a description of the Abbey Life TSA, see Part XIII (''Terms of the Acquisition'') of this document.

12.1.3 Abbey Life Deed of Indemnity

For a description of the Abbey Life Deed of Indemnity, see Part XIII (''Terms of the Acquisition'') of this document.

12.1.4 Credit facilities

Revolving Credit Agreement

The Company (as guarantor), PGH Capital (as borrower) and Commerzbank Finance & Covered Bond S.A. (as agent), among others, are party to the Revolving Credit Agreement dated 23 July 2014, as amended and restated on 21 March 2016.

AXA Bridge Facility Agreement

The Company (as guarantor), PGH Capital (as borrower) and Commerzbank Finance & Covered Bond S.A. (as agent), among others, are party to the AXA Bridge Facility Agreement dated 27 May 2016. The purpose of the facility is to finance, directly or indirectly, the AXA Transaction and related fees, costs, expenses, taxes and other liabilities. The Group intends to repay the AXA Bridge Facility in full by the end of March 2017 using cashflows from the Group's business or from the proceeds of longer term debt issuances.

Abbey Life Bridge Facility Agreement

Under the Abbey Life Bridge Facility Agreement, the lenders have agreed to make available a sterling term loan facility in an aggregate amount of £250 million. Once utilised, the utilised commitments will accrue interest at a rate per annum equal to LIBOR plus 0.85 per cent. (increasing to 1.25 per cent. six months after Completion, 2.00 per cent. 12 months after Completion, and 2.75 per cent. 18 months after Completion). The facility is available on a customary certain funds basis and utilisation of the facility is subject to the satisfaction of certain documentary conditions precedent linked to the Acquisition.

12.1.5 Pearl Group Staff Pension Scheme Agreements

On 27 November 2012, PGH2 entered into an agreement with the trustee of the Pearl Group Staff Pension Scheme which sets out an agreed contractual framework for contributions to the Pearl Group Staff Pension Scheme (the ''2012 Pensions Agreement''), which replaces a previous funding agreement dated 26 June 2009 (the ''2009 Pensions Agreement'').

Under the 2012 Pensions Agreement:

PGH2 will make certain specific payments to the Pearl Group Staff Pension Scheme. The first contribution of £72 million was paid in September 2013, the second contribution of £68 million was paid on 30 September 2014 and two further contributions of £40 million each were paid on 30 September 2015 and 30 September 2016. The remaining payments are £40 million to the scheme on 30 September of each year from 2017 until 2021, although it has been agreed in principle that future contributions will be paid on a monthly basis. These contributions can be increased and further contributions may become payable after 2021 in certain circumstances under the 2012 Pensions Agreement if the scheme is not anticipated to meet two agreed funding targets. The funding targets are to reach full funding on the technical provisions basis by 30 June 2022 and to reach full funding on a gilts flat basis by 30 June 2031.
There is a sharing mechanism that, in certain circumstances, allows for an acceleration of the contributions to be paid to the Pearl Group Staff Pension Scheme. This mechanism shall cease to apply if the trustees cease to follow a new investment strategy, which is a lower risk investment strategy than the previous investment strategy.
PGH2 has agreed that two covenant tests shall be maintained:
PGH2's embedded value will be maintained at greater than the higher of:
- (a) 1.3 times the lower of £600 million and 60 per cent. of the Gilts Based Deficit; and
- (b) the Gilts Based Deficit less 50 per cent. of the projected investment outperformance over gilts to 30 June 2031.
If this test is not met, restrictions on debt and dividend payments by PGH2 and its subsidiaries will apply; and
PGH2's embedded value shall be greater than the scheme deficit, where liabilities are discounted at the aggregate of gilts flat per annum.
If this test is not met, PGH2 is restricted from making payments of greater than £58 million that reduce its embedded value where those payments are used to fund its shareholder dividends.
The ''Gilts Based Deficit'' for the purposes of the 2012 Pensions Agreement is the scheme deficit calculated on a basis linked to UK government securities.
Failure to maintain the embedded value ratios does not automatically entitle the trustees to exercise their security unless the ratio of PGH2's embedded value to the value of the trustee's security claim falls below 1.05:1 for two consecutive months and is not cured. Elements of the covenant tests and triggered payments will no longer apply if the trustees cease to follow the new investment strategy.
Charges over the shares of PLAL, PGS and PGS2 Limited that were granted to the trustee of the Pearl Group Staff Pension Scheme under the 2009 Pensions Agreement remain in place. The value of the security claim granted under the share charges is the lower of £600 million and 100 per cent. of the Gilts Based Deficit revalued every three years.
The occurrence of certain events will entitle the trustee of the Pearl Group Staff Pension Scheme to enforce its security under the share charges described above. These events include PGH2 failing to comply with certain provisions of the 2012 Pensions Agreement including without limitation to pay amounts when due, failing to meet the embedded value ratio test and customary events in connection with such security documents. Enforcement action by the trustee of the Pearl Group Staff Pension Scheme would be an event of default under the Revolving Credit Agreement. These security arrangements also include certain restrictions on transfer, including to other parts of the Group.

The agreement reached in the 2012 Pensions Agreement is subject to the statutory funding regime in the Pensions Act 2004.

12.1.6 PGL Pension Scheme Guarantees

Pearl Life Holdings Limited has guaranteed to the trustees of the PGL Pension Scheme the obligations and liabilities of the participating employers to make payments to the PGL Pension Scheme. The principal obligations that are subject to the guarantee are cash contributions of £1.25 million per month until August 2017. The performance of Pearl Life Holdings Limited under the guarantee has been guaranteed by PGH1.

12.1.7 PLL Tier 2 Bonds

In July 2001, Scottish Mutual Assurance Limited (which was then known as Scottish Mutual Assurance plc) issued £200 million 7.25 per cent. undated, unsecured subordinated notes (the ''PLL Tier 2 Bonds''). With effect from 1 January 2009, as a part of a Part VII transfer, the PLL Tier 2 Bonds were transferred into the shareholder fund of PLL. The PLL Tier 2 Bonds have no fixed redemption date. The earliest date upon which PLL can redeem the PLL Tier 2 Bonds is on 25 March 2021 and on each fifth anniversary thereafter. In the event of the winding-up of PLL, the right of payment under the PLL Tier 2 Bonds is subordinated to the rights of the higher-ranking creditors (principally policyholders). The PLL Tier 2 Bonds are listed on the Luxembourg Stock Exchange. On 23 December 2014, the terms of the PLL Tier 2 Bonds were amended pursuant to an Extraordinary Resolution of the holders of the PLL Tier 2 Bonds and a supplemental trust deed effecting such changes in order to ensure that the PLL Tier 2 Bonds were compliant with the requirements of GENPRU as they applied to PLL. The PLL Tier 2 Bonds will continue to be treated as tier 2 capital for up to ten years from 1 January 2016 under the transitional arrangements set out in the Solvency II Directive.

12.1.8 The Subordinated Bonds

On 23 January 2015, PGH Capital issued £428,113,000 6.625 per cent. Guaranteed Subordinated Bonds due 2025 guaranteed by the Company on a subordinated basis. The Subordinated Bonds constitute direct, unsecured and subordinated obligations of PGH Capital. On a winding-up of PGH Capital or in the event that an administrator of PGH Capital is appointed and gives notice that it intends to declare and distribute a dividend, the claims of the holders of the Subordinated Bonds will rank junior in priority to the claims of all Senior Creditors of PGH Capital. Unless previously redeemed or purchased and cancelled, the Subordinated Bonds are scheduled to mature on 18 December 2025, subject to and in accordance with their terms. The Subordinated Bonds are listed on the London Stock Exchange.

12.1.9 The Senior Bonds

12.1.10 Mutual Securitisation Bonds

In 1998, National Provident Institution raised approximately £260 million of capital through the securitisation of embedded value on blocks of existing unit linked and unitised with profit life and pension policies. The issuer of the underlying bonds (the ''Mutual Securitisation Bonds'') is Mutual Securitisation plc, which is not a member of the Group, but is consolidated for accounting purposes.

The Mutual Securitisation Bonds were issued in two classes which rank pari passu, being £140 million of 7.39169 per cent. Class A1 limited recourse bonds which were redeemed in September 2012, and £120 million of 7.5873 per cent. Class A2 limited recourse bonds due in 2022 (with an outstanding principal of £83 million as at 30 June 2016). The Class A2 limited recourse bonds are listed on the Irish Stock Exchange and on the London Stock Exchange. The bonds are repaid out of surplus emerging from the securitised block of business and a collateral fund is in place to support this.

Proceeds of the issue of the Mutual Securitisation Bonds were lent to National Provident Institution pursuant to a loan agreement between, amongst others, National Provident Institution and Mutual Securitisation plc dated 16 April 1998. The loan is secured pursuant to certain security documents between National Provident Institution and Mutual Securitisation plc which were entered into on or around the same date.

Following the demutualisation of National Provident Institution and two subsequent insurance business transfer schemes in 1999 and in 2015, the obligations in relation to these bonds have been assumed by PLAL.

12.1.11 Annuity business transfer agreements

Ping 1

On 26 June 2012, Guardian Assurance agreed to reinsure (the ''Ping 1 Reinsurance'') approximately £5 billion of annuity in-payment effective on 1 July 2012. The liabilities were reinsured pursuant to five collateralised reinsurance agreements in the following amounts: PLL (£3.4 billion, which is the aggregate of two collateralised reinsurance agreements), PLAL (£1.0 billion, which is the aggregate of two collateralised reinsurance agreements) and National Provident Life Limited (£0.6 billion).

PLL, National Provident Life Limited and PLAL transferred by order of a Court sanctioned scheme (the ''Ping 1 Scheme'') under Part VII of FSMA the annuity policies which were the subject of the Ping 1 Reinsurance agreements on 13 September 2013. Following the transfer of the business of National Provident Life Limited into PLAL, the Group had two companies, being PLL and PLAL.

PLAL and PLL are responsible for certain contractual protection provided to Guardian in respect of exposure to mis-selling liabilities arising prior to completion of the Ping 1 Scheme.

Ping 2

On 31 July 2014, ReAssure Life Limited (''RALL'') (formerly Guardian Assurance Limited) agreed to reinsure and transfer at a future point (the ''Ping 2 Reinsurance'') approximately £1.9 billion of PLL annuity in-payment effective on 1 January 2014. The liabilities were reinsured pursuant to a collateralised reinsurance agreement.

PLL agreed with RALL in an amended and restated business transfer agreement dated 23 August 2016 to use reasonable endeavours to transfer by order of a Court sanctioned scheme (the ''Ping 2 Scheme'') under Part VII of FSMA the annuity policies which were the subject of the Ping 2 Reinsurance agreements by 31 December 2016.

12.1.12 Contracts relating to the Divestment of Ignis Asset Management

On 25 March 2014, the Group agreed to dispose of the entire issued share capital of Ignis Asset Management to Standard Life Investments, in return for total consideration of £390 million which was paid in cash on Completion of the Divestment. Completion of the Divestment occurred on 1 July 2014. A payment of £6 million was made to Standard Life on 24 September 2014 in relation to certain contractual balance sheet adjustments which could not be calculated until after closing.

As part of the Divestment, Impala agreed to a purchase price adjustment in the event that assets held by the Life Companies are withdrawn from management by Ignis Asset Management, other than for specific reasons such as poor investment performance or for material breaches of the existing Investment Management Agreements between the Life Companies (and Opal Re) and Standard Life Investments (formerly Ignis Investment Services Limited). A purchase price adjustment can only be triggered as a result of a decision by the relevant member of the Group to withdraw assets from management by Ignis Asset Management. The Company has also guaranteed Impala's obligations in connection with the Divestment, including indemnities given by Impala to Standard Life Investments and Impala's obligations in respect of any purchase price adjustment.

The Investment Management Agreements between the Life Companies (and Opal Re) and Ignis Asset Management remain in force following the Divestment. This includes the existing fee arrangements remaining broadly the same and the notice periods for withdrawal of assets without cause remaining generally on a three year rolling basis. Under the agreement dated 25 March 2014 between the Company, Impala and Standard Life Investments relating to the divestment of Ignis Asset Management, Impala has agreed to a purchase price adjustment for a period of 10 years if a Life Company withdraws assets from management by Ignis Asset Management or any of its subsidiaries under an Investment Management Agreement, subject to certain exceptions.

This price adjustment mechanism is calculated on the basis of the base management fees that would have been payable under the relevant Investment Management Agreement, assuming the assets had not been withdrawn and taking into account the expected run-off profile of the relevant assets. No purchase price adjustment shall be payable in respect of any other fees or costs including performance fees and stocklending fees. For each of the last five years of the Price Adjustment Period, the purchase price adjustment payable will be discounted at a rate of 50 per cent. The purchase price adjustment is net of a notional corporation tax amount determined in accordance with the terms of the Divestment.

A purchase price adjustment is not payable in certain circumstances, including if the assets are withdrawn due to investment underperformance or a material breach of the Investment Management Agreement by the relevant asset manager. In addition, if any of the Life Companies terminates an Investment Management Agreement on contractual notice, then no purchase price adjustment is payable in respect of the relevant notice period, but a purchase price adjustment would continue to apply in respect of the period between the end of such notice period and the end of the Price Adjustment Period.

The Group has the potential to generate value from future closed life fund acquisitions through a synergy sharing agreement agreed between the Group, Impala and Standard Life Investments (the ''Synergy Sharing Agreement''). Subject to the terms and conditions of the Synergy Sharing Agreement, Standard Life Investments will pay to Impala, on an annual basis, an agreed proportion of base management fees related to the future management by Standard Life Investments of certain additional assets of the Group. This revenue sharing arrangement is linked to the quantum of additional assets that are transferred by the Group to the management of Standard Life Investments and which are not already under management of Ignis Asset Management as at the date of the Synergy Sharing Agreement.

12.1.13 AXA Sale and Purchase Agreement

Summary

On 27 May 2016, the Company and PLHL entered into a sale and purchase agreement (the ''AXA SPA'') with AXA UK for the acquisition of the SunLife Embassy Business. The AXA Transaction was structured as an acquisition by PLHL of 100 per cent. of the issued share capital of AXA Sun Life Direct Limited (''Sun Life'') and Winterthur Life UK Holdings Limited (''WLHL'') (together and with WLHL's subsidiaries, the AXA Life Company, AXA Wealth Services Limited and AXA Trustee Services Limited, the ''SunLife Embassy Group''). The Company has guaranteed the obligations of PLHL under the AXA SPA.

The consideration for the SunLife Embassy Group will be satisfied on closing under the AXA SPA by the payment in cash of £375 million, subject to certain adjustments to be made at closing.

Conditionality

The AXA Transaction is conditional on change of control approval from the PRA and the FCA and the completion of the non pre-emptive placing of new ordinary shares in the Company in accordance with the placing terms. The placing condition has already been satisfied. Subject to regulatory approvals, it is anticipated that closing will occur in 2016.

The Company has termination rights under the AXA SPA in certain circumstances if the regulatory approval for the AXA Transaction is made subject to certain conditions which, in the context of the Group as a whole, are considered to be material. If the Company exercises this termination right, it is required to pay a break fee of £4 million to AXA UK.

Contractual protections

Under the terms of the AXA SPA, AXA UK has given certain warranties and indemnities to PLHL and PLHL has given certain limited warranties to AXA UK, all of which are generally typical for transactions in the pensions and protection business.

12.1.14 AXA transitional service agreement

Summary

A tri-partite transitional services agreement (the ''AXA TSA'') was executed between (i) AXA UK; (ii) WLHL and Sun Life (together, the ''SunLife Embassy Companies''); and (iii) AXA Portfolio Services Limited (''APS''). AXA UK is the main service provider under the AXA TSA. However, limited services are provided to the SunLife Embassy Companies from APS and to APS from the SunLife Embassy Companies.

Services will be provided for up to two years, subject to the rights of the parties to terminate early in certain circumstances.

Overview of Services

The services to be provided by AXA UK to the SunLife Embassy Companies include provision of various IT and operational services, certain product tools, corporate tax and VAT support, HR services, back-office processing, accounting/reporting and facilities management services. The services to be provided by the SunLife Embassy Companies to APS relate to limited IT support services. The services to be provided by APS to the Companies relate to the provision of certain product tools and services.

There is also a process for a service recipient to request additional services that were provided prior to the relevant closing date for the transactions, but were omitted from the list of services in the AXA TSA.

Generally, the services will be provided in all material respects in the same manner and at least to the same standard as they were performed during the twelve months prior to the services commencing under the AXA TSA.

Governance

Whilst the AXA TSA is a multi-party agreement, the governance relationships and separation planning will be bi-lateral between the relevant service provider and service recipient. AXA UK is responsible for leading all discussions with third party suppliers for services provided by AXA.

12.1.15 Sponsors and Underwriting Agreement

The Company and the Banks have entered into a sponsors and underwriting agreement dated 28 September 2016 which sets out the terms on which the Company has appointed (i) HSBC and Morgan Stanley to act as sponsors in relation to the Rights Issue and the Acquisition; (ii) HSBC, J.P. Morgan Cazenove and Morgan Stanley to act as Global Coordinators in connection with the Rights Issue; and (iii) Commerzbank and Natixis to act as Co-Bookrunners in connection with the Rights Issue (the ''Sponsors and Underwriting Agreement''). The Sponsors and Underwriting Agreement contains warranties and undertakings given by the Company which are customary for an agreement of this kind. In addition, it contains indemnities from the Company in favour of the Banks in respect of certain liabilities connected with Admission and documentation issued to Shareholders and/or investors by or on behalf of the Company in connection with the Rights Issue and the Acquisition, which, again, are customary for an agreement of this kind. Pursuant to the Sponsors and Underwriting Agreement, the Global Coordinators may terminate the agreement in certain limited circumstances prior to Admission. The Joint Sponsors and Global Coordinators are not entitled to terminate the Sponsors and Underwriting Agreement in respect of the Rights Issue after Admission.

Subject to the terms and conditions of the Sponsors and Underwriting Agreement, the Banks have severally agreed to use reasonable endeavours to procure subscribers, or failing which, to themselves severally subscribe for New Shares not taken up under the Rights Issue or will procure sub-underwriters to do so, in each case, at not less than the Issue Price. In consideration of the Banks' agreement to underwrite the New Shares and subject to their obligations under the Sponsors and Underwriting Agreement having become unconditional, the Company shall pay to the Banks up to 2.25 per cent. of the value of New Shares at the Issue Price. The Company shall pay (whether or not the obligations of the Banks under the Sponsors and Underwriting Agreement become unconditional or are terminated) all properly incurred costs and expenses of, or in connection with, the Acquisition, the Rights Issue, Admission and the arrangements contemplated by the Sponsors and Underwriting Agreement.

The obligations of the Banks under the Sponsors and Underwriting Agreement in respect of the Rights Issue are subject to certain conditions being satisfied, including, amongst others:

(i) the Company having complied with and satisfied all its obligations, in each case under the Sponsors and Underwriting Agreement or under the terms and conditions of the Rights Issue, that fall to be performed or satisfied on or prior to Admission;
(ii) the warranties, representations and undertakings given by the Company in the Sponsors and Underwriting Agreement being true and accurate and not misleading on and as of the date of the Sponsors and Underwriting Agreement, the date of this document, the date of any supplementary prospectus and/or circular and the date of Admission; and
(iii) Admission becoming effective by not later than 8.00 a.m. (London time) on 25 October 2016 (or such later time and/or date as the Company may agree with the Global Coordinators).

If any of the conditions are not satisfied prior to Admission (or waived by the Global Coordinators), then the Sponsors and Underwriting Agreement shall terminate, without prejudice to any liability for any prior breach of the agreement or pursuant to certain surviving provisions. For the avoidance of doubt, Admission will not proceed in the event the conditions are not satisfied or the Sponsors and Underwriting Agreement is terminated. The Sponsors and Underwriting Agreement is not capable of termination following Admission.

In addition, the Company has further agreed that, subject to certain exceptions, between the date hereof and the date falling 180 days after Admission, it will not, without the prior written consent of the Global Coordinators (i) issue, offer, pledge, sell, contract to sell, grant any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any Shares or other shares in the capital of the Company; or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of Shares or other shares in the capital of the Company.

The Banks have agreed that they will not procure subscribers for any of the New Shares other than in accordance with certain selling restrictions.

12.1.16 Receiving Agent Agreement

The Company has entered into a receiving agent agreement dated 24 January 2013 with the Receiving Agent pursuant to which the Receiving Agent has agreed to act as receiving agent in connection with the Rights Issue. Under the terms of the agreement, the Receiving Agent is entitled to certain fixed and variable fees for its services under the agreement. The Receiving Agent will also be entitled to reimbursement of all out of pocket expenses reasonably incurred by it in connection with its duties. The Company has given certain customary indemnities in favour of the Receiving Agent in respect of the Receiving Agent's potential losses in carrying on its responsibilities under the agreement. The Receiving Agent's liabilities under the agreement are subject to a cap. The agreement is governed by English law.

12.2 The SunLife Embassy Business

12.2.1 AXA Sale and Purchase Agreement

For a description of the AXA SPA, see paragraph 12.1.13 (''AXA Sale and Purchase Agreement'') of this Part XIV (''Additional Information'').

12.2.2 AXA transitional services agreement

For a description of the AXA TSA, see paragraph 12.1.14 (''AXA transitional services agreement'') of this Part XIV (''Additional Information'').

12.3 Abbey Life

12.3.1 Abbey Life Sale and Purchase agreement

For a description of the Sale and Purchase Agreement, see Part XIII (''Terms of the Acquisition'') of this document.

12.3.2 Abbey Life TSA

For a description of the Abbey Life TSA, see Part XIII (''Terms of the Acquisition'') of this document.

12.3.3 Abbey Life Deed of Indemnity

For a description of the Abbey Life Deed of Indemnity, see Part XIII (''Terms of the Acquisition'') of this document.

12.3.4 Santander

In 2012, ALAC reinsured 100 per cent. of a life portfolio written by a Spanish subsidiary and a Portuguese subsidiary of Grupo Santander. This entitles ALAC to be paid the premiums, and to pay claims, under policies which are part of the portfolio.

ALAC paid a single upfront payment as reinsurance commission to the Grupo Santander subsidiaries. The funding for the single upfront payment was provided to ALAC by a reinsurance with Axia. It is anticipated that over time the value of this payment will be paid back by ALAC to Axia out of the surplus arising from the portfolio.

Where the value of the premiums paid to ALAC does not exceed the value of the claims due by more than a certain amount, then a third-party reinsurer (the ''retrocessionaire'') provides an additional contribution so that ALAC can meet its obligations to the Grupo Santander companies and can pay Axia. Where the value of the premiums paid to ALAC exceeds the value of the claims due by more than a certain amount, the retrocessionaire is paid some of that surplus, while the remainder is used to pay Axia. In each case, ALAC will retain a fixed profile of payments and only has to make onward payments when it is provided with matching funds by the relevant counterparty.

Once Axia has been paid back it is expected that at that time the reinsurance with Grupo Santander will be transferred to the retrocessionaire and ALAC's participation will cease.

12.3.5 Cashflow swap with Deutsche Bank in relation to the de-risking transaction with the Rolls Royce and Bentley pensions scheme

On 25 March 2013, ALAC entered into a de-risking transaction with the trustee of the Rolls Royce and Bentley pensions scheme, Rolls Royce & Bentley Pensions Fund Trustee Limited. Under the terms of this arrangement the trustee pays ALAC a fixed profile of payments and in return ALAC pays the trustee a series of cashflows representing the benefits payable by the trustee to certain beneficiaries of the Rolls Royce and Bentley pensions scheme. A proportion of the fixed profile of payments is then passed to certain reinsurers. In return the reinsurers provide ALAC with the funds to meet a proportion of its obligations under ALAC's contract with the trustee. These type of arrangements are of the type carried out by ALAC with other pension scheme trustees. However, the timing of the cashflows into ALAC do not match the timing of the cashflows out of ALAC prescribed under the various agreements. In other words, there is a mismatch between the timing of ALAC's payment obligations under the reinsurance arrangements and the times it is provided with matching funds by the relevant counterparty to meet its obligations under the contract with the trustee. To address the cashflow mismatch, and to prevent ALAC having to hold significant additional liquidity to address the cashflow issue, ALAC entered into a cashflow swap with Deutsche Bank.

The key terms of the cashflow swap are as follows:

Deutsche Bank will provide payments so that ALAC can meet its obligations under the combined de-risking transaction and related reinsurance arrangements; and
ALAC has to provide collateral to Deutsche Bank in respect of certain risks.

It is intended that the cashflow swap will remain in place for the length of the Rolls Royce and Bentley pensions scheme de-risking transaction. The cashflow swap will not be terminated upon Completion of the Acquisition.

13. DEPOSITARY CONTRACTS

13.1 Deed Poll

The Depositary Interests were created pursuant to, and issued on the terms of, the Deed Poll dated 2 June 2010.

Each Depositary Interest will be treated by the Depositary as one Share for the purposes of determining, for example, eligibility for any distributions. The Depositary has agreed to pass on to holders of Depositary Interests any stock or cash benefits received by it as holder of Shares on trust for such Depositary Interest holder.

In summary, the Deed Poll contains, among other things, provisions to the following effect:

The Depositary, which is regulated by the FCA, will hold (itself or through the Custodian), as bare trustee, the underlying Shares issued by the Company and all and any rights and other securities, property and cash attributable to the underlying Shares for the time being held by the Depositary or Custodian pertaining to the Depositary Interests for the benefit of the Depositary Interest holders.
The Depositary will re-allocate securities or distributions allocated to the Depositary or the Custodian pro rata to the Shares held for the respective accounts of the holders of Depositary Interests but will not be required to account for fractional entitlements arising from such re-allocation.
Each Depositary Interest holder warrants, among other things, that the Shares transferred or issued to the Depositary or Custodian for the account of such Depositary Interest holder are free and clear of all liens, charges, encumbrances or third party interests and that such transfers or issues are not in contravention of the Articles of Association or any contractual obligation, or applicable law or regulations binding or affecting such holder.
The Depositary and any Custodian must pass on to Depositary Interest holders all rights and entitlements received by the Depositary or the Custodian in respect of the Shares. However, there can be no assurance that all such rights and entitlements will at all times be duly and timely passed on. Rights and entitlements to cash distributions, to information, to make choices and elections and to attend and vote at meetings must, subject to the Deed Poll, be passed on in the form which they are received, together with amendments and additional documentation necessary to effect such passing-on. If arrangements are made which allow a Depositary Interest holder to take up rights in

Shares requiring further payment, the Depositary Interest holder must put the Depositary in cleared funds before the relevant payment date or other date notified by the Depositary if it wishes the Depositary to exercise such rights.

The Depositary will be entitled to cancel Depositary Interests and treat the Depositary Interest holder as having requested a withdrawal of the Shares in certain circumstances, including where a Depositary Interest holder is a person whose holding of or to whom a transfer of, Depositary Interests might, in the Depositary's opinion, require the registration of the Company as an investment company under the US Investment Company Act or where a Depositary Interest holder fails to furnish to the Depositary such certificates or representations as to material matters of fact, including his identity, as the Depositary deems appropriate.
The Deed Poll contains provisions excluding and limiting the Depositary's liability. For example, the Depositary shall not be liable to any Depositary Interest holder or any other person for liabilities in connection with the performance or non-performance of obligations under the Deed Poll or otherwise except as may result from its negligence or wilful default or fraud or that of any person for whom it is vicariously liable, provided that the Depositary shall not be liable for the negligence, wilful default or fraud of any Custodian or agent which is not a member of its group unless it has failed to exercise reasonable care in the appointment and continued use and supervision of such Custodian or agent. Furthermore, the Depositary's liability to a Depositary Interest holder will be limited to the lesser of:
the value of the shares and other deposited property properly attributable to the Depositary Interests to which the liability relates; and
that proportion of £5 million which corresponds to the proportion which the amount the Depositary would otherwise be liable to pay to the Depositary Interest holder bears to the aggregate of the amounts the Depositary would otherwise be liable to pay to all such holders in respect of the same act, omission, or event or, if there are no such amounts, £5 million.
The Depositary is entitled to charge Depositary Interest holders fees and expenses for the provision of its services under the Deed Poll.
The Depositary Interest holders are required to agree and acknowledge with the Depositary that it is their responsibility to ensure that any transfer of Depositary Interests by them which is identified by the CREST system as exempt from SDRT is so exempt, and to notify the Depositary if this is not the case, and to pay to Euroclear any interest, charges or penalties arising from non-payment of SDRT in respect of such transaction.
Each Depositary Interest holder is liable to indemnify the Depositary and any Custodian (and their agents, officers and employees) against all liabilities arising from or incurred in connection with, or arising from any act related to, the Deed Poll so far as they relate to the Depositary Interests (and any property or rights held by the Depositary or Custodian in connection with the Depositary Interests) held by that holder, other than those resulting from the wilful default, negligence or fraud of the Depositary, or the Custodian or agent if such Custodian or agent is a member of the Depositary's group or if, not being a member of the same group, the Depositary shall have failed to exercise reasonable care in the appointment and continued use and supervision of such Custodian or agent.
The Depositary is entitled to make deductions from any income or capital arising from the Shares, or to sell such Shares and make deductions from the sale proceeds therefrom, in order to discharge the indemnification obligations of Depositary Interest holders.
The Depositary may terminate the Deed Poll by giving 30 days' notice. During such notice period holders may cancel their Depositary Interests and withdraw their deposited property and, if any Depositary Interests remain outstanding after termination, the Depositary must, among other things, deliver the deposited property in respect of the Depositary Interests to the relevant Depositary Interest holders or, at its discretion, sell all or part of such deposited property. It shall, as soon as reasonably practicable, deliver the net proceeds of any such sale, after deducting any sums due to the Depositary, together with any other cash held by it under the Deed Poll pro rata to holders of Depositary Interests in respect of their Depositary Interests.
The Depositary or the Custodian may require from any holder information as to the capacity in which Depositary Interests are or were owned and the identity of any other person with or previously having any interest in such Depositary Interests and the nature of such interest and evidence or declarations of nationality or residence of the legal or beneficial owners of Depositary Interests and such

information as is required for the transfer of the relevant Shares to the Depositary Interest holders. Depositary Interest holders agree to provide such information requested and consent to the disclosure of such information by the Depositary or Custodian to the extent necessary or desirable to comply with their legal or regulatory obligations. Furthermore, to the extent that the Articles of Association require disclosure to the Company of, or limitations in relation to, beneficial or other ownership of the Shares, the Depositary Interest holders are to comply with the Company's instructions with respect thereto.

It should also be noted that the Depositary Interest holders will not have the opportunity to exercise all of the rights and entitlements which Cayman Islands law and the Articles of Association confer on Shareholders, such as the ability to vote on a show of hands. In relation to voting it will be important for Depositary Interest holders to give prompt instructions to the Depositary to vote the Shares on their behalf.

13.2 Depositary Agreement

Under the terms of the depositary agreement dated 2 June 2010 between the Company and the Depositary (the ''Depositary Agreement''), the Company appoints the Depositary to constitute and issue from time to time, upon the terms of the Deed Poll (summarised above), Depositary Interests representing Shares and to provide certain other services in connection with such Depositary Interests (including custody services).

The Depositary agrees that it will provide the various services in good faith and with all reasonable skill and care. The depositary services to be provided by the Depositary include, for example, to maintain the register of Depositary Interests, to issue Depositary Interests to CREST members and to effect transactions relating to the Depositary Interests on behalf of CREST members and the Custodian.

The Custodian, to be appointed by the Depositary, will provide custody services including the holding of the Shares in respect of which Depositary Interests are issued by the Depositary and the execution of instructions received from CREST members in relation to the Shares held on their behalf.

In addition, the Depositary Agreement sets out the procedures to be followed where the Company is to pay or make a dividend or other distribution.

The Company agrees to provide such assistance, information and documentation to the Depositary as is reasonably required by the Depositary for the purposes of performing the services under the Depositary Agreement.

The Depositary is to indemnify the Company and its directors against any loss which they may incur as a result of the fraud, negligence or wilful default of the Depositary or the Custodian. The appointment of the Depositary will be for a fixed period of three years, subject to early termination, and thereafter by either party giving to the other not less than six months' notice. If one party is in persistent or material breach, which (if capable of remedy) is not remedied within 21 days, or if it goes into insolvency or liquidation or ceases to have the appropriate authorisations, the other party may terminate the Depositary Agreement early by notice in writing.

The Company is to pay certain fees and charges including, among other things, an annual fee, a registrar fee, a fee based on the number of Depositary Interests which are deposited, transferred or cancelled and certain CREST related fees. The Depositary is also entitled to recover reasonable out-of-pocket fees and expenses.

13.3 Cayman Registrar Agreement

The Company has entered into a Cayman Registrar Agreement with Computershare Investor Services (Cayman) Limited (the ''Registrar'') dated 2 June 2010 (the ''Cayman Registrar Agreement'').

Under the terms of the Cayman Registrar Agreement, the Registrar will act as the registrar of the register of members of the Company kept in the Cayman Islands (the ''Offshore Register'') and provide registration services to the Company which will include maintenance of the Offshore Register, registering dealings of Shares via CREST and maintenance of dividend payment instructions.

Under the Cayman Registrar Agreement, the Registrar is entitled to receive a basic annual fee as well as additional fees for specific actions.

The Cayman Registrar Agreement has an effective initial term of three years, subject to early termination, after which the agreement will continue until terminated by the Company giving the Registrar not less than six months' notice. The Cayman Registrar Agreement may be terminated immediately by either party if the other party becomes insolvent or commits a material breach which (if capable of remedy) is not remedied within 30 days.

The Company has agreed to indemnify the Registrar and its officers and employees against all and any liabilities which may be suffered or incurred by the Registrar or its officers and employees in connection with the performance of its or their obligations under the Cayman Registrar Agreement save to the extent that such liabilities may be due to the fraud, negligence or willful default of the Registrar or its officers or employees.

The liability of the Registrar to the Company under the Cayman Registrar Agreement is limited to the fees payable to the Registrar in any 12 month period.

The Cayman Registrar Agreement is governed by the laws of the Cayman Islands.

14. TAKEOVERS

14.1 The City Code

As the Company is incorporated in the Cayman Islands, the City Code does not apply to the Company. Accordingly, the Company has incorporated provisions in the Articles of Association to reflect, as far as practicable, certain provisions of the City Code (see paragraph 4 (''Articles of Association and Mandatory Takeover Bids, Squeeze-Out and Sell-Out Rules'') of this Part XIV (''Additional Information'')). These provisions do not, however, provide shareholders with the full protections offered by the City Code.

In particular the Articles of Association provide that the Company will use its reasonable endeavours to apply and abide by the General Principles of the City Code as though the Company were subject to the City Code, comply with the provisions of the City Code applicable to an offeree if the Company is subject to an offer and, if the Board recommends an offer, obtain an undertaking from the offeror to comply with the provisions of City Code in relation to the conduct and execution of that offer as though the Company were subject to the City Code.

The Articles of Association also include provisions that are similar in effect to Rule 9 of the City Code, subject to certain adaptations and limitations. These provisions will apply for as long as the City Code does not apply to the Company.

For example, for so long as the Panel considers that the Company is not subject to the provisions of the City Code, the Panel will not assume responsibility for ensuring compliance with the City Code in relation to the Company. Instead, it will be a matter for the Board exercising its discretion in light of prevailing circumstances and in a manner consistent with its obligations and any specific provisions included in the Articles of Association. The Board will always exercise such powers in good faith and in a manner it believes to be in the best interests of shareholders as a whole. In attempting to fulfil the role of the Panel, the Directors would not have the same powers or have access to the same information and experience as the Panel would have on a transaction to which the City Code applies. The Articles of Association provide that in exercising its powers under the Articles of Association, the Board will comply with the principle that all Shareholders that are in the same position shall be treated equally in respect of the rights attaching to their shares and otherwise in accordance with their duties under applicable law. The Board intends that the City Code should be observed and will exercise all discretion that the Panel would be permitted to exercise, if the City Code applied to the Company, in accordance with the practice of the Panel at the time that the discretion is so exercised so far as the Board considers it reasonably practicable and consistent with its obligations. The Company has no method of ensuring that a shareholder or other bidder that launches an offer for the Company will adhere to the principles set out in the City Code.

The City Code restricts target companies from taking frustrating action without shareholder approval when a takeover offer has been announced or is believed to be imminent, and specifies, by way of example, certain transactions that would require shareholder approval (such as the issuance of stock options, the sale of assets or the entry into contracts otherwise than in the ordinary course of business). The Company's intention to adhere to rules restricting the taking of frustrating action under the City Code will mean that the Company will be unable to take certain measures in relation to an unsolicited takeover offer that would have otherwise been available to the Company. The Company would only deviate from this principle if, acting in good faith and in the best interests of shareholders as a whole, the Directors believe that the Company's obligations required it to do so.

Neither the validity of the provisions of the City Code nor of the specific provisions that the Company has incorporated into the Articles of Association that are similar to certain provisions of the City Code have been determined by any Cayman Islands court, and there can be no assurance that any such provisions would be upheld or enforced by a Cayman Islands court in any or all respects or, if upheld and enforced, that a Cayman Islands court would construe these provisions in the same way as an English court or the Panel might.

The Articles of Association include a provision which exempts the Board from liability in respect of any exercise in good faith of any discretion it has in respect of the application of the relevant provisions in the Articles of Association or in performing its obligations.

14.2 Squeeze-out rules

Under the Companies Law, an offeror in respect of a takeover offer for the Company may, in certain circumstances, obtain the right compulsorily to acquire shares to which the offer relates but which it has not yet acquired or contracted to acquire. The offeror may not issue a notice requiring the acquisition of minority shares unless it has acquired or contracted to acquire not less than 90 per cent. in value of the shares to which the offer relates before the end of four months beginning with the date of the offer and no notice may be given after the end of the period of two months beginning with that date. The squeeze out of minority shareholders shall be completed unless on an application made by a dissenting shareholder to the Cayman Islands court within one month from the date on which the notice was given, the Cayman Islands Court thinks fit to order otherwise. The consideration offered to those shareholders whose shares are compulsorily acquired under the Companies Law must, in general, be the same as the consideration that was available under the general offer.

15. PRE-EMPTION RIGHTS

Shareholders do not, under Cayman Islands law, have pre-emption rights over further issues of shares of the Company or securities convertible into such shares unless such rights are expressly provided for in the articles of association. The Company has included provisions in the Articles of Association to require the Company to provide pre-emption rights to the Company's Shareholders in certain circumstances. The relevant provisions of the Articles of Association are summarised in paragraph 4 (''Articles of Association and Mandatory Takeover Bids, Squeeze-Out and Sell-Out Rules'') of this Part XIV (''Additional Information'').

16. RELATED PARTY TRANSACTIONS

Save as disclosed in Note I5 to the audited consolidated financial statements included in the Annual Report and Accounts for the year ended 31 December 2015 which is incorporated by reference into this document, there were no related party transactions entered into by the Company or any member of the Group during the financial years ended 31 December 2015, 2014 and 2013 or during the period up to 3 October 2016 (being the latest practicable date prior to the date of this document).

17. LITIGATION AND ARBITRATION PROCEEDINGS

17.1 The Group

The Life Companies are participating in two of the FCA's thematic reviews relating to the pensions and life insurance sector. The thematic review on the fair treatment of long standing customers in the life insurance sector has been completed; however, the FCA has not yet published the anticipated complete and final guidance in respect of the matters that it addressed. The FCA has not reached final conclusions as to the outcome of the thematic review on annuity sales and any follow-up work. The Directors believe that these thematic reviews may have different impacts on each of the Life Companies. For further information, see ''FCA thematic review'' in Part IV (''Business Overview of the Company'') of this document.

On 5 June 2015, PA (GI) was subject to a judgment in the Chancery Division of the Companies Court. The judgment directed that PA (GI) is liable to the claimants for mis-selling complaints and claims relating to PPI policies within a book of creditor insurance business that PA (GI) underwrote until 2006. As a consequence, PA (GI) is liable for complaint handling and redress with regard to the complaints. The Company had paid a total of £1.9 million in respect of such complaints and claims as at 30 June 2016 and has recognised an accounting provision in this regard of a further £20 million as at 30 June 2016. Following an FCA consultation which is expected to be completed in December 2016, the FCA is expected to

introduce a deadline for PPI claims of June 2019. The deadline will be preceded by a FCA publicity campaign, the purpose of which is to ensure persons with a right of claim are aware of their rights. Until that deadline has passed, the Company is unable to confirm its maximum exposure in respect of this matter. The campaign is likely to increase the number of complaints for which PA (GI) may have to pay redress. Such an increase could result in the total additional liability of the Group in respect of these complaints and claims being in excess of the £20 million for which provision has been made in the Company's financial statements as at 30 June 2016.

Save as described above in this paragraph 17.1 (''Litigation and Arbitration Proceedings—The Group''), there are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Company is aware) during a period covering at least the previous 12 months preceding the date of this document which may have, or have had in the recent past, significant effects on the Company's or the Group's financial position or profitability or, following the Acquisition, may have significant effects on the Group and/or the Enlarged Group's financial condition or profitability.

17.2 Abbey Life

ALAC is participating in two of the FCA's thematic reviews relating to the pensions and life insurance sector. The thematic review on the fair treatment of long-standing customers in the life insurance sector has been completed; however, the FCA has not yet published the anticipated complete and final guidance in respect of the matters that it addressed. The FCA has not reached final conclusions as to the outcome of the annuity sales thematic review and any follow-up work. The Directors believe that these thematic reviews may have different impacts on ALAC. For further information, see ''FCA thematic review'' in Part V (''Business Overview of Abbey Life'') of this document.

Save as described above in this paragraph 17.2 (''Litigation and Arbitration Proceedings—Abbey Life''), there are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Company is aware) during a period covering at least the previous 12 months preceding the date of this document which may have, or have had in the recent past, significant effects on Abbey Life's financial position or profitability or, following the Acquisition, may have significant effects on the Group and/or the Enlarged Group's financial condition or profitability.

18. WORKING CAPITAL

The Company is of the opinion that, taking into account the net proceeds of the Rights Issue and the bank and other facilities available to Group, the Group has sufficient working capital for its present requirements, that is for at least 12 months from the date of publication of this document.

19. NO SIGNIFICANT CHANGE

19.1 The Group

There has been no significant change in the financial or trading position of the Group since 30 June 2016, the date to which the latest unaudited interim financial information in relation to the Group was prepared.

19.2 Abbey Life

There has been no significant change in the financial or trading position of Abbey Life since 31 December 2015, the date to which the latest audited annual financial information in relation to Abbey Life was prepared.

20. AUDITORS

Ernst & Young LLP of 1 More London Place, London SE1 2AF, United Kingdom, independent auditors, have reviewed and issued a review report for the Group's interim financial statements for the six months ended 30 June 2016 and have audited and rendered an unqualified auditor's report for each of the Group's financial statements for the years ended 31 December 2015 and 2014. The registered accountants of Ernst & Young LLP are members of the Institute of Chartered Accountants in England and Wales (ICAEW).

Ernst & Young LLP of Wassenaarseweg 80, 2596 CZ The Hague, The Netherlands, independent auditors, which is licensed by the Netherlands Authority for the Financial Markets (Autoriteit Financiele Markten) to carry out statutory audits, have audited and rendered an unqualified auditor's report on the Group's financial statements for the year ended 31 December 2013.

21. CONSENTS

Ernst & Young LLP has given and has not withdrawn its written consent to the inclusion of its reports on the unaudited pro forma financial information in Part X (''Unaudited Pro Forma IFRS Financial Information of the Enlarged Group'') and Part XI (''Unaudited Pro Forma Solvency Information of the Enlarged Group'') of this document in the form and context in which it is included and has authorised the contents of the part of this document which comprise its report for the purposes of Rule 5.5.3R(2)(f) of the Prospectus Rules.

KPMG LLP has given and has not withdrawn its written consent to the inclusion of its report on the financial information of Abbey Life which is set out in Part IX (''Financial Information of Abbey Life'') of this document in the form and context in which it is included and has authorised the contents of the part of this document which comprise its report for the purposes of Rule 5.5.3R(2)(f) of the Prospectus Rules.

22. MISCELLANEOUS

The total costs and expenses payable by the Company in connection with the Rights Issue (including the listing fees of the FCA and the London Stock Exchange, professional fees and expenses and the costs of printing and distribution of documents) are estimated to amount to £17 million (including VAT).

Each New Share and New Depositary Interest is expected to be issued at a premium of 507.9999 cents to its nominal value of A0.0001.

23. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted) up to, and for a period of 12 months, following Admission at 1st Floor, 32 Commercial Street, St. Helier, Jersey JE2 3RU, Channel Islands, and will also be available for inspection at the General Meeting for at least 15 minutes prior to and during the meeting:

(i) the Company's Memorandum and Articles of Association;
(ii) the historical financial information for ALAC in respect of the three financial years ended 31 December 2015, 2014 and 2013;
(iii) the reports from Ernst & Young LLP which is set out in Part X (''Unaudited Pro Forma IFRS Financial Information of the Enlarged Group'') and Part XI (''Unaudited Pro Forma Solvency Information of the Enlarged Group'') of this document and the report from KPMG LLP which is set out in Part IX (''Financial Information of Abbey Life'') of this document;
(iv) the Provisional Allotment Letter;
(v) the documents incorporated by reference into this document as described in Part XV (''Documents Incorporated by Reference'') of this document;
(vi) the Sale and Purchase Agreement; and
(vii) this document.

Dated: 4 October 2016

PART XV—DOCUMENTS INCORPORATED BY REFERENCE

The following documentation, which was sent to Shareholders at the relevant time and/or is available as described below, contains information that is relevant to the Rights Issue:

1. The 2016 Half Year Report and Accounts of the Company for the six months ended 30 June 2016 and the Annual Reports and Accounts of the Company for the years ended 31 December 2015, 2014 and 2013

These contain the unaudited consolidated financial statements of the Company for the six months ended 30 June 2016 and 2015 and the audited consolidated financial statements of the Company for the financial years ended 31 December 2015, 2014 and 2013, prepared in accordance with IFRS, together with audit reports in respect of each such year.

2. Other

The table below sets out the various sections of the documents referred to above which are incorporated by reference into this document, so as to provide the information required pursuant to Annex I and Annex III to the Prospectus Rules and to ensure that Shareholders and others are aware of all information which, according to the particular nature of the Company and of the New Shares and New Depositary Interests, is necessary to enable Shareholders and others to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the Company and of the rights attaching to the New Shares and New Depositary Interests:

Reference document	Information incorporated by reference	Page number in reference document
	2016 Half Year Report and Accounts of the Company
	The discussion and analysis for the six months ended 30 June 2016 contained in
	the ''Business review'' section (excluding the ''Principal risks and uncertainties
	facing the Group'' subsection)	6–11
	Auditor's review report	17
	Condensed consolidated income statement	18
	Condensed statement of consolidated comprehensive income	19
	Pro forma reconciliation of Group operating profit to result attributable to
	owners .	19
	Condensed statement of consolidated financial position	20–21
	Condensed statement of consolidated cashflows .	22
	Condensed statement of consolidated changes in equity	23
	Notes to the condensed consolidated interim financial statements	26–56
	2015 Annual Report of the Company
	The discussion and analysis for the financial year ended 31 December 2015
	contained in the ''Financial Performance'' section	24–33
	Independent Auditor's report	87–94
	Consolidated income statement .	95
	Statement of comprehensive income	96
	Pro forma reconciliation of Group operating profit to result attributable to
	owners .	96
	Statement of consolidated financial position	97–98
	Statement of consolidated cashflows	99
	Statement of consolidated changes in equity	100–101
	Notes to the consolidated financial statements	102–187
	Independent auditor's report to the directors of Phoenix Group Holdings on the
	consolidated Phoenix Group MCEV	208
	Summarised consolidated income statement—Group MCEV basis	209
	MCEV earnings per ordinary share .	209
	Statement of consolidated comprehensive income—Group MCEV basis	210
	Reconciliation of movement in equity—Group MCEV basis .	210
	Group MCEV analysis of earnings	211
	Reconciliation of Group IFRS equity to MCEV net worth	212

Reference document	Information incorporated by reference	Page number in reference document
	Notes to the MCEV financial statements	213–220
	2014 Annual Report of the Company
	The discussion and analysis for the financial year ended 31 December 2014
	contained in the ''Financial Performance'' section	22–35
	Independent Auditor's report	91–96
	Consolidated income statement .	97
	Statement of comprehensive income	98
	Pro forma reconciliation of Group operating profit to result attributable to owners .	98
	Statement of consolidated financial position	99–100
	Statement of consolidated cashflows	101
	Statement of consolidated changes in equity	102–103
	Notes to the consolidated financial statements	104–189
	Independent auditor's report to the directors of Phoenix Group Holdings on the
	consolidated Phoenix Group MCEV	211
	Summarised consolidated income statement—Group MCEV basis	212
	MCEV earnings per ordinary share .	212
	Statement of consolidated comprehensive income—Group MCEV basis	213
	Reconciliation of movement in equity—Group MCEV basis .	213
	Group MCEV analysis of earnings	214
	Reconciliation of Group IFRS equity to MCEV net worth	215
	Notes to the MCEV financial statements	216–223
	2013 Annual Report of the Company
	The discussion and analysis for the financial year ended 31 December 2013
	contained in the ''Financial Performance'' section	22–44
	Independent Auditor's report	99–101
	Consolidated income statement .	102
	Statement of comprehensive income	103
	Pro forma reconciliation of Group operating profit to result attributable to
	owners .	103
	Statement of consolidated financial position	104–105
	Statement of consolidated cashflows	106
	Statement of consolidated changes in equity Notes to the consolidated financial statements	107–108 109–196
	Independent auditor's report to the directors of Phoenix Group Holdings on the
	consolidated Phoenix Group MCEV	209
	Summarised consolidated income statement—Group MCEV basis	220
	MCEV earnings per ordinary share .	220
	Statement of consolidated comprehensive income—Group MCEV basis	221
	Reconciliation of movement in equity—Group MCEV basis .	221
	Group MCEV analysis of earnings	222
	Reconciliation of Group IFRS equity to MCEV net worth	223
	Notes to the MCEV financial statements	224–232

Where these documents make reference to other documents, such other documents are not incorporated into and do not form part of this document. Parts of the documents incorporated by reference which are not set out above are either not relevant or are covered elsewhere in this document.

PART XVI—DEFINITIONS

The following definitions apply throughout this document unless the context otherwise requires:

''2009 Pensions Agreement''	the agreement dated 26 June 2009 between PGH2 and the trustees of the Pearl Group Staff Pension Scheme
''2012 Pensions Agreement''	the agreement dated 27 November 2012 between PGH2 and the trustees of the Pearl Group Staff Pension Scheme
''2016 AGM'' .	the AGM of the Company convened and held on 11 May 2016
''2016 AGM Notice''	the 2016 AGM notice dated 8 April 2016
''2016 Half Year Report and Accounts'' .	the half year report and accounts prepared by the Company for the period ended 30 June 2016
''AAI'' .	Aberdeen Asset Investments Limited
''Abbey Life'' .	ALAC, Abbey Life Trustee Services Limited and Abbey Life Trust Securities Limited
''Abbey Life Bridge Facility Agreement''	the bridge facility entered into by the Company (as guarantor) and Commerzbank Finance & Covered Bond S.A. (as agent), among others, dated 28 September 2016 for a sterling term loan facility in an aggregate amount of £250 million, as described in paragraph 12.1.4 (''Credit facilities— Abbey Life Bridge Facility Agreement'') of Part XIV (''Additional Information'') of this document
''Abbey Life Deed of Indemnity'' .	the deed of indemnity entered into on 28 September 2016 between Deutsche Bank, the Seller, ALAC and PLHL
''Abbey Life TSA''	the transitional services agreement entered into on 28 September 2016 between Deutsche Bank and ALAC
''ABI'' .	the Association of British Insurers
''Acquisition''	the acquisition of Abbey Life by the Company pursuant to the SPA
''Admission''	admission of the New Shares, nil paid, to (a) the premium listing segment of the Official List, and (b) trading on the London Stock Exchange's main market for listed securities
''ALAC''	Abbey Life Assurance Company Limited
''ALAC Pension Scheme'' .	the final salary pension scheme called the Abbey Life Assurance Company Limited Staff Pension Scheme that benefits employees of Abbey Life
''Annual General Meeting'' or ''AGM''	the Company's annual general meeting
''Annual Report and Accounts''	the annual report and accounts prepared by the Company for the financial years ended 31 December 2015, 2014 and 2013
''APS''	AXA Portfolio Services Limited

''Articles'' or ''Articles of Association''	the fifth amended and restated articles of association of the Company, a summary of which is set out at paragraph 4.1 (''Fifth amended and restated memorandum and articles of association'') of Part XIV (''Additional Information'') of this document
''Audit Committee''	the committee described in paragraph 5.9.1 (''Audit Committee'') of Part XIV (''Additional Information'') of this document
''AVIF'' .	Acquired Value of In-Force business
''AXA Bridge Facility''	the sterling term loan facility in an aggregate amount of £220 million provided under the AXA Bridge Facility Agreement
''AXA Bridge Facility Agreement'' .	the £220 million bridge facility agreement entered into by the Company (as guarantor), PGH Capital (as borrower) and Commerzbank Finance & Covered Bond S.A. (as agent), among others, dated 27 May 2016 as described in paragraph 12.1.4 (''Credit facilities—AXA Bridge Facility Agreement'') of Part XIV (''Additional Information'') of this document
''AXA Life Company''	AXA Wealth Limited
''AXA SPA'' .	the sale and purchase agreement entered into by the Company, PLHL and AXA UK and dated 27 May 2016
''AXA Transaction''	the acquisition of the SunLife Embassy Business pursuant to the AXA SPA
''AXA TSA'' .	the transitional services agreement between the SunLife Embassy Companies and APS
''AXA UK''	AXA UK plc
''Banks''	HSBC, J.P. Morgan Cazenove, Morgan Stanley, Commerzbank and Natixis
''Board''	the Executive Directors and the Non-Executive Directors of the Company as at the date of this document
''Brexit''	the vote by the people of the United Kingdom to leave the EU in the referendum held on 23 June 2016
''Business Day'' .	a day (other than a Saturday or Sunday) on which banks are open for general business in London
''Capital Gains Tax'' or ''CGT''	UK capital gains tax
''Cayman Registrar Agreement''	the registrar agreement dated 2 June 2010 between the Company and the Registrar
''CCSS''	The CREST Courier and Sorting Service established by Euroclear to facilitate, amongst other things, the deposit and withdrawal of securities
''certificated'' or ''in certificated form''	a share or other security which is not in uncertificated form (that is, not in CREST)
''CFO Forum'' .	the European Insurance CFO Forum
''Chairman''	the chairman of the Company

''City Code''	the UK City Code on Takeovers and Mergers issued by the Panel on Takeovers and Mergers, as amended from time to time
''Closing Price'' .	the closing middle market quotation of a Share as derived from the Daily Official List published by the London Stock Exchange
''Co-Bookrunners''	Commerzbank and Natixis
''Commerzbank''	Commerzbank Aktiengesellschaft, London Branch
''Companies Law''	the Companies Law (as amended) of the Cayman Islands
''Company'' .	Phoenix Group Holdings
''Completion''	the closing of the Acquisition pursuant to the Sale and Purchase Agreement
''Computershare''	Computershare Investor Services PLC
''Corporate Governance Code'' .	the UK Corporate Governance Code issued by the Financial Reporting Council, as amended from time to time
''CREST''	the relevant system (as defined in the CREST Regulations) for the paperless settlement of trades in listed securities in the United Kingdom, of which Euroclear Limited is the operator (as defined in the CREST Regulations)
''CREST Deposit Form''	the form used to deposit securities into the CREST system in the United Kingdom
''CREST Manual'' .	the rules governing the operation of CREST, consisting of the CREST Reference Manual, CREST International Manual, CREST Central Counterparty Service Manual, CREST Rules, Registrars Service Standards, Settlement Discipline Rules, CCSS Operations Manual, Daily Timetable, CREST Application Procedure, CREST Glossary of Terms and CREST Terms and Conditions (all as defined in the CREST Glossary of Terms promulgated by Euroclear on 15 July 1996 and as amended since)
''CREST member'' .	a person who has been admitted by Euroclear as a system-member (as defined in the CREST Regulations)
''CREST Regulations''	the Uncertificated Securities Regulations 2001 (SI 2001/3755)
''CREST sponsor'' .	a CREST participant admitted to CREST as a CREST sponsor
''CREST-sponsored member''	a CREST member admitted to CREST as a sponsored member
''Custodian''	the custodian nominated by the Depositary
''Daily Official List''	the daily record setting out the price of all trades in shares and other securities conducted on the London Stock Exchange
''DAM'' .	Deutsche Asset Management
''DBSS''	the Group's Deferred Bonus Share Scheme

''Dealing Day''	any day on which the London Stock Exchange is open for business in the trading of securities admitted to the Official List
''Deed Poll''	the deed poll in respect of the Depositary Interests dated 2 June 2010 executed by the Depositary
''Depositary'' .	Computershare Investor Services PLC
''Depositary Agreement''	the agreement for the provision of depositary services and custody services in respect of the Depositary Interests dated 2 June 2010 between the Company and the Depositary
''Depositary Interest''	the dematerialised depositary interests issued by the Depositary in respect of and representing Shares on a one-for-one basis
''Depositary Interest Holders''	holders of Depositary Interests
''Depositary Interest Register''	the register of holders maintained in the United Kingdom on behalf of the Depositary by the Depositary Interest Registrar
''Deutsche Bank''	Deutsche Bank AG
''Divestment''	the divestment of Ignis Asset Management
''Directors'' .	the Executive Directors and Non-Executive Directors of the Company as at the date of this document
''Disclosure Guidance and Transparency Rules''	the Disclosure Guidance and Transparency Rules produced by the Financial Conduct Authority and forming part of the FCA Handbook
''Dividend Shares''	further shares from the reinvestment of dividends paid on Free Shares, Partnership Shares and Matching Shares
''EEA''	the European Economic Area
''Employee Share Schemes''	the SIP, the LTIP, the DBBS and the Sharesave Scheme
''Enlarged Group'' .	the Group following completion of the AXA Transaction and the Acquisition
''Enlarged Share Capital''	the fully diluted issued share capital of the Company immediately following completion of the Rights Issue
''EU''	European Union
''Euro'' or ''euro'' or ''E''	the lawful currency of the member states of the EU that adopted the Euro in Stage Three of the Treaty establishing the Economic and Monetary Union on 1 January 1999
''Euroclear''	Euroclear & Ireland Limited
''Euronext Amsterdam''	Euronext Amsterdam by NYSE Euronext
''Excluded Overseas Shareholder''	subject to certain limited exceptions, Shareholders with a registered address or located or resident in any of the Restricted Territories or Excluded Territories and, where applicable, Depositary Interest Holders with a registered address or located or resident in any of the Restricted Territories or Excluded Territories

''Excluded Territories'' .	Australia, Canada, Japan, South Africa, the United States of America and any other jurisdiction where the extension or availability of the Rights Issue (or any transaction contemplated thereby and any activities carried out in connection therewith) would breach applicable law and ''Excluded Territory'' means any one of them
''Executive Committee'' or ''ExCo''	the executive committee of PLHL that provides day-to-day direction
''Executive Directors''	the executive Directors of the Company as at the date of this document
''Existing Shares''	the existing Shares in issue immediately preceding the issue of the New Shares
''Ex-Rights Date''	25 October 2016
''FCA''	Financial Conduct Authority
''FCA Handbook''	the book of rules and guidance maintained by the FCA
''FOS''	UK Financial Ombudsman Service
''Free Shares'' .	an award of free shares in connection with the SIP
''FSCS''	UK Financial Services Compensation Scheme
''FSMA'' .	the Financial Services and Markets Act 2000, as amended
''Fully Paid Rights'' .	rights to acquire New Shares or New Depositary Interests, fully paid
''GAOs''	guaranteed annuity options
''General Meeting''	the general meeting of the Company to be held at 10.00 a.m. on 24 October 2016, notice of which is set out in this document
''GENPRU''	the ''General Prudential Sourcebook'', which forms part of the PRA Rulebook
''Gilts Based Deficit'' .	for the purposes of the 2012 Pensions Agreement, the scheme deficit calculated on a basis linked to UK government securities
''Global Coordinators''	HSBC, J.P. Morgan Cazenove and Morgan Stanley
''Group'' .	the Company and its subsidiary undertakings from time to time and ''Group Company'' means any one of them
''Group Personal Pension'' .	a standard life pension scheme operated for certain of the Group's London-based senior executives and management
''GST Law'' .	Goods and Services Tax (Jersey) Law 2007, as amended
''Guardian Assurance''	Guardian Assurance Limited
''HMRC''	HM Revenue & Customs
''Holding Companies''	the Company, Phoenix Life Holdings Limited, Pearl Group Holdings (No. 2) Limited, Impala Holdings Limited, Pearl Group Holdings (No. 1) Limited, PGH (LCA) Limited, PGH (LCB) Limited and Pearl Life Holdings Limited

''HSBC''	HSBC Bank plc
''IASB'' .	International Accounting Standards Board
''ICA'' .	Individual Capital Assessment
''IFRS'' .	International Financial Reporting Standards, as issued by the International Accounting Standards Board
''IGD''	EU Insurance Groups Directive 98/78/EC
''Ignis''	Ignis Asset Management
''Impala''	Impala Holdings Limited
''Income Tax Law''	the Income Tax (Jersey) Law 1961, as amended
''INSPRU''	the Prudential Sourcebook for Insurers
''Insurance Group''	Phoenix Life Holdings Limited, or any other Subsidiary or parent company of the Company which from time to time constitutes the highest EEA entity in the relevant EEA insurance group for which supervision of group capital resources or solvency is required (whether or not such requirement is waived in accordance with the Relevant Rules) pursuant to the regulatory capital requirements in force from time to time
''Investment Management Agreement''	any agreement whereby a person serves or acts as investment manager, investment adviser or investment consultant to another person and receives compensation for so serving and shall include any agreement delegating such functions under another Investment Management Agreement to another person
''ISIN''	International Securities Identification Number
''Issue Price''	508 pence per Share
''Joint Sponsors'' .	HSBC and Morgan Stanley
''J.P. Morgan Cazenove''	J.P. Morgan Securities plc (which conducts its UK investment banking activities as J.P. Morgan Cazenove)
''Lender Warrants''	the warrants issued to certain entities providing finance to the Group on 2 September 2009
''Life Companies''	prior to Completion, the Phoenix Life Companies and, following Completion, the Phoenix Life Companies and ALAC
''life company''	a life insurance company
''Listing Rules'' .	the listing rules issued by the FCA pursuant to Part VI of FSMA
''London Stock Exchange''	London Stock Exchange plc
''Long Stop Date''	28 March 2017, or such later date as PLHL and the Seller may agree in writing
''LTIP'' .	the Phoenix Group Holdings Long-Term Incentive Plan
''LTIP Award'' .	any of the following: a conditional share award, a share option, or an allocation of forfeitable shares or any combination of them

''Market Abuse Regulation'' .	Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014
''Matching Shares''	an award of free shares to those employees who have purchased Partnership Shares
''MCEV'' .	Market Consistent Embedded Value
''MCR'' .	minimum regulatory capital requirement
''Memorandum''	the memorandum of association of the Company a summary of which is set out in paragraph 4.1 (''Fifth amended and restated memorandum and articles of association'') (''Additional of Part XIV Information'') of this document
''MiFID''	the EU Markets in Financial Instruments Directive (2004/39/EC)
''MiFID II'' .	the European Commission's proposed amendments to MiFID
''Money Laundering Regulations''	Money Laundering Regulations 2007 (SI 2007/2157), as amended
''Morgan Stanley'' .	Morgan Stanley & Co. International plc
''MTM instruction'' .	Many-to-Many instruction
''Mutual Securitisation Bonds''	the bonds issued by Mutual Securitisation plc in connection with a securitisation undertaken by National Provident Institution
''National Provident Life''	National Provident Life Limited
''New Depositary Interests''	the Depositary Interests to be issued by the Depositary following the take-up of rights to acquire Depositary Interests by Qualifying Depositary Interest Holders in connection with the Rights Issue
''New Share Issue''	the issue of the New Shares in connection with the Rights Issue
''New Shares''	the 144,722,989 new Shares which the Company will allot and issue pursuant to the Rights Issue, including, where appropriate, the Provisional Allotment Letters, the Nil Paid Rights and Fully Paid Rights
''Nil Paid Rights''	rights to acquire New Shares or New Depositary Interests, nil paid
''Nomination Committee''	the nomination committee of the Board
''Non-Executive Directors'' .	the non-executive Directors of the Company as at the date of this document
''Notice of General Meeting''	the notice of General Meeting set out in this document
''Official List'' .	the Official List of the Financial Conduct Authority
''Offshore Register'' .	the register of members of the Company kept in the Cayman Islands
''Omnibus II Directive''	Directive 2014/51/EU of the European Parliament and of the Council dated 16 April 2014
''Opal Re''	Opal Reassurance Limited

''Original Pearl Business''	PGH (LCA) Limited (previously Sun Capital Investments Limited), PGH (LCB) Limited (previously Hera Investments One Limited), PGH (TC1) Limited (previously Suncap Parma Topco Limited), PGH (TC2) Limited (previously TDR Parma Topco Limited), Opal Re and PLAL, together with their respective subsidiaries
''Original Pearl Life Companies''	Phoenix Life Assurance Limited (formerly called Pearl Assurance Limited), London Life Limited, National Provident Life and NPI Limited
''Overseas Shareholders'' .	Qualifying Shareholders with registered addresses in, or who are citizens, residents or nationals of jurisdictions outside the United Kingdom
''Own Funds''	assets maintained to match the estimate of likely liabilities under insurance policies written (including annuities).
''PA (GI)'' .	PA (GI) Limited
''Panel''	the UK Panel on Takeovers and Mergers
''Part VII transfer''	a court-sanctioned transfer of some or all of the insurance policies of one EEA insurer to one or more EEA insurers, where one EEA insurer is regulated in the UK, which is governed by Part VII of FSMA
''Partnership Shares''	the Shares purchased with deductions from an employee's salary following an opportunity under the SIP
''PD Regulation'' or ''Prospectus Directive Regulation'' .	Commission Regulation (EC) No 809/2004
''Pearl Group Staff Pension Scheme''	the pension scheme covering the employees of the Group prior to the acquisition of the Resolution Group
''PEG''	the Pre-Emption Group
''PGH1''	Pearl Group Holdings (No. 1) Limited (previously Resolution plc)
''PGH2''	Pearl Group Holdings (No. 2) Limited (previously Pearl Group Limited)
''PGH Capital''	PGH Capital P.L.C. (formerly PGH Capital Limited)
''PGL Pension Scheme'' .	the pension scheme covering the employees of PGH1 and its subsidiaries
''PGMS'' .	Pearl Group Management Services Limited
''PGMS Ireland'' .	Pearl Group Management Services (Ireland) Limited
''PGS''	Pearl Group Services Limited
''Phoenix Life''	the Group's life insurance (including its management services operations) business segment
''Phoenix Life Companies'' .	PLL and PLAL

''Pillar 2''	in relation to the current PRA Rulebook, the Individual Capital Adequacy Standard rules and, in relation Solvency II, the requirements concerning supervisory reporting and the own risk and solvency assessment
''Ping 1 Reinsurance''	has the meaning given to it in paragraph 12.1.11 (''Annuity business transfer agreements—Ping 1'') of Part XIV (''Additional Information'') of this document
''Ping 1 Scheme'' .	has the meaning given to it in paragraph 12.1.11 (''Annuity business transfer agreements—Ping 1'') of Part XIV (''Additional Information'') of this document
''Ping 2 Reinsurance''	has the meaning given to it in paragraph 12.1.11 (''Annuity business transfer agreements—Ping 2'') of Part XIV (''Additional Information'') of this document
''Ping 2 Scheme'' .	has the meaning given to it in paragraph 12.1.11 (''Annuity business transfer agreements—Ping 2'') of Part XIV (''Additional Information'') of this document
''PLAL''	Phoenix Life Assurance Limited, which was renamed from Pearl Assurance Limited on 28 September 2012
''PLHL''	Phoenix Life Holdings Limited
''PLL''	Phoenix Life Limited
''PLL Tier 2 Bonds''	the £200 million 7.25 per cent. undated unsecured subordinated notes issued by Scottish Mutual Assurance Limited and subsequently transferred to PLL
''PPFM'' .	Principles and Practices of Financial Management
''PRA''	Prudential Regulation Authority
''PRA Rulebook''	the book of rules and guidance, including as to regulatory capital requirements, maintained by the PRA
''Principal Letter'' .	has the meaning given to it in paragraph 2.1.8 (''Registration in names of persons other than originally entitled Qualifying Non-CREST Shareholders'') of Part III (''Terms and Conditions of the Rights Issue'') of this document
''Premium Listing''	the transfer of the Shares to a premium listing under Chapter 6 of the Listing Rules which took place on 5 July 2010
''Prospectus'' or ''this document'' .	the prospectus and circular issued by the Company in respect of the Rights Issue, together with any supplements or amendments thereto
''Prospectus Directive''	Directive 2003/71/EC, as amended, and includes any relevant implementing measures in each Member State of the EEA that has implemented Directive 2003/71/EC
''Prospectus Rules''	the Prospectus Rules of the Financial Conduct Authority

''Provisional Allotment Letter'' .	the provisional allotment letter to be issued to Qualifying Non-CREST Shareholders (other than certain Overseas Shareholders)
''Public Warrants''	warrants in respect of Shares
''PVFP''	present value of future profits
''Qualifying Depositary Interest Holders''	Depositary Interest Holders holding Depositary Interests on the Depositary Interest Register on the Record Date
''Qualifying Non-CREST Shareholders''	Qualifying Shareholders holding Shares in certificated form on the Share Register at the Record Date including, for the avoidance of doubt, the Depositary
''Qualifying Shareholders'' .	Qualifying Non-Crest Shareholders and Qualifying Depositary Interest Holders
''Receiving Agent''	Computershare Investor Services PLC
''Record Date''	20 October 2016
''Registrar'' .	Computershare Investor Services (Cayman) Limited
''regulated activities'' .	the regulated activities prescribed in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, as amended
''regulatory capital requirements''	any applicable capital resources requirement or applicable overall financial adequacy rule required by the PRA pursuant to the Relevant Rules, as such requirements or rules are in force from time to time
''Regulatory Information Service'' .	one of the regulatory information services authorised by the FCA to receive, process and disseminate regulatory information in respect of listed companies
''relevant implementation date''	the respective dates when each of the relevant member states implemented the Prospectus Directive
''relevant member state''	each member state of the EEA that has implemented the Prospectus Directive
''Relevant Rules'' .	any legislation, rules or regulations (whether having the force of law or otherwise) applicable in the United Kingdom from time to time and applying to the Company or any insurance or reinsurance undertaking within the Insurance Group from time to time relating to the characteristics, features or criteria of Own Funds or capital resources and the requirement to retain capital resources in excess of a prescribed capital resources requirement and, for the avoidance of doubt and without limitation to the foregoing, includes Solvency II and any legislation, rules or regulations relating to such matters which are supplementary or extraneous to the obligations imposed on Member States by Solvency II
''Remuneration Code'' ''Remuneration Committee'' .	the Remuneration Code issued by the FCA, as amended from time to time
	the remuneration committee of the Board

''Resolution Group''	Pearl Group Holdings (No. 1) Limited (formerly named Resolution plc) and its subsidiaries and, where the context requires, includes the On-Sold assets of Pearl Group Holdings (No. 1) Limited until, in each case, the date of their disposal
''Resolutions''	the resolutions to be proposed at the General Meeting in connection with the Acquisition and the Rights Issue, notice of which is set out in this document
''Restricted Territories''	Member States of the European Economic Area, Hong Kong and Singapore and ''Restricted Territory'' means any one of them
''Revolving Credit Agreement''	the credit agreement entered into by the Company (as guarantor), PGH Capital (as borrower) and Commerzbank Finance & Covered Bond S.A. (as agent), among others, dated 23 July 2014, as amended and restated on 21 March 2016, as described in paragraph 12.1.4 (''Credit facilities— Revolving Credit Agreement'') of Part XIV (''Additional Information'') of this document
''RGA International'' .	RGA International Reinsurance Company Limited
''Rights Issue''	the offer by way of rights to Qualifying Shareholders to subscribe for New Shares and/or New Depositary Interests, on the terms and conditions set out in this document and, in the case of Qualifying Non-CREST Shareholders only, the Provisional Allotment Letter
''Rights Issue Entitlement''	the entitlement of Qualifying Non-Crest Shareholders and Qualifying Depositary Interest Holders to New Shares and New Depositary Interests, respectively, pursuant to the Rights Issue

''Risk Committee'' .	the risk committee of the Board
''RMF'' .	Risk Management Framework
''RTGS''	real time gross settlement system
''Sale and Purchase Agreement'' or ''SPA''	the sale and purchase agreement dated 28 September 2016 between the Company, PLHL, Deutsche Bank and the Seller
''Scottish Mutual International''	Scottish Mutual International Limited
''SCR''	solvency capital requirement
''SDRT''	stamp duty reserve tax
''Seller''	Deutsche Holdings No. 4 Ltd.
''Senior Bonds'' .	the £300 million senior unsecured 5.75 per cent. bond
''Senior Managers''	the senior managers whose names are set out in paragraph 5.2 (''Senior Managers'') of Part XIV (''Additional Information'') of this document
''SFA''	the Securities and Futures Act, Chapter 289 of Singapore

''Share Schemes''	the share schemes described in paragraph 10 (''Employee Incentive Plans'') of Part XIV (''Additional Information'') of this document
''Shareholder Capital coverage ratio'' .	the ratio as described in the section ''Presentation of certain key performance indicators and targets'' of the part of this document titled ''Important Information''
''Shareholders''	the holders of Shares from time to time and ''Shareholder'' means any one of them (including, for the avoidance of doubt and unless the context otherwise indicates, Depositary Interest Holders)
''Shares''	ordinary shares of A0.0001 each in the share capital of the Company or Depositary Interests in respect thereof having the rights set out in the Articles as described in paragraph 4.1 (''Fifth amended and restated memorandum and articles of association'') of Part XIV (''Additional Information'') of this document
''Sharesave Scheme''	the Group's Sharesave Plan
''SIP'' .	the Group's Share Incentive Plan
''Solvency I''	the regime for the regulation of insurance and reinsurance undertakings replaced by Solvency II, which included elements from EU and national regulation and legislation, including certain prudential requirements
''Solvency II''	the Directive on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II) (2009/138/EC) and implementation measures in respect thereof, establishing a new regime in relation to solvency requirements and other matters affecting the financial strength of insurers and reinsurers in the EU
''Solvency II Internal Model'' .	the agreed methodology and model to calculate the Group SCR pursuant to Solvency II
''Solvency II surplus''	the excess of Solvency II Own Funds over the SCR
''Sponsors and Underwriting Agreement''	the sponsors and underwriting agreement entered into between the Company and the Banks described in paragraph 12.1.15 (''Sponsors and Underwriting Agreement'') of Part XIV (''Additional Information'') of this document
''Standard Life Investments''	Standard Life Investments (Holdings) Limited
''sterling'' or ''Sterling'' or ''£'' or ''pence'' or ''p'' .	the lawful currency of the United Kingdom
''Subordinated Bonds'' .	the £428,113,000 6.625 per cent. Guaranteed Subordinated Notes due 2025 issued on 23 January 2015 by PGH Capital
''Sun Life''	AXA Sun Life Direct Limited
''SunLife Embassy Business''	the AXA Life Company's pensions and protection businesses
''SunLife Embassy Group'' .	Sun Life, WLHL and its subsidiaries, the AXA Life Company, AXA Wealth Services Limited and AXA Trustee Services Limited

''Synergy Sharing Agreement''	the synergy sharing agreement between the Group, Impala and Standard Life Investments, as described in paragraph 12.1.12 (''Contracts relating to the Divestment of Ignis Asset Management'') of Part XIV (''Additional Information'') of this document
''TSR''	total shareholder return
''UK'' or ''United Kingdom''	the United Kingdom of Great Britain and Northern Ireland
''UKCPT'' .	UK Commercial Property Trust
''UKLA'' or ''UK Listing Authority''	the FCA acting in its capacity as the competent authority for the purposes of Part VI of FSMA and in the exercise of its functions in respect of the admission to listing on the Official List otherwise than in accordance with Part VI of FSMA
''uncertificated'' or ''in uncertificated form''	recorded on the register of members as being held in uncertificated form in CREST and title to which, by virtue of the CREST Regulations, may be transferred by means of CREST
''United States'' or ''US''	the United States of America, its territories and possessions, any state of the United States and the District of Columbia
''US Investment Company Act''	the United States Investment Company Act of 1940, as amended
''US Securities Act'' .	the US Securities Act of 1933, as amended
''VAT''	value added tax chargeable under or pursuant to the Value Added Tax Act 1994 or the EU Directive 2006/112/EC on the common system of value added tax and any other sales, purchase or turnover tax of a similar notice, whether imposed in the UK or elsewhere
''VIF'' .	value of in-force business
''WLHL''	Winterthur Life UK Holdings Limited
''WPICC''	with-profit insurance capital component

NOTICE OF GENERAL MEETING

Phoenix Group Holdings

(a company incorporated as an exempted company with limited liability under the laws of the Cayman Islands with registered number 202172)

Notice is hereby given that a general meeting of Phoenix Group Holdings (the Company) will be held at 10.00 a.m. on 24 October 2016 at 1st Floor, 32 Commercial Street, St. Helier, Jersey JE2 3RU, Channel Islands (the General Meeting) to consider and, if thought fit, to pass the following resolutions which will be proposed as ordinary resolutions:

ORDINARY RESOLUTIONS

THAT:

The proposed acquisition by the Company of Abbey Life, as described in the combined prospectus and circular to the shareholders of the Company dated 4 October 2016, substantially on the terms and subject to the conditions set out in the Sale and Purchase Agreement dated 28 September 2016 (the ''Acquisition'') be and is hereby approved.

1. Pursuant to Article 14 of the Fifth Amended and Restated Memorandum and Articles of Association of the Company, the Directors be generally and unconditionally authorised to allot and issue equity securities in connection with the Rights Issue, on the following terms:
(a) such authority to allot and issue equity securities shall be for a period expiring at the conclusion of the annual general meeting of the Company to be held in 2017;
(b) for the purposes of paragraph (a) of the definition of ''second prescribed amount'' in Article 13 of the Fifth Amended and Restated Memorandum and Articles of Association of the Company, the amount stated as such shall be a nominal amount of A14,472.30 (representing 144,722,989 ordinary shares with a nominal value of A0.0001 each in the share capital of the Company);
(c) unless previously revoked or varied by the Company, such authority to allot and issue equity securities shall extend to the making before the expiry of such authority of an offer or an agreement that would or might require equity securities to be allotted after such expiry and the Board of Directors may allot and issue equity securities of that offer or agreement as if the authority conferred hereby had not expired; and
(d) such authority applies in addition to the existing authority granted by ordinary resolution 3 passed by the Shareholders at the Company's annual general meeting held on 11 May 2016 which shall continue to apply and be in addition to the authority granted hereby.

By order of the board of directors of the Company

3OCT201617221024

Gerald Watson Group Company Secretary

4 October 2016

Registered office:

c/o Maples Corporate Services Limited Po Box 309 Ugland House Grand Cayman KY1-1104 Cayman Islands

NOTES TO THE NOTICE OF GENERAL MEETING

Entitlement to vote

Members registered on the Company's register of members at 6.00 p.m. (British Summer Time) on 20 October 2016 (the ''Record Date'') are entitled to attend and vote at the General Meeting. Holders of depositary interests may also attend the General Meeting and vote in person as set out below. A member may vote in respect of the number of Shares registered in the member's name on the Record Date. Changes to the entries in the register of members after the Record Date shall be disregarded in determining the rights of any person to attend and vote at the meeting.

Voting in person or by proxy for shareholders

Shareholders may either vote in person or appoint a proxy to exercise their voting rights at the General Meeting. A shareholder may appoint more than one proxy provided that each proxy is appointed to exercise the rights to a different Share or Shares held by that shareholder. A proxy need not be a shareholder of the Company. The appointment of a proxy does not preclude a shareholder from attending the General Meeting and voting in person. A proxy form is enclosed with this document and instructions for its completion are shown on the form. Proxy appointments may be made by completing and returning the enclosed form of proxy to Computershare Investor Services (Cayman) Limited (the Registrars) c/o Computershare Investor Services PLC (''CIS'') (the ''Depositary''), The Pavilions, Bridgwater Road, Bristol BS99 6ZY by 10.00 a.m. (British Summer Time) on the Record Date (20 October 2016), together with the power of attorney or other authority, if any, under which it is signed or a certified copy of such power of attorney or other authority.

A member must inform the Registrars in writing of any termination of the authority of a proxy.

Shareholders may lodge their votes electronically by visiting the website www.investorcentre.co.uk/eproxy (the on-screen instructions will give details on how to complete the instruction process).

Voting in person or by instruction for holders of Depositary Interests

Form of Instruction for holders of Depositary Interests representing shares held through Computershare Company Nominees Limited (the ''Custodian'' or ''CCN'')

In order to ensure that the Shares in which you hold an interest are voted in accordance with your instructions at the General Meeting:

you can vote by signing and returning the enclosed form of instruction to the Depositary, CIS, as soon as possible, but no later than 10.00 a.m. (British Summer Time) on 19 October 2016. CCN will appoint the Chairman of the meeting to vote the Shares in which you hold an interest as you instruct on the Form of Instruction. If you sign and return the form of instruction, but do not give instructions on how to vote your Shares, your Shares will not be voted; or
you can vote via the website www.investorcentre.co.uk/eproxy by no later than 10.00 a.m. (British Summer Time) on 19 October 2016. CCN will appoint the Chairman of the meeting to vote the Shares in which you hold an interest as you instruct via www.investorcentre.co.uk/eproxy (the on-screen instructions will give details on how to complete the instruction process); or
in the case of CREST members, you can vote by utilising the CREST electronic proxy appointment services in accordance with procedures set out below; or
you can attend the General Meeting and vote in person (or appoint another person to vote on your behalf). If you wish to attend the meeting, you must register with CIS before 10.00 a.m. (British Summer Time) on 19 October 2016. If you properly register before 10.00 a.m. (British Summer Time) on 19 October 2016, and attend the General Meeting in person, CCN will provide you in advance of, or at, the General Meeting with a Letter of Representation necessary for you to vote the shares in which you hold an interest at the General Meeting in person. Once you have been provided with a Letter of Representation by CCN, you may cast your vote in respect of your shares at the General Meeting.

Electronic voting instructions via the CREST voting system

Depositary Interest holders who are CREST members and who wish to issue an Instruction through the CREST electronic voting appointment service may do so by using the procedures described in the CREST

Manual (available from www.euroclear.com/CREST). CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting services provider(s), who will be able to take the appropriate action on their behalf.

In order for instructions made using the CREST service to be valid, the appropriate CREST message (a ''CREST Voting Instruction'') must be properly authenticated in accordance with the specifications of Euroclear UK & Ireland Limited (''EUI'') and must contain the information required for such instructions, as described in the CREST Manual.

The message, regardless of whether it relates to the voting instruction or to an amendment to the instruction given to the Depositary must, in order to be valid, be transmitted so as to be received by the issuer's agent (ID 3RA50) no later than 10.00 a.m. (British Summer Time) on 19 October 2016. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the CREST Voting Instruction by the CREST applications host) from which the issuer's agent is able to retrieve the CREST Voting Instruction by enquiry to CREST in the manner prescribed by CREST.

CREST members and, where applicable, their CREST sponsors or voting service providers should note that EUI does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the transmission of CREST Voting Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that the CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a CREST Voting Instruction is transmitted by means of the CREST service by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.

The Company may treat as invalid a CREST Voting Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.

You may not use any electronic address provided in this document to communicate with the Company for any purposes other than those expressly stated.

Corporate representatives

Any corporation which is a member can appoint one or more corporate representatives who may exercise on behalf of the corporation the same powers as the corporation could exercise if it were an individual member of the Company, provided that they do not do so in relation to the same shares.

Issued share capital and total voting rights

As at 3 October 2016 (being the last practicable date prior to publication of this document) the Company's issued ordinary share capital consisted of 248,098,643 Shares.

Shareholders are entitled to attend and vote at general meetings of the Company. On a vote by show of hands, every shareholder who is present has one vote and every proxy present who has been duly appointed by a shareholder entitled to vote has one vote. On a vote by poll every shareholder who is present in person or by proxy has one vote for every Share held.

The total voting rights in the Company as at 3 October 2016 (being the last practicable date prior to publication of this document) were 248,098,643.

Questions at the meeting

A shareholder attending the meeting has the right to ask questions in relation to the business of the meeting. Any such question relating to the business being dealt with at the meeting will be addressed but no such answer need be given if:

(i) to do so would interfere unduly with the proceedings of the meeting or involve the disclosure of confidential information;
(ii) the answer has already been given on a website in the form of an answer to a question; or

(iii) it is undesirable in the interests of the Company or the good order of the meeting that the question be answered.

Inspection of documents

Copies of the following documents will be available for inspection at the General Meeting venue from 15 minutes before the commencement of the General Meeting until its conclusion:

(1) a copy of the combined circular and prospectus of the Company dated 4 October 2016; and
(2) a copy of the Company's Memorandum and Articles of Association.

Website

A copy of the Notice is available on the Company's website:

www.thephoenixgroup.com/investor-relations/shareholder-information/

Contact

Computershare Investor Services PLC, the Depositary and Agent for the Registrar, at The Pavilions, Bridgwater Road, Bristol BS99 6ZY. Tel: +44 (0)370 707 4040.

AI assistant

Phoenix Group Holdings PLC — Capital/Financing Update 2016

5015_prs_2016-10-04_a48e2ff4-c000-4de9-9409-a4da94c3523d.pdf

Phoenix Group Holdings

Proposed acquisition of Abbey Life

J.P. Morgan Cazenove

Notice to all investors

WHERE TO FIND HELP

Shareholder Helpline

0370 707 4040 (from within the United Kingdom) or

CONTENTS

SUMMARY

Note:

Note:

RISK FACTORS

RISKS RELATING TO THE ACQUISITION

The Acquisition is subject to a number of conditions which may not be satisfied or waived.

There can be no assurance that regulators or authorities will approve the Acquisition or the AXA Transaction or not seek to impose new or more stringent conditions on the Group.

The Enlarged Group may fail to realise the expected benefits of the Acquisition and/or the AXA Transaction.

The value of Abbey Life may be less than the consideration paid.

The Company has limited management resources and thus may become distracted or overstretched by the process of integrating and managing the Enlarged Group.

The Acquisition may not complete and, if the Directors fail to identify alternative acquisitions, Shareholders may be returned amounts from the net proceeds of the Rights Issue that are less than the original amounts paid by Shareholders in connection with the Rights Issue.

RISKS RELATING TO THE GROUP

Economy and Financial Markets

Competition, regulatory restrictions and an inability to raise acquisition financing in the future may make it difficult for the Group to execute its M&A strategy and future acquisitions and disposals, which could have an adverse effect on the Group.

Significant declines in equity markets, bond markets or property prices, or significant movements in swap yields relative to gilt yields, could have an adverse effect on the Group.

The Group may be adversely affected by changes in interest rates and inflation risks.

Defaults in relation to investments and financial investments and by trading counterparties may adversely affect the Group.

Regulatory Risks

The Group operates in a regulated sector and its operations and practices may be affected by changes in law and regulation, changes in interpretation or emphasis with respect to existing law and regulation and/or industry wide changes in approach to law and regulation.

The Group is subject to potential intervention by the FCA, the PRA and other regulators on industry-wide issues and to other specific investigations, reports and reviews.

Individual and groups of customers may refer their disputes with the Group to the FOS.

Regulatory capital and other requirements may change.

The expiry of the ''other methods'' waiver may result in a reduction in the Own Funds available to match the group regulatory capital requirement.

The thematic review on the fair treatment of long standing customers in the life insurance sector may affect the Group's business.

The thematic review on annuity sales practices may affect the Group's business.

Internal Operations and Management

Certain members of the Group are restricted by applicable regulatory and other requirements in their ability to pay dividends. Dividends may not be paid according to the Group's dividend policy and the Group's dividend policy may change in the future.

Changes in actuarial assumptions driven by experience and estimates may lead to changes in the level of reserving and regulatory capital required to be maintained.

The Group needs to reduce the expenses of managing long-term business in line with the run-off profile of its funds. The inability to adjust these costs could have an adverse effect on the Group.

The Group's risk management policies and procedures may not be effective and may leave the Group exposed to unidentified or unexpected risks.

The Group is vulnerable to adverse market perception arising as a result of reputational damage, especially as it operates in a highly regulated industry.

Increases in liabilities relating to product guarantees may adversely affect the Group.

The Group may encounter new risks when it starts to write protection policies.

The Group's success will depend upon its ability to attract, motivate and retain key personnel.

The Group may be required to make further contributions, in addition to those already agreed, to its defined benefit pension schemes for employees if the value of or cashflows from pension fund assets is not sufficient to cover future obligations under the schemes.

Because the Company is incorporated under the laws of the Cayman Islands, Shareholders may need to enforce any judgment obtained against the Company in the courts of the Cayman Islands.

Third Parties and Other Counterparties

If the Group experiences difficulties arising from outsourcing relationships, its ability to conduct business may be compromised.

The divestment of Ignis Asset Management may expose the Group to purchase price adjustments and other costs or claims.

Legal and arbitration proceedings could cause the Group to incur significant expenses, which could have an adverse effect on the Group.

Indebtedness

The Group could be materially adversely affected by its indebtedness.

The finance facilities and debt instruments that the Group has entered into include covenants that may restrict the Group from taking certain business actions and/or implementing its business strategy.

Taxation

Changes in taxation law may adversely impact the Group.

The effect of future changes in tax legislation on specific products may have an adverse effect on the Group and may lead to policyholders attempting to seek redress where they allege that a product fails to meet their reasonable expectations.

Changes to the current VAT rules may result in VAT being chargeable on certain outsourcing agreements of the Group.

RISKS RELATING TO THE RIGHTS ISSUE

The price of the Nil Paid Rights, the Fully Paid Rights, the Shares and/or the Depositary Interests could be subject to significant fluctuations.

There may not be an active trading market for the Nil Paid Rights, the Fully Paid Rights, the New Shares or the New Depositary Interests.

Shareholders who do not acquire New Shares and/or New Depositary Interests in the Rights Issue will experience dilution in their ownership of the Company.

Shareholders outside the UK may not be able to subscribe for New Shares and/or New Depositary Interests in the Rights Issue.

IMPORTANT INFORMATION

Cautionary note regarding forward-looking statements

Presentation of financial information

Pro forma financial information

Presentation of certain key performance indicators and targets

Currencies

No profit forecast

Notice to investors in the United States of America

Overseas territories other than the Excluded Territories

Volcker Rule

Currency exchange rate information

Indicative exchange rates of the pound sterling against the Euro(1)

Enforcement of civil liabilities

RIGHTS ISSUE STATISTICS

EXPECTED TIMETABLE FOR THE RIGHTS ISSUE

DIRECTORS, COMPANY SECRETARY AND ADVISERS

Board of Directors

Phoenix Group Holdings PLC Capital/Financing Update 2016