PROSPECTUS

This document comprises a prospectus (the “Prospectus”) prepared in accordance with the Prospectus Rules of the UK Financial Conduct Authority (“FCA”) made under section 73A of the Financial Services and Markets Act 2000 as amended (“FSMA”). The Prospectus has been approved by the FCA in accordance with section 87A of FSMA and made available to the public as required by Rule 3.2 of the Prospectus Rules.

The Directors, whose names appear on page 46 of this Prospectus, and the Company accept responsibility for the information contained in this Prospectus. To the best of the knowledge of the Directors and the Company (who have taken all reasonable care to ensure that such is the case) such information is in accordance with the facts and this Prospectus does not omit anything likely to affect the importance of such information.

Application will be made to the FCA for all of the Ordinary Shares of the Company to be admitted to the premium listing segment of the Official List maintained by the FCA and to the London Stock Exchange for such Ordinary Shares to be admitted to trading on the London Stock Exchange’s Main Market for listed securities. Conditional dealings in the Ordinary Shares are expected to commence at 08:00 a.m. on 28 March 2014. It is expected that admission to listing and trading will become effective, and that unconditional dealings will commence, at 08:00 a.m. on 2 April 2014. All dealings in Ordinary Shares prior to the commencement of unconditional dealings will be on a “when issued” basis and of no effect if Admission does not take place and will be at the sole risk of the parties concerned. No application has been, or is currently intended to be, made for the Ordinary Shares to be admitted to listing or trading on any other stock exchange.

Prospective Investors should read the entire Prospectus and, in particular, Part II (Risk Factors) for a discussion of certain factors that should be considered in connection with an investment in the Ordinary Shares. Prospective global investors should be aware that an investment in the Company involves a degree of risk and that, if certain of the risks described in the Prospectus occur, Investors may find their investment materially adversely affected. Accordingly, an investment in the Ordinary Shares is only suitable for Investors who are particularly knowledgeable in investment matters and who are able to bear the loss of the whole or part of their investment.

BRIT PLC

(Incorporated under the Companies Act 2006 and registered in England and Wales with registered number 8821629)

Offer of 100,000,000 Ordinary Shares at an Offer Price of 240 pence per Ordinary Share and admission to the premium listing segment of the Official List and to trading on the London Stock Exchange

Joint Global Coordinator, Joint Bookrunner and Sponsor Joint Global Coordinator and Joint Bookrunner J. P. Morgan Cazenove UBS Investment Bank

Co-Lead Manager Co-Lead Manager Canaccord Genuity Limited Numis Securities Limited IMPORTANT NOTICE

The distribution of this Prospectus and the offer, sale and/or issue of Ordinary Shares in certain jurisdictions may be restricted by law. This Prospectus does not constitute an offer of, or the solicitation of an offer to buy or to subscribe for, Ordinary Shares to any person in any jurisdiction to whom or in which jurisdiction such offer or solicitation is unlawful and, in particular, is not for distribution in Australia, Canada or Japan. The Ordinary Shares have not been, and will not be, qualified for sale under any applicable securities laws of Australia, Canada or Japan. The Ordinary Shares have not been, and will not be, registered under the US Securities Act of 1933, as amended (the “US Securities Act”) or with any securities regulatory authority of any state or jurisdiction of the United States and may not be offered or sold in the United States except in transactions exempt from, or not subject to, the registration requirements of the US Securities Act and in accordance with applicable securities laws of any state or other jurisdiction of the United States. The Ordinary Shares are being offered and sold (i) within the United States only to persons reasonably believed to be “qualified institutional buyers” (“QIBs”) (as defined in Rule 144A under the US Securities Act (“Rule 144A”)) in reliance on Rule 144A or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act or (ii) outside the United States in offshore transactions in reliance on Regulation S under the US Securities Act (“Regulation S”). Prospective Investors in the United States are hereby notified that the Company may be relying on the exemption from the provisions of Section 5 of the US Securities Act provided by Rule 144A. There will be no public offering in the United States.

The Ordinary Shares have not been approved or disapproved by the US Securities and Exchange Commission (the “SEC”), any state 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 Ordinary Shares or the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offence in the United States.

The distribution of this Prospectus and the offer, sale and/or issue of Ordinary Shares in certain jurisdictions may be restricted by law. No action has been or will be taken by the Company, its Directors, the Joint Global Coordinators or the Co-Lead Managers to permit a public offer of Ordinary Shares or possession or distribution of this Prospectus (or any other offering or publicity material or application form relating to the Ordinary Shares) in any jurisdiction, other than in the UK. Persons into whose possession this Prospectus comes are required by the Company, the Directors, the Joint Global Coordinators and the Co-Lead Managers to inform themselves about and to observe any such restrictions. This Prospectus does not constitute or form part of an offer to sell, or the solicitation of an offer to buy, Ordinary Shares to any person in any jurisdiction to whom or in which such offer or solicitation is unlawful.

Each of J.P. Morgan Securities plc and UBS Limited is authorised by the Prudential Regulation Authority (the “PRA”) and regulated by the FCA and the PRA in the United Kingdom and is acting exclusively for the Company and for no other person in connection with the Offer and will not regard any other person (whether or not a recipient of this Prospectus) as its client in relation to the Offer and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Offer or any transaction or arrangement referred to in this Prospectus.

Apart from the responsibilities and liabilities, if any, which may be imposed on J.P. Morgan Securities plc and UBS Limited by FSMA, or the regulatory regime established thereunder, or under the regulatory regime of any other jurisdiction where exclusion of liability under the relevant regulatory regime would be illegal, void or unenforceable, neither J.P. Morgan Securities plc nor UBS Limited accepts any responsibility whatsoever and makes no representation or warranty, express or implied, for the contents of this Prospectus, including its accuracy or completeness, or for any other statement made or purported to be made by any of them, or on behalf of them, the Company or any other person in connection with the Company, the Ordinary Shares or the Offer and nothing contained in this Prospectus is or shall be relied upon as a promise or representation in this respect, whether as to the past or future. Each of J.P. Morgan Securities plc and UBS Limited accordingly disclaims all and any responsibility or liability whether arising in tort, contract or otherwise (save as referred to above) which it might otherwise have in respect of this Prospectus or any such statement.

1 By accepting this Prospectus you agree to be bound by the foregoing provisions, limitations and conditions and, in particular, you will be deemed to have represented, warranted and undertaken that: (i) you are a QIB (as defined in Rule 144A) or are not within the United States; (ii) if you are in any member state of the European Economic Area other than the United Kingdom, you are a “qualified investor” within the meaning of the Prospectus Directive (Directive 2003/71/EC and amendments thereto, including Directive 2010/73/EU to the extent implemented in a relevant EEA Member State) (“Qualified Investors”) and/or a Qualified Investor acting on behalf of Qualified Investors, to the extent you are acting on behalf of persons or entities in the European Economic Area; (iii) you are an Investor that is eligible to receive this Prospectus, and in your jurisdiction, this offer of securities can lawfully be made without contravention of any unfulfilled registration or other legal requirements; (iv) you have read and agree to comply with the contents of this notice; and (v) you will not at any time have any discussion, correspondence or contact concerning the information given in this Prospectus with any of the directors or employees of the Company or its subsidiaries nor with any of its suppliers, or any governmental or regulatory body without the prior written consent of the Company. IF YOU HAVE GAINED ACCESS TO THIS PROSPECTUS CONTRARY TO ANY OF THE FOREGOING RESTRICTIONS, INCLUDING IF YOU ARE WITHIN THE UNITED STATES AND ARE NOT A “QIB” (AS DEFINED IN RULE 144A), OR HAVE OTHERWISE RECEIVED THIS PROSPECTUS IN ERROR, YOU MUST NOT CONTINUE READING THIS DOCUMENT, YOU ARE NOT AUTHORISED AND WILL NOT BE ABLE TO PURCHASE ANY OF THE ORDINARY SHARES DESCRIBED IN THIS PROSPECTUS, AND YOU MUST DELETE OR DISCARD THIS PROSPECTUS IMMEDIATELY. In connection with the Offer, J.P. Morgan Securities plc (as Stabilising Manager), or any of its agents, may (but will be under no obligation to), to the extent permitted by applicable law and for stabilisation purposes, over-allot Ordinary Shares up to a total of 10% of the total number of Ordinary Shares comprised in the Offer or effect other transactions with a view to supporting the market price of the Ordinary Shares at a higher level than that which might otherwise prevail in the open market. The Stabilising Manager is not required to enter into such transactions and such transactions may be effected on any securities market, over-the-counter market, stock exchange or otherwise and may be undertaken at any time during the period commencing on the date of the conditional dealings of the Ordinary Shares on the London Stock Exchange and ending no later than 30 calendar days thereafter. Such stabilisation, if commenced, may be discontinued at any time without prior notice. In no event will measures be taken to stabilise the market price of the Ordinary Shares above the Offer Price. Except as required by law or regulation, neither the Stabilising Manager nor any of its agents intends to disclose the extent of any over-allotments made and/or stabilisation transactions conducted in relation to the Offer. To allow the Stabilising Manager to cover short positions resulting from any such over-allotment and/or from sales of Ordinary Shares effected by it during the stabilising period, it has entered into the option with the Major Shareholders (the “Over-allotment Option”) pursuant to which it may purchase (or nominate purchasers of) additional Ordinary Shares representing up to 10% of the total number of Ordinary Shares comprised in the Offer (before utilisation of the Over-allotment Option) (the “Over- allotment Shares”) at the Offer Price. The Over-allotment Option may be exercised in whole or in part upon notice by the Stabilising Manager at any time on or before the 30th calendar day after the commencement of conditional dealings of the Ordinary Shares on the London Stock Exchange. Any Over-allotment Shares made available pursuant to the Over-allotment Option will be sold on the same terms and conditions as Ordinary Shares being offered pursuant to the Offer and will rank pari passu in all respects with, and form a single class with, the other Ordinary Shares (including for all dividends and other distributions declared, made or paid on the Ordinary Shares).

NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENCE HAS BEEN FILED UNDER CHAPTER 421-B, OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE, NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF THE STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING, NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE

2 HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATION OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE OR CAUSE TO BE MADE TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.

AVAILABLE INFORMATION

The Company has agreed that, for so long as any of the Ordinary Shares are “restricted securities” as defined in Rule 144(a)(3) under the US Securities Act, the Company will, during any period in which it is neither subject to Section 13 or 15(d) of the United States Securities Exchange Act of 1934 (“Exchange Act”), nor exempt from reporting under the Exchange Act pursuant to Rule 12g3-2(b) thereunder, make available to any holder or beneficial owner of such restricted securities or to any prospective purchaser of such restricted securities designated by such holder or beneficial owner, upon the request of such holder, beneficial owner or prospective purchaser, the information required to be delivered pursuant to Rule 144A(d)(4) under the US Securities Act. The Company expects that it will be exempt from reporting under the Exchange Act pursuant to Rule 12g3-2(b) thereunder.

The date of this Prospectus is 28 March 2014.

3 TABLE OF CONTENTS

TABLE OF CONTENTS 4

PART I — SUMMARY 5

PART II — RISK FACTORS 18

PART III — DIRECTORS, SECRETARY, REGISTERED OFFICE AND ADVISERS 46

PART IV — EXPECTED TIMETABLE OF PRINCIPAL EVENTS AND OFFER STATISTICS 47

PART V — PRESENTATION OF INFORMATION 48

PART VI — DETAILS OF THE OFFER 53

PART VII — INFORMATION ON THE GROUP AND ITS INDUSTRY 63

PART VIII — OVERVIEW OF LLOYD’S OF LONDON 97

PART IX — DIRECTORS, SENIOR MANAGEMENT AND CORPORATE GOVERNANCE 103

PART X — REGULATORY OVERVIEW 110

PART XI — CAPITALISATION AND INDEBTEDNESS 118

PART XII — SELECTED FINANCIAL INFORMATION 119

PART XIII — OPERATING AND FINANCIAL REVIEW 123

PART XIV — FINANCIAL INFORMATION 202

PART XV — TAXATION 287

PART XVI — ADDITIONAL INFORMATION 297

PART XVII — DEFINITIONS 342

4 PART I — 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 securities 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 might 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 the words “not applicable”.

Section A — Introduction and warnings

Element A.1 Introduction and warnings This summary should be read as an introduction to the Prospectus. Any decision to invest in the Offer Shares should be based on consideration of the Prospectus as a whole by the investor. Where a claim relating to the information contained in the Prospectus is brought before a court, the plaintiff investor might, under the national legislation of a Member State, have to bear the costs of translating the Prospectus before the legal proceedings are initiated. Civil liability attaches only to the Directors and the Company, who are responsible for this summary, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of the Prospectus or it does not provide, when read together with the other parts of the Prospectus, key information in order to aid investors when considering whether to invest in such securities. A.2 Consent for intermediaries Not applicable: the Company is not engaging any financial intermediaries for any resale of securities or final placement of securities after publication of this Prospectus.

Section B — Issuer

Element B.1 Legal and commercial name Brit PLC B.2 Domicile/legal form/ The Company is a public limited company, incorporated legislation/ country of in the UK with number 8821629 and its registered office incorporation is situated in England and Wales. The Company operates under the Companies Act. B.3 Current operations/ principal The Group is a global specialty insurer and reinsurer, activities and markets underwriting policies in the Lloyd’s market across a broad range of commercial insurance and reinsurance classes with a strong focus on Property, Casualty and Energy business. Having streamlined its business in recent years, the Group’s underwriting is now focused on the Brit Syndicate (2987), one of the largest syndicates at Lloyd’s (based on total owned underwriting capacity) (the “Syndicate”). The Syndicate is “aligned” (i.e. its sole Lloyd’s member, Brit UW Limited (“Brit UW”), and its managing agent, Brit Syndicates Limited (“BSL”), are both in the same corporate group) and benefits from the strong financial strength ratings assigned to Lloyd’s.

5 The Group writes predominantly direct insurance in specialty lines. In 2013, direct insurance accounted for 76% of the Group’s GWP, with the remainder of GWP composed of reinsurance. Within direct insurance, the Group writes more short tail than long tail business, with short tail business accounting for 66% of the Group’s direct insurance GWP in 2013. While focused on certain core areas, the Group nevertheless writes business across a diverse range of business lines, with underlying risks distributed on a global scale. The Group has a significant investment portfolio (£2.6 billion as at 31 December 2013) which has provided favourable returns (net of investment fees) in recent years (2013: 2.2%; 2012: 2.9%; 2011: 2.4%) despite the low interest rate environment. This portfolio is managed predominantly by external asset managers under the direction of an experienced in-house team. The portfolio consists mainly of income-generating assets across a range of sectors to balance risk and yield as well as an allocation to growth assets and cash. In 2013, the Group generated GWP of £1,185.7 million (2012: £1,147.9 million; 2011: £1,179.9 million) and profit before foreign exchange1 and tax of £164 million (2012: £125 million; 2011: £73 million). B.4a Significant recent trends During 2014, the Group anticipates rate increases in affecting the Group and the certain areas of Specialty and Casualty insurance, with industries in which it operates rate reductions expected in the Property (both direct and reinsurance) and Energy insurance business lines. The Group expects overall rate reductions of between 2% and 2.5% for 2014. The Group’s experience in the 1 January 2014 renewal season was in line with the foregoing expectations. The Group expects to increase its gross premiums written in 2014 in the low single-digit percentages (on a constant exchange rate basis). This growth is expected to be driven by both an increased retention ratio on existing business and growth from new initiatives executed in 2013. These initiatives included the Bermuda platform (which commenced underwriting operations on 1 January 2014) and further growth in its US Specialty operations under BGSU, as well as the recruitment of new teams in London in areas such as High Value Homeowners, Political Risks, UK Property, and Fine Art & Specie. For 2014, the Group has sought to take advantage of conditions in the property reinsurance market to restructure its main property catastrophe reinsurance programme. The restructured programme combines cover for the Property portfolios (both direct and reinsurance), providing US$325 million of coverage in the aggregate and on a worldwide basis, and attaching at US$125 million. B.5 Description of Issuer’s group The Company is the UK holding company of the Group. The Group writes insurance and reinsurance business through its syndicate in the Lloyd’s of London market.

1 Includes impact of foreign exchange derivatives.

6 B.6 Shareholders As at the date of this Prospectus, insofar as is known to the Company, the following will, on Admission, be directly or indirectly interested in 3% or more of the share capital of the Company: • Apollo-Affiliated Funds (39.7%); and • CVC-Affiliated Funds (33.6%). The Company has entered into the Relationship Agreements with each of the CVC-Affiliated Funds and the Apollo Entities to ensure that the Group can operate independently of both of them following Admission. Save for the CVC-Affiliated Funds and the Apollo Entities, the Company is not aware of any person who, directly or indirectly, jointly or severally, exercises or, immediately following the Offer, could exercise control over the Company. All Ordinary Shares have the same voting rights.

7 B.7 Selected historical key Consolidated Income Statement financial information 2011 2012 2013 £m1 £m £m Revenue Gross premiums written ...... 1,179.9 1,147.9 1,185.7 Premiums written, net of reinsurance ...... 975.3 937.0 956.3 Earned premiums, net of reinsurance ...... 1,013.6 944.6 945.5 Investment return ...... 64.6 87.2 56.9 Return on derivative contracts . . . 5.3 (2.1) 11.0 Profit on disposal of asset held for sale ...... — — 4.4 Net foreign exchange gains ...... 3.7 — — Other income ...... 0.1 0.7 —

Total revenue ...... 1,087.3 1,030.4 1,017.8

Claims incurred, net of reinsurance ...... (603.8) (530.0) (459.2) Acquisition costs ...... (298.2) (286.1) (287.5) Other operating expenses ...... (138.3) (77.7) (79.1) Net foreign exchange losses ..... — (25.9) (69.6) Total expenses excluding finance costs ...... (1,040.3) (919.7) (895.4)

Operating profit ...... 47.0 110.7 122.4 Finance costs ...... (16.7) (14.6) (15.0) Share of loss after tax of associated undertakings ...... (0.4) (0.1) — Write-off of negative goodwill .... 51.9 — — Impairment of associated undertaking ...... — (0.1) — Profit on ordinary activities before tax ...... 81.8 95.9 107.4 Tax expense ...... (0.3) (5.2) (6.5) Profit for the year from continuing operations ...... 81.5 90.7 100.9 Profit/(loss) from discontinued operations ...... 19.2 23.8 (1.4) Profit for the year ...... 100.7 114.5 99.5

1 The Aggregated information in respect of 2011 has been prepared in accordance with Note 2 to the historical financial information.

8 Consolidated Statement of Comprehensive Income

2011 2012 2013 £m £m £m Profit attributable to: Equity holders of the parent ...... 100.0 113.8 99.1 Non-controlling interests ...... 0.7 0.7 0.4 Profit for the year ...... 100.7 114.5 99.5 Basic earnings per share (pence per share) — continuing operations ...... 124.1 113.8 134.5 Basic earnings per share (pence per share) — total operations ...... 153.4 143.7 132.6 Diluted earnings per share (pence per share) — continuing operations ...... 123.9 113.6 134.4 Diluted earnings per share (pence per share) — total operations ...... 153.1 143.5 132.5 Net other comprehensive income not being reclassified to profit or loss in subsequent periods ...... (1.9) (6.9) 1.5 Other comprehensive income for the year net of tax ...... 98.8 107.6 101.0 Total comprehensive income for the year attributable to: Equity holders of the parent ...... 98.1 106.9 100.6 Non-controlling interests ...... 0.7 0.7 0.4 98.8 107.6 101.0

Consolidated Statement of Financial Position

2011 2012 2013 £m £m £m Assets Financial investments ...... 3,206.2 2,312.1 2,275.9 Cash and cash equivalents ...... 457.8 304.9 315.7 Deferred acquisition costs ...... 156.7 113.3 125.7 Reinsurance contracts ...... 566.2 414.3 450.0 Other assets2 ...... 661.6 453.5 489.3 Total assets ...... 5,048.5 3,598.1 3,656.6 Liabilities and Equity Liabilities Insurance contracts ...... 3,557.0 2,561.3 2,593.9 Borrowings ...... 245.0 121.9 123.2 Other liabilities3 ...... 267.5 204.7 228.5 Total liabilities ...... 4,069.5 2,887.9 2,945.6 Total equity ...... 979.0 710.2 711.0 Total liabilities and equity ...... 5,048.5 3,598.1 3,656.6

Consolidated Statement of Cash Flows

2011 2012 2013 £m £m £m Net cash inflows/(outflows) from operating activities ...... (229.9) 191.3 102.7 Net cash inflows/(outflows) from investing activities ...... (859.3) 164.8 10.4 Net cash inflows/(outflows) from financing activities ...... 924.7 (504.5) (100.3) Net (decrease)/increase in cash and cash equivalents ...... (164.5) (148.4) 12.8 Cash and cash equivalents at beginning of the year ...... 623.4 457.8 304.9 Effect of exchange rate fluctuations on cash and cash equivalents ...... (1.1) (4.5) (2.0) Cash and cash equivalents at the end of the year ...... 457.8 304.9 315.7

2 Includes property, plant and equipment, intangible assets, investments in associated undertakings, assets held for sale, current taxation, employee benefits, derivative contracts, and insurance and other receivables. 3 Includes current and deferred taxation, provisions, derivative contracts, and insurance and other payables.

9 The Group’s gross premiums written were £1,179.9 million, £1,147.9 million and £1,185.7 million in 2011, 2012 and 2013, respectively. The decrease in 2012 was primarily due to lower volumes in the Marine and Property Facilities business lines, which was partially offset by growth in the Energy and Property Open Market business lines. The increase in 2013 was driven mainly by the short tail direct business lines, which benefited from the acquisition of the renewal rights and underwriting business of Maiden Specialty excess and surplus property business in May 2013, as well as a positive rates environment. The Group’s net claims incurred decreased from £603.8 million in 2011 to £530.0 million in 2012 and £459.2 million in 2013, reflecting improvements in attritional loss experience, lower catastrophe experience, and favourable development on prior years. The attritional loss ratio improved from 55.4% in 2011 to 51.8% in 2012 and to 51.3% in 2013, driven mainly by continued action taken by the Group to restructure its underwriting portfolio by actively reducing exposures to business lines that had experienced unfavourable historical attritional performance. The major loss ratio improved from 14.1% in 2011 to 6.1% in 2012 and to 3.2% in 2013, driven mainly by the comparatively fewer catastrophes in 2012 and the benign catastrophe year in 2013, both compared with 2011. The operating expense ratio decreased from 12.3% in 2011 to 11.4% in 2012, before increasing to 12.0% in 2013, as a result of the Group’s initiatives to rationalise its expense base, which included (a) sale of its UK business (including BIL) and focusing its underwriting on the Lloyd’s platform, (b) reduction in discretionary costs, (c) outsourcing of business process operations and IT, and (d) improvements to underwriting, including underwriting system upgrades and the hiring of new underwriting staff in strategically important and profitable business lines. Since 2011, as part of a realignment of its investment strategy, the Group has transitioned to a broader mix of asset classes in its investment portfolio. The core focus of the portfolio (which was valued at £2.6 billion as of 31 December 2013) is income-generating investments (i.e. government and agency debt, corporate debt and structured products), balanced with growth assets across a wide range of sectors to balance risk and yield and diversify away from pure fixed income investments. The Group also maintains an allocation to cash. Within its income-generating investments, the Group has been investing in floating rate instruments, which offer upside potential in a rising interest rate environment. Despite a challenging market environment characterised by low interest rates, the Group achieved investment returns of £64.6 million, £87.2 million and £56.9 million in 2011, 2012 and 2013, respectively.

10 In 2012, the Group began implementing an asset-liability management strategy focused on hedging its solvency buffer. This strategy, referred to as “solvency matching,” involves aligning the characteristics of the Group’s assets with the characteristics of its liabilities and required capital such that changes in foreign exchange rates and interest rates do not adversely affect the solvency buffer. The solvency matching strategy, however, may lead to increased earnings volatility. For example, in 2013, the Group recognised net foreign exchange losses of £69.6 million due to unfavourable foreign exchange movements (compared to net foreign exchange losses of £25.9 million in 2012 and net foreign exchange gains of £3.7 million in 2011). The Group’s total assets decreased from £5,048.5 million as of 31 December 2011 to £3,656.6 million as of 31 December 2013, as a result of the sale of the Group’s UK business and the distribution to the Group’s shareholders of the proceeds from the disposal. The Group’s financial indebtedness consists of lower tier 2 subordinated unsecured notes due 2030 with a nominal value of £135.0 million. The Group’s overall capital requirements are primarily based on a combination of the Funds at Lloyd’s requirements and the regulatory minimum capital requirements of the FSC. In addition, the Group sets its own internal capital policies. The Group’s management entity capital requirements have decreased from £943.0 million in 2011 to £645.0 million as at 31 December 2013, as a result of focusing its underwriting operations on the Lloyd’s platform and improvements in business performance. The Group’s solvency ratio (capital resources as a percentage of capital requirements) was 141% as of 31 December 2013. As at 31 December 2013, the Group had cash and cash equivalents of £315.7 million (31 December 2012: £304.9 million), not all of which are immediately available to the Group due to regulatory capital requirements. The movements in cash and cash equivalents were attributable to cash flow movements in (a) operating activities (outflow of £229.9 million, inflow of £191.3 million and inflow of £102.7 million in 2011, 2012 and 2013, respectively), where the most significant change related to the non-availability of operating cash flow from discontinued operations, (b) investing activities (outflow of £859.3 million, inflow of £164.8 million and inflow of £10.4 million in 2011, 2012 and 2013, respectively), where the most significant changes related to the acquisition of the Brit Group by Achilles in 2011 and non-availability of investing cash flow from discontinued operations and (c) financing activities (inflow of £924.7 million, outflow of £504.5 million and outflow of £100.3 million in 2011, 2012 and 2013, respectively), where the most significant movements related to drawings and repayments under the Revolving Credit Facility throughout the periods under review, as share redemptions and reimbursement of the share premium account to shareholders in 2013, and dividend payments.

11 B.8 Selected key pro forma Not applicable: there will be no pro forma information. financial information B.9 Profit forecast/ estimate Not applicable: the Group has not made any profit forecasts which remain outstanding as at the date of this Prospectus. B.10 Audit report — qualifications Not applicable: there are no qualifications in the accountant’s report on the historical financial information. B.11 Working capital — Not applicable: the Company is of the opinion that the qualifications working capital available to the Group is sufficient for the Group’s present requirements, that is, for at least the next 12 months from the date of the publication of this Prospectus.

Section C — Securities

Element C.1 Description of type and class The Offer comprises 100,000,000 Ordinary Shares in Brit of securities being offered PLC which are currently in issue as at the date of this Prospectus and are to be sold by the Selling Shareholders (the “Offer Shares”). The Offer Shares to be sold under the Offer will represent 25.0% of the issued share capital of the Company immediately following Admission of the Ordinary Shares to trading on the London Stock Exchange’s main market for listed securities and their admission to the Official List. In addition, Over-allotment Shares (representing approximately 10.0% of the maximum number of Offer Shares) are being made available. No new Ordinary Shares will be issued by the Company under the Offer. The nominal value of the total issued ordinary share capital of the Company immediately following Admission will be £800,000,000 divided into 400,000,000 Ordinary Shares of £2 each, which are issued fully paid. It is intended that, in the period following Admission, the share capital of the Company will be reduced from £800,000,000 to £4,000,000 by the cancellation of £1.99 from the nominal value of each Ordinary Share (the “Post-Admission Capital Reduction”). The Post- Admission Capital Reduction is being undertaken to create distributable reserves in the Company with the intention of facilitating the payment of dividends to Shareholders. The Post-Admission Capital Reduction has been approved (conditional on Admission) by a special resolution of the Company’s shareholders passed on 27 March 2014 and will require approval of the Court. When admitted to trading, the Ordinary Shares will be registered with ISIN number GB00BKRV3L73 and SEDOL number BKRV3L7. C.2 Currency of issue The Offer Shares are denominated in Sterling. C.3 Number of Ordinary Shares There are at the date of this Prospectus 400,000,000 issued and par value Ordinary Shares (all of which are fully paid). The Ordinary Shares have a par value of £2 (which will be reduced to £0.01 by virtue of the Post-Admission Capital Reduction).

12 C.4 Rights attaching to the The Ordinary Shares rank equally for voting purposes. Ordinary Shares On a show of hands each Shareholder has one vote, and on a poll each Shareholder has one vote per Ordinary Share held. Each Ordinary Share ranks equally for any dividend declared. Each Ordinary Share ranks equally for any distributions made on a winding up of the Company. Each Ordinary Share ranks equally in the right to receive a relative proportion of shares in case of a capitalisation of reserves. C.5 Restrictions on transfer The Ordinary Shares are freely transferable and there are no restrictions on transfer in the UK. C.6 Admission to trading Application will be made for the entire issued ordinary share capital of the Company to be admitted to the premium segment of the Official List of the UK Listing Authority and to trading on the London Stock Exchange’s main market for listed securities. No application has been made or is currently intended to be made for the Ordinary Shares to be admitted to listing or trading on any other exchange. C.7 Dividend policy The Board believes that the Group’s RoNTA in 2012 and 2013 coupled with the capital buffer demonstrate the ability of the business to support a sustainable regular dividend for shareholders. The Board expects that any additional capital not required for profitable growth opportunities will likely be returned to shareholders, as has been the case in most recent years. The Group does not have a progressive dividend policy. Dividends (to the extent paid) are linked to past performance and future prospects, expected cash flows and working capital needs, as well as the availability of distributable reserves. The Board currently expects to declare a base interim dividend of £25 million for 2014, representing one-third of the expected annual dividend and paid in the third quarter of this year. The Group would expect to pay the remainder of the annual dividend in early 2015. The Group expects the regular dividend to be supplemented by special dividends when excess capital cannot be attractively deployed in order to maintain surplus capital within the target range of 120- 140% of management entity capital requirements.

Section D — Risks

Element D.1 Key information on key risks The Group’s underwriting results depend on whether its that are specific to the Issuer claims experience is consistent with the assumptions and or its industry pricing models it uses in underwriting and setting prices for its insurance covers. Failure by the Group to manage the underwriting risk that it undertakes could have a material adverse effect on the Group’s results of operations and financial condition. The Lloyd’s market is a highly competitive market and a failure to compete effectively may result in the loss of existing business, and of opportunities to capture new

13 business, which could have a material adverse effect on the Group’s results of operations, financial condition, growth and prospects. The insurance and reinsurance businesses historically have been cyclical, with significant fluctuations in rates and operating results. This cyclicality has produced periods characterised by intense price competition due to excess underwriting capacity (a so-called “soft market”), with each business line having its own cycle. Where a business line experiences soft market conditions, the Group may fail to obtain new insurance business in that business line at the desired rates. The Group’s underwriting exposes it to claims arising out of unpredictable natural or “man-made” catastrophic events. The incidence and severity of catastrophes are inherently unpredictable and the Group’s losses from catastrophes could be material. The Group’s results depend in large part on the extent to which claims (net of reinsurance) are consistent with the assumptions that it uses in establishing its reserves, and it faces the risk that its reserves will be inadequate to cover its claims (net of reinsurance). If the Group’s risk management and loss limitation methods fail to adequately manage its exposure to losses, the losses it incurs could be materially higher than its expectations and its financial condition and results of operations could be materially adversely affected. The Group follows the customary industry practice of reinsuring with, and retroceding to, other insurance and reinsurance companies a portion of the risks its assumes under the business it writes. Failure to obtain reinsurance on attractive terms, or to recover under reinsurance arrangements, may have a material adverse effect on the Group. Investment returns form a material component of the Group’s results of operations. The effect of changes in interest rates, bond yields and equity returns, credit spreads, credit ratings and other economic variables on the Group’s investments could therefore substantially affect the profitability of the Group. In addition, a decrease in the value of the Group’s investments may result in a reduction in overall capital, which may have a material adverse effect on the Group’s results of operations and its financial condition. The Solvency II Directive (“Solvency II”), which will impose new risk-based capital requirements on European-domiciled insurance companies, may, when implemented, require an increase in the Group’s capital. The Group writes all of its business through Lloyd’s (with the exception of the business written by BIG pursuant to the RiverStone Reinsurance Agreement). As such, any significant problem with the Lloyd’s market, such as damage to its reputation or a loss of any of its international licences, may result in a material adverse effect on the Group’s business.

14 The Group relies on brokers and coverholders to distribute its products and the Group’s business may suffer should brokers compete with its business or otherwise enter into arrangements which limit the amount of business which is written for the Group. The future success of the Group is substantially dependent on the continued services and continuing contribution of its Directors, senior underwriters, Senior Management and other key personnel and its ability to continue to attract, motivate and retain the services of qualified personnel. The Group could be adversely affected by the loss of one or more such key employees or by an inability to attract and retain such personnel, which could negatively affect its financial condition, results of operations, or ability to realise its strategic business plan. The Group outsources parts of its operations and, in particular, it has outsourced a large element of its IT and business processing functions to a third party on which it is heavily reliant for the efficient provision of those services. Any failure on the part of that or any other party to perform outsourced services may result in significant business disruption to the business of the Group. D.3 Key information on key risks There has been no prior public trading market for the relating to the Ordinary Ordinary Shares, and an active trading market may not Shares develop or be sustained in the future. Following Admission, the Major Shareholders will be interested in approximately 73.4% of the Company’s issued share capital. Of these, Apollo-Affiliated Funds will own 39.7% and CVC-Affiliated Funds will own 33.6%. As a result, each of the Major Shareholders will be able to exercise a significant degree of influence over the outcome of certain matters to be considered by Shareholders. The interests of either of the Major Shareholders may not always be aligned with those of the other Shareholders. The CVC-Affiliated Funds and the Apollo Entities have entered into the Relationship Agreements with the Company. The share price of publicly traded companies can be highly volatile, including for reasons related to differences between expected and actual operating performance, corporate and strategic actions taken by such companies or their competitors, speculation about the business and management of such companies and general market conditions and regulatory changes.

15 Section E – Admission and the Offer

Element E.1 Net proceeds/expenses The net proceeds (after deducting underwriting commissions) from the Offer for the Selling Shareholders will be approximately £235.3 million. No proceeds will be received by the Company pursuant to the Offer. No expenses will be directly charged by the Company to the purchasers of Offer Shares. E.2a Reasons for the Offer/Use of The Selling Shareholders are looking to realise part of proceeds their investment in the Company by way of the Offer. In addition, while the Group is not receiving any proceeds from the Offer, the Board believes that Admission will benefit the Company as it will: • give the Group access to a wider range of capital- raising options which may be of use in the future; and • assist in recruiting, retaining and incentivising key management and employees. E.3 Terms and conditions of the The Offer Shares will consist of the Offer of 100,000,000 Offer Ordinary Shares, which shall be sold by the Selling Shareholders. Under the Offer, all Offer Shares will be sold at the Offer Price. The Offer is made by way of an institutional private placing. Under the Offer, Ordinary Shares will be offered to: (i) certain institutional and professional investors in the UK and elsewhere outside the United States in reliance on Regulation S; and (ii) to persons reasonably believed to be QIBs in the United States in reliance on Rule 144A or another exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act. The Ordinary Shares allocated under the Offer have been underwritten, subject to certain conditions, by the Underwriters. Admission is expected to become effective, and unconditional dealings in the Ordinary Shares are expected to commence on the London Stock Exchange, at 8.00 a.m. on 2 April 2014. E.4 Material interests The Directors consider that the CVC-Affiliated Funds and the Apollo-Affiliated Funds have interests that are material to the Offer by virtue of the size of their existing shareholding in the Company. The Company does not consider that these are conflicting interests, or that there are any other interests, that are material to the Offer.

16 E.5 Selling Shareholders and 100,000,000 Ordinary Shares will be sold in the Offer by Lock-up arrangements or on behalf of the Selling Shareholders. The interests in Ordinary Shares of the Selling Shareholders (certain of which include the interests of a person connected with the relevant Selling Shareholder) immediately prior to Admission, together with their interests in Ordinary Shares immediately following Admission, are set out in the table below. Interests in Ordinary Ordinary Shares to Interests in Ordinary Shares immediately be sold pursuant to Shares immediately Selling Shareholder prior to Admission the Offer following Admission

% of total %of % of total No. issued No. holding No. issued Apollo Entities(1)(2) 212,017,331 53.0% 53,018,252 25.0% 158,999,079 39.7% CVC-Affiliated Funds(1)(2) 179,438,409 44.9% 44,871,377 25.0% 134,567,032 33.6%

Mark Cloutier(1)(2)(3)* 1,606,368 0.4% 401,592 25.0% 1,204,776 0.3% Matthew Wilson(1)(2)(3)* 1,027,090 0.3% 256,773 25.0% 770,317 0.2% Other Management Shareholders(1)(3) 5,910,778 1.5% 1,452,006 24.6% 4,458,772 1.1% N.B. Figures in the above table do not take into account any exercise of the Over-allotment Option

(1) For the purposes of the Offer, the business address of the CVC- Affiliated Funds is 22-24 Searle Street, St. Helier, Jersey, JE2 3QG, the business address of the Apollo Entities is 190 Elgin Avenue, Grand Cayman KY 1-9005, Cayman Islands and the business address of Mark Cloutier, Matthew Wilson and the other Management Shareholders is 55 Bishopsgate, London, EC2N 3AS. (2) Shares held directly in the Company. (3) Shares held through SJT Limited, the trustee of the Brit EBT. * Mark Cloutier and Matthew Wilson hold their shares both directly in the Company and also through SJT Limited The CVC-Affiliated Funds and the Apollo Entities, on the one hand, and the Company, on the other, have agreed to a 180-day lock-up period following Admission, during which time they may not dispose of any interest in their Ordinary Shares without the consent of the Joint Global Coordinators. The Directors are subject to a corresponding undertaking during the period of 365 days following Admission. Certain of the Management Shareholders who are also Selling Shareholders have agreed with the Company that, for a period of 365 days following Admission, such Management Shareholders will not dispose of any interest in their Ordinary Shares without the consent of the Company. All lock-up arrangements are subject to certain customary exceptions. E.6 Dilution Not applicable. E.7 Estimated expenses charged Not applicable: there are no commissions, fees or to investor expenses to be charged to investors by the Company under the Offer.

17 PART II — RISK FACTORS

Any investment in the Company is subject to a number of risks. Accordingly, prospective Investors should carefully consider the risks and uncertainties associated with any investment in the Ordinary Shares, the Group’s business and the industry in which it operates, described below, together with all other information contained in this Prospectus, prior to making an investment decision.

Prospective Investors should note that the risks relating to the Group, its industry and the Ordinary Shares summarised in Part I (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 Ordinary Shares. However, as the risks which the Group faces 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 Part I (Summary) but also, among other things, the risks and uncertainties described below.

The risks and uncertainties described below represent those the Directors consider to be material as at the date of this Prospectus. However, these risks and uncertainties are not the only ones facing the Group. Additional risks and uncertainties not presently known to the Directors, or that the Directors currently consider to be immaterial, may individually or cumulatively also materially and adversely affect the business, results of operations, financial condition and/or prospects of the Group. If any or a combination of these risks actually occurs, the business, results of operations, financial condition and/ or prospects of the Group could be materially and adversely affected. In such case, the market price of the Ordinary Shares could decline and Investors may lose all or part of their investment. Investors should consider carefully whether an investment in the Ordinary Shares is suitable for them in the light of the information in this Prospectus and their personal circumstances.

1. RISKS RELATING TO THE GROUP’S UNDERWRITING 1.1 The Group may not appropriately manage the risks it undertakes in its underwriting business The Group’s underwriting results depend on whether its claims experience is consistent with the assumptions and pricing models it uses in underwriting and setting rates for its insurance covers. It is not possible to predict with certainty whether a single risk or a portfolio of risks underwritten by the Group will result in a loss, or the timing and severity of any loss that does occur. If the Group’s underwriters fail to assess accurately the risks underwritten or fail to comply with internal guidelines on underwriting or, if events or circumstances cause the underwriters’ risk assessment to be incorrect, the Group’s premiums may prove to be inadequate to cover the losses associated with such risks. Failure by the Group to manage the risks that it undertakes could have a material adverse effect on the Group’s results of operations and financial condition.

Underwriting results in the Group’s reinsurance business are dependent in part on the policies, procedures and expertise of its ceding companies in making their underwriting decisions. The Group does not separately evaluate each of the individual risks assumed under reinsurance arrangements, and it may not have sufficient visibility as to the assumptions, modelling and other techniques used by ceding companies. The Group is therefore exposed to the risk that its ceding companies might not have adequately evaluated the risks to be reinsured, that the premiums ceded might not adequately compensate it for the risks that it assumes or that claims (including the costs of claims handling) may not have been adequately reserved or notified by the policyholder. For example, the Group has in the past been required to make unfavourable adjustments to its loss estimates as a result of poor policyholder initial loss estimates in respect of major natural catastrophes. Failure to manage risk appropriately could have a material adverse effect on the Group’s results of operations and financial condition.

1.2 The insurance and reinsurance industries are highly competitive; competitive pressures may result in fewer contracts written, lower premium rates, increased expense for customer acquisition and retention, and less favourable policy terms and conditions The Group operates in highly competitive markets. Customers may evaluate the Group and its competitors on a number of factors, including financial strength, underwriting capacity, expertise, local

18 presence, reputation, experience and qualifications of employees, client relationships, geographic scope of business, products and services offered, premiums charged, contract terms and conditions and, in the case of reinsurance, speed of claims payment.

The Group competes with numerous insurance and reinsurance companies and underwriting syndicates, some of which may have more established positions in the market and/or greater financial resources available to them. Its competitors vary by product line and territory, and include other Lloyd’s syndicates, including syndicates of larger insurance groups, other local or global insurance providers, and in certain product lines certain specialist players, as well as global reinsurance groups and niche players such as the Bermuda reinsurance providers. In addition, in the past year, the insurance industry has faced increased competition from new capacity, such as the investment of significant amounts of capital in pension funds, mutual funds, hedge funds and other sources of alternative capital into natural catastrophe insurance/reinsurance.

The nature of the competition the Group faces may be affected by disruption and deterioration in global financial markets and economic downturns, as well as by governmental responses thereto. For example, (i) government intervention might result in capital or other support for the Group’s competitors or (ii) governments may provide insurance and reinsurance capacity in markets and to consumers that the Group targets (please refer to section 3.3 of this Part II (Risk Factors) in relation to government intervention in the insurance industry generally).

Increased competition can result in less business written, lower premiums for the business that is written (over and above reductions due to favourable loss experience), increased expenses associated with acquiring and retaining business, and policy terms and conditions that are less advantageous to the Group than it was able to obtain historically or that may be available to the Group’s competitors. In particular, some of the parties offering additional underwriting capacity may have a lower target return on capital, allowing them to offer lower rates to customers.

A failure to compete effectively may result in the loss of existing business, and of opportunities to capture new business, which could have a material adverse effect on the Group’s results of operations, financial condition, growth and prospects.

1.3 The Group’s operating results are affected by the cyclicality of the insurance and reinsurance industry The insurance and reinsurance industry historically has been cyclical, with significant fluctuations in rates and operating results due to competition, frequency or severity of catastrophic events, levels of capacity, general economic and social conditions and other factors. Insurance and reinsurance capacity is related to prevailing premium rates, the level of insured losses and the level of industry surplus that, in turn, might fluctuate in response to changes in rates of return on investments being earned in the insurance and reinsurance industry and other factors. This cyclicality has produced periods characterised by intense price competition due to excess underwriting capacity (a so-called “soft market”), with each business line experiencing its own cycle. Where a business line experiences soft market conditions, the Group may fail to obtain new insurance business in that business line at the desired rates.

The Group operates a diversified business, writing insurance in a variety of lines of business and geographic markets. Different lines of business and different geographic markets can experience their own cycles and, therefore, the impact of various cycles will depend in part on the sectors of the insurance and reinsurance industry, as well as the geographic markets that the Group chooses to focus on. In addition, increases in the frequency and severity of losses suffered by insurers can significantly affect these cycles. The Group can be expected to continue to experience the effects of such cyclicality, which could have a material adverse effect on its financial condition, results of operations or cash flows.

Interest rate movements can contribute to cyclicality in insurers’ underwriting results. In a high interest rate environment, increased investment returns may reduce the required contribution from the underwriting performance to achieve an attractive overall return. This may result in a less disciplined approach to underwriting in the market generally as some underwriters would be inclined to offer lower premium rates to generate more business. The Group may therefore have to accept lower rates or broader coverage terms to remain competitive in the market, with the result that the Group’s premiums may be inadequate to cover the losses associated with such risks.

19 The Group may from time to time, as a result of the cyclicality of certain business lines, decide to concentrate on fewer lines of business. As a consequence, the Group may be exposed to additional risk and may be required to hold more regulatory capital on the basis that the business, and hence the associated risk, is more concentrated, which in turn may affect the efficiency of the Group’s business and have a material adverse effect on the Group’s financial condition and results of operations.

1.4 The growth of the Group’s operations may have an adverse effect on underwriting discipline In the last three years, the Group has established additional offices and increased its personnel in certain areas. Moreover, the Group’s strategy for future growth includes expanding its local distribution network by setting up new offices. Such growth, with more underwriting delegated to managing general agents and coverholders in overseas locations, may make it more difficult for the Group to monitor and enforce compliance with internal underwriting authorities, limits and controls.

In addition, as the Group’s operations expand into sectors or geographical markets in which the Group has limited prior experience, the Group’s ability to properly price and develop initial loss estimates may be adversely affected.

Any of the foregoing could have a material adverse effect on the Group’s business, financial condition and results of operations.

1.5 A deterioration in macroeconomic conditions could adversely impact the Group’s underwriting performance The Group is a global business and is affected by economic and other macro conditions in the markets in which it operates.

Economic conditions in Europe and the United States are particularly relevant to the Group, given that the majority of its business is written in those areas. (In 2013, 37% and 45% of the gross written premiums recorded by the Group was written for policyholders domiciled in Europe and the United States, respectively). While the Group operates across different markets, adverse economic conditions in these two markets could have a material adverse effect on the Group’s business, financial condition and results of operations.

The political gridlock in the United States that culminated in a temporary federal government shutdown and battles over increasing the US borrowing limit, the market reaction to the prospects of the taper of the US Federal Reserve’s asset-purchase programme and its impact on global interest rates, the downgrade by Standard & Poor’s of France’s sovereign debt rating and recent pessimistic global growth forecasts by the Organisation for Economic Cooperation and Development and the International Monetary Fund (the “OECD”), among others, highlight the uncertain nature of any post- crisis recovery and the significant risks that the world economy continues to face.

Economic growth in Europe broadly continues to be constrained, particularly in the peripheral eurozone countries, and business and consumer confidence continues to be impacted by limited access to credit in the bank funding markets, ongoing concerns over eurozone sovereign debt, concerns over the ability of governments to address the need for structural economic and fiscal reforms, and the slower pace of economic growth in China and other emerging markets.

A deterioration in macroeconomic conditions in North America or Europe may affect the decisions of current and prospective policyholders as to the level of insurance or reinsurance coverage which they purchase in any given year, which in turn may, where such parties decide to reduce or otherwise limit their expenditure on such coverage, affect the amount of business written by the Group. Furthermore, several of the Group’s lines of business have either direct or indirect exposure to financial markets and macroeconomic conditions which could lead to an increase in claims. Also, the nature of insurance liabilities is one of a promise to pay claims at a point in the future, meaning that a change in macroeconomic conditions leading to increased inflation may result in an increase in the level at which claims are paid. Any of the foregoing could have a material adverse effect on the Group’s underwriting performance, which in turn could have a material adverse effect on its business, financial condition and results of operations.

20 1.6 Claims arising from catastrophic events are unpredictable and could be severe The Group’s operations expose it to claims arising out of unpredictable natural and other catastrophic events, such as hurricanes, windstorms, tsunamis, severe winter weather, earthquakes, floods, fires, explosions, as well as “man-made” disasters, such as terrorism, biological or nuclear attacks. The incidence and severity of catastrophes are inherently unpredictable and the Group’s losses from such catastrophes could be substantial. The extent of losses from such catastrophes is a function of both the number and severity of the insured events and the total amount of insured exposure in the areas affected. Increases in the value and concentrations of insured property and demographic changes more broadly, the effects of inflation and changes in weather patterns may increase the frequency or severity of claims from catastrophic events in the future. Moreover, the Group may from time to time issue preliminary estimates of the impact of catastrophic events that, because of uncertainties in estimating certain losses, need to be updated as more information becomes available.

The Group’s most significant catastrophe exposures are set forth below:

Natural catastrophes. The occurrence of natural catastrophes is inherently uncertain. Generally, over the past decade, insured losses for catastrophes have increased, due principally to weather-related catastrophes. The increasing concentration of economic activities and people living and working in areas exposed to natural catastrophes have resulted in increased exposure for insurance providers. Increasing insurance penetration, growing technological vulnerability and higher property values have further compounded the insurance industry’s exposure. Significant natural catastrophes affecting the Group in the recent past have included the earthquake in Christchurch, New Zealand, the earthquake and tsunami in Japan, and the floods in Thailand in 2011 (which rendered 2011 the second costliest year for the industry for insured losses from natural catastrophes behind 2005); Hurricane Sandy in the United States in 2012; and tornadoes in the United States, floods in Toronto and Calgary, hail storms in Germany and floods in Europe in 2013. The Group’s most significant claims relating to natural catastrophes, net of reinsurance, during the recent past have included claims in respect of Hurricane Sandy (£57.7 million), the Christchurch earthquake (£41.6 million), the Japan earthquake (£31.6 million), the Thai floods (£31.1 million) and US tornadoes (£19.4 million).

Possible effects of natural catastrophes could be compounded by climate change, severe weather, floods and drought, as well as adverse agricultural yields. The effects of global warming and climate change cannot be predicted and may aggravate potential loss scenarios, risk modelling and financial performance. Furthermore, climate change could lead to severe weather events spreading to parts of the world that have not previously experienced extreme weather conditions. Any of these can decrease the accuracy of the Group’s underwriting models and may result in the Group mispricing risk when writing its policies.

Man-made disasters and terrorism. Complex technology intersecting with increased population density, infrastructure and higher rates of utilisation of natural resources increase the likelihood and the magnitude of catastrophic man-made events. Man-made disasters involving chemical, biological or nuclear hazards, as well as disasters that pose significant risk to the environment, in particular bear high potential for losses. Due to the uncertainty of the occurrence of, and loss from, man-made disasters, unexpected large losses could have a material adverse effect on the Group’s financial condition, results of operations and cash flow. Man-made disasters such as oil spills from offshore drilling or accidents involving oil tankers, or damage to nuclear reactors, could give rise not only to claims due to the damage caused by such events but also claims arising from governmental sanctions and civil litigation.

In addition to man-made disasters caused by accident or negligence, the Group faces risks related to terrorist and criminal acts on a significant scale (including acts intended to cause strain on financial and other critical infrastructures, which, given reliance on digital technology, could be triggered by cyber threats). The Group’s exposure to terrorism and criminal acts arises from all lines of business to varying degrees, in particular the Terrorism and Political Risks business line.

Systemic events. In addition to natural and man-made disasters, systemic financial risks have the potential to cause significant economic disruptions in a variety of geographies and sectors, due to the interconnectedness of the global economy, which could give rise to significant claims. The 2007 global financial crisis was one such event.

21 In general, while the Group holds capital to cover catastrophes and uses geographic and business line diversification and reinsurance to manage its exposure to risks, these measures may not be sufficient were the Group to face significant claims in excess of modelled losses or extreme events. Claims from catastrophic events could reduce the Group’s earnings and cause substantial volatility in its results of operations for any given period. A catastrophic event or multiple catastrophic events could also adversely affect the Group’s financial condition and its capital position. To meet its obligations with respect to claims from catastrophic events, the Group may be forced to liquidate some of its investments rapidly, which may involve selling a portion of its investments into a depressed market, which would decrease the Group’s returns from investments and could strain its capital position. The Group’s ability to write new insurance policies could also be impacted as a result of corresponding reductions in its capital.

1.7 The Group may be exposed to a series of claims for large losses in relation to uncorrelated events which occur at, or around, the same time The Group may be exposed to a series of claims for large losses in relation to uncorrelated and otherwise unrelated events which occur at, or around, the same time. While none of such claims may itself be material to the Group, in aggregate they may result in the Group having to recognise significant losses in a single reporting period, which could have a material adverse effect on the Group’s capital position, results of operations and financial condition in that particular reporting period.

1.8 The effects of emerging claim and coverage issues on the Group’s business are uncertain As industry practices and legal, judicial, social and environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect the business of the Group, either by requiring the Group to extend coverage beyond its underwriting intent or by increasing the number or size of claims. Examples of emerging claims and coverage issues include, but are not limited to: • adverse changes in loss trends; • legislative or judicial expansion of policy coverage or action that affects pricing and the impact of new theories of liability; • trends in litigation and regulatory enforcement in the financial services sector (please refer to section 7 of this Part II (Risk Factors) for general risks associated with litigation); • the impact of climate change and demographic changes, including as a result of greater urbanisation and the propensity to build houses on flood plains, in coastal areas and in earthquake zones, which may result in an increase in losses following a natural catastrophe; • the impact of new technological developments such as nanotechnology, hydraulic fracturing, genetic engineering and digitalisation, as well as the implications of technology on privacy and data storage, any of which may result in unexpected claims; • trends to establish stricter building standards, which could lead to higher industry losses for earthquake cover based on higher replacement values; • contingent business interruption exposure, where failure to understand an entire chain of production could give rise to unexpected claims affecting, for example, perils in emerging markets where manufacturing and production facilities are expanding, as was the case with the Thai floods in 2011; • “wider area” damage claims in the context of business interruption, involving, for example, damage to infrastructure surrounding insured facilities and claims relating to constraints on the ability to supply, or transport goods from, such facilities; and • trends toward arbitration, and away from mediation, for dispute resolution with claimants, which tends to result in higher litigation costs.

In some cases, changes may not become apparent until after the Group has issued insurance or reinsurance contracts that are affected by the changes. In cases where the amounts owed are subject to a judicial determination, the judicial process could take considerable time to yield a definitive result, further extending the period of uncertainty as to the amount ultimately owed. In addition, the Group’s

22 actual losses may vary materially from its current estimate of the loss based on a number of factors, including receipt of additional information from insureds or brokers, the attribution of losses to coverage that had not previously been considered as exposed and inflation in repair costs due to additional demand for labour and materials. As a result, the full extent of claims may not be known for many years after the business is written and a loss occurs. The Group’s exposure to this uncertainty is greater in its long tail lines. Any such developments could have a material adverse effect on the Group’s results of operations and financial condition.

1.9 Estimating insurance reserves is inherently uncertain and, if the Group’s loss reserves are insufficient, it will have a negative impact on the Group’s results The Group’s results depend in large part on the extent to which claims (net of reinsurance) are consistent with the assumptions that it uses in establishing its reserves, and it faces the risk that its reserves will be inadequate to cover its claims (net of reinsurance). The process of estimating loss reserves is complex and imprecise. Claims, benefits and related expenses paid may differ from estimates reflected in the reserves in the Group’s financial statements.

The Group establishes loss reserves to cover estimated liabilities that remain unpaid as of the end of each accounting period. Loss reserves are established for claims that have been reported to the Group as at the end of the accounting period, as well as for losses or claims that have occurred or have been incurred but have not yet been reported to the Group and estimated future losses. Loss and loss expense reserves represent estimates involving legal analysis and interpretation, and actuarial and statistical projections of the Group’s expectations of the ultimate settlement and administration costs of claims incurred, including those incurred but not reported. The estimate of cost at any particular valuation point may vary materially from the actual cost when claims are ultimately settled.

The Group uses both proprietary and commercially available actuarial models as well as historical industry loss development patterns and amounts reported from insureds and ceding companies to establish appropriate loss and loss expense reserves. Reserves do not reflect an exact calculation of liability, but rather are estimates of the expected cost of ultimately settling claims. This process relies on the basic assumption that past experience, adjusted for the effects of current developments and likely trends, is an appropriate basis for predicting future outcomes. The estimates are based on actuarial and statistical projections of facts and circumstances known at a given time and estimates of trends in claims severity and frequency and other variable factors, including new bases of liability and general economic conditions. These variables can be affected by both internal and external events, such as changes in claims handling procedures, economic inflation, foreign currency movements, legal trends and legislative changes, among others. In addition, market estimates can involve too large a range to enable the Group to reliably estimate losses. For example, losses in respect of contingent business interruption can be particularly difficult to estimate.

The Group estimates the reserves for each product line and coverage that it writes using analyses of historical patterns of the development of paid and reported losses by product lines, coverage and underwriting year, with particular emphasis placed on analysis of historical patterns in relation to the product line. The expected ultimate losses are adjusted as claims mature and are eventually settled. The Group’s actuaries produce a number of estimates for each class of business, and adjustments are made for each product line depending on what proportion of that product line is written through open market or binder business to reflect changes in the profile of business written. After reviewing the appropriateness of the underlying assumptions, the Board selects the carried reserve for each product line and coverage. The Board reviews reserve estimates in a regular and ongoing process as experience develops and further claims are reported and settled and reflects any adjustments to reserves in the results of the periods in which such estimates are changed.

Changes in trends or other variable factors underlying the Group’s reserve estimates could result in inadequate reserves and ultimately losses. Additional claims may emerge, including claims arising from changes in the legal and regulatory environment, the type or magnitude of which the Group is unable to predict.

The estimation of adequate reserves is particularly difficult in relation to claims arising from long tail business underwritten by the Group, and such reserves may prove to be inadequate. One area where reserve estimates have been difficult to predict are bodily injury claims under Property and Casualty

23 insurance covers related to exposure to asbestos and environmental hazards. The estimation of these liabilities is in particular subject to many complex variables, including the current legal environment, specific settlements that may be used as precedents to settle future claims, assumptions regarding trends with respect to claim severity and the frequency of higher severity claims, and assumptions regarding the ability to allocate liability among defendants (including bankruptcy trustees appointed for companies that sought bankruptcy protection due to asbestos-related liabilities).

Any of the foregoing could have a material adverse effect on the Group’s results of operations and financial condition.

1.10 If the Group’s risk management and loss limitation methods fail to adequately manage its exposure to losses, the losses it incurs could be materially higher than its expectations and its financial condition and results of operations could be materially adversely affected The Group historically has sought and will in the future seek to manage its exposure to insurance and reinsurance losses through a number of loss limitation methods, including internal risk management procedures, oversight of its underwriting processes and outwards reinsurance protection. Please refer to section 13 of Part VII (Information on the Group and its Industry) for a general discussion of the Group’s risk management framework and policies.

Many of the Group’s methods of managing risk and exposures are based upon observed historical market behaviour and statistic-based historical models. As a result, these methods may not predict future exposures, which could be significantly greater than historical measures indicate. Other risk management methods depend on the evaluation of information regarding markets, policyholders or other matters that are publicly available or otherwise accessible to the Group. This information may not always be accurate, complete, up-to-date or properly evaluated. For example, much of the information that the Group enters into its risk modelling software is based on third party data that it does not control, and estimates and assumptions that are dependent on many variables, such as assumptions about loss adjustment expenses, insurance-to-value and post-event loss amplification (the temporary local inflation of costs for building materials and labour resulting from increased demand for rebuilding services in the aftermath of a catastrophe). Accordingly, if the estimates and assumptions that the Group enters into its risk models are incorrect, or if such models prove to be an inaccurate forecasting tool, the losses the Group might incur from an actual catastrophe could be materially higher than its expectation of losses generated from modelled catastrophe scenarios, and its financial condition and results of operations could be adversely affected.

The Group also seeks to manage its loss exposure through loss limitation provisions in the policies it issues to customers, such as limitations on the amount of losses that can be claimed under a policy, limitations or exclusions from coverage and provisions relating to choice of forum. These contractual provisions may not be enforceable in the manner that the Group expects or disputes relating to coverage may not be resolved in its favour. If the loss limitation provisions in its policies are not enforceable or disputes arise concerning the application of such provisions, the losses the Group might incur from a catastrophic event could be materially higher than its expectations, and its financial condition and results of operations could be adversely affected.

In relation to catastrophe risk, the Group monitors and controls the accumulation of risk for a large number of Realistic Disaster Scenario (“RDS”) events (please refer to section 15.1 of Part XIII (Operating and Financial Review) for more information on the Group’s Realistic Disaster Scenario testing). There are specific scenarios for natural, man-made and economic disasters, and for different business classes such as Marine, Aerospace, Casualty and Property. The assumptions made in such scenarios may not be an accurate guide to actual losses that ultimately are incurred in respect of a particular catastrophe.

One or more catastrophic or other loss events or a greater frequency of losses than expected could result in claims that substantially exceed the expectations of the Group, which could have a material adverse effect on its financial condition and results of operations, possibly to the extent of reducing shareholders’ equity and statutory surplus of the Group.

24 1.11 Failure to obtain reinsurance on attractive terms, or to recover under reinsurance arrangements, may adversely impact the Group The Group follows the customary industry practice of reinsuring with, and retroceding to, other insurance and reinsurance companies a portion of the risks it assumes under the business it writes. The Group’s reinsurance programme uses various methods, such as quota share and excess of loss reinsurance, to mitigate risks across its underwriting portfolio, in return for which the Group cedes to third party reinsurers approximately 20% (19.3% in 2013) of its gross written premium in any given year (for more information on the Group’s outwards reinsurance programme, please refer to section 8.7 of Part VII (Information on the Group and its Industry). These reinsurance and retrocession arrangements are put in place to protect the Group against both severity and frequency of losses on individual claims and unusually serious occurrences in which a number of claims produce an aggregate extraordinary loss. Although reinsurance does not discharge the Group from its primary obligation to pay under an insurance policy for losses insured or under a reinsurance agreement for losses assumed, reinsurance and retrocession do make the reinsurer or retrocessionaire liable to the Group for the reinsured or retroceded portion of the risk. The programme is finite and absolute in the protection offered, meaning that events outside of its scope would not be covered, and does not offer unlimited protection against highly extreme but improbable events.

The Group’s reinsurance programme is purchased annually, with elements of the programme expiring throughout the year. The amount of coverage purchased is determined by the Group’s risk appetite together with the price, quality and availability of such coverage. Coverage purchased for one year will not necessarily conform to purchases for another year, which may result in variation of the extent of the coverage year-to-year, even though some policies the Group issues are multi-year policies. In addition, reinsurance cessation and commencement terms, timing and cost could leave the Group with an exposure where intended reinsurance protection is either omitted or only partially effective. One or more of the Group’s reinsurers could become insolvent, which could cause a portion of the Group’s reinsurance protection to become ineffective. The value of the collateral posted by certain of the Group’s reinsurers in support of their obligations to the Group may be adversely affected by market conditions or other factors, which could also cause such reinsurance protection to become less effective.

The collectability of reinsurance and retrocession is largely a function of the solvency and willingness to pay of reinsurers. The Group assesses the financial strength of individual reinsurers using market and financial information. Despite these measures, a reinsurer’s insolvency, inability or unwillingness to make payments under the terms of a reinsurance or retrocession arrangement could have a material effect on the Group’s financial condition or results of operations. Recoveries can often occur many years after the contract was placed and the delays increase the credit risk attaching to these reinsurances.

While the Group has historically enjoyed strong relationships with a number of reinsurers, reinsurance or retrocession may not remain available to the Group or be made available in the future, or may not be available at prices and volumes of capacity which are deemed by the Group to be appropriate or acceptable or from entities with satisfactory creditworthiness.

From time to time, market conditions have limited, and in some cases prevented, insurers from obtaining the types and amounts of reinsurance they consider adequate for their business needs. For example, following Hurricanes Katrina, Rita and Wilma in the United States, terms and conditions in the reinsurance markets generally became less attractive to buyers of such coverage. Even if reinsurance is generally available, the Group may not be able to negotiate terms that the Group deems appropriate or acceptable or to obtain coverage from entities with satisfactory financial resources. Accordingly, the Group may be forced to incur additional expenses to purchase reinsurance or may be unable to obtain sufficient reinsurance on acceptable terms, in which case the Group would have to accept an increase in exposure risk, reduce the amount of business written by its subsidiaries or seek alternatives such as, for example, risk transfer to capital markets.

If the reinsurance industry were to suffer future substantial losses, the effect could be to limit the availability of appropriate or acceptable reinsurance coverage for the Group, which in the event of losses in the Group’s risk portfolio could have a material adverse effect on the Group’s financial condition and results of operations.

25 1.12 The Group relies on brokers and coverholders to distribute its products and the Group’s business may suffer should brokers compete with its business or otherwise enter into arrangements which limit the amount of business which is written for the Group The Group relies on brokers and coverholders to distribute its products. Brokers and coverholders are independent of the insurers whose products they market. No broker or coverholder is committed to recommend or sell the products of Group entities; indeed, they may sell competing products. Coverholders could, subject to applicable notice provisions, cease doing business with the Group at any time. Events could occur which may damage the relationship between the Group and a particular broker or a group of them, which may result in that broker or group of brokers being unwilling to do business with the Group. The failure, inability or unwillingness of brokers to do business with the Group or of coverholders to market the Group’s products could have a material adverse effect on the Group’s financial performance. In addition, if one of the brokers with which the Group currently does business consolidates with another broker, the policy of such broker may change following consolidation with the result that less business is referred to the Group.

From time to time, brokers may acquire third party coverholders. The acquiring broker will then be incentivised to channel business through that coverholder, which, if that broker used to previously refer business to the Group, may result in a reduction of business referred to the Group.

In addition, brokers may enter into certain arrangements which involve them allocating or referring business to other parties. For example, in early 2013, AON, the insurance broker, and Berkshire Hathaway entered into an arrangement pursuant to which AON allocates 7.5% of the premiums it places at Lloyd’s automatically to Berkshire Hathaway. In this way, Berkshire Hathaway follows the decisions taken by the syndicates at Lloyd’s and avoids the costs associated with employing underwriting teams. This arrangement, and any other similar arrangements which may be established in due course, may reduce the amount of business to which the Group has access, which in turn may have a material adverse effect on the Group’s financial condition and results of operations.

1.13 If an underwriter or agent fails to comply with its underwriting authority, it could materially adversely affect the Group’s business The Group’s premium income is written through underwriters employed by the Group together with coverholders to whom authority is given to accept risks on behalf of carriers of the Group within specified parameters. The Group’s controls around the initial selection and monitoring of its underwriters and agents may fail to function effectively or an underwriter or agent may fail to comply with its authority or the terms of its agency. An underwriter or agent that breaches its authority or terms could bind the Group to business that could be less profitable and expose the Group to unanticipated underwriting losses, which could have a material adverse effect on the Group’s business, results of operations and financial condition.

1.14 The Group faces certain risks in relation to the commutation provisions in the reinsurance agreement entered into with RiverStone Group following the disposal of Brit Insurance Limited In October 2012, the Group completed the sale of Brit Insurance Limited to RiverStone Group (a member of the Fairfax Financial Holdings Limited group). Brit Insurance Limited held the Group’s historical liabilities in respect of the Group’s non-core regional UK business, which had previously been sold to QBE Insurance (Europe) Limited as well as some historical liabilities associated with continuing business, which since 2012 has been written onto the Syndicate. Under the terms of the sale of Brit Insurance Limited, the Group retained control of certain classes of business via a reinsurance agreement, including full claims handling authority in respect of those classes of business. RiverStone Group has the right, exercisable from April 2014, to commute the reinsurance arrangement covering the liabilities reinsured (meaning that in return for a cash payment to the reinsured party the obligation of the reinsurer ceases). If the Group cannot reach an agreement with RiverStone Group as to the consideration payable for such commutation, the matter may be referred to arbitration. Commutation may result in the Group (i) reporting a loss in relation to this particular transaction; (ii) adjusting its business plan; or (iii) having fewer assets to invest. Any of the foregoing may have a materially adverse consequence on the results of operations and financial condition of the Group.

26 2. RISKS RELATING TO THE GROUP’S INVESTMENTS 2.1 Losses on the Group’s investments may reduce its overall capital and profitability The Group holds investments to support its liabilities, and a large proportion of its profits depends upon the returns achieved on its investment portfolio. Particularly in light of the low interest rate environment and general expectations of investment returns for asset classes that comprised investment portfolios prior to the financial crisis, the Group has been transferring to a different asset mix to address excess liquidity on its balance sheet and based on its view that parts of the credit market provide attractive risk-adjusted return (please refer to section 7 of Part XIII (Operating and Financial Review) for more details). As of 31 December 2013, the Group’s investment asset mix comprised of 89% allocated to income-generating investments, with the balance of 11% allocated to growth-oriented assets invested to maximise total return through capital appreciation.

The Group’s investment returns are susceptible to changes in general economic conditions, including changes that impact debt and equity securities held in the Group’s portfolios. Investment returns are consequently volatile. (Please refer to section 1.5 of this Part II (Risk Factors) for risks associated with current macroeconomic conditions).

The Group’s invested assets contain a substantial portion of interest rate and credit sensitive instruments such as corporate debt securities, structured products and loans. Fluctuations in interest rates may affect the Group’s future returns on such investments, as well as the market values of, and corresponding levels of capital gains or losses on, such investments. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond the Group’s control. A decline in interest rates improves the market value of existing instruments but reduces returns available on new investments, thereby negatively impacting the Group’s future investment returns. Conversely, rising interest rates reduce the market value of existing investments but should positively impact the Group’s future investment returns. During periods of declining market interest rates, the Group could be forced to reinvest the cash it receives as interest or return of principal on its investment in lower-yielding instruments. Issuers of fixed income securities could also decide to redeem such securities early in order to borrow at lower market rates, which would increase the percentage of the Group’s investment portfolio that it would have to reinvest in lower-yielding investments of comparable credit quality or in lower credit quality investments offering similar yields. Given current low interest rate levels, the Group is likely to be subject to the effects of potentially increasing rates. Although the Group attempts to manage the risks of investing and borrowing in a changing interest rate environment, it might not be able to mitigate interest rate sensitivity completely, and a significant or prolonged increase or decrease in interest rates could have a material adverse effect on its results of operations or financial condition.

Furthermore, as a result of holding debt securities, the Group is exposed to changes in credit spreads. Widening credit spreads could result in a reduction in the value of fixed income securities that the Group holds but increase investment income related to purchases of new fixed income securities, whereas tightening of credit spreads will generally increase the value of fixed income securities that it holds but decrease investment income related to purchases of any new fixed income securities.

Equity investments are subject to volatility in prices based on market movements, which can impact the gains that can be achieved. The current international accounting practice of mark-to-market investment valuations increases the volatility and uncertainty surrounding reported profits and net asset values at any point in time.

The Group is exposed to counterparty risk in relation to its investments, including holdings of debt instruments and certain derivatives to which the Group is a party. In particular, the Group’s business could suffer significant losses due to defaults on corporate bond and loan investments and ratings downgrades.

Moreover, a major loss, series of losses or reduction in premium income could result in a sustained cash outflow requiring early realisation of the Group investment assets on terms that are detrimental to the position of the Group.

Market volatility, changes in interest rates, changes in credit spreads and defaults, a lack of pricing transparency, market liquidity, declines in equity prices, and foreign currency movements, alone or in

27 combination, could have a material adverse effect on the Group’s results of operations and financial condition through realised losses, impairments or changes in unrealised positions. Although the Group attempts to protect its investment portfolio against the foregoing risks (including, for example, by entering into hedging arrangements to mitigate foreign currency risk to its solvency ratio), it cannot ensure that such measures will be effective. In addition, a decrease in the value of the Group’s investments may result in a reduction in overall capital, which may have a material adverse effect on the Group’s results of operations and its financial condition.

2.2 Challenging market conditions are likely to render assets less liquid or may cause them to experience significant market valuation fluctuations Challenging market conditions are likely to make the Group’s assets less liquid, particularly affecting those assets which are by their nature already inherently less liquid. If, in such conditions, the Group requires significant amounts of cash on short notice in excess of normal cash requirements (for example, to meet higher than anticipated claims) or is required to post or return collateral in connection with certain of its reinsurance contracts, credit agreements, derivative transactions or its invested portfolio, it may have difficulty selling any of its less liquid investments in a timely manner, or may be forced to sell them for less than it otherwise would have been able to realise if sold in other circumstances.

3. REGULATORY RISKS 3.1 The Group is subject to extensive regulatory supervision and may, from time to time, be subject to enquiries or investigations that could result in fines, sanctions, variation or revocation of permissions and authorisations, reputational damage or loss of goodwill The conduct of insurance and reinsurance business is subject to significant legal and regulatory requirements as well as governmental and quasi-governmental supervision in the various jurisdictions in which the Group operates. The Group’s business activities are regulated by the PRA and the FCA, both directly and via the PRA’s and FCA’s oversight of Lloyd’s to which they have delegated certain oversight responsibilities (through statutory provisions and co-operation agreements) in respect of the Lloyd’s market and Lloyd’s managing agents. Brit Insurance (Gibraltar) PCC Limited (“BIG”), the Group’s captive reinsurer, is regulated in Gibraltar by the FSC. In addition, the relevant members of the Group are regulated as intermediaries in the United States and Bermuda, where the Group is required to hold the relevant licences. Among other things, the insurance laws and regulations applicable to relevant members of the Group: • require the maintenance of certain solvency levels; • regulate transactions, including transactions with affiliates and intra-group guarantees; • in certain jurisdictions, restrict the payment of dividends or other distributions; • require the disclosure of financial and other information to regulators; • regulate the admissibility of assets and capital; and • establish certain minimum operational requirements or customer service standards such as the timeliness of finalised policy language or lead time for notice of non-renewal or changes in terms and conditions. Please refer to section 4 of this Part II (Risk Factors) for further details of regulatory oversight by Lloyd’s. For example, as part of regular, mandated risk assessments, regulators may take steps that have the effect of restricting the business activities of the Group, which may in turn have a material impact on the ability of the Group to achieve growth objectives and earnings targets. For example, each regulated insurance business in the Group is subject to a number of restrictions on assets it may hold under relevant regulations and tax rules, and regulators may, as has happened in the past, alter such restrictions, thus potentially affecting the Group’s investment policy and any associated projected income or growth return from its investments. For example, BSL is subject to a regulator-imposed limitation on its allocation of assets to non-traditional asset classes (BSL’s financial investments and cash and cash equivalents represented 42.8% of the Group’s financial investments and cash and cash equivalents as of 31 December 2013). Please refer to section 7 of Part XIII (Operating and Financial Review) for more information on the Group’s investment portfolio. In addition, based on perceived risk profile of the Group, regulators may, as has also happened in the past, require additional regulatory capital to be held by the Group (including as part of guidance on a confidential basis), which, among

28 other things, may affect the business the Group can write and the amount of dividends the Group is able to pay out. As part of the ongoing review by regulators of regulated insurance entities, BSL has recently been requested to revise the amount of regulatory capital that it holds, which is reflected in the regulatory capital position disclosed in this Prospectus.

If any member of the Group were to be found to be in breach of any existing or new laws or regulations now or in the future, that member would be exposed to the risk of intervention by regulatory authorities, including investigation and surveillance, and judicial or administrative proceedings. In addition, the Group’s reputation could suffer and the Group could be fined or prohibited from engaging in some or all of its business activities (in particular if the PRA in the UK or the FSC in Gibraltar decided to withdraw or restrict its authorisation of the relevant regulated entity) or could be sued by counterparties, as well as forced to devote significant resources to cooperate with regulatory investigations, any of which could have a material adverse effect on the Group’s results of operations.

3.2 Changes in governmental policy and regulation may have an adverse impact on the industry in general and on the Group’s business, financial condition and results of operations The Group’s businesses and earnings can be affected by the fiscal or other policies and other actions of various governmental and regulatory authorities in the European Union (in particular, the United Kingdom and Gibraltar), the United States, Bermuda and elsewhere both because the Group writes business covering political risks and because the Group itself may be impacted by such policies. All these are subject to change, particularly in the current market environment where recent developments in the global financial markets have led to an increase in the involvement of various governmental and regulatory authorities in the financial sector and in the operations of financial institutions. As a result of recent regulatory initiatives, the level of regulatory oversight over financial institutions, including the Group, is likely to increase, perhaps substantially. Any future regulatory changes may potentially restrict the Group’s operations, mandate certain risks to be covered and impose other compliance costs. It is uncertain how the more rigorous regulatory climate will impact financial institutions, including the Group.

Areas where changes could have an impact include: • the monetary, interest rate and other policies of central banks and regulatory authorities or changes in direct or indirect taxes applicable to the Group; • changes in government or regulatory policy that may significantly influence investor decisions in particular markets in which the Group operates; • changes in the regulatory requirements, for example relating to the capital adequacy framework and rules designed to promote financial stability; • changes in competition and pricing environments; • developments in financial reporting; • expropriation, nationalisation, confiscation of assets and changes in legislation relating to foreign ownership, any of which may impact either, or both, of (i) the assets and operations of the Group in the jurisdictions in which it operates: and (ii) the performance of the business line of the Group which underwrites political risks and other classes of business; and • other unfavourable political, military or diplomatic developments producing social instability or legal uncertainty which in turn may affect demand for the Group’s products and services.

3.3 Potential government intervention in the insurance industry and instability in the marketplace for insurance products could hinder the Group’s flexibility and negatively affect the business opportunities that may be available to it in the market Government intervention and the possibility of future government intervention have created uncertainty in the insurance and reinsurance markets. Government regulators are generally concerned with the protection of policyholders to the exclusion of other constituencies, including shareholders of insurers. While the Group cannot predict the exact nature, timing or scope of possible governmental initiatives, such proposals could adversely affect its business by, among other things: • providing insurance and reinsurance capacity in markets and to consumers that the Group targets, e.g., the creation or expansion of state or federal catastrophe funds such as those in Florida;

29 • requiring the Group’s participation in industry pools and guarantee associations; • expanding the scope of coverage under existing policies; • regulating the terms of insurance and reinsurance policies; or • disproportionately benefiting the companies of one country over those of another.

Government intervention has in the recent past taken the form of financial support of certain companies in the insurance and reinsurance industry. Governmental support of individual competitors can lead to increased pricing pressure and a distortion of market dynamics. The insurance industry is also affected by political, judicial and legal developments that may create new and expanded theories of liability, which may result in unexpected claims frequency and severity and delays or cancellations of products and services by insureds, insurers and reinsurers which could adversely affect the Group’s business.

An example of a political response to coverage needs is the US Terrorism Risk Insurance Act of 2002, as amended (“TRIA”), which established the Terrorism Risk Insurance Program (“TRIP”). TRIP became effective in 2002 and was extended on various occasions, most recently to 31 December 2014. The legislation is intended to ensure the availability of commercial insurance coverage for certain terrorist acts in the United States and, in particular, requires covered insurers to make coverage available for certified acts of terrorism on all new and renewal policies issued after TRIA was enacted. Among other things, subject to certain conditions, the Group is eligible for reimbursement by the US government for up to 85% of its covered terrorism-related losses arising from a certified terrorist attack (which, in effect, provides reinsurance protection on a quota share basis). TRIA may not be extended beyond 2014, and its expiration or a significant change in terms could have an adverse effect on the Group, its clients or the insurance industry.

3.4 The Solvency II Directive, which will impose new risk-based capital requirements on European-domiciled insurance companies, may, when implemented, require an increase in the Group’s capital The Solvency II Directive’s planned implementation date is 1 January 2016. The requirements of Solvency II are yet to be fully confirmed. The general requirements are well understood but the calibration and approach to particular areas of the legislation is uncertain.

Technical standards and guidance setting out the final rules will be produced by the European Insurance and Occupational Pensions Authority (“EIOPA”) in 2014 to clarify the uncertainty surrounding a number of issues within the legislation and regulations. There is a wide range of topics requiring clarification; however, the approach to supervision of groups containing insurance subsidiaries in particular is unclear, and is a significant source of uncertainty for the Group. Other key issues include reporting and disclosure requirements, the approach to particular investments and the application of transitional measures that phase in the introduction of certain elements of Solvency II.

The Group is well advanced in implementing a programme which was initially established to meet the requirements of Solvency II, as articulated in the draft legislation and draft regulatory technical standards, by the previously expected implementation date of 1 January 2014. The Group has since revised its planning assumptions in line with the recently announced later implementation date of 1 January 2016. The Syndicate took part in the Lloyd’s Solvency II dry run process and has been assessed to be compliant with all of the principles of Solvency II. Despite the foregoing measures, further work is required to ensure full compliance prior to 1 January 2016.

Final capital requirements for the Group under the regime are not yet known. If the entities within the Group gain internal model approval, capital requirements will be based on the internal model Solvency Capital Requirement (“SCR”) which is currently used by the Syndicate, rather than the standard formula SCR. However, the standard formula SCR is currently expected to be significantly higher although the final calibration of the standard formula has not been finalised. In addition, Solvency II imposes risk-based capital requirements and any change in the size and composition of the Group’s balance sheet or its future business plans will influence capital requirements.

The PRA has noted its intention to impose minimum capital requirements for UK firms using internal models through the use of Early Warning Indicators (“EWIs”). These would act as a check to ensure

30 that, once firms’ models were approved, such models would continue to meet the Solvency II calibration requirement (i.e. 99.5% over a one-year period). There is still uncertainty surrounding the calibration of EWIs and how they would apply to Lloyd’s syndicates; they could lead to increases in capital requirements for the Syndicate.

EIOPA has issued guidelines requiring regulators (including the PRA) to phase certain Solvency II requirements in from 1 January 2014. In December 2013, the PRA published a supervisory statement for PRA-authorised firms on applying EIOPA’s guidelines, although this does not deal specifically with the Lloyd’s market. The application of these requirements to Lloyd’s syndicates is therefore not entirely clear. Once there is more clarity on these requirements, the review and implementation of necessary changes may require increased expenditure and management time during 2014 and 2015.

On 17 March 2014 the PRA published a consultation paper on a draft supervisory statement setting out the PRA’s expectations of firms in relation to the calculation of technical provisions and the use of internal models. The consultation period is due to close on 14 April 2014. This draft guidance (if adopted), or other guidance and interpretations that may be adopted by the PRA, may require adjustments to the Group’s capital calculations.

The implications of not complying with Solvency II and, in particular, not gaining internal model approval are severe due to the expected impact on capital requirements. In addition, non-compliance would cause significant reputational damage and impact the Group’s ability to maintain its regulatory approvals and gain new business.

In relation to Gibraltar, the FSC has indicated that Solvency II legislation will be implemented in Gibraltar in line with the rest of Europe on 1 January 2016. BIG would be affected by the imposition of risk-based capital requirements of Solvency II. The Group has been preparing for Solvency II in Gibraltar in the same way as in the UK. In general, Gibraltar is less advanced in the implementation of Solvency II than the UK as its current regulatory regime has fewer similarities with Solvency II. There is a risk that the implementation of the legislation may diverge from elsewhere in Europe due to the specific approach taken by the FSC (despite efforts by EIOPA to harmonise the process across member states). This may materially affect the Group if, for example, the internal model approval process is different and model approval is not granted in Gibraltar despite approval being given in the UK. There is also the potential risk of additional implementation costs depending on the FSC’s approach.

3.5 Changes to IFRS generally or specifically for insurance companies may affect the Group’s results of operations Changes to IFRS for insurance companies have been proposed in recent years and further changes may be proposed in the future. The International Accounting Standards Board has published proposals in Exposure Draft ED/2013/7 “Insurance Contracts” that would introduce significant changes to the statutory reporting of insurance entities that prepare financial statements according to IFRS. The accounting proposals, which are not expected to become effective before 2016, will change the presentation and measurement of insurance contracts, including the effect of technical reserves and reinsurance on the value of insurance contracts. It is uncertain whether and how the proposals in the exposure draft will affect the Group should they become definitive international financial reporting standards. These and any other changes to IFRS that may be proposed in the future, whether or not specifically targeted at insurance companies, could materially adversely affect the Group’s reporting of its results of operations and financial condition.

3.6 The Group is subject to various laws, regulations and rules relating to sanctions, money laundering and bribery The Group must comply with laws and regulations relating to sanctions, money laundering and bribery.

While it is the policy of the Group not to write any business directly in countries or for entities subject to international sanctions of the US, EU and UK, the Syndicate does, from time to time, underwrite risks in relation to entities which come into contact with such countries. For example, the Group, through its Marine insurance business line (which in 2013 represented 9% of the Group’s gross written premium), from time to time underwrites marine hull risks in relation to vessels which call in to or pass through the

31 waters of such countries (such as a vessel delivering food or medical supplies to a port in a sanctioned country). While the Group has policies and procedures in place designed to ensure that the Group does not insure any activity that breaches international sanctions (including a screening programme to ensure it does not underwrite vessels on the US Specially Designated Nationals list), there remains the risk of an inadvertent breach which may result in lengthy and costly investigations followed by the imposition of fines or other penalties or, in the case of the United States, imposition of a range of significant secondary sanctions (including restrictions on the ability to effect transactions in US dollars), any of which might have a material adverse effect on the financial condition and results of operations of the Group.

In relation to bribery and money laundering, the global breadth of the Group’s operations and the range of brokers and policyholders with which the Group conducts business present risks of violating applicable anti-bribery and anti-money laundering laws or regulations. While the Group’s specific policies and periodic training programmes in place designed to prevent breaches of rules and regulations relating to bribery and money laundering, any inadvertent breach may trigger an intervention, including investigation, surveillance and judicial and administrative proceedings by the relevant regulatory authority, which may result in a loss of reputation, a fine and/or other disciplinary action, any of which may have a material adverse effect on the financial condition and result of operations of the Group.

4. RISKS RELATING TO THE LLOYD’S MARKET 4.1 Authorisation by Lloyd’s is fundamental to the Group’s business and such business would be severely impacted should such authorisation be withdrawn or restricted The Group writes all of its business through Lloyd’s (with the exception of the business written by BIG pursuant to the RiverStone Reinsurance Agreement, as defined in section 21.1(B) of Part XVI (Additional Information)). Authorisation by Lloyd’s is therefore fundamental to the Group and it would be materially adversely affected should such authorisation be restricted or withdrawn or should the conditions for operating be tightened (including its capital requirements). Lloyd’s has substantial powers of intervention and enforcement in relation to the companies they regulate and supervise (including the power to set the amount of capital required to support underwriting liabilities), and in particular over BSL and Brit UW. This layer of regulation is in addition to regulation of BSL by the PRA and FCA directly.

The Council of Lloyd’s has wide discretionary powers to manage and supervise the Lloyd’s market. It may, for instance, vary the method by which the solvency capital requirements are calculated or the investment criteria applicable to Funds at Lloyd’s and/or syndicate investments are determined. Either might affect the Group’s overall premium limit and consequently the returns from an investment in the Group.

The Franchise Board of Lloyd’s also has wide discretionary powers in relation to the business of Lloyd’s managing agents including requiring compliance with the franchise performance criteria and underwriting guidelines. The Franchise Board may, for example, impose certain restrictions on underwriting and/or on reinsurance arrangements for any syndicate and any such notifications, if imposed on BSL and the Syndicate, may have an adverse impact on its ability to underwrite as planned.

4.2 Any significant problem with the Lloyd’s market may result in a material adverse effect on the Group’s business The Group relies on the efficient functioning of the Lloyd’s market. If, for whatever reason, members were to be restricted or otherwise unable to write insurance through the Lloyd’s market, it could have a material adverse effect on the Group’s business and results of operations.

In particular, any damage to the brand or reputation of Lloyd’s, whether such damage is caused by financial mismanagement, fraudulent activity or otherwise, or any loss of any international licences in relation to the insurance or reinsurance business may have a material adverse effect on the Group’s ability to write new business and/or its reputation. In addition, any increase in tax levies imposed on Lloyd’s participants in the relevant jurisdictions around the world in which they offer insurance or reinsurance or any challenge to the amount of tax paid by such Lloyd’s participants may result in the Group incurring a higher tax charge.

32 To the extent that Lloyd’s suffers a material exposure in its asset base when compared with its liabilities, whether as a result of unexpected events, non-claims litigation, the increased costs of compliance in overseas jurisdictions for insurance and reinsurance business, increased fees and levies, currency devaluation, stamp capacity, cash calls or otherwise, members may at any such time as required by Lloyd’s be called upon to invest further capital into Lloyd’s portfolio of funds.

In any of the aforementioned scenarios, there may be a material adverse effect on the Group’s business, financial condition and results of operations.

4.3 The Lloyd’s market is subject to the solvency and capital adequacy requirements of the PRA, as a result of which members of Lloyd’s may be adversely affected The PRA is the prudential regulator for Lloyd’s and has responsibility for promoting the financial security and soundness of Lloyd’s and its members. The FCA regulates the conduct of Lloyd’s, managing agents and the members’ agents and advisers and Lloyd’s market brokers. Lloyd’s is required by the PRA to establish and maintain appropriate controls over the risks affecting the funds of members which it holds centrally and to assess the capital needs of each member operating on its market, in order to satisfy an annual solvency test for the PRA. Accordingly, Brit UW’s capital requirements ultimately are set by Lloyd’s. The PRA may impose more stringent requirements on Lloyd’s which may result in higher capital requirements or a restriction on trading activities for its members, including entities within the Group. If Lloyd’s fails to satisfy its solvency test in any year, the PRA may require Lloyd’s to cease trading and/or its members to cease or reduce their underwriting exposure, which may result in a material adverse effect to the Group’s reputation, financial condition and results of operations. The PRA can also impose more stringent requirements directly on BSL (and therefore on the Group), without applying similar requirements to Lloyd’s more generally or to other Lloyd’s members.

4.4 A downgrade in Lloyd’s financial strength ratings may have an adverse effect on the Group BSL benefits from the ability to write business based on the Lloyd’s financial rating, which allows the Group to write more business as part of the Lloyd’s platform than its individual capital level would otherwise support. The ability of Lloyd’s syndicates, including the Syndicate, to continue to trade in certain classes of business at current levels may be dependent on the maintenance by Lloyd’s of a satisfactory financial strength rating issued by an accredited rating agency. At present, the financial security of the Lloyd’s market is regularly assessed by three independent rating agencies, A.M. Best, Standard & Poor’s and Fitch Ratings (all three credit rating agencies are registered in the EU under Regulation (EC) No 1060/2009; for more information, please refer to section 8 of Part V (Presentation of Information)).

Currently, A.M. Best’s rating of the Lloyd’s market is ‘A’ (Excellent) with a positive outlook. Fitch Ratings has given Lloyd’s an Insurer Financial Strength rating of ‘A+’ (Strong) with a stable outlook. Standard & Poor’s rating of the Lloyd’s market is ‘A+’ (Strong) with a stable outlook.

Ratings are an important factor in establishing the competitive positions of insurance and reinsurance companies. Third party rating agencies assess and rate the financial strength of insurers and reinsurers. These ratings are based upon criteria established by the rating agencies.

The objective of these ratings systems is to provide an opinion of an insurer’s financial strength and ability to meet ongoing obligations to its policyholders.

One or more rating agencies may downgrade or withdraw their ratings in the future. As financial strength ratings are a key factor in establishing the competitive position of insurers, a decline in ratings alone could make insurance less attractive to clients relative to insurance from its competitors with similar or stronger ratings. A ratings downgrade could also result in a substantial loss of business, including the loss of clients who are required by either policy or regulation to purchase insurance only from reinsurers with certain ratings. Any of the foregoing could have an adverse effect on the Syndicate, which could have a material adverse effect on the Group’s business, results of operations and financial condition.

33 4.5 The Group is reliant upon the compliance of Lloyd’s with US regulations, including the maintenance of Lloyd’s of its trading licences and approvals in the US A significant portion of the Group’s gross written premiums is derived from the US (in 2013, 45% of the gross written premiums recorded by the Group was written for policyholders domiciled in the United States (2012: 43%)). Compliance with US regulations by Lloyd’s is therefore of significant importance to the Group.

US regulators require Lloyd’s syndicates writing certain business in the United States to maintain trust funds in the United States (the “US trust funds”) as protection for US policyholders. US trust funds must be maintained for syndicates writing surplus lines, reinsurance, and Kentucky and Illinois licensed business. No credit against the required deposits is allowed for potential reinsurance recoveries by the syndicates. With respect to business classified as “surplus lines,” syndicates must currently maintain a surplus lines trust fund, funded at 30% of gross liabilities. With respect to reinsurance business, syndicates must maintain a separate “Credit for Reinsurance” trust fund which is currently required to be funded at 100% of gross liabilities assumed from US insurers. It is possible that regulators could further alter the US trust fund deposit requirements for the Lloyd’s market generally or any individual Lloyd’s syndicate (including the Syndicate) specifically.

The funds contained within the deposits are not ordinarily available to meet trading expenses or to pay claims. Accordingly, in the event of a large claim arising in the US, for example from a major catastrophe, syndicates participating in such US business may be required to make cash calls to meet claims payment and deposit funding obligations. There is a limited ability for managing agents to withdraw funds from the US trust funds other than at the normal quarterly revision periods.

The obligation to fund the US trust funds in the event of a large claim is likely to arise before the Group can earn premiums from the related insurance or receive proceeds from the relevant reinsurance, requiring the Group to procure the upfront funding from other sources.

In addition, Lloyd’s maintains certain licences and approvals in the US. The Group is reliant on the maintenance by Lloyd’s of those trading licences and approvals. A variation or removal of such licences and/or approvals may have a material adverse effect on the Group’s business and results of operations.

4.6 A decrease in the value of the Group’s Funds at Lloyd’s could result in a decrease in its underwriting capacity, which in turn could materially adversely affect its financial condition and results of operations Lloyd’s capital structure includes three links in the chain of security: syndicate-level assets, members’ Funds at Lloyd’s and mutual assets. In respect of the members’ Funds at Lloyd’s, each member of Lloyd’s must provide capital to support its underwriting at Lloyd’s. Each managing agent produces an Ultimate Solvency Capital Requirement (“uSCR”) stating how much capital the syndicate requires to cover its underlying business risks at a 99.5% confidence level. The assessment considers all risks associated with the syndicate including one year of new business and captures potential adverse developments which may arise until all liabilities have been paid. Lloyd’s reviews each syndicate’s uSCR to assess the adequacy of the proposed capital level. When agreed, each uSCR is then ‘uplifted’ by a percentage determined each year by Lloyd’s to ensure capital is in place to support Lloyd’s ratings and financial strength (the uplift was 35% for the 2014 year of account). This uplifted uSCR, known as the syndicate’s Economic Capital Assessment (“ECA”), is used to determine the level of capital required by the syndicate’s members to support their underwriting. The capital is held in trust as readily realisable assets and can be used to meet any Lloyd’s insurance liabilities of that member but not the liabilities of other members.

Contributions by members to Funds at Lloyd’s are provided in a number of ways, including by, or by combination of, deposit of cash or investments, a letter of credit, bank guarantee, or a covenant and charge. The capital value of these investments may fall as well as rise and the income derived from such investments may fluctuate. The Group’s capital resources include its net tangible assets, plus subordinated debt and letters of credit under the Revolving Credit Facility. Should the value of the Group’s Funds at Lloyd’s be reduced due to changes in market value of investments or to meet underwriting or other relevant liabilities, its underwriting capacity may be reduced. Lloyd’s also has the power to reduce the Group’s underwriting capacity or to prohibit the Group from underwriting if at any

34 time the value of the Group’s total Funds at Lloyd’s falls by more than 10% from the funds required at the last “coming into line” exercise and such shortfall is not made good by the Group, which might not always be possible (“coming into line” refers to a bi-annual procedure currently undertaken in June and November each year which requires members of Lloyd’s to demonstrate that they have sufficient eligible assets to meet their current underwriting liabilities and to support future underwriting before they may underwrite for the next following year of account). A fall in the equity or fixed interest markets or a devaluation in the currency compromising the Funds at Lloyd’s could trigger such an event. A reduction in the Group’s underwriting capacity could have a material adverse effect on its ability to conduct its business and, therefore, its financial condition and results of operations.

4.7 Changes to the way Lloyd’s operates or changes made by Lloyd’s to its treatment of Lloyd’s members may affect the Group 4.7.1 The Lloyd’s Franchise Board may require changes to be made to the Group’s business plan for the Syndicate, which could adversely affect the Group Each member must submit its annual business plan for each year of account to the Franchise Board (and any subsequent changes to such plan) for approval. The Franchise Board may determine that changes are required to such business plan prior to its approval or after it has already been approved (such as when it appears that a syndicate may not be able to meet its approved plan). Any such changes could lead to a significant change in the Group’s stated business strategy and objectives, including limitations on the Group’s ability to write business at Lloyd’s, which could result in a material adverse effect on the Group’s reputation, financial condition and results of operations.

4.7.2 Changes to the Lloyd’s risk syndication principle may result in increased costs for the Group The Lloyd’s market has, since its inception, relied upon the principle of risk syndication and following the fortunes of the lead underwriter. If the principle were challenged, and insurers required to individually review and price each risk, potentially on differing commercial terms, it would substantially increase the cost of doing business and may cause the business to be no longer viable.

4.7.3 The Group could be subject to additional Lloyd’s levies or variation in the levels of current fees Despite the principle that each member of Lloyd’s is only responsible for the proportion of risk written on its behalf, the Central Fund acts, among other things, as a policyholders’ protection fund to make payments where other members have failed to pay valid claims. The Council may resolve to make payments from the Central Fund for the advancement and protection of policyholders, which could lead to additional or special levies being payable by the Group. Lloyd’s imposes a number of other charges on businesses operating in the Lloyd’s market, including, for example, annual subscriptions. The bases and amounts of these charges may be varied by Lloyd’s. Increases in any of the foregoing could adversely materially affect the Group’s financial condition and results of operations.

4.7.4 Changes to the admissibility of certain assets as valid contributions to members’ Funds at Lloyd’s could adversely affect the Group A member’s Funds at Lloyd’s may contain only those assets that Lloyd’s prescribes as acceptable assets under its Membership & Underwriting Conditions & Requirements. Currently, these acceptable assets consist of debt securities, bonds and other money and capital market instruments, shares and other variable yield participations, holdings in collective investment schemes, cash and cash equivalents, forward currency contracts, letters of credit, guarantees, and life assurance policies, in each case subject to certain conditions.

Changes implemented to the list of acceptable assets for purposes of Funds at Lloyd’s (either voluntarily by Lloyd’s or in response to regulatory requirements, including under Solvency II) may adversely impact the Group. For example, as of 31 December 2013, Brit UW had provided a US$80.0 million letter of credit to fund a portion of its Funds at Lloyd’s requirement. If letters of credit (or other assets that Brit UW uses to fund its Funds at Lloyd’s requirement) were to no longer constitute acceptable assets for the purposes of Funds at Lloyd’s, the Group would be

35 required to post different assets, which may be more expensive to obtain and maintain or which may place an undue restriction on the Group’s capital resources. The foregoing could have a material adverse effect on the Group’s financial condition and results of operations.

5. RISKS RELATING TO THE GROUP’S OPERATIONS

5.1 The Group could be adversely affected by the loss of one or more key employees or by an inability to attract and retain qualified personnel, which could negatively affect its financial condition, results of operations, or ability to realise its strategic business plan

The future success of the Group is substantially dependent on the continued services and continuing contributions of its Directors, senior underwriters, Senior Management and other key personnel and its ability to continue to attract, motivate and retain the services of qualified personnel. While the Group has entered into employment contracts or letters of appointment with such key personnel, the retention of their services cannot be guaranteed.

The success of the Group will depend in part upon its continuing ability to recruit and retain employees of suitable skill and experience and the Group may find that it is not able to recruit sufficient or qualified staff, or that the individuals that it would like to recruit will not be able to obtain the necessary work permits if required or that it will not be able to retain such staff. The loss of the services of one, or some of, the senior underwriters, Senior Management or other key personnel or the inability to recruit and retain staff of suitable quality could adversely affect the ability of the Group to continue to conduct its business, which could have a material adverse effect on the Group’s results of operations and financial condition.

5.2 The Group outsources parts of its operations and the insolvency or failure of third parties to which services or functions are outsourced to perform in a satisfactory manner could negatively affect the Group’s business

The Group outsources parts of its operations to third parties, including part of its underwriting/loss and claims adjusting, claims payment and premium collection processing, as well as investment management, investment accounting and IT operations. It is anticipated that the use of these outsourced services will continue and possibly increase in the future. The Group may face challenges in ensuring adequate performance by these third parties.

The Group outsources the management of most of its investments to a range of third party investment managers. Such investment managers are required to manage assets, provide data regarding the performance of assets under their management, provide investment advice and execute investment transactions that are within investment policy guidelines. Poor performance or fraudulent activities on the part of these, or other, outside parties could have a material adverse effect on the Group’s business, results of operations or financial condition.

The Group has outsourced to a market-wide provider certain functions relating to the processing of premiums and claims. Consequently the Group relies heavily on this provider to enable premium and claims processing to be made. A prolonged disruption to the services provided by, and/or functions carried out by, such or other providers could have a material adverse effect on the Group.

The Group has outsourced a large element of its IT and business processing functions to a third party and, therefore, is heavily reliant on it for the efficient provision of those services. While major service issues relating to the implementation of the outsourcing have been resolved, any future failure by such third party or any other provider of IT and business processing services to properly perform such services may result in significant business disruption, which could have a material adverse effect on the Group’s business, results of operations or financial condition.

Any failure on the part of such third party suppliers and contractors to perform consistently could have a material adverse effect on the Group’s operations.

36 5.3 The Group is dependent on the use of third party software and data, and any reduction in third party product quality or any failure to comply with the Group’s licensing requirements could have a material adverse effect on the Group’s business, financial condition or results of operations The Group relies on third party software and data in connection with the Group’s underwriting, claims, accounting and finance activity. The Group depends on the ability of third party software and data providers to deliver and support reliable products, enhance their current products, develop new products on a timely and cost-effective basis, and respond to emerging industry standards and other technological changes. Third party software and data the Group uses may become obsolete or incompatible with versions of products that it will be using in the future, or may lead to temporary or permanent data loss when upgraded to newer versions. The Group also monitors its use of third party software and data to comply with applicable licence requirements. Despite the Group’s efforts, such third parties may challenge its use, resulting in loss of rights or costly legal actions. The Group’s business could be materially adversely affected if the Group is not able, on a timely basis, to effectively replace the functionality provided by software or data that becomes unavailable or fails to operate effectively for any reason. Any of the foregoing could have a material adverse effect on the Group’s results of operations.

5.4 A failure in or damage to the Group’s operational systems or infrastructure, or those of third parties, could disrupt its businesses and have a material adverse effect on its financial condition and results of operations The Group’s business is highly dependent on its ability to process, on a daily basis, a large number of transactions across numerous and diverse markets in many currencies. In particular, the Group relies on the ability of its employees, its internal systems and systems operated by third parties on behalf of the London insurance market, including technology centres, to process a high volume of transactions. As the Group’s client base and geographical reach expands, developing and maintaining its operational systems and infrastructure becomes increasingly challenging. The Group’s financial, accounting, data processing or other operating systems and facilities may fail to operate properly or become disabled as a result of events that are wholly or partially beyond its control, adversely affecting its ability to process these transactions or provide these services.

In addition, the Group’s operations rely on the secure processing, storage and transmission of confidential and other information in its computer systems and networks. The Group relies on these systems for critical elements of its business process, including, for example, entry and retrieval of individual risk details, premium and claims processing, monitoring aggregate exposures and financial and regulatory reporting. Although the Group takes protective measures and endeavours to modify them as circumstances warrant, the computer systems, software and networks may be vulnerable to unauthorised access, computer viruses or other malicious code and other events that could have a security impact.

The Group routinely transmits and receives personal, confidential and proprietary information by email and other electronic means. The Group has discussed and worked with clients, vendors, service providers, counterparties and other third parties to develop secure transmission capabilities, but the Group does not have, and may be unable to put in place, secure capabilities with all of its clients, counterparties and other third parties and the Group may not be able to ensure that these third parties have appropriate controls in place to protect the confidentiality of the information. An interception, misuse or mishandling of personal, confidential or proprietary information being sent to or received from a client, counterparty or other third party could result in legal liability and/or regulatory action (including, without limitation, under data protection and privacy laws and standards) and reputational harm.

If one or more of such events occur, this potentially could jeopardise the Group’s or its clients’ or counterparties’ confidential and other information processed and stored in, and transmitted through, computer systems and networks, or otherwise cause interruptions or malfunctions in the Group’s, its clients’, its counterparties’ or third parties’ operations, which could result in significant losses or reputational damage. The Group may be required to expend significant additional resources to modify its protective measures or to investigate and remediate vulnerabilities or other exposures, and the Group may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by the Group. Any expansion of existing or new laws and regulations regarding data protection could further increase the liability of the Group should protected data be mishandled or misused.

37 The Group operates from premises and in markets that may be affected by acts of terrorism or nuclear, chemical, biological or radiological exposure, which are not covered by outwards reinsurance taken out by the Group. Such actions may be uninsurable and, were they to occur in the Group’s premises or those of third parties with or through which the Group conducts its business, in particular, the Lloyd’s building, it could prevent the Group from carrying on that business, which could have a material adverse effect on the Group’s results of operations. In addition, because of the concentrated nature of the London insurance market and given that many transactions take place in person, the City of London is of particular importance to the efficient functioning of both the London insurance market and the wider Lloyd’s market.

Any of the foregoing could have a material adverse effect on the Group’s financial condition and results of operations.

5.5 Loss of business reputation or negative publicity could negatively impact the Group’s business and results of operations The Group is vulnerable to adverse market perception because it operates in an industry where integrity and customer trust and confidence are paramount. In addition, any negative publicity (whether well founded or not) associated with the Group’s business or operations could result in a loss of clients and/or business. Accordingly, any mismanagement, fraud or failure to satisfy fiduciary responsibilities, or the negative publicity resulting from these or other activities or any allegation of such activities, could have a material adverse effect on the Group’s business and results of operations.

5.6 Employee or agent negligence, error or misconduct may be difficult to detect and prevent, and any error or misconduct could adversely affect the Group’s business, results of operations, and financial condition Losses arising from employee or agent negligence, error or misconduct may result from, among other things, dealings with third party brokers, fraud, errors, failure to document transactions properly or obtain proper internal authorisation, or failure to comply with regulatory requirements. It is not always possible for the Group to deter or prevent employee or agent misconduct and the precautions taken to prevent and detect this activity may not be effective in all cases. Resultant losses could have a material adverse effect on the Group’s business, results of operations and financial condition.

6. FINANCIAL RISKS RELATING TO THE GROUP 6.1 The Group enters into various contractual arrangements with third parties generally, including broking, insurance, reinsurance and financing arrangements; any deterioration in the creditworthiness of, defaults by, or reputational issues related to, counterparties or other third parties with whom it transacts business could adversely impact its financial condition and results of operations

If the counterparties or other third parties with whom the Group transacts business default or fail to meet their payment obligations, it could adversely materially affect the Group’s results of operations. If the counterparties or other third parties with whom the Group transacts business experience reputational issues, they may in turn cause other counterparties, third parties or customers to question the Group’s reputation in respect of choosing to enter into contractual arrangements with such counterparties. This is particularly the case in respect to Lloyd’s, through which the Group transacts all of its business.

Brokers and coverholders present a credit risk to the Group. In accordance with industry practice, the Group will generally pay amounts owed on claims under its insurance and reinsurance contracts to brokers or coverholders, and these brokers or coverholders, in turn, will pay these amounts over to the clients that have purchased insurance or reinsurance from the Group. If a broker or coverholder fails to make such a payment, it is possible that the Group will be liable to the client for the deficiency in a particular jurisdiction because of local laws or contractual obligations. Likewise, in certain jurisdictions, when the insured or ceding insurer pays premiums for these policies to brokers or coverholders for payment over to the Group, these premiums might be considered to have been paid and the insured or ceding insurer will no longer be liable to the Group for those amounts, whether or not the Group has actually received the premiums from the broker or coverholder, while leaving the Group on risk in respect of the underlying policy. In addition, brokers and coverholders are entitled to comingle payments made by, or owing to, the Group, with their other client monies.

38 Consequently, the Group assumes a degree of credit risk associated with brokers and coverholders with respect to most of its insurance and reinsurance business.

6.2 The Group is exposed to fluctuations in exchange rates and the fluctuations may adversely affect the Group’s operating results A substantial proportion of the Group’s business is written in the US and continental Europe, where the Group transacts business in US dollars and euro. The Group also writes business in Australia, New Zealand, Japan and the UK. The Group is exposed to changes in exchange rates and its results of operations are subject to both currency transaction and translation risk. Currency transaction risk arises from the mismatch of cash flows due to currency exchange fluctuations, which results in an uncertainty about the amounts involved in its functional currency and presentation currency. Currency translation risk arises from the translation into its functional currency for reporting purposes of income from operations conducted in other currencies, which can cause volatility in reported earnings from the Group’s business conducted overseas and translations gains and losses.

In preparing its financial statements, the Group uses period-end rates to translate balance sheet items not denominated in Sterling, its functional currency and presentational currency, with the exception of non-monetary assets and liabilities (unearned premium reserves and deferred acquisition costs). IFRS requires these items to be translated at historical average exchange rates and the resulting foreign currency differences are reflected in the income statement. This treatment introduces an additional level of volatility and uncertainty into the results reported in any period.

The Group has implemented a solvency matching strategy on currency risk and interest rate risk that has the objective of protecting its capital surplus against foreign currency and interest rate movements. While this protects against the risk of additional capital being required solely as a result of fluctuations in currency and interest rates, it exposes the Group’s earnings to movements in foreign currency and interest rate movements.

In 2012, the Group reported foreign exchange losses of £25.9 million, largely reflecting the strengthening of Sterling against most of the other key currencies to which the Group had exposure, and in 2013, foreign exchange losses increased to £69.6 million, again reflecting the strengthening of Sterling against most of the other key currencies to which the Group had exposure, as well as the heightened effect of movements principally against the dollar and euro, as well as other non-core currencies, as part of the Group’s shift to a solvency matched capital position. This shift away from the historical currency mix of a majority of capital being denominated in Sterling has been accomplished by changes in the currency mix of fixed income investments, together with forward exchange contracts.

Any of the foregoing risks could have a material adverse effect on the Group’s financial condition and results of operations.

6.3 The Revolving Credit Facility imposes restrictions on the Group’s operations, and may restrict growth, result in a competitive disadvantage, adversely affect its ability to conduct business, and there is no guarantee that the Revolving Credit Facility can be renegotiated or replaced on favourable terms at all The Revolving Credit Facility (please refer to section 10.3(B) of Part XIII (Operating and Financial Review) for details) contains operating and financial covenants, which are customary in financings of this type, that limit the Group’s ability to take actions, including the ability to make acquisitions and disposals, encumber its assets and incur indebtedness. Under the terms of the Revolving Credit Facility, the Group might also be required to post cash collateral to secure letters of credit outstanding thereunder, thereby reducing the amount of financial resources available to the Group. These covenants could reduce the Group’s flexibility to respond to changing business and economic conditions, including increased competition in the insurance industry, and could prevent the Group from expanding its business. This lack of flexibility may have an adverse effect on the Group’s results of operations in the longer term.

The Revolving Credit Facility also contains cross default clauses pursuant to which it would constitute an event of default thereunder if any financial indebtedness (above an agreed threshold) of certain members of the Group is, among others, not paid when due, declared (or capable of being declared) or otherwise becomes due and payable prior to its specified maturity or commitment to provide such

39 financial indebtedness is cancelled or suspended as a result of an event of default. Likewise, provision of collateral following, or in order to avoid, a breach or default under such financial indebtedness could constitute an event of default.

The Group currently meets some of its obligations to contribute to its Funds at Lloyd’s (please refer to Section 4.6 of this Part II (Risk factors)) by using letters of credit issued under the Revolving Credit Facility. While the Group has not in the past had any concerns in relation to compliance with the Revolving Credit Facility, if the Group were to breach that facility, the Group would likely find another source to fund such contributions to the Funds at Lloyd’s.

The Revolving Credit Facility, upon Admission, will terminate on 31 December 2018. There is no guarantee that the Revolving Credit Facility can be renegotiated on terms which are favourable to the Group or at all. Any equity or debt financings to replace the Revolving Credit Facility upon its termination may be on terms that are not favourable to the Group, or contain operating and financial covenants that reduce the flexibility of the Group to respond to changing business and economic conditions, including increased competition in the insurance industry, and/or may prevent the Group from expanding its business. In addition, equity financings may result in the dilution of shareholders’ interests in the Company, with such equity securities issued holding rights, preferences and privileges that are senior to those of the Ordinary Shares. If such financing cannot be obtained, the Group’s operating results and financial condition could be adversely affected.

6.4 The Group may not be able to raise capital in the long term on favourable terms or at all Each of the Group’s regulated underwriting entities is required to meet stipulated regulatory capital requirements. These include the Funds at Lloyd’s requirement for Brit UW and the regulatory minimum capital requirements under the regulations of the FSC in Gibraltar. Please refer to section 10.2 under Part XIII (Operating and Financial Review) for further details.

While the specific regulatory capital requirements vary between jurisdictions, under applicable regulatory regimes, required capital can be impacted by items such as business mix, product type, sales volume and reserves. The regulatory capital requirements that the Group may have to comply with are subject to change due to factors beyond its control. For example, Lloyd’s may impose a greater Funds at Lloyd’s requirement upon Brit UW for a particular year of account. In general, regulatory capital requirements are expected to evolve over time as regulators continue to respond to demands for tighter controls over financial institutions, and the expectation is that these requirements will only become more onerous.

While the Group had a strong capital position with available resources amounting to 141% of management entity capital requirements as of 31 December 2013, an inability to meet applicable regulatory capital requirements in the longer term due to factors beyond its control may lead to intervention by a relevant regulator which, in the interests of customer security, may require the Group to take steps to restore regulatory capital to acceptable levels, potentially by requiring the Group to raise additional funds through financings or to reduce or cease to write new business. To the extent the Group is required to raise additional external funding in the longer term, macroeconomic factors could impact the Group’s ability to access the capital markets and the bank funding market and the ability of counterparties to meet their obligations to the Group.

Any of the foregoing could have a material adverse effect on the Group’s results of operations and financial condition.

6.5 The Group may be faced with a liquidity shortfall where, following a large loss or a series of large losses, it is required to settle claims prior to receipt of monies due under outwards reinsurance arrangements As with all insurance companies, the Group uses its liquidity to fund its insurance and reinsurance obligations, which may include large and unpredictable claims (including catastrophe claims).

While the Group seeks to manage carefully its exposure to catastrophe risk and while it has a liquidity policy set by the Board which seeks to ensure sufficient liquidity to withstand claim scenarios at the extreme end of the business plan projections by reference to modelled Realistic Disaster Scenarios (please refer to section 15.1 under Part XIII (Operating and Financial Review) for the Group’s

40 estimates in relation to certain key Realistic Disaster Scenarios, as of 1 October 1 2013, which range from £140 million for a Gulf of Mexico windstorm to £36 million for a Japanese windstorm, in each case net of reinsurance), actual losses in relation to catastrophe events may differ materially from the losses that the Group estimates, given the significant uncertainties with respect to the estimates and the unpredictable nature of catastrophes. In such scenarios, the Group may be faced with a shortfall where it is required to settle claims arising under insurance contracts or where it is required to increase the amount of resources required to be held as Funds at Lloyd’s, but where it has not yet received monies due under outwards reinsurance taken out to mitigate such events. In such scenarios, the Group may be required to (a) draw down on its Revolving Credit Facility, which would increase its finance costs, (b) liquidate investments (including some of its less liquid investments), which may be constrained as a consequence of macroeconomic conditions beyond the Group’s control or (c) delay or vary the implementation of its strategic plans so as to maintain appropriate liquidity. Any of the foregoing may affect the amount of business that the Group can write, its revenue and profitability.

6.6 Pension scheme liabilities may impact the Group The Group operates a defined benefit pension scheme for its past and present employees. The scheme closed to new members on 4 October 2001 and closed to future accrual on 31 December 2011. The last formal triennial funding valuation was performed as at 31 July 2012 and showed a scheme deficit of £11.6 million on a technical provisions basis. The Group has agreed with the pension scheme trustee a recovery plan to repair that deficit. Amounts falling due between the date of this prospectus and 31 July 2016 amount to £10.6 million. There is a risk that a future funding valuation may show a deterioration in the scheme’s financial position as a result of which the scheme actuary may recommend higher employer recovery payments or a shorter timetable for payment than that previously agreed. Any such recommendation may adversely impact the Group’s results of operations and financial condition.

7. LITIGATION RISKS RELATING TO THE GROUP 7.1 The Group is involved in legal and other proceedings from time to time, and it may face damage to its reputation or legal liability as a result In the ordinary course of business, the Group is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures in a variety of jurisdictions, the outcomes of which will determine its rights and obligations under insurance, reinsurance and other contractual agreements or under tort laws or other legal obligations. From time to time, the Group may institute, or be named as a defendant in, legal proceedings, and it may be a claimant or respondent in arbitration proceedings. These proceedings have in the past involved, and may in the future involve, coverage or other disputes with ceding companies, disputes with parties to which the Group transfers risk under reinsurance arrangements, disputes with other counterparties or other matters. The Group is also involved, from time to time, in investigations and regulatory proceedings, certain of which could result in adverse judgments, settlements, fines and other outcomes. The Group could also be subject to litigation risks arising from potential employee misconduct, including non-compliance with internal policies and procedures. In addition, the Group may become involved in, or be affected by, legal proceedings involving Lloyd’s.

The Group cannot predict the outcome of individual legal actions. The Group may settle litigation or regulatory proceedings prior to a final judgment or determination of liability. The Group may do so to avoid the cost, management efforts or negative business, regulatory or reputational consequences of continuing to contest liability, even when the Group believes it has valid defences to liability. The Group may also do so when the potential consequences of failing to prevail would be disproportionate to the costs of settlement. Furthermore, the Group may, for similar reasons, reimburse counterparties for their losses even in situations where the Group does not believe that it is legally compelled to do so. The financial impact of legal risks might be considerable but may be hard or impossible to estimate and to quantify, so that amounts eventually paid may exceed the amount of reserves set aside to cover such risks.

In addition, while the Group seeks to ensure where possible that the governing law clause of each contract is explicitly and validly set out in the terms of the contract, and identifies a jurisdiction that is acceptable to and appropriate in respect of the Group, it is possible that this legal framework may be deemed invalid or inappropriate by courts in the relevant jurisdiction.

41 Substantial legal liability could materially adversely affect the Group’s business, financial condition and results of operations, and could cause significant reputational harm.

8. RISKS RELATING TO TAXATION 8.1 The impact of the OECD’s review of harmful tax practices is uncertain The Organisation for Economic Cooperation and Development has published reports (including its paper of 2013 entitled “Action Plan on Base Erosion and Profit Shifting”) and launched a dialogue among members and non-members on measures to limit harmful tax practices. These measures are directed at counteracting the effects of tax havens and preferential tax regimes around the world. In the OECD’s periodic progress reports, Gibraltar had previously been listed as an uncooperative tax haven jurisdiction, following which Gibraltar had committed to eliminate harmful tax practices and to embrace international tax standards for transparency, exchange of information and the elimination of any aspects of the regimes for financial and other services that attract business with no substantial domestic activity. Gibraltar was included in the most recently revised OECD’s so-called “White list” of countries that have substantially implemented the OECD’s international tax standards. It is not clear what further changes will result from this ongoing commitment or whether such changes will subject the Group to additional taxes. The imposition of additional taxes could have a material adverse effect on the Group’s results of operations.

8.2 Intra-group arrangements found not to be on arm’s length terms may adversely affect the Group’s tax charge Trading relationships between members of the Group in different jurisdictions will in general be subject to the transfer pricing regimes of the jurisdictions concerned. The Group intends to operate intra-group trading arrangements and relationships on demonstrable and documented arm’s length terms. If, however, such trading arrangements were found not to be on arm’s length terms, adjustments might be required to taxable profits in the relevant jurisdictions, which could lead to an increase in the Group’s overall tax charge; this could have a material adverse effect on the Group’s results of operations and financial condition. In particular, if intra-group reinsurance arrangements between BIG and Brit UW were found not to be on arm’s length terms, this could adversely affect the Group’s overall tax charge, and could result in a materially adverse effect on the Group’s financial condition and results of operations.

8.3 A change in tax rates, tax laws or a relevant tax authority’s published practice or any failure by the Group to manage tax risks adequately may have a material adverse effect on the Group’s results of operations and financial condition The Group is subject to direct and indirect taxes in the jurisdictions in which it conducts its business operations. Changes in tax rates, tax laws or a relevant tax authority’s published practice, or changes in interpretation of, or misinterpretation of, the law or the relevant tax authority’s published practice, or any failure to manage tax risks adequately could result in increased charges, financial loss, penalties and reputational damage, which may have a material adverse effect on the Group’s financial condition and results of operations. Such changes may be more likely in view of recent economic trends in the jurisdictions in which the Group conducts its business, particularly if such trends continue. In addition, aggressive tax enforcement is becoming a higher priority for many tax authorities, which could lead to an increase in tax audits, inquiries and challenges of historically accepted intra-group financing and other arrangements of insurance companies, including the Group’s arrangements.

8.4 The Group may be subject to tax withholding under FATCA, which may reduce shareholders’ investment returns The Foreign Account Tax Compliance Act (“FATCA”) imposes a new reporting regime and potentially a 30% withholding tax with respect to certain payments to a non-US financial institution (an “FFI”) that does not become a “Participating FFI” by entering into an agreement with the US Internal Revenue Service (the “IRS”) to provide the IRS with certain information in respect of its account holders or is not otherwise exempt from or in deemed compliance with FATCA. The new withholding regime will be phased in beginning 1 July 2014.

42 An FFI that is resident in a country that has entered into an intergovernmental agreement with the United States to implement FATCA (an “IGA”) could be exempt from FATCA withholding, provided that it and the applicable foreign government comply with the terms of such agreement. The Company may be considered an FFI. If so, pursuant to the IGA between the United States and the United Kingdom, the Company generally should not be subject to withholding under FATCA, provided that it and the UK government comply with the terms of the IGA (and UK law implementing the IGA). Some other members of the Group may also be FFIs. If the Company determines that any member of the Group is an FFI, it intends to take necessary steps to ensure that such member is in compliance with FATCA or the applicable IGA. However, if it is unable to do so, certain payments to the Group may be subject to withholding under FATCA. FATCA is particularly complex and its application is not completely certain at this time. The above description is based in part on regulations, official guidance and the existing and model IGAs, all of which are subject to change. Investors should consult their tax advisers on how these rules may apply to them and to payments they may receive with respect to the Ordinary Shares. 9. RISKS RELATING TO SHARE OWNERSHIP 9.1 There has been no prior public trading market for the Ordinary Shares, and an active trading market may not develop or be sustained in the future Prior to Admission, there has been no public trading market for the Ordinary Shares. Although the Company has applied to the UK Listing Authority for admission to the premium listing segment of the Official List and has applied to the London Stock Exchange for admission to trading on its main market for listed securities, the Company can give no assurance that an active trading market for the Ordinary Shares will develop or, if developed, can be sustained following the closing of the Offer. If an active trading market is not developed or maintained, the liquidity and trading price of the Ordinary Shares could be adversely affected. 9.2 The share price of publicly traded companies can be highly volatile, including for reasons related to differences between expected and actual operating performance, corporate and strategic actions taken by such companies or their competitors, speculation and general market conditions and regulatory changes The share price of listed companies can be highly volatile, which may prevent Shareholders from being able to sell their Ordinary Shares at or above the price they paid for them. The Offer Price may not be indicative of prices that will prevail in the trading market and investors may not be able to resell the Ordinary Shares at or above the price they paid. The market price for the Ordinary Shares could fluctuate significantly for various reasons, many of which are outside the Group’s control. These factors could include the Group’s performance, large purchases or sales of the Ordinary Shares, legislative changes and general economic, political or regulatory conditions. 9.3 CVC-Affiliated Funds and Apollo-Affiliated Funds will continue to exert significant influence over the Company as a result of their shareholdings, and their interests may not be aligned with those of the other shareholders Following Admission, Major Shareholders will control approximately 73.4% of the Company’s issued share capital. CVC-Affiliated Funds will control 33.6% and Apollo-Affiliated Funds will control 39.7%. Following Admission, CVC-Affiliated Funds and Apollo-Affiliated Funds will, through the votes each of them will be able to exercise at general meetings of the Company, continue to be able to exercise a significant degree of influence over, and in some cases act together to determine the outcome of certain matters requiring an ordinary resolution of the Company including: • the election of Directors; • a change of control in the Company, which could deprive Shareholders of an opportunity to earn a premium for the sale of their Ordinary Shares over the then prevailing market price; • substantial mergers or other business combinations; • the acquisition or disposal of substantial assets; • the issuance of equity securities; and • the payment of any dividends on the Ordinary Shares. The Company the CVC-Affiliated Funds and the Apollo Entities have entered into the Relationship Agreement to ensure that the Company can operate independently of the Major Shareholders immediately upon and after Admission.

43 9.4 The issue of additional shares in the Company in connection with future acquisitions, any share incentive or share option plan or otherwise may dilute all other shareholdings The Group may seek to raise financing to fund future acquisitions and other growth opportunities. The Company may, for these and other purposes, such as in connection with share incentive and share option plans, issue additional equity or convertible equity securities. As a result, the Company’s existing shareholders would suffer dilution in their percentage ownership.

9.5 Future substantial sales of Ordinary Shares, or the perception that such sales might occur, could depress the market price of the Ordinary Shares Subject to or following the expiry of the lock-up arrangements (described in section 8 of Part VI (Details of the Offer)), the Major Shareholders, certain of the Management Shareholders, the Company or one or more of the Directors could sell a substantial number of Ordinary Shares in the public market following the Offer. Such sales, or the perception that such sales could occur, may materially adversely affect the market price of the Ordinary Shares. This may make it more difficult for Shareholders to sell their Ordinary Shares at a time and price that they deem appropriate, and could also impede the Company’s ability to issue equity securities in the future.

9.6 Holders of Ordinary Shares in jurisdictions outside the UK may not be able to exercise their pre-emption rights unless the Company decides to take additional steps to comply with applicable local laws and regulations of such jurisdictions In the case of certain increases in the Company’s issued share capital, the Company’s existing Shareholders are generally entitled to pre-emption rights pursuant to the Companies Act unless such rights are waived by a special resolution of the Shareholders at a general meeting or, in certain circumstances, pursuant to the Articles. Holders of Ordinary Shares outside the UK may not be able to exercise their pre-emption rights over Ordinary Shares unless the Company decides to comply with applicable local laws and regulations and, in the case of holders of Ordinary Shares in the United States, a registration statement under the US Securities Act is effective with respect to such rights and Ordinary Shares, or an exemption from the registration requirements of the US Securities Act is available. The Company cannot assure any Shareholders outside the UK that steps will be taken to enable them to exercise their pre-emption rights, or to permit them to receive any proceeds or other amounts relating to their pre-emption rights.

9.7 The Company’s ability to pay dividends in the future depends, among other things, on the Group’s financial performance and is therefore not guaranteed The Company’s ability to pay dividends in the future will depend, among other things, on the Group’s financial performance and capital requirements. In addition, under English law, a company can only pay cash dividends to the extent that it has distributable reserves and cash available for this purpose. As a holding company, the Company’s ability to pay dividends in the future is affected by a number of factors, principally the receipt of sufficient dividends from its subsidiaries. The payment of dividends by subsidiaries is, in turn, subject to restrictions, including regulatory restrictions on distributions by the Group’s regulated subsidiaries, and the existence of sufficient distributable reserves and cash in those subsidiaries. These restrictions could limit the payment of dividends to the Company by its subsidiaries, which could restrict the Company’s ability to fund its operations or to pay dividends to its Shareholders.

9.8 Applicable insurance laws and regulatory requirements in the UK and Gibraltar may discourage potential acquisition proposals and delay, deter or prevent a change of control of the Company, which may in turn reduce the value of the Ordinary Shares Currently in the UK, the prior approval of the PRA or FCA under section 178 of FSMA is required of any person proposing to acquire or increase “control” of a firm authorised and regulated under FSMA. For a Lloyd’s managing agent such as BSL, the PRA is the regulator whose approval is required. For these purposes, a person acquires control over a UK authorised person if such person holds, or is entitled to exercise or control the exercise of, 10% or more of the shares or voting power in the UK authorised person or the parent undertaking of the UK authorised person. A person is also regarded as acquiring control over the UK authorised person if as a result of holding shares or voting power in the

44 UK authorised person or its parent undertaking that person is able to exercise significant influence over the management of the UK authorised person. For the purposes of this calculations, the holding of shares and voting power by a person includes any shares or voting power held by another person if those persons are acting in concert. Accordingly, any person who (alone or acting in concert with another) proposes to acquire 10% or more of the Ordinary Shares would become a controller of BSL and prior approval by the PRA would be required. Similarly, currently, if a person who is already a controller of a UK authorised person such as BSL proposes to increase its control in excess of certain thresholds set out in section 182 of FSMA (being 20, 30, or 50% of shares or voting power), such person will also require the prior approval of the PRA. The PRA has 60 working days from the day on which it acknowledges the receipt of a completed change of control notice to determine whether to approve the new controller or object to the transaction, although this period may (subject to limits) cease to run while the PRA is awaiting the provision of further information that it may request from an applicant during the approval process. If approval is given, it may be given unconditionally or subject to such conditions as the PRA considers appropriate. Breach of the notification and approval regime imposed by the PRA on controllers is a criminal offence.

In addition to the PRA approval, any person acquiring 10% or more of the Ordinary Shares will also need to make appropriate notifications to (or seek approval of confirmation of no objection from), in relation to BSL, Lloyd’s and, in relation to BIG, the FSC of Gibraltar.

These laws may change and may, in their current or any future form, discourage potential acquisition proposals and may delay, deter or prevent a change of control of the Company, including through transactions, and in particular unsolicited transactions, that some or all of the Shareholders might consider to be desirable. This may, in turn, reduce the value of the Ordinary Shares.

45 PART III — DIRECTORS, SECRETARY, REGISTERED OFFICE AND ADVISERS Directors Dr Richard Ward (Chairman) Mark Cloutier (Chief Executive Officer) Ipe Jacob (Non-Executive Director) Hans-Peter Gerhardt (Non-Executive Director) Willem Stevens (Non-Executive Director) Maarten Hulshoff (Non-Executive Director) Sachin Khajuria (Non-Executive Director) Gernot Lohr (Non-Executive Director) Kamil Salame (Non-Executive Director) Jonathan Feuer (Non-Executive Director) Company Secretary Tim Harmer Registered office 55 Bishopsgate, London, EC2N 3AS ADVISERS: Joint Global Coordinator, Joint J.P. Morgan Securities plc Bookrunner and Sponsor 25 Bank Street London E14 5JP Joint Global Coordinator and UBS Limited Joint Bookrunner 1 Finsbury Avenue London EC2M 2PP Co-Lead Manager Canaccord Genuity Limited 88 Wood Street London EC2V 7QR Co-Lead Manager Numis Securities Limited 10 Paternoster Square London EC4M 7LT Legal advisers to the Company Legal advisers to the Global Coordinators, the Joint Bookrunners, and the Co-Lead Managers As to English law: As to English law and US law: Slaughter and May Linklaters LLP One Bunhill Row One Silk Street London EC1Y 8YY London EC2Y 8HQ As to US law: Paul, Weiss, Rifkind, Wharton & Garrison LLP Alder Castle 10 Noble Street London EC2V 7JU Auditor and Reporting Registrar Accountant Ernst & Young LLP Computershare Investor Services PLC 1 More London Place The Pavilions London Bridgwater Road SE1 2AF Bristol BS99 6ZZ

46 PART IV — EXPECTED TIMETABLE OF PRINCIPAL EVENTS AND OFFER STATISTICS

All times are London times. Each of the times and dates in the table below is indicative only and is subject to change.

Prospectus published/ Announcement of Offer Price and 28 March 2014 allocation

Commencement of conditional dealing in Ordinary 08:00, 28 March 2014 Shares on the London Stock Exchange

Admission and commencement of unconditional 08:00, 2 April 2014 dealings in Ordinary Shares on the London Stock Exchange

CREST accounts credited with uncertificated shares 08:00, 2 April 2014

Despatch of definitive share certificates (where By 16 April 2014 applicable)

It should be noted that if Admission does not occur all conditional dealings will be of no effect and any such dealings will be at the sole risk of the parties concerned.

OFFER STATISTICS

Offer Price 240 pence

Number of Ordinary Shares in issue 400,000,000

Number of Ordinary Shares being offered in the Offer (excluding 100,000,000 any Over-allotment Shares)

Percentage of the Company’s issued share capital being offered in 25.0% the Offer

Maximum number of Ordinary Shares subject to the Over-allotment 10,000,000 Option

Gross proceeds of the Offer receivable by the Selling Shareholders £240.0 million

Estimated net proceeds of the Offer receivable by the Selling £235.3 million Shareholders (after deducting underwriting commissions)

Market capitalisation of the Company at the Offer Price £960.0 million

47 PART V — PRESENTATION OF INFORMATION

1. General Investors should rely only on the information in this Prospectus. No person has been authorised to give any information or to make any representations in connection with the Offer other than those contained in this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorised by or on behalf of the Company, the Directors or the Banks. No representation or warranty, express or implied, is made by any of the Banks or any selling agent as to the accuracy or completeness of such information, and nothing contained in this Prospectus is, or shall be relied upon as, a promise or representation by any of the Banks or any selling agent as to the past, present or future. Without prejudice to any obligation of the Company to publish a supplementary prospectus pursuant to section 87G of FSMA and Rule 3.4.1 of the Prospectus Rules, neither the delivery of this Prospectus nor any sale made under this Prospectus shall, under any circumstances, create any implication that there has been no change in the business or affairs of the Company or of the Group taken as a whole since the date hereof or that the information contained herein is correct as of any time subsequent to the earlier of the date hereof and any earlier specified date with respect to such information.

The Company will update the information provided in this Prospectus by means of a supplement to it if a significant new factor that may affect the evaluation by prospective investors in the Offer occurs prior to Admission or if it is noted that this Prospectus contains any mistake or substantial inaccuracy. The Prospectus and any supplement thereto will be subject to approval by the FCA and will be made public in accordance with the Prospectus Rules. If a supplement to this Prospectus is published prior to Admission, Investors shall have the right to withdraw their subscriptions and/or purchases made prior to the publication of such supplement. Such withdrawal must be done within the time limits set out in the supplement (if any) (which shall not be shorter than two clear business days after publication of such supplement).

The contents of this Prospectus are not to be construed as legal, business or tax advice. Each prospective Investor should consult his or her own lawyer, financial adviser or tax adviser for legal, financial or tax advice in relation to any purchase or proposed purchase of Ordinary Shares. Each prospective Investor should consult with such advisers as needed to make its investment decision and to determine whether it is legally permitted to hold shares under applicable legal investment or similar laws or regulations. Investors should be aware that they may be required to bear the financial risks of an investment in Ordinary Shares for an indefinite period of time.

No person has been authorised to give any information or make any representation other than those contained in this Prospectus and, if given or made, such information or representation must not be relied upon as having been authorised by or on behalf of the Company, the Directors or any of the Banks.

Prior to making any decision whether to purchase the Offer Shares, prospective Investors should read this Prospectus in its entirety and, in particular, Part II (Risk Factors). In making an investment decision, prospective Investors must rely upon their own examination of the Company and the terms of this Prospectus, including the risks involved. Any decision to purchase Offer Shares should be based solely on the Prospectus.

Investors who purchase Offer Shares in the Offer will be deemed to have acknowledged that: (i) they have not relied on any of the Banks or any person affiliated with any of them in connection with any investigation of the accuracy of any information contained in this Prospectus or their investment decision; (ii) they have relied solely on the information contained in this Prospectus; and (iii) no person has been authorised to give any information or to make any representation concerning the Group or the Ordinary Shares (other than as contained in this Prospectus) and, if given or made, any such other information or representation should not be relied upon as having been authorised by the Company, the Directors or any of the Banks.

None of the Company, the Directors, the Selling Shareholders or any of the Banks or any of their representatives is making any representation to any offeree or purchaser of the Offer Shares regarding the legality of an investment by such offeree or purchaser.

48 In connection with the Offer, the Banks and any of their affiliates, acting as Investors for their own accounts, may purchase Offer Shares, and in that capacity may retain, purchase, sell, offer to sell or otherwise deal for their own accounts in such Offer Shares and other securities of the Company or related investments in connection with the Offer or otherwise. Accordingly, references in this Prospectus to the Offer Shares being offered, acquired, placed or otherwise dealt in should be read as including any issue or offer to, or acquisition, placing or dealing by, any Bank and any of its affiliates acting as an Investor for its own accounts. The Banks do not intend to disclose the extent of any such investments or transactions otherwise than in accordance with any legal or regulatory obligations to do so.

The Banks and any of their respective affiliates may have engaged in transactions with, and provided various investment banking, financial advisory and other services to the Selling Shareholders and/or the Company, for which they would have received customary fees. The Banks and any of their respective affiliates may provide such services to the Selling Shareholders, the Company and any of their respective affiliates in the future.

2. Presentation of financial information The Group’s combined consolidated historical financial information in Part XIV (Financial Information) has been prepared in accordance with the requirements of the PD Regulation and the Listing Rules and in accordance with IFRS as adopted by the EU subject to certain exceptions as described in note 2 to Part XIV (Financial Information). The significant accounting policies of the Group are set out within note 2 to the Group’s combined consolidated historical financial information in Part XIV (Financial Information).

The historical financial information included in Part XIV (Financial Information) is covered by the accountants’ report included in Part XIV (Financial Information), which reports on procedures performed in accordance with Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. Such financial information was not audited in accordance with auditing standards generally accepted in the United States, nor auditing standards of the US Public Company Accounting Oversight Board. The financial information included in Part XIV (Financial Information) and other financial information included throughout this Prospectus is not intended to comply with the reporting requirements of the SEC. Compliance with the reporting requirements of the SEC would require the modification, reformulation or exclusion of certain financial measures. Potential Investors should consult their own professional advisers to gain an understanding of the financial information in Part XIV (Financial Information) and the implications of differences between the reporting standards noted herein.

Unless otherwise stated in this Prospectus, financial information in relation to the Group referred to in this Prospectus has been extracted without material adjustment from the historical financial information in Part XIV (Financial Information) (prepared in accordance with IFRS, subject to certain exceptions as described in note 2 to Part XIV (Financial Information)). Financial information extracted or derived from the unaudited accounting records used to compile the Group’s historical financial information in Part XIV (Financial Information) (prepared in accordance with IFRS) has been separately identified throughout this Prospectus. Investors should ensure that they read the whole of this Prospectus and not only rely on the key information or information summarised within it.

3. Key performance indicators and targets The Group evaluates its operations by monitoring certain key indicators of business performance, profitability, investment return, capital requirements and gearing. The Group has presented these measures in this Prospectus. Such measures as presented in this Prospectus may not be comparable with similarly titled data presented by other companies in the Group’s industry; nevertheless the Company believes that such data is important to understand the Group’s performance from period to period and that such data facilitates comparison with the Group’s peers. The measures are not intended to be substitutes for any IFRS measures of performance, and certain of these measures, such as return on net tangible assets, are non-IFRS financial measures.

The Directors and management of the Group use the consolidated financial statements of Brit Insurance Holdings B.V. and its subsidiaries (the “Brit Group”) in evaluating these measures and setting internal targets in relation to the measures. There are certain differences between the financial

49 statements of the Group presented in Part XIV (Financial Information) and that are discussed in Part XIII (Operating and Financial Review), and the financial statements of the Brit Group. Please refer to section 1.2 of Part XIII (Operating and Financial Review) for details relating to the differences.

The Group also sets targets for certain of its key measures. These targets are derived from the Group’s strategic planning process and were updated as part of the Group’s preparation for this Offer. The targets were not prepared with a view toward complying with the published guidelines of the SEC regarding financial projections or IFRS, and do not constitute profit forecasts or estimates under the Prospectus Rules. However, in the view of the Directors, these targets have been prepared on a reasonable basis, and reflect the best estimates and judgements available to management at the time. These targets, however, are not facts and should not be relied upon as being necessarily indicative of future results. None of the Group, the Board, the Banks or their respective affiliates, advisers, officers, directors or representatives can give any assurance that the targets will be realised or that measures underlying targets will not vary significantly from the targets.

The Group’s management and the Board will periodically review and revise the strategic plan in light of business, financial, regulatory and other conditions at the time it is reviewed and revised, which may involve changes to the targets. The Group does not currently intend to continue to publicly disclose these targets or any adjustments thereto resulting from such review and revision or otherwise, except as required by applicable law.

None of the Group’s independent auditors, nor any other independent accountants, compiled, examined or performed any procedures with respect to the targets, nor have they expressed any opinion or any other form of assurance on the targets or their achievability, and such parties assume no responsibility for, and disclaim any association with, the targets.

The targets, while presented with numerical specificity, necessarily reflect numerous estimates and assumptions made by the Group with respect to industry performance, general business, economic, regulatory, market and financial conditions and other future events, as well as matters specific to the Group’s business, all of which are difficult or impossible to predict and many of which are beyond the Group’s control. The targets reflect subjective judgement in many respects and thus are susceptible to multiple interpretations and periodic revisions based on actual experience and business, economic, regulatory, financial and other developments. As such, the targets constitute forward-looking information and are subject to risks and uncertainties set forth in this Prospectus, including in Part II (Risk Factors) and section 6 of this Part V (Presentation of Information) below relating to forward- looking statements.

The inclusion in this Prospectus of the targets should not be deemed an admission or representation by the Group, the Board, the Banks or their respective affiliates that such information is viewed by the Group, the Board, the Banks or their respective affiliates as material information of the Group. Such information should be evaluated, if at all, in conjunction with the historical financial information in Part XIV (Financial Information).

In light of the foregoing factors and the uncertainties inherent in the information provided above, investors are cautioned not to place undue reliance on the targets.

4. Rounding Percentages and certain amounts included in this Prospectus have been rounded for ease of presentation. Accordingly, figures shown as totals in certain tables may not be the precise sum of the figures that precede them.

5. Currencies Unless otherwise indicated in this Prospectus, all references to:

•“Sterling”or“£” are to the lawful currency of the UK; •“US dollars”, “dollars”, “US$”or“cents” are to the lawful currency of the United States; and •“euro”or“€” are to the lawful currency of the European Union (as adopted by certain Member States).

50 Unless otherwise indicated, the financial information contained in this Prospectus has been expressed in Sterling. For all members of the Group in the UK, the functional currency is Sterling and the Group presents its financial statements in Sterling.

6. Forward-looking statements Certain statements contained in this Prospectus, including those in Part II (Risk Factors), Part VII (Information on the Group and its Industry) and Part XIII (Operating and Financial Review) constitute ‘‘forward-looking statements’’. In some cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms ‘‘believes’’, ‘‘estimates’’, ‘‘forecasts’’, ‘‘plans’’, ‘‘prepares’’, ‘‘anticipates’’, ‘‘expects’’, ‘‘intends’’, ‘‘may’’, ‘‘will’’ or ‘‘should’’ or, in each case, their negative or other variations or comparable terminology. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Group or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

These risks, uncertainties and other factors include the following: • further deterioration in global economic conditions, including as a result of concerns over, or adverse developments relating to, sovereign debt of eurozone countries; • the Group’s ability to implement its business strategy across insurance market cycles; • the continuing acceptance of the Group’s financial condition by regulators, brokers and its insurance and reinsurance clients; • general economic and market conditions (including inflation, interest rates and foreign currency exchange rates, credit spreads and other market indices) and conditions specific to the reinsurance and insurance markets in which the Group operates; • the Group’s ability to implement its investment strategy; • competition, including increased competition, on the basis of pricing, capacity, coverage terms or other factors; • the cyclicality of the insurance industry; • greater than expected loss ratios on business written by the Group and adverse developments on claims and/or claim expense liabilities on business previously written; • severity and/or frequency of losses; • claims for natural or man-made catastrophic events in the Group’s insurance or reinsurance business causing large losses and substantial volatility in the Group’s results of operations; • the Group’s ability to maintain sufficient liquidity; • factors impacting Lloyd’s; • the loss of key personnel; • acts of terrorism, political unrest and other hostilities or other unforecasted and unpredictable events; • the Group’s ability to integrate new management, staff and systems to manage successfully its business; • the availability of reinsurance to manage the Group’s gross and net exposures and the cost of such reinsurance; • the failure of reinsurers or others to meet their obligations to the Group; • the timing of loss payments being faster or the receipt of reinsurance recoverables being slower than anticipated by the Group; • the accuracy of the estimates and judgements utilised in the preparation of the Group’s financial statements, including those related to revenue recognition, loss and other reserves, reinsurance recoverables, investment valuations, intangible assets, bad debts, income taxes, contingencies and litigation; • changes in accounting principles or the application of such principles by regulators or other relevant authorities; and

51 • statutory or regulatory developments, including as to tax policy and matters and insurance and other regulatory matters.

The forward-looking statements in this Prospectus are made based upon the Board’s expectations and beliefs concerning future events impacting the Group and therefore involve a number of known and unknown risks and uncertainties. Such forward-looking statements are based on numerous assumptions regarding the Group’s present and future business strategies and the environment in which it will operate, which may prove to be inaccurate. The Company cautions that these forward- looking statements are not guarantees and that actual results could differ materially from those expressed or implied in these forward-looking statements.

It is strongly recommended that prospective Investors refer to Part II (Risk Factors) for a more complete discussion of the factors that could affect the Group’s future performance and the industry in which it operates. In light of these risks, uncertainties and assumptions, the forward-looking events described in this Prospectus may not occur. The forward-looking statements referred to above speak only as at the date of this Prospectus. Subject to any obligations under applicable law, including the Prospectus Rules, the Listing Rules and the Disclosure and Transparency Rules, the Company undertakes no obligation to release publicly any revisions or updates to these forward-looking statements to reflect events, circumstances or unanticipated events occurring after the date of this Prospectus. All subsequent written and oral forward-looking statements attributable to the Group or individuals acting on behalf of the Group are expressly qualified in their entirety by this paragraph.

7. No incorporation of website information The contents of the Group’s websites do not form any part of this Prospectus, and prospective Investors should not rely on them.

8. Credit rating agencies This Prospectus refers to the following credit ratings agencies in certain places: Standard & Poor’s (full legal name: Standard & Poor’s Credit Market Services Europe Limited); Fitch (full legal name: Fitch Ratings Limited) and A.M. Best (full legal name: A.M. Best Europe — Rating Services Limited). Each of the aforementioned agencies are established in the European Union and registered and supervised by the European Securities and Markets Authority under Regulation (EC) No 1060/2009 (as amended).

52 PART VI — DETAILS OF THE OFFER

1. Ordinary Shares subject to the Offer Pursuant to the Offer, the Selling Shareholders have authorised the sale, in aggregate, of 100,000,000 Ordinary Shares (the Offer Shares), and estimate they will receive proceeds of approximately £235.3 million, net of aggregate underwriting commissions. The number of Offer Shares represents approximately 25.0% of the issued share capital of the Company.

In addition, Over-allotment Shares (representing approximately 10.0% of the Ordinary Shares comprised in the Offer) are being made available by the Major Shareholders pursuant to the Over- allotment Option described below.

The Company will bear one-off fees and expenses of approximately £8.9 million (including VAT) in connection with Admission and the Offer, and will receive no Offer proceeds. The Selling Shareholders will bear approximately £4.7 million in commissions payable, excluding any discretionary commissions, and will receive all of the net Offer proceeds.

2. The Offer The Offer is made by way of an institutional private placing. Under the Offer, Ordinary Shares will be offered to: (i) certain institutional and professional investors in the UK and elsewhere outside the United States in reliance on Regulation S; and (ii) to QIBs in the United States in reliance on Rule 144A or another exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act. Certain restrictions that apply to the distribution of this Prospectus and the offer and sale of the Ordinary Shares in jurisdictions outside the UK are described below in paragraph 14 below.

Participants in the Offer will be advised verbally or by electronic mail of their allocation as soon as practicable following allocation. Prospective Investors in the Offer will be contractually committed to acquire the number of Ordinary Shares allocated to them at the Offer Price and, to the fullest extent permitted by law, will be deemed to have agreed not to exercise any rights to rescind or terminate, or otherwise withdraw from, such commitment.

When admitted to trading, the Ordinary Shares will be registered with ISIN number GB00BKRV3L73 and SEDOL number BKRV3L7. The rights attaching to the Ordinary Shares will be uniform in all respects and they will form a single class for all purposes.

Immediately following Admission, it is expected that approximately 25.0% of the Company’s issued ordinary share capital will be held in public hands (within the meaning of Listing Rule 6.1.19) assuming no Over-allotment Shares are acquired pursuant to the Over-allotment Option (increasing to approximately 27.5% of the maximum number of Over-allotment Shares are acquired pursuant to the Over-allotment Option).

3. Reasons for the Offer and Admission The Selling Shareholders are looking to realise part of their investment in the Company by way of the Offer.

In addition, while the Group is not receiving any proceeds from the Offer, the Board believes that Admission will benefit the Company as it will: • give the Group access to a wider range of capital-raising options which may be of use in the future; and • assist in recruiting, retaining and incentivising key management and employees.

No expenses will be charged by the Company or the Selling Shareholders to any purchasers of the Offer Shares.

53 4. Offer Price The price payable under the Offer will be the Offer Price.

5. Withdrawal rights If the Company is required to publish any supplementary prospectus, applicants who have applied for Ordinary Shares in the Offer shall have at least two clear business days following the publication of the relevant supplementary prospectus within which to withdraw their application to acquire Ordinary Shares in the Offer in its entirety. The right to withdraw an application to acquire Ordinary Shares in the Offer in these circumstances will be available to all Investors in the Offer. If the application is not withdrawn within the stipulated period, any application to apply for Ordinary Shares in the Offer will remain valid and binding.

Details of how to withdraw an application will be made available if a supplementary prospectus is published.

6. Allocation Allocations of the Offer Shares among prospective Investors will be proposed by the Joint Global Coordinators for final determination by the Company and the CVC-Affiliated Funds and the Apollo Entities.

Upon notification of any allocation, prospective Investors will be contractually committed to acquire the number of Ordinary Shares allocated to them at the Offer Price and, to the fullest extent permitted by law, will be deemed to have agreed not to exercise any rights to rescind or terminate, or otherwise withdraw, from such commitment. Dealing may not begin before such notification is made.

7. Underwriting arrangements From the date of this Prospectus, the Offer is fully underwritten by the Underwriters in accordance with the terms of the Underwriting Agreement, which was entered into by the Underwriters, the Company, Brit Insurance Holdings B.V., the Directors and the CVC-Affiliated Funds and the Apollo Entities on 28 March 2014. A description of the key terms of the Underwriting Agreement is set out in section 21.5 of Part XVI (Additional Information).

8. Lock-up arrangements Each of the Company, the CVC-Affiliated Funds, the Apollo Entities and the Directors has agreed to certain lock-up arrangements.

Pursuant to the Underwriting Agreement, the Company has agreed that, subject to certain exceptions, during the period of 180 days from the date of Admission, it will not, without the prior written consent of the Joint Global Coordinators, issue, offer, sell or contract to sell, or otherwise dispose of any Ordinary Shares (or any interest therein or in respect thereof) or enter into any transaction (including via derivatives) with the same economic effect as any of the foregoing. Please refer to Part XVI (Additional Information) for further details.

Pursuant to the Underwriting Agreement, each of the Directors has agreed that, subject to certain exceptions, during the period of 365 days from the date of Admission, he will not directly or indirectly effect the disposal of any Ordinary Shares (or any interest therein or in respect thereof). Please refer to Part XVI (Additional Information) for further details.

Pursuant to the Underwriting Agreement, the CVC-Affiliated Funds and the Apollo Entities have agreed that, subject to certain exceptions, during the period of 180 days from the date of Admission, they will not directly or indirectly effect the disposal of any Ordinary Shares (or any interest therein or in respect thereof). Please refer to Part XVI (Additional Information) for further details.

Certain of the Management Shareholders who are also Selling Shareholders have entered into a separate agreement with the Company, pursuant to which such Management Shareholders have undertaken, for a period of 365 days following Admission and subject to certain exceptions, that they will not directly or indirectly effect the disposal of Ordinary Shares (or any interest therein or in respect thereof).

54 9. Stabilisation and Over-allotment Option In connection with the Offer, J.P. Morgan Securities plc (as Stabilising Manager), or any of its agents, may (but will be under no obligation to), to the extent permitted by applicable law and for stabilisation purposes, over-allot Ordinary Shares up to a total of 10.0% of the total number of Ordinary Shares comprised in the Offer and effect other transactions to support the market price of the Ordinary Shares at a higher level than that which might otherwise prevail in the open market. The Stabilising Manager is not required to enter into such transactions and such transactions may be effected on any securities market, over-the-counter market, stock exchange or otherwise and may be undertaken at any time during the period commencing on the date that conditional dealings of the Ordinary Shares commence on the London Stock Exchange and ending no later than 30 calendar days thereafter. Such stabilisation, if commenced, may be discontinued at any time without prior notice. In no event will measures be taken to stabilise the market price of the Ordinary Shares above the Offer Price. Except as required by law or regulation, neither the Stabilising Manager nor any of its agents intends to disclose the extent of any over-allotments made and/or stabilisation transactions conducted in relation to the Offer.

To allow the Stabilising Manager to cover short positions resulting from any such over-allotment and/or from sales of Ordinary Shares effected by it during the stabilising period, it has, in the Underwriting Agreement, entered into the Over-allotment Option with the CVC-Affiliated Funds and the Apollo Entities pursuant to which it may require those entities to make available additional Ordinary Shares representing up to 10.0% of the total number of Ordinary Shares comprised in the Offer (before any utilisation of the Over-allotment Option) at the Offer Price. The Over-allotment Option is exercisable in whole or in part, and may be exercised upon notice by the Stabilising Manager at any time on or before the 30th calendar day after the commencement of conditional dealings in the Ordinary Shares on the London Stock Exchange. Any Ordinary Shares made available pursuant to the Over-allotment Option will be sold on the same terms and conditions as Ordinary Shares being offered pursuant to the Offer and will rank pari passu in all respects with, and will form a single class with, the other Ordinary Shares (including for all dividends and other distributions declared, made or paid on the Ordinary Shares).

Following allocation of the Ordinary Shares pursuant to the Offer, the Stabilising Manager may seek to agree the terms of deferred settlement with certain Investors who have been allocated Ordinary Shares pursuant to the terms of the Offer. No fees will be payable to such Investors.

10. Stock Lending Agreement In connection with settlement and stabilisation, J.P. Morgan Securities plc, as Stabilising Manager, has entered into the Stock Lending Agreement with the CVC-Affiliated Funds and the Apollo Entities pursuant to which the Stabilising Manager will be able to borrow from the CVC-Affiliated Funds and the Apollo Entities a number of Ordinary Shares equal in aggregate to up to 10.0% of the total number of Ordinary Shares comprised in the Offer for the purpose of, among other things, allowing the Stabilising Manager to settle over-allotments, if any, made in connection with the Offer. If the Stabilising Manager borrows any Ordinary Shares pursuant to the Stock Lending Agreement, it will be obliged to return equivalent shares to the CVC-Affiliated Funds and the Apollo Entities in accordance with the terms of the Stock Lending Agreement.

11. Dealing arrangements Application will be made to the FCA, in its capacity as the UK Listing Authority, for all of the Ordinary Shares to be admitted to the Premium Listing segment of the Official List and application will be made to the London Stock Exchange for those Ordinary Shares to be admitted to trading on the London Stock Exchange. It is expected that Admission to the Official List will become effective and that dealings in the Ordinary Shares will commence on a conditional basis on the London Stock Exchange at 8:00 a.m. on 28 March 2014. The earliest date for settlement of such dealings will be 2 April 2014. It is expected that Admission will become effective and that unconditional dealings in the Ordinary Shares will commence on the London Stock Exchange at 8:00 a.m. on 2 April 2014. All dealings in Ordinary Shares prior to the commencement of unconditional dealings will be on a “when-issued basis”, will be of no effect if Admission does not take place, and will be at the sole risk of the parties concerned. The above-mentioned dates and times may be changed without further notice.

55 Each Investor will be required to undertake to pay the Offer Price for the Ordinary Shares sold to such Investor in such manner as shall be directed by the Joint Global Coordinators. Pricing information and other related disclosures will be published on the Website on 28 March 2014.

It is intended that, where applicable, definitive share certificates in respect of the Offer will be distributed by 16 April 2014 or as soon thereafter as is practicable, although it is expected that Ordinary Shares allocated in the Offer will normally be delivered in uncertificated form. Temporary documents of title will not be issued. Dealings in advance of crediting of the relevant CREST stock account(s) shall be at the sole risk of the persons concerned.

12. CREST CREST is a paperless settlement system enabling securities to be transferred from one person’s CREST account to another’s without the need to use share certificates or written instruments of transfer. The Company has applied for the Ordinary Shares to be admitted to CREST with effect from Admission and, also with effect from Admission, the Articles will permit the holding of Ordinary Shares under the CREST system. Accordingly, settlement of transactions in the Ordinary Shares following Admission may take place within the CREST system if any Shareholder so wishes. CREST is a voluntary system and holders of Ordinary Shares who wish to receive and retain share certificates will be able to do so.

13. Conditionality of the Offer The Offer is subject to the satisfaction of conditions which are customary for transactions of this type, including Admission becoming effective by no later than 8:00 a.m. on 2 April 2014 and the Underwriting Agreement not having been terminated prior to Admission. Please refer to Part XVI (Additional Information) for further details about the underwriting arrangements.

The Company and the Major Shareholders each expressly reserve the right to determine, at any time prior to Admission, not to proceed with the Offer. If such right is exercised, the Offer (and the arrangements associated with it) will lapse and any monies received in respect of the Offer will be returned to applicants without interest.

14. Selling restrictions No action has been or will be taken in any jurisdiction (other than the UK) that would permit a public offering of the Ordinary Shares, or possession or distribution of this Prospectus or any other offering material in any country or jurisdiction where action for that purpose is required. Accordingly, the Ordinary Shares may not be offered or sold, directly or indirectly, and neither this Prospectus nor any other offering material or advertisement in connection with the Ordinary Shares may be distributed or published, in or from any country or jurisdiction except in circumstances that will result in compliance with any and all applicable rules and regulations of any such country or jurisdiction. Persons into whose possession this Prospectus comes should inform themselves about and observe any restrictions on the distribution of this Prospectus and the Offer. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. This Prospectus does not constitute an offer of, or the solicitation of an offer to buy or subscribe for, any of the Ordinary Shares offered hereby to any person in any jurisdiction to whom it is unlawful to make such offer or solicitation in such jurisdiction. There will be no public offering in the United States.

No Ordinary Shares have been marketed to, or are available for purchase in whole or in part by, the public in the UK or elsewhere in conjunction with the Offer. This document does not constitute a public offer or the solicitation of a public offer in the UK to subscribe for or to buy any securities in the Company or any other entity.

14.1 United Kingdom In the United Kingdom, this Prospectus is only addressed to and directed to Qualified Investors (i) who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”), and/or (ii) who are high net worth entities falling within Article 49(2)(a) to (d) of the Order, and other

56 persons to whom it may otherwise lawfully be communicated (all such persons together being referred to as “Relevant Persons”). The securities described herein are only available in the United Kingdom, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities in the United Kingdom will be engaged in only with Relevant Persons. Any person in the United Kingdom who is not a Relevant Person should not act or rely on this Prospectus or any of its contents.

14.2 European Economic Area In relation to each Relevant Member State, an offer to the public of any Ordinary Shares may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any Ordinary Shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State: (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) per Relevant Member State; or (C) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of Ordinary Shares shall result in a requirement for the Company or any Bank to publish a prospectus pursuant to Article 3 of the Prospectus Directive or a supplemental prospectus pursuant to Article 16 of the Prospectus Directive and each person who initially acquires any Ordinary Shares or to whom any offer is made will be deemed to have represented, warranted and agreed to and with each of the Banks and the Company that it is a qualified investor within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive.

For the purposes of this provision, the expression an “offer to the public” in relation to any Ordinary Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the Offer and any Ordinary Shares to be offered so as to enable an Investor to decide to purchase any Ordinary Shares, as the same may be varied for that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State.

14.3 Australia This Prospectus (a) does not constitute a prospectus or a product disclosure statement under the Corporations Act 2001 of the Commonwealth of Australia (“Corporations Act”); (b) does not purport to include the information required of a prospectus under Part 6D.2 of the Corporations Act or a product disclosure statement under Part 7.9 of the Corporations Act; (c) has not been, nor will it be, lodged as a disclosure document with the Australian Securities and Investments Commission (“ASIC”), the Australian Securities Exchange operated by ASX Limited or any other regulatory body or agency in Australia; and (d) may not be provided in Australia other than to select investors (“Exempt Investors”) who are able to demonstrate that they (i) fall within one or more of the categories of investors under section 708 of the Corporations Act to whom an offer may be made without disclosure under Part 6D.2 of the Corporations Act; and (ii) are “wholesale clients” for the purpose of section 761G of the Corporations Act.

The Ordinary Shares may not be directly or indirectly offered for subscription or purchased or sold, and no invitations to subscribe for, or buy, the Ordinary Shares may be issued, and no draft or definitive offering memorandum, advertisement or other offering material relating to any Ordinary Shares may be distributed, received or published in Australia, except where disclosure to investors is not required under Chapters 6D and 7 of the Corporations Act or is otherwise in compliance with all applicable Australian laws and regulations. By submitting an application for the Ordinary Shares, each purchaser or subscriber of Ordinary Shares represents and warrants to the Company, the Selling Shareholders, the Banks and their affiliates that such purchaser or subscriber is an Exempt Investor.

As any offer of Ordinary Shares under this Prospectus, any supplement or the accompanying prospectus or other document will be made without disclosure in Australia under Parts 6D.2 and 7.9 of the Corporations Act, the offer of those Ordinary Shares for resale in Australia within 12 months may, under the Corporations Act, require disclosure to investors if none of the exemptions in the

57 Corporations Act applies to that resale. By applying for the Ordinary Shares each purchaser or subscriber of Ordinary Shares undertakes to the Company, the Selling Shareholders and the Banks that such purchaser or subscriber will not, for a period of 12 months from the date of issue or purchase of the Ordinary Shares, offer, transfer, assign or otherwise alienate those Ordinary Shares to investors in Australia except in circumstances where disclosure to investors is not required under the Corporations Act or where a compliant disclosure document is prepared and lodged with ASIC.

14.4 Japan The Ordinary Shares have not been, and will not be, registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended, the “FIEL”) and disclosure under the FIEL has not been, and will not be, made with respect to the Ordinary Shares. Neither the Ordinary Shares nor any interest therein may be offered, sold, resold, or otherwise transferred, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the FIEL and all other applicable laws, regulations and guidelines promulgated by the relevant Japanese governmental and regulatory authorities. As used in this paragraph, a resident of Japan is any person that is resident in Japan, including any corporation or other entity organised under the laws of Japan.

14.5 Singapore This Prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this Prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Ordinary Shares may not be circulated or distributed, nor may Ordinary Shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor as defined under Section 275(2) and under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (“SFA”); (ii) to a relevant person as defined under Section 275(2) and under Section 275(1), or any person under Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA; or (iii) otherwise under, and in accordance with the conditions of, any other applicable provision of the SFA.

Where Ordinary Shares 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, shares, debentures and units of shares and debentures 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 Ordinary Shares under an offer made under Section 275 of the SFA except: (1) to an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or to any person under an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than US$200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and further for corporations, in accordance with the conditions specified in Section 275 of the SFA; (2) where no consideration is or will be given for the transfer; or (3) where the transfer is by operation of law.

14.6 Hong Kong The Ordinary Shares have not been offered or sold and 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

58 Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance; and no advertisement, invitation or document relating to the Ordinary Shares, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Ordinary Shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance has been or will be issued, whether in Hong Kong or elsewhere.

14.7 Kuwait The Ordinary Shares have not been registered, authorised or approved for offering, marketing or sale in the State of Kuwait pursuant to Securities and Investment Funds Law of Kuwait No. 31/1990, as amended, and its executive by-law, and as such the Ordinary Shares shall not be offered or sold in the State of Kuwait. Interested investors from the State of Kuwait who approach the Selling Shareholder, the Company, or any of the Banks acknowledge this restriction and that this offering and any related materials shall be subject to all applicable foreign laws and rules; therefore, such investors must not disclose or distribute such materials to any other person.

14.8 Qatar This Prospectus has not been filed with, reviewed or approved by the Qatar Central Bank, any other relevant Qatar governmental body or securities exchange. This Prospectus is being issued to a limited number of sophisticated Investors and should not be provided to any person other than the original recipient. It is not for general circulation in the State of Qatar and should not be reproduced or used for any other purpose.

14.9 UAE (excluding the Dubai International Financial Centre) The Offer of Ordinary Shares has not been approved or licensed by the UAE Central Bank or any other relevant licensing authority in the United Arab Emirates, and does not constitute a public offer of securities in the United Arab Emirates in accordance with the Commercial Companies Law, Federal Law No. 8 of 1984 (as amended) or otherwise. Accordingly, the Ordinary Shares may not be offered to the public in the United Arab Emirates.

The Ordinary Shares may be offered, and this Prospectus may be issued, only to a limited number of investors in the United Arab Emirates who qualify as sophisticated investors under the relevant laws of the United Arab Emirates. Each of the Company and the Banks represents and warrants that the Ordinary Shares will not be offered, sold, transferred or delivered to the public in the United Arab Emirates.

Nothing contained in this Prospectus is intended to constitute investment, legal, tax, accounting or other professional advice. This Prospectus is for your information only and nothing in this Prospectus is intended to endorse or recommend a particular course of action. You should consult with an appropriate professional for specific advice rendered on the basis of your situation.

14.10 Dubai International Financial Centre This Prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority. This Prospectus is intended for distribution only to persons of a type specified in those rules. It must not be delivered to, or relied on by, any other person. The Dubai Financial Services Authority has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The Dubai Financial Services Authority has not approved this Prospectus nor taken steps to verify the information set out in it, and has no responsibility for it.

The Ordinary Shares to which this Prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the Ordinary Shares offered should conduct their own due diligence on the Ordinary Shares. If you do not understand the contents of this Prospectus you should consult an authorised financial adviser. The Ordinary Shares have not been and will not be offered, sold or publicly promoted or advertised in the Dubai International Financial Centre other than in compliance with laws applicable in the Dubai International Financial Centre, governing the issue, offering or the sale of securities.

59 14.11 Switzerland The Ordinary Shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This Prospectus has been prepared without regard to the disclosure standards for issuance of prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this Prospectus nor any other offering or marketing material relating to the Ordinary Shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.

Neither this Prospectus nor any other offering or marketing material relating to the Offer, the Company or the Ordinary Shares has been or will be filed with or approved by any Swiss regulatory authority. In particular, this Prospectus will not be filed with, and the offer of Ordinary Shares will not be supervised by, the Swiss Financial Market Supervisory Authority, and the offer of Ordinary Shares has not been and will not be authorised under the Swiss Federal Act on Collective Investment Schemes (“CISA”). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of Ordinary Shares.

14.12 United States of America The Offer is not a public offering (within the meaning of the US Securities Act) of securities in the United States. The Ordinary Shares have not been, and will not be, registered under the US Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States and may not be offered or sold in the United States except in transactions exempt from, or 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. Accordingly, the Joint Bookrunners may offer Ordinary Shares (i) in the United States only through their US registered broker-dealer affiliates to persons reasonably believed to be QIBs in reliance on Rule 144A or pursuant to another exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act; or (ii) outside the United States in offshore transactions in reliance on Regulation S.

In addition, until 40 days after the commencement of the Offer, any offer or sale of Ordinary Shares within the United States by any dealer (whether or not participating in the Offer) may violate the registration requirements of the US Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A or another available exemption from registration under the US Securities Act.

Each purchaser of Ordinary Shares within the United States, by accepting delivery of this Prospectus, will be deemed to have represented, agreed and acknowledged that it has received a copy of this Prospectus and such other information as it deems necessary to make an investment decision and that: (A) The purchaser is, and at the time of its purchase of any Offer Shares will be, a QIB within the meaning of Rule 144A. (B) The purchaser understands and acknowledges that the Offer Shares have not been, and will not be, registered under the US Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States, that sellers of the Offer Shares may be relying on the exemption from the registration requirements of Section 5 of the Securities Act provided by Rule 144A thereunder, and that the Offer Shares may not be offered or sold, directly or indirectly, in the United States, other than in accordance with paragraph D below. (C) The purchaser is purchasing the Offer Shares (i) for its own account, or (ii) for the account of one or more other QIBs for which it is acting as duly authorised fiduciary or agent with sole investment discretion with respect to each such account and with full authority to make the acknowledgements, representations and agreements herein with respect to each such account (in which case it hereby makes such acknowledgements, representations and agreements on behalf of such QIBs as well), in each case for investment and not with a view to any distribution of any such shares. (D) The purchaser understands and agrees that offers and sales of the Offer Shares are being made in the United States only to QIBs in transactions not involving a public offering or which are

60 exempt from the registration requirements of the Securities Act, and that if in the future it or any such other QIB for which it is acting, as described in paragraph C above, or any other fiduciary or agent representing such investor decides to offer, sell, deliver, hypothecate or otherwise transfer any Offer Shares, it or any such other QIB and any such fiduciary or agent will do so only (i) pursuant to an effective registration statement under the Securities Act, (ii) to a QIB in a transaction meeting the requirements of Rule 144A, (iii) outside the United States in an “offshore transaction” pursuant to Rule 903 or Rule 904 of Regulation S (and not in a pre-arranged transaction resulting in the resale of such Offer Shares into the United States) or (iv) in accordance with Rule 144 under the US Securities Act and, in each case, in accordance with any applicable securities laws of any state or territory of the United States and of any other jurisdiction. The purchaser understands that no representation can be made as to the availability of the exemption provided by Rule 144 under the US Securities Act for the resale of the Ordinary Shares. (E) The purchaser understands that for so long as the Offer Shares are “restricted securities” within the meaning of the US federal securities laws, no such shares may be deposited into any American depositary receipt facility established or maintained by a depositary bank, other than a restricted depositary receipt facility, and that such shares will not settle or trade through the facilities of DTCC or any other US clearing system. (F) The purchaser has received a copy of this Prospectus and has had access to such financial and other information concerning the Company as it deems necessary in connection with making its own investment decision to purchase shares. The purchaser acknowledges that none of the Company and the Underwriters or any of their respective representatives has made any representations to it with respect to the Company or the allocation, offering or sale of any shares other than as set forth in this Prospectus, which has been delivered to it and upon which it is solely relying in making its investment decision with respect to the Offer Shares. The purchaser also acknowledges that it has made its own assessment regarding the US federal tax consequences of an investment in the Offer Shares. The purchaser has held and will hold any offering materials, including this Prospectus, it receives directly or indirectly from the Company in confidence, and it understands that any such information received by it is solely for it and not to be redistributed or duplicated by it. (G) The purchaser understands that these representations and undertakings are required in connection with the securities laws of the United States and that the Company, the Underwriters and their affiliates will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements. The purchaser irrevocably authorises the Company and the Underwriters to produce this Prospectus to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered herein. (H) The purchaser undertakes promptly to notify the Company and the Underwriters if, at any time prior to the purchase of the Offer Shares, any of the foregoing ceases to be true. (I) The purchaser understands that the Ordinary Shares (to the extent they are in certificated form), unless otherwise determined by the Company in accordance with applicable laws, will bear a legend substantially to the following effect:

“THE ORDINARY SHARES REPRESENTED HEREBY HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) TO A PERSON THAT THE SELLER AND ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVE IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED

61 BY RULE 144 UNDER THE SECURITIES ACT FOR RESALES OF THE ORDINARY SHARES. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE FOREGOING, THE ORDINARY SHARES REPRESENTED HEREBY MAY NOT BE DEPOSITED INTO ANY UNRESTRICTED DEPOSITARY RECEIPT FACILITY IN RESPECT OF THE ORDINARY SHARES ESTABLISHED OR MAINTAINED BY A DEPOSITARY BANK. EACH HOLDER, BY ITS ACCEPTANCE OF ORDINARY SHARES, REPRESENTS THAT IT UNDERSTANDS AND AGREES TO THE FOREGOING RESTRICTIONS”.

The Company, the Underwriters and their affiliates and others will rely on the truth and accuracy of the foregoing acknowledgements, representations and agreements.

Each purchaser of Ordinary Shares and, in the case of paragraph (B) below, any person confirming an agreement to purchase Ordinary Shares on behalf of a purchaser or authorising the Joint Global Coordinators (on behalf of the Banks) to notify the purchaser’s name to the Registrar, by accepting delivery of this Prospectus, will be deemed to have represented, agreed and acknowledged that: (A) the purchaser is liable for any capital duty, stamp duty, stamp duty reserve tax and all other stamp, issue, securities, transfer, registration, documentary or other duties or taxes (including any interest, fines or penalties relating thereto) payable outside the United Kingdom by it or any other person on the acquisition by it of any Ordinary Shares or the agreement by it to acquire Ordinary Shares; and (B) the purchaser is not, and is not applying as nominee or agent for, a person which is, or may be, mentioned in any of sections 67, 70, 93 and 96 of the Finance Act 1986 (depositary receipts and clearance services).

62 PART VII — INFORMATION ON THE GROUP AND ITS INDUSTRY

Please note that the financial information in this section relates to the Brit Group. For further details on the differences in the financial information for the Brit Group and the Group, please refer to the note at the beginning of Part XIII (Operating and Financial Review) and section 1.2 of Part XIII (Operating and Financial Review).

1. Introduction The Group is a leading global specialty insurer and reinsurer, underwriting policies in the Lloyd’s market across a broad range of commercial insurance and reinsurance classes with a strong focus on Property, Casualty and Energy business.

Having streamlined its business in recent years, the Group’s underwriting is now focused on the Syndicate, which is one of the largest syndicates at Lloyd’s (based on total owned underwriting capacity). The Syndicate is “aligned” (i.e. its sole Lloyd’s member, Brit UW, and its managing agent, BSL, are both in the same corporate group) and benefits from the strong financial strength ratings assigned to Lloyd’s.

In 2013, the Brit Group generated GWP of £1,185.7 million (2012: £1,147.9 million; 2011: £1,179.9 million) and profit for the period from continuing operations of £103.1 million (2012: £93.0 million; 2011: £56.3 million).

The Group writes predominantly direct insurance in specialty lines. In 2013, direct insurance accounted for 76% of the Group’s GWP, with the remainder of the GWP composed of reinsurance. Within direct insurance, the Group writes more short tail than long tail business, with short tail business accounting for 66% of the Group’s direct insurance GWP in 2013. While focused on certain core areas, the Group nevertheless writes business across a diverse range of business lines, as demonstrated by the chart below: Reinsurance 24% Property− Treaty 12% Casualty 20% Casualty− Treaty 12% Terrorism, Political and Aerospace 2% A&H 6% Property 19% BGSU 6%

Specialist Liability 6% Marine 9% Energy 9%

Insurance 76%

Total GWP 2013: £1,185.7m

The Group’s business is also diversified geographically and over the past few years the Group has expanded internationally, in particular in the US. The following chart shows the Group’s geographic split of GWP by underlying risk for 2013:

Area 2013 GWP Worldwide 51% UK 8% Europe ex UK 5% US 36%

63 The Group has a significant investment portfolio (comprising financial investments and cash and cash equivalents) of £2.6 billion as at 31 December 2013) which has, despite the low interest rate environment, provided favourable returns (net of investment fees) in recent years (2013: 2.2%; 2012: 2.9%; 2011: 2.4%). This portfolio is managed predominantly by external asset managers under the direction of an experienced in-house team. The portfolio consists of income-generating assets across a range of sectors to balance risk and yield as well as an allocation to growth assets. The following chart shows the breakdown of the Group’s investment portfolio as of 31 December 2013: Alternatives Equity 5% Cash 6% 15%

Loan instruments Governments 13% 17%

Structured 13%

Corporates 31%

Total invested assets: £2.6bn

The Group’s underwriting and investment teams are supported by an efficient and flexible operating platform. The Board believes that this platform provides a stable foundation that will enable the Group to pursue its strategy of focusing on the continued growth of its underwriting business and its global distribution network.

The Group’s principal peers are the other large Lloyd’s syndicates, in particular, Beazley, Hiscox, Amlin and Catlin. The Group also competes in local markets, such as the US excess and surplus lines and the Bermuda reinsurance market. For more information on the Group’s competitors, please refer to section 7.4 of this Part VII (Information on the Group and its Industry).

2. Key Strengths The combination of a prudent and efficient capital structure, underwriting discipline, balanced investment strategy and a scalable operating platform has resulted in the Brit Group generating a pre- FX RoNTA of 24.5% in 2013 (17.2% including foreign exchange movements other than on non- monetary items) (2012: 18.5% and 16.8% respectively). In particular, the Board believes that the Group’s performance in recent years is rooted in the following key strengths:

2.1 Specialty insurance focus delivering underwriting profitability The Group’s underwriting platform focuses on writing business in areas where market conditions are attractive and where it can leverage its existing knowledge and underwriting expertise to maximise profitability. (A) The current portfolio focuses predominantly on direct insurance and, within that category, on Property, Energy and Casualty (which the Group considers its core business), areas which have historically provided high returns on capital for Lloyd’s underwriters and where market conditions are currently favourable. (B) While focused on its core expertise, the Group nevertheless writes business across a diverse range of business lines with a focus on underwriting profitability, with the underlying risk spread worldwide. This diversification allows the Group to write business in a variety of sectors across a broad geographic base and reduces the likelihood that the Group will be overly exposed to losses either in any one or closely correlated business line(s) or stemming from a particular region. (C) The Group acts as lead underwriter for approximately 50% of the business it writes. Since the lead underwriter is responsible for setting the price and agreeing the terms of the policy, the Group is better able to make effective use of its underwriting expertise.

64 (D) In 2013, the Group wrote 57% of its direct insurance business in the open market (by gross net premium), retaining full underwriting control. This approach shortens the distribution chain, makes direct use of the ability of the Group’s underwriters to select individual risks and the Board believes that this enables the Group to benefit from a more significant increase in rates following a large loss. (E) The Board believes that the Group is well placed to continue to attract top quality underwriters in both its core business areas and to add complementary business lines with attractive outlooks. This has already been evidenced in the core business with the recent strengthening of the team via senior hires in Energy, Reinsurance, Specialist Liability as well as the recruitment of specialists in new areas of Political and Credit Risks, Fine Art & Specie, Yachts and High Value Homeowners and UK Property. This demonstrates the ability of the Group to expand into new and attractive lines whilst continuing to focus on strengthening its core.

The Board believes that the combination of management’s continued focus on maximising underwriting profitability in the core book, the expected pipeline premium from new hires, the diversified nature of the business written and the focus on leading and open market business should underpin underwriting profitability for the Group.

2.2 Focused Lloyd’s business with substantial scale The Group’s business model of writing all its business through the Syndicate is a key factor that differentiates the Group from many of its peers. The Lloyd’s market structure offers a number of substantial advantages, listed below, on which the Group, as a significant player at Lloyd’s (with a fully- owned capacity of £1 billion in 2014), is well placed to capitalise. (A) Efficient platform: The Lloyd’s capital structure (including the Central Fund) affords all members, including the Group, the ability to write business whilst benefiting from favourable capital requirements compared to similarly rated non-Lloyd’s entities. As such, the Group is able to maintain equivalent capital surplus to non-Lloyd’s market participants whilst operating on a more efficient capital base and generating higher return on capital. (B) Financial backing and rating strength: Lloyd’s financial security and strong ratings enable the Lloyd’s market to attract diverse and specialist insurance business on a global basis. The financial strength of the Lloyd’s market is underpinned by the Central Fund, which at 30 June 2013 had assets of approximately £2.4 billion. Lloyd’s syndicates are able to underwrite with the benefit of the strong Lloyd’s financial rating: A (Excellent) from A.M. Best; A+ (Strong) from Fitch and A+ (Strong) from Standard & Poor’s (all three credit rating agencies are registered in the EU under Regulation (EC) No 1060/2009 (as amended); for more information, please refer to section 8 of Part V (Presentation of Information)). (C) Distribution capability: Lloyd’s has established global distribution access with direct or reinsurance licensing in over 200 territories and operational hubs in key international markets. This provides the Group with low cost access to new business opportunities in these markets (for example in China). (D) Brand strength: Lloyd’s has an established global brand and is a leading participant in global specialty insurance and reinsurance. (E) Funding flexibility: Lloyd’s affords greater flexibility in the means of funding capital requirements compared to standalone insurance companies. Lloyd’s efficiencies are therefore further enhanced by the ability of Lloyd’s members to use letters of credit or bank guarantees to support their underwriting capacity, which the Group uses prudently. (F) Infrastructure and service support: Lloyd’s provides members with various central processes, including the infrastructure supporting the subscription market, tax and regulatory reporting services. (G) Barriers to entry: Lloyd’s, through its membership-based participation model, has higher barriers to entry than the broader non-life property and casualty insurance market. Memberships are approved by the Lloyd’s Council and applicants are required to satisfy a range of admission criteria before such membership is granted.

65 These advantages, combined with the Group’s own underwriting strategy, have enabled the Brit Group to generate an attractive pre-FX RoNTA of 24.5% in 2013 and 18.5% in 2012 whilst maintaining capital strength and flexibility.

2.3 Differentiated global distribution reach focused on attractive lines In addition to accessing the significant distribution capability of the Lloyd’s market, the Group has developed, and continues to grow, its own global distribution network, focusing on an efficient service company model in the United States and Bermuda. This enables the Group to access additional business that may not otherwise be accessed in London. In 2013, 94% of the Group’s third party underwriting business originated in London and 6% from its overseas distribution network.

The Group’s distribution network predominantly comprises wholly-owned overseas service companies, which employ underwriters who have the authority to write business and handle claims on behalf of the Syndicate (i.e. the companies act as managing general agents). As the underwriting is being effected through the Syndicate, there is no requirement for the service companies to hold regulatory capital. Accordingly, this “service company” model is an efficient way of broadening the distribution capability of the Group.

The main focus of the Group’s international distribution strategy to date has been the United States, where the Group’s first local underwriting office was opened in Chicago in 2009. The business now trades as Brit Global Specialty USA, or BGSU, which in 2013 wrote 6% of the Group’s GWP. In 2012, the size of the excess and surplus lines market in the United States was estimated by A.M. Best to be approximately $35 billion. In 2013, the Lloyd’s market wrote business amounting to 18% of the US excess and surplus lines market. Through BGSU, the Group has direct access to the much wider part of that market (82%) which would not otherwise have been accessible in London.

BGSU is expanding, having recently acquired the renewal rights of the excess and surplus property business, Maiden Specialty, from Maiden Holdings Ltd, and hired new teams to join its public entity business line and to write new business focusing on the criminal justice sector.

Following the growth of the BGSU platform (from GWP of £35 million in 2011 to £67 million in 2013) and the experience gained through expanding the platform, the Group has recently developed a similar distribution platform in Bermuda writing Casualty and Property Treaty business, and has also commenced writing business on the Lloyd’s China Platform. Going forward, management intends to continue to focus on retaining what the Board believes is an efficient and flexible business model in relation to the expansion of its distribution reach.

2.4 Underwriting teams delivering strong underwriting track record The executive and underwriting management teams have a track record of delivering underwriting profit and growth, underpinned by effective portfolio management. That track record can be seen in the improvement in the Brit Group’s attritional loss ratio (as defined in Part XVII (Definitions), as demonstrated by the table below:

Attritional loss ratio (12.9)% point reduction

64.2% 58.1% 56.4% 51.9% 51.3%

2009 2010 2011 2012 2013

66 The teams and, in particular, Matthew Wilson, the Chief Underwriting Officer, have been focused on improving the performance of the underwriting portfolio over the past five years with the following results:

(A) Profit: the Group has a track record of profitability in its core business lines of Property, Casualty and Energy. In 2013, these classes together comprised 47.9% of GWP and delivered attritional loss ratios of 41.2%, 48.3% and 56.6%, respectively.

(B) Growth: the Group’s strategy has been to target growth in both existing lines of business where the Group already has a track record of profitability and underwriting expertise, as well as adding new lines to the portfolio. In line with this strategy, the Group has grown as follows:

• Since 2010, the Group has grown in existing lines of Property Open Market, Energy Upstream and US excess and surplus lines. These areas have together grown at a compound annual growth rate of 34% (based on GWP) from 2010 to 2013 and, in 2013, represented 21% of total GWP. These lines have also grown profitably with attritional loss ratios improving in each line over the same period. In Property Open Market, GWP increased from £46 million in 2010 to £91 million in 2013. In Energy Upstream, GWP increased from £35 million in 2010 to £91 million in 2013 and GWP for US Specialty lines (BGSU) increased from £22 million to £67 million in the same period.

• In 2013, the Group added several complementary product lines including Fine Art & Specie, Political and Credit Risks and High Value Homeowners, launched additional distribution capability in Bermuda and China and recruited a new UK Property team. The US Specialty offering was further strengthened through the purchase of the renewal rights of Maiden Specialty. In aggregate, the Board believes that these new initiatives have the potential to generate approximately £150 million of GWP in the medium term for the Group.

2.5 Well managed investment portfolio with strong contributions to Group returns

The Board believes that the Group’s balanced and well controlled approach to investment is a core strength of the Group.

The Group targets a balance of core income-generating investments with higher income assets and total return mandates across a range of sectors to balance risk and yield and to diversify away from pure fixed income investments. The Group seeks to achieve this mix whilst remaining broadly matched to currency exposure and with sufficient liquidity even in extreme stress scenarios. The Group’s investments are overseen by an experienced internal team and managed predominantly by external asset managers acting within a well-defined risk framework and control environment that contains investment guidelines determined by asset class. The Board believes that this structure allows the Group to react quickly to market conditions.

The combination of the Group’s specialty lines insurance focus and its utilisation of the efficient Lloyd’s platform gives the Group significant investable assets relative to its net tangible assets, with such investable assets approximately four times the Group’s net tangible assets as at 31 December 2013. In turn this supports higher RoNTA from investment returns.

The investment portfolio has achieved net investment returns (net of investment fees) of 2.4% in 2011, 2.9% in 2012 and 2.2% in 2013 despite the current low yield environment. The Board believes that the current portfolio is well positioned for interest rate rises given the portfolio duration of two years as at 31 December 2013 as compared with the 3.3 year target for solvency matching.

2.6 Efficient and scalable operating platform

The Group operates from an efficient platform positioned to support growth of the business at low marginal cost. The Group continues to invest in improving the efficiency of the platform across all areas, predominantly operations and IT, and has outsourced a significant portion of its operational infrastructure to a third party provider. In 2014, the Group completed a major upgrade of its core underwriting software platform.

67 The Board believes that the outsourcing model positions the Group well to support any growth in the business at a relatively low marginal cost. Where the underwriting business of the Group grows, rather than having to invest in additional operational infrastructure, the Group can increase the level of services offered by the third party provider. This can generally be accomplished in a shorter time period and at a lower cost, when compared with the development of the Group’s own internal operational systems and processes. The Board therefore believes the Group’s platform provides it with flexibility and scalability to take advantage of growth opportunities that may emerge in the future.

2.7 Robust risk framework, effective catastrophe exposure management and conservative reserving approach The Board believes that the Group has robust controls in relation to the risks it faces across its business, clearly set out in a comprehensive risk management framework. Risk management is delivered within a well defined governance structure with clear reporting lines, overseen by the Board and a dedicated Chief Risk Officer.

In relation to its underwriting business, the Group’s Underwriting Guidelines contain strict controls and policies governing the size and type of risk to which underwriters can expose the Group. The Group’s catastrophe exposure is well defined and managed and the Group has remained profitable even in periods of significant market losses such as in 2011 and 2012. For example, catastrophe losses represented 11% of the Brit Group’s NEP (including discontinued premium) in 2011 (versus a peer average of 18%) and the Brit Group’s losses resulting from Hurricane Sandy represented 5% of 2012 NEP (including discontinued premium) (versus a peer average of 6%). The Group has a conservative approach to catastrophe risk, which is reflected in its lower focus on Property Treaty business in its inwards reinsurance book and, the Board believes, efficient utilisation of reinsurance to protect the portfolio.

The Board believes that the Group’s reserving process, overseen by the Chief Actuary, who reports directly to the CEO, is prudent and well established. The Group’s reserving policy is to reserve to a “conservative best estimate” and carry an explicit risk margin above the best estimate. Annual independent reviews have demonstrated that the Group’s internal best estimate contains a surplus over the independent estimate. Over time, the Group’s conservative approach to reserving has resulted in a track record of reserve releases across a broad range of lines of business.

2.8 Strong capital position and proactive approach to capital management As a result of the Group’s Lloyd’s focus, the Group benefits from lower entity capital requirements compared to non-Lloyd’s businesses, as agreed with the relevant regulatory body.

The strength of the Brit Group’s capital base is demonstrated by the significant surplus capital, amounting to £263 million over management entity capital requirements as at 31 December 2013 (equivalent to a solvency ratio of 141%), which the Group holds to provide a buffer in the event of results volatility and in order to pursue opportunities without requiring a capital injection. In addition the Group has access to £100 million undrawn funds under the Revolving Credit Facility (this excludes £125 million available as letters of credit), which provide additional liquidity. The Group has also implemented a solvency matching strategy on currency risk and interest rate risk that has the objective of protecting this solvency ratio against foreign currency and interest rate movements. While this can be expected to result in fluctuations in earnings (due to the impact of foreign currency and interest rate movements on the income statement), it protects against the risk of additional capital being required solely as a result of fluctuations in currency and interest rates. For further details of the Group’s solvency matching strategy, please refer to 7.1 in Part XIII (Operating and Financial Review).

The Group maintains a capital policy of holding a solvency ratio of 120-140% of management entity capital requirements and is currently at the higher end of this range. In the event of further surplus capital being created and in the absence of attractive profitable growth opportunities, the Board expects surplus over the target range, if any, to be returned to Shareholders. The Board believes that the cross-cycle earnings power of the business coupled with the strong capital buffer and efficient capital management provide a strong base from which to support an attractive dividend and distribution policy, further information on which is set out in section 14 of this Part VII (Information on the Group and its Industry).

68 2.9 Track-record of stable value creation The Brit Group has been highly cash generative in recent years and has distributed dividends even in years with high catastrophe losses. The Brit Group paid dividends of £100 million in 2013, £100 million in 2012 (excluding £270 million of special dividends relating to the disposal of its non-core regional UK business), and £72 million in 2011. The Board believes that the Group is well positioned to create value for shareholders due to the following factors: (A) Disciplined underwriting across a diversified portfolio: the Board believes that the business mix of both insurance and reinsurance, long and short tail business and the wide geographical reach of the risks underwritten affords the Group a base from which stable cash returns can be generated across business cycles. The Group also has a conservative approach to line size across the business. (B) Effective management of catastrophe risk: the Group has a conservative approach to catastrophe risk due to lower focus on Property Treaty business on the inwards book and efficient utilisation of reinsurance on the outwards book. This has been evidenced in recent years where the Group has remained cash generative even in years of significant industry catastrophe losses (e.g. 2011 and 2012). (C) Income focused investments: the Group’s investments are focused on income generating securities with a lower allocation to assets targeting capital returns (e.g. equities and property) with the expectation of a higher proportion of investment return to come from income generating securities. In addition, the Group positions its investments at a shorter duration than liabilities and invests a proportion in floating rate securities to reduce the risk of capital losses in a rising interest rate environment. (D) Well managed expense base: the Group’s expense base (for more information please refer to section 2.6 of this Part VII (Information on the Group and its Industry)) has been reduced to what the Board believes is an appropriate size for the Group’s streamlined business, and the Group utilises significant outsourcing across a number of functions which affords management more flexibility in managing expenses in the business.

2.10 Well positioned to capitalise on future growth opportunities The Board believes that the Group is well positioned to capitalise on attractive opportunities for selective future growth. Future premium growth is expected to arise from continued development of the Group’s position within the London market, together with careful expansion of its distribution network in the United States, Asia and Bermuda.

In relation to the core London market underwriting activity, the Board believes that the Group will continue to attract new individuals and teams who will be able to write profitable niche specialty business that is complementary to its existing well established Property and Casualty lines.

The Group’s use of wholly owned service companies in its international distribution strategy makes expansion into new territories efficient, offering a relatively low cost and capital flexible structure from which to generate increased underwriting business. The Board believes that the Group’s experience with this model in the United States and, more recently, Bermuda, will assist it in exploiting future opportunities in those territories or elsewhere.

The Group’s operating platform is well placed to complement any future growth, being both flexible and scalable. The Board therefore believes that any future growth would be adequately supported by the existing operating platform.

3. Strategy The Group intends to maximise RoNTA by focusing on key fundamentals of the specialty insurance business, namely underwriting, investments, operational efficiency and capital management. The Group seeks to pro-actively manage all of these elements in order to deliver value for shareholders. The key strategic objectives for the Group are: • Deliver “best in class” underwriting returns, by maximising profitability in the core books of Property, Energy and Casualty whilst reacting swiftly to market conditions to re-position or

69 re-underwrite where required in its diversifying classes. The Group targets a combined ratio in the low 90% range in a year with normal natural catastrophe experience and an attritional loss ratio in the low 50% range in current market conditions. • Capitalise on profitable growth opportunities, by expanding its core Lloyd’s operation and continuing to build its profitable US Specialty platform, whilst also looking at opportunities to expand the efficient service company model distribution capability globally. For more on the Group’s underwriting strategy, please refer to section 7.1 of this Part VII (Information on the Group and its Industry). • Pro-active management of the investment portfolio, to maintain an appropriate balance between risk and return and to generate attractive and consistent risk adjusted returns. The Group’s current running yield is 2.2% (excluding any capital returns). • Continued focus on operating efficiency to maintain a flexible and scalable operational that is fully capable of supporting the expected growth of the business. The Group targets an operating expense ratio of 11-12% of net earned premiums. • Focus on control framework. The Group continues to use rigorous analytics across all areas of the business to identify opportunities to improve efficiency and profitability. The Group has robust controls across the business, clearly set out in a comprehensive risk management framework. • Maintain strong capital position with proactive capital management in order to maximise the Group’s RoNTA. The Group maintains a conservative capital position and targets capital resources in a range of 120-140% of management entity capital requirements through the cycle. • Sustainable regular dividend, supplemented by special dividends, as capital position, returns and reserves permit. The Board currently expects to declare a base interim dividend of £25 million for 2014, representing one-third of the expected annual dividend. The Group would expect to pay the remainder of the annual dividend in early 2015. The Group intends to pay a sustainable regular dividend supplemented by special dividends when excess capital cannot be attractively deployed. For more details on the Group’s dividend policy, please refer to section 14 of this Part VII (Information on the Group and its Industry).

For more details of the Group’s key performance indicators and targets, please refer to section 1.4 of Part XIII (Operating and Financial Review).

4. History of the Group The Group can trace its origins back to 1995 with the establishment of The Benfield and Rea Investment Trust PLC, an investment trust with the principal focus of investing in Lloyd’s investment vehicles and unquoted insurance investments. With the acquisition in 1999 of Wren PLC, an emerging Integrated Lloyd’s Vehicle (as defined in Part XVIII (Definitions), and Brit Insurance Limited, a UK insurance and reinsurance company, the Group transformed itself into an insurance and reinsurance carrier, writing business both on the Lloyd’s platform and elsewhere.

In 2009, Brit Insurance Holdings N.V., a company incorporated in the Netherlands, was put in place as a new holding company. In March 2011, the Group was acquired by Achilles Netherlands Holdings N.V. and was subsequently de-listed from the London Stock Exchange.

5. Recent Key Transformation Initiatives Since 2011, the Group has undergone a significant transformation, streamlining its business model under new management and new ownership. The following are five key themes of this transformation:

5.1 Focus on Lloyd’s and disposal of non-core businesses During 2012, the Group renewed all of its underwritten premium relating to continuing specialty insurance and reinsurance business not previously written through Lloyd’s (amounting to approximately £185 million of GWP) into the Syndicate. The Group also concluded the sale of its non- core regional UK business, achieved through the sale of the renewal rights, operations and assets of

70 that business to QBE and the sale of Brit Insurance Limited, a company incorporating the historical liabilities of that business, to RiverStone Group (a member of the Fairfax group). The Group now writes all of its third party business through the Syndicate at Lloyd’s, allowing the Group to gain from the significant benefits associated with operating on the Lloyd’s platform (please refer to section 2.2 of this Part VII (Information on the Group and its Industry) for more information on the benefits associated with Lloyd’s).

5.2 Focus on underwriting attractive business lines In January 2012, the Group merged its “Global Markets” and “Reinsurance” strategic business units to create its single specialty underwriting franchise, Brit Global Specialty, with the objective of improving portfolio and capital management and presenting a clearer brand in the market.

Within its direct insurance portfolio, the Group has focused on writing a greater proportion of short tail business. The Group’s short tail business lines have increased from 55% of the Group’s direct insurance business GWP in 2008 to 66% in 2013, and the Group targets GWP from short tail business of 70%.

In addition, the Group has increased the level of open market business and has acted as lead underwriter on a greater proportion of its policies. The Group’s open market business has increased from 47% of the Group’s direct insurance business GNP in 2008 to 57% in 2013, and the Group targets GWP from open market business of 60%.

These initiatives have contributed to a marked improvement in profitability of the Group’s underwriting business, with an improvement in attritional loss ratio of 12.9 percentage points from 2009 to 2013 (from 64.2% to 51.3%). The Group delivered a combined ratio of 85.2% in 2013 (compared to 99.6% in 2011).

The Group has also focused on the growth of core business lines, such as London’s profitable Property, Energy and Casualty accounts (please refer to section 7.1 of this Part VII (Information on the Group and its Industry) for more information). In addition, the Group has focused on business lines and areas where its underwriters had prior existing knowledge and expertise but where previously it had been underweight. Underwriting teams have been strengthened through external recruitment, for example, with the appointment of underwriting specialists in Energy, Political and Credit Risks, Fine Art & Specie, Yachts, UK Property and International Property.

5.3 Improvement in investment capability, performance and controls The Group has invested significantly in its investment capability, in particular with the recruitment in 2012 of a Chief Investment Officer and a review of all external investment managers to target best in class capabilities, as well as improved infrastructure in investment management, accounting and risk.

Under the investment team, the Group has developed a balanced portfolio across a broad range of predominantly income-generating assets which have generated attractive risk-adjusted returns. In 2013, the Group recorded a strong net investment return of 2.2% (2012: 2.9%).

The Group has enhanced the risk management and controls in relation to its investments, establishing a clear risk framework and control environment with regular internal reporting and compliance monitoring.

5.4 Expense efficiency and operational scalability The Group has focused on expense efficiency and has reduced the expense base (and hence operating expenses) to be consistent with the Group’s streamlined business. The savings have been achieved principally through the disposals of non-core business, the reorganisation of support functions, a focus on removing unnecessary discretionary cost and the outsourcing of IT and business processing activity. The Group’s operating expense ratio decreased from 13.0% for 2010, to 12.2% for 2011, to 11.1% for 2012. In 2013, the Group achieved an expense ratio of 11.8%, of which 0.3% was attributed to investment in new business opportunities.

71 As well as reducing operating expenses, the Group has focused significantly on improving the efficiency of its operating platform, outsourcing a significant portion of its cost base and appointing a new Chief Operating Officer.

5.5 Strong capital management and dividends

The focusing of the business on the Lloyd’s platform has provided the Group with an efficient capital structure, with simplified entity capital requirements. That capital structure has been strengthened through diligent capital management, with the maintenance of a conservative capital buffer over entity management capital requirements equivalent to a solvency ratio of 141%. In addition, the Group has access to £100 million undrawn funds under the Revolving Credit Facility (this excludes £125 million available as letters of credit), which provide additional liquidity.

The Board believes that the Group’s cash generation has been strong, arising from the Group’s strong underwriting performance, income focused investments, effective management of catastrophe risk and its well managed operating platform. Over the past three years significant distributions have been made to shareholders. Since January 2011, the Group has distributed over £542 million (of which £270 million related directly to the disposal of the UK business and BIL in 2012) to its shareholders. Overall, the value creation in the business (increase in net tangible assets plus capital distributions and dividends) has been £302 million since 2010.

6. Group structure

6.1 Functions within the Group

Lloyd’s brokers etc. Third party reinsurers

Outwards reinsurance

BRIT GROUP Lloyd’s Underwriting, UK

Managing Agent Sole Member

Brit Syndicates Ltd Brit UW Ltd

Syndicate 2987

Gibraltar

Intra-group reinsurance Overseas Local Brit Insurance distribution centres brokers etc. (Gibraltar) PCC Ltd (i.e. US, Bermuda)

Requirement to hold regulatory capital

Wholly owned subsidiary of the Group

Flow of business (thickness of line indicates volume)

Figure 1

N.B. The above structure chart illustrates the flow of business and the key operating companies within the Group.

The Group’s third party underwriting takes place through the Syndicate (with the exception of the reinsurance agreement entered into directly between BIG and BIL, for more details of which please refer to section 21.1(B) of Part XVI (Additional Information)). While underlying risk and policyholders may be situated anywhere in the world, 94% of the GWP of the Group in 2013 was sourced in London.

72 The other business written by the Syndicate is sourced through a wholly-owned service company in the United States, which business accounted for 6% of the Group’s annual GWP in 2013. The Group has also recently started writing business through the Lloyd’s China Platform and from its office in Bermuda (which opened in September 2013).

In 2013, 19.3% of the Group’s GWP was reinsured to third parties and internally to BIG, the Group’s captive reinsurer. For an overview of the Group’s outwards reinsurance programme, please refer to section 8.7 of this Part VII (Information on the Group and its Industry). The Group is only required to hold regulatory capital in the United Kingdom and in Gibraltar. For more information on the regulatory regime to which the Group is subject, please refer to Part X (Regulatory Overview).

6.2 Locations The Group has underwriting or coverholder operations in the United Kingdom, the United States, Gibraltar and Bermuda. In addition, the Group participates on the Lloyd’s China Platform and has a representative office in Japan.

London The Group’s largest office is located in London, close to the Lloyd’s market. Ninety four per cent of GWP of the Group in 2013 was sourced in London, making it of fundamental importance to the Group’s business. The combination of the overwhelming majority of the Group’s business and its key staff in London allows the Group to benefit from significant operational efficiencies.

The physical concentration of the Lloyd’s market, with many of the major underwriters and brokers within the City of London, means that the majority of insurance business is typically transacted in person. The location of the Group’s key teams underwriting business in the Lloyd’s building is therefore of vital importance. The proximity to all the major insurance participants allows underwriters to develop strong relationships with brokers and to maximise access to new underwriting opportunities. Moreover, a central location in London allows the Group to attract key underwriting expertise, particularly in specialty risks, and specialised service providers such as actuaries, claims adjusters and consultants.

Central control of BSL’s underwriting takes place close to the Lloyd’s market itself. The Board believes that the proximity of management to the underwriters and business opportunities within Lloyd’s provides an ideal structure for quick decision-making and effective governance.

United States Six per cent of the Group’s GWP in 2013 was written by the Group’s underwriters in the United States, who underwrite on behalf of the Syndicate.

The Group operates in the United States through BGSU, which has 51 employees across nine offices in Chicago (Illinois), Atlanta (Georgia), Greensboro (North Carolina), Houston and Richardson (Texas), Napa (California), New York (New York), Richmond (Virginia) and Scottsdale (Arizona). BGSU operates on a service company model (i.e. as a wholly-owned coverholder). BGSU employs the underwriters and administers policies and claims locally with its authority in terms of underwriting and claims being delegated by BSL via a binding authority agreement. This structure enables the Group to underwrite locally in an efficient manner. For an overview of the business written by BGSU, please refer to section 7 of this Part VII (Information on the Group and its Industry).

Bermuda The Group established a distribution channel in Bermuda in September 2013, which focuses on writing reinsurance business. As with BGSU, this business operates on a service company model. BGSB has commenced underwriting both Casualty Treaty and Property Treaty business from 1 January 2014. For more details on the Group’s Bermuda operations, please refer to section 7 of this Part VII (Information on the Group and its Industry).

73 China The Group joined the Lloyd’s China Platform in March 2013 and is now able to access insurance business in China, via Lloyd’s Insurance Company (China) Limited, through its local representative. The Group’s income in respect of the Lloyd’s China platform is currently modest (less than £1 million in 2013).

Other (Gibraltar and Japan) The Group’s captive reinsurer BIG operates in Gibraltar and Bermuda. For more information on BIG, please refer to section 8.7 of this Part VII (Information on the Group and its Industry). The Group also has a representative office in Tokyo, Japan, which focuses on servicing Japanese reinsurance clients with the business being underwritten by the Group’s underwriters in London.

7. Business Overview 7.1 Underwriting Strategy The key elements of the Group’s underwriting strategy are: (i) focus on delivering leading profitability through a balanced, diverse portfolio that is regularly reviewed to optimise opportunities presented by the underwriting cycle; (ii) achieve best-in-class portfolio performance through retention of talented underwriting professionals; (iii) cement strong existing relationships with brokers and clients through leadership in core areas; and (iv) capture growth in core segments with the use of overseas offices to access additional business.

The key outcomes of the Group’s underwriting strategy over the past five years have been: (i) a rebalanced underwriting portfolio focused around long term profitability; (ii) an underwriting portfolio focused on short tail direct insurance in highly profitable specialty lines; and (iii) the Group being well positioned to capture new business opportunities in lines with attractive rate outlook and strong profitability.

(i) Rebalanced underwriting portfolio focused around long-term profitability The key elements of rebalancing the portfolio have been: • increasing the focus on short tail business in direct insurance, particularly through growth in Property and Energy (see paragraph (ii) below); • increasing the level of open market business in direct insurance; • adding products with strong market profitability which the Group had not previously written, and re-underwriting or exiting underperforming classes; and • rebalancing the reinsurance portfolio.

The direct insurance portfolio was considered to be overweight on binding authorities and correspondingly underweight in open market business. In general, open market business generates higher margins and in particular has historically shown greater upside post catastrophe events when compared to binder business. Additionally open market business makes greater use of the ability of the Group’s underwriters to select individual risks and shortens the distribution chain, reducing expense and increasing client retention. The Group has increased its proportion of open market business as a part of the Group’s direct insurance book from 47% of GNP in 2008 to 57% in 2013.

In respect of in-force business the Group identified several aspects of the underwriting book that were underperforming and in recent years these areas have been either re-underwritten or exited. For example, the Cargo account, whilst profitable, was under-performing relative to its Lloyd’s peers. The Group decided not to renew a large number of binding authorities that were driving this underperformance and to replace the business with open market business. To effect this shift, changes were made to the underwriting personnel with two new open market Cargo underwriters recruited. The improvement in the re-underwritten accounts has been a key element in the improving trends seen in the attritional loss ratio.

74 The Group’s reinsurance portfolio has been rebalanced with a view to optimising the Group’s exposure to short tail reinsurance and reducing the Group’s attritional loss ratio. The Group’s short tail reinsurance attrition has improved markedly: the twenty month ILR reduced from approximately 40% in 2008 to 13% in 2012. The Group has continued to seek growth opportunities in profitable lines within the Casualty Treaty account.

(ii) Underwriting portfolio focused on short tail direct insurance in highly profitable specialty lines Historically the Group’s direct insurance portfolio was overweight in long tail business and correspondingly underweight in short tail business. This was contrary to the principle of a balanced portfolio and was not supported by market conditions, with rating strength being generally more favourable in the more short tail lines (as long tail business rating was not reflecting the impact of economic conditions and low interest rates). Therefore the Group has been realigning its direct insurance business to grow short tail insurance business.

This has resulted in the contribution of short tail business as a proportion of the Group’s direct insurance GWP increasing from 55% in 2008 to 66% in 2013. The Group targets a 70% GWP contribution from short tail business to the direct insurance book. Since short tail business does not require as much capital as long tail business, the move to a greater proportion of short tail direct insurance is expected to increase the capital flexibility of the business. Such realignment is also expected to reduce reserve volatility.

(iii) Well positioned to capture new business opportunities in lines with attractive rate outlook and strong profitability Hiring new underwriting teams in attractive niche segments The Group has invested heavily in its underwriting personnel to create a market leading team. Significant change has been made to the Group’s underwriting personnel as well as investment in training existing teams to ensure that the underwriting skills of the Group match its target business. The Board believes that these initiatives have created a team with both strong business leaders and significant bench strength to provide a platform for further business development.

The Group has successfully implemented initiatives in 2013 in targeted niche lines. For example, the Group has hired an experienced underwriter in the High Value Homeowners class, two high profile underwriters in the Political Risks class and a high profile underwriter in Fine Art & Specie. The Group has also recently hired a UK Property team and appointed a head of the new Bermuda office.

Pursuing growth in core strategic business lines where the Group has strong existing expertise The underwriting strategy has driven growth in the key strategic areas of Property and Energy, leveraging the Group’s existing knowledge and underwriting expertise. In open market Property in North America, the Group’s GWP has grown from £29 million in 2010 to £60 million in 2013, with the attritional ratio reducing from 57% to 37% in the same period. In Open Market Property International, the Group’s GWP has grown from £17 million in 2010 to £31 million in 2013, with the attritional loss ratio reducing from 113% in 2010 to 45% in 2013. The GWP growth has been achieved by growing the volume of risks written without materially altering the average line size. The Group’s GWP for Energy Upstream has grown from £35 million in 2010 to £91 million in 2013, with a consistent attritional loss ratio of approximately 48% in the same period.

Low-cost and capital efficient use of overseas offices to access new business outside the London Market To support growth and provide enhanced service and access to underwriters the Group has underwriting offices for business in the United States and Bermuda. The Group also has a representative office in Japan and operates on the Lloyd’s China Platform (where it reinsures risk written by the local subsidiary of Lloyd’s). The Group has taken a controlled approach to overseas expansion, seeking to ensure that appropriate controls and governance are in place as well as taking a conservative view on the risks associated with a rapidly growing overseas business.

75 The establishment of a presence in the United States in 2009 as the Group’s first overseas office was due to the United States being the world’s largest insurance market and the one with which the business was already most familiar. The Group’s network of nine offices offers certain key products where the Board believes that the Group has a competitive advantage, such as in the public and non- profit sector.

BGSU has grown as set out in the chart below, driven by a combination of organic growth and the addition of new product lines. Organic growth in the existing self insured retention product line has been strong and has been enhanced by the recruitment of the production team previously with wholesale broker Protected Self Insurance Program Managers (PSI). The added product lines were: a public non-profit package on a first dollar basis following the hiring of a team from HCC Insurance Holdings; a package for criminal justice service organisations offering Property and Liability cover; and Property Direct through the acquisition of the renewal rights and underwriting staff of Maiden Specialty from Maiden Holdings Ltd.

67.0 45% CAGR 7.7 4.5

45.7 13.4 6.4 35.0 1.5 4.2 5.4 21.8 41.5 29.6 33.5 21.8

2010 2011 2012 2013

Public and Non-Profit Self Insured Retention Public and Non-Profit First Dollar Property Direct Property Facultative R/I

The launch of Brit Global Specialty Bermuda, or BGSB, in 2013 reflected recognition by the Group that a presence in Bermuda would expand the Group’s reinsurance platform in an area that has become increasingly competitive over the last few years. Following the recruitment of two experienced underwriters, BGSB offers complementary capacity to the Group’s offering in London in respect of treaty reinsurance business.

The structure that Lloyd’s has created in China allowed the Group to obtain a presence in China with minimal cost in terms of infrastructure and support whilst providing a platform for accessing this fast growing market. The Lloyd’s China Platform is capitalised by Lloyd’s and provides office space and administrative functions. Business from the entire Asian region can be sourced from this platform.

The Tokyo office was set up to increase service to the Group’s reinsurance clients. Japan is an important reinsurance market for Lloyd’s and the Group sought to manage better its relationships through local representation.

76 7.2 Business Categories (A) Lines of Business The Syndicate underwrites business in a wide variety of business lines. The business lines can be broken down into four principal categories: (i) short tail direct insurance; (ii) long tail direct insurance; (iii) short tail reinsurance; and (iv) long tail reinsurance. The GWP for these business lines from 2011 to 2013 is shown below.

GWP (£m) Category Principal Lines of Business 2011 2012 2013 Short tail direct insurance Property, Marine, Energy, Accident & Health, US Specialty, and Terrorism, Political and Aerospace 525 549 599 Long tail direct insurance Casualty and Specialist Liability 299 303 304 Short tail Reinsurance Property Treaty 182 153 137 Long tail Reinsurance Casualty Treaty 142 142 141 Other Other underwriting and other corporate(1) 32 1 5 1,180 1,148 1,186

(1) For a description of “Other underwriting” and “Other corporate”, please refer to section 1.3 of Part XIII (Operating and Financial Review).

(i) Short tail direct insurance Short tail insurance generally refers to lines of business where the claims are typically settled within a short time of the claim being made; therefore, they are typically classes where a large element of the claims is property damage. In 2013, short tail insurance accounted for 66% (2012: 64%) of the Group’s direct insurance GWP (which constitutes 76% of the Group’s total GWP), having increased from 55% in 2008. The Group’s short tail business consists of seven principal lines of business:

2011 GWP 2012 GWP 2013 GWP Division Description (£m) (£m) (£m) Property Property coverage including business interruption on a worldwide basis and delegated underwriting business predominantly in North America. 165 170 228 Marine Coverage for Cargo (including Specie & Fine Art), Hull (including Yacht) and Marine Liability. 147 125 109 Energy Coverage for upstream (offshore) and midstream activities related to oil and gas production. 87 112 106 US Specialty5 Public and Non-Profit Package on both a self- insured retention (SIR) and first dollar basis; Property and Liability Package business for US criminal justice service operations; Property Direct and Facultative Reinsurance. 35 46 67 Accident & Coverage for Personal Accident (including Kidnap Health and Ransom), Bloodstock and Contingency. 59 63 66 Terrorism, Coverage for Terrorism (including Aviation War), Political and Political and Credit Risks, and Satellites at both Aerospace launch and in-orbit. 32 34 23

Property Property is the largest business line of the Group’s short tail direct business by GWP, having generated GWP of £228 million in 2013 (representing 19.2% of the Group’s total GWP in 2013) up from £170 million in 2012. This growth has been driven by increased open market business, which has been achieved without increasing the average line size. The Property Facilities team are recognised market leaders and there is an opportunity for future growth following the hiring of an experienced UK Property team in 2014.

77 The business line can broadly be split between Property Open Market, underwritten in London in respect of properties worldwide, and Property Facilities, which is the Group’s predominantly North American binding authority business written through carefully selected coverholders.

Class Description Open Market Split between North American and international, this provides cover for physical loss, damage and business interruption on a variety of policy forms. Sectors include Agriculture, Commercial Real Estate, Education, Healthcare, Industrial, Municipal Property and Utilities. Facilities Providing coverage predominantly in North America for Commercial and Residential, Property, Commercial General Liability, Motor Truck Cargo Physical Damage and Contractor’s Plant and Equipment.

Marine The Marine business line is managed by an experienced underwriting team. It accounted for the second highest amount of GWP in 2013, of £109 million (2012: £125 million). The Group has re- engineered the Marine Hull and Cargo classes with improved performance at the expense of decreased GWP. The decrease in GWP is against a backdrop of deteriorating Lloyd’s market performance. The Marine business line benefits from low marginal capital requirements.

The Board believes that the Marine business line is well-positioned in key niche areas: (i) the Hull underwriter was recently placed in the top ten most influential people in the Marine market by Lloyd’s List, a key industry publication; (ii) the Syndicate leads 75% of Yachts business, driving GWP growth; and (iii) new teams have been hired in Fine Art & Specie and Open Market Cargo.

Class Description Cargo Cover for cargo in transit and in storage as well as “project cargo” for construction projects. This class also contains the new product lines of Fine Art & Specie which provides cover for physical damage to fine art, specie and similar types of moveable property when not in transit. This class has been repositioned from 79% binders in 2009 to 33% in 2013, offset by increasing Open Market business. Marine Hull & War Cover for the construction, navigation and voyages of vessels including Physical Loss or Damage, Loss of Hire, Limited Third Party Collision Liability and War. Includes coverage for most types of yachts including mega-yachts. The Marine Hull class has decreased its proportion of “bluewater” business (i.e. business relating to ocean going ships, as contrasted with “brownwater” business, which relates to ships travelling on rivers and lakes) from 48% in 2009 to 23% in 2013. Marine Liability Cover for Charterers’ Liability, Pollution, Port Authorities, Ship Repairers’ Liability and Maritime Employers’ Liability.

Energy The Energy line of business, which has a diverse product range and clients including national oil companies, major integrated energy companies and independent operators in the oil and gas sector, accounted for the third highest amount of GWP in 2013, of £106 million (2012: £112 million), representing 9% of total 2013 GWP. This business line has grown significantly since the recruitment of a new divisional director in 2011. Please refer to section 4.3 of Part XIII (Operating and Financial Review) for details of the growth in this line.

78 This business line focuses on attractive upstream and midstream classes, as well as the niche profitable line in Operators’ Extra Expense, which in combination have generated growth from 2009 to 2013. The Upstream class has posted strong growth through its ever increasing profile, which offset the Group’s withdrawal from Energy Onshore refining and petrochemical class in 2013.

Class Description Upstream Cover for exploration and upstream production including construction, operational physical damage risk, business interruption/loss of production income, liabilities (on a package basis), Operators Extra Expenses and the typical ancillary coverages required by the energy sector. Midstream Cover for other elements of production including land rigs, gas plants and general midstream energy excluding petrochemical and refining. Coverage is provided in respect of physical damage and business interruption.

US Specialty US Specialty refers to all business written through Brit Global Specialty USA (BGSU), which has nine offices in the United States. BGSU, operating through BISI (the Group’s wholly owned service company in the United States), acts as a managing general agent of the Syndicate. In 2013, GWP for BGSU was £67 million (2012: £46 million), representing 6% of total 2013 GWP. This is one of the fastest growing lines for the Syndicate and the Group has recently hired teams in First Dollar, Criminal Justice and Property Direct. The end of exclusive distribution in relation to Self Insured Retention has opened up additional growth opportunities in existing profitable lines. The Group is a market leader in Public and Non-Profit business.

Within US Specialty, the Syndicate writes business in the following classes:

Class Description Public and Non- Specialist packages for municipal, scholastic, higher education and religious Profit Self clients. Provides, inter alia, Property, General Liability, Workers’ Compensation Insured and Crime coverage in a single all-lines programme. Retention Public and Non- First Dollar coverage for entities in the public and non-profit sectors. Operated Profit First from Chicago and Richmond. Dollar Property Direct Property coverage for a wide range of sectors including commercial, residential, builders’ risk, hospitality, retail and railroads. Criminal Justice Coverage for adjudicated care providers in the United States (including private Service prisons, juvenile centres and halfway houses). Operated from Scottsdale, Arizona. Operations Property Writes US property facultative reinsurance of admitted and E&S ceding Facultative R/I companies. Business is written through approved reinsurance intermediaries primarily on an individual certificate (open market) basis or through facultative semi/automatic facilities.

79 Accident & Health This category incorporates a diverse range of specialty products relating to Personal Accident, Bloodstock and Contingency. In 2013, GWP in the Accident & Health business line was £66 million (2012: £63 million), comprising 6% of the Group’s GWP in 2013. The Group has significant shares of the Lloyd’s market in Bloodstock (approximately 9%) and Contingency (approximately 7%). This business line has low marginal capital requirements due to low correlation with other business lines.

Class Description Personal Wide range of cover including cover for: Personal Accident; Accident and Accident Sickness; High Limit Individual Personal Accident; Key Man; Kidnap and Ransom; Ships or Yacht Crew; and Medical Expenses. Bloodstock Tailor-made policies including cover for all risks of Mortality, Barrenness, First Season Congenital Infertility, Loss of Income, Prospective Foal and Veterinary Fees. The Syndicate leads a Bloodstock consortium at Lloyd’s. Contingency Cover in relation to cancellation of events and non-appearance of individuals; Prize Indemnity; Film Producers’ Indemnity.

Terrorism, Political and Aerospace The Terrorism, Political and Aerospace business line accounted for GWP in 2013 of £23 million (2012: £34 million), representing 2% of total 2013 GWP. The Political and Credit Risk line is newly established following the recruitment of two specialist underwriters in 2013. The Terrorism class benefits from relationships with specialist intelligence and risk consultants, who provide risk expertise to support pricing models.

The Group leads and manages the Brit Space Consortium, which offers bespoke policies for selected satellite operations. The underwriting team comprises experienced space insurance specialists, who work closely with Telesat, one of the world’s largest satellite operators, which provides technical expertise on an exclusive basis.

Class Description Terrorism Coverage for standalone terrorism risks worldwide and can include cover for political violence, riots, insurrection, mutiny, civil war and war. Political and This is a new line, established following the recruitment of two specialist Credit Risk underwriters in 2013, and includes cover for losses stemming from permanent confiscation, nationalisation or forced abandonment of physical assets, and trade related credit. Aerospace Cover for the launch of satellites and for the separation of the satellite from the launch vehicle. In-orbit cover is also offered.

(ii) Long tail direct insurance Long tail insurance refers to insurance where on average the claims are not settled for several years after the expiry of the policy. Long tail direct insurance, which recorded GWP in 2013 of £304 million, accounted for 34% of the Group’s direct insurance GWP and 26% of the Group’s total GWP in 2013. The long tail direct insurance business can be categorised into two principal lines of business:

Line of 2011 2012 2013 Business Description GWP GWP GWP (£m) (£m) (£m) Casualty Includes cover for Financial Institutions, Legal Expenses, Directors’ and Officers’, and Professional Lines. 222 224 233 Specialist Cover for Employers’ Liability and Public Liability both in the UK and Liability internationally but excluding the US. 78 79 71

80 Casualty This covers a variety of long tail insurance business classes. GWP for the specialty business line in 2013 was £233 million (2012: £224 million), comprising 20% of total GWP in 2013. In 2013, the Syndicate reported strong growth in Professional Lines due to improving market conditions and retrenchment of other markets. The Syndicate has strong lead capability in Professional Lines, with 78% of business written as either first or second lead, and the business has a favourable mix without material exposure to the recognised systemic risk areas, such as Independent Financial Advisers, UK Primary Solicitors and UK Surveyors.

Class Description Financial Cover to financial institutions in relation to Computer Crime, Crime, Directors’ and Institutions Officers’ Liability and Professional Indemnity. Legal Expenses Cover for legal expenses, either on a “before the event” or “after the event” basis. Directors’ Cover for personal liability arising out of wrongful acts not covered by the entity (Side and A) and/or the entity for reimbursement of those directors and officers (Side B) and/or Officers’ the entity for the liability of securities related lawsuits (Side C). Includes Pension Trustee Liability Insurance. Professional Professional Indemnity Insurance (also known as Errors and Omissions) for a broad Lines range of professions including lawyers, architects, engineers, accountants, insurance brokers and certain other categories of professional worldwide.

Specialist Liability Previously, these lines were contained within the UK business unit but given the London Market nature of this business it was transferred to Brit Global Specialty before the disposal of the Group’s UK business in 2012. The underwriting team was replaced during 2013. The new team used 2013 as an opportunity to re-underwrite and re-focus the book, reducing the 2013 retention ratio to 59% and focusing on increased volumes of less high hazard occupations. The addition of an “environmental liability” class increases growth opportunities. The division offers cover for employers’ liability, public liability and product liability across a broad range of industry sectors. GWP for this business line in 2013 was £71 million (2012: £79 million).

Class Description UK EL Cover to UK employers in relation to damages and costs for employment related injuries. UK PL UK public liability cover for damages and costs in respect of Personal Injury, Property Damage and Nuisance. Includes cover for Environmental Liability. International General liability cover excluding the UK and US. Includes cover for Environmental PL Liability.

(iii) Short tail reinsurance The Group’s short tail reinsurance business centres around Property Treaty, which represented 11.5% of the 2013 GWP. This typically covers catastrophic loss accumulation or individual large loss ceded by insurance and reinsurance company clients. The Board believes that this line has the following key strengths: (i) well-managed exposures, focused on well modelled zones such as US, Canada, Europe, Japan, Australia and New Zealand; (ii) a strong franchise, well-positioned to access new business; and (iii) cost efficient and flexible underwriting approach, to enable proactive cycle management. International underwriting is centred in London, with the Group’s Bermuda platform increasing distribution in respect of North America. The decrease in the GWP between 2011 and 2013 stems from the Group’s withdrawal from the Marine excess of loss business in 2011 due to inadequate returns and a re-focusing of the Property Treaty account to reduce the attritional element of the book that was lowering returns.

2011 2012 2013 Line of GWP GWP GWP Business Description (£m) (£m) (£m) Property Treaty Catastrophe excess of loss and risk excess of loss reinsurance. 182 153 137

81 (iv) Long tail Reinsurance The Group’s long tail reinsurance business centres around Casualty Treaty, which accounted for 11.9% of the GWP in 2013. The Group has a well established market position at Lloyd’s and has a balanced book in this business line, with a diverse product and territory range.

2011 2012 2013 Line of Description GWP GWP GWP Business (£m) (£m) (£m) Casualty Casualty and Accident treaty reinsurance. World-wide portfolio, written Treaty on excess of loss basis (currently only one specialist quota share contract written). The largest regional block is the US and Canada. The account is a mix of risk, catastrophe & clash business. 142 142 141 Core lines of business include General Liability, Professional Indemnity/ Financial Institutions/Directors’ & Officers’, Workers’ Compensation, Medical Malpractice, Accident & Health, and other accident classes including Property Terror.

(B) Geographic split of business The Group enters into policies with policyholders from all over the world, with the underlying risks relating to premiums spread worldwide. This allows the Group to benefit from a wide geographic diversification of risk. The three principal locations of the Group’s policyholders are the United States, UK & Ireland and Mainland Europe, with total GWP for each in 2013 being £534 million, £332 million and £107 million, respectively. The geographic split by policyholder domicile for 2011, 2012 and 2013 was as follows:

Area 2011 2012 2013 US 43% 43% 45% UK & Ireland 24% 26% 28% Europe (excluding UK & Ireland) 10% 10% 9% Other North / Central America 8% 8% 7% Oceania 5% 5% 4% Asia / Middle East 5% 5% 4% South America 2% 2% 1% Africa 2% 2% 1% Other < 1% < 1% < 1%

The nature of the London Market business is such that the insureds and reinsureds are often operating on a multi-territory or worldwide basis and hence coverage is often provided on a worldwide basis. The geographic split of underlying risk in relation to the 2011, 2012 and 2013 GWP was:

Area 2011 2012 2013 Worldwide 54% 53% 51% UK 12% 11% 8% Europe ex UK 5% 4% 5% US 29% 32% 36%

7.3 Distribution and Marketing (A) Access to Market The Group broadly has three ways of placing third party business: (i) open market; (ii) binders and line slips; and (iii) inwards reinsurance. The method of placing varies with the type of business.

Open market basis is typically used for larger individual risks, which are often syndicated within the Lloyd’s market. Policies are underwritten with experience at an individual risk level tending to be more volatile with rates historically responding more strongly to market losses.

Binders and line slips are typically used for smaller premium business that enables the Group to access this business in a cost effective manner. This business tends to be administratively intensive and thus higher levels of commission will be paid to the coverholder to administer this business. The coverholder agreement will tightly define the type of business that can be written, policy limits, rating levels etc. In general this business is more stable with less volatility in terms of rating levels and performance.

82 Reinsurance is used where the insured is an insurer or reinsurer with policies typically operating on proportional, risk or portfolio basis. The majority of the Group’s inwards reinsurance business (that is, where it reinsures other insurance companies) is carried out in the Property Treaty and Casualty Treaty portfolios. A significant element of this business covers aggregations of natural catastrophe exposures and therefore tends to show greater volatility of results but also the strongest reaction in rating levels following a major loss.

The chart below sets out BSL’s access to market and the changes between 2010 and 2013: Open market Binders / line slips Reinsurance 100% 80% 28% 26% 60% 38% 34% 40% 20% 34% 40% 0% 2010 2013

(B) Brokers

Insurance brokers are the principal source of business for the Group. In general, a broker acts on behalf of the insured/reinsured and not the insurer. However, in the case of binders and line slips, an element of underwriting authority may be delegated to the coverholder, with the extent of any delegation being defined in the authority agreement.

The Group has developed strong relationships with many of the key Lloyd’s brokers and also has growing relationships with other more specialist brokers. According to an independent survey6, the Group is the fifth most likely insurer to be shortlisted by brokers in the London insurance market for profitable new business opportunities.

The Group has a diversified broker distribution versus the rest of the Lloyd’s market, as can be demonstrated by the table below:

Lloyd’s Market 2012 Group 2013 % of Category of GWP placed GWP placed Top 3 brokers 50% 33% Brokers 4 – 10 25% 27% Others 25% 40%

(C) International offices In overseas markets, where there is sufficient capacity locally (or at least in an alternative market such as Bermuda), local business is less likely to be referred to the London Market. By having a local presence in key territories, the Group seeks to write some of this business to which it would not otherwise have access. Please refer to sections 6.2 and 7.1(iii) of this Part VII (Information on the Group and its Industry) for further information on the Group’s international offices.

(D) Marketing / Brand Strength In 2012, the Group, having centralised its underwriting in the Syndicate, rebranded itself as “Brit Global Speciality”, in order to define more clearly the business focus of the Group and create an easily identifiable brand.

In 2012, BSL was awarded corporate “Chartered Insurer” status by the Chartered Insurance Institute (the “CII”). The Board believes that this demonstrates the Group’s commitment to high standards and ethics.

7.4 Competition The Group’s competitors vary by territory and product line. The nature of subscription business (where larger sized risks are placed with more than one syndicate, with each syndicate taking a proportion of the risk) is such that in respect of certain risks the Group will be in direct competition whilst in others the Group may follow the competitor on a placement or the competitor may follow the Group.

6 Survey carried out by Gracechurch Consulting in 2013.

83 The most applicable peer group for the Group as a whole would be the other large Lloyd’s syndicates and, in particular, the listed companies Amlin, Beazley, Catlin and Hiscox.

Many of the other large Lloyd’s syndicates, such as ACE, Liberty Syndicates or QBE, are members of much larger insurance organisations; however, they also compete directly within the Lloyd’s market.

In respect of US excess and surplus lines business, the largest market participant is Lloyd’s, followed by AIG, Scottsdale (a subsidiary of Nationwide), Steadfast (a subsidiary of Zurich), Columbia and Ironshore.

Internationally, in respect of direct insurance, it is common for the Lloyd’s market to be in competition with local market participants (e.g. QBE in Australia) or the large global insurers, such as Allianz and Zurich.

In respect of reinsurance business, the Group competes with the major European insurance companies (e.g. Munich Re, Scor and Swiss Re), as well as the Bermudian reinsurers, such as Axis and Endurance.

In respect of some products Lloyd’s competes with certain more specialist markets; for example in Hull and Marine Liability there is strong Norwegian market participation from Gard and, in respect of Legal Expenses cover, the major competitor is D.A.S.

8. Underwriting Process This section sets out information on the underwriting process and controls adopted by BSL. The process and controls for BIG, as the captive reinsurer, are similar although there are fewer reporting requirements given that BIG only writes business within the Group (with the exception of the reinsurance agreement entered into directly between BIG and BIL, for more details of which please refer to section 21.1(B) of Part XVI (Additional Information)).

8.1 Underwriting team The Group has an experienced underwriting team, led by Matthew Wilson, CUO, who has 25 years’ experience as a Lloyd’s underwriter and who has been with the Group since 1999. The Group’s senior underwriters (being the CUO, four Portfolio Directors, President US Specialty and SVP Bermuda) have an average insurance industry experience of 23 years. BSL also has “Chartered Insurer” status from CII (please refer to section 7.3(D) of this Part VII (Information on the Group and its Industry) for more information).

The Group’s underwriters benefit from a bonus scheme that links a significant portion of their bonus to the claims performance and hence profitability of their area of business. The bonus is subject to deferred payment and clawback in the event of subsequent poor performance.

The Group’s underwriting team is structured along product lines, with clean lines of reporting from the various classes of business up to the CUO. Figure 2, below, shows the organisational structure with the Portfolio Directors, Presidents and Vice Presidents for each major category of business reporting directly to the CUO. Within each portfolio, the underwriters are separated into divisions, each covering a different business category and each with a divisional director who reports directly to the Portfolio Director.

Chief Underwriting Officer 25 years’ experience

Portfolio Director Portfolio Director Portfolio Director Portfolio Director President Senior Vice President Short-Tail Direct Long-Tail Direct Short-Tail Reinsurance Long-Tail Reinsurance US Specialty Bermuda 29 years’ experience 16 years’ experience 25 years’ experience 30 years’ experience 16 years’ experience 22 years’ experience

Figure 2 Note: While the US Specialty and Bermuda areas of the business write business lines that fall within direct insurance or reinsurance, the heads of those divisions report directly to the CUO.

84 8.2 Overview Oversight and Underwriting Guidelines The Board sets the overall underwriting strategy and risk tolerance for the Group. In turn, the BSL Board sets the underwriting strategy and risk tolerance in respect of the business of the Syndicate having regard to the Group’s underwriting strategy and risk tolerance as set by the Board. BIG has a separate board and a similar though proportionate governance structure and controls to that set out below in respect of BSL.

The key underwriting and pricing processes are set out in the Group’s Underwriting Guidelines, which outline the protocols for the underwriting business on behalf of the Syndicate, including the business written by BGSU and BGSB and via the Lloyd’s China Platform. The Underwriting Guidelines apply to all underwriting, with each class having an “Underwriting Philosophy” that sets out the underwriting standards specific to that individual class. Delegated underwriting business has additional guidelines in the form of the Delegated Underwriting Guidelines. The Group’s internal audit function tests adherence to the Underwriting Guidelines on a regular basis.

The Group adopts a five stage process to pricing and underwriting: (i) strategy and planning: the underwriting strategy of the Group and risk tolerance are set on an annual basis by the Board. (ii) controls: the Underwriting Guidelines and risk management policies of the Group set out a series of controls and review processes in relation to underwriting. (iii) pricing and rate monitoring: the Group has a framework (the “Technical Pricing Framework”), which requires underwriters to record certain price information in relation to each risk written. Rates are also monitored through information gathering at the time of renewals. (iv) exposure management and assessment: relevant information in respect of each risk underwritten must be recorded. Exposure is then assessed and modelled, with results recorded by the Exposure Management Team (“EMT”). (v) reinsurance: the Group purchases reinsurance in relation to some of the risk which it has underwritten.

Further information on each stage of the process is set out below.

Lloyd’s Performance Framework of Minimum Standards As a Lloyd’s managing agent, BSL is required to comply with the Performance Framework of Minimum Standards (the “Minimum Standards”). Under the Minimum Standards, with which the BSL Board is responsible for ensuring compliance, BSL is required to ensure that it has the following: an effective process for challenging the annual business plan; effective systems and controls over the Syndicate’s underwriting with respect to persons with delegated authority to underwrite; appropriate pricing methodologies and effective rate monitoring processes; effective systems and processes to record, monitor and assess its underwriting exposures; effective control over its outward reinsurance arrangements; and effective systems for the recording and reporting of underwriting-related data to management and Lloyd’s. The BSL Board reviews compliance with the Minimum Standards on an annual basis.

8.3 Strategy and planning The Board determines the Group Underwriting Strategy setting the Group risk appetite and monitors that exposure is within the agreed tolerance parameters. The BSL Board carries out a similar function in respect of BSL, having regard at all times to the Group Underwriting Strategy.

The Underwriting Committee (“UWC”) is the key management committee relating to underwriting and consists of senior underwriting staff and management. The UWC recommends underwriting strategy to the BSL Board and the Executive Management Committee; sets risk appetite with reference to agreed risk tolerance; reviews business plans; monitors exposure; recommends portfolio mix; and recommends and monitors the purchase of reinsurance protection. The UWC continually assesses and reviews all classes of insurance/reinsurance, evaluating profitability levels for the previous, current and forthcoming underwriting years.

85 The Syndicate Business Plan is subject to review and approval from Lloyd’s. This process provides rigorous external challenge to the assumptions inherent in the Group’s underwriting plan.

8.4 Controls (A) Controls and actuarial referral The UWC has set out a series of controls to ensure that a consistent business approach to underwriting is maintained across the Group. Such controls include: (i) permitted classes of business/ products that may be written; (ii) limits on coverage; (iii) limits on territory; (iv) limits on placing basis (e.g. delegated or open market); (v) policy duration; and (vi) commission, both in terms of levels and type.

The actuarial team have agreed with each underwriting division an appropriate set of gross net premium thresholds above which all risks must be referred to the actuarial team for review prior to the risk being bound.

(B) Authority Underwriting authority levels must be approved for all individuals who perform a role which requires underwriting, claims and/or reinsurance purchasing. Underwriters are required to sign confirm their authority limits on an annual basis to indicate their understanding of the scope of their authority.

Within the underwriting teams there is a hierarchical referral process with risks outside an underwriter’s authority being referred to more senior underwriters; ultimately, risks may be referred to the CUO.

A proportion of the Group’s insurance risks is written by third parties under delegated underwriting authorities. The third parties are closely vetted in advance and are subject to stringent reporting requirements. In addition, the performance of these contracts is closely monitored by underwriters and regular audits are carried out. The management of delegated underwriting authorities is carried out by the Delegated Underwriting Management Committee and there are additional controls specified in the Delegated Underwriting Guidelines. The Group has a centralised area of expertise, the Delegated Underwriting Management Unit, to support and monitor the underwriting of delegated authorities.

(C) Review The Group operates a peer review process, which takes the form of weekly peer review meetings using the Group’s electronic peer review system. Risks are selected for review based on criteria designed to ensure that a high proportion of risks and all large or unusual risks are subject to peer review. The risk recording and peer review process is evaluated by the internal audit team on a regular basis.

In relation to underwriting, as well as the weekly peer review meetings, there are monthly meetings of the Divisional Underwriting group, the BGS Committee and the UWC, and quarterly meetings of the Group Reserving Committee.

8.5 Pricing and rate monitoring (A) Price monitoring The Group’s Technical Pricing Framework requires underwriters to calculate and record certain pricing information for each risk written. This information is used to provide management with information relating to rating strength and profitability levels, which is used by underwriters and management for the purposes of portfolio and cycle management.

(B) Rate monitoring The Group operates a rate monitoring process, which applies to all renewed business. The process aims at ensuring that robust rate change information is consistently calculated, reported and monitored across the Group, as well as assisting the Group to comply with the Minimum Standards.

Under this process, underwriters are required to capture not only the risk adjusted rate change but also the impact on premium levels of changes in limits, deductibles and coverage terms.

86 The Group is required to make monthly returns to Lloyd’s in respect of both pricing strength and rate monitoring.

8.6 Exposure management and assessment All relevant information in respect of each underwritten risk must be recorded on the Group’s underwriting systems. Certain classes of risk are modelled with the use of third party catastrophe modelling software, while others are subjected to appropriate “Probable Maximum Loss” methodologies to determine potential losses in relation to certain disaster scenarios. Such information is then reviewed and assessed by the EMT in relation to the risk profile of the Group. In relation to catastrophe exposure, the Group monitors and controls the accumulation of risk for a number of RDS events. Please refer to section 15.1 of Part XIII (Operating and Financial Review) for more information on the Group’s RDS testing.

The Group is required to make regular returns to Lloyd’s in respect of gross and net exposures.

8.7 Outwards reinsurance (A) Overview Both BSL and BIG purchase outwards reinsurance to manage exposure against their underwriting appetite, protect against catastrophic losses and manage exposure to individual risk losses. BSL also purchases reinsurance from BIG.

(B) Reinsurance strategy The Group seeks to manage its net exposure by purchasing outwards reinsurance on commercially attractive terms. The reinsurance programme is regularly reviewed to ensure appropriate coverage, attractive pricing and efficiency. The annual planning process sets the reinsurance budget and incorporates a full review of the planned reinsurance programme.

The primary purposes of the outwards reinsurance purchases are: • management of risk exposure: typically quota share reinsurance is used to manage the Group’s net exposure to classes of business or divisions where the Group’s risk appetite is lower than the efficient operating scale of the class of business on a gross basis. For example, the Group purchases a quota share on its Property Treaty account and on the long tail direct portfolio where net appetite is lower than gross exposure. These placements are reviewed on the basis of market conditions and the terms offered on the reinsurance; • management of catastrophe exposure: excess of loss reinsurance is purchased to reduce exposure to extreme catastrophe events (e.g. US Windstorm or Earthquake) and to manage concentrations (e.g. flood risk in North East US); and • management of line size: the Group operates in a number of markets where a larger line is advantageous. Risk excess of loss reinsurance is an efficient method of enabling a larger gross line and managing the Group’s net exposure to any single risk loss.

In 2013, the Group ceded 19.3% of GWP to reinsurers.

(C) Process and governance The Group manages its reinsurance programme centrally through a dedicated team which manages broker relationships and requests from underwriting teams, and coordinates, the purchase of agreed cover. This team works closely with the CEO, CUO, CFO and CRO to ensure the reinsurance strategy is aligned to the Group’s overall corporate strategy and objectives.

All of the Group’s outwards reinsurance purchasing by BSL is approved by the UWC. The budget is set through the planning process after careful consideration of the Group’s underwriting appetite, risk and catastrophe exposure and capital requirements. Individual purchases are approved by the CUO, CRO and CFO.

87 The Credit Committee, chaired by the CFO, is responsible for management of credit exposures and carefully monitors the credit ratings of its outwards reinsurers. The Group uses a broad spread of reinsurance counterparties to reduce concentration risk. The Group predominantly uses outwards reinsurers which are rated “A” or above by S&P / Fitch / A.M. Best (all three credit rating agencies are registered in the EU under Regulation (EC) No 1060/2009 (as amended); for more information, please refer to section 8 of Part V (Presentation of Information)). The Group’s Reinsurance Security Committee sets counterparty limits and reviews them on an ongoing basis using the rating agency analysis. The Group also runs stressed simulated scenarios to monitor the increased exposure resulting from higher recoveries.

Below is a table showing the breakdown of reinsurance recoverables by credit rating as at 31 December 2013:

Rating % AA and above 46.7 A 36.1 Sub A 17.27

9. Claims Management The Group has an internal claims management team of 45 people led by Steve Robson, who has over 30 years of claims experience. While the claims management team oversees all aspects of claims handling, from the first notification of a claim through to settlement, the Group outsources much of its lower level claims management work to third party administrators. This is designed to promote low level efficiencies where speed and early communication are more valued. The risk management and control of the Group’s outsourced claims function is a key management function. The chart below sets out the structure of the claims management team:

Claims department chart

Capabilities and resourcing

Steven Robson Operations and Group Head of Claims support Total staff 6

Short Tail Long Tail Reinsurance

Total staff 15 Total staff 17 Total staff 6

Business classes inc: Business classes inc: Business classes inc: • Accident & Health • Financial • Property Treaty • Bloodstock Institutions • Casualty Treaty • Contingency • Legal Expenses • Marine • D&O • Energy & Power • Professional • Property Facilities Indemnity • Open Market, • Specialist Liability Property, Space and Terrorism

Upon the occurrence of a loss the lead underwriter will perform an early evaluation of policy terms. The leader will assess the strategy and any other expert input, such as loss adjusters or lawyers they may need to perform the coverage evaluation. Once the insurance liability is validated a loss reserve will be established. The loss will be paid in stages or in full as it is finally quantified.

7 Sub A includes 56% collateralised players, with the remainder consisting of fronting arrangements and players in run-off.

88 Individual claims adjusters in the claims management team work within prescribed limits of authority, with larger and more complex claims being referred to more senior claims staff. Areas of potential dispute are coordinated with the in-house legal team who will assist the adjusters on coverage issues and may, depending on the value and complexity of the issues presented, advise referral to outside legal counsel.

10. Reserving 10.1 Overview of reserving process The Group establishes loss reserves to cover estimated future liabilities which remain unpaid as at the end of each accounting period. The movement in these reserves forms an integral element of the Group’s financial results and, as such, reserving is recognised as a key area of focus for the Group.

Given the inherent uncertainty in the estimation of reserves, the Board believes that the Group has established a rigorous, transparent process for setting the reserves in respect of each financial reporting period.

10.2 Reserving philosophy The Group’s reserving philosophy operates on a conservative “best estimate” basis. In addition to the selected best estimate position, an explicit risk margin is held, based on a structured framework, to provide protection against the inherent uncertainty in the reserving process. The Group has a track record of prior year reserve releases (for more on the Group’s prior year reserve releases, please refer to section 8.2 of Part XIII (Operating and Financial Review).

10.3 Legislation The Group adopts the following regulatory and legislative requirements when calculating the technical provisions: IFRS; local GAAP standards and requirements; Lloyd’s Valuation of Liabilities Rules when setting technical provisions for solvency for BSL; Technical Actuarial Standards; and rules and regulations laid down or overseen by the FSC in Gibraltar.

10.4 Governance The Board believes that the reserving process, which takes place quarterly, is mature, stable and embedded within the organisation and subject to a robust internal and external governance regime. The key body is the Reserving Committee, chaired by the CFO and consisting of the Chief Actuary, the COO, the Group Head of Claims, the CUO, the CRO and the Group Reserving Actuary.

The process is coordinated by the actuarial department with an appropriately experienced and qualified team, led by Chief Actuary, Shane Kingston, who has nearly 20 years’ experience in the insurance sector. The governance process can be split into four key stages: (i) data preparation; (ii) analysis; (iii) peer review; and (iv) meetings of the Reserving Committee. A short description of each is stage is set out below.

Data preparation Data is signed off and provided to the Actuarial Department by the Data Management Team. Preparation also includes, for example, setting up, where appropriate, benchmark databases, frequency/severity analysis and market data. Various reconciliations are carried out to ensure the integrity of the data prior to commencement of reserving.

Analysis Divisional actuaries set initial ultimate premiums/claims by class of business, both gross and net of outwards reinsurance. A series of meetings takes place between Actuarial, senior underwriting management, claims and finance to discuss findings and results.

Peer review Initial and proposed final ultimate selections are peer reviewed by the relevant senior actuary for each underwriting portfolio. This includes a review of the methodologies and material assumptions. Proposed final ultimate selections are also subject to peer review by the Chief Actuary.

89 Reserving committee meetings Actuarial recommendations are presented by the Actuarial department to the Reserving Committee, which in turn makes a recommendation to the EMC and relevant boards (including the Board) on the level of reserves to hold on the balance sheet.

10.5 Methodology and assumptions The actuarial department is responsible for ensuring that the adopted methodology and assumptions are appropriate for each class of business and the related underlying characteristics.

The methodology is based on standard techniques recognised by the actuarial profession and is applied in a combination of proprietary and internally-developed models. The selected methodology is sensitive to the nature of the business and therefore different approaches are adopted for projecting premiums and claims, for both gross and outwards reinsurance.

Assumptions are set based on detailed analysis of historical and current data, allowance for both internal and external factors and with reference to market benchmarks. Key assumptions are peer reviewed and tested for their impact on the results.

10.6 Reserve development As paid and incurred claims experience develops over time, the reserves will be adjusted depending on how the actual development compares to that expected. This forms part of the regular reserving process, with the adequacy of reserves reviewed on a quarterly basis, and if the claims experience is positive relative to expectations, the excess reserve will be released in the period under review. The Group has benefited from reserve releases for a period of over five years. For more information on reserve development, please refer to sections 4.5 and 8 of Part XIII (Operating and Financial Review).

10.7 Independent external review The Group commissions an annual, independent detailed review of the ‘best estimate’ reserves by a ‘big four’ actuarial consultancy. The results of the review have consistently over time demonstrated an increasing surplus within the Group’s reserve portfolio, underpinning the prudent nature of the internal actuary’s best estimate.

11. Investments 11.1 Background As at 31 December 2013, the Group had total invested assets (financial investments and cash and cash equivalents) of £2.6 billion.

Given the business mix (with a proportion of longer-tail business) and capital management philosophy, the Group’s ratio of invested assets to net tangible assets is around 4:1 which, when compared with its peers, gears it structurally towards higher returns. Thus the Group can generate a greater contribution to RoNTA from investment return than a company with a lower ratio even with the same investment return.

The return generated on investments represents a key part of the Group’s income and profitability. In 2013, the Group generated an investment income (net of investment fees) of £56.9 million, representing an investment return (net of investment fees) of 2.2%.

11.2 Strategy The Group’s investment strategy is to employ an active asset strategy to optimise the risk-adjusted return on its investment portfolio and to manage both solvency risk and earnings risk within parameters approved by the Board. To achieve this, the Group runs a balanced portfolio across a broad range of assets with the focus predominantly on income-generating investments, including higher income assets, and, to a lesser extent, on total return mandates.

The investment portfolio is predominantly managed by third party managers, overseen by an experienced and proactive in-house investment management team which is able to benefit from the in- house analysis and risk management capabilities within the investment department. A very small amount of the investment portfolio is managed directly by the in-house team.

90 The Board believes that this active approach to investment management represents a significant advantage to the Group and it believes that this approach, when combined with the natural asset leverage of the portfolio, can result in increased RoNTA compared to the Group’s peers.

The Group has implemented four key strategies to target a more efficient risk profile: (i) predominantly income assets: the bulk of the Group’s investment portfolio is invested in income-generating assets targeting liquidity and credit risk premium; (ii) broad range of growth assets: the Group targets a small but broad range of equity and total return mandates targeting value-orientated managers in diversifying sections; (iii) solvency matching: the Group seeks to reduce currency and interest rate risk to solvency; and (iv) investment risk framework: solvency risk is set as the key constraint on the investment portfolio alongside clear earnings and liquidity risk limits.

For more details on strategies (i), (ii) and (iii), please refer to section 7.1 of Part XIII (Operating and Financial Review). Further details of strategy (iv), investment risk framework, are set out below.

11.3 Investment risk framework The Board believes that the Group has a robust investment framework. The Board has overall responsibility for determining the investment strategy, including defining the amount of risk tolerance. In turn, the Investment Committee is mandated to review, advise and make recommendations to the Board on investment strategy with a view to optimising the Group’s investment performance. The investment team has delegated authority to manage the portfolio on a day-to-day basis (whether through its direct management of the small part of the portfolio it runs directly or through the third party investment managers instructed by the Group).

The Group has strict investment guidelines set by asset class which are approved by the Board. In addition, each portfolio has approved mandates which managers are required to adhere to. Investment guidelines are monitored on a daily basis through the Group’s risk management system.

The Group’s investment portfolio is managed to limit the one-year predicted impact on the Group’s solvency position. Solvency risk over a one-year period, which is considered to be the key asset risk by the Board, is managed according to the tolerance to overall investment risk for the Group as set by the Board. The Group also has defined limits on earnings risk, as well as liquidity risk using a number of stressed insurance and investment scenarios that define the minimum level of liquidity in the portfolio (for more information on the Group’s Realistic Disaster Scenarios, please refer to section 15.1 of Part XIII (Operating and Financial Review). As at 31 December 2013, over 75% of the Group’s assets was held in highly liquid cash and core bond portfolios.

The Group has rigorous monitoring systems and controls including regular management information from fund managers and significant transparency across the portfolio on a look-through basis. The Group’s compliance department constantly monitors the portfolio with strict controls in place in case of any breaches or regulatory issues.

11.4 Investment staff and operations The Group has a dedicated team in charge of investments. In April 2012, John Stratton, who has more than 25 years’ experience in investments, joined the Group as CIO. John has built an experienced team around him that manages and monitors the allocation between asset classes and manages a small portfolio of assets in-house.

The investment operations consist of in-house investment accounting, compliance and treasury teams that play a key role in monitoring and reporting on the portfolio, and third party providers who support accounting and trade execution. These teams are separated from the investment function.

11.5 Third party investment managers The Group primarily invests through external investment managers and has reviewed all mandates with the aim that ‘best in class’ managers are appointed and managers are targeted at their specific area of expertise.

91 The managers are subject to what the Board believes to be a rigorous manager selection process. Once the Board has set the strategic and tactical asset allocation, external advice is sought and key managers in the market are identified and analysed. A short-list is selected with input from independent consultants. Meetings are held with short-listed managers. The Group carries out due diligence and evaluates managers’ track records. Following completion of diligence, investment management agreements are drawn up and the Group carries out risk and operational due diligence. The Investment Committee then reviews the credentials, results of due diligence and the strategic fit with the portfolio.

The Group also monitors and controls its third party investment managers on an ongoing basis. The Group has strict investment guidelines set by asset class and individual portfolio, set by the Investment Committee and the Board. Concentration risk is managed using investment management agreements to define each manager’s limits and portfolio guidelines closely.

11.6 Portfolio For information on the investment portfolio, please refer to section 7 of Part XIII (Operating and Financial Review).

12. Operations 12.1 Overview The underwriting staff and management of the Group are supported by an operational infrastructure comprising claims management, investment operations (please refer to sections 9 and 11 of this Part VII (Information on the Group and its Industry) for more information), business operations, finance, information technology and other administrative functions. Since the change in ownership of the Group in 2011, there has been a strong focus on improved operational control and expense discipline. In April 2013, Nigel Meyer was appointed to act as Chief Operating Officer, having previously served as Interim CFO.

12.2 Operating Efficiency The simplification of the business resulting from the restructuring which has taken place since 2011 has been a key driver of a large reduction in operating costs. These cost savings have resulted from the reorganisation of support functions, a focus on removing unnecessary discretionary cost and the outsourcing of IT and business processing activity. There is now a clear focus of headcount on underwriting, with the underwriting staff comprising approximately 46% of the total employees employed in the business in 2013.

The business now benefits from an operational infrastructure which can absorb additional volume at a relatively low marginal cost. In 2011, the Group entered into a five-year outsourcing contract with Infosys in India for the provision of key business services, replacing the roles of at least 100 staff. Under this arrangement, Infosys provides broad-based IT support to the Group, including application maintenance and development, infrastructure support and end user services. In addition, the contract provides for the supply of business processing and support services including credit control, policy processing, coverholder review and catastrophe data processing. This contract provides the Group costs savings with ready access to flexible resources, the expertise of one of the world’s largest business services providers and the opportunity to grow premium volume without increasing fixed costs together with an efficient variable costs structure.

12.3 Information Technology The Group recognises that high-quality IT is of vital importance and has established a comprehensive IT strategy to support the objectives of the broader business.

The IT strategy has focused on simplification of the application suite, as well as the upgrade of the core underwriting system and key infrastructure components. The aim of the strategy is to provide the business with an IT platform which is reliable, scalable and can be extended cost effectively across the Group as it grows. Good progress has been made in the execution of the strategy with significant investment during 2013 including the implementation of a new data warehouse and reporting systems, refreshed network components and a new release of the underwriting system software.

92 13. Risk Management 13.1 Overview The Group seeks to deliver shareholder value by actively seeking and accepting risk within agreed limits. The Group’s risk management policy highlights the importance of managing the impact of risk on the economic value of the Group. The Group operates its own internal framework for risk management, the Risk Management Framework (“RMF”). The Board believes that the RMF provides a transparent process to identify, assess and manage risk and deploy risk appetite. This process assists the Group in its aim to protect policyholders and maximise shareholder value by helping ensure that the risk and capital implications of business strategy are well understood and that the business is managed within the shareholders’ risk appetite.

13.2 Enterprise Risk Management Framework (A) Background The RMF defines risk as “the possibility of events, past and future, having an impact on the economic value of the company”, where “economic value” consists of adjusted net tangible assets and franchise value (goodwill or economic value of future profits). The Chief Risk Officer is responsible for the design, production and implementation of the RMF, as well as monitoring and maintaining its content.

The RMF aligns to the business strategy and provides a way for the Group’s business to be managed in order to optimise return whilst staying within agreed appetite limits. The key RMF processes are: (i) identification: risk events, risks and relevant controls are identified and classified. This is a continuous process which considers any existing and emerging risks. (ii) measurement: risks are assessed and quantified and controls are evaluated. This is done through a combination of stochastic modelling techniques, stress and scenario analysis, reverse stress testing and qualitative assessment using relevant internal and external data. (iii) management: the information resulting from risk identification and measurement is used to improve how the business is managed.

The RMF processes are supported by an effective governance system ensuring that business decisions are considered in light of their impact on the risk profile.

(B) Key bodies and individuals The key bodies and individuals involved in the risk management process are as follows: • the Board, which is responsible for setting business and risk strategy and ensuring the principal risks and uncertainties facing the Group are managed; • the committees of the Board, including the Risk Oversight Committee and the Audit Committee; • the Executive Management Committee, which is responsible for the management of the overall risk profile for the Syndicate within agreed limits; • the individual management committees, which reflect the risk categories and which are responsible for the management and monitoring of each risk against appetite. These committees include the UWC, the Reserving Committee, the Credit Committee and the Operational Risk Working Group; • the Model Governance Committee, which is responsible for the day to day operation of the Group’s internal capital model; • the Chief Risk Officer or CRO, responsible for all risk management activities including catastrophe and capital modelling; • the risk management team, comprising capital modelling, investment risk, catastrophe exposure management, and enterprise risk management; and • employees engaged in risk, being required to comply with the RMF and all relevant risk policies.

93 (C) Risk Management Strategy The Group’s risk management strategy is set by the Board in conjunction with the CRO. It is updated on an ongoing basis. It assists the Board and relevant committees in defining the set of appetite and tolerance measures for risk taking across all categories of risk. These metrics allow the Board and committees to control risk within the business and are the foundation for decision making across the organisation.

The Group also identifies the following overarching risks: (i) earnings risk: this is the risk in reported earnings over a one-year period. This risk is monitored closely and managed within the Group’s risk tolerance. The key difference from solvency risk is currency and interest rate risk where some volatility is accepted in order to minimise solvency risk. (ii) solvency risk: this is the risk in solvency position over a one-year period and it is a key consideration for the Board. Tolerance is defined overall and for various risk types. The Group has a strategy to match currency and interest rate risk is subject to tactical positions. (iii) liquidity risk: this is the risk of insufficient liquidity being available to meet cash flows over various periods. A large number of stress tests are used to determine liquidity requirements and risk tolerance. Combined extreme insurance and extreme investment scenarios still demonstrate sufficient liquidity for a one-year period. The approach is agreed with Lloyd’s and no specific capital is required for liquidity risk.

(D) Risk Management Process The risk management process is the key in the delivery of the RMF. This process involves continuous engagement between the business and the risk management teams. The Group’s risk management process effects the risk identification, measurement and management referred to above.

Identification The Group has a detailed hierarchy process for categorising risk in what it refers to as its “risk universe”. Risks are categorised into five risk categories, with each category containing a set of “parent risks”, which in turn contain a set of “child risks”. The Group has key controls that seek to mitigate or prevent each “child risk”. The five risk categories are: (i) insurance; (ii) market; (iii) credit; (iv) operational; and (v) group. For example, the “parent risks” relating to insurance are reserving, underwriting (non catastrophe), underwriting (catastrophe) (please see separate section below) and insurance process failure.

Risk identification is facilitated through a risk register, where a detailed description of the risks and associated controls is recorded and scored. The Group operates an ‘emerging risk’ process to continually identify any new risks arising that are then added to the risk register. The ‘risk event’ process identifies any operational losses or near misses which may influence the scoring of the control environment.

Measurement A variety of approaches is used to measure risk depending on the nature of the risk including the Group’s internal capital model, proprietary models such as “RMS RiskLink”, scenario testing, and qualitative assessment.

All quantifiable risks are included within the internal model and are either measured using the calculation kernel or as a capital load. The internal model is subject to a high degree of oversight which includes a full validation at least annually and a strict model change control process. Model parameters are reviewed at least annually.

Scenario testing is used to complement the internal model and considers the financial impact on earnings and solvency of specified events or combinations of events. Being independent, it is a useful tool for validating the internal model.

94 Qualitative assessment is used to monitor the operating effectiveness of the Group’s control environment and to prioritise controls for improvement.

Management Management of risks consists of the following processes: risk optimisation; risk mitigation; risk monitoring; and risk reporting. Optimisation is the process to create an overall risk profile that optimises the Group’s return on capital. Risk mitigation techniques are used to reduce and control risk in line with pre-defined appetite limits. The risk team produces a variety of different reports to assist the business in managing risk: • CRO reports — the CRO produces quarterly updates for the Board and Risk Oversight Committee (a sub-committee of the Board) setting out the key business developments and their impact on the Group risk profile; • Risk reports — the risk team produces quarterly updates for the individual risk committees covering their risk area; • MGC reports — the capital modelling team produces updates for the MGC setting out current and future capital assessment based on the internal capital model results as well as any model changes that have taken place; • Validation report — an annual report to the Board summarising the results of the internal model validation exercise; and • Own Risk and Solvency Assessment (“ORSA”) — an annual report summarising how risk information has informed decision making over the past twelve months and a forward looking assessment of the risk and capital profile.

(E) Policies The Group has a comprehensive set of risk management policies that support the Group’s risk management processes. These are collectively known as the policy universe. At the centre of the policy universe sits the Risk Management Policy and underneath are policies governing the five risk categories and operation of the internal model. Below these sit the remaining risk management policies in relation to more specific risks.

(F) Risk Governance Each element of the RMF is governed through the Group’s committee structure, ensuring that each risk category is owned by a member of the Executive Management Committee and an associated committee. Risk optimisation is owned by the Executive Management Committee and the overall RMF is owned by the CRO who sits on the Risk Oversight Committee. The Group operates a three lines of defence principle: (i) Direct reporting and management of risk: a risk culture is embedded in the Group’s working practices, which helps ensure that staff and managers adhere to policies, procedures and review processes to confirm compliance. The attitude of employees is a critical part of the Group’s risk management. Individual committees monitor and manage risk in the relevant portfolios in line with appetite. Where a new risk is identified or if risk breaches appetite, the committee reports directly to the Executive Management Committee, which in turn reports to the BSL Board where necessary. (ii) Oversight: the CRO and the risk management team aim to ensure that the RMF is being applied through the individual risk committees and in particular that risk is being properly identified, measured and managed and that business decisions take into account their impact on the risk profile. Where appropriate, risk management will report directly to the Risk Oversight Committee or the Board. (iii) Independent assurance: the Audit Committee (to which the internal audit team reports) provides independent assurance of the Group’s risk management policy and monitors the effectiveness of the Group’s risk management processes.

For more information on the management of key risks, please refer to section 4 of Part XIII (Operating and Financial Review).

95 13.3 Solvency II Directive Appropriate and effective risk management is a key element of the requirements of Solvency II. The RMF has been developed at both the Group and entity level ensuring that a consistent Solvency II compliant approach to risk management is applied throughout the organisation.

BSL has adopted Solvency II requirements as part of the Lloyd’s internal model approval process. The Group is well advanced in implementing a programme which was initially established to meet the requirements of Solvency II, as articulated in the draft legislation and draft regulatory technical standards, by the previously expected implementation date of 1 January 2014. The Group has since revised its planning assumptions in line with the recently announced later implementation date of 1 January 2016. The Syndicate took part in the Lloyd’s Solvency II dry run process and has been assessed to be compliant with all of the principles of Solvency II. However further work is required over the coming years to ensure full compliance prior to 1 January 2016.

The FSC of Gibraltar has indicated that Solvency II legislation will be implemented in Gibraltar in line with the rest of Europe on 1 January 2016. BIG continues to review the FSC’s Solvency II project and intends to comply fully.

14. Capital and distribution policy As referred to in section 2.8 of Part VII (Information on the Group and its Industry), the Group benefits from having significant capital surplus to its management entity capital requirements to provide a buffer in the event of results volatility. These management entity capital requirements are calculated using the Group’s Internal Model and are not expected to increase significantly under Solvency II if this approach is approved. The Board expects to maintain a solvency ratio within a range of 120-140% of requirements and expects any increased capital requirements from growth to be funded from retained earnings. For more information on the Group’s capital requirements, please refer to section 10.2 of Part XIII (Operating and Financial Review).

The Board believes that the Group’s RoNTA in 2012 and 2013 coupled with the capital buffer demonstrate the ability of the business to support a sustainable regular dividend for shareholders. The Board expects to declare that any additional capital not required for profitable growth opportunities will likely be returned to shareholders, as has been the case in most recent years. The Group does not have a progressive dividend policy.

Dividends (to the extent paid) are linked to past performance and future prospects, expected cash flows and working capital needs, as well as the availability of distributable reserves. The Board currently expects to declare a base interim dividend of £25 million for 2014, representing one-third of the expected annual dividend and paid in the third quarter of this year. The Group would expect to pay the remainder of the annual dividend in early 2015. The Group expects the regular dividend to be supplemented by special dividends when excess capital cannot be attractively deployed in order to maintain surplus capital within the target range of 120-140% of entity management capital requirements.

15. Reasons for the Offer and Admission The Selling Shareholders are looking to realise part of their investment in the Company by way of the Offer. In addition, while the Group is not receiving any proceeds from the Offer, the Board believes that Admission will benefit the Company as it will give the Group access to a broader range of capital- raising options which may be of use in the future and assist in recruiting, retaining and incentivising key management and employees.

96 PART VIII — OVERVIEW OF LLOYD’S OF LONDON

1. Introduction Lloyd’s of London (“Lloyd’s”) is a specialty insurance marketplace which has been operating in London for over 300 years. Market participants, or ‘members’, underwrite insurance business on a several basis, each for their own profit or loss. Members of Lloyd’s conduct their insurance business through syndicates, each of which is managed by a managing agent.

The expression “Lloyd’s” may be used to describe a number of separate forms: the market of members who undertake insurance business (the “Society” of members); the corporation which oversees and supports the Society (the “Corporation of Lloyd’s”); and the Council of Lloyd’s (the “Council”), which was established under the Lloyd’s Act 1982 as a governing body of the Corporation of Lloyd’s.

The Society is regulated by the PRA and the FCA under FSMA. Lloyd’s managing agents are regulated by the PRA and the FCA and are also subject to the supervision and regulation of the Society. To minimise duplication, there are arrangements between the PRA, the FCA and Lloyd’s for cooperation on supervision and enforcement.

2. Lloyd’s in the context of the global insurance market Lloyd’s forms part of a wider London specialty insurance market (the “London Market”) in which participants include not only Lloyd’s syndicates but also specialty insurance and reinsurance companies operating outside the Lloyd’s platform. Participants underwrite complex risks in distinct customer segments and source premiums from policyholders around the world. Other key markets operating globally include the US and Bermuda, in which Lloyd’s syndicates and global insurance and reinsurance companies also participate. (For more information on Brit’s competitors, please refer to section 7.4 of Part VII (Information on the Group and its Industry).

3. The Lloyd’s market 3.1 Performance and risk coverage The Lloyd’s market has a worldwide reputation as a major trading centre for specialised insurance and reinsurance. In 2012, members collectively underwrote £25,539 million of gross written premiums and syndicates reported a collective pre-tax profit of £2,379 million (compared with a collective loss of £713 million in 2011). The market achieved a combined ratio of 92.6% in 2012 (2011: 108.2%), which (as a percentage under 100) indicates that the market received more premiums than it paid out in claims and expenses in 2012.

Lloyd’s covers risks in seven main categories: Casualty, Property, Marine, Energy, Motor, Aviation and Reinsurance. Lloyd’s syndicates underwrite both direct insurance (where the policyholder has a direct interest in the underlying risk insured) and reinsurance (where the policyholder is an insurance company or another Lloyd’s syndicate looking to offset some of its primary exposure). Members within a single syndicate may cover all the risk for a particular policyholder or (particularly with large or specialist risks) a risk may be written on a subscription basis across several participating syndicates. (For more information on subscription, please refer to section 4.2 in this Part VIII (Overview of Lloyd’s of London)).

3.2 Geographic reach The Lloyd’s market is located in the City of London. As at 31 December 2012, approximately three quarters of Lloyd’s business derived from North America (41%), the UK (18%) and Europe (15%); however, the market covers risks in over 200 countries and territories worldwide.

The Lloyd’s preferred model is to write cross-border insurance and reinsurance from London, using brokers to access business in local markets around the world. Coverholders and service companies are an important means of accessing local markets. Where this model does not provide the market with access to attractive business, Lloyd’s may consider other measures such as licences to write

97 insurance in the relevant overseas territory. In 2012, Lloyd’s held licences to write direct insurance business in over 75 jurisdictions. Lloyd’s has hubs in major international centres such as Singapore, China and Japan. In certain jurisdictions such as China, Lloyd’s operates its platform through wholly- owned service companies.

Lloyd’s has prioritised certain fast-growing economies as being key potential providers of attractive new business opportunities. In identifying these economies, Lloyd’s has based its decision on a number of factors including managing agent appetite, local business environment, insurance penetration, broker penetration, business mix, and catastrophe exposure. Its current “priority countries”, on which it will initially focus, are China, Brazil, Mexico, India and Turkey.

3.3 Benefits of Lloyd’s Participation in the Lloyd’s market provides a number of advantages including: low-cost access to insurance business in over 200 territories via the Corporation of Lloyd’s licence to underwrite overseas; application of Lloyd’s strong credit rating, which applies to all syndicates; and favourable capital requirements compared to non-Lloyd’s specialty insurance market participants. (For more information on the advantages of Lloyd’s, please refer to section 2.2 of Part VII (Information on the Group and its Industry).

4. Participating in the Lloyd’s market 4.1 Participants Lloyd’s is made up of separately managed, independent businesses run under the franchise of Lloyd’s. Each business has three parts: (i) underwriting members; (ii) a syndicate, supported by one or more members managed as a unit to underwrite insurance; and (iii) a managing agent, a company authorised to manage one or more syndicates. These constituents may be independent of each other, or (as in the case of the Group), aligned under common control.

(A) Members Members carry the underwriting risk and provide capital, or “capacity”, to support their underwriting activity within syndicates and may participate in more than one syndicate at a time. Members may be companies, limited liability partnerships, Scottish limited partnerships or individuals (although, since 2003, no new members can participate in an individual capacity and corporate members provided 97% of Lloyd’s capital in 2011). Members of a syndicate are not in partnership, and no member has joint liability with any other member of a syndicate for the risks underwritten through that syndicate. Each member is responsible only for the proportion of each risk written on its behalf. An individual member has unlimited liability for his proportion of the risk to the full extent of his assets. The liability of a corporate member is limited to the amount of FAL (please refer to section 8.2 of this Part VIII (Overview of Lloyd’s of London)) which they have provided.

(B) Syndicates Members may only accept insurance business through the managing agent of a syndicate. A Lloyd’s syndicate constitutes one or more members that join together under an administrative arrangement to accept insurance risks. In 2012, there were 87 syndicates operating in the Lloyd’s market of which approximately half were “aligned” (where the member(s) and the managing agent are under common control). Syndicates are annual ventures whereby members have the right but not the obligation to participate the following year. This means that the members participating in a syndicate may change from year to year, although in practice a syndicate usually operates on an ongoing basis. If a member wishes to relinquish or reduce its participation, it can surrender all or part of it in an annual “capacity auction” process. This enables other members to gain access to the syndicate. Where the syndicate is aligned (known as an Integrated Lloyd’s Vehicle), the syndicate continues from year to year.

(C) Managing agents A managing agent is a company (individuals and partnerships are not eligible) which manages one or more syndicates on behalf of the members providing capital. A company needs permission from the

98 Franchise Board (please refer to section 5 of this Part VIII (Overview of Lloyd’s of London)) both to act as managing agent and to manage a syndicate. There are suitability criteria to guide the Franchise Board, which include compliance with good corporate governance principles; performance of underwriters; the quality and adequacy of controls to manage a business; and adequate capital and financial resources. Permission can be withdrawn by the Franchise Board for a number of reasons, including that the managing agent: (a) is no longer considered to be suitable; (b) has failed to comply with any requirement of the Council; (c) has ceased to act as a managing agent for the syndicate; or (d) requests withdrawal of permission. In addition, managing agents are authorised by the PRA and regulated by the PRA and the FCA (for more information, please refer to Part X (Regulatory Overview)).

Syndicate members enter into a standard form agreement with the managing agent which gives the managing agent absolute discretion as to what risks are written on members’ behalf, and other aspects of management such as investments, accounting records and calculation of reserves. Members therefore play no active part in the conduct of the business. A managing agent also employs the underwriting staff for the syndicate. The standard form agreement includes various fiduciary duties on the part of the managing agent regarding conflict of interest, accounting for any profits not specifically contemplated by the agreement and full disclosure of any interests or duties which could give rise to a conflict of interest, for example, between the interests of the managing agent and the members of the syndicate. Managing agents are entitled to charge syndicate members all proper and reasonable expenses incurred by them which are incidental to the conduct of the members’ underwriting business and they are remunerated by a combination of annual fees and profit commission. A member can terminate an agreement with a managing agent by giving notice, such that the member will no longer continue in the syndicate for subsequent years.

4.2 Underwriting and subscription A key feature of the Lloyd’s market is that business reaches syndicates through intermediaries, rather than directly from policyholders, either (i) by way of “open market” business, where transactions take place via a managing agent (either in the Lloyd’s Underwriting Room or at the managing agent’s office); or (ii) by way of “coverholder” business underwritten on behalf of a syndicate by a sub-delegate of the managing agent, where transactions take place outside of the Underwriting Room (either in the UK or overseas).

Lloyd’s brokers are intermediaries who must meet certain standards and are accredited by Lloyd’s. Other intermediaries placing business directly with managing agents must meet equivalent standards. Coverholders are local insurance brokers, MGAs or syndicate service companies (owned or under common control with the managing agent) that are given authority to underwrite on behalf of the syndicate. Coverholders may be either “approved” by Lloyd’s, and required to meet certain standards as a condition of delegation, or “restricted”, and subject to closely defined limits. The document setting out the terms of the coverholder’s delegated authority to enter into contracts of insurance is known as a binding authority or “binder”.

Larger sized risks are usually placed with more than one syndicate and each will take a proportion of the risk. This is known as “subscription business” and is usually placed through the open market. A Lloyd’s broker (who may be acting via appointment by a local broker) will approach underwriters with a “slip” (a standard form document setting out details of the cover and policyholder) and underwriters signify acceptance and indicate the proportion (“line”) they will take with a “scratch” (sign and stamp). The proportion can be increased or decreased before final signing. If an underwriter agrees to write only a proportion of the risk, the broker will approach underwriters of further syndicates until the risk is fully subscribed.

A “line slip” is the agreement through which a managing agent delegates its authority to another managing agent to enter into an insurance contract on its behalf on a single risk. In this way, multiple syndicates can participate on multiple insurance risks brought in by a Lloyd’s broker, each taking a portion of the total portfolio of risks, on a quota share. Each slip will have a “lead underwriter” who controls the terms and has authority on behalf of the rest of the slip (and usually, though not necessarily, accepts a substantial share of the risk) and “following underwriters” who accede to the terms established by the lead underwriter.

As such, individual syndicates may compete against each other but also co-subscribe for larger single risks, each taking a specified proportion or “line” of the risk.

99 Brit The Group’s Syndicate is aligned with one corporate member, Brit UW, and the managing agent, BSL, both wholly owned subsidiaries of the Group. The Group as at 31 December 2013 employed 188 underwriting staff. Matthew Wilson leads the Syndicate underwriting team and is the “active underwriter” of the Syndicate, defined by Lloyd’s to mean “the individual at, or deemed by the Council to be at, the underwriting box with principal authority to accept risks on behalf of the members of the syndicate.” In practice, the underwriting team is made up of Matthew Wilson, senior underwriters and other members of the underwriting team, who sit in the Syndicate’s dedicated “box” on the trading floor within the Lloyd’s building, from which they transact underwriting business with Lloyd’s brokers.

The Group underwrites on the open market and with line slips and binders. The placing method the Group uses varies with the type of business underwritten. The Group uses the open market method for larger individual risks. In the case of binding authority and line slips, it also delegates underwriting authority to coverholders, usually for higher volume lower value transactions. The Group also has wholly owned service companies in Bermuda and the United States, which underwrite business on behalf of the Syndicate.

5. Governance The Council is the governing body of Lloyd’s and comprises six external members, six working members and six nominated members. It is empowered to make the primary rules (“byelaws”) which govern the conduct of insurance business at Lloyd’s. Byelaws are made, revoked or amended by a special resolution of the Council that requires separate majority votes of both the working members and all other members of the Council. Since 2003, the Council has acted by the Lloyd’s Franchise Board as regards the development and direction of the commercial policy of the Lloyd’s franchise and the direction and regulation of the insurance business of Lloyd’s.

The Corporation is the executive of the Council and oversees and supports the Lloyd’s market. Its role includes: determining the capital that members must provide to support their proposed underwriting; undertaking financial and regulatory reporting for the Lloyd’s market; and managing and developing Lloyd’s global network of licences and the Lloyd’s brand.

6. Year of account: reinsurance to close The traditional syndicate is an “annual venture” with the identity of members and size of their shares varying from year to year. As such, the premium and effect of reinsurance is calculated by reference to a one-year period, or “year of account”. The accounts for each year of account are settled and closed after three years by a contract known as “reinsurance to close” (“RITC”).

A syndicate ceases writing new business at the end of the underwriting year of account. 36 months after the commencement of the year of account, the managing agent evaluates the liabilities which have not been discharged in full and they are usually reinsured into the next open year of account. Members of the reinsuring syndicate participating in the receiving year of account assume the risk of further losses and pay all subsequent claims in return for a payment of RITC premium. Lloyd’s rules require the amount of the RITC to be fair and equitable to the members of both the paying and the receiving syndicates. The RITC process enables the accounts for the underwriting year to be closed and the profit or loss for the year of account to be distributed.

7. Run-off account A run-off account is a year of account that has not been closed by RITC in the usual way. This may happen for a number of reasons, primarily because of uncertainty as to future levels of liability (predominantly long tail reserves) and a consequent inability to calculate a fair and equitable RITC premium resulting in managing agents being unable to recruit sufficient members to underwrite for subsequent years of account. In these circumstances, closing the year of account may take a number of years, during which there can be no release of the members’ funds at Lloyd’s (please refer to section 8.2 of this Part VIII (Overview of Lloyd’s of London)) nor of profits arising from the underwriting or investments of that syndicate. The Franchise Board manages run-off and may require a managing agent to prepare a run-off contingency plan or a run-off account, managed by a run-off manager.

100 8. Capital structure Lloyd’s capital structure is tripartite and comprises: (i) syndicate level assets; (ii) Funds at Lloyd’s; and (iii) mutual assets. This structure, referred to by Lloyd’s as the “chain of security”, seeks to ensure that members’ liabilities in connection with their underwriting business can be met.

8.1 Syndicate level assets Each member is required by Lloyd’s to execute a premium trust deed pursuant to which its premiums are held in a premium trust fund (“PTF”) and invested in assets until the close of the year of account (i.e. 36 months after the start of the underwriting year). The PTF income consists of premiums received, reinsurance recoveries and investment income. Funds in the PTF are held on trust to meet the member’s liability to policyholders’ claims, expenses and underwriting liabilities. If a corporate member becomes insolvent, underwriting claims can be met to the extent of the assets held in the member’s PTF, as these funds are not available to its general creditors. The assets of the trust fund can be held either at syndicate level (in a managing agent’s sub-fund); in a personal reserve sub-fund forming part of the member’s FAL (please refer to section 8.2 of this Part VIII (Overview of Lloyd’s of London)); or in a central syndicate sub-fund pool. Assets relating to a particular division of a member’s business, such as underwriting business in a particular country or currency, may be held separately from the main PTF so as to be available to discharge liabilities in respect only of that division. For this purpose, the Lloyd’s American Trust Fund and Lloyd’s Canadian Trust Fund, among others, were established.

Where there are insufficient funds available in a syndicate’s PTF to meet liabilities, the managing agent makes a cash call to the members. If a member fails to meet a cash call, funds will be taken from its FAL (please refer to section 8.2 of this Part VIII (Overview of Lloyd’s of London)). Certain outgoings can be paid out of the PTF, which will reduce the amount of premium, and therefore investment income, that can be earned. These permitted deductions include: (a) claims paid; (b) reinsurance premiums paid by the syndicate; (c) fees, expenses and commissions of the managing agent and the fees and expenses of the PTF trustees; (d) expenses of running the syndicate; (e) contributions and fees payable to the Central Fund (please refer to section 8.3 of this Part VIII (Overview of Lloyd’s of London)); and (f) payment of certain overseas taxes.

8.2 Funds at Lloyd’s Members of Lloyd’s are required to provide capital to support their underwriting business. This is known as the “Funds at Lloyd’s” (or “FAL”). The provision of such funds by members is supervised by Lloyd’s under the direction of the PRA and FCA. The capital can be lodged in a number of ways including by, or by a combination of, the deposit of cash or investments, a letter of credit, bank guarantee, or a covenant and charge.

The amount of insurance business a member can underwrite (its “Overall Premium Limit” (“OPL”) or “capacity”) is determined by the amount of capital the member puts at risk: its FAL. The amount of funds required from members will vary, depending on the perceived level of risk in the business which they underwrite. Members may be required to arrange additional FAL to increase or maintain OPL when such funds have been depleted by losses or were used to pay off years of account, cash calls or run-off account deficiencies. For more information on the amount of FAL members are required to provide, please refer to Part X (Regulatory Overview).

A member’s FAL is held in accordance with the terms of prescribed form Lloyd’s Deposit Trust Deeds. Lloyd’s determines the investment criteria applicable to funds held within a member’s FAL, but within the constraints of those criteria a member is able to determine the portfolio constitution of those assets.

8.3 Mutual assets This comprises (i) the “Central Fund”, funded by annual contributions of members and externally funded subordinated debt securities issued by the Corporation in 2004 and 2007; and

101 (ii) supplementation of a “callable layer” of up to 3% of members’ allocated capacity (i.e. members’ OPL). The annual contributions required by members are determined by special resolution of the Council (please refer to section 5 of this Part VIII (Overview of Lloyd’s of London)). For 2013, annual contributions are set at 0.5% of a member’s written premium for the year of account (adjusted retrospectively by reference to audited syndicate returns). The callable layer forms a reserve fund and is drawn upon as and when required from members’ PTF to meet payments out of the Central Fund. The Central Fund is a fund of last resort: a safeguard for policyholders should a member fail to meet insurance liabilities in full. Where a member has insufficient assets on an individual basis, assets in the Central Fund can be earmarked to cover that member’s liabilities if it should prove necessary, at the discretion of the Council. As such, the assets of the Central Fund belong to Lloyd’s and, unless and until they are applied, no member or policyholder has any interest in them. The net assets of the Central Fund as at 30 June 2013 were £2.4 billion.

9. Settlement of claims Lloyd’s has a series of claim schemes, which enable brokers to restrict their payment claims to the leading underwriter on a slip and/or a claims office with authority to settle claims on behalf of all the syndicates. For claims made after 31 December 2009, the lead underwriter determines standard claims on behalf of the leading syndicate and followers. For complex claims, the lead underwriter and second underwriter both determine claims on behalf of their own syndicate and followers, and the lead and second underwriters must use best endeavours to agree. Lloyd’s has a dispute resolution procedure to be followed by managing agents before they can bring legal proceedings against each other to determine a claim. Leaders and scheme service providers are required to handle claims in accordance with the Lloyd’s Claims Management Principles.

10. Accounts and financial reporting EU Directives and the Lloyd’s Accounts Regulations require the production of syndicate accounts (for each syndicate); underwriting year accounts (in respect of any year of account closed during or at the end of the preceding financial year); aggregate accounts (for Lloyd’s members as a whole) and company accounts (for each corporate member). Since January 2005, Lloyd’s syndicates have reported audited accounts on an annual basis (previously they used three-year accounting).

The syndicate accounts, along with respective audit and annual reports and the underwriting year accounts, along with a respective managing agent report, must be sent to each member of the syndicate and the Council within three months and to the PRA within six months of the financial year end. The annual report, which is prepared by the Council in relation to audited aggregate accounts must be delivered to the PRA and FCA and made available to the public.

Lloyd’s also prepares audited annual accounts which it publishes in the Lloyd’s Annual Report together with (unaudited) pro forma financial statements which show the financial results of Lloyd’s and its members taken together and their net assets compared with general insurance companies. The pro forma financial statements include the aggregate of syndicate annual accounts, members’ FAL, assets of Lloyd’s itself, and the Central Fund.

11. Lloyd’s credit ratings The current credit ratings given to Lloyd’s by global rating agencies are: Standard and Poor’s (A+, Strong); Fitch (A+, Strong); and A.M. Best (A, Excellent). These ratings apply to all syndicates. All three credit rating agencies are registered in the EU under Regulation (EC) No 1060/2009 (as amended); for more information, please refer to section 8 of Part V (Presentation of Information).

102 PART IX — DIRECTORS, SENIOR MANAGEMENT AND CORPORATE GOVERNANCE

1. Directors The current members of the Board are:

Name Position Date of birth

Dr Richard Ward Chairman (independent) 6 March 1957 Mark Cloutier Chief Executive Officer 30 July 1955 Ipe Jacob Non-Executive Director (independent) 11 October 1952 Hans-Peter Gerhardt Non-Executive Director (independent) 17 May 1955 Willem Stevens Non-Executive Director (independent) 10 February 1938 Maarten Hulshoff Non-Executive Director (independent) 24 July 1947 Sachin Khajuria Non-Executive Director 16 July 1976 Gernot Lohr Non-Executive Director 4 April 1969 Kamil Salame Non-Executive Director 2 January 1969 Jonathan Feuer Non-Executive Director 22 July 1962

The business address of each Director is: 55 Bishopsgate, London EC2N 3AS.

Dr Richard Ward — Chairman Dr Richard Ward was appointed Chairman of Brit Insurance Holdings B.V. in February 2014. He is also the Chairman of the board of BSL. He serves on the board of Brit PLC and is Chairman of the Nomination Committee. Previously, he served as Chief Executive of Lloyd’s from April 2006 to December 2013. He served as CEO at the International Petroleum Exchange (IPE), re-branded ICE Futures from 1999 to October 2005 and vice-chairman from October 2005 until April 2006. Prior to this, Dr. Ward held a range of senior positions at BP, after pursuing a scientific career with the Science & Engineering Research Council (SERC). He is a board member of Partnership Assurance Group PLC.

Mark Cloutier — Chief Executive Officer Mr Cloutier was appointed Chief Executive Officer of the Group in October 2011. He serves on the boards of Brit PLC, Brit Insurance Holdings B.V. and BSL and is a member of the Investment Committee and the Underwriting Committee. With over 35 years’ experience working in the international insurance and reinsurance sector he holds a number of non-executive positions and has held a number of CEO and senior executive positions, including CEO of the Alea Group, CEO of Overseas Partners Re and President of E.W. Blanch Insurance Services Inc. He has worked with a variety of private equity investors including Kohlberg Kravis Roberts (KKR) and Fortress.

Ipe Jacob — Non-Executive Director Mr Jacob serves on the boards of Brit PLC, Brit Insurance Holdings B.V. and BSL. He is also Chairman of the Audit Committee and the Risk Oversight Committee, as well as being a member of the Investment Committee. He is a fellow of the Institute of Chartered Accountants in England and Wales and has served on its Review Committee for six years. He has held various management positions, including setting up Grant Thornton’s Financial Services Group. During his career as a partner of Grant Thornton and predecessor firms, he has specialised in reorganisation and restructuring assignments in the financial services sector, particularly insurance and banking. Mr Jacob currently holds a number of non-executive roles including at City International Insurance Company Limited and Age UK Enterprises Limited, where he is also the Chair of the Audit & Risk Committee (this non-executive role will end 31 March 2014).

Hans-Peter Gerhardt — Non-Executive Director Mr Gerhardt serves on the boards of Brit PLC and Brit Insurance Holdings B.V. He is Chairman of both the Underwriting Committee and the Remuneration Committee. He has more than 30 years of extensive experience in the reinsurance sector in a range of senior roles with major global reinsurance companies. Mr Gerhardt started his reinsurance career at Hannover Re, where he spent seven years

103 underwriting treaty businesses for the US and South Africa markets. From 1988 to 2003, he held both underwriting and management functions for Cologne Re Group which merged into General Cologne Re where he served as Vice-Chairman of the management Board of Cologne Re as well as a member of the General Re group’s Executive Committee. During this period, Mr Gerhardt was also Chairman of Faraday, General Cologne Re’s London operations, and Europa Re. He then joined the AXA Group in 2003 as Chief Executive Officer of AXA Re and in addition served as Chairman of AXA Liabilities Managers (run-off operations). Mr Gerhardt’s last executive position was as Chief Executive Officer of Paris Re, which he created in 2006 with the support of private equity investors to acquire the business and management team of AXA Re. Paris Re was acquired by Partner Re in 2009 and he stepped down in June 2010 after the completion of the merger. Mr Gerhardt is a non-executive director of Asia Capital Re, and a non-executive director elect of African Risk Capacity Insurance Co. of Bermuda.

Willem Stevens — Non-Executive Director Mr Stevens serves on the boards of Brit PLC and Brit Insurance Holdings B.V.. He is a Dutch National and an independent counsel on legal, tax and corporate governance issues. He is a former senior partner of Baker & McKenzie in Amsterdam. He is a member of the supervisory Board of AZL N.V., Stichting Exploitatie Nederlandse Staatsloterij and Stichting Holland Casino. He is vice-chairman of the supervisory council of Stichting Diabetes Onderzoek Nederland, a managing director of Michelin Finance B.V., and chairman of the Voting Foundation of Sequoia Healthcare, Stichting VEROZ and the Voting Foundation of uniQure N.V.. He is a governor of the Harvard Law School Association of Europe.

Maarten Hulshoff — Non-Executive Director Mr Hulshoff serves on the boards of Brit PLC and Brit Insurance Holdings B.V., is a member of the Audit Committee and the Risk Oversight Committee, as well as being chairman of the Investment Committee. He is a Dutch national and holds a master’s degree in economics from the Erasmus University of Rotterdam in the Netherlands. He has held various management positions with Citigroup in Europe and Asia and has been Chairman of the managing Board of NCM (renamed Atradius), Chief Executive Officer of Rabobank International and Chairman of the Management Board of Rodamco Europe (merged into Unibail-Rodamco). He currently holds a number of senior board positions within a number of major companies, including as a member of the supervisory board of Goedland N.V., a member of the board of Damen Shipyards Group and a member of the board of HB Reavis Group.

Sachin Khajuria — Non-Executive Director Mr Khajuria is a partner of Apollo. He focuses on private equity and distressed debt opportunities and has 17 years of experience financing, analysing and managing investments. He serves on the boards of Brit PLC and Brit Insurance Holdings B.V.. He is a member of the Audit Committee, the Risk Oversight Committee and the Underwriting Committee. Mr. Khajuria graduated with honours from the University of Cambridge with BA and MA degrees in economics, and is a member of Trinity College.

Gernot Lohr — Non-Executive Director Mr Lohr serves on the boards of Brit PLC and Brit Insurance Holdings B.V. He is a member of the Nomination, Remuneration and Investment Committees. A German national, Mr Lohr joined Apollo in 2007 after having been a founding partner at Infinity Point LLC, Apollo’s joint venture partner for the financial services industry since 2005. Before that time he spent eight years in financial services investment banking at Goldman Sachs & Co in New York. He also worked at McKinsey & Company and B. Metzler Corporate Finance in Frankfurt. He is a director of Athene Re and was a director of Countrywide. He graduated from the University of Karlsruhe, Germany, with a joint Master’s Degree in Economics and Engineering and holds an MBA from the MIT Sloan School of Management.

Kamil Salame — Non-Executive Director Mr Salame serves on the boards of Brit PLC and Brit Insurance Holdings B.V. He is a member of the Audit, Risk, Investment and Underwriting Committees. A US national, Mr Salame is a partner of CVC and US Head of CVC’s Financial Institutions Group. In addition to Brit Insurance, he currently serves on the boards of Avolon Aerospace Limited and CL Acquisition Holdings Limited. Mr. Salame was a director of Aspen from its formation in 2002 until 2007 and a director of Montpelier Re from its formation in 2001 to 2006. Mr. Salame received a BS from Georgetown University, an MBA from Columbia Business School and a JD from Columbia University School of Law, where he was a Harlan Fiske Stone Scholar.

104 Jonathan Feuer — Non-Executive Director Mr Feuer serves on the boards of Brit PLC and Brit Insurance Holdings B.V. He is a member of the Remuneration Committee and the Nomination Committee. He is managing partner and head of the Financial Institutions Group at CVC, having joined in 1988. He previously worked for Baring Brothers & Co. Ltd in London in the corporate finance department and Ernst & Whinney in London where he qualified as a chartered accountant. Mr Feuer is currently a director on the boards of CVC Capital Partners SICAV-FIS S.A., CVC Capital Partners Ltd and CL Acquisition Holdings Limited. He holds an MSc Degree in Mathematics, Operational Research, Statistics and Economics from the University of Warwick.

2. Senior Management The current members of the Senior Management team with responsibility for day-to-day management of the Group’s business are:

Andrew Baddeley — Chief Financial Officer Andrew joined Brit as Chief Financial Officer in April 2013 and is a member of the Executive Management Committee. Andrew is a director of BSL and BIG. Andrew joined Brit from Atrium Underwriting Group Limited where he had been Group Finance Director for five years. Prior to working for Atrium, Andrew worked at General Re Corporation/Faraday for nine years in various roles that included being CFO of their UK and Irish companies. He has also worked at Ernst & Young and PricewaterhouseCoopers as an insurance tax specialist. Andrew is a Chartered Accountant and a member of the Chartered Institute of Taxation.

Matthew Wilson — Chief Underwriting Officer Matthew is CEO of Brit Global Specialty and Active Underwriter for Syndicate 2987. He serves on the boards of BSL, BGS Services (Bermuda) Limited and Brit Insurance Services USA Inc (“BISI”) and was appointed to the board of the LMA in May 2011. Matthew began his career at Lloyd’s in 1988. He joined Brit in 1999 to start up the International Property Division. He was appointed as CEO of Brit Global Markets in May 2008 which subsequently became Brit Global Specialty in February 2012 combining the Group’s reinsurance and global markets divisions to form one Lloyd’s platform. Matthew became a member of the Executive Management Committee with effect from January 2009. Matthew is a Chartered Insurer, and an associate of the Chartered Insurance Institute.

Mark Allan — Chief Risk Officer and Director of Strategy Mark was appointed as Chief Risk Officer and Director of Strategy in October 2012 and is a member of the Executive Management Committee. Mark joined Brit in April 2010 and led the Group’s strategic review and corporate restructuring as the Director of Strategic Planning and Business Improvement prior to his appointment as Chief Risk Officer. Mark joined Brit from McKinsey & Company where he led high-profile strategic projects for a range of large clients, predominantly in financial services. Mark is also a Fellow of the Institute of Actuaries, and originally worked as an actuarial consultant at Mercer. He holds an MA (hons) degree in Mathematics from the University of Cambridge.

Nigel Meyer — Chief Operating Officer Nigel joined Brit in 2011 and was appointed as Chief Operating Officer in April 2013, having served as Chief Financial Officer since March 2012. He sits on the board of Brit Insurance Holdings Limited, is a member of the Executive Management Committee and is a director of several subsidiaries. Nigel has over 15 years’ experience within general insurance, having held senior management positions within Aviva and RSA. He qualified as a Chartered Accountant with Arthur Andersen in London and worked within the technology sector for Intel Corporation prior to moving into insurance.

Shane Kingston — Chief Actuary Shane was appointed Chief Actuary for the Brit Group in late 2010 and is a member of the Executive Management Committee. Shane commenced his actuarial career in 1994 working for National Provident Institution, a life and pensions company, where he spent six years before moving into health insurance with AXA PPP Healthcare, managing the actuarial pricing and capital modelling capability for the organisation. Shane remained at AXA for over four years before a move into the general insurance arena led him to Brit in 2005 where he has undertaken various roles managing the reinsurance and

105 global markets actuarial teams and the catastrophe modelling team, culminating in his appointment to Chief Actuary. Shane holds a BSc degree in Statistics and a M.Litt degree in Management, Economics and Politics, both from St. Andrews University. He is a Fellow of the Institute of Actuaries.

John Stratton — Chief Investment Officer John joined the Group in April 2012 and serves on the BSL board. He joined from Insurance Australia Group (IAG) where he had been since 2003, latterly as CIO and Head of Asset Management. Prior to joining IAG John held positions in asset management at AXA Australia and Merrill Lynch Mercury Asset Management. He began his career at National Australia Bank working in both Melbourne and London. John is a graduate of the University of Western Australia.

Steve Robson — Group Head Claims Steve joined the Group in July 2012 and serves on the BSL board. He has over 30 years of claims experience in the London Market and joined Brit from Alterra at Lloyd’s Ltd (part of the Alterra Capital Group) where he was the Claims Director for eight years. Steve has regularly worked as an expert witness and arbitrator in both the UK and US as a member of ARIAS. He is a Board director of the International Association of Claims Professionals and an elected member of the LMA Claims Committee. Steve has a Masters Degree in Business Administration (MBA).

Lorraine Denny — Group Human Resources Director and Corporate Services Lorraine is a member of the Executive Management Committee, serving on the board of Brit Group Services Ltd. Her responsibilities include Human Resources, Corporate Services, Media relations and Communications. She has previously held a number of senior positions in both the Investment Banking and Insurance sectors. She has a wealth of strategic HR and business experience within the international financial services industry including the Automobile Association; Guardian Royal Exchange; Donald Lufkin and Jenrette and the Alea Group.

3. The Board and corporate governance The Group is firmly committed to high standards of corporate governance and maintaining a sound framework for the control and management of its business. As a general insurer, the Group was regulated by the FSA (and is now regulated by the PRA and FCA) in the United Kingdom. Accordingly, many of the corporate governance practices and principles expected of listed companies are already well-established within the Group. The Board comprises ten members, including the Chairman and eight Non-Executive Directors and the Executive Director. The Board regards Dr. Richard Ward, Ipe Jacob, Hans-Peter Gerhardt, Willem Stevens and Maarten Hulshoff as independent for the purposes of the UK Corporate Governance Code. Ipe Jacob will initially be the Company’s senior independent director. Sachin Khajuria, Gernot Lohr, Kamil Salame and Jonathan Feuer, as Representative Directors nominated by the Major Shareholders, are not regarded as independent for the purposes of the UK Corporate Governance.

3.1 The Board The Board is responsible for leading and controlling the Group and has overall authority for the management and conduct of the Business and the Group’s strategy and development. The Board is also responsible for ensuring the maintenance of a sound system of internal control and risk management (including financial, operational and compliance controls, and for reviewing the overall effectiveness of systems in place), and for the approval of any changes to the capital, corporate and/or management structure of the Group.

3.2 Compliance with corporate governance requirements Other than as set out in the following three paragraphs, from Admission the Company will comply, and intends to continue to comply, with the requirements of the UK Corporate Governance Code, which sets out standards of good practice in relation to board leadership and effectiveness, remuneration, accountability and relations with shareholders.

The UK Corporate Governance Code recommends, in the case of a FTSE 350 company, that at least half the board of directors (excluding the chairman) should comprise ‘independent’ non-executive directors, being individuals determined by the board to be independent in character and judgement and

106 free from relationships or circumstances which may affect, or could appear to affect, the directors. From Admission, the Company, assuming it becomes a FTSE 350 company, will not comply with this aspect of the UK Corporate Governance Code because, out of nine Directors (being the Board excluding the Chairman), only four will be deemed to be independent (Ipe Jacob, Willem Stevens, Maarten Hulshoff and Hans-Peter Gerhardt). The Board believes that this will not have an impact on the Group’s governance in practice, and it is common for newly listed companies. The Board expects the position to change over time either by virtue of new appointments or if the Major Shareholders sell down their interests further following Admission.

As envisaged by the UK Corporate Governance Code, the Board has established Audit, Remuneration and Nomination Committees. The Board has also established a Risk Oversight Committee, an Underwriting Committee and an Investment Committee. These are in addition to the management committees.

The Audit, Remuneration and Nomination Committees are not fully compliant with the UK Corporate Governance Code due to the number of independent Non-Executive Directors on them. The Board believes that this is appropriate given the extent to which the Major Shareholders are represented on the Board and the size of the Major Shareholders’ shareholdings in the Company, and that this will not have an impact on the Group’s governance in practice.

(A) Audit Committee The UK Corporate Governance Code recommends that the Audit Committee comprises at least three members who are all independent non-executive directors, including one member with recent and relevant financial experience. The Audit Committee currently comprises two members that are independent Non-Executive Directors: Ipe Jacob and Maarten Hulshoff, and two Non-Executive Directors who are not deemed to be independent for the purposes of the UK Corporate Governance Code: Sachin Khajuria and Kamil Salame. The committee is chaired by Ipe Jacob. Appointments to the Audit Committee are made by the Board upon recommendation of the Nomination Committee in consultation with the chairman of the Audit Committee.

The Audit Committee shall meet at least quarterly. The external auditors, CFO, Head of Internal Audit, CRO and Head of Compliance of the Company, as well as any directors or executives of Apollo or CVC, shall be invited to attend the meetings of the Audit Committee on a regular basis. At least once a year, the Audit Committee shall meet with the external auditors in the absence of executive directors or other members of management. In addition, the Audit Committee will meet the Head of Internal Audit at least twice a year in the absence of executive directors or other members of management.

The responsibilities of the Audit Committee include, among other things: (i) the monitoring of the financial integrity of the financial statements of the Group and the involvement of the Group’s auditors in that process; (ii) compliance with accounting policies; and (iii) ensuring that an effective system of internal financial control is maintained. The ultimate responsibility for reviewing and approving the annual report and accounts and the half-yearly reports remains with the Board.

The terms of reference of the Audit Committee cover such issues as membership and the frequency of meetings, as mentioned above, together with requirements of any quorum for and the right to attend meetings. The duties of the Audit Committee covered in the terms of reference are: (i) external audit; (ii) internal audit; (iii) financial reporting; (iv) narrative reporting; and (v) internal controls. The terms of reference also set out the authority of the Audit Committee to carry out its duties.

(B) Remuneration Committee The UK Corporate Governance Code recommends that the Remuneration Committee shall consist of at least three members, who are all independent non-executive directors. The Remuneration Committee currently comprises two members who are independent Non-Executive Directors: Hans-Peter Gerhardt and Richard Ward, and two Non-Executive Directors who are not deemed to be independent for the purposes of the UK Corporate Governance Code: Gernot Lohr and Jonathan Feuer. The committee is chaired by Hans-Peter Gerhardt. Appointments to the Remuneration Committee are made by the Board upon recommendation of the Nomination Committee in consultation with the chairman of the Remuneration Committee.

The responsibilities of the Remuneration Committee include, among other things: (i) the determination of specific remuneration packages for each of the Chairman, the Executive Directors and certain senior

107 executives of the Group, including pension rights and any compensation payments; (ii) recommending and monitoring the level and structure of remuneration for Senior Management; and (iii) the implementation of share option, or other performance-related schemes. The Remuneration Committee shall meet at least twice a year.

The terms of reference of the Remuneration Committee cover such issues as membership and frequency of meetings, as mentioned above, together with the requirements for quorum for and the right to attend meetings. The duties of the Remuneration Committee covered in the terms of reference relate to the following: (i) determining and monitoring the remuneration policy (such policy to be subject to a binding shareholder vote) and determining, within the parameters of that policy, levels of remuneration, early termination, performance-related pay and pension arrangements; (ii) agreeing the policy for authorising claims for expenses from the directors; (iii) reporting and disclosure; (iv) share schemes; (v) clawback; and (vi) shareholder consultation. The terms of reference also set out the reporting responsibilities and the authority of the committee to carry out its responsibilities. The Remuneration Committee will be required to produce compliance statements relating to the remuneration policy and the implementation of that policy for the Group’s annual report.

(C) Nomination Committee The UK Corporate Governance Code recommends that the majority of the members of the Nomination Committee shall be independent non-executive directors. The Nomination Committee currently comprises one independent Non-Executive Director: Richard Ward, and two Non-Executive Directors who are not deemed to be independent for the purposes of the UK Corporate Governance Code: Gernot Lohr and Jonathan Feuer. The Nomination Committee is chaired by Richard Ward. Appointments to the Nomination Committee are made by the Board.

The responsibilities of the Nomination Committee include, among other things: (i) considering and making recommendations to the Board in respect of appointments to the Board, the Board committees and the chairmanship of the Board; (ii) keeping the structure, size and composition of the Board under regular review; (iii) making recommendations to the Board with regard to any changes necessary; and (iv) ensuring that the evaluation of the Board is externally facilitated at least every three years. The Nomination Committee shall meet at least twice a year.

The terms of reference of the Nomination Committee cover such issues as membership and frequency of meetings, as mentioned above, together with the requirements for quorum for and the right to attend meetings. The duties of the Nomination Committee covered in the terms of reference relate to the following: (i) succession planning; (ii) taking into account the skills and expertise that will be needed on the Board in the future; and (iii) reviewing letters of appointment and service contracts. The terms of reference also set out the authority of the committee to carry out its duties.

(D) Risk Oversight Committee The Risk Oversight Committee shall consist of not less than three members (at least one of which shall be nominated by Apollo and at least one of which shall be nominated by CVC). The Risk Oversight Committee currently comprises Maarten Hulshoff, Ipe Jacob, Sachin Khajuria and Kamil Salame. The Risk Oversight Committee shall be chaired by Ipe Jacob. Appointments to the Risk Oversight Committee are made by the Board upon recommendation of the Nomination Committee. The Risk Oversight Committee shall meet not less than six times a year. The CRO shall attend the meetings of the Risk Oversight Committee. The responsibilities of the Risk Oversight Committee include: (i) approving, challenging the effectiveness of and monitoring compliance with the Group’s risk management framework and internal control policies; (ii) reviewing risk exposures and the status and impact of key current and emerging risks; and (iii) providing advice and recommendations to the Board in relation to the adequacy of controls and risk tolerance within the Group. The terms of reference of the Risk Oversight Committee cover such issues as membership and frequency of meetings, as mentioned above, together with the requirements for quorum for and right to attend meetings. The terms of reference also set out the authority of the committee to fulfil its responsibilities.

108 (E) Investment Committee The Investment Committee shall consist of not less than four members (at least one of which shall be nominated by Apollo and at least one of which shall be nominated by CVC). The Investment Committee currently comprises Maarten Hulshoff, Ipe Jacob, Gernot Lohr and Kamil Salame. The Investment Committee is chaired by Maarten Hulshoff. The CEO, CIO, CFO and CRO shall normally attend the meetings of the Investment Committee. Appointments to the Investment Committee are made by the Board upon recommendation of the Nomination Committee. The Investment Committee shall meet not less than four times a year.

The responsibilities of the Investment Committee include: (i) providing advice and recommendations to the Board to inform strategy and optimise the Group’s investment performance; and (ii) reviewing quarterly investment results, quarterly investment risk tolerance and risk appetite metrics and any investment risk taking activities within the Group.

The terms of reference of the Investment Committee cover such issues as membership and frequency of meetings, as mentioned above, together with the requirements for quorum for and right to attend meetings. The terms of reference also set out the authority of the committee to fulfil its responsibilities.

(F) Underwriting Committee The Underwriting Committee shall consist of not less than four members, including the CEO and three Directors (at least one of which shall be nominated by Apollo and at least one of which shall be nominated by CVC). The Underwriting Committee currently comprises Mark Cloutier, Hans-Peter Gerhardt, Sachin Khajuria and Kamil Salame. The Underwriting Committee is chaired by Hans-Peter Gerhardt. Appointments to the Underwriting Committee are made by the Board upon recommendation of the Nomination Committee. The Underwriting Committee shall meet not less than five times a year. The CFO, the CRO and the CEO of BGSU shall normally attend the meetings of the Underwriting Committee.

The responsibilities of the Underwriting Committee include: (i) providing advice and recommendations to the Board to inform strategy and optimise the Group’s underwriting performance; and (ii) reviewing business plans, quarterly underwriting results, quarterly underwriting risk tolerance and risk appetite metrics, the skills of the underwriting team and any underwriting risk taking activities within the Group.

The terms of reference of the Underwriting Committee cover such issues as membership and frequency of meetings, as mentioned above, together with the requirements for quorum for and right to attend meetings. The terms of reference also set out the authority of the committee to fulfil its responsibilities.

3.3 Model Code From Admission, the Company shall require the Directors and other persons discharging managerial responsibilities within the Group to comply with the Model Code, and shall take all proper and reasonable steps to secure their compliance.

3.4 FCA Consultation on enhancing the effectiveness of the Listing Regime On 5 November 2013, the FCA published Consultation Paper 13/15 ‘‘Enhancing the effectiveness of the Listing Regime and further consultation’’ which proposed the introduction of amendments to the Listing Rules in respect of a premium listed company where one shareholder is, or a group of shareholders acting in concert are, considered to be a ‘‘controlling shareholder’’. As at 27 March 2014 (the latest practicable date prior to the publication of this Prospectus), the proposed amendments had not yet been adopted. Were any amendments to the Listing Rules adopted (as currently proposed or otherwise), the Company and the Major Shareholders have indicated that they intend to be supportive of implementing any changes as may be necessary to ensure that the Company complies with such amendments, subject to any transitional arrangements that may be permitted. The Relationship Agreements have been designed to be compliant with the expected amendments to the Listing Rules in relation to such agreements.

4. Takeover Code The Takeover Code is issued and administered by the Takeover Panel. The Company will, following Admission, be subject to the Takeover Code and, therefore, its Shareholders will, following Admission, be entitled to the protections afforded by the Takeover Code. For more information about the Takeover Code (in particular the rules on mandatory bids), please refer to section 7 of Part XVI (Additional Information).

109 PART X — REGULATORY OVERVIEW

The Group is subject to regulation and supervision by the PRA and FCA in relation to the carrying on of its regulated activities in the United Kingdom and by the FSC in Gibraltar. The Group is also subject to regulatory standards set by Lloyd’s of London by way of its operations in the Lloyd’s market.

The Group contains the following regulated entities:

UK: Brit Syndicates Limited (BSL), which is the managing agent for Brit UW. Brit UW is a member of Lloyd’s and the sole member of Syndicate 2987. Brit Insurance Services Limited is an appointed representative of BSL.

US: Brit Insurance Services USA, Inc. which is a licensed managing general agent for the Group in the US.

Gibraltar: Brit Insurance (Gibraltar) PCC Limited (BIG), which is the Group’s captive insurer and enters into certain intra-group reinsurance arrangements.

Bermuda: BGS Services (Bermuda) Limited, which is a licensed insurance agent for the Group in Bermuda.

UK UK Regulatory Framework Dual-regulation by PRA and FCA Since 1 April 2013, the PRA and the FCA have been the regulators for persons authorised under the Financial Services and Markets Act 2000 (as amended, including by FSMA to undertake regulated activities in the financial services sector in the UK. The PRA (a subsidiary of the Bank of England) oversees and is responsible for the micro-prudential regulation of banks, insurers and some large investment firms. The FCA (a separate legal entity) is responsible for conduct of business regulation for all authorised firms, market regulation and the prudential regulation of firms not authorised by the PRA. The Financial Policy Committee (which also sits within the Bank of England) is responsible for the macro-prudential regulation of the entire financial services sector.

As a Lloyd’s managing agent, BSL is authorised and regulated by the PRA as well as having its conduct of business regulated by the FCA and is therefore a dual-regulated firm. The PRA and the FCA have extensive powers to supervise and intervene in the affairs of regulated firms, for example, if they consider it appropriate in order to protect policyholders against the risk that the firm may be unable to meet its liabilities as they fall due, that the Threshold Conditions (see further below) may not be met, that the firm or its parent has failed to comply with obligations under the relevant legislation or rules, that the firm has furnished them with misleading or inaccurate information or that there has been substantial departure from any proposal or forecast submitted to the relevant regulator.

The PRA and the FCA also have the power to take a range of disciplinary and enforcement actions in relation to a breach by a firm of FSMA or the rules made under FSMA as set out in PRA Handbook of Rules and Guidance, the PRA’s Rulebook and other guidance and supervisory statements that the PRA may publish from time to time (the “PRA Handbook”) and in the FCA Handbook of Rules and Guidance (the “FCA Handbook”) respectively. Such disciplinary and enforcement actions may include private censure, public censure, restitution, fines or sanctions and the award of compensation. The PRA (or, where relevant, the FCA) may also cancel or vary (including by imposing limitations on) a Part 4A permission (see below) of a firm.

Lloyd’s of London For an overview of the operation of Lloyd’s, please refer to Part VIII (Overview of Lloyd’s of London).

The Society of Lloyd’s is itself authorised by the PRA and regulated by the PRA and the FCA and its senior personnel are required to be approved by the regulators. Lloyd’s regulated activities include arranging deals in contracts written at Lloyd’s (the basic market activity), arranging deals in Lloyd’s syndicates (the secondary market activity) and carrying out any activity in connection with, or for the

110 purposes of, these two activities (article 14 of the Financial Services Act 2012 (Transitional Provisions) (Permission and Approval) Order 2013). The EU Insurance Directives (see further below) apply to Lloyd’s as an insurance undertaking but with specific provision for the Lloyd’s market.

The Council of Lloyd’s is the governing body of the Lloyd’s market and under the Lloyd’s Act 1982 (the “1982 Act”) it is responsible for the management and supervision of the Lloyd’s market. Under the 1982 Act, the Council has the power to regulate and direct the business of the market, and to make byelaws. Lloyd’s market rules are set out in the byelaws, and in other guidance, codes of conduct and bulletins issued by the Council or under its authority, although regulation of the Lloyd’s market is under the ultimate direction of the PRA and FCA.

Lloyd’s does not carry on insurance activity itself but regulates its members doing so. Members of Lloyd’s form and underwrite all insurance business via syndicates which consist of one or more such members. Lloyd’s supervises its own members (including in relation to setting the amount of capital required to be provided by each member to support its underwriting liabilities) under the direction of the PRA and the FCA. Members are not required to be authorised under FSMA but must abide by the Lloyd’s rules which means that they are indirectly regulated by the PRA and FCA given that Lloyd’s itself is a dual-regulated firm. Under section 318 FSMA, the PRA and the FCA can give directions to Lloyd’s in order to advance one or more of their statutory objectives, for example by imposing particular rules on members. Lloyd’s has a memorandum of understanding with the PRA and the FCA to assist with cooperation in supervision and enforcement.

As regards prudential requirements, the rules in the PRA’s General Prudential Sourcebook (“GENPRU”) and the Prudential Sourcebook for Insurers (“INSPRU”) (which form part of the PRA Handbook) apply to Lloyd’s as a whole with some modifications (see below: Prudential and capital requirements).

Syndicates are managed by managing agents who are authorised by the PRA and regulated by the PRA and the FCA.

Regulation of Lloyd’s Managing Agents — BSL Part 4A Permissions Under section 19 of FSMA it is unlawful to carry on the regulated business of being a Lloyd’s managing agent in the UK without permission to do so from the PRA under Part 4A of FSMA. A Lloyd’s managing agent will hold permissions for managing the underwriting capacity of a Lloyd’s syndicate as a managing agent at Lloyd’s, and usually also for insurance mediation activities such as dealing as agent, arranging, advising on investments, and assisting in the administration and performance of contracts of insurance. BSL holds all these permissions.

At the point of authorisation (on the granting of Part 4A permissions) and at all times thereafter, managing agents must meet specified Threshold Conditions which are set out in Schedule 6 of FSMA. The PRA and FCA have their own sets of Threshold Conditions and as a dual-regulated firm, BSL must comply with both. The Threshold Conditions relate to matters including the adequacy of the firm’s financial and other resources and whether a firm is a fit and proper person to conduct its regulated activities, having regard to all the circumstances (including whether the firm’s affairs are conducted soundly and prudently).

When granted, a Part 4A permission will specify: a description of the activities the managing agent can carry on, including any limitations on the scope of the permission; the specified investments to which the permission relates; and requirements imposed in relation to the permission to require the firm to take or to refrain from taking specified action. These requirements may relate to a range of matters, including the scope of a firm’s business, capital, liquidity and interactions with affiliates. Once authorised, in addition to continuing to meet the Threshold Conditions, managing agents must comply with the core requirements of the PRA and FCA Handbooks which apply to them.

Additionally, a managing agent needs the approval of the Lloyd’s Franchise Board to manage a syndicate.

A managing agent must also obtain prior approval from the PRA or the FCA (depending on the function in question) for any individual who carries on one or more specified “controlled functions”, such as

111 executive or non-executive directors and persons responsible for risk management, internal audit or compliance. The relevant regulator will only approve an individual if it is satisfied that such individual is “fit and proper” to carry out the controlled function in question, including the person’s honesty, integrity and reputation, competence and capability for the roles that the person is to assume in the firm and his financial soundness. If an individual is applying for approval to perform “significant influence functions” (which are, broadly, controlled functions relating to key management, compliance and operation roles), the PRA and/or FCA’s assessment of the applicant’s fitness and propriety often includes an interview. Once approved, these individuals are known as “Approved Persons” and are subject to direct regulation by the appropriate regulator.

Approved Persons must comply with the Principles and Code of Practice for Approved Persons (“APER”) set out in the PRA and FCA Handbooks. The PRA and/or the FCA can take disciplinary action against Approved Persons who breach the provisions of APER or any other relevant provisions of the Handbooks.

Prudential and capital requirements The capital structure of Lloyd’s is more fully set out in Part VIII (Overview of Lloyd’s of London) but in summary there are three parts to the “chain of security”: • Syndicate level assets: The insurance premiums which are collected by members and held in a premium trust fund for the benefit of policyholders whose contracts are underwritten by the syndicate. These monies are the first resource used for paying claims made by the members’ policyholders from that syndicate. • Funds at Lloyd’s: Each member must provide capital to support its underwriting at Lloyd’s. This capital is held on trust as a buffer to back up each member’s underwriting liabilities in each syndicate in which it is a member. Lloyd’s considers the preparation of SCRs on an ultimate basis (uSCR) to be an appropriate and prudential method of meeting the capital requirements of the Individual Capital Adequacy Standards regime (under the rules set out in GENPRU and INSPRU). In relation to each syndicate Lloyd’s takes the uSCR, which is calculated by managing agents (see further below), and applies an “Economic Capital Uplift” to it (which was 35% for the 2014 underwriting year of account). These are then used to calculate each member’s capital resources requirement in proportion to its share of each syndicate of which it is a member. • Mutual assets (Central Fund and callable layer): Members make annual contributions to the Central Fund which can be used to pay out in relation to the claims against any member who fails to meet its insurance liabilities in full. In addition this is supplemented by a “callable layer” of up to 3% of members’ overall premium limits which the Society can call upon to meet claims.

Lloyd’s is also required to conduct a capital requirement assessment for the whole market to determine the optimum level of central assets. It must comply with the reporting requirements of the Interim Prudential Sourcebook for Insurers in respect of its members and itself submits an annual return to the PRA.

As dual-regulated firms in their own right, managing agents such as BSL are under an obligation to manage the syndicate assets and the insurance business carried on by members of the syndicate in accordance with GENPRU and INSPRU. This requires managing agents to ensure that the financial resources for each syndicate they manage and the capital resources at syndicate level are adequate, and that they establish and maintain systems and controls for the management of prudential, credit, market, operational and insurance risks for each syndicate.

Managing agents must calculate capital resources at syndicate level under the rules in GENPRU and INSPRU and in particular must calculate an SCR for each syndicate (which captures the risks that will emerge over the next 12 months) and a uSCR (which additionally captures potential adverse developments which may arise until all liabilities have been paid). The SCR and uSCR take into account the risks, controls and financial resources available to each syndicate, and are notified to Lloyd’s periodically.

Managing agents are also subject to their own qualifying capital and minimum net asset requirements.

112 Conduct of Business The FCA’s conduct of business requirements for managing agents can be found in the Insurance Conduct of Business Sourcebook of the FCA Handbook (“ICOBS”). These rules regulate the day-to-day conduct of business standards to be observed by managing agents involved in insurance mediation activities. Although the scope and range of obligations imposed by the ICOBS rules vary according to the scope of the firm’s business and the nature of its clients, generally the rules include the need to provide clients with information about the firm, meet certain standards of product disclosure, ensure that promotional materials are clear, fair and not misleading, assess suitability when advising on certain products, manage conflicts of interest, report appropriately to clients and provide certain protections in relation to client assets.

Consumer complaints and compensation Lloyd’s itself and managing agents are under the compulsory jurisdiction of the Financial Ombudsman Service (“FOS”) which has been set up under FSMA. Authorised firms must have appropriate complaints handling procedures but, where these are exhausted, the FOS provides for dispute resolution in respect of complaints brought by eligible complainants against applicable firms.

The FOS provides an additional route to customers bringing complaints in the courts and is empowered, upon determining a dispute in favour of a customer, to order a firm to pay fair compensation for any loss or damage it caused to the customer, or to direct a firm to take such steps in relation to the customer as the FOS considers just and appropriate, irrespective of whether a similar award could be made by a court. The FOS is funded by levies and case fees payable by firms covered by the FOS.

The Financial Services Compensation Scheme (“FSCS”) was established under FSMA and provides compensation to certain categories of customers who suffer losses as a consequence of the inability of a regulated firm to meet its liabilities arising from claims made in connection with regulated activities. The FSCS is funded by means of levies on all of its participating financial services firms, including Lloyd’s; Lloyd’s pays members’ and managing agents’ contributions out of the central fund (up to the first £10 million of levy charges, although this figure is reviewed on an annual basis).

Money laundering and other financial crime All FSMA authorised firms are required to undertake certain administrative procedures and checks, which are designed to prevent money laundering. Each of the PRA’s and FCA’s Senior Management Arrangements, Systems and Controls Sourcebook (contained in the relevant Handbook) contains rules which require firms to take reasonable care to establish and maintain effective systems and controls for countering the risk that the firm might be used to further financial crime. For these purposes, financial crime includes any offence involving fraud or dishonesty, misconduct in, or misuse of information relating to, a financial market or handling the proceeds of crime, as well as bribery and corruption offences. One of the FCA’s statutory objective is to protect and enhance the integrity of the UK financial system which includes, among other things, reducing the opportunity for the UK financial system to be used for purposes connected with financial crime.

Qualifying parent undertaking The PRA and FCA have the power, in certain circumstances, to give directions to certain “qualifying parent undertakings” of UK-authorised firms even where those parent undertakings are not themselves regulated. This power of direction allows the PRA or FCA to direct the parent to take or refrain from taking specified action or to remedy past actions in prescribed circumstances.

Change of control of authorised firms Under section 178 FSMA, if a person intends to acquire or increase “control” over a PRA-authorised firm (including a Lloyd’s managing agent), it must first notify and get prior approval from the PRA before becoming a “controller” or increasing its level of control above certain thresholds. A person must also notify the PRA when the transaction which results in this acquisition or increase of control takes place.

A proposed “controller” for the purposes of the change of control regime is any natural or legal person or such persons “acting in concert” who decides to acquire or increase, directly or indirectly, his, her or its control over a UK authorised firm.

113 “Control” over a UK authorised firm is acquired if the acquirer: • holds 10% or more (20% or more if the firm is an insurance intermediary) of the shares or voting rights in that company or in its (direct or indirect) parent undertaking; or • is able to exercise significant influence over the management of the firm by virtue of the acquirer’s shares or voting power in the company or its (direct or indirect) parent undertaking.

Increases of control of a PRA-authorised firm require the consent of the PRA where they reach the thresholds of 20, 30 and 50% of the shares or voting power in the firm or its parent. Reducing or proposing to reduce control below the relevant threshold also gives rise to an obligation to notify the PRA.

Breach of the notification and approval regime is a criminal offence.

The approval of the Council of Lloyd’s is also required in relation to the change of control of a Lloyd’s managing agent or member. Broadly, Lloyd’s applies the same tests in relation to control as are set out in FSMA (see above) and in practice coordinates its approval process with that of the PRA.

Other relevant issues for the insurance sector Gender discrimination in contracts of insurance In a 2011 decision, the European Court of Justice (“ECJ”) ruled that gender-related factors could not be used in determining premiums and benefits under insurance policies. This prohibition came into effect in the UK on 21 December 2012 by means of an amendment to the Equality Act 2012.

Data protection The Data Protection Act 1998 (“1998 Act”), which came into force on 1 March 2000, regulates in the UK the obtaining and use of personal data relating to living individuals. The 1998 Act gives effect to an EU Directive. Personal data includes any data about an individual (known as a “data subject”) by which he or she can be identified (including, for example, a name, address, age or bank or credit card details). The data need not in any sense be private. The 1998 Act applies to both computerised data and to certain sets of manual data such as address books and filing systems. It lays down certain principles which, in general, must be followed by those who hold personal data. The Group and everyone working in the Group’s business must comply with it. Breach of the 1998 Act may give rise to criminal or civil liability, and other enforcement action can be taken.

Ogden Tables If personal injury claims are determined or settled with lump sum payments, such payments are calculated in accordance with the “Ogden Tables”. The Ogden Tables contain a discount rate that is set by the UK government and that is applied when calculating the present value of loss of earnings for claims settlement purposes. A change in the discount rate used in the Ogden Tables would impact all relevant claims settled after that date, regardless of whether the insurance to which the claim relates was priced on that basis or not (or occurred after that date or not). A reduction in the Ogden discount rate will increase lump sum payments to personal injury claimants. The Ogden discount rate is currently 2.5%. This discount rate is currently under review. However the timing of the conclusion of this review is unclear and it is still uncertain whether, and by how much, the rate will change.

EU/EEA The regulatory framework within the UK is shaped to a certain degree by directives emanating from the EU. These directives are implemented into national legislation within each EU Member State. The directives are written at a high level and set minimum standards for national legislatures to adopt. National governments may not pass laws that fail to meet the minimum standards, but may (unless the directive is a “maximum harmonisation” directive) impose legal requirements that go beyond those required. The following key directives have particular relevance for the insurance and insurance mediation industries.

114 The European Union Life and Non-Life Insurance Directives (“EU Insurance Directives”) establish a framework for the regulation of insurance business in the EU which is extended to the EEA. The EU Insurance Directives provide that a firm which is authorised to carry on insurance business granted by the insurance regulator in an EEA Member State where the firm is incorporated or has its head office (a “home state regulator”) has a right to carry on insurance business anywhere else in the EEA (the “passporting right”). The home state regulator determines the procedures for exercising the passporting right depending on whether a firm proposes to establish a branch or to provide insurance services on a cross-border basis in another EEA Member State (a “host state”). Generally, the EU Insurance Directives reserve the prudential regulation of an insurance firm for its home state regulator, but allow the conduct of business and marketing requirements applicable in a host state to be determined by the host state regulator.

The Insurance Mediation Directive (“IMD”) requires EU Member States to ensure the registration of insurance intermediaries on the basis of minimum professional and financial requirements. Where intermediaries are registered with their relevant home state regulator, they are able to passport their services throughout the EU by providing cross-border services or establishing a branch. The IMD also imposes requirements on insurance intermediaries to provide specified minimum information to potential customers. BSL holds a number of outward passports to other Member States under the IMD.

The Group is also subject to the Insurance Groups Directive (98/78/EC) (the “IGD”) which requires it (among other things) to undertake and meet a group solvency calculation in addition to the solo requirements for BSL and BIG. For group supervision purposes, the Group is supervised by the FSC in Gibraltar. From 1 January 2016, the group supervision rules in Solvency II will apply to the Group in place of the IGD (please see below for further information on Solvency II). It is currently unclear precisely how these rules will apply to the Group. The Group anticipates that it will be classified as a mixed activity group under Solvency II and therefore will no longer be required to meet group solvency requirements. However, as guidance on the group supervision rules in Solvency II has yet to be published, the position cannot yet be confirmed.

Current and future regulatory developments, including the evolving Solvency II regime, are discussed in detail below.

FUTURE DEVELOPMENTS Solvency II The EU has for a number of years been developing proposals for the revision of insurance businesses’ solvency requirements under EU Insurance Directives.

Solvency II adopts a three pillar approach to prudential regulation, which is similar to the “Basel II” approach that has already been adopted in the banking sector in Europe. • Pillar 1 relates to minimum capital requirements, covering technical provisions, the SCR and Minimum Capital Requirement (“MCR”), the rules on market consistent valuation, investment of assets and the use of internal models to calculate the SCR; • Pillar 2 covers risk management, governance requirements, ORSA and supervisory review; and • Pillar 3 covers public and supervisory reporting and disclosure.

Although the Solvency II has similarities to the current UK regime set out in GENPRU and INSPRU in terms of its risk-based approach to the calculation of capital requirements and use of capital tiering, there are also many differences in terms of both substance and terminology. For example, while both regimes share the principle of market consistent valuation of assets and liabilities, there are differences in the detailed valuation methodologies.

A key aspect of Solvency II is the focus on a supervisory review at the level of the individual legal entity. Insurance businesses will be encouraged to improve their risk management processes and will be allowed to make use of internal economic capital models to calculate capital requirements, subject to approval by the relevant regulator. In addition, Solvency II will require firms to develop and embed an effective risk management system as a fundamental part of running the firm.

115 The new regime will require firms to disclose a considerably greater level of qualitative and quantitative information than under current rules, both to their own supervisor through Regular Supervisory Reporting (“RSR”) and to the market through the publication of a Solvency and Financial Condition Report (“SFCR”). This is intended to increase transparency, allowing easier comparison across the industry and enabling supervisors to identify sooner if firms are heading for financial difficulty. In turn, increased transparency is intended to drive market discipline, arising from the reaction of ratings agencies and the capital markets to firms’ performance.

The Solvency II Directive was formally adopted by the European Council in November 2009, setting out a framework which will be supplemented by further and more detailed technical implementing measures drafted by the European Commission.

In January 2011 the European Commission published the draft Omnibus II Directive “(“Omnibus II”), an amended version of which was approved by the European Parliament on 11 March 2014. As at the date of this Prospectus, Omnibus II Directive is awaiting final approval by the Council of the European Union and publication in the Official Journal. Omnibus II proposes a number of amendments to the existing Solvency II framework. These changes take account of the new supervisory architecture within the EU, including the replacement of the Committee of European Insurance and Occupational Pensions Supervisors by the EIOPA on 1 January 2011. Omnibus II will define the scope of EIOPA’s powers in the context of the Solvency II regime, including its powers to resolve disagreements between national supervisors and to act as a coordinator in “emergency situations”. The proposed amendments also define the areas in which EIOPA may issue binding technical standards and set out an expanded role for EIOPA in monitoring compliance by European member states.

The opportunity has also been taken in the Omnibus II to develop Solvency II in other areas. These include delaying the date of Solvency II’s implementation and authorising the European Commission to implement transitional measures in certain areas (subject to specified maximum periods). Because of delays to the Solvency II implementation timetable, the new rules implementing Solvency II will not apply to firms from 1 January 2014 as previously intended and an agreement has now been reached on an implementation date of 1 January 2016.

As regards the Lloyd’s market, Solvency II will divide responsibilities between Lloyd’s and managing agents in much the same way as do the present rules. Lloyd’s is already partially meeting Solvency II standards by requiring managing agents to produce SCRs for their syndicates rather than the Individual Capital Assessments which are required by the current solvency regime (please see above). A number of other requirements have also already been introduced (for example the annual production of an Own Risk and Solvency Assessment report).

The Group is in the process of implementing its Solvency II programme and BSL was granted Green status by Lloyd’s in February 2013 due to the significant amount of implementation work undertaken.

Insurance Mediation Directive review The European Commission adopted a proposal for a revised Insurance Mediation Directive on 3 July 2012 (“IMD II”) after conducting a review which related, among other things, to the requirement to align the current Insurance Mediation Directive’s provisions with the Solvency II regime. It is currently anticipated that IMD II will be adopted at some point during 2014 and come into force in 2016. The Commission envisages that IMD II will, among other things: • Expand the scope of application of the current Insurance Mediation Directive to all sellers of insurance products, including insurance companies; • Include measures designed to manage and mitigate conflicts of interest, including rules mandating the disclosure of remuneration by intermediaries; • Enhance the suitability of advice; and • Ensure that sellers’ professional qualifications match the complexity of the products they sell.

Gibraltar The Group’s captive reinsurer, BIG, is located in Gibraltar. BIG enters into certain intra-group reinsurance arrangements with BSL and Brit UW as part of the Group’s risk management programme. Please refer to section 8.7 of Part VII (Information on the Group and its Industry) for further details.

116 Insurance Companies Act 1987 BIG is licensed by the FSC to carry on reinsurance business in Gibraltar in relation to certain classes of business. Insurance in Gibraltar is regulated principally under the Insurance Companies Act 1987 (the “ICA 1987”).

A licensed insurer (or reinsurer) is required to maintain sufficient technical reserves to meet its underwriting liabilities. A licensed insurer whose business in Gibraltar is restricted to reinsurance and related operations is required to maintain a capital requirement under the Solvency I regime. The FSC oversees compliance with the ICA 1987 and has wide ranging powers, including powers in relation to disclosure, investigation and intervention.

Solvency II The FSC have indicated that Solvency II legislation will be implemented in Gibraltar in line with the rest of Europe on 1 January 2016 and that it intends to comply with interim Solvency II guidelines that came into effect on 1 January 2014. Please refer to the section above headed “Solvency II” for more information.

Protected Cell Company BIG is a protected cell company (a “PCC”), which is a corporate entity incorporated under the Gibraltar Protected Cell Companies Act 2001. The key feature of a PCC is its ability to create one or more cells for the purpose of segregating and protecting assets. Whilst a PCC is a single legal entity, with a single board of directors who manage the affairs of the PCC as a whole, creditors of a PCC cell will only have access to the cellular assets of that particular cell.

United States The Company has one licensed subsidiary in the United States, BISI. BISI is incorporated in Illinois, where it has a licence to be a “business entity producer”. In addition, BISI is licensed in approximately 47 other US states and the District of Columbia as a surplus lines broker.

Historically, the regulation of surplus line brokers has primarily been a matter within the purview of individual US states and territories. Following the 2008 financial crisis, there has been a trend towards a more coordinated, centralised and stricter approach to insurance regulation in the United States generally and the surplus lines brokers in particular. As a possible step towards federal oversight of insurance, as part of the Dodd-Frank Act, the US Congress created the Federal Insurance Office within the Department of Treasury. In addition, a part of the Dodd-Frank Act called the Non-admitted and Reinsurance Reform Act (“NRRA”) authorised the federal pre-emption of certain state insurance laws and streamlined the regulation of surplus insurance. Therefore, surplus lines brokers must comply with both the NRRA and the state laws. The NRRA prohibits any state, except the home state of the insured, from requiring that a surplus lines broker be licensed.

Bermuda

The Group has a subsidiary incorporated in the UK, BGS Services (Bermuda) Limited (“BGSB”), which has a permit granted by the Bermuda Minister of Economic Development to trade in Bermuda as an insurance agent and is licensed under the Insurance Act 1978 by the Bermuda Monetary Authority to carry on business as an insurance agent with the condition that BGSB will not, without the prior written approval of the Bermuda Monetary Authority, act as an insurance agent other than on behalf of the Syndicate.

BIG carries on part of its business through its Bermuda branch and has a Bermuda licence as a special purpose insurer pursuant to section 4 of the Insurance Act 1978. BIG’s license is conditioned upon compliance with certain requirements, including a restriction on its ability to enter into any (re)insurance contracts other than with Brit UW, and restrictions on its ability to write any “general business” or “long term business” without the prior approval of the Bermuda Monetary Authority.

117 PART XI — CAPITALISATION AND INDEBTEDNESS The tables below set out the Group’s capitalisation and indebtedness as at 31 December 2013. The indebtedness figures have been extracted without material adjustment from the Group’s accounting records underlying the financial information as set out in Part XIV (Financial Information). The capitalisation figures have been extracted without material adjustment from the Company’s financial information for 2013 as set out in Part XIV (Financial Information). There has been no material change in the capitalisation and indebtedness of the Group since 31 December 2013.

£m(1) Total current debt — Guaranteed — Secured(2) — Unguaranteed/Unsecured — Total non current debt (excluding current portion of long-term debt) 123.2 Guaranteed — Secured(2) — Unguaranteed/Unsecured 123.2

£m Shareholders’ equity 711.0 Share capital 0.7 Legal Reserve — Other Reserves 710.3 Total 834.2

Note 1: Unaudited figures. Note 2: As of 31 December 2013, the Revolving Credit Facility was secured by a bank account pledge, fixed and floating charge, and a share charge over the shares of Brit Insurance Holdings B.V. On 28 February 2014, the Group entered into an amended and restated Revolving Credit Facility under which, as of Admission, the Revolving Credit Facility will be unsecured with the exception of a cash collateral account charge entered into by Brit Group Holdings B.V. and Brit UW Ltd. No cash amounts were drawn under the Revolving Credit Facility as of 31 December 2013 or 27 March 2014.

The following table details the net financial indebtedness of the Group as at 31 December 2013:

£m(1) A. Cash 284.3 B. Cash equivalents 31.4 C. Trading Securities 2,275.9 D. Liquidity (A) + (B) + (C) 2,591.6 E. Current Financial Receivable — F. Current bank debt — G. Current portion of non-current debt — H. Other current financial debt — I. Current Financial Debt (F) + (G) + (H) — J. Net Current Financial Indebtedness (I) – (E) – (D) — K. Non-current bank loans — L. Bonds issued (123.2) M. Other non-current loans — N. Non current Financial Indebtedness (K) + (L) + (M) (123.2) O. Net Financial Indebtedness (J) + (N) 2,468.4

Note 1: Unaudited figures.

As at 27 March 2014 (the latest practicable date prior to the publication of the Prospectus), the Group’s total borrowings were £123.2 million.

118 PART XII — SELECTED FINANCIAL INFORMATION The following tables summarise the Group’s historical combined consolidated financial information as at the dates and for the periods indicated. The selected financial information of the Group as at and for the years ended 31 December 2011, 2012 and 2013 has been extracted from the historical financial information included in Part XIV (Financial Information).

The following tables should be read in conjunction with Part XIV (Financial Information), sections 2 and 3 of Part V (Presentation of Information) and Part XIII (Operating and Financial Review).

Consolidated Income Statement

Aggregated Year ended Year ended Year ended 31 December 31 December 31 December 2011 2012 2013 £m1 £m £m Revenue Gross premiums written 1,179.9 1,147.9 1,185.7 Less premiums ceded to reinsurers (204.6) (210.9) (229.4) Premiums written, net of reinsurance 975.3 937.0 956.3 Gross amount of change in provision for unearned premiums 40.1 (1.6) (34.0) Reinsurers’ share of change in provision for unearned premiums (1.8) 9.2 23.2 Net change in provision for unearned premiums 38.3 7.6 (10.8) Earned premiums, net of reinsurance 1,013.6 944.6 945.5 Investment return 64.6 87.2 56.9 Return on derivative contracts 5.3 (2.1) 11.0 Profit on asset held for sale — — 4.4 Net foreign exchange gains 3.7 — — Other income 0.1 0.7 — Total revenue 1,087.3 1,030.4 1,017.8 Expenses Claims incurred: Claims paid: Gross amount (674.2) (659.7) (542.1) Reinsurers’ share 139.0 124.8 99.2 Claims paid, net of reinsurance (535.2) (534.9) (442.9) Change in the provision for claims: Gross amount (139.6) (19.0) (34.1) Reinsurers’ share 71.0 23.9 17.8 Net change in the provision for claims (68.6) 4.9 (16.3) Claims incurred, net of reinsurance (603.8) (530.0) (459.2) Acquisition costs (298.2) (286.1) (287.5) Other operating expenses (138.3) (77.7) (79.1) Net foreign exchange losses — (25.9) (69.6) Total expenses excluding finance costs (1,040.3) (919.7) (895.4) Operating profit 47.0 110.7 122.4 Finance costs (16.7) (14.6) (15.0) Share of loss after tax of associated undertakings (0.4) (0.1) — Write-off of negative goodwill 51.9 — — Impairment of associated undertaking — (0.1) — Profit on ordinary activities before tax 81.8 95.9 107.4 Tax expense (0.3) (5.2) (6.5) Profit for the year from continuing operations 81.5 90.7 100.9 Profit/(loss) from discontinued operations 19.2 23.8 (1.4) Profit for the year 100.7 114.5 99.5

1 The Aggregated information in respect of 2011 has been prepared in accordance with Note 2 to the historical financial information on page 211.

119 Consolidated Statement of Comprehensive Income

Aggregated Year ended Year ended Year ended 31 December 31 December 31 December 2011 2012 2013 £m £m £m Profit attributable to: Equity holders of the parent 100.0 113.8 99.1 Non-controlling interests 0.7 0.7 0.4 Profit for the year 100.7 114.5 99.5 Basic earnings per share (pence per share) — continuing operations 124.1 113.8 134.5 Basic earnings per share (pence per share) — total operations 153.4 143.7 132.6 Diluted earnings per share (pence per share) — continuing operations 123.9 113.6 134.4 Diluted earnings per share (pence per share) — total operations 153.1 143.5 132.5 Other comprehensive income Items not to be reclassified to profit or loss in subsequent period: Actuarial (losses)/gains on defined benefit pension scheme (2.8) (9.7) 2.0 Tax credit/(charge) relating to actuarial (losses)/gains on defined benefit pension scheme 0.7 2.4 (0.5) Other movements 0.2 0.4 — Net other comprehensive income not being reclassified to profit or loss in subsequent periods (1.9) (6.9) 1.5 Other comprehensive income for the year net of tax 98.8 107.6 101.0 Total comprehensive income for the year attributable to: Equity holders of the parent 98.1 106.9 100.6 Non-controlling interests 0.7 0.7 0.4 98.8 107.6 101.0

120 Consolidated Statement of Financial Position

31 December 31 December 31 December 2011 2012 2013 £m £m £m Assets Property, plant and equipment 5.3 5.8 5.1 Intangible assets 76.8 62.0 62.7 Deferred acquisition costs 156.7 113.3 125.7 Investments in associated undertakings 15.4 14.7 — Current taxation 24.4 — 6.0 Reinsurance contracts 566.2 414.3 450.0 Employee benefits 18.9 14.7 21.9 Assets held for sale — 1.9 — Financial investments 3,206.2 2,312.1 2,275.9 Derivative contracts 0.3 1.1 12.7 Insurance and other receivables 520.5 353.3 380.9 Cash and cash equivalents 457.8 304.9 315.7 Total assets 5,048.5 3,598.1 3,656.6

Liabilities and Equity Liabilities Insurance contracts 3,557.0 2,561.3 2,593.9 Borrowings 245.0 121.9 123.2 Current taxation — 12.6 10.6 Deferred taxation 43.8 10.5 17.1 Provisions 1.4 4.4 2.4 Derivative contracts 0.3 1.8 11.1 Insurance and other payables 222.0 175.4 187.3 Total liabilities 4,069.5 2,887.9 2,945.6 Equity Called up share capital 0.8 0.8 0.7 Share premium account 830.5 456.1 455.7 Own shares (1.3) (1.2) (1.6) Reserves 0.1 0.1 (94.4) Retained earnings 141.7 248.7 349.5 Total equity attributable to owners of the parent 971.8 704.5 709.9 Non-controlling interests 7.2 5.7 1.1 Total equity 979.0 710.2 711.0 Total liabilities and equity 5,048.5 3,598.1 3,656.6

121 Consolidated Statement of Cash Flows

Aggregated Year ended Year ended Year ended 31 December 31 December 31 December 2011 2012 2013 £m £m £m Cash generated from operations Cash flows provided by operating activities (310.2) 67.1 55.9 Tax (paid) / received (3.7) 6.3 (8.5) Interest paid (19.4) (13.4) (13.7) Interest received 73.2 77.0 67.6 Dividends received 6.7 3.4 1.4 Cash flows from discontinued operations 23.5 50.9 — Net cash (outflows)/inflows from operating activities (229.9) 191.3 102.7 Cash flows from investing activities Purchase of property, plant and equipment (1.5) (2.7) (1.4) Purchase of intangible assets (2.5) (0.5) (4.3) Acquisitions — — (1.2) Disposal of asset held for sale — — 17.4 Movements in associated undertaking loan and preference share balances (0.3) (1.0) (0.1) Acquisitions of subsidiaries net of cash acquired (855.0) — — Cash flows from discontinued operations — 169.0 — Net cash (outflows)/inflows from investing activities (859.3) 164.8 10.4 Cash flows from financing activities Issue of shares 881.9 — — Non-controlling interest share issue 1.7 — — Share redemption (50.5) — (94.2) Repurchase of shares from non-controlling interests — — (0.6) Reimbursement of share premium account to shareholders — (374.4) — Draw down/(repayment) on revolving credit facility 91.0 (128.0) — Acquisition of own shares for employee incentive schemes (1.3) — — Proceeds from exercised share options 2.3 — — Buy-out of non-controlling interests — — (5.1) Redemption/(Acquisition) of own share — 0.1 (0.4) Equity dividends paid to non-controlling interests (0.4) (2.2) — Net cash (inflows)/outflows from financing activities 924.7 (504.5) (100.3) Net (decrease)/increase in cash and cash equivalents (164.5) (148.4) 12.8 Cash and cash equivalents at beginning of the year 623.4 457.8 304.9 Effect of exchange rate fluctuations on cash and cash equivalents (1.1) (4.5) (2.0) Cash and cash equivalents at the end of the year 457.8 304.9 315.7

122 PART XIII — OPERATING AND FINANCIAL REVIEW

The following discussion and analysis of the financial condition and results of operations of the Group should be read in conjunction with the historical financial information of Achilles Holdings 1 S.à r.l. (“Achilles”) as at and for the years ended 31 December 2011, 2012 and 2013 (collectively, the “periods under review”) and related notes, included in Part XIV (Financial Information). The historical financial information for Achilles was prepared for the purposes of the Offer. Please refer to section 1.2 for further details on the financial information discussed in this section.

Achilles was formed in October 2010 as the investment vehicle to acquire Brit Insurance Holdings B.V. The acquisition of Brit Insurance Holdings B.V. was completed on 9 March 2011, at which time Brit Insurance Holdings B.V. and its subsidiaries (Brit Group) became subsidiaries of Achilles (collectively, the “Group”).

As such, prior to 9 March 2011, Achilles did not control the Brit Group and is not permitted by IFRS 10 to present consolidated financial information incorporating the results of the Brit Group prior to that date. Accordingly, the financial information for 2011, which has been prepared specifically for the purpose of this Prospectus, is prepared on the following basis: • the consolidated income statement, consolidated statement of comprehensive income and consolidated statement of cash flows, aggregate the results and cash flows of the Brit Group for the period from 1 January 2011 to 8 March 2011 and of the Group for the period from 1 January 2011 to 31 December 2011; • the statement of changes in equity separately reflects the changes in equity for the Brit Group for the period from 1 January 2011 to 8 March 2011 and for the Group for the period from 1 January 2011 to 31 December 2011; and • the consolidated statement of financial position is that of the Group.

For 2012 and 2013, the historical consolidated financial information presented is that of the Group.

This presentation, while not in accordance with the requirements of IFRS (which would exclude the results of the Brit Group for the pre-acquisition period from 1 January 2011 to 8 March 2011), is in accordance with certain accounting conventions commonly used for the preparation of historical financial information for inclusion in investment circulars as described in the Annexure to SIR 2000 (Investment Reporting Standard applicable to public reporting engagements on historical financial reporting) issued by the UK Auditing Practices Board. In all other respects, the historical consolidated financial information included in this Prospectus is prepared in accordance with IFRS as adopted for use in the European Union, as set out in Part XIV (Financial Information) of this Prospectus.

The Company, which will hold the shares of Achilles and serve as the holding company for the Group following the Offer, was formed in December 2013 in connection with the Offer and, for the purposes of the following discussion, is not included as part of the consolidated Group.

The following discussion includes forward-looking statements that reflect the Group’s plans, estimates and beliefs, and involves risks and uncertainties. The Group’s actual results could differ materially from those discussed in these statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Prospectus, particularly in Part II (Risk Factors) and section 6 relating to forward-looking statements in Part V (Presentation of Information).

Unless otherwise specified, references below to “2011”, “2012” and “2013” are to the financial years ended 31 December 2011, 31 December 2012 and 31 December 2013, respectively. References below to “insurance” shall (save where context otherwise requires) be deemed to include reinsurance and retrocession, and references to “reinsurance” shall (save where the context otherwise requires) be deemed to include retrocession.

The financial information presented in tabular form in the following discussion has been rounded to the nearest decimal. Therefore, the sum of the numbers in a column may not conform to the total figure given for that column.

123 1. Overview 1.1 Introduction to the Group The Group is a leading global specialty insurer and reinsurer at Lloyd’s, underwriting policies across a broad range of commercial insurance and reinsurance classes, with a strong focus on Property, Casualty and Energy business.

The Group’s underwriting is focused on Syndicate 2987, which is one of the largest syndicates at Lloyd’s (based on total owned underwriting capacity). The Syndicate is “aligned” (i.e. its sole Lloyd’s member, Brit UW, and sole managing agent, BSL, are both in the same corporate group). The Syndicate benefits from the financial strength ratings assigned to Lloyd’s, being A (Excellent) from A.M. Best, A+ (Strong) from Fitch and A+ (Strong) from Standard & Poor’s (all three credit rating agencies are registered in the EU under Regulation (EC) No 1060/2009 (as amended); for more information, please refer to section 8 of Part V (Presentation of Information)).

In 2013, the Group generated gross premiums written of £1,185.7 million (2012: £1,147.9 million; 2011: £1,179.9 million), total revenue of £1,017.8 million (2012: £1,030.4 million; 2011: £1,087.3 million) and profit for the year of £99.5 million (2012: £114.5 million; 2011: £100.7 million). Direct insurance accounted for 76.2% of gross premiums written in 2013 (2012: 73.8%; 2011: 70.3%), with the balance attributable to reinsurance.

As of 31 December 2013, the Group had total assets of £3,656.6 million (31 December 2012: £3,598.1 million; 31 December 2011: £5,048.5 million). The decrease in total assets between 2011 and 2013 reflected the sale of the Group’s historical UK liabilities and the distribution to the Group’s shareholders of the proceeds from the disposal. As of 31 December 2013, the Group had net assets (total assets less total liabilities) of £711.0 million (31 December 2012: £710.2 million; 31 December 2011: £979.0 million) and had total investments (financial investments and cash and cash equivalents) of £2,591.6 million (31 December 2012: £2,617.0 million; 31 December 2011: £3,664.0 million).

1.2 A Comparison of the Income Statements and Statements of Financial Position of the Group and Brit Group This Part XIII (Operating and Financial Review) primarily discusses the historical financial information of Achilles, as prepared for purposes of this Offer and as included in Part XIV (Financial Information). The Board and management, however, use the consolidated financial statements of the Brit Group (i.e. with Brit Insurance Holdings B.V. as the parent entity) in evaluating certain key measures of the Group’s business performance, profitability, investment return, capital requirements and gearing (please refer to section 1.4 of this Part XIII (Operating and Financial Review) for details of these key measures). While the financial information of the Group and the Brit Group are substantially similar, there are certain differences during the periods under review, mainly arising from the acquisition of the Brit Group by Achilles. To facilitate a comparison of Brit Group financial information and the Group’s overall financial performance, the following table highlights the differences by item between the income statements and balance sheets for the Group and for the Brit Group, together with an explanation of certain differences.

124 2011 2012 2013 Brit Brit Brit Group Group Variance Group Group Variance Group Group Variance £ in millions Revenue Gross premiums written 1,179.9 1,179.9 — 1,147.9 1,147.9 — 1,185.7 1,185.7 — Premiums ceded to reinsurers (204.6) (204.6) — (210.9) (210.9) — (229.4) (229.4) — Premiums written, net of reinsurance 975.3 975.3 — 937.0 937.0 — 956.3 956.3 — Earned premiums, net of reinsurance 994.9 1,013.6 18.7(1) 943.0 944.6 1.6(1) 945.5 945.5 — Investment return 68.4 64.6 (3.8)(2) 87.2 87.2 — 56.9(2) 56.9(2) — Return on derivative contracts 5.3 5.3 — (2.1) (2.1) — 11.0 11.0 — Profit on disposal of asset held for sale — — — — — — 4.4 4.4 — Net foreign exchange gains 3.7 3.7 — — — — — — — Other income 0.1 0.1 — 0.7 0.7 — — — — Total revenue 1,072.4 1,087.3 14.9 1,028.8 1,030.4 1.6 1,017.8 1,017.8 — Expenses Claims incurred, net of reinsurance (603.8) (603.8) — (530.0) (530.0) — (459.2) (459.2) — Acquisition costs (297.1) (298.2) (1.1)(3) (286.1) (286.1) — (287.5) (287.5) — Other insurance related expenses (82.1) (83.9) (1.8)(4) (61.3) (63.5) (2.2)(4) (60.0) (62.2) (2.2)(4) Other expenses (21.0) (54.4) (33.4)(5) (11.9) (14.2) (2.3)(6) (15.1) (16.9) (1.8)(7) Net foreign exchange losses — — — (25.9) (25.9) — (69.4) (69.6) (0.2)(8) Total expenses excluding finance costs (1,004.0)(1,040.3) (36.3) (915.2) (919.7) (4.5) (891.2) (895.4) (4.2) Operating profit 68.4 47.0 (21.4) 113.6 110.7 (2.9) 126.6 122.4 (4.2) Loss on sale of subsidiary — — — — — — — — — Finance costs (15.1) (16.7) (1.6)(9) (13.6) (14.6) (1.0)(9) (14.0) (15.0) (1.0)(9) Share of loss after tax of associated undertakings (0.4) (0.4) — (0.1) (0.1) — — — — Write-off of negative goodwill — 51.9 51.9(4) ——— — —— Impairment of associated undertaking — — — (0.1) (0.1) — — — — Profit on ordinary activities before tax 52.9 81.8 28.9 99.8 95.9 (3.9) 112.6 107.4 (5.2) Tax (expense)/income 3.4 (0.3) (3.7)(10) (6.8) (5.2) 1.6(10) (9.5) (6.5) 3.0(10) Profit for the year from continuing operations 56.3 81.5 25.2 93.0 90.7 (2.3) 103.1 100.9 (2.2) Profit/(loss) from discontinued operations (11) 19.7 19.2 (0.5)(12) (8.3) 23.8 32.1(13) (1.4) (1.4) — Profit for the year 76.0 100.7 24.7 84.7 114.5 29.8 101.7 99.5 (2.2)

(1) Upon the acquisition of the Brit Group by Achilles, an exercise was carried out to determine the fair value of the future discounted cash flows of the unearned premium reserves, which resulted in a positive fair value adjustment of £20.2 million. This had the effect of increasing the Group’s earned premiums, net of reinsurance, by £18.6 million in 2011 and £1.6 million in 2012. No such adjustment was needed in 2013 or will be needed in respect of future periods. (2) In 2011, the Brit Group included investment management fees in other expenses. In 2012 and 2013, the Brit Group netted investment management fees against investment return. (3) Reflects additional pension charge within the Group figures arising from revision to IAS 19 (Employee benefits). For 2012 and 2013, the effect of this change in IFRS is included in the Brit Group acquisition costs. (4) Upon the acquisition of the Brit Group by Achilles, a fair value exercise was carried out to measure the value of intangible assets such as distribution relationships (valued at £6.3 million), Syndicate capacity (valued at £45.4 million) and the Brit trade name (valued at £12.1 million). The fair value exercise was also undertaken in respect of the Group’s £133.0 million lower tier 2 subordinated debt, which was valued on a market basis at £119.8 million. As a result of this fair value exercise, negative goodwill arose on the acquisition amounting to a £51.9 million credit in the Group’s income statement. The value of these intangible assets is now being amortised through the Group’s income statement on a straight line basis over 15 years, which is reflected in the variance in “other insurance-related expenses.” (5) Includes £35.5 million of costs related to the acquisition by Achilles of the Brit Group. (6) Reflects investment management fees for 2012 (see footnote (2) above) and service fees paid to Achilles.

125 (7) Reflects service fees paid to Achilles. (8) Reflects a foreign exchange movement in a Group entity above the Brit Group. (9) The additional finance costs relate to the amortisation of the fair value adjustment of the lower tier 2 subordinated debt on acquisition. (10) Reflects the tax treatment of intangible assets at the Achilles level. (11) During 2012, the Group completed the sale of its non-core UK regional business (which focused on developing business opportunities within the UK general commercial insurance markets through both wholesale and retail brokers) and the sale of its historical UK liabilities. Until the end of 2011, these operations were reported under a separate UK segment. The results of the UK segment (except for business classes that were transferred to Global Specialty Direct) up to the date of sale of the historical UK liabilities were classified as discontinued operations. In 2013, further expenses were incurred as a result of the sale; these expenses are also included within discontinued operations in 2013. The term “discontinued operations” in relation to the Group’s financial statements does not include lines of business that were discontinued for operational reasons. (12) Reflects an additional expense allocation to discontinued business at the Brit Group in respect of the amortisation of intangibles created on the acquisition of the Brit Group by Achilles. (13) Reflects differences in the gain/loss on sale of renewal rights attaching to discontinued business. The Brit Group figure includes an impairment of £34.1 million in respect of goodwill carried on the Brit Group balance sheet. This goodwill was not carried on the Group balance sheet. The Group figure includes an impairment of £2.6 million in respect of trade names carried on the Group balance sheet. These trade names were not carried on the Brit Group balance sheet.

31 December Statement of Financial Position 2011 2012 2013 Brit Brit Brit Group Group Variance Group Group Variance Group Group Variance £ in millions Assets Property, plant and equipment 5.3 5.3 — 5.8 5.8 — 5.1 5.1 — Intangible assets 79.0 76.8 (2.2)(1) 35.0 62.0 27.0(1) 37.8 62.7 24.9(1) Deferred acquisition costs 156.7 156.7 — 113.3 113.3 — 125.7 125.7 — Investments in associated undertakings 15.4 15.4 — 14.7 14.7 — — — — Current taxation 24.4 24.4 — — — — 6.0 6.0 — Deferred taxation — — — 5.3 — (5.3)(2) ——— Reinsurance contracts 565.8 566.2 0.4(3) 414.3 414.3 — 450.0 450.0 — Employee benefits 18.9 18.9 — 14.7 14.7 — 21.9 21.9 — Assets held for sale — — — 1.9 1.9 — — — — Financial investments 3,206.2 3,206.2 — 2,312.1 2,312.1 — 2,275.9 2,275.9 — Derivative contracts 0.3 0.3 — 1.1 1.1 — 12.7 12.7 — Insurance and other receivables 520.3 520.5 0.2(4) 353.4 353.3 (0.1)(4) 382.3 380.9 (1.4)(4) Cash and cash equivalents 444.8 457.8 13.0(5) 300.9 304.9 4.0(5) 312.8 315.7 2.9(5) Total assets 5,037.1 5,048.5 11.4 3,572.5 3,598.1 25.6 3,630.2 3,656.6 26.4

Liabilities Insurance contracts 3,555.0 3,557.0 2.0(6) 2,561.3 2,561.3 — 2,593.9 2,593.9 — Borrowings 257.4 245.0 (12.4)(7) 133.3 121.9 (11.4)(7) 133.4 123.2 (10.2)(7) Current taxation — — — 12.6 12.6 — 10.6 10.6 — Deferred taxation 25.7 43.8 18.1(2) — 10.5 10.5(2) 4.2 17.1 12.9(2) Provisions 1.4 1.4 — 4.4 4.4 — 2.4 2.4 — Derivative contracts 0.3 0.3 — 1.8 1.8 — 11.1 11.1 — Insurance and other payables 221.1 222.0 0.9(8) 175.0 175.4 0.4(8) 187.2 187.3 0.1(8) Total liabilities 4,060.9 4,069.5 8.6 2,888.4 2,887.9 (0.5) 2,942.8 2,945.6 2.8

Equity Called up share capital 219.7 0.8 (218.9)(9) 214.3 0.8 (213.5)(9) 219.7 0.7 (219.0)(9) Share premium account 615.9 830.5 214.6(9) 415.9 456.1 40.2(9) 415.9 455.7 39.8(9) Own shares — (1.3) (1.3)(9) — (1.2) (1.2)(9) — (1.6) (1.6)(9) Reserves — 0.1 0.1(9) — 0.1 0.1(9) — (94.4) (94.4)(9) Retained earnings 140.6 141.7 1.1(9) 53.9 248.7 194.8(9) 51.8 349.5 297.7(9) Total equity attributable to owners of the parent 976.2 971.8 (4.4) 684.1 704.5 20.4 687.4 709.9 22.5 Non-controlling interests — 7.2 7.2(10) — 5.7 5.7(10) — 1.1 1.1(10) Total equity 976.2 979.0 2.8 684.1 710.2 26.1 687.4 711.0 23.6

Net tangible assets 897.2 902.2 5.0(11) 649.1 648.2 (0.9)(11) 649.6 648.3 (1.3)(11)

126 (1) The Brit Group’s intangible assets consist of goodwill arising on historical acquisitions. This goodwill was partially impaired during 2012 on the sale of the renewal rights of the UK business to QBE. The Group’s intangible assets were created on the acquisition of the Brit Group and consist of distribution channels, trade names, syndicate participations and renewal rights. These were not partially impaired on the sale of the renewal rights. (2) Reflects the additional deferred tax asset established by the Group on the intangible assets created on the acquisition of the Brit Group in 2011. (3) Reflects adjustments to reinsurance contact balances arising from the fair value exercise undertaken by the Group on the acquisition of the Brit Group in 2011. (4) Reflects additional amounts receivable at Group level. (5) Reflects additional cash balances held at Group level. (6) Reflects adjustments to insurance contact balances arising from the fair value exercise undertaken by the Group on the acquisition of the Brit Group in 2011. (7) Reflects adjustments to the lower tier two subordinated debt arising from the fair value exercise undertaken by the Group on the acquisition of the Brit Group in 2011. (8) Reflects additional amounts payable at Group level. (9) The differences in equity reflect the different structures of the balance sheets of Group and the Brit. On the formation of Achilles a large share premium account was created to facilitate future distributions to shareholders. (10) Reflects the proportion of net assets of subsidiary undertakings not owned by the Group. (11) Reflects the difference in the balance sheet values of the Group and the Brit Group as explained above.

The Board expects that, going forward, there will be limited differences between the consolidated financial statements of the Group and the Brit Group. The principal differences relate to the following: • the addition of the Company as the holding company of the Group; • additional expenses incurred by the Company, Achilles and their wholly-owned subsidiaries through which they own the Brit Group; • the amortisation of intangible assets recognised on the acquisition of the Brit Group; • the effect of fair value adjustments identified on the acquisition of the Brit Group; and • the elimination on consolidation of any intercompany transactions among the Company, Achilles and the Brit Group at the Group level.

1.3 The Group’s segments and lines of business The Group has the following IFRS reporting segments. The information pertains only to the Group’s continuing operations: • Global Specialty Direct. This segment underwrites the Group’s direct insurance business. The coverage offered is principally aimed at wholesale buyers of insurance, and not at individuals. The segment consists of short tail and long tail insurance business. • Short tail lines of business (where claims are typically notified to the Group and settled in a period of three years or less from the date of exposure and/or occurrence) include Property, Marine, Energy, Accident & Health, and Terrorism, Political and Aerospace. The Group also includes its US Specialty business under short tail direct, which includes liability risks written within package products. • Long tail lines of business (where a substantial portion of claims take more than three years to be notified to the Group and/or settled from the date of exposure and/or occurrence) include Casualty (i.e. Professional Lines and Specialty Lines) and Specialist Liability. Please refer to section 7.2 of Part VII (Information on the Group and its Industry) for descriptions of the lines of business.

127 The following table sets out the proportion of short tail, long tail and discontinued lines of business in Global Specialty Direct gross premiums written during the periods under review.

2011 2012 2013 % Short tail business 63.3 64.8 66.4 Long tail business 36.1 35.7 33.6 Discontinued lines of business(1) 0.6 (0.5) — Total 100.0 100.0 100.0

(1) Comprises gross premiums written in Global Specialty Direct arising from lines of business that are no longer written.

• Global Specialty Reinsurance. This segment underwrites reinsurance business, providing both proportional and non-proportional cover for clients.

The segment consists of short tail (Property Treaty) and long tail (Casualty Treaty) business. Please refer to section 7.2 of Part VII (Information on the Group and its Industry) for descriptions of the lines of business. The following table sets out the proportion of short tail, long tail and discontinued lines of business in Global Specialty Reinsurance gross premiums written during the periods under review.

2011 2012 2013 % Short tail business 51.9 51.0 48.7 Long tail business 40.5 47.5 50.3 Discontinued lines of business(1) 7.6 1.5 1.0 Total 100.0 100.0 100.0

(1) Comprises gross premiums written in Global Specialty Reinsurance arising from lines of business that are no longer written. • Other underwriting. This segment consists of Syndicate 389 (a life insurance business that closed to new business in 2003 and is in run-off) and excess of loss reinsurance ceded from Global Specialty Direct and Global Specialty Reinsurance to BIG.

Global Specialty Direct, Global Specialty Reinsurance and Other underwriting together constitute the Group’s “strategic business units” or “SBUs”. The following table sets out the proportions of the Group’s gross premiums written derived from each SBU (together with intra-group eliminations) during the periods under review.

2011 2012 2013 % Global Specialty Direct 70.3 73.8 76.2 Global Specialty Reinsurance 29.7 26.1 23.7 Other underwriting 0.8 0.5 0.5 Intra-group (0.8) (0.4) (0.4) Total 100.0 100.0 100.0

In addition to the above, the Group presents the following items separately in its segmental reporting. • Other corporate. This consists of residual income and expenditure not allocated to the other segments. The residual income consists of investment income not allocated to the other segments, return on derivative contracts and other incidental income. The expenditure primarily involves costs of managing the Group functions, including head office and other Group administrative expenses. • Intra-group results. These items represent the consolidation adjustment to eliminate intra- group trading (excess of loss reinsurance) between the SBUs. • Effect of foreign exchange on non-monetary items. The Group discloses foreign exchange differences on non-monetary items separately. The Board believes that this disclosure provides a more accurate representation of claims ratios and financial performance of the

128 SBUs, which would otherwise be distorted by the mismatch arising under IFRS, whereby non- monetary items (i.e. unearned premium, reinsurers’ share of unearned premium and deferred acquisition costs) are measured at historical exchange rates. All other assets and liabilities (monetary items) are measured at average exchange rates (in the case of income statement items) or closing exchange rates (in the case of balance sheet items).

129 The following tables set out the segmental breakdown of key figures in the Group’s operating profit for the periods under review. The information pertains only to the Group’s continuing operations.

2011

Total underwriting Total excluding underwriting effect of Effect of after effect foreign foreign of foreign exchange exchange exchange Global Global on non- on non- on non- Total Specialty Specialty Other Intra- monetary monetary monetary Other continuing Direct Reinsurance Underwriting Group items items items corporate operations £ in millions Gross premiums written 829.2 349.9 10.2 (9.4) 1,179.9 — 1,179.9 — 1,179.9 Less premiums ceded to reinsurers (138.2) (75.4) (0.4) 9.4 (204.6) — (204.6) — (204.6)

Earned premiums, net of reinsurance 715.9 277.1 10.6 — 1,003.6 10.0 1,013.6 — 1,013.6 Investment return(1) 25.8 10.5 0.5 — 36.8 — 36.8 27.8 64.6 Return on derivative contracts — — — — — — — 5.3 5.3 130 Net foreign exchange gains — — — — — 2.1 2.1 1.6 3.7 Other income — — — — — — — 0.1 0.1 Total revenue 741.7 287.6 11.1 — 1,040.4 12.1 1,052.5 34.8 1,087.3 Claims incurred, net of reinsurance (402.8) (194.0) (7.0) — (603.8) — (603.8) — (603.8) Acquisition costs — commission (207.3) (49.3) (0.2) — (256.8) (2.3) (259.1) — (259.1) Acquisition costs — other (25.6) (10.8) (2.7) — (39.1) — (39.1) — (39.1) Other insurance-related expenses (58.4) (25.0) (0.5) — (83.9) — (83.9) — (83.9) Other expenses — — — — — — — (54.4) (54.4) Total expenses excluding finance costs (694.1) (279.1) (10.4) — (983.6) (2.3) (985.9) (54.4) (1,040.3) Operating profit/(loss) 47.6 8.5 0.7 — 56.8 9.8 66.6 (19.6) 47.0 Claims ratio 56.3% 70.0% 66.0% 60.2% 59.6% Commission ratio 29.0% 17.8% 1.9% 25.6% 25.6% Operating expense ratio 11.7% 12.9% 30.2% 12.2% 12.1% Combined ratio 97.0% 100.7% 98.1% 98.0% 97.3%

(1) The Group’s investment return is managed centrally, and is allocated to each SBU based on the average risk free interest rate for the period being applied to the insurance funds of each SBU. 2012

Total underwriting Total excluding underwriting effect of Effect of after effect foreign foreign of foreign exchange exchange exchange Global Global on non- on non- on non- Total Specialty Specialty Other Intra- monetary monetary monetary Other continuing Direct Reinsurance Underwriting Group items items items corporate operations £ in millions Gross premiums written 847.6 300.0 5.4 (5.1) 1,147.9 — 1,147.9 — 1,147.9 Less premiums ceded to reinsurers (158.4) (57.3) (0.3) 5.1 (210.9) — (210.9) — (210.9)

Earned premiums, net of reinsurance 690.0 247.1 5.7 — 942.8 1.8 944.6 — 944.6 Investment return(1) 23.9 10.0 0.3 — 34.2 — 34.2 53.0 87.2 Return on derivative contracts — — — — — — — (2.1) (2.1) Other income — — — — — — — 0.7 0.7 Total revenue 713.9 257.1 6.0 — 977.0 1.8 978.8 51.6 1,030.4

131 Claims incurred, net of reinsurance (400.8) (129.8) 0.6 — (530.0) — (530.0) — (530.0) Acquisition costs — commission (197.1) (44.9) — — (242.0) (0.5) (242.5) — (242.5) Acquisition costs — other (34.2) (9.2) (0.2) — (43.6) — (43.6) — (43.6) Other insurance-related expenses (44.8) (18.7) — — (63.5) — (63.5) — (63.5) Other expenses — — — — — — — (14.2) (14.2) Net foreign exchange losses — — — — — (11.8) (11.8) (14.1) (25.9) Total expenses excluding finance costs (676.9) (202.6) 0.4 — (879.1) (12.3) (891.4) (28.3) (919.7) Operating profit/(loss) 37.0 54.5 6.4 — 97.9 (10.5) 87.4 23.3 110.7 Claims ratio 58.1% 52.5% (10.5)% 56.2% 56.1% Commission ratio 28.6% 18.2% — 25.7% 25.7% Operating expense ratio 11.4% 11.3% 3.5% 11.3% 11.3% Combined ratio 98.1% 82.0% (7.0)% 93.2% 93.1%

(1) The Group’s investment return is managed centrally, and is allocated to each SBU based on the average risk free interest rate for the period being applied to the insurance funds of each SBU. 2013

Total underwriting Total excluding underwriting effect of Effect of after effect foreign foreign of foreign exchange exchange exchange Global Global on non- on non- on non- Total Specialty Specialty Other Intra- monetary monetary monetary Other continuing Direct Reinsurance Underwriting Group items items items corporate operations £ in millions Gross premiums written 903.1 281.0 6.0 (4.4) 1,185.7 — 1,185.7 — 1,185.7 Less premiums ceded to reinsurers (181.5) (50.1) (2.2) 4.4 (229.4) — (229.4) — (229.4)

Earned premiums, net of reinsurance 705.7 238.1 3.9 — 947.7 (2.2) 945.5 — 945.5 Investment return(1) 16.8 7.8 0.2 — 24.8 — 24.8 32.1 56.9 Return on derivative contracts — — — — — — — 11.0 11.0 Other income — — — — — — — 4.4 4.4 Total revenue 722.5 245.9 4.1 — 972.5 (2.2) 970.3 47.5 1,017.8

132 Claims incurred, net of reinsurance (370.4) (87.1) (1.7) — (459.2) — (459.2) — (459.2) Acquisition costs — commission (196.5) (39.3) (0.4) — (236.2) 0.4 (235.8) — (235.8) Acquisition costs — other (38.8) (9.7) (3.2) — (51.7) — (51.7) — (51.7) Other insurance-related expenses (43.4) (18.8) — — (62.2) — (62.2) — (62.2) Other expenses — — — — — — — (16.9) (16.9) Net foreign exchange losses — — — — — (4.2) (4.2) (65.4) (69.6) Total expenses excluding finance costs (649.1) (154.9) (5.3) — (809.3) (3.8) (813.1) (82.3) (895.4) Operating profit/(loss) 73.4 91.0 (1.2) — 163.2 (6.0) 157.2 (34.8) 122.4 Claims ratio 52.5% 36.6% 43.6% 48.5% 48.6% Commission ratio 27.8% 16.5% 10.3% 24.9% 24.9% Operating expense ratio 11.7% 12.0% 82.0% 12.0% 12.1% Combined ratio 92.0% 65.1% 135.9% 85.4% 85.6%

(1) The Group’s investment return is managed centrally, and is allocated to each SBU based on the average risk free interest rate for the period being applied to the Insurance funds of each SBU. 1.4 The Group’s key performance indicators The Board and management use the consolidated financial statements of the Brit Group in evaluating certain key measures of the Group’s performance. The following table sets out these key measures during the periods under review, both at the Brit Group level and the Group level. These measures may not be comparable to similarly titled measures presented by other companies in the (re)insurance industry. Nevertheless, the Board believes that such measures are important in understanding the Group’s performance from period to period and that these measures facilitate comparison with the Group’s peers. Certain of these measures are non-IFRS financial measures and such measures are not intended to be substitutes for any IFRS measures of performance. The Group also sets internal performance targets for certain of these key measures. The targets are not tied to any particular period, are not intended as profit forecasts, are subject to change at the discretion of management and are subject to risks outlined in Part II (Risk Factors), and sections 3 and 6 of Part V (Presentation of Information).

Brit Group Group 2011 2012 2013 2011 2012 2013 (% unless otherwise specified) Profitability: Return on net tangible assets (“RoNTA”) 8.6 16.8 17.2 8.4(4) 16.9 17.2 RoNTA (excluding all foreign exchange movements) 8.6 18.5 24.5 8.5(4) 18.7 24.8 Cumulative total value created (£ in million) (1) 79.4 201.3 301.8 Business performance: Attritional loss ratio 56.4 51.9 51.3 55.4 51.8 51.3 Major claims ratio 14.4 6.1 3.2 14.1 6.1 3.2 Reserve release ratio (9.5) (1.7) (6.0) (9.4) (1.7) (6.0) Reserve releases as % of opening net reserves (1) 4.5 0.8 2.7 Claims ratio (2) 61.3 56.3 48.5 60.2 56.2 48.5 Commission ratio 26.1 25.8 24.9 25.6 25.7 24.9 Operating expense ratio 12.2 11.1 11.8 12.3 11.4 12.0 Expense ratio 38.3 36.9 36.7 37.8 37.0 36.9 Combined ratio 99.6 93.2 85.2 98.0 93.2 85.4 Other: Net investment return (3) 2.4 2.9 2.2 2.4 2.9 2.2 Solvency ratio(1) 120 125 141 Gearing ratio 25.0 23.4 23.2 24.3 22.2 22.2

(1) KPI not used to monitor performance at Group level. (2) The claims ratio is the sum of the attritional loss ratio, the major claims ratio and the reserve release ratio. (3) For 2011, 2012 and 2013, net investment return is derived from both continuing and discontinued operations. (4) Calculated before the effect of deal costs relating to the acquisition of Brit Group.

• RoNTA. The Group calculates RoNTA as profit after tax before the effects of foreign exchange movement on non-monetary items and before charges in respect of intangible assets (including impairment charges), divided by net tangible assets at the beginning of the period (adjusted on a weighted average basis for capital distributions, share buybacks or share issues during the period).

133 • The table below sets out the RoNTA calculation for the Brit Group for the periods under review.

2011 2012 2013 £ in millions, unless otherwise specified Profit after tax for the year 76.0 84.7 103.1 Adjusted for: Effect of foreign exchange on non-monetary items and charges in respect of intangible assets (2.7) 52.2 8.6 Adjusted profit for the year 73.3 136.9 111.7 Net tangible assets at the beginning of the period 889.8 897.2 649.1 Adjustment for capital distributions, share buybacks or share issues during the period (34.8) (83.0) — Weighted average net tangible assets at the beginning of the period 855.0 814.2 649.1 RoNTA (%) 8.6 16.8 17.2

• RoNTA (excluding all foreign exchange movements). The Group calculates RoNTA (excluding all foreign exchange movements) as profit after tax before the effects of foreign exchange movement on monetary and non-monetary items, before the return on currency related derivative contracts and before charges in respect of intangible assets (including impairment charges), divided by net tangible assets at the beginning of the period (adjusted on a weighted average basis for capital distributions, share buybacks or share issues during the period). • The table below sets out the RoNTA (excluding all foreign exchange movements) calculation for the Brit Group for the periods under review.

2011 2012 2013 £ in millions, unless otherwise specified Profit after tax for the year 76.0 84.7 103.1 Adjusted for: Effect of foreign exchange movements and charges in respect of intangible assets (2.1) 66.3 56.2 Adjusted profit for the year 73.9 151.0 159.3 Net tangible assets at the beginning of the period 889.8 897.2 649.1 Adjustment for capital distributions, share buybacks or share issues during the period (34.8) (83.0) — Weighted average net tangible assets at the beginning of the period 855.0 814.2 649.1 RoNTA (excluding all foreign exchange movement) (%) 8.6 18.5 24.5

• Total value created. The Group defines total value created as the increase in net tangible assets during a period, before capital distributions and dividends. • Attritional loss ratio. The Group’s attritional loss ratio measures claims, excluding major claims and reserve movements, as a percentage of net earned premiums. • Major claims ratio. The Group’s major claims ratio measures claims (net of reinsurance and allowing for reinstatement and tax) on natural or man-made catastrophes and, on large single risk loss events, in each case in excess of £10.0 million, as a percentage of net earned premiums. • Reserve release ratio. The Group’s reserve release ratio measures reserve releases/ strengthening (net of reinsurance) and prior year margin movement as a percentage of net earned premiums for the period in which the reserves are released/strengthened. • Reserve releases as % of opening net reserves. This measure calculates the Group’s reserve releases/strengthening (including prior year margin movement) as a percentage of its opening reserves (net of reinsurance) for the period in which the reserves are released/ strengthened. • Claims ratio. The Group’s claims ratio measures net claims incurred as a percentage of net earned premiums (excluding the effect of foreign exchange movements on non-monetary

134 items). The claims for any particular period reflect claims incurred for that period, as well as any increases or decreases in estimates of claims in respect of all prior periods. The claims ratio is the aggregate of the reserve release ratio, major claims ratio and the attritional loss ratio. • Commission ratio. The Group’s commission ratio measures acquisition commissions as a percentage of net earned premiums (excluding the effect of foreign exchange movements on non-monetary items). • Operating expense ratio. The Group’s operating expense ratio is defined as insurance related expenses (excluding corporate costs not related to the underwriting process) as a percentage of net earned premiums (excluding the effect of foreign exchange movements on non-monetary items). • Expense ratio. The Group’s expense ratio is the sum of its commission ratio and operating expense ratio. • Combined ratio. The Group’s combined ratio is the sum of the claims ratio and the expense ratio. The combined ratio is the ratio, in percentage terms, of net claims incurred, acquisition costs plus insurance related expenses to net earned premiums. The Group uses its combined ratio to evaluate overall underwriting profitability. A combined ratio under 100% indicates underwriting profitability, as the total of net claims incurred, acquisition costs and other operating expenses are less than net premiums earned on the business. Investment income is not reflected in the combined ratio. The Group’s overall profitability depends on both underwriting and investment results, together with items allocated to its ‘Other corporate’ segment. • Net investment return. The Group’s net investment return represents its investment return (net of investment management fees) expressed as a percentage of average invested assets during a particular period. • Solvency ratio. The Group’s solvency ratio refers to the Group’s available capital resources (including unutilised letters of credit available under the Revolving Credit Facility) as a percentage of its management entity capital requirements. Please refer to section 10.3(B) of this Part XIII (Operating and Financial Review) for further details. • Gearing ratio. The Group’s gearing ratio is defined as the Group’s borrowings, including its subordinated debt plus letters of credit as a proportion of the Group’s consolidated net tangible assets (which is defined as the group’s paid up share capital plus subordinated debt and reserves, subject to certain exclusions) plus subordinated debt.

2. Current Trading and Prospects 2.1 Group During 2014, the Group anticipates rate increases in certain areas of Specialty and Casualty insurance, with rate reductions expected in the Property (both direct and reinsurance) and Energy insurance business lines. The Group expects overall rate reductions of between 2% and 2.5% for 2014. The Group’s experience in the important January 2014 renewal season was in line with the foregoing expectations.

The Group expects to increase its gross premiums written in 2014 in the low single-digit percentages (on a constant exchange rate basis). This growth is expected to be driven by both an increased retention ratio on existing business and growth from new initiatives executed in 2013. These initiatives included the Bermuda platform (which commenced underwriting operations on 1 January 2014) and further growth in its US Specialty operations under BGSU, as well as the recruitment of new teams in London in areas such as High Value Homeowners, Political Risks, UK Property, and Fine Art & Specie.

For 2014, the Group has sought to take advantage of conditions in the Property reinsurance market to restructure its main Property Catastrophe Reinsurance programme. The restructured programme combines cover for the Property portfolios (both direct and reinsurance), providing US$325 million of coverage in the aggregate and on a worldwide basis, and attaching at US$125 million. Please refer to section 9 of this Part XIII (Operating and Financial Review) for further details of the Group’s reinsurance programme.

135 2.2 Industry Lloyd’s market participants have produced very favourable results for the 2013 financial year, reflecting a benign catastrophe season and continuing benign attritional experience on prior years; for similar reasons, other specialty and reinsurance markets have also produced strong results. Historically, following strong results, the insurance and reinsurance markets have tended to soften either in terms of rates or policy terms and conditions. The outlook for rates in the Reinsurance and Property sectors is, therefore, downwards, with small declines experienced in the January 2014 renewals by most market participants. However, pressure on rates is felt less in direct insurance and long tail business, which constitute the majority of the Group’s business where the outlook is for flat-to-positive rate development.

The industry as a whole has significant surplus capital, which has been supplemented by the injection of non-traditional capital (i.e. capital from pension funds, mutual funds, hedge funds and other sources) into the US catastrophe reinsurance market. This increases the available supply of insurance and reinsurance, although some (re)insurers are expected to choose to return excess capital to shareholders via dividends rather than utilise the capital for underwriting.

Demand for commercial insurance is underpinned by the largely non-discretionary nature of insurance purchasing; however a key to demand is economic growth. Demand for insurance could increase modestly due to an improving global economic outlook. However, supply is likely to continue to be greater than demand, leading to increased competition and increasing the emphasis on underwriting discipline.

The anticipation of a continuing low interest rate environment is expected to maintain pressure on investment returns for (re)insurers. This continues to place strong emphasis on underwriting profitability.

European (re)insurers are expected to continue to work with regulators to prepare themselves for the introduction of Solvency II in 2016.

3. Recent Developments On 28 February 2014, the Group entered into an amendment and restatement agreement that amended and restated its existing Revolving Credit Facility (such amendment and restatement to take effect upon Admission). Upon Admission, the Revolving Credit Facility will become an unsecured facility, with the exception of a cash collateral account charge that was entered into by Brit Group Holdings B.V. and Brit UW Ltd on 28 February 2014. Please refer to section 10.3 of this Part XIII (Operating and Financial Review) for further details.

4. Significant Factors Impacting the Group’s Results of Operations The Group’s results of operations are affected by both internal and external factors. Insurance industry trends in areas such as pricing, distribution and regulation have a direct impact on underwriting profitability at the Group. Broader macroeconomic trends can impact client behaviour and will affect potential investment returns across the industry.

The Group derives its revenues principally from insurance and reinsurance premium income and the return on its investments. As such the Group’s profitability is affected by its ability to price risks effectively, respond to market dynamics quickly, respond to trends in claims and accurately adjust reserves as well as its ability to manage the costs of its operations.

The Group’s operations and financial results are affected by a variety of market and other factors, including: • Property and Casualty insurance and reinsurance industry conditions, including cyclicality, catastrophe experience and premium rates development; • general economic conditions in the United States and Europe; • the Group’s business mix; • prior period reserve development of the Group;

136 • retention rates; • the impact of investment portfolio mix and economic conditions on the Group’s investment return; • exchange rate fluctuations; • increased regulation in the insurance industry (including developments relating to Solvency II); and • the Group’s operating efficiency initiatives.

4.1 Property and Casualty insurance and reinsurance industry conditions Cyclicality The insurance and reinsurance markets in which the Group operates historically have been cyclical. In addition, different business lines experience different supply and demand dynamics.

When the market has an over-supply of underwriting capacity, excess competition can lead to a weakening rate environment and unfavourable terms and conditions for insurers/reinsurers. Conversely when the availability of underwriting capacity is constrained, the rate environment and terms improve for insurers/reinsurers. This cyclicality (often described as “hardening” when rates are strengthening and “softening” when rates are weakening) can apply to specific lines of business and geographies and/or to the market in general.

The Group currently sees the industry environment as a fragmented one with a number of insurance and reinsurance business lines seeing some strengthening in rates, terms and profitability whereas other lines are seeing downward pressure. Overall given the diverse nature of the Group’s book, the Board believes the business is cushioned from cycle dynamics that affect its individual business lines.

The cyclicality and profitability of the Property and Casualty insurance business is affected, among other things, by the following: • loss experience; • new entrants to the market increasing supply; • fluctuations in interest rates, exchange rates and other changes in the economic environment that affect market rates and returns on investments and subsequently insurance and reinsurance pricing; • changes in legal guidelines and the propensity of courts to expand insurance coverage and grant larger damage awards in product liability cases; • inflationary pressures; and • financial strength and credit ratings of peers.

Catastrophe experience The cyclicality and profitability of the Property and Casualty insurance business is also affected by volatile and unpredictable developments, including natural catastrophes and “man-made” losses, the frequency and severity of which are inherently unpredictable. For example, during 2011 and 2012, the industry was impacted by several large catastrophe and man-made losses (US$126 billion and US$81 billion in industry losses, respectively, according to Swiss Re’s Sigma studies dated 27 March 2013 and 18 December 2013, respectively).

137 Major loss claims for the Group in 2011, 2012 and 2013 were £141.9 million, £57.7 million and £30.0 million, respectively. The most significant contributors to major loss claims for the Group in those years are set out below:

Claims incurred, net Year Catastrophe of reinsurance £ in millions 2011 Japan earthquake 31.6(1) 2011 New Zealand earthquake 41.6(2) 2011 Thai floods 31.1(3) 2011 Australian cyclones 8.4 2011 US tornadoes 19.4 2011 Hurricane Irene 9.8 2012 Hurricane Sandy 57.7 2013 Calgary floods 9.9 2013 Colorado floods 1.9 2013 Toronto floods 2.5 2013 European floods 3.1 2013 US tornadoes 5.0 2013 Typhoon Haiyan 3.5 2013 German hail storm 4.1 (1) Against industrywide claims of approximately US$36 billion, according to Swiss Re’s Sigma report dated 27 March 2013. (2) Against industrywide claims of approximately US$15 billion, according to Swiss Re’s Sigma report dated 27 March 2013. (3) Against industrywide claims of approximately US$15 billion, according to Swiss Re’s Sigma report dated 27 March 2013.

During the periods under review, the Group has been profitable even in years with major catastrophe losses. The Board believes this is due to the lower volumes of catastrophe business written by the Group compared to certain other market participants, and due to the Group’s catastrophe risk management (please refer to section 15.1 of this Part XIII (Operating and Financial Review) for further details on the Group’s catastrophe risk management). For example, in 2011, despite incurring total claims in relation to major catastrophe events of £141.9 million, the Group generated profit for the year from continuing operations of £81.5 million. The Group’s catastrophe losses in 2011 as a percentage of its 2011 net earned premiums (for continuing business) was 14%, compared to an average of 19% among 16 insurers (including market participants within Lloyd’s), according to an Aon Benfield study. In addition, the Group’s losses in relation to Hurricane Sandy as a percentage of 2012 net earned premiums were among five of the lowest, based on an internal study of 16 insurers (including market participants within Lloyd’s).

Rates development The Group’s underwriting results are influenced in part by changes in premium rate levels. The reduction in global capacity as a result of the natural catastrophes in 2011 and 2012 led to improved pricing and profitability in a number of shorter tail insurance, reinsurance and catastrophe-exposed business lines. Rates for the Group’s business lines increased by a net 3% in 2012.

Overall rates were flat in 2013. There was some improvement at the beginning of the year in reaction to losses from Hurricane Sandy; however, in the second half of the year, the Property Reinsurance and Energy markets began to show reductions in rate levels reflecting a combination of capacity, benign catastrophe activity, and stronger pricing levels in these areas. The emergence of new entrants into the catastrophe space from traditional and insurance-linked securities participants also added to rates pressure in these business lines. This was partially offset by improvements in rates in the Professional, Financial and Property Facilities businesses.

On the insurance lines and, specifically, Casualty classes, pricing has been improving since 2012 due to a combination of lower capacity and profitability, the impact of lower interest rates on investment returns, and reduced prior year reserve releases.

In general, the Group has benefited from positive premium rate development during the periods under review, as illustrated by the table set out below. The table compares movements in rate levels by line

138 of business since 2008, using a notional starting point of 100 for 2008. An increase from 100 to 120, for example, indicates that rates increased 20% compared to the prior period. The data has been prepared on the basis of internal estimates by the Group’s underwriters, based on available year-on- year underlying renewal data. The rates are not presented on a period-to-period consistent basis, but rather reflect changes to terms and conditions applied each renewal season.

2008 2009 2010 2011 2012 2013 % Property 100 103 102 104 109 110 Marine 100 105 107 108 111 115 Energy 100 113 113 120 124 121 Accident & Health 100 100 101 101 101 104 US Specialty 100 102 102 103 103 103 Terrorism, Political and Aerospace 100 96 90 86 82 78 Casualty 100 107 108 107 109 110 Property Treaty 100 109 108 109 121 119 Casualty Treaty 100 106 107 108 108 108 Discontinued 100 121 130 150 150 150 Weighted average for all business lines 100 105 105 106 109 110

Overall, the Board believes that the Group should be well-positioned to respond to changing market conditions and new opportunities as they arise, based on the diversification of its portfolio and its capital position.

4.2 General economic and other conditions in the United States and Europe While the broader macroeconomic environment is relevant to the Group and to the commercial insurance industry in general, relative to more consumer-driven insurance businesses and/or the banking sector, the correlation of revenues and profitability with economic indicators is more muted.

Economic conditions in the United States and Europe are particularly relevant to the Group, given that the majority of its business is derived from those areas. The political gridlock in the United States that culminated in a temporary Federal government shutdown and battles over increasing the borrowing limit in 2013, the market reaction to the prospects of the so-called taper of the US Federal Reserve’s asset-purchase programme and its impact on global interest rates, the downgrade by Standard & Poor’s of France’s sovereign debt rating and recent growth forecasts by the Organisation for Economic Cooperation and Development and the International Monetary Fund, among others, highlight the uncertain nature of any post-crisis recovery and the significant risks that the world economy continues to face. Economic recovery continues in the United States, however, it remains sensitive to the risks outlined above. Economic growth in Europe broadly continues to be constrained, particularly in the peripheral eurozone countries, and business and consumer confidence continues to be impacted by limited access to credit in the bank funding markets, ongoing concerns over eurozone sovereign debt, concerns over the ability of governments to address the need for structural economic and fiscal reforms and the slower pace of economic growth, as well as market volatility, in emerging markets.

Political or geopolitical developments can also have an impact on financial markets and potentially economic conditions. Most recently, events in Ukraine, the reaction from Russia and potential responses from the United States and the European Union in the form of sanctions or other measures, could lead to further instability in global markets.

From an underwriting perspective, demand for Commercial Lines Property and Casualty insurance can be affected by broader trends in gross domestic product (“GDP”) with premium volumes likely to rise in a stronger economic environment and fall when GDP growth is weak. In addition, longer tail reserves also come under pressure in times of higher inflation; however, historically, insurance and reinsurance underwriting profitability has been driven more by the cyclicality of capacity as detailed in section 4.1 of this Part XIII (Operating and Financial Review) rather than macro factors.

The macro environment also has an impact on the investment portfolio with lower interest rates leading to lower future investment income and overall capital market volatility leading to mark to market asset volatility for the Group and the industry.

139 During the periods under review, the Group’s investment return has been resilient to volatile market conditions, with net investment returns for the Brit Group of 2.4%, 2.9% and 2.2% in 2011, 2012 and 2013, respectively. This has been driven by a proactive approach to asset management with an experienced in-house team overseeing a range of third party managers, as well as the Group’s focus on a balanced portfolio of income-generating assets and total return mandates. Looking forward, the Board believes that this proactive approach positions the Group well to react quickly to fluctuations in the financial markets and changes in macroeconomic conditions.

4.3 Business mix The Group’s profitability is impacted by its business mix. As discussed in section 4.1 of this Part XIII (Operating and Financial Review), the profitability of the overall portfolio is influenced by the point at which each class of business written is positioned within its pricing cycle.

The Group seeks to have a balanced, diverse portfolio, optimised to capture opportunities of the current underwriting cycle. The portfolio is managed to target top-quartile underwriting performance, and the mix of business is continually adjusted based on the market conditions (including the pricing strength of each business class). This assessment is conducted as part of the business planning and strategy process that operates annually and uses inputs from the technical pricing framework.

As part of the restructuring of the Group’s underwriting platform from 2009 to 2013, the Group took significant steps to improve its pricing models, risk framework and performance measurement. This, in turn, led management to rebalance the Group’s underwriting portfolio through a series of re- underwriting initiatives focused on long-term profitability. These initiatives pertained to the following three main areas: • The Group has sought to reduce its exposure to longer tail direct business, where pricing had been under pressure but in which the Group had been overweight. The Group also has sought to grow its short tail business lines such as Property and Energy, where Lloyd’s profitability had been strong, but where the Group had been underweight. In 2013, short tail business accounted for 66% of the Group’s direct insurance gross premiums written (compared to 55% in 2008), and the Group currently targets increasing the level of short tail business to reach 70% of gross premiums written. The long tail classes of insurance generally have the highest volatilities for outstanding claims as the longer average time for claims to be reported and settled allows greater time for changes to occur relative to the estimates made when the business was written. Short tail classes generally have lower levels of volatility for outstanding claims, and increase capital flexibility. • The Group’s open market business has increased from 47% of its direct insurance business gross net premiums in 2008 to 57% in 2013, and the Group targets open market business of 60% of gross net premiums. Open market business provides greater underwriting control, shortens the distribution chain, reduces acquisition costs, makes direct use of the ability of the Group’s underwriters to select individual risks and, the Board believes, is more responsive to rate increases given the Group’s underwriting control over the business. The growth in the Group’s open market business has been driven principally by the Property Open Market and Energy business. • The Group has also sought to rebalance its reinsurance portfolio by optimising short tail reinsurance, and focusing on the profitable core within the business class. These initiatives have involved the Group’s withdrawal from the Marine excess of loss business in 2012 due to inadequate returns, the non-renewal of low margin Hull pro-rata treaties and a re-focusing of the Property Treaty account to reduce the attritional element of the book that was lowering returns. The Group has also sought to grow profitable classes within the Casualty Treaty business line.

140 In addition to the foregoing rebalancing initiatives, the Group has made several opportunistic shifts within business lines as a result of market conditions and its focus on underwriting profitability. For example: • within the Energy business line, the Group withdrew from the Energy Downstream Refining and Petrochemical business in 2013 as a result of challenging conditions in the refining sector, and refocused on the Energy Upstream business where margins have been more attractive; • within Property Open Market, the Group has focused on the commercial North American Open Market Book and the Commercial Worldwide Open Market;

The following table sets forth details of the gross premiums written and attritional loss ratios of the Energy Upstream, commercial North American open market and commercial worldwide open market business during the periods under review.

Gross premiums written Attritional loss ratio 2010 2011 2012 2013 2010 2011 2012 2013 £ in millions % Energy Upstream 35.3 54.7 81.9 90.8 43.7 48.1 47.5 48.2 Commercial North American Open Market 28.6 34.1 49.4 60.4 56.7 46.7 42.1 36.7 Commercial Worldwide Open Market 17.1 13.8 16.1 30.7 113.2 61.7 42.5 44.7 • the Group has focused on expanding its US Speciality business through its US service company – the initial focus on achieving a market leading position in the public entity sector has been complemented by the addition of new product lines such as First Dollar Package (insurance coverage that provides for the payment of all losses up to the specified limit without any use of deductibles), which focuses on covering smaller municipalities, as well as the expansion into Criminal Justice Service Operations business. In addition, BGSU acquired the renewal rights and underwriting platform of Maiden Speciality excess and surplus property business in May 2013; and • within the Marine business line, the Group re-engineered the Hull and Cargo classes to drive profitability at the expense of business volumes, and has hired new teams in certain niche profitable classes such as Fine Art & Specie and Open Market Cargo.

The foregoing initiatives have contributed to improved underwriting profitability, as evidenced by a 12.9 percentage point decrease in attritional loss ratio for the Brit Group (from 64.2% in 2009 to 51.3% in 2013). The following table sets out the attritional loss ratio of the Brit Group by business line for the periods under review.

Change from 2011 2011 2012 2013 to 2013 % % points Global Specialty Direct Property 48.2 43.8 40.8 (7.4) Marine 67.5 67.7 59.8 (7.7) Energy 57.7 56.5 56.6 (1.1) Casualty 48.9 41.8 48.3 (0.6) Accident & Health 54.9 53.9 57.5 2.6 US Specialty 61.5 60.3 53.4 (8.1) Terrorism, Political and Aerospace 34.2 36.3 55.6 21.4 Specialist Liability 68.3 72.0 76.6 8.3 Global Specialty Reinsurance Property Treaty 43.8 37.1 24.8 (19.0) Casualty Treaty 61.1 61.9 61.4 0.3

141 The Group’s re-underwriting initiatives have also resulted in improved incurred loss ratios. The table below illustrates the difference between the incurred loss ratios (i.e. the ratio of losses paid and reserved for to signed premiums, based on underwriting year) for the Brit Group in respect of business renewed (i.e. in-force business) versus business not renewed. The table shows that, for example, in 2012, the Brit Group wrote only 42% of the business that it wrote in 2008, and the incurred loss ratios of that portion of the business was 29 percentage points better than the business that was not renewed in that year.

Discontinued Premium of Discontinued In-force business business incurred Underwriting year in-force business premium incurred loss ratio loss ratio 2008 42% 58% 70% 99% 2009 56% 44% 51% 75% 2010 65% 35% 67% 91% 2011 76% 24% 45% 63% 2012 94% 6% 25% 34%

The following chart sets forth a graphical representation of the table above.

Premium of in-force business Discontinued business premium In-force business incurred Discontinued business incurred loss ratio loss ratio

100% 6%

24% 80% 35%

44%

60% 58%

94%

40% 76% 65% 56% 20% 42%

0% 2008 2009 2010 2011 2012

The diversity in the Group’s underwriting portfolio is illustrated in the table below, analysed between the core book, the diversifying book, the local book and the reinsurance book (excluding discontinued lines).

% of 2013 Gross Lines of business covered Premiums Written Global Specialty Direct: Core book Property, Energy, Casualty 48.0 Diversifying book Marine, Accident & Health, Specialist Liability, and 22.8 Terrorism, Political and Aerospace Local book US Specialty 5.6 76.4 Global Specialty Reinsurance: Reinsurance book Property Treaty, Casualty Treaty 23.6 Total 100.0

142 The following table sets out the gross written premiums of the Group by lines of business during the periods under review.

2011 2012 2013 £ in millions % £ in millions % £ in millions % Global Specialty Direct Property 165.4 14.0 169.8 14.8 228.1 19.2 Marine 147.0 12.5 124.6 10.9 109.0 9.2 Energy 86.9 7.4 112.0 9.8 106.2 9.0 Casualty 221.6 18.8 223.9 19.5 233.1 19.7 Accident & Health 58.7 5.0 62.6 5.5 65.9 5.6 US Specialty 35.0 3.0 45.7 4.0 67.0 5.7 Terrorism, Political and Aerospace 31.9 2.7 34.1 2.9 23.0 1.9 Specialist Liability 77.6 6.6 79.1 6.9 70.8 5.9 Discontinued lines 5.1 0.3 (4.2) (0.5) — — 829.2 70.3 847.6 73.8 903.1 76.2 Global Specialty Reinsurance Property Treaty 181.7 15.4 153.0 13.3 136.9 11.5 Casualty Treaty 141.8 12.0 142.4 12.4 141.4 11.9 Discontinued lines 26.4 2.2 4.6 0.4 2.7 0.3 349.9 29.6 300.0 26.1 281.0 23.7 Other underwriting 10.2 0.9 5.4 0.5 6.0 0.5 Intra-group (9.4) (0.8) (5.1) (0.4) (4.4) (0.4) Total gross premiums written 1,179.9 100.0 1,147.9 100.0 1,185.7 100.0

Despite significant changes in its underwriting strategy, the Group has been able to achieve largely stable premium volumes (with gross premiums written ranging from £1,179.9 million in 2011 to £1,185.7 million in 2013).

The focus on underwriting profitability necessitates constant monitoring of business lines (and classes within the business lines) in an effort to anticipate changes in market conditions. The Board believes that the Group’s active approach to its portfolio (as evidenced by its re-underwriting initiatives), together with its improved underwriting processes, including its pricing models, risk framework, performance measurement and analytics processes, position the Group well to react quickly to such changes. For example, if interest rates rise in conjunction with a consistent increase in long tail insurance rates, the Group would seek to shift its focus to writing more long tail business.

4.4 Retention rates Retention rates refer to the proportion of business that comes up for renewal that is renewed by the Group. The rate measures the amount of premium that was available for renewal that was retained (without giving effect to changes in rates or exposure).

143 The following table sets out the Group’s retention rates from 2009 to 2013 (based on underwriting year) across its core, diversifying and reinsurance books. Certain lines of business such as Marine (in particular, the Hull and Cargo business), Accident & Health, and Property Treaty) have lower retention rates due to the re-underwriting initiatives of the Group, particularly in 2012, to improve profitability. Certain other lines of business (such as Energy, Aerospace and Contingency) have structurally lower retention rates due to the non-renewable nature of certain material segments of the business.

2009 2010 2011 2012 2013 % Core book Property 87 87 87 88 89 Energy 71 65 78 69 66 Casualty 67 81 83 83 89 Diversifying book Marine 79 80 88 63 81 Accident & Health 43 66 66 87 87 Specialist Liability 86 84 87 75 60 Terrorism, Political and Aerospace 55 40 39 60 62 Reinsurance book Property Treaty 83 90 85 67 87 Casualty Treaty 22 85 87 83 84 Group 70 80 83 76 83

4.5 Reserve releases/strengthening The Group maintains loss reserves to cover its estimated future liabilities for claims which have been notified but remain unpaid, or have been incurred but not reported (“IBNR”), as at the end of each accounting period. Reserves are estimates that involve actuarial and statistical projections of the expected cost of the ultimate settlement and administration of claims. These estimates are prepared quarterly and are based on facts and circumstances then known, predictions of future developments, estimates of future trends in claims frequency and severity and other variable factors such as inflation. Please refer to section 10 in Part VII (Information on the Group and its Industry) for details of the Group’s reserving process and section 1.9 of Part II (Risk Factors) for risks relating to reserves.

Movement in these reserves forms an integral element of the Group’s operating result. Reserve releases result in an increase in operating profit, while reserve strengthening results in a decrease in operating profit. In 2011, 2012 and 2013, the Group released £94.2 million, £16.4 million and £57.3 million of reserves, respectively.

The Group’s reserving policy is to reserve to a “conservative best estimate” and carry an explicit risk margin above that “conservative best estimate.” Reserves are constructed by class, year of account and currency and also categorised into attritional, large and special issues (for example, natural catastrophe and casualty events).

Over time, this approach in estimating future claims has resulted in a track record of net reserve releases at Group level. The following table sets forth the Brit Group’s reserve releases as a percentage of opening net reserves during the periods under review, in respect of continuing operations.

2011 2012 2013 £ millions Net claims reserves at start of year 1,685.4 1,743.9 1,737.5 Unearned premiums at start of year 385.8 384.5 409.5 Net reserves at start of year 2,071.2 2,128.4 2,147.0 Prior year net reserve release during the year 94.2 16.4 57.3

% Release as a percentage of opening net reserves 4.5 0.8 2.7

144 Reserve releases as a percentage of opening net reserves were higher in 2011 due to a series of one- off exercises in respect of specific lines of business where management was of the view that the Group’s reserves were overly prudent and did not reflect a “conservative best estimate”. Reserve releases as a percentage of opening net reserves were lower in 2012, with releases across a broad number of business lines being partially offset by specific reserve strengthening in the Group’s long tail direct lines as a cautious response to the 2008 financial crisis. The Board believes these business lines are reserved appropriately and have been stable for the last 18 to 24 months. Reserve releases as a percentage of opening net reserves were higher in 2013 compared to 2012 as a result of increased releases across a broad number of business lines.

While, as noted above, the Group reserves to a “conservative best estimate,” it expects reserve releases for the Brit Group to amount to approximately 1% to 2% of opening net reserves per year.

Please refer to section 8 of this Part XIII (Operating and Financial Review) for further details on the Group’s loss development.

4.6 Impact of investment portfolio mix and economic conditions on investment return The nature of an insurance business is to hold assets on the balance sheet to support insurance liabilities. The income generated from these assets contributes to an insurer’s income and investment return forms a material component of an insurer’s operating profit. The ratio of the Group’s investment assets to its net tangible assets as of 31 December 2013 was 4:1 and, as such, investment return makes a meaningful contribution to RoNTA of the Group.

Investment portfolio mix The Group has realigned its investment strategy and has transitioned to a broader mix of asset classes. The core focus of the Group’s investment portfolio is income-generating investments, balanced with growth assets (including total return mandates) across a wide range of sectors, in order to balance risk and return and diversify away from pure fixed income investments.

The Group seeks to achieve its target investment portfolio mix while remaining broadly matched to currency exposure and providing sufficient liquidity. While the currency matching strategy reduces the risk to the Group’s capital base (which would reflect changes in currency exchange rates, interest rates, credit spreads and equity market fluctuations), it has the potential to increase earnings volatility (i.e. reported net income).

Please refer to section 7 of this Part XIII (Operating and Financial Review) for further details relating to the composition of the Group’s investment portfolio (including cash and cash equivalents) and the Group’s solvency matching strategy.

Economic conditions Macroeconomic conditions can have a significant impact on the level of investment return. Movements in short-term and long-term interest rates affect the level and timing of recognition of gains and losses on debt securities held by the Group, causing changes in realised and unrealised gains and losses. Generally, the Group’s investment return will be reduced during sustained periods of lower interest rates as higher yielding fixed-income securities are called, mature or are sold and the proceeds are reinvested at lower rates. However, declining interest rates result in unrealised gains in the value of fixed-income securities the Group continues to hold, as well as realised gains to the extent that the relevant securities are sold. During periods of rising interest rates, prices of fixed-income securities tend to fall and realised gains upon their sale are reduced.

In 2013, signs of economic recovery in developed markets underpinned growth assets, with equities and credit performing well. The uncertainty over the timing of tighter monetary policy resulted in marginally higher government yields in the second half of the year. The Group achieved an investment return of £56.9 million, representing a net investment return for the Brit Group of 2.2%.

145 In 2012, following an uncertain first half, stabilising economic conditions resulted in attractive returns on bond markets due to tightening credit spreads and limited recovery across wider asset classes. The Group achieved an investment return of £87.2 million, representing a net investment return for the Brit Group of 2.9%.

In 2011, quantitative easing and low interest rate policies continued. Significant uncertainty over economic prospects resulted in diverging yields on government bonds and widening spreads on corporates in the second half of the year. Despite these pressures, the Group generated an investment return of £64.6 million, representing a net investment return for the Brit Group of 2.4%.

4.7 Exchange rate fluctuations The reporting currency for the Group’s consolidated financial statements is Sterling, which is also the functional reporting currency for all of the Group’s material subsidiaries. Substantial portions of the Group’s revenues and expenses and assets and liabilities are denominated in currencies other than Sterling. It is therefore exposed to fluctuations in the values of those currencies against Sterling. Such fluctuations impact the Group’s reported operating results, and its assets and liabilities, and are expected to continue to do so in the future. Please refer to “Net foreign exchange gains (losses)” in section 5.1 of this Part XIII (Operating and Financial Review) for further details. The Group seeks to mitigate these effects by maintaining financial assets denominated in the same currency as its liabilities.

The exchange rates, expressed as units of listed currency per unit of Sterling, used to translate the balance sheet items with the exception of non-monetary assets and liabilities are:

As of 31 December 2011 2012 2013 (units of listed currency per unit of Sterling) US dollar 1.55 1.63 1.66 Euro 1.20 1.23 1.20 Canadian dollar 1.58 1.62 1.76

The Group uses either exchange rates prevailing at the dates of transactions or the average exchange rate for the period in order to translate income statement items not denominated in Sterling. The exchange rates, expressed as units of listed currency per unit of Sterling, used to translate the income statement items are:

2011 2012 2013 (units of listed currency per unit of Sterling) US dollar 1.60 1.59 1.56 Euro 1.15 1.23 1.18 Canadian dollar 1.59 1.58 1.61

4.8 Increased regulation in the insurance industry Following the 2008 financial crisis, there has been a trend towards a more coordinated, more centralised and stricter approach to insurance regulation in both Europe and the United States. New regulatory initiatives include, among others, changes as to which governmental bodies regulate financial institutions, changes in the way financial institutions generally are regulated, enhanced governmental authority to take control over operations of financial institutions, changes in the way financial institutions account for transactions and securities positions, changes in disclosure obligations and changes in the way rating agencies rate the creditworthiness or financial strength of financial institutions. There have also been a number of legislative initiatives, most notably the planned introduction from 1 January 2016 of a risk-based prudential regime in the European Union under Solvency II. The Board believes Solvency II represents the most significant regulatory change impacting the Group’s business in the near term. The Board believes that the Group is well-advanced in its preparations for the implementation of Solvency II, which have included participation in the Lloyd’s Solvency II dry run process. It has also been assessed by Lloyd’s to be compliant with all of the principles of Solvency II.

BSL is subject to regulation and supervision by the FCA and the PRA in relation to carrying on its regulated activities in the UK. Further, it is subject to regulatory standards set by Lloyd’s by way of its operations in the Lloyd’s market. BIG, the Group’s Gibraltar–based captive reinsurer, is licensed by the

146 FSC of Gibraltar in relation to certain classes of business and is subject to applicable Gibraltar regulation and the Insurance Groups Directive. In the United States, where BISI is licensed as a surplus lines broker, insurance and reinsurance regulation is primarily embedded in state law regulatory frameworks. However, regulatory reforms prompted by the 2008 financial crisis have introduced an overlay of a federal framework, together with ad hoc issue-specific federal regulation. Please refer to Part X (Regulatory Overview) for further details.

4.9 Operating efficiency initiatives Since March 2011, the Group has focused on simplifying its operating platform to drive operating efficiencies, as well as to realign the expense base further towards value creating underwriting activity and away from support activity. The following constitute the key themes of these initiatives: • Simplified operating structure through focus on Lloyd’s and disposal of non-core businesses. From 2012, the Group’s underwriting strategy has involved writing all business on its Lloyd’s platform. In connection with its strategy of being a purely Lloyd’s-focused specialty underwriting business, the Group completed the sale of its non-core UK regional business to QBE for £38.5 million in April 2012 and the sale of its historical UK liabilities (BIL) to RiverStone Group for £208.2 million in October 2012. The QBE transaction represented a business transfer in which renewal rights, operations and assets were acquired by QBE. There was no transfer of historical liabilities. The transaction resulted in a profit on sale before tax of £26.7 million, which was included within the Group’s profit from discontinued operations for 2012. The RiverStone transaction represented the sale of the Group’s legacy portfolio of UK insurance business. The RiverStone transaction resulted in a loss of £14.6 million, which was included within the Group’s profit from discontinued operations for 2012. As part of the transaction, the Group retained the economic exposure and control of certain classes of business via a reinsurance arrangement between RiverStone Group and BIG, including full claims handling authority. On an ongoing basis, these classes of business are now being written by the Syndicate. RiverStone Group has the right, exercisable from April 2014 to October 2019, to commute the reinsurance arrangement covering the liabilities reinsured (meaning that in return for a cash payment to the reinsured party the obligation of the reinsurer ceases). In the event the reinsurance arrangement is commuted, in return for a cash payment to RiverStone Group, the obligations of BIG would cease. In May 2013, the Group disposed of a majority of its interests in Verex Limited and in July 2013, disposed of its interests in Xbridge Limited. Please refer to “Share of loss after tax of associated undertakings and impairment of associated undertakings” in this Part XIII (Operating and Financial Review) for further details. • Streamlined expense base. The Group has focused on expense efficiency and has reduced its expense base. These savings have been achieved principally through business disposals, reorganisation of support functions and the reduction of discretionary expenses (e.g. through reduction in contractor staff, legal and professional costs and marketing spend). As a result of these initiatives, the Brit Group’s operating expense ratio improved from 13.0% in 2010 to 11.8% in 2013. • Selective investment in operations. The Group has aligned its expense reductions with ongoing investments in key areas of its operations. These investment actions have included the upgrade to the Group’s core IT infrastructure, underwriting systems and “back office” capability in the areas of risk, investments, claims handling, finance and performance reporting.

5. Key Income Statement Items Unless otherwise specified, the following discussion relates to the Group’s continuing operations, and excludes the discontinued operations comprised of its non-core UK regional business and its historical UK liabilities, both of which were sold in 2012.

147 5.1 Revenue items The Group’s total revenue consists of the following items: • Premiums written, net of reinsurance. Premiums written, net of reinsurance represents gross premiums written less premiums ceded to reinsurers. Gross premiums written relate to business incepted during a period, together with any differences between booked premiums for prior periods and those previously recognised. It includes estimates of premiums due but not yet receivable or notified, less an allowance for cancellations. Premiums are shown net of premium taxes and other levies on premiums. Please refer to section 16.2 of this Part XIII (Operating and Financial Review) for further details on the recognition of premiums. Premiums ceded to reinsurers represent the premiums that are ceded to reinsurers in return for reinsurance protection. • Earned premiums, net of reinsurance. Earned premiums, net of reinsurance, represents premiums written, net of reinsurance, and the net change in provision for unearned premiums. Premiums are earned on a pro rata basis over the term of the related policy, except for those contracts where the period of risk differs significantly from the contract period. In these circumstances, premiums are earned over the period of risk in proportion to the amount of insurance protection provided. The proportion of written premiums that relate to unexpired terms of policies in force at the balance sheet date is deferred as a provision for unearned premiums. The movement in the provision is recognised in the income statement under the line item “Net change in provision for unearned premiums” in order that revenue is recognised over the period of the risk. • Investment return. The Group’s investment return represents interest and dividend income and realised and unrealised gains and losses. The Group recognises interest income using the effective interest method. It recognises dividend income when the right to receive the payment is established. Realised gains and losses on investments are calculated as the difference between net sales proceeds and cost, and are recognised when the sale transaction occurs. Unrealised gains and losses on investments are calculated as the difference between the valuation at the date of the statement of financial position and the valuation at the last statement of financial position or purchase price, if acquired during the year. Unrealised investment gains and losses include adjustments in respect of unrealised gains and losses recognised in prior years that have been realised during the year and are reported as realised gains and losses in the current year’s income statement. The Group recognises investment management expenses as part of, and nets them against, investment returns. The Group manages its investment return centrally, and makes an allocation of the returns to each of the SBUs based on the average risk free interest rate for the period being applied to the opening net reserves of each SBU. The following table sets out the Group’s investment return by category of investment for the periods under review.

2011 2012 2013 £ in millions Equity securities (4.9) 4.7 1.2 Debt securities 69.8 74.1 20.0 Loan instruments — 0.1 12.1 Funds 0.9 10.1 28.9 Cash and cash equivalents 2.6 2.6 0.6 Investment management expenses (3.8) (4.4) (5.9) Total 64.6 87.2 56.9 • Return on derivative contracts. Return on derivative contracts represents gains or losses on forward interest and currency agreements, futures, and options and warrants. The Group uses derivatives for the purposes of efficient portfolio management, reduction in investment risk and to mitigate the credit risk of certain reinsurance counterparties. Derivatives are used only with the prior approval of the Group’s Investment Committee.

148 • Net foreign exchange gains and losses. Under IAS 1 “Presentation of Financial Statements,” foreign exchange gains and losses are reported on a net basis. They are reported within revenue where they result in a net gain and within expenses where they result in a net loss. The Group recognises foreign exchange gains and losses from the translation of the balance sheet to closing exchange rates and the income statement to average exchange rates. However, as an exception to this, IFRS 21 “The Effects of Changes in Foreign Exchange Rates” requires that non-monetary items (such as net unearned premiums and deferred acquisition costs) remain at historical exchange rates. The following table sets out the components of net foreign exchange gains and losses for the periods under review.

2011 2012 2013 £ in millions (Losses)/gains on foreign exchange arising from: Translation of the balance sheet and income statement 1.6 (14.5) (65.4) Maintaining non-monetary items in the balance sheet at historical rates 9.8 (10.1) (6.0) Maintaining non-monetary items in the income statement at historical rates (7.7) (1.3) 1.8 Net foreign exchange (losses)/gains 3.7 (25.9) (69.6) • Profit on disposal of asset held for sale. This profit arose on the disposal of Xbridge Limited in 2013. • Other income. Other income represents sundry income not associated with underwriting activities. There was no sundry income in 2013.

5.2 Expense items • Claims incurred, net of reinsurance. Claims incurred represents claims paid (including claims handling costs), net of reinsurance, and the net change in the provision for claims, both of which comprise gross amounts as well as reinsurers’ shares. Claims incurred also include related expenses, together with any adjustments to claims from prior years. The following table sets out the components of claims incurred, net of reinsurance, including as a percentage of total expenses for the periods under review.

2011 2012 2013 £ in millions Claims paid: Gross amount 674.2 659.7 542.1 Reinsurers’ share (139.0) (124.8) (99.2) Claims paid, net of reinsurance 535.2 534.9 442.9 Change in the provision for claims: Gross amount 139.6 19.0 34.1 Reinsurers’ share (71.0) (23.9) (17.8) Net change in provision for claims 68.6 (4.9) 16.3 Claims incurred, net of reinsurance 603.8 530.0 459.2

• Acquisition costs. Acquisition costs represent commissions and other costs related to the procurement of insurance business. Other costs include staff costs (related to the writing of insurance business), other staff-related costs, accommodation costs, legal and professional charges, travel and entertaining charges, marketing and communications, regulatory levies and charges, movement on insurance related acquisition cost deferral and other charges.

149 The following table sets out details relating to acquisition costs during the periods under review.

2011 2012 2013 £ in millions Acquisition costs — commission 259.1 242.5 235.8 Acquisition costs — other: Staff costs 17.6 16.6 20.8 Regulatory levies and charges 13.4 18.1 22.1 Accommodation costs 2.5 3.1 3.1 Legal and professional charges 2.4 2.0 1.3 Travel and entertaining charges 1.2 1.4 2.0 Other charges(1) 2.0 2.4 2.4 Total acquisition costs 298.2 286.1 287.5

(1) Consists of other staff related costs (2011: £0.4 million, 2012: £0.5 million, 2013 £0.7 million); IT costs (2011: nil; 2012: nil; 2013: £0.6 million); marketing and communications (2011: £0.1 million, 2012: £0.1 million, 2013: £0.1 million); amortisation and impairment of intangible assets (2011: nil; 2012: nil; 2013: £0.5 million); and other charges (2011: £1.5 million; 2012: £1.8 million; 2013: £0.3 million). • Other operating expenses. Other operating expenses represent staff costs, other staff- related costs, accommodation costs, legal and professional charges, investment management expenses, IT costs, travel and entertaining charges, marketing and communications, amortisation and impairment of intangible assets, depreciation and impairment of property, plant and equipment, regulatory levies and charges and other charges. The following table sets out details relating to other operating expenses during the periods under review.

2011 2012 2013 £ in millions Staff costs 37.3 33.6 37.8 Other staff-related costs 11.3 3.5 3.1 Accommodation costs 4.2 3.7 3.3 Legal and professional charges 19.1 5.2 7.7 IT costs 7.0 11.2 11.8 Travel and entertaining charges 1.2 1.5 1.8 Marketing and communications 4.4 4.4 4.4 Amortisation and impairment of intangible assets 7.4 5.8 4.5 Depreciation and impairment of property, plant and equipment 2.6 2.1 2.0 Costs of acquiring Brit Insurance Holdings B.V. 35.5 — — Regulatory levies and charges — — 0.2 Other charges 8.3 6.7 2.5 Total other operating expenses 138.3 77.7 79.1

5.3 Other items

• Finance costs. The Group’s finance costs represent interest payments under the Revolving Credit Facility and its lower tier 2 subordinated unsecured notes. Upon completion of the Offer, interest in respect of any drawdowns made under the Revolving Credit Facility will be payable at the London interbank offered rate (“LIBOR”) + 2.375% per annum, while interest on letters of credit under the Revolving Credit Facility will be payable at a rate of 2.375% per annum (the “L/C Margin”). Commitment fees under the Revolving Credit Facility will be payable at an annual rate of 35% of the L/C Margin applicable to the lenders’ available commitment. The subordinated notes bear interest at a rate of 6.625% per annum until 9 December 2020 (the call date), after which it resets to 3.4% above the 10-year gilt rate prevailing at the time.

150 • Share of loss after tax of associated undertakings and impairment of associated undertakings. Associated undertakings are those entities over which the Group has the power to exercise significant influence but not control. The Group’s investment in associated undertakings is accounted for under the equity method, and also includes goodwill identified on acquisition less any accumulated impairment loss. The income statement reflects the Group’s share of the post-acquisition results of operations of the associated undertaking. The Group had the following investments in associated undertakings during the periods under review. Both of these interests related to the legacy UK segment and were hence deemed non-core. • Verex Limited. Verex Limited provides vehicle manufacturer affinity motor insurance, accident management, network management together with related products and services, back office support and administration to vehicle manufacturers, their dealers and associated body shops. The Group retains a 10% holding, which is classified as an investment and carried at nil value. The Group also holds a put option in respect of this holding, which is classified as a derivative and valued at £1.9 million. • Xbridge Limited. Xbridge Limited provides online insurance and finance technology services. The Group owned 36.1% of the ordinary share capital of Xbridge Limited and granted it a five year loan facility of up to £6.0 million. In July 2013, the Group completed the sale of its equity holding in Xbridge Limited to Intercede 2463 Limited. The Group’s loan to Xbridge Limited, together with accrued interest, was repaid on this date. The Group recognised a profit on disposal of Xbridge Limited, including the fair value of deferred consideration, of £4.4 million. • Tax expense/income. The Group’s income tax consists of current and deferred tax, including foreign taxes. Income tax is recognised in the income statement except where it relates to an item which is recognised in equity. • Current income tax is the expected tax payable (both locally and foreign tax payable in overseas territories where the company has a taxable presence) on the taxable profit for the period using tax rates (and laws) enacted or substantively enacted at the date of the statement of financial position and any adjustment to the tax payable, in respect of previous periods. The Group calculates current income tax using the current income tax rate in the relevant territory. • Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred income tax 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, it is not recognised. The Group determines deferred income tax using tax rates (and laws) that have been enacted or substantively enacted by the date of the statement of financial position and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. The Group recognises deferred income tax assets to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

151 6. Consolidated Results of Continuing Operations The table below presents summary combined consolidated results of the Group’s continuing operations during the periods under review, including as a percentage of total revenue.

2011 2012 2013 £ in millions % £ in millions % £ in millions % Revenue Gross premiums written 1,179.9 108.5 1,147.9 111.4 1,185.7 116.5 Premiums ceded to reinsurers (204.6) (18.8) (210.9) (20.5) (229.4) (22.5) Premiums written, net of reinsurance 975.3 89.7 937.0 90.9 956.3 94.0 Net change in provision for unearned premiums 38.3 3.5 7.6 0.7 (10.8) (1.1) Earned premiums, net of reinsurance 1,013.6 93.2 944.6 91.7 945.5 92.9 Investment return 64.6 5.9 87.2 8.5 56.9 5.6 Return on derivative contracts 5.3 0.5 (2.1) (0.2) 11.0 1.1 Profit on disposal of asset held for sale — — — — 4.4 0.4 Net foreign exchange gains 3.7 0.3 — — — — Other income 0.1 — 0.7 0.1 — — Total revenue 1,087.3 100.0 1,030.4 100.0 1,017.8 100.0 Expenses Claims paid, net of reinsurance (535.2) (49.2) (534.9) (51.9) (442.9) (43.5) Net change in the provision for claims (68.6) (6.3) 4.9 0.5 (16.3) (1.6) Claims incurred, net of reinsurance (603.8) (55.5) (530.0) (51.4) (459.2) (45.1) Acquisition costs (298.2) (27.4) (286.1) (27.8) (287.5) (28.2) Other operating expenses (138.3) (12.7) (77.7) (7.5) (79.1) (7.8) Net foreign exchange losses — — (25.9) (2.5) (69.6) (6.8) Total expenses excluding finance costs (1,040.3) (95.7) (919.7) (89.3) (895.4) (88.0) Operating profit 47.0 4.3 110.7 10.7 122.4 12.0 Loss on sale of subsidiary — — — — — — Finance costs (16.7) (1.5) (14.6) (1.4) (15.0) (1.5) Share of loss after tax of associated undertakings (0.4) — (0.1) — — — Write-off of negative goodwill 51.9 4.8 — — — — Impairment of associated undertaking — — (0.1) — — — Profit on ordinary activities before tax 81.8 7.5 95.9 9.3 107.4 10.6 Tax (expense)/income (0.3) — (5.2) (0.5) (6.5) (0.6) Profit for the year from continuing operations 81.5 7.5 90.7 8.8 100.9 9.9

6.1 2013 compared to 2012 6.1.1 Group results Total revenue Total revenue decreased £12.6 million, or 1.2%, from £1,030.4 million in 2012 to £1,017.8 million in 2013. This decrease was due to the combined effects of the following: • Gross premiums written. Gross premiums written increased £37.8 million, or 3.3%, from £1,147.9 million in 2012 to £1,185.7 million in 2013. This increase was due to in gross premiums written in Global Specialty Direct, and was partially offset by a decrease in gross premiums written in Global Specialty Reinsurance. The following table sets out the contribution of the segments to the Group’s gross premiums written during the periods indicated.

152 2012 2013 £ in millions % £ in millions % Global Specialty Direct 847.6 73.8 903.1 76.2 Global Specialty Reinsurance 300.0 26.1 281.0 23.7 Other Underwriting 5.4 0.5 6.0 0.5 Intra-Group (5.1) (0.4) (4.4) (0.4) Total gross premiums written 1,147.9 100.0 1,185.7 100.0

From a geographical perspective (based on location of underlying risk), the increase in gross premiums written was due to an increase in gross premiums written in the US. This was in line with the Group’s strategy of developing its US service company and increasing its US and international premiums. The following table sets out the contribution of the geographical areas to the Group’s gross premiums written during the periods indicated.

2012 2013 £ in millions % £ in millions % UK 129.3 11.3 93.0 7.8 Europe (excluding UK) 50.6 4.4 61.8 5.2 US 364.7 31.8 421.5 35.6 Other(1) 603.3 52.5 609.4 51.4 Total gross premiums written 1,147.9 100.0 1,185.7 100.0

(1) Includes other jurisdictions and worldwide policies. • Premiums ceded to reinsurers. Premiums ceded to reinsurers increased £18.5 million, or 8.8%, from £210.9 million in 2012 to £229.4 million in 2013.

There was no significant change in the structure of the Group’s reinsurance programmes from 2012 to 2013. Additional catastrophe cover was strategically purchased in 2013 following favourable mid-year results and market conditions, to further manage risk and reduce potential volatility in the Group’s full-year earnings.

Premiums ceded to reinsurers increased primarily due to increased premiums ceded in Global Specialty Direct and Other Underwriting, and was partially offset by decreased premiums ceded in Global Specialty Reinsurance. The following table sets out the contribution of the segments to the Group’s premiums ceded to reinsurers during the periods indicated.

2012 2013 £ in millions % £ in millions % Global Specialty Direct 158.4 75.1 181.5 79.1 Global Specialty Reinsurance 57.3 27.2 50.1 21.8 Other Underwriting 0.3 0.1 2.2 1.0 Intra-Group (5.1) (2.4) (4.4) (1.9) Total revenue 210.9 100.0 229.4 100.0

The increase in reinsurance spend was influenced by the growth in the Group’s core strategic business lines, principally Property. It was also influenced by an increased level of proportional treaties, purchased principally for short tail direct business to protect new business initiatives emanating from the Group’s US service company and specific lines of business, including Energy Gulf of Mexico wind risks, Operators Extra Expense binders (i.e. policies available to oil or gas well operators that cover the cost of regaining control of a well following blowout) and Bloodstock.

These increases were partially offset by a reduction in the Group’s Property Treaty International quota share cession, resulting from lower premium volumes.

From a geographical perspective, premiums ceded to reinsurers reflect the movements in the geographical mix of gross premiums written.

• Net change in provision for unearned premiums. The net change in provision for unearned premiums was a reduction of £10.8 million in 2013 compared to an increase of £7.6 million in 2012.

Net earned premium remained relatively stable between 2012 and 2013, with the increase in gross premiums written in 2013 offset by the additional reinsurance spend.

153 • Investment return. Investment return decreased £30.3 million, or 34.7%, from £87.2 million in 2012 to £56.9 million in 2013, representing a net investment return for the Group of 2.2% (2012: 2.9%). The decrease in investment return was primarily driven by lower returns on debt securities (corporate and government securities) due to increasing yields in 2013. The decrease in debt securities returns was, however, partly offset by strong returns from loan instruments and funds. The following table sets out the Group’s investment return by investment category for the periods indicated.

2012 2013 Net Net Net realised unrealised Total realised Net Total Investment gains (losses) investment Investment gains unrealised investment income /(losses) /gains return Income /(losses) gains return £ in millions Equity securities 1.9 2.0 0.8 4.7 0.3 (0.1) 1.0 1.2 Debt securities 64.5 8.2 1.4 74.1 43.5 (15.3) (8.2) 20.0 Loan instruments — — 0.1 0.1 8.3 0.8 3.0 12.1 Funds 1.5 (14.7) 23.3 10.1 4.9 15.7 8.3 28.9 Cash and cash equivalents 2.6 — — 2.6 0.5 0.1 — 0.6 Investment return 70.5 (4.5) 25.6 91.6 57.5 1.2 4.1 62.8 Investment management expenses (4.4) — — (4.4) (5.9) — — (5.9) Total investment return 66.1 (4.5) 25.6 87.2 51.6 1.2 4.1 56.9

• Return on derivative contracts. Return on derivative contracts increased £13.1 million from a loss of £2.1 million in 2012 to a gain of £11.0 million in 2013. The return on derivative contracts predominantly relates to currency forwards that are used by the Group to match currency exposures within the Group’s insurance entities. The positive returns from these contracts were partly offset by losses on the Group’s investment-related derivatives, including interest rate swaps, which the Group started using in 2013 as part of its investment strategy. • Profit on disposal of asset held for sale. In 2013, the Group recognised a profit of £4.4 million on the disposal of Xbridge Limited. • Other income. Other income decreased £0.7 million from £0.7 million in 2012 to nil in 2013 following the sale of BIL in 2012.

Total expenses excluding finance costs Total expenses excluding finance costs decreased £24.3 million, or 2.6%, from £919.7 million in 2012 to £895.4 million in 2013. This decrease was due to a combination of the following: • Claims incurred, net of reinsurance. Claims incurred, net of reinsurance, decreased £70.8 million, or 13.4%, from £530.0 million in 2012 to £459.2 million in 2013. This decrease reflected the continuing downward trend of the attritional claims experience, the significantly lower catastrophe activity and significantly higher reserve releases (please refer to section 4.1 for the significant catastrophe-related claims that the Group incurred during 2012).

154 The following table sets out the components of claims incurred, net of reinsurance, during the periods indicated.

2012 2013 £ in millions Claims paid: Gross amount 659.7 542.1 Reinsurers’ share (124.8) (99.2) Claims paid, net of reinsurance 534.9 442.9 Change in the provision for claims: Gross amount 19.0 34.1 Reinsurers’ share (23.9) (17.8) Net change in provision for claims (4.9) 16.3 Claims incurred, net of reinsurance 530.0 459.2

From a segment perspective, claims incurred, net of reinsurance, decreased in both Global Specialty Direct and Global Specialty Reinsurance. The following table sets out the contribution of the segments to the Group’s claims incurred, net of reinsurance, during the periods indicated.

2012 2013 £ in millions % £ in millions % Global Specialty Direct Gross claims incurred 514.8 482.3 Reinsurers’ share (114.0) (111.9) Claims incurred, net of reinsurance 400.8 75.6 370.4 80.7 Global Specialty Reinsurance Gross claims incurred 163.8 93.1 Reinsurers’ share (34.0) (6.0) Claims incurred, net of reinsurance 129.8 24.5 87.1 19.0 Other Underwriting Gross claims incurred 1.2 3.5 Reinsurers’ share (1.8) (1.8) Claims incurred, net of reinsurance (0.6) (0.1) 1.7 0.3 Intra-Group Gross claims incurred (1.1) (2.7) Reinsurers’ share 1.1 2.7 Claims incurred, net of reinsurance — — — — Other corporate — — — Total claims incurred, net of reinsurance 530.0 100.0 459.2 100.0

The Group’s claims ratio improved from 56.2% in 2012 to 48.5% in 2013. The following table sets out the components of the claims ratio for the periods indicated.

2012 2013 % Attritional loss ratio 51.8 51.3 Major claims ratio 6.1 3.2 Reserve strengthening/(release) ratio (1.7) (6.0) Claims ratio 56.2 48.5

In 2013, the attritional loss ratio further improved by 0.5 percentage points, reflecting underwriter action taken to improve performance. The short tail business lines experienced the most favourable attritional loss improvement. The major claims ratio improved 2.9 percentage points due to lower net claims incurred from major events (£30.0 million in 2013 compared to £57.7 million in 2012), with total catastrophe losses in 2013 mainly arising in the short tail reinsurance business. The Group released £57.3 million of claims reserves from prior years in 2013 compared to £16.4 million in 2012. The reserve releases in 2013 occurred across most business lines.

155 • Acquisition costs. Acquisition costs increased £1.4 million, or 0.5%, from £286.1 million in 2012 to £287.5 million in 2013. This increase was primarily due to an increase in staff costs and acquisition-related regulatory levies and charges, partly offset by a reduction in commissions. The following table sets out the components of acquisition costs for the periods indicated.

2012 2013 £ in millions % £ in millions % Acquisition costs — commissions 242.5 84.8 235.8 82.0 Acquisition costs — other Staff costs 16.6 5.8 20.8 7.2 Other staff-related costs 0.5 0.2 0.7 0.2 Accommodation costs 3.1 1.1 3.1 1.1 Legal and professional charges 2.0 0.7 1.3 0.5 IT costs — — 0.6 0.2 Travel and entertaining charges 1.4 0.5 2.0 0.7 Marketing and communications 0.1 — 0.1 — Amortisation and impairment of intangible assets — — 0.5 0.2 Depreciation and impairment of property, plant and equipment — — 0.2 0.1 Regulatory levies and charges 18.1 6.3 22.1 7.7 Other 1.8 0.6 0.3 0.1 Total acquisition costs 286.1 100.0 287.5 100.0

The increase in acquisition-related staff costs reflected the hiring of new underwriting teams in niche segments, as well as increased profit-related pay under the Group’s underwriter bonus scheme (due to the Group’s improved underwriting result in 2013 compared to 2012). The increase in acquisition-related regulatory levies and charges was a result of higher Lloyd’s subscription charges. The commission ratio improved from 25.7% in 2012 to 24.9% in 2013, reflecting the mix of business within the Global Specialty Direct segment and the recognition of inward profit commission in 2013 (i.e. where commissions are payable to the Group under certain quota share contracts if certain performance targets are achieved). • Other operating expenses. Other operating expenses increased £1.4 million, or 1.8%, from £77.7 million in 2012 to £79.1 million in 2013. This increase was primarily due to investments in infrastructure to support new business initiatives in the United States, and increased legal and professional costs. The following table sets out the components of other operating expenses during the periods indicated.

2012 2013 £in £in millions % millions % Staff costs 33.6 43.2 37.8 47.8 Other staff-related costs 3.5 4.5 3.1 3.9 Accommodation costs 3.7 4.8 3.3 4.2 Legal and professional charges 5.2 6.7 7.7 9.7 IT costs 11.2 14.4 11.8 14.9 Travel and entertaining charges 1.5 1.9 1.8 2.3 Marketing and communications 4.4 5.7 4.4 5.6 Amortisation and impairment of intangible assets 5.8 7.5 4.5 5.7 Depreciation and impairment of property, plant and equipment 2.1 2.7 2.0 2.5 Regulatory levies and charges — — 0.2 0.3 Other charges 6.7 8.6 2.5 3.1 Total other operating expenses 77.7 100.0 79.1 100.0

156 Staff costs and other staff-related costs increased mainly due to the impact of the acquisition of the renewal rights of the Maiden Specialty excess and surplus property business, and the setting up of the Group’s Bermuda office. Legal and professional charges in 2013 increased due to the recognition of expenses in connection with the Offer. The operating expense ratio increased from 11.3% in 2012 to 12.0% in 2013. • Net foreign exchange gains/losses. The Group recognised a net foreign exchange loss of £69.6 million in 2013 compared to a loss of £25.9 million in 2012. The significant increase in foreign exchange losses in 2013 primarily reflected the appreciation of Sterling against all other major currencies, and the revaluation of the Group’s capital, which, following the implementation of its solvency matching strategy, is now held in currencies more closely aligned to the denomination of the Group’s risks. The £69.6 million loss in 2013 consisted of (a) a revaluation loss of £65.4 million (2012: £14.1 million) on the mark-to-market element of the Group’s capital that it holds in non-Sterling currencies, principally driven by the weakening of the US dollar and a number of other currencies against Sterling and (b) an accounting loss of £4.2 million (2012: £11.8 million) as a result of recognising non-monetary assets and liabilities at historical exchange rates. At 31 December 2013, the difference between translating non-monetary assets and liabilities at historical, rather than closing, exchange rates resulted in a £9.9 million net liability on the balance sheet, which will reverse as a profit through the income statement in future periods. At 31 December 2012, the amount was a net liability of £3.9 million.

Operating profit As a result of the foregoing factors, operating profit increased £11.7 million from £110.7 million in 2012 to £122.4 million in 2013.

The Group’s combined ratio (excluding the effect of foreign exchange on non-monetary items) was 85.4% (2012: 93.2%). This reflected lower major loss activity in 2013 compared to 2012. The Group incurred losses from major events of £30.0 million in 2013, equivalent to 3.2 percentage points on the combined ratio in 2013, with losses arising from various natural catastrophe events including US tornadoes, Canadian and European floods, and German hail storms. The only major event in 2012 was Hurricane Sandy, the effect of which on the Group, net of reinsurance recoverable was £57.7 million, or 6.1 percentage points on the combined ratio.

Finance costs Finance costs increased £0.4 million, or 2.7%, from £14.6 million in 2012 to £15.0 million in 2013. This increase was due to a full year’s utilisation of part of the letter of credit component of the Revolving Credit Facility.

Tax expense/income The Group incurred a tax expense of £6.5 million in 2013 compared to tax expense of £5.2 million in 2012. The increase in tax expense in 2013 was due to the increase in operating profitability during the year.

The effective tax charge for 2013 was 6.1%, compared to a tax charge of 5.4% for 2012.

Profit for the year from continuing operations Profit for the year from continuing operations increased £10.2 million, or 11.2%, from £90.7 million in 2012 to £100.9 million in 2013, driven by continued improvement in underwriting performance partially offset by net foreign exchange losses and lower investment returns relative to 2012.

157 6.1.2 Segment results Global Specialty Direct The following table sets out summarised financial information for Global Specialty Direct for the periods indicated.

2012 2013 £ in millions Revenue: Gross premiums written 847.6 903.1 Less premiums ceded to reinsurers (158.4) (181.5) Premiums written, net of reinsurance 689.2 721.6 Gross earned premiums 836.7 868.1 Reinsurers’ share (146.7) (162.4) Earned premiums, net of reinsurance 690.0 705.7 Investment return 23.9 16.8 Total revenue 713.9 722.5 Expenses: Claims incurred, net of reinsurance (400.8) (370.4) Acquisition costs (231.3) (235.3) Other insurance-related expenses (44.8) (43.4) Total expenses (676.9) (649.1) Operating profit 37.0 73.4 Ratios % Claims ratio 58.1 52.5 Commission ratio 28.6 27.8 Operating expense ratio 11.4 11.7 Combined ratio 98.1 92.0

Gross premiums written. Gross premiums written in Global Specialty Direct increased £55.5 million, or 6.5%, from £847.6 million in 2012 to £903.1 million in 2013. The increase was primarily due to growth in short tail direct business as the Group continued to build its US and International Property business. The Group also continued to develop its US local distribution capability with the introduction of new products through its US service company. Accident & Health and Casualty also contributed to the increase in gross premiums written in 2013. This increase was partially offset by lower gross premiums written in Energy, Marine, Specialist Liability, and Terrorism, Political and Aerospace.

The following table presents the gross premiums written of Global Specialty Direct by line of business for the periods indicated.

2012 2013 £ in millions Property 169.8 228.1 Marine 124.6 109.0 Energy 112.0 106.2 Casualty 223.9 233.1 Accident & Health 62.6 65.9 US Specialty 45.7 67.0 Terrorism, Political and Aerospace 34.1 23.0 Specialist Liability 79.1 70.8 Discontinued lines (4.2) — Total 847.6 903.1

Gross premiums written in Property increased 34.3% from 2012 to 2013, in line with the Group’s strategy for both the North American and International Open Market business lines. The increase in gross premiums written was driven by new business opportunities, a broader range of territories, more international primary business and an increase in the Property Facilities business line.

158 Gross premiums written in Casualty increased 4.1% from 2012 to 2013 primarily due to growth in the Professional Lines business as a result of improving market conditions and new business opportunities following the retrenchment of some domestic US market participants. Premium volume was particularly strong in Architect & Engineers and Lawyers books and was complemented by growth in the Cyber Technology and Privacy books.

Gross premiums written in US Specialty increased 46.6% from 2012 to 2013 in line with the Group’s strategy of continued development of its US local distribution capability through the introduction of new lines combined with growth of its core book. The creation of a Property Direct sub-class following the acquisition of the renewal rights of the Maiden Specialty excess and surplus property business in May 2013 and the introduction of a new CJSO (Criminal Justice Service Operations) team were the key drivers of the growth in gross premiums written in 2013. Increased gross premiums written in the First Dollar liability book (insurance coverage that provides for the payment of all losses up to the specified limit without any use of deductibles), which had its first full year of underwriting during 2013, combined with BGSU’s enhanced distribution capability following the ending of an exclusive distribution agreement in respect of SIR business resulted in additional growth opportunities during 2013.

Gross premiums written in Accident & Health increased 5.3% from 2012 to 2013, as a result of a change in the basis of the Bloodstock business (which switched from a consortium arrangement to a quota share), as well as a growth in the Personal Accident book.

Gross premiums written in Energy decreased 5.2% from 2012 to 2013, primarily due to the Group’s withdrawal from the Energy Downstream Refining and Petrochemical business due to challenging market conditions, as well as the transfer of the Power book to Property Open Market. This decrease was partially offset by strong performance in the upstream lines driven by the increasing market profile of the team providing new business opportunities.

Gross premiums written in Marine decreased 12.5% from 2012 to 2013 primarily due to the transfer of the contractors’ plant and equipment binder book to Property and the re-balancing of the Group’s Hull portfolio away from blue-water hull towards more profitable ancillary product lines.

Gross premiums written in Specialist Liability decreased 10.5% from 2012 to 2013 primarily due to a series of initiatives led by a new underwriting team hired in 2013, including re-balancing the book, following underperformance of certain segments, with increased focus on expansion in less hazardous occupations, and re-weighting between UK and International exposures.

Gross premiums written in Terrorism, Political and Aerospace decreased 32.6% from 2012 to 2013 primarily due to a lack of placements coming to the market following large satellite losses and failures in the beginning of 2013. This decrease was partially offset by continued growth in the Terrorism book.

Premiums ceded to reinsurers. Premiums ceded to reinsurers increased £23.1 million, or 14.6%, from £158.4 million in 2012 to £181.5 million in 2013. This increase was driven by the growth in the Group’s short tail direct portfolio, as the Group purchased additional catastrophe cover, based on favourable mid-year results, to further reduce potential risk and volatility in the full-year earnings. The growth in the Property business was also a contributing factor, combined with an increased level of proportional treaties purchased to protect the Group’s new business initiatives emanating from its US managing general agent and from specific lines (including Energy Gulf of Mexico Wind risks, Operators Extra Expense binders and Bloodstock).

Claims incurred, net of reinsurance. Claims incurred, net of reinsurance, decreased £30.4 million, or 7.6%, from £400.8 million in 2012 to £370.4 million in 2013. Gross claims incurred decreased £32.5 million, or 6.3%, from £514.8 million in 2012 to £482.3 million in 2013, while reinsurers’ share of claims decreased £2.1 million, or 1.8%, from £114.0 million in 2012 to £111.9 million in 2013.

159 The attritional loss ratio increased 0.9 percentage points from 52.2% in 2012 to 53.1% in 2013. The following table sets out the attritional loss ratios by business line for the periods indicated.

2012 2013 % Property 43.8 40.8 Marine 67.7 59.8 Energy 56.5 56.6 Casualty 41.8 48.3 Accident & Health 53.9 57.5 US Specialty 60.3 53.4 Terrorism, Political and Aerospace 36.3 55.6 Specialist Liability 72.0 76.6 Global Specialty Direct 52.2 53.1

The overall increase in the attritional loss ratio compared to 2012 was principally attributable to the large loss activity across the Energy downstream, Space and Contingency classes. The increase was also due to the indirect impact of the additional catastrophe reinsurance strategically purchased during 2013 to protect the full-year earnings.

The attritional loss ratio continued to trend positively in Property, driven by the re-underwriting of the International book.

The favourable Marine attritional loss performance in 2013 was primarily attributable to the significant re-engineering of Hull and Cargo accounts, combined with a decreased level of large losses in 2013 compared to 2012 (which was impacted by the Costa Concordia incident).

The attritional loss ratio for Casualty in 2013 returned to 2011 levels as a one-off benefit from the reallocation of risk margin that positively impacted the 2012 reported ratio was not repeated in 2013.

The attritional loss ratio for Accident & Health was impacted by a number of large losses related to event cancellation in the Contingency book. This was partially offset by improved attritional loss ratios in the personal account and Bloodstock books.

The attritional loss ratio for Terrorism, Political and Aerospace deteriorated due to space losses incurred during 2013 (as a result of satellite losses and failures) and the impact of these losses on placements coming to the market.

The attritional loss ratio for Specialist liability deteriorated due to reserve strengthening in certain segments of the book—Australian Construction, Canadian Liquor and high hazard UK sectors.

The major claims ratio improved 2.8 percentage points from 4.0% in 2012 to 1.2% in 2013 due to lower net claims incurred from major events (£8.7 million in 2013 compared to £27.7 million in 2012). The improvement was driven by the short tail direct portfolio, with Hurricane Sandy the sole driver of the £27.7 million of losses in 2012, compared to 2013, which experienced floods, US tornadoes and Typhoon Haiyan, principally affecting the Property Open Market and Property Facility business lines.

Acquisition costs. Acquisition costs increased £4.0 million, or 1.7%, from £231.3 million in 2012 to £235.3 million in 2013, principally as a result of increased inwards business through the growth of the Group’s core business lines and new initiatives.

Other insurance-related expenses. Other insurance-related expenses decreased £1.4 million, or 3.1%, from £44.8 million in 2012 in £43.4 million in 2013.

Operating profit. As a result of the foregoing factors, operating profit increased £36.4 million, or 98.4%, from £37.0 million in 2012 to £73.4 million in 2013.

Combined ratio. The combined ratio decreased from 98.1% in 2012 to 92.0% in 2013, primarily reflecting a decrease in the claims ratio from 58.1% in 2012 to 52.5% in 2013. The commission ratio decreased 0.8 percentage points from 28.6% in 2012 to 27.8% in 2013 due to quota share profit commissions received by the Group. The operating expense ratio increased 0.3 percentage points from 11.4% in 2012 to 11.7% in 2013, due to the costs incurred in expanding the Group’s US distribution capability.

160 Global Specialty Reinsurance The following table sets out summarised financial information for Global Specialty Reinsurance for the periods indicated.

2012 2013 £ in millions Revenue: Gross premiums written 300.0 281.0 Less premiums ceded to reinsurers (57.3) (50.1) Premiums written, net of reinsurance 242.7 230.9 Gross earned premiums 307.2 283.8 Reinsurers’ share (60.1) (45.7) Earned premiums, net of reinsurance 247.1 238.1 Investment return 10.0 7.8 Total revenue 257.1 245.9 Expenses: Claims incurred, net of reinsurance (129.8) (87.1) Acquisition costs (54.1) (49.0) Other insurance-related expenses (18.7) (18.8) Total expenses (202.6) (154.9) Operating profit 54.5 91.0 % Ratios Claims ratio 52.5 36.6 Commission ratio 18.2 16.5 Operating expense ratio 11.3 12.0 Combined ratio 82.0 65.1

Gross premiums written. Gross premiums written decreased £19.0 million, or 6.3%, from £300.0 million in 2012 to £281.0 million in 2013. This decrease was primarily due to a decrease in gross premiums written in the International Property Treaty account.

The following table presents the gross premiums written of Global Specialty Reinsurance by line of business for the periods indicated.

2012 2013 £ in millions Property Treaty 153.0 136.9 Casualty Treaty 142.4 141.4 Discontinued lines 4.6 2.7 Total 300.0 281.0

Gross premiums written in Property Treaty decreased 10.5% from 2012 to 2013, due to increased retentions, rate reductions and the impact of unfavourable movements in the Japanese Yen-Sterling exchange rate on the International component of the book.

Gross premiums written in Casualty Treaty remained relatively stable between 2012 to 2013, with rate increases being offset by challenging market conditions, increased client retentions and increased competition.

Premiums ceded to reinsurers. Premiums ceded to reinsurers decreased £7.2 million, or 12.6%, from £57.3 million in 2012 to £50.1 million in 2013. This decrease was primarily due to income reductions in the Property Treaty business line due to the challenging market conditions, as well as a reduction in the Property Treaty International quota share cession between 2012 and 2013.

Claims incurred, net of reinsurance. Claims incurred, net of reinsurance, decreased £42.7 million, or 32.9%, from £129.8 million in 2012 to £87.1 million in 2013. This decrease was due to outperformance (compared to 2012) across all the key claims metrics, including reduced major natural catastrophes, favourable reserve releases and an improving attritional loss ratio.

161 The attritional loss ratio improved 4.4 percentage points from 51.1% in 2012 to 46.7% in 2013 due to initiatives taken by the Group to improve the quality of the underlying book, in particular in the Property Treaty line of business, where action was taken to reduce exposure to the accounts that had experienced poor attritional performance, as a result of which the attritional loss ratio improved 12.3 percentage points from 37.1% in 2012 to 24.8% in 2013.

The major claims ratio improved 3.2 percentage points from 12.1% in 2012 to 8.9% in 2013 due to lower net claims incurred from major events (£21.3 million in 2013 compared to £30.0 million in 2012). The improvement is driven by the Property Treaty portfolio with Hurricane Sandy the sole driver of the £30.0 million of losses in 2012, compared to 2013, which experienced floods, US tornadoes, German hailstorms and Typhoon Haiyan.

Global Specialty Reinsurance released £45.3 million of claims reserves from prior years in 2013 compared to £26.5 million in 2012. The Board believes that the releases demonstrate the Group’s robust reserving approach on the long tail business lines, combined with a profitable short tail component.

Acquisition costs. Acquisition costs decreased £5.1 million, or 9.4%, from £54.1 million in 2012 to £49.0 million in 2013, reflecting the decrease in gross premiums written in the Property Treaty business line and quota share profit commissions.

Other insurance-related expenses. Other insurance-related expenses increased £0.1 million from £18.7 million in 2012 to £18.8 million in 2013.

Operating profit. Operating profit increased £36.5 million from £54.5 million in 2012 to £91.0 million in 2013.

Combined ratio. The combined ratio decreased 16.9 percentage points from 82.0% in 2012 to 65.1% in 2013, primarily reflecting a decrease in the claims ratio. The claims ratio decreased from 52.5% in 2012 to 36.6% in 2013, due to outperformance (compared to 2012) across all the key claims metrics, including reduced major natural catastrophes, favourable reserve releases and an improving attritional loss ratio. The commission ratio decreased 1.7 percentage points from 18.2% in 2012 to 16.5% in 2013 due largely to the impact of quota share profit commissions. The operating expense ratio increased 0.7 percentage points from 11.3% in 2012 to 12.0% in 2013.

Other underwriting The following table sets out summarised financial information for Other underwriting for the periods indicated.

2012 2013 £ in millions Revenue: Gross premiums written 5.4 6.0 Less premiums ceded to reinsurers (0.3) (2.2) Premiums written, net of reinsurance 5.1 3.8 Gross earned premiums 6.0 6.1 Reinsurers’ share (0.3) (2.2) Earned premiums, net of reinsurance 5.7 3.9 Investment return 0.3 0.2 Total revenue 6.0 4.1 Expenses: Claims incurred, net of reinsurance 0.6 (1.7) Acquisition costs (0.2) (3.6) Total expenses 0.4 (5.3) Operating profit/(loss) 6.4 (1.2) % Ratios Claims ratio (10.5) 43.6 Commission ratio — 10.3 Operating expense ratio 3.5 82.0 Combined ratio (7.0) 135.9

162 Gross premiums written. Gross premiums written increased £0.6 million, or 11.1%, from £5.4 million in 2012 to £6.0 million in 2013.

Claims incurred, net of reinsurance. The Group incurred claims, net of reinsurance, of £1.7 million in 2013 compared to a gain of £0.6 million in claims, net of reinsurance, in 2012.

Operating profit. The Group recognised an operating loss of £1.2 million in 2013 compared to operating profit of £6.4 million in 2012.

Other corporate The following table sets out summarised financial information for Other corporate for the periods indicated.

2012 2013 £ in millions Revenue: Investment return 53.0 32.1 Profit on disposal of asset held for sale — 4.4 Return on derivative contracts (2.1) 11.0 Other income 0.7 — Total revenue 51.6 47.5 Expenses Other expenses (14.2) (16.9) Net foreign exchange losses (14.1) (65.4)

Operating profit/(loss) 23.3 (34.8)

The most significant driver of the 2013 results was the net foreign exchange losses of £65.4 million, reflecting the impact of the Group’s currency matching strategy.

6.2 2012 compared to 2011 6.2.1 Group results Total revenue Total revenue decreased £56.9 million, or 5.2%, from £1,087.3 million in 2011 to £1,030.4 million in 2012. This decrease was due to the combined effects of the following: • Gross premiums written. Gross premiums written decreased £32.0 million, or 2.7%, from £1,179.9 million in 2011 to £1,147.9 million in 2012. From a segment perspective, this decrease was due to a decrease in gross premiums written in Global Specialty Reinsurance and Other Underwriting, and was partially offset by an increase in gross premiums written in Global Specialty Direct. The following table sets out the contribution of the segments to the Group’s gross premiums written during the periods indicated.

2011 2012 £ in millions % £ in millions % Global Specialty Direct 829.2 70.3 847.6 73.8 Global Specialty Reinsurance 349.9 29.7 300.0 26.1 Other Underwriting 10.2 0.9 5.4 0.5 Intra-Group (9.4) (0.9) (5.1) (0.4) Other corporate — — — — Total gross premiums written 1,179.9 100.0 1,147.9 100.0

163 From a geographical perspective (based on underlying risk), the decrease in gross premiums written was due to a decrease in gross premiums written in the UK, Europe (excluding UK) and Other. This reduction was partially offset by an increase in gross premiums written in the US in line with the Group’s expansion strategy. The following table sets out the contribution of the geographical areas to the Group’s gross premiums written during the periods indicated.

2011 2012 £in £ in millions % millions % UK 140.2 11.9 129.3 11.3 Europe (excluding UK) 55.7 4.7 50.6 4.4 US 346.6 29.4 364.7 31.8 Other including worldwide 637.4 54.0 603.3 52.5 Total gross premiums written 1,179.9 100.0 1,147.9 100.0

• Premiums ceded to reinsurers. Premiums ceded to reinsurers increased £6.3 million, or 3.1%, from £204.6 million in 2011 to £210.9 million in 2012. There was no significant change in the structure of the Group’s reinsurance programme from 2011 to 2012. The increase in premiums ceded to reinsurers was primarily due to a higher rating environment in 2012 as a result of higher loss activity in 2011. From a segment perspective, premiums ceded to reinsurers by Global Specialty Direct increased. This increase was partially offset by decreased premiums ceded by Global Specialty Reinsurance. The following table sets out the contribution of the segments to the Group’s premiums ceded to reinsurers during the periods indicated.

2011 2012 £ in millions % £ in millions % Global Specialty Direct 138.2 67.5 158.4 75.1 Global Specialty Reinsurance 75.4 36.9 57.3 27.2 Other Underwriting 0.4 0.2 0.3 0.1 Intra-Group (9.4) (4.6) (5.1) (2.4) Total revenue 204.6 100.0 210.9 100.0

• Net change in provision for unearned premiums. The net change in provision for unearned premiums was £7.6 million in 2012 compared to £38.3 million in 2011. The decreased change in 2012 was due to the earning profile of the business written. • Investment return. Investment return increased £22.6 million, or 35.0%, from £64.6 million in 2011 to £87.2 million in 2012, representing a net investment return of 2.9% (2011: 2.4%). The increased investment return was driven by net gains from debt securities equity securities and funds. The market environment, however, remained challenging and volatile in 2012. Concerns remained over European sovereign debt and southern European banks, and the Group continued to reduce its exposure to these accordingly. Lower interest rates continued to put pressure on returns. The following table sets out the Group’s investment return by investment category for the periods indicated.

2011 2012 Net Net Net realised unrealised Total realised Net Total Investment gains / gains / investment Investment gains / unrealised investment income (losses) (losses) return income (losses) gains return £ in millions Equity securities 3.0 1.8 (9.7) (4.9) 1.9 2.0 0.8 4.7 Debt securities 68.7 (9.0) 10.1 69.8 64.5 8.2 1.5 74.2 Funds 4.0 (2.4) (0.7) 0.9 1.5 (14.7) 23.3 10.1 Cash and cash equivalents 2.6 — — 2.6 2.6 — — 2.6 Investment return 78.3 (9.6) (0.3) 68.4 70.5 (4.5) 25.6 91.6 Investment management expenses (3.8) — — (3.8) (4.4) — — (4.4) Total investment return 74.5 (9.6) (0.3) 64.6 66.1 (4.5) 25.6 87.2

164 • Return on derivative contracts. Return on derivative contracts decreased £7.4 million from a gain of £5.3 million in 2011 to a loss of £2.1 million in 2012. This decrease was due to a loss of £2.8 million on currency forwards in 2012 compared to gain of £5.5 million in 2011. The decrease was partially offset by a gain of £0.7 million on options and warrants in 2012 compared to a loss of £0.2 million in 2011. • Other income. Other income increased £0.6 million from £0.1 million in 2011 to £0.7 million in 2012.

Total expenses excluding finance costs Total expenses excluding finance costs decreased £120.6 million, or 11.6%, from £1,040.3 million in 2011 to £919.7 million in 2012. This decrease was due to a combination of the following: • Claims incurred, net of reinsurance. Claims incurred, net of reinsurance, decreased £73.8 million, or 12.2%, from £603.8 million in 2011 to £530.0 million in 2012. This decrease was primarily due to a net gain of £4.9 million in the provision for claims in 2012 compared to a net loss of £68.6 million in 2011, reflecting the continuing improvement in attritional claims experience and significantly lower catastrophe activity in 2012 compared to 2011 (please refer to section 4.1 for the significant catastrophe-related claims that the Group incurred during 2012 and 2011). The following table sets out the components of claims incurred, net of reinsurance, during the periods indicated.

2011 2012 £ in millions Claims paid: Gross amount 674.2 659.7 Reinsurer’s share (139.0) (124.8) Claims paid, net of reinsurance 535.2 534.9 Change in the provision for claims: Gross amount 139.6 19.0 Reinsurer’s share (71.0) (23.9) Net change in provision for claims 68.6 (4.9) Claims incurred, net of reinsurance 603.8 530.0 From a segment perspective, claims incurred, net of reinsurance, decreased in all SBUs. The following table sets out the contribution of the segments to the Group’s claims incurred, net of reinsurance, during the periods indicated.

2011 2012 £ in millions % £ in millions % Global Specialty Direct Gross claims incurred 501.0 514.8 Reinsurers’ share (98.2) (114.0) Claims incurred, net of reinsurance 402.8 66.7 400.8 75.6 Global Specialty Reinsurance Gross claims incurred 314.5 163.8 Reinsurers’ share (120.5) (34.0) Claims incurred, net of reinsurance 194.0 32.1 129.8 24.5 Other Underwriting Gross claims incurred 7.1 1.2 Reinsurers’ share (0.1) (1.8) Claims incurred, net of reinsurance 7.0 1.2 (0.6) (0.1) Intra-Group Gross claims incurred (8.8) (1.1) Reinsurers’ share 8.8 1.1 Claims incurred, net of reinsurance — — — — Other corporate — — — — Total claims incurred, net of reinsurance 603.8 100.0 530.0 100.0

165 The Group’s claims ratio improved from 60.2% in 2011 to 56.2% in 2012. The following table sets out the components of the claims ratio for the periods indicated.

2011 2012 % Attritional loss ratio 55.5 51.8 Major claims ratio 14.1 6.1 Reserve strengthening/(release) ratio (9.4) (1.7) Claims ratio 60.2 56.2

The attritional loss ratio improved 3.7 percentage points, driven mainly by continued action taken by the Group to restructure its underwriting portfolio by actively reducing exposures to lines of business that had seen poor historical attritional performance. The major claims ratio improved 8.0 percentage points due to lower net claims incurred from major events (£57.7 million in 2012 compared to £141.9 million in 2011). The Group released £16.4 million of claims reserves from prior years in 2012, compared to £94.2 million in 2011. The reserve releases in both 2011 and 2012 occurred across a broad number of lines of business, and were partially offset by specific strengthening in the Group’s long tail direct lines as a continued cautious response to the 2008 financial crisis. • Acquisition costs. Acquisition costs decreased £12.1 million, or 4.1%, from £298.2 million in 2011 to £286.1 million in 2012. The following table sets out the components of acquisition costs for the periods indicated.

2011 2012 £ in millions % £ in millions % Acquisition costs — commissions 259.1 86.9 242.5 84.8 Acquisition costs — other Staff costs 17.6 5.9 16.6 5.8 Other staff-related costs 0.4 0.1 0.5 0.2 Accommodation costs 2.5 0.8 3.1 1.1 Legal and professional charges 2.4 0.8 2.0 0.7 Travel and entertaining charges 1.2 0.4 1.4 0.5 Marketing and communications 0.1 — 0.1 — Regulatory levies and charges 13.4 4.5 18.1 6.3 Other charges 1.5 0.6 1.8 0.6 Total acquisition costs 298.2 100.0 286.1 100.0

Commissions decreased 6.4% as a result of the Group’s increased focus on the Property Open Market business and the growth in US Specialty, both of which have lower commissions. The commission ratio increased slightly from 25.6% in 2011 to 25.7% in 2012, reflecting the mix of business within the Global Specialty Direct segment. The increase in regulatory levies and charges reflected an increase in business written through the Syndicate. • Other operating expenses. Other operating expenses decreased £60.6 million, or 43.8%, from £138.3 million in 2011 to £77.7 million in 2012. This decrease was primarily due to costs incurred in 2011 in connection with the acquisition of Brit Insurance Holdings B.V. (including costs relating to professional fees), which were not repeated in 2012. This decrease was also due to a focus on cost reduction, which resulted in reductions in staff and other staff-related costs, legal and professional charges, depreciation and amortisation, and accommodation costs.

166 The following table sets out the components of other operating expenses during the periods indicated.

2011 2012 £ in millions % £ in millions % Staff costs 37.3 27.0 33.6 43.2 Other staff-related costs 11.3 8.2 3.5 4.5 Accommodation costs 4.2 3.0 3.7 4.8 Legal and professional charges 19.1 13.8 5.2 6.7 IT costs 7.0 5.1 11.2 14.4 Travel and entertaining charges 1.2 0.9 1.5 1.9 Marketing and communications 4.4 3.2 4.4 5.7 Amortisation and impairment of intangible assets 7.4 5.4 5.8 7.5 Depreciation and impairment of property, plant and equipment 2.6 1.8 2.1 2.7 Costs of acquiring Brit Insurance Holdings B.V. 35.5 25.6 — — Other charges 8.3 6.0 6.7 8.6 Total other operating expenses 138.3 100.0 77.7 100.0

Staff costs and other staff-related costs decreased 23.7% from 2011 to 2012, primarily due to a reduction in headcount following a right-sizing exercise. This exercise also resulted in a reduction in other staff-related costs in 2012 compared to 2011. Other staff costs in 2011 that were not repeated in 2012 included costs in relation to the transition of the Group from public to private ownership (for example, the vesting of certain share schemes) and redundancy costs resulting from the outsourcing of certain operations to Infosys. Legal and professional charges decreased £13.9 million from 2011 to 2012. The legal and professional charges for 2011 included costs incurred in connection with the acquisition of Brit Insurance by Achilles. Depreciation and amortisation charges decreased 21.0% from 2011 to 2012 due to lower capital expenditure on IT and software projects and lower expenditure on office refurbishment. Accommodation costs decreased 11.9% from 2011 to 2012 primarily due to the reduction in regional offices following the sale of Brit UK to QBE. • Net foreign exchange gains/losses. The Group recognised a net foreign exchange loss of £25.9 million in 2012 compared to a net foreign exchange gain of £3.7 million in 2011. The £25.9 million loss in 2012 consisted of (a) a revaluation loss of £14.5 million (2011: £1.6 million gain), on the mark to market element of the Group’s capital that it holds in non- Sterling currencies, principally driven by the weakening of the US dollar and a number of other currencies against Sterling (in which the Group held a long position), and (b) an accounting loss of £11.4 million (2011: £2.1 million gain), as a result of the IFRS requirement to recognise non-monetary assets and liabilities at historical exchange rates. At 31 December 2012, the difference between translating non-monetary assets and liabilities at historical, rather than closing, exchange rates resulted in a £3.9 million net liability on the balance sheet, which will reverse as a profit through the income statement in future periods. At 31 December 2011, the amount was a net asset of £6.2 million.

Operating profit As a result of the foregoing factors, operating profit increased £63.7 million from £47.0 million in 2011 to £110.7 million in 2012.

The Group’s combined ratio (excluding the effect of foreign exchange on non-monetary items) was 93.2% (2011: 98.0%). This reflected the lower catastrophe activity in 2012 compared with 2011. The only major event in 2012 was Hurricane Sandy, the effect of which on the Group, net of reinsurance recoverable and reinstatement premiums, was £57.7 million, or 6.1 percentage points on the combined ratio. The effect of major losses in 2011 was £141.9 million, or 14.1 percentage points.

Finance costs Finance costs decreased £2.1 million, or 12.6%, from £16.7 million in 2011 to £14.6 million in 2012. This decrease was due to lower payments under the Revolving Credit Facility (£4.5 million in 2012

167 compared to £6.7 million in 2011) as a result of lower amounts utilised. The decrease was also due to a decrease in the interest paid on the undrawn component of the Revolving Credit Facility as a result of the substitution of US$80.0 million of the Revolving Credit Facility with a letter of credit that was posted as Funds at Lloyd’s in the Syndicate.

Associated undertakings The Group’s share of loss after tax of associated undertakings decreased £0.3 million, or 75.0%, from £0.4 million in 2011 to £0.1 million in 2012. The Group also recognised a £0.1 million charge in 2012 (2011: nil) in connection with an impairment in Verex Limited as a result of a revaluation based on agreed terms of its sale.

Negative goodwill In March 2011, Achilles acquired 99.4% of the ordinary shares of Brit Insurance Holdings B.V. The Group recognised a one-off negative goodwill of £51.9 million resulting from the acquisition in 2011 in its consolidated income statement. Brit Insurance Holdings B.V. was purchased for less than the fair value of its net assets partly because the insurance sector has historically traded at a discount to net asset values as measured under IFRS. In addition, the fair value exercise required by IFRS on acquisition resulted in new assets being recognised that were not previously recognised.

Tax expense/income The Group incurred a tax expense of £5.2 million in 2012 compared to tax expense of £0.3 million in 2011. The increase in tax expense in 2012 compared to 2011 was due to prior year tax credits relating to overseas taxes booked in 2011 not recurring in 2012. The effective tax rate for 2012 was 5.4% (2011: 0.4%).

Profit for the year from continuing operations As a result of the foregoing factors, profit for the year from continuing operations increased £9.2 million, or 11.3%, from £81.5 million in 2011 to £90.7 million in 2012.

6.2.2 Segment results Global Specialty Direct The following table sets out summarised financial information for Global Specialty Direct for the periods indicated. 2011 2012 £ in millions Revenue: Gross premiums written 829.2 847.6 Less premiums ceded to reinsurers (138.2) (158.4) Premiums written, net of reinsurance 691.0 689.2 Gross earned premiums 856.3 836.7 Reinsurers’ share (140.4) (146.7) Earned premiums, net of reinsurance 715.9 690.0 Investment return 25.8 23.9 Total revenue 741.7 713.9 Expenses: Claims incurred, net of reinsurance (402.8) (400.8) Acquisition costs (232.9) (231.3) Other insurance-related expenses (58.4) (44.8) Total expenses (694.1) (676.9) Operating profit 47.6 37.0 Ratios % Claims ratio 56.3 58.1 Commission ratio 29.0 28.6 Expense ratio 11.7 11.4 Combined ratio 97.0 98.1

168 Gross premiums written. Gross premiums written in Global Specialty Direct increased £18.4 million, or 2.2%, from £829.2 million in 2011 to £847.6 million in 2012.

The following table presents the gross premiums written of Global Specialty Direct by line of business for the periods indicated.

2011 2012 £ in millions Property 165.4 169.8 Marine 147.0 124.6 Energy 86.9 112.0 Casualty 221.6 223.9 Accident & Health 58.7 62.6 US Specialty 35.0 45.7 Terrorism, Political and Aerospace 31.9 34.1 Specialist Liability 77.6 79.1 Discontinued lines 5.1 (4.2) Total 829.2 847.6

Gross premiums written in Energy increased 28.9% from 2011 to 2012 primarily due to new business opportunities (mainly attributable to the appointment of a new Energy team, including a new head of underwriting in Energy), positive rates movements and favourable signed premium development in prior years.

Gross premiums written in US Specialty increased 30.6% from 2011 to 2012 primarily due to the inclusion of a full year of results of the First Dollar insurance business (which the Group commenced in October 2011), which focuses on covering smaller municipalities.

Gross premiums written for Property increased 2.7% from 2011 to 2012. This increase was driven by Property Open Market, and was partially offset by Property Facilities. Property Open Market gross premiums written increased 34.1% from 2011 to 2012 due to a positive rate environment and the Group’s focus on growth opportunities. Property Facilities gross premiums written decreased 10.8% from 2011 to 2012 primarily due to reduced premium income in the Property financial business and major clients within key accounts moving between carriers.

Gross premiums written in Accident & Health increased 6.6% from 2011 to 2012, as a result of the growth in the US Medical Expenses and Personal Accident book due to increased volumes relating to the 2010 and 2012 years of account. This increase was partly offset by decreases in the Contingency and Bloodstock books.

Gross premiums written in Marine decreased 15.2% from 2011 to 2012 primarily due to significant contraction in the Group’s Cargo portfolio, the non-renewal of treaties in the Group’s Hull portfolio and the reduced demand for US craft business. The Marine lines of business were also impacted by prior year premium reductions.

Gross premiums written in Casualty increased 1.0% from 2011 to 2012 primarily due to favourable market conditions and positive rate movements in the US Professional Indemnity business and the Commercial Directors’ and Officers’ Insurance business. This increase was partly offset by reductions in the Financial Institutions and other Directors’ and Officers’ classes.

Premiums ceded to reinsurers. Premiums ceded to reinsurers increased £20.2 million, or 14.6%, from £138.2 million in 2011 to £158.4 million in 2012. This increase was due to an increase in quota share premiums in the Casualty classes of business as a result of soft market conditions, increase in excess of loss cover due to an increase in the Group’s exposure, and an addition of 5% quota share in Property Facilities to manage the growth of the business line.

Claims incurred, net of reinsurance. Claims incurred, net of reinsurance, decreased £2.0 million from £402.8 million in 2011 to £400.8 million in 2012. Gross claims incurred increased £13.8 million, or 2.8%, from £501.0 million in 2011 to £514.8 million in 2012, while reinsurers’ share of claims increased £15.8 million, or 16.1%, from £98.2 million in 2011 to £114.0 million in 2012.

169 The attritional loss ratio improved 3.5 percentage points from 55.7% in 2011 to 52.2% in 2012 due to initiatives taken by the Group to improve the quality of the underlying book.

The following table sets out the attritional loss ratios by business line for the periods indicated.

2011 2012 % Property 48.2 43.8 Marine 67.5 67.7 Energy 57.7 56.5 Casualty 48.9 41.8 Accident & Health 54.9 53.9 US Specialty 61.5 60.3 Terrorism, Political and Aerospace 34.2 36.3 Specialist Liability 68.3 72.0 Global Specialty Direct 55.7 52.2

The Property attritional loss ratio improved partly due to underwriting action in International and Trucking/Transportation accounts. The Casualty attritional ratio benefited from a reallocation of risk margin following robust reserving of underlying classes. Energy attritional loss ratio improved due to reduced level of large loss activity. Attritional loss ratio in Specialist Liability deteriorated primarily due to non-catastrophe claims in the UK public liability book.

The major claims ratio improved 1.9 percentage points from 5.9% in 2011 to 4.0% in 2012 due to lower net claims incurred from major events (£27.7 million in 2012 compared to £42.5 million in 2011). Global Specialty Direct incurred major claims in 2012 only from Hurricane Sandy, which primarily impacted its Property Facilities and Property Open Market lines of business. Major claims in 2011 included the Japanese earthquake (£10.8 million), Christchurch earthquake (£7.7 million), Australian floods (£3.8 million), US tornadoes (£4.6 million), Hurricane Irene (£6.1 million) and the Thai floods (£9.4 million).

Acquisition costs. Acquisition costs decreased £1.6 million from £232.9 million in 2011 to £231.3 million in 2012, as a result of an increase in open market business, which resulted in lower commissions paid to coverholders.

Other insurance-related expenses. Other insurance-related expenses decreased £13.6 million, or 23.3%, from £58.4 million in 2011 to £44.8 million in 2012.

Operating profit. As a result of the foregoing factors, operating profit decreased £10.6 million, or 22.3%, from £47.6 million in 2011 to £37.0 million in 2012.

Combined ratio. The combined ratio increased from 97.0% in 2011 to 98.1% in 2012, reflecting an increase in the claims ratio, partly offset by a decrease in the commission ratio and operating expense ratio. The commission ratio decreased 0.4 percentage points from 29.0% in 2011 to 28.6% in 2012 due to an increase in open market business. The operating expense ratio decreased 0.3 percentage points from 11.7% in 2011 to 11.4% in 2012.

170 Global Specialty Reinsurance The following table sets out summarised financial information for Global Specialty Reinsurance for the periods indicated.

2011 2012 £ in millions Revenue: Gross premiums written 349.9 300.0 Less premiums ceded to reinsurers (75.4) (57.3) Premiums written, net of reinsurance 274.5 242.7 Gross earned premiums 351.9 307.2 Reinsurers’ share (74.8) (60.1) Earned premiums, net of reinsurance 277.1 247.1 Investment return 10.5 10.0 Total revenue 287.6 257.1 Expenses: Claims incurred, net of reinsurance (194.0) (129.8) Acquisition costs (60.1) (54.1) Other insurance-related expenses (25.0) (18.7) Total expenses (279.1) (202.6) Operating profit 8.5 54.5 % Ratios Claims ratio 70.0 52.5 Commission ratio 17.8 18.2 Expense ratio 12.9 11.3 Combined ratio 100.7 82.0

Gross premiums written. Gross premiums written decreased £49.9 million, or 14.3%, from £349.9 million in 2011 to £300.0 million in 2012. This decrease was primarily due to the Group’s withdrawal from Marine excess of loss reinsurance business within the Property Treaty business line due to historical underperformance.

The following table presents the gross premiums written of Global Specialty Reinsurance by line of business for the periods indicated.

2011 2012 £ in millions Property Treaty 181.7 153.0 Casualty Treaty 141.8 142.4 Discontinued lines 26.4 4.6 Total 349.9 300.0

Gross premiums written in Property Treaty decreased 15.8% from 2011 to 2012, reflecting the Group’s exit from the Marine excess of loss reinsurance business, its initiatives with respect to previously high attritional accounts (comprising mainly of increasing line size on core clients but reducing a large number of small level participations), particularly in North America, and the lower-than-anticipated catastrophe renewals in Australia and New Zealand. This decrease was partly offset by £4.9 million of reinstatement premiums arising from the impact of Hurricane Sandy in the United States.

Gross premiums written in Casualty Treaty remained stable between 2011 to 2012, despite a selective reduction in the Group’s London Market excess of loss book, the loss of some US medical malpractice business, industry consolidation and increased retentions by clients. The increase was primarily attributable to the long tail catastrophe book.

Premiums ceded to reinsurers. Premiums ceded to reinsurers decreased £18.1 million, or 24.0%, from £75.4 million in 2011 to £57.3 million in 2012. This decrease was primarily due to a decrease in Property Treaty quota share as a result of the decrease in gross premiums written. The decrease was also due to the Group’s exit from the Marine excess of loss line of business.

171 Claims incurred, net of reinsurance. Claims incurred, net of reinsurance, decreased £64.2 million, or 33.1%, from £194.0 million in 2011 to £129.8 million in 2012. This decrease was primarily due to the lower impact from major natural catastrophes in 2012 compared to 2011.

The attritional loss ratio improved 2.8 percentage points from 53.9% in 2011 to 51.1% in 2012 due to initiatives taken by the Group to improve the quality of the underlying book.

The major claims ratio improved 23.8 percentage points from 35.9% in 2011 to 12.1% in 2012 due to lower net claims incurred from major events. Global Specialty Reinsurance incurred major claims in 2012 only from Hurricane Sandy, which primarily impacted its Property Treaty line of business. Major claims in 2011 included the Christchurch earthquake (£34.0 million), the Japan earthquake (£20.7 million), Australian floods (£3.0 million), Australian cyclones (£1.4 million), US tornadoes (£14.8 million), Hurricane Irene (£3.9 million) and the Thai floods (£21.6 million).

Acquisition costs. Acquisition costs decreased £6.0 million, or 10.0%, from £60.1 million in 2011 to £54.1 million in 2012, broadly in line with the decrease in earned premiums.

Other insurance-related expenses. Other insurance-related expenses decreased £6.3 million, or 25.2%, from £25.0 million in 2011 to £18.7 million in 2012.

Operating profit. Operating profit increased £46.0 million from £8.5 million in 2011 to £54.5 million in 2012.

Combined ratio. The combined ratio decreased 18.7 percentage points from 100.7% in 2011 to 82.0% in 2012. This decrease was primarily due to a 17.5 percentage point decrease in the claims ratio (from 70.0% in 2011 to 52.5% in 2012) as a result of the lower impact from natural catastrophes in 2012 compared to 2011. The decrease was also due to a 1.6 percentage point decrease in the operating expense ratio (from 12.9% in 2011 to 11.3% in 2012).

Other underwriting The following table sets out summarised financial information for Other underwriting for the periods indicated.

2011 2012 £ in millions Revenue: Gross premiums written 10.2 5.4 Less premiums ceded to reinsurers (0.4) (0.3) Premiums written, net of reinsurance 9.8 5.1 Gross earned premiums 11.1 6.0 Reinsurers’ share (0.5) (0.3) Earned premiums, net of reinsurance 10.6 5.7 Investment return 0.5 0.3 Total revenue 11.1 6.0 Expenses: Claims incurred, net of reinsurance (7.0) 0.6 Acquisition costs (2.9) (0.2) Other insurance-related expenses (0.5) — Total expenses (10.4) 0.4 Operating profit 0.7 6.4 % Ratios Claims ratio 66.0 (10.5) Commission ratio 1.9 — Expense ratio 30.2 3.5 Combined ratio 98.1 (7.0)

Gross premiums written. Gross premiums written decreased £4.8 million, or 47.1%, from £10.2 million in 2011 to £5.4 million in 2012. This decrease was due to a decrease in intra-Group risk excess of loss placement.

172 Claims incurred, net of reinsurance. The Group recognised a gain of £0.6 million in claims, net of reinsurance, compared to an expense of £7.0 million in 2011. The 2011 expense resulted from the high level of large loss activity.

Operating profit. Operating profit increased £5.7 million from £0.7 million in 2011 to £6.4 million in 2012.

Other corporate The following table sets out summarised financial information for Other corporate for the periods indicated.

2011 2012 £ in millions Revenue: Investment return 27.8 53.0 Return on derivative contracts 5.3 (2.1) Net foreign exchange gains 1.6 — Other income 0.1 0.7 Total revenue 34.8 51.6 Expenses Other expenses (54.4) (14.2) Net foreign exchange losses — (14.1)

Operating profit/(loss) (19.6) 23.3

7. Investment Portfolio 7.1 Overview For details relating to the Group’s investment management framework, please refer to section 11 under Part VII (Information on the Group and its Industry).

Strategic and tactical asset allocation Management continually reviews market conditions across the debt markets globally (both fixed income and the broader credit markets, including structured credit and loan instruments), equity markets and alternative investments. The Group’s strategic asset allocations are set with reference to the Group’s medium-term outlook for investment markets and the Group’s liability profile and investment risk tolerance, in order to optimise risk-adjusted returns. Within the strategic asset allocation ranges and investment risk framework, the Group’s Investment team seeks to enhance risk- adjusted returns through tactical allocations to reflect shorter-term changes in market conditions.

The Group’s strategic asset allocation not only defines the overall Group investment strategy, but also reflects entity-level considerations and governance matters. This is because each regulated insurance undertaking in the Group is subject to restrictions on assets it may hold under relevant regulations and tax rules. For example, BSL is subject to a regulator-imposed limitation on its allocation of assets to non-traditional asset classes (BSL’s financial investments and cash and cash equivalents represented 42.8% of the Group’s financial investments and cash and cash equivalents as at 31 December 2013). The Board believes that these limits do not restrict the Group’s investment strategy.

The Group has realigned its investment strategy since 2011. In its asset allocations, the Group has transitioned to a broader mix of asset classes. The core focus of the Group’s investment portfolio is income-generating investments, balanced with growth assets across a wide range of sectors to balance risk and yield and diversify away from pure fixed income investments. Within its income- generating investments, the Group has been investing in floating rate instruments, which offer upside potential in a rising interest rate environment. The Group also maintains an allocation to cash.

Please refer to section 7.2 of this Part XIII (Operating and Financial Review) for further details.

173 Solvency matching In 2012, the Group began implementing an asset-liability management (“ALM”) strategy focused on hedging its solvency position. This strategy, referred to as solvency matching, involves aligning the characteristics of the Group’s assets (including its investment portfolio) with the characteristics of the liabilities and capital requirements such that changes in foreign exchange rates and interest rates do not adversely affect its solvency position.

The Group solvency matching strategy has two components: • Currency matching. Under this strategy, the total assets of each Group underwriting entity are sought to be held in currencies in proportion to the currencies in that entity’s technical provisions. The Group seeks to implement this through the use of cash, investments and foreign exchange forward contracts in the respective currencies. • Interest rate matching. For each Group underwriting entity, a solvency matched duration target is calculated that seeks to minimise the sensitivity of the Group to changes in interest rates impacting its solvency position. Within the investment guidelines for each entity, limits above and below this solvency matched position are stipulated. Cash, investments and interest rate derivatives are structured to target appropriate positioning within this range recognising the current yield curve.

The aim of the Group’s solvency matching strategy is to reduce solvency risk (which the Group defines as the probability of its solvency position being reduced beyond established tolerances from investment and foreign exchange losses or increases in capital requirements over a one-year position).

The solvency matching strategy, however, may lead to increased earnings volatility. In the case of currency matching, two items contribute to the volatility: the translation of non-Sterling denominated assets into Sterling for reporting purposes; and the re-valuation of non-monetary items (as a result of the difference in treatment of non-monetary items under IFRS). For example, in 2013, the Group recognised net foreign exchange losses of £69.6 million due to unfavourable foreign exchange movements (compared to net foreign exchange losses of £25.9 million in 2012); however this volatility matched an equivalent movement in the Group’s capital requirements. In the case of interest rate matching, because the income statement reflects the mark-to-market values of assets, gains or losses on the Group’s fixed income assets will be reflected within investment return on the income statement. Any such impact will, however, be offset by a reduction/increase in capital requirements and higher/lower running yield in future periods. Please refer to section 15.2 of this Part XIII (Operating and Financial Review) for sensitivity analyses of changing foreign exchange rates and interest rates on the Group’s profit and net assets.

With respect to currency, the Group’s solvency position is fully matched as of 31 December 2013. In the current low interest rate environment, the Board believes that a fully matched duration position would expose the Group to the risk larger mark-to-market losses in the event of an increase in interest rates ahead of expectations. As such, the duration of the asset portfolio as of 31 December 2013 (at approximately 2 years) is below the target duration to match the solvency position (approximately 3.3 years). In the case of interest rate matching, the gap between asset duration and target would result in a strengthened solvency position for the Group if interest rates rise (and vice versa if they fall). This is still within the Board’s target range and reflects the Board’s view that interest rates will remain low but with an improving global growth outlook interest rates could begin to move upwards ahead of expectations.

Liquidity testing The assessment of liquidity risk, particularly within BSL, complements the assessment of solvency risk and earnings volatility in the Group’s risk framework related to its investment portfolio. The Group measures and monitors liquidity risk through liquidity scenario testing. These scenarios are calibrated based on a large insurance loss scenario occurring alongside a major investment market event.

174 7.2 Composition of the investment portfolio (A) Statutory basis The table below presents the Group’s combined consolidated investment portfolio by category of investment based on market value, as of 31 December 2011, 2012 and 2013, on a statutory basis.

31 December 2011 2012 2013 £ in millions Equity securities 121.9 3.6 47.6 Debt securities 2,906.9 2,160.4 998.8 Loan instruments — 26.5 292.7 Specialised investment funds(1) 177.4 121.6 936.8 Financial investments 3,206.2 2,312.1 2,275.9 Cash and cash equivalents 457.8 304.9 315.7 Financial investments and cash and cash equivalents 3,664.0 2,617.0 2,591.6

(1) Includes funds investing in debt securities, equity securities, emerging markets and alternative investments.

(B) Look-through basis Since 2012, the Group has prepared detailed investment analysis on a look-through basis (i.e. breaking down debt securities and specialised investment funds as reported on a statutory basis, into various categories and categorising the investment portfolio into income assets, growth assets and cash and cash equivalents) for internal management and monitoring purposes. The table below presents the Group’s combined consolidated investment portfolio analysed on this internal basis, as of 31 December 2012 and 2013.

31 December 2012 2013 £ in millions % £ in millions % Cash and cash equivalents 298.0 11.4 400.2 15.4 Income assets: Government and agency debt 1,220.4 46.6 444.4 17.2 Corporate bonds 535.0 20.5 793.2 30.6 Structured products 369.1 14.1 337.0 13.0 Loan instruments 26.6 1.0 332.3 12.8 2,151.1 82.2 1,906.9 73.6 Growth assets: Equity securities 167.2 6.4 155.1 6.0 Alternatives — — 125.2 4.8 167.2 6.4 280.3 10.8 Other 0.7 — 4.2 0.2 Total 2,617.0 100.0 2,591.6 100.0

175 The following table sets forth the rationale for the Group’s asset allocations.

Asset type Sub-types Investment profile Rationale Cash Cash, cash equivalents and short- Liquid and flexible with limited term bonds held at bank and with return potential managers Income Government Government and government High grade, liquid investment with assets and backed agencies (with guarantees) little risk premium in established government- economies backed agency bonds Corporate Investment grade corporate bonds Yield advantage over governments bonds diversified by sector, rating and and increased ability to diversify geography (with no peripheral exposures) Structured Investment grade structured Liquid markets offering products products (for example asset- diversification and, the Board backed securities, collateralised believes, attractive potential risk- debt obligations, residential adjusted returns mortgage-backed securities and commercial mortgage-backed securities) Loan Loan portfolio with large corporate Attractive potential risk-adjusted instruments borrowers, primarily senior secured yield and floating rate exposure exposure (BB and B rated) (i.e. short duration) Growth Equities Managers targeting high dividend Provides diversification against assets yielding equities and small in-house core portfolios and, the Board portfolio believes, attractive potential risk-adjusted returns Alternatives Hedge fund portfolio targeting Provides diversification against absolute returns core portfolios and, the Board believes, attractive potential risk- adjusted returns

Income assets Income assets and cash and cash equivalents constituted 89% of the Group’s total invested assets as of 31 December 2013.

In income asset classes, the Group’s objective is to optimise the risk-adjusted return on investments in government and credit markets, which is achieved by considering the risk premium available against the additional underlying risk accepted. The Group’s current strategy is to invest in a diverse range of credit securities (to reduce concentration risk) and to target under-priced, and avoid over-priced, segments. The Group’s income asset portfolio is weighted towards longer credit spread durations and corporate credit due to the more attractive risk-adjusted returns in these areas, as well as to loans. The Group seeks to diversify its allocations within income generating classes by individual issuer, industry sector and geography.

Government and government-backed agency bonds. As of 31 December 2013, the Group’s investment portfolio consisted of £444.4 million of government and government-backed agency bonds on a look-through basis (31 December 2012: £1,220.4 million), which constituted 17.2% of the Group’s invested assets (31 December 2012: 46.6%). The decrease in the value of government and government-backed agency bonds from 2012 to 2013 was due to the re-alignment of the Group’s investment portfolio, pursuant to which the Group transitioned to a broader mix of asset classes.

176 The following table presents the Group’s government and government-backed agency bonds based on sovereign exposure as of the dates indicated. As part of the re-alignment of its investment portfolio, the Group’s government and government-backed agency bond holdings have been rebalanced towards Canada, the United States and Australia.

31 December 2012 2013 £ in millions % £ in millions % Canada 164.5 13.5 160.5 36.1 United States 262.5 21.5 152.3 34.3 Australia 62.3 5.1 63.5 14.3 United Kingdom 490.5 40.2 15.7 3.5 Russian Federation 1.3 0.1 7.3 1.6 Brazil — — 5.7 1.3 Norway 10.6 0.9 5.6 1.3 United Arab Emirates — — 5.4 1.2 Germany 142.5 11.7 4.3 1.0 Netherlands 16.8 1.4 — — Supranational 55.3 4.5 1.8 0.4 Other(1) 14.1 1.1 22.3 5.0 1,220.4 100.0 444.4 100.0

(1) The amount invested in any one government and government-backed agency within “Other” was less than £5.0 million as of either date.

Corporate bonds. As of 31 December 2013, the Group’s investment portfolio consisted of £793.2 million of corporate bonds on a look-through basis (31 December 2012: £535.0 million), which constituted 30.6% of the Group’s invested assets (31 December 2012: 20.5%). The increase in the value of corporate bonds from 2012 to 2013 was due to the re-alignment of the Group’s investment portfolio, pursuant to which the Group transitioned to a broader mix of asset classes, including an increased allocation to corporate bonds.

The Group’s corporate bonds are diversified by issuer, geography and industry sector.

In terms of rating, the profile of the Group’s corporate bonds has shifted towards lower-rated securities within investment grades and also towards increased spread duration. This shift reflects the view of the Board that these assets provide enhanced risk-adjusted returns, and reduce concentration in government and AAA/AA corporate debt (which present a risk of mark-to-market losses in the near term).

The following table presents the Group’s corporate bonds based on geography (i.e. domicile of the issuer) as of the dates indicated.

31 December 2012 2013 £ in millions % £ in millions % United States 273.6 51.1 419.2 52.8 United Kingdom 89.3 16.7 130.8 16.5 Canada 43.3 8.1 56.7 7.1 Australia 27.2 5.1 35.7 4.5 Netherlands 27.3 5.1 31.1 3.9 France 12.6 2.4 22.9 2.9 Luxembourg 0.6 0.1 10.3 1.3 Sweden 7.8 1.5 9.3 1.2 Switzerland 14.5 2.7 9.1 1.2 Germany 25.2 4.7 8.1 1.0 Mexico 2.8 0.5 7.3 0.9 Italy 3.5 0.6 5.3 0.7 Brazil — — 5.2 0.7 Other(1) 7.3 1.4 42.2 5.3 535.0 100.0 793.2 100.0

(1) The amount invested in any one domicile within “Other” was less than £5.0 million as of either date.

177 Structured products. As of 31 December 2013, the Group’s investment portfolio consisted of £337.0 million of structured products on a look-through basis (31 December 2012: £369.1 million), which constituted 13.0% of the Group’s invested assets (31 December 2012: 14.1%).

Loan instruments. In 2012, following a detailed analysis of expected return, default rates and recovery rates, the Group elected to invest in loan instruments. The Board believes loan instruments to be relatively attractive, because, according to management’s analysis, the spreads on such products have stabilised at a higher level than pre-financial crisis level relative to more liquid investments. In addition, reporting and covenant requirements on loan instruments appear to be stronger than had been the case prior to 2008. The allocation to loan instruments also has the advantage of reducing concentration risk and increasing sector diversification (compared to holding a larger portfolio of corporate and government bonds). The Group’s strategy in relation to loan instruments is targeted at generating strong liquidity and credit risk premium and providing diversification by issuer and sector.

In implementing the allocation to loan instruments, the Group targets senior secured instruments (compared to unsecured loans), typically issued by large corporations, and seeks to maintain a highly diversified portfolio. In addition, managers have been selected for each specialist area of the loan instruments portfolio. The Group’s loan instruments portfolio consists of a large number of loans covering a range of industries. Furthermore, these loans are typically LIBOR-based floating rate securities (often with LIBOR floors), offering upside potential in a rising interest rate environment.

In order to control the additional credit and market risks related to investing in loan instruments, management has provided a set of investment guidelines to the Group’s external fund managers, stipulating exposure limits for base currencies, size of issuer and counterparties. There are also limits on credit quality exposure and on the level of subordination (i.e., the proportion that can be lower in credit structures than senior secured).

Loan instruments are less liquid than government and corporate debt securities. Their prices are often derived from non-public information, and they are less actively traded. As a result, they are classified as Level 2 in the Group’s fair value hierarchy. Please refer to note 26 to the financial statements in Part XIV (Financial Information) for further information on the Group’s basis for determining the fair value hierarchy of financial instruments.

As of 31 December 2013, the Group’s investment portfolio consisted of £332.3 million of loan instruments on a look through basis (31 December 2012: £26.6 million), which constituted 12.8% of the Group’s invested assets (31 December 2012: 1.0%).

Growth assets As of 31 December 2013, the Group’s investment portfolio consisted of £155.1 million of equity instruments on a look-through basis (31 December 2012: £167.2 million), which constituted 6.0% of the Group’s invested assets (31 December 2012: 6.4%).

As of 31 December 2013, the Group’s investment portfolio consisted of £125.2 million of alternative investments on a look-through basis (31 December 2012: £nil), which constituted 4.8% of the Group’s invested assets. The allocation to alternative investments increased between 2012 and 2013 due to the re-alignment of the Group’s investment portfolio, pursuant to which the Group transitioned to a broader mix of asset classes.

Cash and cash equivalents Cash and cash equivalents constituted 15.4% of the Group’s investment portfolio as of 31 December 2013 on a look-through basis (compared to 11.4% at 31 December 2012).

178 Credit quality considerations The following table sets forth information on the credit ratings of the Group’s government and corporate bond, structured products and loan portfolios. The majority of the portfolio is rated by Standard & Poor’s, Moody’s or similar rating agencies.

31 December 2012 2013 %% AAA 48.5 24.6 AA 24.8 7.6 A 23.7 29.6 BBB 3.0 18.4 BB and below — 19.8 Total 100.0 100.0

As of 31 December 2013, the Board believes that overall credit quality of the Group’s bond and loan portfolios remained high with 80.2% of the portfolio rated “BBB” or higher (31 December 2012: 100%). A substantial portion of the assets below “BBB” consists of loan instruments. The Group currently considers “A” and “BBB” rated instruments to be attractive due to the relative risk-adjusted return on such instruments.

The following table sets forth information on the currency breakdown of the Group’s financial investments as of the dates indicated on a look-through basis.

31 December 2012 2013 £ in millions % £ in millions % US dollar 1,007.8 38.5 1,392.1 53.7 Sterling 1,058.7 40.5 583.3 22.5 euro 210.7 8.0 300.6 11.6 Canadian dollar 193.6 7.4 159.8 6.2 Australian dollar 107.3 4.1 124.9 4.8 Other 38.9 1.5 30.9 1.2 Total 2,617.0 100.0 2,591.6 100.0

The Group expects the currency profile of its investment portfolio to remain stable over time.

8. Reserves 8.1 Overview and reserving philosophy The Group is required by applicable laws and regulations and IFRS to establish reserves with the aim of ensuring it has sufficient funds available to pay its insurance liabilities when they fall due. The ultimate costs and expenses of the claims for which these reserves are held are subject to a number of material uncertainties. For example, as time passes between the report of a claim to the final settlement of the claim, circumstances can change that may require established reserves to be adjusted either upwards or downwards.

In light of these uncertainties, the Group has a reserving philosophy that operates on a “conservative best estimate” basis. In addition to the selected conservative best estimate position, an explicit risk margin is held, based on a structured framework, to provide protection against the inherent uncertainty in the reserving process.

The Board believes that the Group’s reserving process is mature, stable, embedded within the organisation and subject to a robust internal and external governance regime. The governance includes a strict control framework, various peer reviews, interaction between the actuarial, underwriting, claims, finance and operational departments, transparency of opinions and decision-making with subsequent reporting to the internal Reserving Committee, the Board of Directors and Lloyd’s.

The Group also commissions an annual, independent review, by an external “big four” actuarial consultant, of its internal “conservative best estimate” reserves. The Group’s internal “conservative best estimate” of reserves has been consistently higher than the independent external actuarial

179 reviews. These annual reviews have demonstrated a surplus within the Group’s reserve portfolio, and the surplus has increased over recent years. This, the Board believes, underpins the prudent nature of the internal actuarial “best estimate” position.

Please refer to section 10 of Part VII (Information on the Group and its Industry) for further details of the reserving process.

8.2 Reserve releases (A) Reserve releases by financial year The chart below shows the prior year net reserve releases both in absolute amounts (in £ millions) and as a percentage of the opening net reserves held in the balance sheet for each of the last five financial years for the Brit Group.

Prior year net reserve releases (£m) As % opening net reserves

94.2

74.3

62.3 57.3

4.5%

3.7% 3.2% 2.7%

16.4

0.8%

2009 2010 2011 2012 2013

In 2011, 2012 and 2013, the Group released a total of £94.2 million, £16.4 million and £57.3 million of reserves. The reserve releases in 2011 covered a broad spectrum of lines of business. The reserve releases in 2012 occurred across a broad number of lines of business, including Casualty Treaty, Property, Property Treaty, Energy and Accident & Health. These releases were offset by specific strengthening in the Group’s long tail direct lines as a continued cautious response to the 2008 financial crisis. The reserve releases in 2013 occurred across a number of business lines, including Property, Property Treaty and Casualty Treaty. These releases were offset by specific reserve strengthening in Specialist Liability.

The Group’s reserve releases constituted 4.5%, 0.8% and 2.7%, of its opening net reserves in 2011, 2012 and 2013, respectively.

180 (B) Net ultimate loss ratio development by underwriting year The table below sets out the net ultimate loss ratio (“ULR”) development (i.e., total paid claims, outstanding reported claims and IBNR claims as a percentage of latest ultimate premiums, net of reinsurance) by underwriting year.

Net ULR as at 31 December Underwriting year Initial 1+ 2+ 3+ 4+ 5+ 6+ 7+ 8+ 9+ 2013 2004 80% 77% 68% 67% 65% 63% 61% 60% 60% 58% 58% 2005 105% 110% 106% 103% 101% 97% 94% 94% 93% 93% 2006 77% 80% 75% 71% 68% 63% 62% 62% 62% 2007 90% 90% 90% 91% 89% 90% 90% 90% 2008 98% 99% 100% 103% 105% 105% 105% 2009 83% 83% 79% 77% 74% 74% 2010 82% 89% 90% 89% 89% 2011 87% 85% 83% 83% 2012 82% 79% 79% 2013 76% 76%

The following chart sets forth a graphical representation of the tables above.

Initial 1+ 2+ 3+ 4+ 5+ 6+ 7+ 8+ 9+ 1.2

1.1

1

0.9

0.8

0.7

0.6 Ultimate Loss Ratio (ULR)

0.5

0.4 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Underwriting Year

Notes All figures are as at 31 December 2013 in converted Sterling figures (Exchange rates used: GBP1 = USD1.66 = CAD1.76 = EUR1.20). Figures include both BSL and RIL retained business. Ultimate net premium is based on data net of commissions and reinsurance. Historical net ultimate loss ratios are calculated as the historical net ultimate claims divided by the historical net ultimate premiums. All ultimate figures are on same basis as the ultimate claims triangles reported in the Group’s financial statements (i.e., they do not include bad debt provision, claims handling provision or other corporate adjustments made to calculate the booked reserves).

From 2004 to 2013, the Group’s net ULR development has demonstrated a positive trend for a majority of underwriting years (i.e., its initial ULR for the underwriting year has been higher than the latest ULR for that underwriting year). This, the Board believes, reflects the prudent nature of the Group’s “conservative best estimate” position.

In the 2008 underwriting year, the net ULR development is influenced by the strengthening of long tail direct business, in particular, those business lines impacted by the 2008 financial crisis; however both the incurred and ultimate development on these classes have been stable over the last two years. In the 2010 underwriting year, the timing of the New Zealand and Japan earthquakes in February/March 2011 was the driver of the increase in the net ULR in the second year.

181 8.3 Reserves by lines of business The following table sets out a breakdown of the Group’s best estimate net earned reserves by line of business as of 31 December 2013.

31 December 2013 % Global Specialty Direct Short tail: Accident & Health 2 Energy 5 Marine 7 US Specialty 4 Property Open Market, Terrorism, Political and Aerospace 4 Property Facilities 3 Long tail: Casualty 24 Specialist Liability 15 Global Specialty Reinsurance Short tail: Property Treaty 6 Long tail: Casualty Treaty 24 Discontinued lines of business 6 Total 100

The Casualty Treaty, Casualty and Specialist Liability business lines are the largest contributors to the Group’s reserves due to their long tail nature and uncertainty in final claim settlements. As of 31 December 2013, long tail business lines represented approximately two-thirds of the Group’s best estimate net earned reserves.

The table below illustrates the Group’s net incurred claims ratio (i.e., paid claims plus outstanding reported claims as a percentage of latest ultimate premiums, net of reinsurance) relative to the latest net ULR for its long tail business at each development year. The table is presented on an underwriting year basis, and is based on data relating to the Brit Group.

Ultimate Net Net ILR as Underwriting Premiums at year (£ in millions) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 31 Dec 13 Net ULR 2004 251.0 4% 15% 23% 31% 33% 35% 35% 36% 36% 37% 37% 39% 2005 268.3 6% 22% 34% 36% 43% 45% 46% 47% 48% 48% 52% 2006 279.8 5% 25% 38% 46% 54% 55% 55% 56% 56% 62% 2007 299.7 12% 40% 57% 73% 82% 84% 88% 88% 104% 2008 266.7 9% 40% 62% 79% 88% 97% 97% 118% 2009 238.7 6% 24% 42% 54% 59% 59% 81% 2010 234.3 6% 25% 38% 44% 44% 80% 2011 242.2 4% 20% 36% 36% 79% 2012 235.1 5% 23% 23% 85% 2013 227.0 7% 7% 78%

182 The following chart sets forth a graphical representation of the table above.

120% 118% Development Year 6+ 104% 5 4 100% 3 1 & 2 85% Net ULR 81% 80% 79% 78% 80%

62% 60% 52%

Net Loss Ratio 39% 40%

20%

0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Underwriting Year

Notes All figures are as at 31 December 2013 in converted Sterling units (Exchange rates used: GBP1 = USD1.66 = CAD1.76 = EUR1.20). Figures include both long tail direct and long tail reinsurance portfolios. Ultimate net premium is based on data net of commissions and reinsurance. Historical net incurred loss ratios are calculated as the historical net incurred claims divided by the latest net ultimate premiums (as at 31 December 2013). All ultimate figures are on a best estimate basis (i.e., they do not include risk margins, bad debt provision, claims handling provision or any other accounting adjustments made to calculate the booked reserves).

The underwriting years 2004-2006 are mature years that have historically given rise to reserve releases with net ULRs reducing over time. The incurred loss ratios for underwriting years 2007-2008 developed more rapidly as a result of the economic downturn; however there are significant levels of IBNR on both years following previous reserve strengthening undertaken by the Group. For underwriting years 2009-2013, the indications are that the net incurred claims to date show development that is more consistent with the 2005 and 2006 underwriting years than the 2007 and 2008 underwriting years. However, the latest net ULRs remain broadly at initial levels and the Board believes this supports the prudent nature of the Group’s “conservative best estimate” position.

8.4 Major event claims development Following the occurrence of a major event, the Group follows, the Board believes, a thorough loss estimation process that is consistent with the Group’s wider reserving philosophy. The loss estimation process is led by a Major Loss Panel, which coordinates information and reconvenes as the losses evolve and more information arises. The panel is chaired by the Head of Claims and consists of representatives from the underwriting, claims and actuarial departments. The loss estimation process considers the Group’s potential exposures, latest loss information from clients and market benchmarks. The latest estimates are then incorporated into the Group’s reserving process.

The following table sets out the development of ultimate net losses relating to major events on an accident year basis.

Net loss (£ in millions) Development year Accident Year Initial 1+ 2+ 3+ Current Year 2010 42.0 40.6 42.9 42.4 42.4 2011 71.0 68.2 61.4 61.4 2012 55.4 55.4 55.4 2013 28.2 28.2 Total 187.4

183 The following chart sets forth a graphical representation of the tables above.

80.0 Development Year Initial 70.0 1+ 2+ 60.0 3+

50.0

40.0

30.0 Net Loss (£m) 20.0

10.0

0.0 2010 2011 2012 2013 Accident year

The Board believes that the table demonstrates that the reserving of major events is consistent with the Group’s conservative reserving philosophy, as ultimate net losses have decreased on average around 5% since the Group’s initial estimate.

8.5 Claims development tables The table below shows the development of the estimate of net ultimate claims for each underwriting year at the end of each successive annual period. The table also includes a reconciliation between the ultimate claims and the net reserves on the balance sheet at 31 December 2013. The tables below show the development of net ultimate claims over time on an underwriting year basis. The tables show the cumulative incurred claims, including both notified and IBNR claims, for each underwriting year at the end of each year, together with cumulative paid claims as at the end of 2013.

The underlying data has been compared to the ultimate premiums for each underwriting year at the end of each year to produce the “Net ULR development by YOA” chart in section 8.2 and, therefore, the key drivers of change by underwriting year are the same as those described in section 8.2.

184 Intra Group 2004 and other and prior underwriting Ultimate net claims Underwriting year years 2005 2006 2007 2008 2009 2010 2011 2012 2013 adjustments Total £ in millions At end of underwriting year 2,475.1 549.0 444.8 570.4 578.1 492.2 487.9 547.7 514.2 476.3 One year later 2,355.7 574.8 462.4 587.1 610.8 489.7 529.2 534.8 508.1 — Two years later 2,226.9 569.7 436.6 597.7 623.1 470.6 550.1 529.0 — — Three years later 2,239.0 557.8 414.8 601.5 648.8 456.4 540.1 — — — Four years later 2,212.2 545.7 394.7 588.3 662.3 443.3 — — — — Five years later 2,175.7 523.3 364.2 594.8 660.0 — — — — — Six years later 2,139.1 503.3 360.4 596.9 — — — — — — Seven years later 2,118.0 504.7 359.6 — — — — — — — Eight years later 2,107.8 501.5 ———————— Nine years later 2,089.9 ————————— Total ultimate net claims at 31 December 2013 2,089.9 501.5 359.6 596.9 660.0 443.3 540.1 529.0 508.1 476.3 Less accumulated net paid claims (2,001.2) (473.8) (307.4) (471.1) (450.1) (294.6) (336.5) (259.0) (144.1) (29.4) — (4,767.2) Unearned portion of net ultimate claims ————————(23.6) (246.3) — (269.9) Bad debt provision 0.1 — — — 0.1 — — — — 0.6 — 0.8 Claims handling provision 1.9 0.5 1.1 2.4 4.0 3.0 4.0 4.8 6.1 3.8 — 31.6 185 Outstanding net claims at 31 December 2013 90.7 28.2 53.3 128.2 214.0 151.7 207.6 274.8 346.5 205.0 — 1,700.0 Other corporate adjustments ——————————23.7 23.7 Total outstanding net claims at 31 December 2013 90.7 28.2 53.3 128.2 214.0 151.7 207.6 274.8 346.5 205.0 23.7 1,723.7

Please refer to note 24 to the financial statements in Part XIV (Financial Information) for details on the movement in claims reserves and loss adjustment expenses during the periods under review. 9. Reinsurance Recoverables One of the key methods by which the Group seeks to manage insurance risk is through the purchase of reinsurance protection. At each balance sheet date under review, the Group carried as an asset amounts recoverable from reinsurers in respect of claims incurred. 9.1 Key features The Group purchases a wide range of facultative, risk excess of loss, pro rata reinsurance and catastrophe excess of loss reinsurance. While the Group remains primarily liable in respect of its risk exposure, its reinsurance programme is intended to help the Group manage its exposure to individual risks and aggregation of risks arising from individual large claims and catastrophe events to ensure that it remains within the risk tolerance levels set by the Board The key features of the Group’s 2014 catastrophe reinsurance programme comprise the following: • Combined cover for direct and facultative insurance and reinsurance portfolio, providing cover in the event of any unexpected large loss affecting only part of the Group’s portfolio. • Aggregate cover encompassing all events over US$10 million in a year (with a US$10 million event deductible), which means that multiple smaller events would be ceded under the programme. • Low attachment point at US$125 million provides cover in line with the Group’s strategy, correlating to an approximate 1-in-5 year event. • Protection against a wide range of natural perils (with elements of the programme providing either full worldwide protection or protection against key named perils). • Large limit of cover providing up to US$325 million protection on a single- or multiple- occurrence basis. 9.2 Reinsurance spend The Group’s reinsurance spend as a percentage of gross premiums written was 19.3% in 2013 (2012: 18.4%; 2011: 17.3%). The table below sets out a breakdown of the Group’s reinsurance expenditure by type during the periods under review. 2011 2012 2013 £ in millions Proportional 103.9 103.8 126.3 Non-proportional 100.7 107.1 103.1 Total 204.6 210.9 229.4

9.3 Counterparty exposures Counterparty credit risk is a key consideration when the Group enters into reinsurance arrangements. The credit ratings of the Group’s reinsurers are actively monitored for any deterioration in outlook or rating, and the Group has a number of options to mitigate the additional credit risk if a particular reinsurer’s credit rating falls below the minimum requirement. These options include terminating the reinsurance contract in the event a reinsurer’s rating were downgraded beyond an acceptable level, utilising of letters of credit to cover exposure to a reinsurer and commutating of reserves with the reinsurer. As at 31 December 2013, collateral of £64.1 million (31 December 2012: £72.4 million) was held in third party trust accounts or as a letter of credit to guarantee the Syndicate against reinsurance counterparties, and is available for immediate drawdown in the event of a default by a reinsurance counterparty. Of this amount, £36.4 million (31 December 2012: £46.7 million) had been drawn against reinsurance assets as at 31 December 2013. The table below shows the Group’s reinsurance assets by credit rating as of the dates indicated. 31 December 2011 2012 2013 % AA and above 37.7 51.2 46.7 A 42.2 35.7 36.1 BBB and below 3.1 — 0.9 Collateral 17.0 12.9 9.7 Not rated — 0.2 6.6 Total 100.0 100.0 100.0

186 As at 31 December 2013, 92.5% of the Group’s reinsurance assets was either collateralised or was with reinsurers rated ‘A’ or better.

The 10 largest reinsurance counterparties of the Group accounted for 67.8% of its reinsurance assets as of 31 December 2013, with the largest counterparty, accounting for 39.8%.

For further details on the Group’s reinsurance programme, please refer to section 8.7 in Part VII (Information on the Group and its Industry).

10. Liquidity and Capital Resources 10.1 Overview The Group maintains a balance sheet that is not dependent on short-term leverage. The Group’s principal sources of capital are equity, subordinated debt and external reinsurance. The principal sources of funds for the Group’s operations are insurance and reinsurance premiums, and investment return. The Group also enters into debt arrangements to obtain funds for general corporate purposes as well as for specific transaction financing. The principal uses of the Group’s funds are to pay claims benefits, related expenses, other operating costs and dividends to shareholders (which, going, forward, will include the Company’s shareholders).

The Group’s operations generate cash flow as a result of the receipt of premiums in advance of the time when claim payments are required. Operating cash flow, together with other available sources of liquidity, including the Revolving Credit Facility, historically has enabled the Group to meet its long-term liquidity requirements and the Group expects that it will continue to do so.

The Group’s overall capital requirements are based on the sum of the management entity capital applicable to Brit UW (to support the Syndicate) and BIG. The required calculations take account of the standalone capital requirements as well as the impact of the interplay between the two entities, due to the internal retrocessions between the Syndicate and BIG. The entity management capital requirement for Brit UW is set using a Solvency II-based approach (uplifted to support the Lloyd’s market rating), while the entity management capital requirement for BIG is based on an uplifted individual capital assessment (“ICA”) (calculated in line with the UK individual capital adequacy standards regime). In addition, the Group sets its own internal capital policies. Please refer to section 10.2 of this Part XIII (Operating and Financial Review) for further details. The Group’s overall capital requirement can be impacted by a variety of factors including economic conditions, its mix of business, the composition of its investment portfolio, period-to-period movements in net reserves, its reinsurance programme and regulatory loadings. The Group’s management entity capital requirements have decreased from £943.0 million in 2011 to £645.0 million in 2013, as a result of moving to a Lloyd’s-only platform and improvements in business performance.

Operating within Lloyd’s subjects the Group to certain requirements in relation to its liquidity: • Premiums received by the Syndicate are held at Lloyd’s in a premium trust fund for the benefit of policyholders whose contracts are underwritten by the Syndicate. Funds are generally held in liquid assets and used to pay claims and expenses for three years up to the closure of a year of account. However, during the time that premiums are held in the premium trust fund, they can be used to reduce the Funds at Lloyd’s requirements. It is only after the closure of a year of account that any surplus liquid resources (reflecting the profit earned on closure) is distributed to Brit UW and on to the Group. • Brit UW, as a member of Lloyd’s, is obliged to make an annual contribution (calculated as a percentage of gross premiums written, currently 0.5%) to the Lloyd’s Central Fund, which can be used to pay out in relation to the claims against any member. The Central Fund may also be supplemented by a “callable layer” of up to 3% of members’ overall premium limits. • In the event of a major catastrophe that increases the amount of resources required to be held as Funds at Lloyd’s because, due to the need to cover open year losses, the Brit UW or another Group company will need to increase Funds at Lloyd’s to meet the capital requirement. However, this requirement does not necessarily require immediate injection of cash; the requirement may be satisfied by utilising letters of credit or by lodging other acceptable assets (such as debt securities, bonds and other money and capital market instruments, shares and other variable yield participations and holdings in collective

187 investment schemes, forward currency contracts and guarantees, in each case subject to certain conditions). In addition, the timing of cash calls following a large event is foreseeable, which enables the Group to plan to have the necessary liquidity available.

In addition, the liquidity of the Group is influenced by the FSC capital requirements for BIG, the Insurance Groups Directive requirements for the Group, and the financial covenants under the Revolving Credit Facility. As at 31 December 2013, the Group had cash and cash equivalents of £315.7 million (31 December 2012: £304.9 million), not all of which are immediately available to the Group.

As at 31 December 2013, the Group had total borrowings of £123.2 million (31 December 2012: £121.9 million). The Group’s gearing ratio at 31 December 2013 was 22.2% (31 December 2012: 22.2%; 31 December 2011: 24.3%).

The Company is a holding company with no direct source of operating income. It is therefore dependent on its capital raising abilities and dividend payments from its subsidiaries. The ability of its subsidiaries to distribute cash to the Company to pay dividends is limited by covenants in the Revolving Credit Facility (please refer to section 10.3 (B) of this Part XIII (Operating and Financial Review) for further details) and, in the case of regulated subsidiaries, regulatory capital requirements.

10.2 Capital requirements and resources (A) Capital requirements The Group is subject to regulatory and internal management capital requirements:

(i) Regulatory capital requirements Each of the Group’s regulated underwriting entities is required to meet stipulated regulatory capital requirements. Regulators may require additional regulatory capital to be held by the Group (including as part of guidance on a confidential basis). For example, as part of the ongoing review by regulators of regulated insurance entities, BSL has recently been directed to revise the amount of regulatory capital that it holds, which is reflected in the regulatory capital position disclosed in this section 10.2.

The Group’s regulatory capital requirements consist of the following:

Syndicate. The Group’s capital requirements attributable to its business at Lloyd’s ultimately are determined by Lloyd’s. Lloyd’s imposes a required level of capital for a particular year of account, known as the ECA. The ECA is derived from the uSCR. The uSCR is modelled by the Syndicate based on a Solvency II balance sheet. Lloyd’s reviews the modelled uSCR submitted by the Syndicate and could apply loadings if it believes that the capital is understated in light of the underlying risks. Lloyd’s then applies an economic uplift to ensure that it holds sufficient capital to support its credit rating.

The Funds at Lloyd’s requirement for Brit UW is based on its 100% share of the Syndicate’s ECA capital requirement, adjusted for the own funds position based on the Syndicate’s Solvency II balance sheet.

Syndicate 389. This syndicate is in run-off. Brit UW’s capital requirement in respect of its participation in Syndicate 389 is currently based on the syndicate’s ICA agreed with Lloyd’s. The latest ICA for the syndicate was less than £1 million.

BIG. BIG is subject to the regulations of the FSC. The regulatory minimum capital requirements in Gibraltar are based on a Solvency I formula approach that is updated annually. The calculation incorporates both Cell Re and Cell FAL.

Group. Under the Insurance Groups Directive, the Group is required to submit an annual return to the FSC. The annual return is based on Solvency I requirements. The regulatory solvency requirement for the Group is significantly below the aggregate regulatory capital requirement for the individual entities within the Group.

(ii) Management entity capital The Group defines management entity capital as the amount of economic capital that the board of each underwriting entity determines that it should hold, taking into account the requirements of shareholders, policyholders, the Board’s solvency risk appetite and regulatory minimum capital

188 requirements, adjusted for changes in exchange rates at the balance sheet date. Specifically, this includes the following: • an assessment of BIG’s ICA capital requirement (because BIG is regulated in Gibraltar, the ICA rules do not formally apply to it; however, management estimates ICA-equivalent capital because it more fully allows for a company-specific risk profile than regulatory requirements); and • the Syndicate’s ECA stated on a GAAP basis, adjusted for exchange rate movements to the balance sheet date. The management entity capital for the Group as at 31 December 2013 was £645 million (2012: £706 million; 2011: £943 million). This represents the modelled 1-in-200 best estimate, plus what the Board believes to be a prudent margin (for example, a market load of 35% in Lloyd’s), and is adjusted for changes in foreign exchange rates at the balance sheet date. The Group’s management entity capital as a percentage of its earned premiums, net of reinsurance, has decreased from 74% in 2011 (which includes discontinued operations) to 68% in 2013, as a result of it focusing its underwriting operations on the Lloyd’s platform and continued improvement in performance.

(B) Capital resources The Group defines its capital resources as the sum of net tangible assets, subordinated debt and letters of credit/contingent funding. The Group’s capital resources were £908 million at 31 December 2013 (31 December 2012: £882 million).

(C) Capital position The following table sets forth details relating to the Brit Group’s capital position at the end of the periods under review. 31 December 2011 2012 2013 £ in millions, unless specified Net tangible assets 897 649 650 Subordinated debt (amortised cost) 133 133 133 Letters of credit/contingent funding(1) 100 100 125 of which drawn letter of credit capacity 100 49(2) 48(2) Total available capital 1,130 882 908 Management entity capital requirements 943 706 645 Solvency buffer over requirements 187 176 263 Solvency ratio 120% 125% 141% Additional resources not included in the calculation of available capital: Undrawn portion of Revolving Credit Facility 100 100 100 Management entity capital requirements as a percentage of earned premiums, net of reinsurance 74%(3) 75% 68% (1) Consists of total available letters of credit under the Revolving Credit Facility and remaining potential borrowings allocated as available capital. (2) As of 31 December 2013, US$80 million had been provided to Lloyd’s (31 December 2012: US$80 million; 31 December 2011: nil), which has been converted into Sterling at the 31 December exchange rates for each year (31 December 2012: US$1 = £0.615; 31 December 2013: US$1 = £0.603). (3) Includes earned premiums, net of reinsurance, attributable to discontinued operations. The Group targets a solvency ratio of between 120% and 140% to ensure capital strength, enable opportunistic growth and support a strong and stable dividend. Any increased capital requirements from growth are expected to be funded from retained earnings. In the event of any shortfall in capital in the Group’s underwriting entities, the Group can take the following measures to address the shortfall: • drawings under the Revolving Credit Facility, which allows the Group to utilise additional letters of credit or borrow funds that can be provided to the regulated entities (which would, however, increase the indebtedness at the consolidated entity level);

189 • liquidating assets at Brit Insurance Holdings B.V. level or within other Group entities and distributing these for use elsewhere in the Group; and • reducing regulatory capital requirements by reducing premium volumes, changing the mix of premiums away from higher risk classes of business, purchasing additional external reinsurance, reducing allocations to risk assets and hedging foreign exchange investment risk. The time-frame for the implementation of these measures could vary, from near instantaneously in the case of additional external reinsurance and foreign exchange hedging, to a number of months for changing business mix and reducing allocations to risk assets.

10.3 Borrowings As of 31 December 2013, the Group’s borrowings consisted of subordinated notes, and letters of credit under the Revolving Credit Facility.

The following table sets out details relating to the Group’s borrowings.

31 December 31 December 31 December 2011 2012 2013 Initial capitalised Effective borrowing Amortised Fair Amortised Fair Amortised Fair Maturity Call interest rate costs cost value cost value cost value % £ in millions Subordinated notes 2030 2020 6.84 1.8 120.7 101.6 121.9 123.8 123.2 131.0 Revolving Credit Facility 2017 — LIBOR + 3.0 8.2 124.3 128.0 ———— 10.0 245.0 229.6 121.9 123.8 123.2 131.0

(A) Subordinated notes On 9 December 2005, the Group issued £150.0 million of lower tier 2 subordinated unsecured notes at an interest rate of 6.625% per annum. The subordinated notes may be redeemed by the Group on 9 December 2020. Following this date, the interest rate resets at 3.4% per annum above the ten-year gilt rate prevailing at the time. The subordinated notes have a final maturity date of 9 December 2030. They have no financial covenants and do not restrict any member of the Group from paying dividends. In October 2008, the Group bought back £14,998,000 of the subordinated notes.

(B) Revolving Credit Facility On 28 February 2014, the Group entered into an amendment and restatement agreement that amended and restated its existing Revolving Credit Facility (such amendment and restatement to take effect upon Admission).

As of Admission, the Revolving Credit Facility will be provided by a syndicate of four banks led by the Royal Bank of Scotland (which also serves as the agent) and Lloyds Bank PLC. The Revolving Credit Facility will provide for £225.0 million of committed multi currency financing, of which £125.0 million will be available as letters of credit, provided that certain customary conditions precedent have been satisfied. Amounts under the Revolving Credit Facility can be drawn until 30 November 2018, and the Revolving Credit Facility terminates on 31 December 2018, on which date all outstanding facilities must be repaid.

At 31 December 2013, a US$80 million letter of credit had been put in place while the remainder of the facility was undrawn (31 December 2012: undrawn; 31 December 2011: £128 million drawn). The highest amount that was drawn under the Revolving Credit Facility (excluding letters of credit) in 2013 was £35.0 million (2012: £128.0 million).

As of Admission, the Revolving Credit Facility will be unsecured with the exception of a cash collateral account charge entered into by Brit Group Holdings B.V. and Brit UW Ltd (and by any other Group company which accedes to the Revolving Credit Facility as borrower and wishes to post cash collateral). This account charge will serve to enable the Group to post cash collateral in respect of letters of credit made available under the Revolving Credit Facility, thereby reducing the applicable L/C Margin.

190 As of Admission, interest in respect of drawdowns under the Revolving Credit Facility will be payable at a rate of LIBOR (or EURIBOR if the loan is drawn in euros, or CDOR if in Canadian dollars) and a margin (of 2.375% per annum). For any portion of a letter of credit that is not cash covered the fee rate will be 2.375%. However, for any portion of a letter of credit that is cash covered the fee rate on that portion will be 0.40%. Brit Group Holdings B.V. is also required to pay a commitment fee of 35% of the margin on a lender’s available commitment at three month intervals up to 30 November 2018.

The Revolving Credit Facility has the following financial covenants, which are to be tested quarterly (on 31 March, 30 June, 30 September and 31 December), and as of Admission, will be calculated as set out below. • Gearing ratio: the Group’s borrowings as a proportion of Consolidated Net Tangible Assets (which is defined as the Group’s paid up share capital plus subordinated debt and reserves, subject to certain exclusions) must not exceed 40%. • Consolidated Net Tangible Assets test: the Group’s Consolidated Net Tangible Assets (which is defined as the Group’s paid up share capital plus subordinated debt and reserves, subject to certain exclusions) must not be less than the minimum Consolidated Net Tangible Assets level, which is currently £520.0 million and, for each year ending on or after 31 December 2014, will be £520.0 million plus a ratchet amount (as calculated under the Revolving Credit Facility). • Letters of credit ratio: The aggregate amount outstanding under all letters of credit must not exceed 30% of the Group’s Funds at Lloyd’s.

In addition, the Revolving Credit Facility contains customary covenants (including those related to asset disposals, acquisitions and investments, financial indebtedness, and a negative pledge) subject to certain agreed exceptions and materiality carve outs. Further, the Revolving Credit Facility contains a cross default clause under which non-payment by any Group member of other debt or monetary liabilities due, amounting to £5.0 million or more, would constitute an event of default under the Revolving Credit Facility.

The Revolving Credit Facility also contains a change of control provision under which, upon the occurrence of a change of control, the lenders may refuse to fund utilisation requests under the Revolving Credit Facility, cancel their commitments and demand immediate repayment of all outstanding amounts.

The Offer will not constitute a change of control under the Revolving Credit Facility.

10.4 Cash flow The following table summarises the principal components of the Group’s combined consolidated cash flows for the periods under review.

2011 2012 2013 £ in millions £ in millions £ in millions Cash flows provided by operating activities (310.2) 67.1 55.9 Net cash inflows/(outflows) from operating activities (229.9) 191.3 102.7 Net cash inflows/(outflows) from investing activities (859.3) 164.8 10.4 Net cash (outflows)/inflows from financing activities 924.7 (504.5) (100.3) Net increase/(decrease) in cash and cash equivalents (164.5) (148.4) 12.8 Cash and cash equivalents at beginning of the year 623.4 457.8 304.9 Effect of exchange rate fluctuations on cash and cash equivalents (1.1) (4.5) (2.0) Cash and cash equivalents at the end of the year 457.8 304.9 315.7

191 While the Group may maintain sizeable cash balances at its subsidiary entities, access to liquidity can be subject to regulatory constraints. Consequently, the liquid resources available to the Group are determined based on liquidity at unregulated entities (which can be distributed, subject to the availability of distributable reserves) and liquidity that can be distributed to the parent company from regulated entities without breaching regulatory restrictions. The following illustrates an indicative flow of distributions from regulated entities to unregulated entities and ultimately the parent company: • The Syndicate releases declared profits to its corporate member, Brit UW, upon the closure of each underwriting year, and pays a managing agency fee to its managing agent, BSL, which is, in turn, paid to an unregulated group entity to meet Group expenses. While profits relating to open years of account cannot normally be distributed, they can serve to reduce Funds at Lloyd’s requirements. • Cell FAL and Cell Re distribute funds in the form of profit distributions via their immediate parent company. These profit distributions include the payment of funds received from Brit UW for excess of loss reinsurance premiums, to the extent that these are surplus to requirements.

2013 During 2013, cash and cash equivalents increased £12.8 million. This increase was before adverse foreign exchange movements of £2.0 million.

Net cash inflow from operating activities was £102.7 million. This represented a decrease from the net cash inflow from operating activities in 2012 of £191.3 million. 2012 benefited from higher levels of cash flows provided by operating activities, as well as £50.9 million of operating cash flow from discontinued operations that was not available in 2013.

Net cash inflows from investing activities (£10.4 million) decrease significantly from £164.8 million in 2012. 2012 benefited from £169.0 million in investing cash flow from discontinued operations that was not available in 2013.

Net cash outflows from financing activities totalled £100.3 million in 2013 (compared to £504.5 million in 2012). The cash outflows in 2012 included the reimbursement of the share premium account to shareholders (£374.4 million) and the repayment of drawings under the Revolving Credit Facility (£128.0 million). The most significant outflow during 2013 was £94.2 million in respect of share redemptions.

2012 During 2012, cash and cash equivalents decreased by £148.4 million. This decrease was before adverse foreign exchange movements of £4.5 million.

Net cash inflow from operating activities was £191.3 million. This represented an increase over the net the cash outflow from operating activities in 2011 of £229.9 million. 2012 benefited from higher levels of cash flows provided by operating activities, higher interest received and higher cash flows from discontinued operations.

Net cash inflow from investing activities (£164.8 million) arose predominantly from cash flows from discontinued operations.

Net cash outflows from financing activities totalled £504.5 million and included distribution payments of £376.6 million and the repayment of £128.0 million drawn under the Revolving Credit Facility.

2011 During 2011, cash and cash equivalents decreased by £164.5 million. This decrease was before adverse foreign exchange movements of £1.1 million.

Net cash outflow from operating activities was £229.9 million. This outflow was primarily due to the Group converting £294.8 million of cash into financial investments in order to increase investment return.

192 Net cash outflow from investing activities (£859.3 million) arose predominantly from the acquisition of the Brit Group in March 2011.

Net cash inflow from financing activities totalled £924.7 million. The inflow primarily reflected the issuance of Achilles shares (£881.9 million) and draw downs of £91.0 million under the Revolving Credit Facility.

11. Contractual Obligations and Commitments The following table sets out, as of 31 December 2013, a summary of the Group’s contractual obligations and commercial commitments.

Payments to be made by period Less From From 5 and than 1 1to3 3to5 more year years years years Total £ in millions (unaudited) Insurance liabilities(1) 600.1 691.4 356.3 449.9 2,097.7 Borrowings(2) — — — 135.0 135.0 Operating lease obligations(3) 3.4 6.1 0.4 — 9.9 Outstanding investment settlements 23.8 — — — 23.8 Total 627.3 697.5 356.7 584.9 2,266.4

(1) The Group has contractual obligations to pay claims under insurance and reinsurance contracts for specified loss events under those contracts. Such loss payments represent the Group’s most significant future payment obligations. Unlike other contractual obligations, payments are not determinable from the terms specified within the contract. For example, a payment will only be made if an insured loss under the contract occurs and if a payment is to be made the amount and timing of the payment cannot be determined from the contract. In the table above, the Group has estimated the future payments by year of its undiscounted gross claims reserves including loss adjustment expense, as well as for IBNR losses, as at 31 December 2013. The Group has assumed that historical payment patterns will continue. However, these estimated loss payments are inherently uncertain in their amount and timing and therefore actual payments may vary materially from these estimates. (2) Reflects the nominal amount of the subordinated notes. Does not reflect utilisation or commitment fees on the Revolving Credit Facility, interest payments and amounts that could be drawn in the future under the Revolving Credit Facility or interest payments on the subordinated notes. (3) Comprises leases of properties and office equipment under non-cancellable operating leases. Property leases typically have rent reviews every five years where the lease payments could be increased to reflect market rates.

12. Off Balance Sheet Arrangements As of 31 December 2013, the Group had no off balance sheet arrangements. However, Achilles Netherlands Holdings B.V., Brit Insurance Holdings B.V., Brit Group Holdings B.V., Brit Overseas Holdings S.à r.l and Brit Insurance Holdings Limited have made certain guarantees under the Revolving Credit Facility that are not reflected in the Group’s financial statements.

As of 31 December 2013, Brit UW had pledged deposits and fixed and floating charges including a US$80 million letter of credit (31 December 2012: US$80 million) with Lloyd’s to meet its Funds at Lloyd’s requirements. Should Brit UW fail to meet its obligations under contracts of insurance written on its behalf, Lloyd’s could draw down on the letter of credit and other assets pledged.

13. Contingencies 13.1 Taxation The Group operates in a number of jurisdictions through the Syndicate and, therefore, uncertainties exist with respect to the interpretation of complex tax laws and practices of those territories. The Group establishes provisions for taxes other than current and deferred income taxes based upon various factors that are continually evaluated, if there is a present obligation as a result of past events, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and that a reliable estimate of the amount of the obligation can be made.

193 Please refer to section 8.2 of Part II (Risk Factors). 13.2 Collateral pledged As part of its reinsurance arrangements, a subsidiary company has entered into a collateralised reinsurance arrangement with one counterparty. The fair value of the assets held to support this liability as at 31 December 2013 was £428.1 million (2012: £338.3 million; 2011: nil).

14. Related Party Transactions During the periods under review, the Group engaged in certain arm’s length transactions with Xbridge Limited and Verex Limited, which at the time were associated undertakings. Please refer to section 5.3 of this Part XIII (Operating and Financial Review) and note 14 to Part XIV (Financial Information). In particular, a Group company had granted Xbridge Limited a five year loan facility of up to £6.0 million. As at 31 December 2011 and 31 December 2012, £5.2 million had been drawn down. This was repaid during 2013. During the periods under review, the Group retained certain affiliates of the Apollo-Affiliated Funds and the CVC-Affiliated Funds to provide certain investment management and advisory services to the Group. These transactions were on arms’ length basis. The Group’s total payments under these agreements during the periods under review were £nil, £0.8 million and £1.4 million in 2011, 2012 and 2013, respectively. These payments are recognised as part of investment management expenses within investment return in the Group’s income statements. During the periods under review, the Group also paid service fees to Apollo Management VII, L.P. and the CVC Capital Partners Advisory Company (Luxembourg) S.à r.l. in respect of services relating to the acquisition of the Brit Group and monitoring fees. The Group’s total service fee payments during the periods under review were £10.6 million, £2.0 million and £2.0 million in 2011, 2012 and 2013, respectively. Fees of £2.0 million became due on 1 January 2014 and will be paid by the Group in due course. A payment of £5.4 million will be paid upon Admission in connection with the termination of the monitoring fee arrangement for the future and therefore no further monitoring fees will arise following Admission. In addition, as part of its investment activities, the Group has invested in funds sponsored by Apollo and CVC on an arm’s length basis. In 2014, the Executive Director, certain members of Senior Management and certain other employees of the Group entered into loan agreements with Achilles 1, pursuant to which they borrowed funds from Achilles 1 for the purpose of funding their acquisition of additional shares in Achilles 2 (the relevant shares in Achilles 2 being held by SJT Limited as nominee for the relevant individuals). As part of the Reorganisation, the relevant shares in Achilles 2 were exchanged for shares in Achilles, which in turn were exchanged for Ordinary Shares (for more information on the total shareholdings of Directors and Senior Management following the Reorganisation, please refer to section 9 of Part XVI (Additional Information)). The proceeds of the sale of Ordinary Shares in the Offer by each such borrower will be automatically applied in full or partial repayment of such borrower’s loan. The amount of proceeds so applied will be the lower of (i) 50% of the post-tax consideration due and payable to such borrower in respect of the sale of Ordinary Shares in the Offer and (ii) the outstanding amount of the loan to such borrower. To the extent not repaid in full out of the proceeds of the sale of Ordinary Shares in the Offer, any remaining amount of the loan will be repayable in full on 28 February 2015 (or, if earlier, the date on which the borrower ceases to be employed by a Group Company). As at 27 March 2014, the total amount of such loans outstanding was £1,425,000. The loans are interest free. In the event that the borrower defaults in his obligation to repay the loan, the shares acquired using the loan may be transferred at the direction of Achilles 1 without the borrower being entitled to receive any consideration.

15. Qualitative and Quantitative Disclosure about Principal Risks The Group identifies and manages risk under the following categories: insurance risk, market risk (which consists of interest rate risk, currency risk and other price risk), credit risk, liquidity risk and operational risk. Further details on risk management, including sensitivity analysis, are provided in note 4 to the financial statements in Part XIV (Financial Information).

194 15.1 Insurance risks Underwriting risk. Please refer to note 4 to the financial statements in Part XIV (Financial Information) and section 8 in Part VII (Information on the Group and its Industry).

Aggregate exposure management.

The Group is exposed to the potential of large claims from natural catastrophe events. The Group closely monitors aggregation of exposure to natural catastrophe events against agreed risk appetites using stochastic catastrophe modelling tools, along with knowledge of the business, historical loss information, and geographical accumulations. Analysis and monitoring also measures the effectiveness of the Group’s reinsurance programmes. Stress and scenario tests are also run, such as Lloyd’s and internally developed RDS.

Below are the key RDS losses to the Group for all classes combined:

Modelled Modelled Modelled Estimated Group Loss Group Loss Group Loss Lloyd’s Prescribed RDS Event Industry Loss 2011(i) 2012(ii) 2013(iii) Gross Net Gross Net Gross Net £ in millions (unaudited) Gulf of Mexico Windstorm 67,000 267 146 281 120 328 140 Florida Miami Windstorm 75,000 197 96 198 97 246 78 US North East Windstorm 47,000 233 132 254 110 286 125 San Francisco Earthquake 47,000 280 111 277 121 257 83 Japan Earthquake 29,000 107 55 99 53 100 55 Japan Windstorm 8,000 78 39 62 41 51 36 European Windstorm 19,000 291 94 164 88 159 85

(i) As at 1/1/2012. (ii) As at 1/1/2013. (iii) As at 1/10/2013.

Actual results may differ materially from the losses above, given the significant uncertainties with respect to these estimates. Moreover, the portfolio of insured risks changes dynamically over time. There could also be unmodelled losses that result in losses exceeding these figures. Overall, the Group has a net loss tolerance from a Lloyd’s RDS event of 30% of the Brit Group net tangible assets. This equated to a maximum acceptable loss (after reinsurance) of £195.0 million as of 31 December 2013.

Sensitivity to changes in claims ratio. The Group’s profit on ordinary activities before tax is sensitive to an independent 1% change in the claims ratio for each class of business as follows:

Movement in profit Category 2011 2012 2013 £in %£in £in millions millions % millions % Short tail direct insurance 4.8 48 4.6 49 5.0 52 Long tail direct insurance 2.4 24 2.3 24 2.1 22 Short tail reinsurance 1.4 14 1.1 11 0.9 10 Long tail reinsurance 1.3 13 1.3 14 1.4 15 Other 0.1 1 0.1 2 0.1 1 Total 10.0 100 9.4 100 9.5 100

Subject to taxation, the impact on shareholders’ equity would be the same as that on profit following a change in the net claims ratio.

Reserving risk. Please refer to note 4 to the financial statements in Part XIV (Financial Information) and section 10 in Part VII (Information on the Group and its Industry).

15.2 Market risks This is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk.

195 Investment governance. The investment management framework and approach is agreed by the Board and captured in the strategic asset allocation. In the strategic asset allocation framework, management has sought to instigate a governance framework for the implementation of an active, return-optimising approach within agreed tolerances.

The Board has set out a revised investment risk framework, consistent with Solvency II principles, to define its tolerance to investment risk explicitly in key areas, and has implemented enhanced monitoring of key risk types through a regular Investment Risk MI pack.

Management provide monthly information to Investment Committees covering portfolio composition, performance, forecasting and the results of stress and scenario tests. Any operational issues and breaches to the risk appetite framework are reported to the relevant Risk Oversight Committees and the Board quarterly.

Risk tolerance. Investment risk tolerances are set by the Board(s), defining the Group’s appetite to investments earnings volatility, solvency risk due purely to investment, currency and liquidity risk. Risk metrics are monitored regularly to ensure that tolerance is within the Board-approved levels, and limits continue to remain appropriate. Assets are matched to the currency and duration profile of the liabilities, limiting the impact of foreign exchange and interest rate risk on the solvency position. The investment guidelines issued to fund managers stipulate exposure limits for counterparties, credit quality and subordination levels to help control credit risk. Tactical ranges around the asset allocation provide flexibility to optimise the balance between risk and return.

Interest rate risk. Interest rate risk is the risk that the fair value and/or future cash flows of a financial instrument will fluctuate because of changes in interest rates.

The Group is exposed to interest rate risk through its investment portfolio, borrowings and cash and cash equivalents. The sensitivity of the price of these financial exposures is indicated by their respective durations (i.e., the modified duration, which is the change in the price of the security subject to a 100 basis points shift in interest rates). Therefore, the greater the duration of a security, the greater the possible price volatility.

The banded durations of the Group’s financial instruments sensitive to interest-rate risk are shown in the table below:

Duration 1 year or 1to3 3to5 Over 5 less years years years Equities Total £ in millions As at 31 December 2011 Cash and cash equivalents 457.8 - - - - 457.8 Financial investments 541.7 1,905.1 284.9 352.6 121.9 3,206.2 Total 999.5 1,905.1 284.9 352.6 121.9 3,664.0 As at 31 December 2012 Cash and cash equivalents 304.9 - - - - 304.9 Financial investments 194.1 1,335.7 265.5 513.2 3.6 2,312.1 Total 499.0 1,335.7 265.5 513.2 3.6 2,617.0 As at 31 December 2013 Cash and cash equivalents 315.7 - - - - 315.7 Financial investments 1,055.7 415.3 251.5 505.8 47.6 2,275.9 Total 1,371.4 415.3 251.5 505.8 47.6 2,591.6

The Group takes into account the duration of its required capital, targeting an investment portfolio duration that, under a variation in interest rates, preserves the solvency ratio of the Group. The duration of the investment portfolio is then set within an allowable range relative to the targeted duration. This is achieved by the use of interest rate derivatives.

As the liabilities are measured on an undiscounted basis, the reported liabilities are not sensitive to changes in interest rates. This leads to the conflict between targeting a longer duration to protect the solvency position against movements in interest rates, while a shorter duration for the assets will reduce the possible volatility around the income statement.

196 The sensitivity of the Group’s profit before tax to the changes in the investment yields is set out in the table below. The analysis is based on the information as at 31 December 2013. Impact on profit before tax 2011 2012 2013 £ in millions Increase 25 basis points (15.0) (13.9) (14.4) 50 basis points (29.9) (27.8) (28.7) 100 basis points (59.9) (55.6) (57.5) Decrease 25 basis points 15.0 13.9 14.4 50 basis points 29.9 27.8 28.7 100 basis points 59.9 55.6 57.5 Subject to taxation, the effect on shareholders’ equity would be the same as the effect on profit. The table below gives an indication of the impact on profit before tax and capital surplus of the Brit Group of a percentage change in investment yields. The analysis is based on the information as at 31 December 2013. 2013 Impact on Impact on profit before tax capital surplus Increase 100 basis points (58) 32 50 basis points (29) 16 25 basis points (14) 8 Decrease 25 basis points 14 (8) 50 basis points 29 (16) 100 basis points 58 (32) Currency risk. Currency risk is the risk that the fair value of assets and liabilities or future cash flows will fluctuate as a result of movements in the rates of foreign exchange. As the Group’s reporting currency is Sterling, it is exposed to currency risk because it underwrites insurance business internationally, dealing in five main currencies: US dollars, Sterling, Canadian dollars, euros and Australian dollars. All other currencies are included as Sterling. The split of assets and liabilities for each of the Group’s main currencies is set out in the table below: (Converted £ millions) UK £ US$ CAD $ EUR € AUD $ Total As at 31 December 2011 Total assets 2,448.7 1,812.2 223.5 457.5 106.6 5,048.5 Total liabilities 1,773.7 1,596.0 149.5 443.7 106.6 4,069.5 Net assets 675.0 216.2 74.0 13.8 — 979.0 As at 31 December 2012 Total assets 1,463.9 1,514.4 237.0 272.6 110.2 3,598.1 Total liabilities 800.6 1,542.1 150.8 284.2 110.2 2,887.9 Net assets 663.3 (27.7) 86.2 (11.6) — 710.2 As at 31 December 2013 Total assets 813.3 2,013.7 294.7 378.1 156.8 3,656.6 Total liabilities 786.7 1,615.0 163.8 288.2 91.9 2,945.6 Net assets 26.6 398.7 130.9 89.9 64.9 711.0

The non-Sterling denominated assets of the Group may lead to a reported loss (depending on the mix relative to the liabilities), should Sterling strengthen against these currencies. Conversely, reported gains may arise should Sterling weaken. The Group matches its currency position to hold net assets across a number of currencies. The Group takes into consideration the underlying currency of its required capital and invests its assets proportionately across these currencies so as to protect the solvency of the Group, and hence capital available for distribution to shareholders, against variation in foreign exchange rates. As a result, the Group holds a significant proportion of its assets in foreign currency investments.

197 In part, the Group uses foreign currency forwards contracts to achieve the desired exposure to each currency. From time to time, the Group may also choose to utilise options on foreign currency derivatives to mitigate the risk of reported losses due to changes in foreign exchange rates. The degree to which options are used is dependent on the prevailing cost versus the perceived benefit to shareholder value from reducing the chance of a reported loss due to changes in foreign currency exchange rates.

As a result of the accounting treatment for non-monetary items, the Group may also experience volatility in its income statement due to fluctuations in exchange rates. In accordance with IFRS, non- monetary items are recorded at original transaction rates and are not re-valued at the reporting date. These items include unearned premiums, deferred acquisition costs and reinsurers’ share of unearned premiums. Consequently, a mismatch arises in the income statement between the amount of premium recognised at historical transaction rates, and the related claims that are valued using foreign exchange rates in force at the reporting date. The Group considers this to be a timing issue that can cause volatility in the income statement.

The table below gives an indication of the impact on profit before tax of a percentage change in the relative strength of Sterling against the value of the US dollar, Canadian dollar and euro simultaneously. The analysis is based on the information as at 31 December 2013.

Impact on profit before tax 2011 2012 2013 £ in millions Sterling weakens 10% against other currencies 56.1 21.4 72.1 20% against other currencies 112.2 42.8 144.2 Sterling strengthens 10% against other currencies (56.1) (21.4) (72.1) 20% against other currencies (112.2) (42.8) (144.2)

Subject to taxation, the effect on shareholders’ equity would be the same as the effect on profit.

The table below gives an indication of the impact on profit before tax and capital surplus of the Brit Group of a percentage change in the relative strength of Sterling against the value of the US dollar, Canadian dollar and euro simultaneously. The analysis is based on the information as at 31 December 2013.

2013 Impact on Impact on profit before capital tax surplus £ in millions Sterling weakens 20% against other currencies 144 (2) 10% against other currencies 72 (1) Sterling strengthens 10% against other currencies (72) 1 20% against other currencies (144) 2

Other price risk. This is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market.

Financial assets and derivatives that are recognised at their fair value are susceptible to losses due to adverse changes in their prices. This is known as price risk.

Listed investments are recognised in the financial statements at quoted bid price. If the market for the investment is not considered to be active, then the Group establishes fair valuation techniques. This includes using recent arm’s length transactions, reference to current fair value of other similar investments, discounted cash flow models and other valuation techniques that are commonly used by market participants.

198 The prices of fixed and floating rate income securities are predominantly impacted by currency, interest rate and credit risks. The Group invests a proportion of its assets in equities and hedge funds. These investments are limited within the investment guidelines to a diverse, small and manageable part of the Group investment portfolio.

The sensitivity of the profit and net assets to the changes in the prices of equity and hedge fund investments is set out in the table below. The analysis is based on the information as at 31 December 2013.

Impact on profit before tax 2011 2012 2013 £ in millions Increase in fair value 10% 18.9 16.7 28.0 20% 37.8 33.4 56.1 30% 56.6 50.2 84.1 Decrease in fair value 10% (18.9) (16.7) (28.0) 20% (37.8) (33.4) (56.1) 30% (56.6) (50.2) (84.1)

Subject to taxation, the effect on shareholders’ equity would be the same as the effect on profit.

15.3 Credit risk This is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The main sources of credit risk relate to: • Reinsurers: through the failure to pay valid claims against a reinsurance contract held by the Group; • Brokers and coverholders: where counterparties fail to pass on premiums or claims collected or paid on behalf of the Group; • Investments, through an issuer default of all or part of the value of a financial instrument and derivative financial instrument; and • Cash and cash equivalents.

The insurance and non-insurance related counterparty credit risks are managed separately by the Group. Please refer to note 4 to the financial statements in Part XIV (Financial Information) for further details relating to the credit risk exposures for the Group.

15.4 Liquidity risk This is the risk the Group may encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. The predominant liquidity risk the Group faces is the daily calls on its available cash resources in respect of claims arising from insurance contracts.

The Group monitors the levels of cash and cash equivalents on a daily basis, ensuring adequate liquidity to meet the expected cash flow requirements due over the short term.

The Group also limits the amount of investment in illiquid securities in line with the liquidity policy set by the Board. This involves ensuring sufficient liquidity to withstand claim scenarios at the extreme end of business plan projections by reference to modelled RDSs. Contingent liquidity also exists in the form of the Revolving Credit Facility.

Please refer to note 4 to the financial statements in Part XIV (Financial Information) for further details relating to the liquidity risk exposures for the Group.

199 15.5 Operational risk Operational risk is the potential for loss arising from the failure of people, process or technology or the impact of external events. The nature of operational risk means that it is dispersed across all functional areas of the Group. Operational risk exposures are managed through a consistent set of management processes that drive risk identification, assessment, control and monitoring. Please refer to note 4 to the financial statements in Part XIV (Financial Information) for further details.

16. Critical Accounting Policies and Use of Estimates The preparation of financial statements requires management to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the related disclosure including contingent assets and liabilities. The accounting policies that the Group’s management considers are the most critical to its operations and require the most subjective judgements are discussed below. This discussion should be read in conjunction with the notes to the Group’s combined consolidated financial statements.

16.1 Ultimate liability arising from claims made under insurance contracts The estimation of the ultimate liability arising from claims made under insurance contracts is the Group’s most critical accounting estimate. There are several sources of uncertainty that need to be considered in the estimate of the amounts that the Group will ultimately pay to settle such claims. Significant areas requiring estimation and judgement include: (a) estimates of the amount of any liability in respect of claims notified but not settled and IBNR claims provisions included within provisions for insurance and reinsurance contracts; (b) the corresponding estimate of the amount of reinsurance recoveries which will become due as a result of these estimated claims; (c) the recoverability of amounts due from reinsurers; and (d) estimates of the proportion of exposure which has expired in the period as represented by the earned proportion of premiums written.

The assumptions used and the manner in which these estimates and judgements are made are set out below: (a) quarterly statistical data is produced in respect of gross and net premiums and claims (paid and incurred). (b) projections are produced by an internal actuarial department based on standard actuarial projection techniques, with adjustments for specific claims made by management where deemed appropriate. (c) the resulting projections are discussed with experienced underwriting and claims personnel and claims provision recommendations made to an internal reserving committee consisting of senior underwriters, claims managers and finance staff. (d) claims provisions and risk margin are subject to independent external actuarial review at least annually. (e) some classes of business have characteristics which do not necessarily lend themselves easily to statistical estimation techniques. These classes would include Financial Risk, Casualty Treaty, Catastrophe Retrocessional and Mortgage Indemnity Guarantee business. In these cases review is carried out on a policy-by-policy basis to support statistical estimates. (f) in the event of catastrophe losses and prior to detailed claims information becoming available, claims provision estimates are compiled using a combination of specific recognised modelling software and reviews of material contracts exposed to the event in question.

The estimates and judgements are in line with the overall reserving philosophy and seek to state the claims provisions on a best estimate, undiscounted basis. A management risk margin is also applied over and above the actuarial best estimate to allow for the inherent uncertainty within the best estimate reserve margin.

200 In addition to claims provisions, the reserve for future loss adjustment expenses is also subject to estimation. In arriving at this estimate, consideration is given to the levels of internal and third party loss adjusting expenses incurred annually. The estimated loss adjustment expenses are expressed as a percentage of gross claims reserves and are benchmarked to assess the reasonableness of the estimate.

Further judgements are made as to the recoverability of amounts due from reinsurers. Provisions for bad debts are made specifically, based on the solvency of reinsurers, internal and external ratings, payment experience with them and any disputes of which the Group is aware.

16.2 Premiums Management must make judgements about the ultimate premiums written and earned by the Group. Reported premiums written and earned are based upon reports received from the Group’s underwriters, coverholders generating business under delegated underwriting authorities, and its brokers, supplemented by its own estimates of premiums written for which broker, coverholder or ceding company reports have not been received. The determinations of estimates require a review of the Group’s experience with these counterparties, familiarity with each geographic market and a thorough understanding of the characteristics of each line of business written. Premium estimates are updated when new information is received. Differences between such estimates and actual amounts are recorded in the period in which estimates are changed or the actual amounts are determined. In addition, the Group’s internal actuaries review the progression of the estimated ultimate premium income. Premium income adjustments also affect the incurred claims in a period, as the ultimate claims estimates are determined by applying the ultimate loss ratio to the premium income.

16.3 Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash- generating units to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value, both of which are material sources of uncertainty.

16.4 Financial investments The Group uses certain financial instruments and invests in securities of certain entities for which exchange trading does not exist. The fair value of financial instruments for which exchange trading does not exist is estimated based on the quoted market prices of financial instruments with similar characteristics or on various valuation techniques. Because of the limited liquidity of some of these instruments, the recorded amounts may be different from the proceeds that might be realised if the financial instruments were sold at the balance sheet date.

17. Recent Accounting Pronouncements Please refer to note 2 in Part XIV (Financial Information) for a discussion of recent accounting pronouncements.

201 PART XIV — FINANCIAL INFORMATION

ACCOUNTANT’S REPORT ON COMBINED HISTORICAL FINANCIAL INFORMATION FOR THE GROUP

The Directors 28 March 2014 Brit PLC 55 Bishopsgate London EC2N 3AS

Dear Sirs

Brit PLC We report on the financial information set out on pages 204 to 286 for the years ended 31 December 2011, 2012 and 2013 in respect of Achilles Holdings 1 S.à r.l. and its subsidiaries (together, the “Group”). This financial information has been prepared for inclusion in the prospectus dated 28 March 2014 of Brit PLC (the “Company”) on the basis of the accounting policies set out in Note 2. This report is required by item 20.1 of Annex I of Commission Regulation (EC) 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) 809/2004, consenting to its inclusion in the prospectus.

Responsibilities The Directors of the Company are responsible for preparing the financial information on the basis of preparation set out in note 2 to the financial information. It is our responsibility to form an opinion on the financial information and to report our opinion to you.

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 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.

202 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. 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 financial information gives, for the purposes of the prospectus dated 28 March 2014, a true and fair view of the state of affairs of the Group as at the dates stated and of its profits, cash flows and changes in equity for the periods then ended in accordance with the basis of preparation set out 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 item 1.2 of Annex I of Commission Regulation (EC) 809/2004.

Yours faithfully

Ernst & Young LLP

203 Consolidated Income Statement

Aggregated1 Year ended Year ended Year ended 31 December 31 December 31 December 2011 2012 2013 Note £m £m £m Revenue Gross premiums written 1,179.9 1,147.9 1,185.7 Less premiums ceded to reinsurers (204.6) (210.9) (229.4) Premiums written, net of reinsurance 975.3 937.0 956.3 Gross amount of change in provision for unearned premiums 40.1 (1.6) (34.0) Reinsurers’ share of change in provision for unearned premiums (1.8) 9.2 23.2 Net change in provision for unearned premiums 38.3 7.6 (10.8) Earned premiums, net of reinsurance 1,013.6 944.6 945.5 Investment return 6 64.6 87.2 56.9 Return on derivative contracts 7 5.3 (2.1) 11.0 Profit on disposal of asset held for sale 15 — — 4.4 Net foreign exchange gains 8 3.7 — — Other income 0.1 0.7 — Total revenue 1,087.3 1,030.4 1,017.8 Expenses Claims incurred: Claims paid: Gross amount (674.2) (659.7) (542.1) Reinsurers’ share 139.0 124.8 99.2 Claims paid, net of reinsurance (535.2) (534.9) (442.9) Change in the provision for claims: Gross amount (139.6) (19.0) (34.1) Reinsurers’ share 71.0 23.9 17.8 Net change in the provision for claims (68.6) 4.9 (16.3) Claims incurred, net of reinsurance (603.8) (530.0) (459.2) Acquisition costs 9 (298.2) (286.1) (287.5) Other operating expenses 9 (138.3) (77.7) (79.1) Net foreign exchange losses 8 — (25.9) (69.6) Total expenses excluding finance costs (1,040.3) (919.7) (895.4) Operating profit 47.0 110.7 122.4 Finance costs 11 (16.7) (14.6) (15.0) Share of loss after tax of associated undertakings 13 (0.4) (0.1) — Write-off of negative goodwill 16 51.9 — — Impairment of associated undertaking 13 — (0.1) — Profit on ordinary activities before tax 81.8 95.9 107.4 Tax expense 17(i) (0.3) (5.2) (6.5) Profit for the year from continuing operations 81.5 90.7 100.9 Profit/(loss) from discontinued operations 18 19.2 23.8 (1.4) Profit for the year 100.7 114.5 99.5

1 The Aggregated information in respect of 2011 has been prepared in accordance with Note 2 to the historical financial information.

The accompanying notes are an integral part of this historical financial information.

204 Consolidated Statement of Comprehensive Income

Aggregated Year ended Year ended Year ended 31 December 31 December 31 December 2011 2012 2013 Note £m £m £m Profit attributable to: Equity holders of the parent 100.0 113.8 99.1 Non-controlling interests 0.7 0.7 0.4 Profit for the year 100.7 114.5 99.5

Basic earnings per share (pence per share) — continuing operations 19 124.1 113.8 134.5 Basic earnings per share (pence per share) — total operations 19 153.4 143.7 132.6 Diluted earnings per share (pence per share) — continuing operations 19 123.9 113.6 134.4 Diluted earnings per share (pence per share) — total operations 19 153.1 143.5 132.5

Other comprehensive income Items not to be reclassified to profit or loss in subsequent period: Actuarial (losses)/gains on defined benefit pension scheme 25 (2.8) (9.7) 2.0 Tax credit/(charge) relating to actuarial (losses)/gains on defined benefit pension scheme 17(ii) 0.7 2.4 (0.5) Other movements 13 0.2 0.4 — Net other comprehensive income not being reclassified to profit or loss in subsequent periods (1.9) (6.9) 1.5 Other comprehensive income for the year net of tax 98.8 107.6 101.0 Total comprehensive income for the year attributable to: Equity holders of the parent 98.1 106.9 100.6 Non-controlling interests 0.7 0.7 0.4 98.8 107.6 101.0

The accompanying notes are an integral part of this historical financial information.

205 Consolidated Statement of Financial Position

31 December 31 December 31 December 2011 2012 2013 Note £m £m £m Assets Property, plant and equipment 20 5.3 5.8 5.1 Intangible assets 21 76.8 62.0 62.7 Deferred acquisition costs 22 156.7 113.3 125.7 Investments in associated undertakings 13 15.4 14.7 — Current taxation 24.4 — 6.0 Reinsurance contracts 24 566.2 414.3 450.0 Employee benefits 25 18.9 14.7 21.9 Assets held for sale 14 — 1.9 — Financial investments 26 3,206.2 2,312.1 2,275.9 Derivative contracts 27 0.3 1.1 12.7 Insurance and other receivables 28 520.5 353.3 380.9 Cash and cash equivalents 29 457.8 304.9 315.7 Total assets 5,048.5 3,598.1 3,656.6 Liabilities and Equity Liabilities Insurance contracts 24 3,557.0 2,561.3 2,593.9 Borrowings 30 245.0 121.9 123.2 Current taxation — 12.6 10.6 Deferred taxation 23 43.8 10.5 17.1 Provisions 31 1.4 4.4 2.4 Derivative contracts 27 0.3 1.8 11.1 Insurance and other payables 32 222.0 175.4 187.3 Total liabilities 4,069.5 2,887.9 2,945.6 Equity Called up share capital 33 0.8 0.8 0.7 Share premium account 34 830.5 456.1 455.7 Own shares 35 (1.3) (1.2) (1.6) Reserves 36 0.1 0.1 (94.4) Retained earnings 141.7 248.7 349.5 Total equity attributable to owners of the parent 971.8 704.5 709.9 Non-controlling interests 7.2 5.7 1.1 Total equity 979.0 710.2 711.0 Total liabilities and equity 5,048.5 3,598.1 3,656.6

The accompanying notes are an integral part of this historical financial information.

206 Consolidated Statement of Cash Flows

Aggregated1 Year ended Year ended Year ended 31 December 31 December 31 December 2011 2012 2013 Note £m £m £m Cash generated from operations Cash flows provided by operating activities 38 (310.2) 67.1 55.9 Tax (paid)/received (3.7) 6.3 (8.5) Interest paid (19.4) (13.4) (13.7) Interest received 73.2 77.0 67.6 Dividends received 6.7 3.4 1.4 Cash flows from discontinued operations 23.5 50.9 — Net cash (outflows)/inflows from operating activities (229.9) 191.3 102.7 Cash flows from investing activities Purchase of property, plant and equipment 20 (1.5) (2.7) (1.4) Purchase of intangible assets 21 (2.5) (0.5) (4.3) Acquisitions 41 — — (1.2) Disposal of asset held for sale 15 — — 17.4 Movements in associated undertaking loan and preference share balances (0.3) (1.0) (0.1) Acquisitions of subsidiaries 16 (855.0) — — Cash flows from discontinued operations — 169.0 — Net cash (outflows)/inflows from investing activities (859.3) 164.8 10.4 Cash flows from financing activities Issue of shares 881.9 — — Non-controlling interest share issue 1.7 — — Share redemption (50.5) — (94.2) Repurchase of shares from non-controlling interests — — (0.6) Reimbursement of share premium account to shareholders 34 — (374.4) — Draw down/(repayment) on revolving credit facility 91.0 (128.0) — Acquisition of own shares for employee incentive schemes (1.3) — — Proceeds from exercised share options 2.3 — — Buy-out of non-controlling interests — — (5.1) Redemption/(acquisition) of own shares — 0.1 (0.4) Equity dividends paid to non-controlling interests (0.4) (2.2) — Net cash inflows/(outflows) from financing activities 924.7 (504.5) (100.3) Net (decrease)/increase in cash and cash equivalents (164.5) (148.4) 12.8 Cash and cash equivalents at beginning of the year 623.4 457.8 304.9 Effect of exchange rate fluctuations on cash and cash equivalents (1.1) (4.5) (2.0) Cash and cash equivalents at the end of the year 29 457.8 304.9 315.7

1 The aggregated cash flows for year ended 31 December 2011 have been prepared in accordance with Note 2 to the historical financial information.

The accompanying notes are an integral part of this historical financial information.

207 Consolidated Statement of Changes in Equity

Total equity Share attributable Non- Called up premium Retained to owners of controlling share capital account Own shares Reserve earnings the parent interests Total equity Note £m £m £m £m £m £m £m £m Brit Insurance Holdings B.V. At 1 January 2011 221.9 615.9 (9.8) — 143.6 971.6 — 971.6 Total comprehensive income for the period — — — — (43.5) (43.5) — (43.5) Exchange difference on retranslation of share capital 2.0 — — — (2.0) — — — Vesting of own shares — — 9.8 — (9.8) — — — Share based payments 40 — — — — 2.8 2.8 — 2.8 Settlement of share scheme awards 3.4 — — — (3.4) — — — Option exercise proceeds — — — — 2.3 2.3 — 2.3 At 8 March 2011 227.3 615.9 — — 90.0 933.2 — 933.2

Total equity Share attributable Non- Called up premium Retained to owners of controlling share capital account Own shares Reserve earnings the parent interests Total equity Note £m £m £m £m £m £m £m £m Achilles Holdings 1 S.à r.l. At 1 January 2011 — — — — — — — — Total comprehensive income for the year — — — — 141.6 141.6 0.7 142.3 Issues of new shares 33 0.9 880.9 — 0.1 — 881.9 — 881.9 Redemption of shares 34 (0.1) (50.4) — — — (50.5) — (50.5) Purchase of own shares — — (1.3) — — (1.3) — (1.3) Share based payments 40 — — — — 0.1 0.1 — 0.1 Non-controlling interests arising on acquisition — — — — — — 5.2 5.2 Non-controlling interests arising on share issue — — — — — — 1.7 1.7 Equity dividends paid to non- controlling interests — — — — — — (0.4) (0.4) At 31 December 2011 0.8 830.5 (1.3) 0.1 141.7 971.8 7.2 979.0

208 Total equity Share attributable Non- Called up premium Retained to owners of controlling share capital account Own shares Reserve earnings the parent interests Total equity Note £m £m £m £m £m £m £m £m At 1 January 2012 0.8 830.5 (1.3) 0.1 141.7 971.8 7.2 979.0 Total comprehensive income for the year — — — — 106.9 106.9 0.7 107.6 Reimbursement of share premium account to shareholders 34 — (374.4) — — — (374.4) — (374.4) Redemption of own shares 35 — — 0.1 — — 0.1 — 0.1 Share based payments 40 — — — — 0.1 0.1 — 0.1 Equity dividends paid to non- controlling interests — — — — — — (2.2) (2.2) At 31 December 2012 0.8 456.1 (1.2) 0.1 248.7 704.5 5.7 710.2

Total equity Share attributable Non- Called up premium Retained to owners of controlling share capital account Own shares Reserve earnings the parent interests Total equity Note £m £m £m £m £m £m £m £m At 1 January 2013 0.8 456.1 (1.2) 0.1 248.7 704.5 5.7 710.2 Total comprehensive income for the year — — — — 100.6 100.6 0.4 101.0 Redemption of shares 34 (0.1) (0.4) — (94.5) 0.8 (94.2) — (94.2) Purchase of own shares 35 — — (0.4) — — (0.4) — (0.4) Buy-out of non- controlling interests 39 — — — — (0.7) (0.7) (4.4) (5.1) Repurchase of shares from non- controlling interests — — — — — — (0.6) (0.6) Share-based payments 40 — — — — 0.1 0.1 — 0.1 At 31 December 2013 0.7 455.7 (1.6) (94.4) 349.5 709.9 1.1 711.0

The accompanying notes are an integral part of this historical financial information.

209 Nature and Purpose of Group Reserves Share premium account The share premium account represents the difference between the price at which shares are issued and their nominal value, less any distributions made from this account.

Own shares Own shares represents the cost of shares held in trust for settling share-based payments and shares held in treasury.

Retained earnings Retained earnings represents the cumulative comprehensive income retained by the Group after taxation and after any distributions made from this account.

For further information relating to reserves, refer to note 36.

210 Notes to the historical financial information 1 General information The historical financial information has been prepared in accordance with the accounting policies set out in Note 2. The Group is an international general insurance and reinsurance group specialising in commercial insurance.

2 Accounting policies Basis of preparation The basis of preparation and accounting policies used in preparing the aggregated financial information for the year ended 31 December 2011 and the consolidated financial information for years ended 31 December 2012 and 2013 are set out below. These accounting policies have been consistently applied in all material respects to all the periods presented.

On 9 March 2011, Achilles Holdings 1 S.à r.l acquired Brit Insurance Holdings B.V.. As such, prior to that date, Achilles Holdings 1 S.à r.l did not control Brit Insurance Holdings B.V. and is not permitted by IFRS10 to present consolidated financial information incorporating the results of the Brit Insurance Holdings B.V. group prior to that date. The financial information, which has been prepared specifically for the purpose of the prospectus, is prepared on the following basis: • For the year ended 31 December 2011, the aggregated income statement, aggregated statement of comprehensive income and aggregated statement of cash flows, aggregate the results and cash flows of the Brit Insurance Holdings B.V. group for the period from 1 January 2011 to 8 March 2011 and of the Achilles Holdings 1 S.à r.l. group for the period from 1 January 2011 to 31 December 2011. • The statement of changes in equity for the year ended 31 December 2011 separately reflects the changes in equity for the Brit Insurance Holdings B.V. group for the period from 1 January 2011 to 8 March 2011 and for the Achilles Holdings 1 S.à r.l. group for the period from 1 January 2011 to 31 December 2011. • The consolidated statement of financial position as at 31 December 2011, 2012 and 2013 and the consolidated income statements, consolidated statements of comprehensive income, consolidated statements of cash flows and consolidated statements of changes in equity for the years ended 31 December 2012 and 2013 are those of the Achilles Holdings 1 S.à r.l. group.

The aggregated financial information has been prepared in accordance with the requirements of Commission Regulation (EC) 809/2004 and the UK Listing Rules and in accordance with this basis of preparation. This basis of preparation describes how the financial information has been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU except as described below.

IFRSs as adopted by the EU do not provide for the preparation of aggregated financial information, and accordingly in preparing the aggregated income statement, statement of comprehensive income and statement of cash flows certain accounting conventions commonly used for the preparation of historical financial information for inclusion in investment circulars as described in the Annexure to SIR 2000 (Investment Reporting Standard applicable to public reporting engagements on historical financial reporting) issued by the UK Auditing Practices Board have been applied. The application of these conventions results in the following material departures from IFRSs as adopted by the EU: • As explained above, the income statement, statement of comprehensive income and statement of cash flows for the year ended 31 December 2011 are prepared on an aggregated basis and therefore do not comply with the requirements of IFRS10. • The aggregated financial information does not constitute a set of general purpose financial statements under paragraph 2 of IAS1 Presentation of Financial Statements and consequently there is no explicit and unreserved statement of compliance with IFRS as contemplated by paragraph 16 of IAS1.

211 • Earnings per share is not disclosed as required by IAS33 Earnings Per Share, as the historical financial information has been prepared on an aggregated basis, rather than a legal consolidation.

In other respects IFRSs as adopted by the EU have been applied.

IFRS comprises standards issued by the International Accounting Standards Board (IASB) and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) and as endorsed by the EU.

The following standards in issue but not yet effective have been applied in these financial statements:

Standard Effective IFRS 10 Consolidated Financial Statements Periods commencing on or after 1 January 2014 IFRS 10 Consolidated Financial Statements Periods commencing on or after 1 January (amendments) 2014 IFRS 11 Joint Arrangements Periods commencing on or after 1 January 2014 IFRS 12 Disclosure of Interests in Other entities Periods commencing on or after 1 January 2014 IFRS 12 Disclosure of Interests in Other entities Periods commencing on or after 1 January (amendments) 2014 IAS 27 (as revised in 2011) Separate Financial Periods commencing on or after 1 January Statements (amendments) 2014 IAS 32 (as revised in 2011) Financial Instruments: Periods commencing on or after 1 January presentation 2014 IAS 36 Impairment of assets (amendments) Periods commencing on or after 1 January 2014 IAS 39 Financial Instruments: recognition and Periods commencing on or after 1 January measurement (amendments) 2014 IFRIC 21 Levies Periods commencing on or after 1 January 2014

The financial information has been prepared on a going concern basis. In considering the appropriateness of this assumption, the board has reviewed the group’s projections for the next twelve months and beyond, including cash flow forecasts and regulatory capital surpluses. Consequently, the Board believes that the group has adequate resources to continue in operational existence for the foreseeable future.

The financial information has been presented in Sterling and rounded to the nearest hundred thousand.

The principal accounting policies adopted are set out below.

As at 31 December 2013, the following standard which has not been applied in these financial statements was in issue but not yet effective:

Standard Effective IFRS 9 Financial Instruments Periods commencing on or after 1 January 2018

In November 2009, as part of the phased project to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’, the IASB issued IFRS 9 ‘Financial Instruments’ which reconsiders the classification and measurement of financial assets. This standard has not yet been endorsed by the EU. The Group plans to assess the impact of this standard on its financial statements in conjunction with the revised standard on IFRS 4 ‘Insurance Contracts’ which is expected to be effective from 2018. The Directors anticipate that the adoption of the other standards in future periods will have no material impact on the financial statements of the Group.

212 Certain amounts recorded in the financial information include estimates and assumptions made by management, particularly about insurance liability reserves, investment valuations, interest rates and other factors. Actual results may differ from the estimates made. For further information on the use of estimates and judgements refer to Note 3.

Discontinued operations During 2012, the UK business segment was classified as a discontinued operation. The result of that segment is presented as a discontinued operation in the income statement. For further information refer to Note 18.

Basis of consolidation The aggregated financial statements for the year ended 31 December 2011 and consolidated accounts for the years ended 31 December 2012 and 2013 include the accounts of the Achilles Holdings 1 S.à r.l, its subsidiaries and the Group’s participation in Lloyd’s syndicates’ assets, liabilities, revenues and expenses. Subsidiaries are those entities that an investor controls, 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. The financial statements of subsidiaries are prepared up to 31 December each year. Consolidation adjustments are made to convert subsidiary accounts from local GAAP into IFRS so as to remove any dissimilar accounting policies that may exist. Subsidiaries are consolidated from the date control is transferred to the Group and cease to be consolidated from the date control is transferred from the Group. All inter-company balances, profits and transactions are eliminated.

Associated undertakings are those entities over which the Group has the power to exercise significant influence but not control. The Group’s investment in associated undertakings is accounted for under the equity method of accounting whereby associated undertakings are carried in the statement of financial position at cost plus post-acquisition changes in the Group’s share of net assets of the associate, less any impairment in value. The Group’s investment in associated undertakings also includes goodwill identified on acquisition less any accumulated impairment loss. The income statement reflects the Group’s share of the post-acquisition results of operations of the associated undertaking and the statement of comprehensive income reflects the Group’s share of the comprehensive income of the associated undertaking. The financial statements of associated undertakings are prepared up to 31 December each year.

Product classification Insurance contracts are those contracts that transfer significant insurance risk. Insurance risk is transferred when an insurer agrees to compensate a policyholder if a specified uncertain future event adversely affects the policyholder. The significance of insurance risk is dependent on both the probability of an insured event and the magnitude of its potential effect to the policyholder.

Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period.

Where the Group has issued financial guarantee contracts these have been regarded as insurance contracts and have been accounted for in accordance with IFRS 4, Insurance Contracts.

Other accounting policies (i) Insurance contracts a) Premiums Premiums written relate to business incepted during the year, together with any differences between booked premiums for prior years and those previously accrued, and include estimates of premiums due but not yet receivable or notified, less an allowance for cancellations. Premiums are accreted to the income statement on a pro rata basis over the term of the related policy, except for those contracts where the period of risk differs significantly from the contract period. In these circumstances, premiums are recognised over the period of risk in proportion to the amount of insurance protection provided. Reinstatement premiums are accreted to the income statement on a pro rata basis over the term of the original policy to which it relates.

213 Premiums are shown net of premium taxes and other levies on premiums. b) Profit commissions receivable Profit commission income arising from whole account quota share contracts is recognised when the economic benefits are highly probable. c) Deferred acquisition costs Commission and other acquisition costs incurred during the financial period that are related to securing new insurance contracts and/or renewing existing insurance contracts, but which relate to subsequent financial periods, are deferred to the extent that they are recoverable out of future revenue margins. Deferred acquisition costs are capitalised and amortised over the life of the policy to which they relate on a basis consistent with the earnings pattern of that policy. d) Claims incurred Claims incurred comprise claims and claims handling costs paid in the year and changes in the outstanding claims provisions, including provisions for claims incurred but not reported and related expenses, together with any adjustments to claims from prior years. Claims handling costs are mainly those external costs related to the negotiation and settlement of claims. e) Outstanding claims provisions Outstanding claims represent the estimated ultimate cost of settling all claims (including direct and indirect claims settlement costs) arising from events which have occurred up to the date of the statement of financial position, including provision for claims incurred but not reported, less any amounts paid in respect of those claims. The Group does not discount its liabilities for unpaid claims, the ultimate cost of which cannot be known with certainty at the date of the statement of financial position. f) Provision for unearned premiums The proportion of written premiums that relate to unexpired terms of policies in force at the date of the statement of financial position is deferred as a provision for unearned premiums, generally calculated on a time apportioned basis. The movement in the provision is taken to the income statement in order that revenue is recognised over the period of the risk. g) Liability adequacy tests At the date of each statement of financial position, liability adequacy tests are performed, to ensure the adequacy of unearned premiums net of related deferred acquisition costs, employing the current estimates of future cash flows under its insurance contracts. If as a result of these tests, the carrying amount of the Group’s insurance liabilities is found to be inadequate in comparison to the value of these future cash flows, the deficiency is charged to the income statement for the period by establishing an unexpired risk provision. The tests are performed at a whole account and portfolio level at the balance sheet date to ensure the estimated costs of future claims and related deferred acquisition costs do not exceed the unearned premium provision. h) Reinsurance The Group assumes and cedes reinsurance in the normal course of business. Premiums and claims on reinsurance assumed are recognised in the income statement along the same basis as direct business, taking into account the product classification. Reinsurance premiums ceded and reinsurance recoveries on claims incurred are included in the respective expense and income accounts. Reinsurance outwards premiums are earned according to the nature of the cover. ‘Losses occurring during’ policies are earned evenly over the policy period. ‘Risks attaching’ policies are expensed on the same basis as the inwards business being protected. Reinstatement premiums on both inwards and outwards business are accreted to the income statement on a pro rata basis over the term of the original policy to which they relate.

214 Reinsurance assets include amounts recoverable from reinsurance companies for paid and unpaid losses and loss adjustment expenses, and ceded unearned premiums. Amounts recoverable from reinsurers are calculated with reference to the claims liability associated with the reinsured risks. Revenues and expenses arising from reinsurance agreements are therefore recognised in accordance with the underlying risk of the business reinsured.

Gains or losses on buying reinsurance are recognised immediately in the income statement.

If a reinsurance asset is impaired, the Group reduces its carrying amount accordingly, and will immediately recognise the impairment loss in the income statement. A reinsurance asset will be deemed to be impaired if there is objective evidence, as a result of an event that occurred after initial recognition of the asset, that the Group may not receive all amounts due to it under the terms of the contract, and that the event has a reliably measurable impact on the amounts that the Group will receive from the reinsurer. i) Syndicate assets and liabilities For each managed syndicate on which the Group participates, the Group’s proportion of the syndicate’s assets and liabilities has been reflected in its consolidated statement of financial position. Syndicate assets are held subject to trust deeds for the benefit of the Syndicate’s insurance creditors.

(ii) Revenue recognition a) Fee and commission income Fee and commission income consists mainly of administration and broking fees charged to third parties. It is recognised in the accounting period in which the service is rendered by reference to completion of the specific transaction, assessed on the basis of the actual service provided as a proportion of the total services to be provided. b) Investment return Investment income comprises all interest and dividend income and realised and unrealised gains and losses less investment management fees. Interest income is recognised using the effective interest method. Dividend income is recognised when the shareholders’ right to receive the payment is established. Realised gains and losses on investments are calculated as the difference between net sales proceeds and cost and are recognised when the sale transaction occurs. Unrealised gains and losses on investments are calculated as the difference between the valuation at the date of the statement of financial position and the valuation at the last statement of financial position or purchase price, if acquired during the year. Unrealised investment gains and losses include adjustments in respect of unrealised gains and losses recorded in prior years which have been realised during the year and are reported as realised gains and losses in the current year’s income statement.

(iii) Recognition and derecognition of financial assets and financial liabilities Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the contract.

A financial asset is derecognised when either the contractual rights to the asset’s cash flows expire, or the asset is transferred and the transfer qualifies for derecognition under a combination of risks and rewards and control tests.

A financial liability is derecognised when it is extinguished which is when the obligation in the contract is discharged, cancelled or expired.

All ‘regular way purchases and sales’ of financial assets are recognised on the trade date, i.e. the date that the Group commits to purchase or sell the asset. Regular way purchases and sales are purchases and sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the marketplace.

215 (iv) Investments The Group has designated on initial recognition its financial assets held for investment purposes (investments) at fair value through profit or loss (FVTPL). This is in accordance with the Group’s documented investment strategy and consistent with investment risk being assessed on a portfolio basis. Information relating to investments is provided internally to the Group’s Directors and key managers on a fair value basis.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of financial assets and liabilities traded in active markets (which are the principal markets or the most advantageous markets that maximise the amount that would be received to sell the asset or minimises the amount that would be paid to transfer the liability) are based on quoted market bid and ask price for both financial assets and financial liabilities respectively.

The fair value of financial assets and liabilities that are not traded in an active market, including over- the-counter derivatives, is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Valuation techniques include the use of comparable recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and others commonly used by market participants and which make the maximum use of observable inputs.

Gains and losses on investments designated as FVTPL are recognised through the income statement. Interest income from investments in bonds and short-term investments is recognised at the effective interest rate. Interest receivable is shown separately in the statement of financial position based on the debt instruments’ stated rates of interest.

(v) Derivatives Derivative financial instruments include foreign exchange contracts, forward rate agreements, interest rate futures, currency and interest rate swaps and other financial instruments that derive their value mainly from underlying interest rates, foreign exchange rates, credit indices, commodity values or equity instruments. All derivatives are initially recognised in the statement of financial position at their fair value, which represents their cost. They are subsequently remeasured at their fair value, with the method of recognising movements in this value in the income statement. Fair values are obtained from quoted market prices or, if these are not available, by using valuation techniques such as discounted cash flow models or option pricing models.

All derivatives are carried as assets when the fair values are positive and as liabilities when the fair values are negative. Derivative contracts may be traded on an exchange or over-the-counter (OTC). Exchange-traded derivatives are standardised and include certain futures and option contracts. OTC derivative contracts are individually negotiated between contracting parties and include forwards and swaps.

Derivatives are subject to various risks including market, liquidity and credit risk, similar to those related to the underlying financial instruments. Many OTC transactions are contracted and documented under International Swaps and Derivatives Association (ISDA) master agreements or their equivalent, which are designed to provide legally enforceable set-off in the event of default, reducing the Group’s exposure to credit risk. The notional or contractual amounts associated with derivative financial instruments are not recorded as assets or liabilities on the statement of financial position as they do not represent the fair value of these transactions.

(vi) Intangible assets a) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets, liabilities and reliably measured contingent liabilities of the acquired subsidiary or associated undertaking at the date of the acquisition. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill on acquisition of associates is included in

216 investments in associates. Positive goodwill is treated as an indefinite life asset and is carried at cost less any accumulated impairment losses. Negative goodwill on acquisition is immediately credited to the income statement. b) Syndicate participation rights Lloyd’s syndicate participation rights that have been acquired on acquisition of a subsidiary are initially recognised at fair value. They are considered to have an indefinite useful life as they will provide benefits over an indefinite future period and are therefore not subject to an annual amortisation charge. The continuing value of the capacity is reviewed for impairment annually by reference to the expected future profit streams to be earned from the respective Syndicate, with any impairment in value being charged to the income statement. c) Computer software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring into use the specific software. Internal development costs that are directly associated with the production of identifiable and unique software products controlled by the Group are also capitalised where the cost can be measured reliably, the Group intends to and has adequate resources to complete development and the computer software will generate future economic benefits.

All computer software costs are finite life assets and amortised on a straight-line basis over their expected useful lives, not exceeding a period of five years. d) Trade names and distribution channels Trade names and distribution channels that have been acquired on acquisition of a subsidiary are initially recognised at fair value. They are deemed to be finite life assets and amortised on a straight- line basis over their expected useful economic lives, as follows:

Trade names 5 years Distribution channels 15 years e) Renewal rights Renewal rights are recognised at fair value upon acquisition and amortised straight line over their expected useful lives which varies between two and four years.

(vii) Property, plant and equipment Property, plant and equipment are carried at cost, less accumulated depreciation and any impairment in value. Depreciation is calculated so as to write-off the cost over their estimated useful economic lives on a straight-line basis having regard to the residual value of each asset, as follows:

Office refurbishment costs, office machinery, furniture and equipment 5 years Computers, servers, data storage devices, networks and other IT infrastructure 3 years

The assets’ residual values and useful lives are reviewed at the date of each statement of financial position and adjusted if appropriate.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Gains and losses on the disposal of property, plant and equipment are determined by comparing proceeds with the carrying amount of the asset and are included in the income statement. Costs for repairs and maintenance are expensed as incurred.

(viii) Impairment Goodwill is not subjected to amortisation but is tested annually for impairment as it is an asset with an indefinite useful life. Other assets, except for assets arising from insurance contracts, are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

217 If the carrying value of an asset is impaired, it is reduced to the recoverable amount by an immediate charge to the income statement. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Value in use is based on discounting cash flows at the Group’s weighted average cost of capital which is loaded where significant uncertainties exist. Assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

Impairment reviews are made by comparing carrying value to recoverable amount.

(ix) Cash and cash equivalents Cash and cash equivalents in the statement of financial position include cash in hand, deposits held at call with banks and other short-term highly liquid investments with a maturity of three months or less at the date of placement or acquisition, free of encumbrances.

(x) Income taxes Income tax comprises current and deferred tax. Income tax is recognised in the income statement except where it relates to an item which is recognised in equity. a) Current income tax Current income tax is the expected tax payable on the taxable profit for the period using tax rates (and laws) enacted or substantively enacted at the date of the statement of financial position and any adjustment to the tax payable in respect of previous periods. The Group calculates current income tax using the current income tax rate. b) Deferred income tax Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred income tax 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, it is not recognised. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the date of the statement of financial position and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax relating to items recognised in other comprehensive income is also recognised in other comprehensive income.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the Group controls the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

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.

Deferred tax assets and liabilities are not discounted.

(xi) Employee benefits The Group operates a defined contribution group personal pension plan and several other defined contribution schemes. It also makes payments into a number of personal money purchase pension plans. Contributions in respect of these schemes are charged to the income statement in the period to which they relate.

218 The Group also operates a defined benefit pension scheme. The asset recognised in the statement of financial position in respect of the defined benefit scheme is the fair value of the scheme assets less the present value of the defined benefit obligation which is determined by discounting the estimated future cash outflows. The discount rate is based on market yields at the reporting date of high-quality corporate bonds that have terms to maturity which approximate to those of the related pension liability.

Actuarial gains and losses are recognised immediately through other comprehensive income.

The Group determines the net interest expense/income on the net defined benefit liability/asset for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit liability/asset.

Past service costs arising in the period are recognised as an expense at the earlier of the date when the plan amendment or curtailment occurs and the date when the Group recognises related restructuring costs or termination benefits.

The Group recognises an accrual in respect of profit-sharing and bonus plans where a contractual obligation to employees exists or where there is a past practice that has created a constructive obligation.

(xii) Share-based payments Achilles Holdings 1 S.à r.l operates one equity-settled share-based payment plan, which falls within the scope of IFRS 2 ‘Share-based payments’. This scheme has made one grant of its own equity instruments. The fair value of the equity instrument granted is recognised as an expense and spread over the vesting period of the instrument. The total amount to be expensed is determined by reference to the fair value of the awards made at the grant date, excluding the impact of any non-market vesting conditions. At the date of each statement of financial position, the Group revises its estimate of the number of equity instruments that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment is made to equity over the remaining vesting period. The fair value of the awards and ultimate expense are not adjusted on a change in market vesting conditions during the vesting period.

(xiii) Own shares Where Achilles Holdings 1 S.à r.l purchases its own share capital, the consideration paid is shown as a deduction from total shareholders’ equity. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of own shares and any consideration paid or received is recognised directly in equity.

(xiv) Provisions Provisions are liabilities with uncertainties in the amount or timing of payments. Provisions are recognised if there is a present obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made at the date of the statement of financial position.

(xv) Leased assets Where the Group enters into an operating lease, the payments (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the lease term. An operating lease is one in which the risks and rewards remain with the lessor.

(xvi) Foreign currency translation The consolidated financial statements are presented in Sterling which is the functional currency. Items included in the financial statements of each of the Group’s entities are measured using the functional currency which is the primary economic environment in which the entity operates.

Foreign currency transactions are recorded in the functional currency for each entity using the exchange rates prevailing at the dates of the transactions or at the average rate for the period when this is a reasonable approximation. Substantially all of the Group’s operations have Sterling as their functional currency. Monetary assets and liabilities denominated in foreign currencies are translated at

219 period end exchange rates. The resulting exchange differences on translation are recorded in the income statement. Non-monetary assets and liabilities that are measured at historical cost denominated in a foreign currency are not retranslated.

(xvii) Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred and subsequently stated at amortised cost. Fair value is normally determined by reference to the fair value of the proceeds received. Any difference between the initial carrying amount and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest rate method.

(xviii) Segmental reporting An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity’s chief operating decision maker and for which discrete financial information is available.

(xix) Loans and receivables Loans and receivables are financial assets with fixed or determinable payments. Loans and receivables are measured at amortised cost, using the effective interest rate method.

(xx) Offsetting of financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position 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 assets and settle the liability simultaneously.

(xxi) Dividend and capital distributions Dividend and capital distributions to Achilles Holdings 1 S.à r.l’s shareholders are recognised in the Group’s financial statements in the period in which they are declared and appropriately approved.

(xxii) Collateral The Group receives collateral from certain reinsurers and pledges collateral where required for regulatory purposes. Collateral received in the form of cash is recognised as an asset on the statement of financial position with a corresponding liability for the repayment. Non-cash collateral received is not recognised on the statement of financial position. Collateral pledged is not derecognised from the statement of financial position unless the Group defaults on its obligations under the relevant agreement.

(xxiii) Business combinations Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of non-controlling Interest in the acquiree, plus if the business combination is achieved in stages, the fair value of the pre-existing equity Interest in the acquiree. For each business combination, the group has an option measure any non-controlling interests in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. Goodwill is recognised at the date of acquisition as the excess of the cost of the acquisition over the fair value of the identifiable assets acquired and liabilities assumed. Where the excess is negative a gain is recognised In the income statement at the date of acquisition. When the group acquires a business, it assesses, with the exception of insurance contracts and operating leases, the financial assets and liabilities assumed for appropriate classification and

220 designation in accordance with the contractual terms, economic circumstances and pertinent conditions at the acquisition date. All acquisition-related costs are expensed in the Income statement when incurred.

3 Critical accounting estimates and judgements in applying accounting policies The Group makes estimates and assumptions 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. i) The ultimate liability arising from claims made under insurance contracts The estimation of the ultimate liability arising from claims made under insurance contracts is the Group’s most critical accounting estimate. There are several sources of uncertainty that need to be considered in the estimate of the amounts that the Group will ultimately pay to settle such claims. Significant areas requiring estimation and judgement include: a) estimates of the amount of any liability in respect of claims notified but not settled and incurred but not reported claims provisions (IBNR) included within provisions for insurance and reinsurance contracts. b) the corresponding estimate of the amount of reinsurance recoveries which will become due as a result of these estimated claims. c) the recoverability of amounts due from reinsurers. d) estimates of the proportion of exposure which has expired in the period as represented by the earned proportion of premiums written.

The assumptions used and the manner in which these estimates and judgements are made are set out below, including the reserving process for the estimation of gross and net of reinsurance ultimate premiums and claims: a) Quarterly statistical data is produced in respect of gross and net premiums and claims (paid and incurred). b) Projections of ultimate premiums and claims are produced by the internal actuarial department using standard actuarial projection techniques (e.g. Basic Chain Ladder, Bornhuetter-Ferguson, Initial Expected Loss Ratio). The Basic Chain Ladder and Bornhuetter-Ferguson projection methods are based on the key assumption that historical development of premiums and claims is representative of future development. Claims inflation is taken into account in the Initial Expected Loss Ratio selections but is otherwise assumed to be in line with historical inflation trends, unless explicit adjustments for other drivers of inflation such as legislative developments are deemed appropriate. c) Some classes of business have characteristics which do not necessarily lend themselves easily to statistical estimation techniques e.g. due to low data volumes. In such cases, for example, a policy-by-policy review may also be carried out to supplement statistical estimates. d) In the event of catastrophe losses and prior to detailed claims information becoming available, claims provision estimates are compiled using a combination of output from specific recognised modelling software and reviews of material contracts exposed to the event in question. e) The initial ultimate selections, along with the underlying key assumptions and methodology, are discussed with class underwriters, divisional underwriting directors and the claims team at the ‘Pre-Committee’ meetings. The actuarial function then makes any necessary changes to the initial ultimates following these meetings. f) Following the completion of the ‘Pre-Committee’ meetings and any required adjustments to the initial selections, the ultimate selections are discussed with the Brit Global Specialty CEO, underwriting portfolio directors and senior management representatives from the claims and finance department at the ‘BGS Pre-Committee’ meetings. The purpose of these meetings is to highlight key issues and significant movements and to provide an opportunity for further debate and challenge. Adjustments for specific claims are made by management where deemed appropriate. The key output from the meetings is the Actuarial Estimate which is then presented to the Reserving Committee.

221 g) Following review of the Actuarial Estimate, the Reserving Committee recommends the Committee Estimate to be used in the financial statements. h) Claims provisions, and risk margin are subject to independent external actuarial review at least annually.

The estimates and judgements are applied in line with the overall reserving philosophy and seek to state the claims provisions on a best estimate, undiscounted basis. A management risk margin is also applied over and above the actuarial best estimate to allow for the inherent uncertainty within the best estimate reserve position.

In addition to claims provisions, the reserve for future loss adjustment expenses is also subject to estimation with consideration being given to the level of internal and third party loss adjusting expenses incurred annually. The estimated loss adjusting expenses are expressed as a percentage of gross claims reserves and the reasonableness of the estimate is assessed through benchmarking. Further judgements are made as to the recoverability of amounts due from reinsurers. Provisions for bad debts are made specifically, based on the solvency of reinsurers, internal and external ratings, payment experience with them and any disputes of which the Group is aware.

The carrying value at the date of the statement of financial position of gross claims reported and loss adjustment expenses and claims incurred but not reported were £2,097.7m (2012: £2,099.0m) (2011: £2,922.7m) as set out in Note 24 to the accounts. The amount of reinsurance recoveries estimated at that date is £374.0m (2012: £361.5m) (2011: £503.9m). ii) Pipeline premiums Written premiums include pipeline premiums of £234.3m (2012: £220.5m) (2011: £323.5m). These are an estimate of the insurance contracts which have been entered into, but not processed by the balance sheet date. iii) Intangible assets Intangible assets with indefinite useful lives are tested for impairment on an annual basis in accordance with International Accounting Standard 36 ‘Impairment of Assets’. Determining the assumptions used in the test requires estimation. The indefinite useful life intangible assets of the Group consist of syndicate participation rights and their carrying amount at the date of the statement of financial position was £45.4m (2012: £45.4m) (2011: £45.4m). For further information, refer to Note 21. iv) Financial investments Financial investments are carried in the statement of financial position at fair value. The carrying amount of financial investments at the date of the statement of financial position was £2,275.9m (2012: £2,312.1m) (2011: £3,206.2m). Determining the fair value of certain investments requires estimation.

The Group value investments using designated methodologies, estimation and assumptions. These securities, which are reported at fair value on the consolidated statement of financial position, represent the majority of the invested assets. The measurement basis for assets carried at fair value is categorised into a ‘fair value hierarchy’ in accordance with the valuation inputs and consistent with IFRS13 — ‘Fair Value Measurement’. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1); the middle priority to fair values other than quoted prices based on observable market information (Level 2); and the lowest priority to unobservable inputs that reflect the assumptions that we consider market participants would normally use (Level 3). At 31 December 2013, financial investments amounting to £331.7m (2012: £69.0m) (2011: £115.9m) were classified as Level 3.

The classification within the fair value hierarchy is based on the lowest level of significant input to its valuation. Any change to investment valuations may affect our results of operations and reported financial condition. For further information, refer to Note 26.

222 4 Risk management policies Risk management overview The Group’s activities expose the business to a number of key risks which have the potential to affect its ability to achieve its business objectives. The following describes the Group’s financial and insurance risk management from a quantitative and qualitative perspective.

The risks arising from any of the business activities are managed in line with the Group Risk Management Framework (RMF) in order to protect policyholders and maximise shareholder value. This established framework addresses all the risks surrounding the organisation’s activities past, present and, in particular, future. It sets out risk management standards, risk appetite and provides a consistent methodology and structure to the way in which the risks are identified, measured and managed.

The key elements of the RMF are set out below: • Identification: Risk events, risks and relevant controls are identified, classified and recorded in the risk register. This is a continuous process which considers any emerging and existing risks. • Measurement: Risks are assessed and quantified and controls are evaluated. This is done through a combination of stochastic modelling techniques, stress and scenario analysis, reverse stress testing and qualitative assessment using relevant internal and external data. • Management: The information resulting from risk identification and measurement is used to improve how the business is managed. These elements of the framework are supported by appropriate governance, reporting management information, policies, culture, and systems.

The framework applies across all risk categories and is managed by the Chief Risk Officer (CRO). The ownership of many of the day-to-day activities is delegated to the relevant risk committee and members of the risk management team. The key categories of risk include: insurance, market, credit, liquidity and operational risks defined in line with IFRS requirements.

The RMF operates at the Group and individual entity level. The key governance bodies in the risk management process are set out below: • the Board, which is responsible for setting business and risk strategy and ensuring the principal risks and uncertainties facing the Group are managed; • the committees of the Board, including the Risk Oversight Committee and the Audit Committee; • Executive Management which is responsible for the management of the overall risk profile within the agreed limits; • the individual risk committees, which reflect the risk categories and are responsible for the management and monitoring of each risk against appetite. These committees include the Underwriting Committee, the Reserving Committee, the Investment Committee and the Credit Committee. An Operational Risk Working Group exists to support these risk committees and Executive Management in overseeing operational risk relevant to each of these areas.

The key risk exposures for the individual categories and how these are managed are discussed in the sections below.

Insurance risk This is the risk of a financial loss due to actual experience being different than that assumed when an insurance product was designed and priced. This is the principal risk the Group is exposed to through the underwriting process which arises from the inherent uncertainty in the occurrence, timing and amount of the insurance liabilities. This risk arises due to the possibility insurance contracts are under- priced, under-reserved or subject to catastrophe claims.

The areas of insurance risk discussed below include: underwriting (including aggregate exposure management), reinsurance and reserving.

223 (i) Underwriting Risk This is the risk that the insurance premiums will not be sufficient to cover the future losses and associated expenses. It arises from the fluctuations in the frequency and severity of financial losses incurred through the underwriting process by the Group as a result of unpredictable events.

The Underwriting Committee chaired by the CEO of the Underwriting function, Brit Global Speciality (BGS), is responsible for the management of underwriting risk in line with the RMF. This committee meets monthly to drive the underwriting strategy and to monitor performance against the plans. The risks are managed by the committee in line with the Underwriting Risk policy and within the risk tolerance set by the Board. These are monitored quarterly by the Underwriting Committee and any breaches are reported to Executive Management, the Risk Oversight Committee and the Board.

The Group carries out a detailed annual business planning process for each of its underwriting units. The resulting plans set out premium, territorial and aggregate limits for all classes of business and represent a key tool in managing concentration risk. Performance against the plans is monitored on a regular basis by the Underwriting Committee as well as by the Boards of the regulated entities.

The Group has developed underwriting guidelines, limits of authority and business plans which are binding upon all staff authorised to underwrite. These are detailed and specific to underwriters and classes of business as well as establishing more general principles and conditions. Gross and net line size limits are in place for each class of business with additional restrictions in place on catastrophe exposed business.

A proportion of the Group’s insurance risks are written by third parties under delegated underwriting authorities. The third parties are closely vetted in advance and are subject to tight reporting requirements. In addition the performance of these contracts is closely monitored by underwriters and regular audits are carried out.

The technical pricing framework ensures that the pricing process in the Group is appropriate. It ensures pricing methodologies are demonstrable and transparent and that technical (or benchmark) prices are assessed for each risk. The underwriting and actuarial functions work together to maintain the pricing models and assess the difference between technical price and actual price. The framework also ensures that sufficient data is recorded and checked by underwriters to enable the Group to maintain an effective rate monitoring process.

Compliance is checked through both a peer review process and, periodically, by the Group’s internal audit department which is entirely independent of the underwriting units.

In order to limit risk, the number of reinstatements per policy is limited, deductibles are imposed, policy exclusions are applied and whenever allowed by statute, maximum indemnity limits are put in place per insured event.

(ii) Underwriting Risk Profile The underwriting strategy includes a diverse and balanced portfolio of risks. The core insurance portfolio of Property, Energy and Casualty covers a variety of largely uncorrelated events and also provides some protection against the underwriting cycle as different classes are at different points in the underwriting cycle. The underwriting portfolio is managed to target top quartile underwriting performance and the mix of business is continually adjusted based on the current environment (including the current pricing strength of each class). This assessment is conducted as part of the business planning and strategy process which operates annually and uses inputs from the technical pricing framework. The business plan is approved by the Board and is monitored monthly.

The Group underwrites a well diversified portfolio across multiple regions and classes.

224 Geographical Concentration of premium The concentration of insurance premium before and after reinsurance by the location of the underlying risk is summarised below: Region Gross premiums written Net premiums written £m £m 2011 United States 346.6 284.5 United Kingdom 140.2 97.2 Europe (exc. UK) 55.7 40.7 Other (inc. Worldwide) 637.4 552.9 Total 1,179.9 975.3

2012 United States 364.7 296.4 United Kingdom 129.3 92.1 Europe (exc. UK) 50.6 35.3 Other (inc. Worldwide) 603.3 513.2 Total 1,147.9 937.0

2013 United States 421.5 336.6 United Kingdom 93.0 68.3 Europe (exc. UK) 61.8 41.8 Other (inc. Worldwide) 609.4 509.6 Total 1,185.7 956.3

Portfolio Mix The Syndicate underwrites business in a wide variety of business lines. The breakdown of premium before reinsurance by principal lines of business is summarised below: 2011 Gross 2012 Gross 2013 Gross Principal lines of Premiums written Premiums written premiums written Category business £m % £m % £m % Short tail direct Property, Marine, insurance Energy, Accident & Health, BGSU, Terrorism, Political and Aerospace 524.9 45 544.7 48 599.2 50 Long tail direct Professional Lines, insurance Specialty Lines, Specialist Liability 299.2 25 302.9 26 303.9 26 Short tail reinsurance Property Treaty 181.7 15 157.6 14 136.9 12 Long tail reinsurance Casualty Treaty 141.8 12 142.4 12 141.4 12 Other Other underwriting and other corporate 32.3 3 0.3 0 4.3 0 Total 1,179.9 100 1,147.9 100 1,185.7 100

Premium amounts shown reflect premium written in the year ended 31 December 2013 and 31 December 2012 respectively. The Group underwrites a business mix of both insurance and reinsurance, long and short tailed business across a number of geographic areas which results in a diversification of the Group’s portfolio. The business mix is monitored on an ongoing basis with particular focus on the short tail vs. long tail split and the proportion of delegated underwriting business. Long tail business makes up 38% of the portfolio as at 31 December 2013 and delegated underwriting represents approximately 36%. Long tail business was 38% of the portfolio as at 31 December 2012 (2011: 37%) and delegated underwriting was approximately 35% (2011: 40%).

225 Aggregate exposure management The Group is exposed to the potential of large claims from natural catastrophe events. The Group closely monitors aggregation of exposure to natural catastrophe events against agreed risk appetites using stochastic catastrophe modelling tools, along with knowledge of the business, historical loss information, and geographical accumulations. Analysis and monitoring also measures the effectiveness of the Group’s reinsurance programmes. Stress and scenario tests are also run, such as Lloyd’s and internally developed Realistic Disaster Scenarios (RDS).

Below are the key RDS losses to the Group for all classes combined (in GBP millions) (unaudited):

Lloyd’s Prescribed RDS Event Estimated Industry Modelled Group Modelled Group Modelled Group Loss Loss 2011 (i) Loss 2012 (ii) Loss 2013 (iii) Gross Net Gross Net Gross Net Gulf of Mexico Windstorm 67,000 267 146 281 120 328 140 Florida Miami Windstorm 75,000 197 96 198 97 246 78 US North East Windstorm 47,000 233 132 254 110 286 125 San Francisco Earthquake 47,000 280 111 277 121 257 83 Japan Earthquake 29,000 107 55 99 53 100 55 Japan Windstorm 8,000 78 39 62 41 51 36 European Windstorm 19,000 291 94 164 88 159 85 (i) As at 01/01/2012 (ii) As at 01/01/2013 (iii) As at 01/10/2013

Actual results may differ materially from the losses above given the significant uncertainties with respect to these estimates. Moreover, the portfolio of insured risks changes dynamically over time. There could also be unmodelled losses which result in actual losses exceeding these figures.

Overall, the Group has a catastrophe risk tolerance for major catastrophe events (such as a Florida Miami Windstorm) of 30% of Brit Insurance Holdings B.V. group level net tangible assets. This equates to a maximum acceptable loss (after all reinsurance) of £195m as at 31 December 2013.

Sensitivity to changes in net claims ratio The Group profit on ordinary activities before tax is sensitive to an independent 1% change in the net claims ratio (excluding the effect of foreign exchange on non-monetary items) for each class of business as follows:

Category Movement in profit Movement in profit Movement in profit Year ended Year ended Year ended 31 December 2011 31 December 2012 31 December 2013 £m % £m % £m % Short tail direct insurance 4.8 48 4.6 49 5.0 52 Long tail direct insurance 2.4 24 2.3 24 2.1 22 Short tail Reinsurance 1.4 14 1.1 11 0.9 10 Long tail Reinsurance 1.3 13 1.3 14 1.4 15 Other 0.1 1 0.1 2 0.1 1 Total 10.0 100 9.4 100 9.5 100

Subject to taxation, the impact on shareholders’ equity would be the same as that on profit following a change in the net claims ratio.

(iii) Reinsurance The Group purchases reinsurance to manage exposure to individual risks and aggregation of risks arising from individual large claims and catastrophe events to ensure that it remains within the risk tolerance levels agreed by the Board. The types of reinsurance purchased include: a) Facultative reinsurance, used to reduce risk relating to an individual inwards contract or contracts. Underwriters use facultative reinsurance to manage their net line size on individual risks to within tolerance;

226 b) Risk excess of loss reinsurance used to protect a range of individual inwards contracts which could give rise to individual large claims. During the business planning exercise, the optimal net retention per risk is assessed for each class of business given the Group’s risk appetite. If required, risk excess of loss reinsurance is then purchased for the class of business to manage the gross retention down to the agreed net retention for an individual loss; c) Catastrophe excess of loss reinsurance is used to provide protection from the aggregation of claims arising from catastrophe events. Given the large catastrophe exposures the Group is exposed, catastrophe excess of loss reinsurance is a key tool in managing this risk. The Group’s catastrophe risk programme ensures the Group remains within net catastrophe risk tolerance and ensures the Group is capital efficiency; and d) Pro rata reinsurance used to provide protection against claims arising either from individual losses, large claims or aggregations. Quota share reinsurance is used to ensure that aggregate exposure to a particular class can be managed throughout the cycle allowing the net position to be managed based on market conditions while maintaining the gross inwards book.

The counterparty risk in relation to reinsurance purchased is managed by the Credit Committee. This is further discussed in the Credit risk section below.

(iv) Reserving Risk Management Process This is the risk that the actual cost of losses for obligations incurred before the valuation date will differ from expectations or assumptions set as part of the reserving process. This is a key risk for the Group as the reserves for unpaid losses represent the largest component of the Group’s liabilities and are inherently uncertain. The Brit Syndicates Limited Reserving Committee chaired by the Group CFO is responsible for the management of reserving risk for the Syndicate. The Brit Insurance (Gibraltar) PCC Limited (BIG) Management Committee chaired by the Head of Office performs a similar function for BIG.

A number of controls are used to mitigate reserving risk. The Group’s claims policy sets out the approach to management of claims risk. In particular this deals with notification, validation of policy terms and conditions, investigations and use of adjusters, assessors & other experts, setting of provisions for case estimates, negotiation and settlement of claims, claim authorities, the peer review process, file management, review and external audits, suspicious and disputed claims and ex-gratia payments. This process is managed by the Group Head of Claims.

The Group has an experienced team of actuaries who perform the quarterly reserving analysis using a wide range of actuarial techniques to estimate the claims liabilities in line with the reserving policy. This team is managed by the Group Chief Actuary. They work closely together with other business functions such as underwriting, claims management and exposure management to ensure that they have a full understanding of emerging claims experience across the Group.

The Group’s reserving policy sets out the approach to estimating claims provisions and is designed to produce accurate and reliable estimates that are consistent over time and across classes of business. The actuarial best estimate set out in the policy is subject to Reserving Committee and BIG Management Committee sign-off as part of the formal governance arrangements for the Group. The estimate agreed by the committees is used as a basis for the Group financial statements. A management risk margin is also applied over and above the actuarial best estimate to allow for the inherent uncertainty within the best estimate reserve position and wider inherent uncertainty across the economic and insurance environment. This margin increases the reserves reflected in the Group financial statements above the mean expectation. Finally, the reserves in the financial statements are presented to the Audit Committee for recommendation to the Board who are responsible for the final sign-off.

Further details on the reserve profile and claims development tables can be found in Note 24.

Market risk This is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk. Credit risk on financial investments and cash is covered in the credit risk section.

227 i. Market Risk Management Process Investment governance The Board identified Investments as a key strategic priority which has resulted in investment management receiving increased focus, as well as bringing about a rebalancing of the portfolio.

The investment management framework and approach is agreed by the Board and captured in the Strategic Asset Allocation (SAA). In the SAA framework, management has sought to instigate a governance framework for the implementation of an active, return optimising approach within agreed tolerances.

The Board set out a revised Investment Risk Framework, consistent with Solvency II principles, to define its tolerance to investment risk explicitly in key areas, and has implemented enhanced monitoring of key risk types through a regular Investment Risk MI pack.

Management provide monthly information to the Investment Committee covering portfolio composition, performance, forecasting and the results of stress and scenario tests. Any operational issues and breaches to the Risk Appetite Framework are reported to the relevant Risk Oversight Committees and the Board quarterly.

Risk tolerance Investment risk tolerances are set by the Boards, defining the Group’s appetite to investments earnings risks, solvency risk due purely to investment, currency risk and liquidity risk. Risk metrics are monitored regularly to ensure that tolerance is within the Board-approved levels, and limits continue to remain appropriate.

Assets are matched to the currency and duration profile of the liabilities, limiting the impact of foreign exchange and interest rate risk on the solvency position.

The investment guidelines issued to fund managers stipulate exposure limits for counterparties, credit quality and subordination levels to help control credit risk. Tactical ranges around the asset allocation provide flexibility to optimise the balance between risk and return. ii. Market Risk Profile Interest Rate risk Interest rate risk is the risk that the fair value and/or future cash flows of a financial instrument will fluctuate because of changes in interest rates. The Group is exposed to interest rate risk through its investment portfolio, borrowings and cash and cash equivalents. The sensitivity of the price of these financial exposures is indicated by their respective durations. This is defined as the modified duration which is the change in the price of the security subject to a 100 basis points shift in interest rates. Therefore, the greater the duration of a security, the greater the possible price volatility.

The banded durations of the Group’s financial investments and cash and cash equivalents sensitive to interest-rate risk are shown in the table below:

Duration 1 year or 1to3 3to5 Over 5 less years years years Equities Total £m As at 31 December 2011 Cash and cash equivalents 457.8 — — — — 457.8 Financial investments 541.7 1,905.1 284.9 352.6 121.9 3,206.2 Total 999.5 1,905.1 284.9 352.6 121.9 3,664.0 As at 31 December 2012 Cash and cash equivalents 304.9 — — — — 304.9 Financial investments 194.1 1,335.7 265.5 513.2 3.6 2,312.1 Total 499.0 1,335.7 265.5 513.2 3.6 2,617.0 As at 31 December 2013 Cash and cash equivalents 315.7 — — — — 315.7 Financial investments 1,055.7 415.3 251.5 505.8 47.6 2,275.9 Total 1,371.4 415.3 251.5 505.8 47.6 2,591.6

228 The Group takes into account the duration of its required capital, targeting an investment portfolio duration that, under a variation in interest rates, preserves the solvency ratio of the Group. The duration of the investment portfolio is then set within an allowable range relative to the targeted duration. This is achieved by the use of interest rate derivatives.

As the liabilities are measured on an undiscounted basis, the reported liabilities are not sensitive to changes in interest rates. This leads to the conflict between targeting a longer duration to protect the solvency position against movements in interest rates, whilst a shorter duration for the assets will reduce the possible volatility around the income statement.

Sensitivity to changes in investment yields The sensitivity of the profit to the changes in the investment yields is set out in the table below. The analysis is based on the information as at 31 December 2013.

(£m) Impact on profit before tax 2011 2012 2013 Increase 25 basis points (15.0) (13.9) (14.4) 50 basis points (29.9) (27.8) (28.7) 100 basis points (59.9) (55.6) (57.5) Decrease 25 basis points 15.0 13.9 14.4 50 basis points 29.9 27.8 28.7 100 basis points 59.9 55.6 57.5

Subject to taxation, the effect on shareholders’ equity would be the same as the effect on profit.

Currency risk Currency risk is the risk that the fair value of assets and liabilities or future cash flows will fluctuate as a result of movements in the rates of foreign exchange. As the Group reporting currency is Sterling it is exposed to currency risk because it underwrites insurance business internationally, dealing in five main currencies: US dollars, Sterling, Canadian dollars, Euros and Australian dollars. All other currencies are included as Sterling.

The split of assets and liabilities for each of the Group’s main currencies, converted to GBP, is set out in the tables below:

(Converted £m) UK £ US $ CAD $ EUR € AUD $ Total As at 31 December 2011 Total assets 2,448.7 1,812.2 223.5 457.5 106.6 5,048.5 Total liabilities 1,773.7 1,596.0 149.5 443.7 106.6 4,069.5 Net assets 675.0 216.2 74.0 13.8 — 979.0 As at 31 December 2012 Total assets 1,463.9 1,514.4 237.0 272.6 110.2 3,598.1 Total liabilities 800.6 1,542.1 150.8 284.2 110.2 2,887.9 Net assets 663.3 (27.7) 86.2 (11.6) — 710.2 As at 31 December 2013 Total assets 813.3 2,013.7 294.7 378.1 156.8 3,656.6 Total liabilities 786.7 1,615.0 163.8 288.2 91.9 2,945.6 Net assets 26.6 398.7 130.9 89.9 64.9 711.0

The non-Sterling denominated net assets of the Group may lead to a reported loss (depending on the mix relative to the liabilities), should Sterling strengthen against these currencies. Conversely, reported gains may arise should Sterling weaken.

The Group matches its currency position so holds net assets across a number of currencies. The Group takes into consideration the underlying currency of its required capital and invests its assets proportionately across these currencies so as to protect the solvency of the Group, and hence capital available for distribution to shareholders, against variation in foreign exchange rates. As a result, the Group holds a significant proportion of its assets in foreign currency investments.

229 In part, foreign currency forwards contracts are used to achieve the desired exposure to each currency. From time to time the Group may also choose to utilise options on foreign currency derivatives to mitigate the risk of reported losses due to changes in foreign exchange rates. The degree to which options are used is dependent on the prevailing cost versus the perceived benefit to shareholder value from reducing the chance of a reported loss due to changes in foreign currency exchange rates. The details of all foreign currency derivatives contracts entered into are given in Note 27.

As a result of the accounting treatment for non-monetary items, the Group may also experience volatility in its income statement due to fluctuations in exchange rates. In accordance with IFRS, non- monetary items are recorded at original transaction rates and are not re-valued at the reporting date. These items include unearned premiums, deferred acquisition costs and reinsurers’ share of unearned premiums. Consequently, a mismatch arises in the income statement between the amount of premium recognised at historical transaction rates, and the related claims that are valued using foreign exchange rates in force at the reporting date. The Group considers this to be a timing issue which can cause volatility in the income statement.

Sensitivity to changes in foreign exchange rates The table below gives an indication of the impact on profit of a percentage movement in the relative strength of Sterling against the value of the US dollar, Canadian dollar, Australian dollar and Euro simultaneously. The analysis is based on the information as at 31 December 2013.

(£m) Impact on profit before tax 2011 2012 2013 Sterling weakens 10% against other currencies 56.1 21.4 72.1 20% against other currencies 112.2 42.8 144.2 Sterling strengthens 10% against other currencies (56.1) (21.4) (72.1) 20% against other currencies (112.2) (42.8) (144.2)

Subject to taxation, the effect on shareholders’ equity would be the same as the effect on profit.

Other price risk This is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market.

Financial assets and derivatives that are recognised at their fair value are susceptible to losses due to adverse changes in their prices. This is known as price risk.

Listed investments are recognised in the financial statements at quoted bid price. If the market for the investment is not considered to be active, then the Group establishes fair valuation techniques. This includes using recent arm’s length transactions, reference to current fair value of other similar investments, discounted cash flow models and other valuation techniques that are commonly used by market participants.

The prices of fixed and floating rate income securities are predominantly impacted by currency, interest rate and credit risks. Credit risk on investments is discussed in the following section of this note.

The Group invests a proportion of its assets in equities and hedge funds. These investments are limited within the investment guidelines to a diverse, small and manageable part of the Group investment portfolio.

230 Sensitivity to changes in other price risk The sensitivity of the profit to the changes in the prices of equity and hedge fund investments is set out in the table below. The analysis is based on the information as at 31 December 2013.

(£m) Impact on profit before tax 2011 2012 2013 Increase in fair value 10% 18.9 16.7 28.0 20% 37.8 33.4 56.1 30% 56.6 50.2 84.1 Decrease in fair value 10% (18.9) (16.7) (28.0) 20% (37.8) (33.4) (56.1) 30% (56.6) (50.2) (84.1)

Subject to taxation, the effect on shareholders’ equity would be the same as the effect on profit.

Credit risk This is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The main sources of credit risk relate to: • Reinsurers: through the failure to pay valid claims against a reinsurance contract held by the Group. • Brokers and coverholders: where counterparties fail to pass on premiums or claims collected or paid on behalf of the Group. • Investments, through the issuer default of all or part of the value of a financial instrument or the market value of that instrument. • Cash and cash equivalents: through the default of the banks holding the cash and cash equivalents.

The insurance and non-insurance related counterparty credit risks are managed separately by the Group. i. Investments Credit Risk Investment Credit Risk Management Process The Investment Committee chaired by the Group CEO is responsible for the management of investment credit risk. The Investment Risk Framework and Investment policy set out clear limits and controls around the level of investment credit risk. The Group has established concentration guidelines that restrict the exposure to any individual counterparty. The investment guidelines further limit the type, credit quality and maturity profile of both the Group’s cash and investments. In addition, the investment risk framework further limits potential exposure to credit risk through aggregate investment risk limits.

231 Investment Credit Risk Profile The summary of the investment credit risk exposures for the Group is set out in the tables below: BB and Not £m Govn AAA AA A P-1 P-2 BBB below Equities Rated Total As at 31 December 2011 Financial Investments 1,710.1 388.1 186.4 467.0 — — 136.1 19.2 121.9 177.4 3,206.2 Derivative contracts ————————— 0.3 0.3 Cash and cash equivalent — 331.8 36.6 32.5 42.0 — 0.2 14.7 — — 457.8 Total 1,710.1 719.9 223.0 499.5 42.0 — 136.3 33.9 121.9 177.7 3,664.3

As at 31 December 2012 Financial Investments 1,103.0 275.4 192.5 468.4 11.6 — 63.0 28.7 3.6 165.9 2,312.1 Derivative contracts ————————— 1.1 1.1 Cash and cash equivalent — 108.0 121.6 28.7 8.0 38.6 — — — — 304.9 Total 1,103.0 383.4 314.1 497.1 19.6 38.6 63.0 28.7 3.6 167.0 2,618.1

As at 31 December 2013 Financial Investments 381.7 34.3 132.5 967.6 — — 57.5 382.5 47.6 272.2 2,275.9 Derivative contracts — — — — — — — — — 12.7 12.7 Cash and cash equivalent — 243.5 — 4.0 37.1 31.1 — — — — 315.7 Total 381.7 277.8 132.5 971.6 37.1 31.1 57.5 382.5 47.6 284.9 2,604.3

The table below sets out a breakdown of the financial investments classed as government securities: 31 December 2011 31 December 2012 31 December 2013 £m £m £m Canada 121.7 126.8 163.9 USA 580.3 319.8 147.8 Australia — — 62.1 South Africa — — 4.6 Germany 110.7 135.3 1.3 Norway 16.5 10.6 0.9 New Zealand — — 0.8 United Kingdom 699.2 484.8 — Netherlands 54.2 16.0 — France 69.8 1.4 — Spain 3.6 — — Austria 29.1 4.1 — Finland 2.7 2.6 — Other 22.3 1.6 0.3 Total 1,710.1 1,103.0 381.7 ii. Insurance Credit Risk Insurance Credit Risk Management Process The Credit Committee chaired by the Group CFO is responsible for the management of all insurance related credit risks in line with the Risk Management Framework. The committee meets monthly and reports to the Executive Management and the Board to whom any issues are escalated. Some responsibilities for reinsurance related credit decisions have been delegated to the Reinsurance Security Committee chaired by the Head of Group Financial Performance.

232 Credit risk from reinsurers is controlled through only transacting with reinsurers that meet certain minimum requirements and that have been approved by the Reinsurance Security Committee. The committee reviews the list of approved reinsurers and their maximum exposure limits at least annually and following any significant changes in a reinsurer’s position including changes in credit rating. This committee also monitors exposure against the assigned reinsurer limits and may request collateral where any limits are breached.

Reinsurance aged debt is monitored and managed within stated appetite limits by the Credit Committee. Any breaches are reported to the Risk Oversight Committees and the Board at least quarterly. A bad debt provision is held against all non-rated reinsurers or any reinsurer where there it is deemed there is a specific risk of non-payment.

Insurance Credit Risk Profile The summary of the insurance credit risk exposures for the Group is set out in the tables below:

(£m) AAA AA A BBB and below Collateral Not Rated Total As at 31 December 2011 Reinsurance assets 0.6 189.2 212.8 15.6 85.7 — 503.9 Insurance receivables — — — — — 479.7 479.7 Total 0.6 189.2 212.8 15.6 85.7 479.7 983.6

As at 31 December 2012 Reinsurance assets 0.5 184.6 129.0 — 46.7 0.7 361.5 Insurance receivables — — — — — 320.2 320.2 Total 0.5 184.6 129.0 — 46.7 320.9 681.7

As at 31 December 2013 Reinsurance assets — 174.5 134.9 3.5 36.4 24.7 374.0 Insurance receivables — — — — 16.5 335.3 351.8 Total — 174.5 134.9 3.5 52.9 360.0 725.8

Insurance credit risk arises primarily from reinsurers (whereby reinsurers fail to pay recoveries due to the Group in a timely manner) and brokers and coverholders (whereby intermediaries fail to pass on premiums due to the Group in a timely manner).

As at 31 December 2013, collateral of £64.1m (2012: £72.4m) (2011: £37.9m) is held in third party trust accounts or as a Letter of credit (LOC) to guarantee Syndicate 2987 against reinsurance counterparties and is available for immediate drawdown in the event of a default. Of this amount, £36.4m (2012: £46.7m) (2011: £85.7m) had been drawn against reinsurance assets as at 31 December 2013.

Included within debtors are £16.5m (2012: £nil) (2011: £nil) of funds provided to RiverStone Insurance Limited as collateral for standby letters of credit.

The following table shows movements in impairment provisions during the year.

Brit Insurance Holdings B.V.

Impairment Provision Impairment Provision against Reinsurance against Insurance (£m) Assets Receivables 2011 Opening Provision (1 January) 10.8 9.9 (Release)/Strengthening for the period 0.5 0.7 Net Foreign Exchange Differences (0.2) (0.2) Closing Provision (8 March) 11.1 10.4

233 Achilles Holdings 1 S.à r.l.

Impairment Provision Impairment Provision against Reinsurance against Insurance (£m) Assets Receivables 2011 On acquisition of Brit Insurance Holdings B.V. 11.1 10.4 (Release)/Strengthening for the Year (7.3) 1.2 Net Foreign Exchange Differences — 0.3 Closing Provision (31 December) 3.8 11.9

2012 Opening Provision (1 January) 3.8 11.9 (Release)/Strengthening for the Year (3.2) (0.1) Disposal of Subsidiary (0.1) (5.1) Net Foreign Exchange Differences (0.1) (0.3) Closing Provision (31 December) 0.4 6.4

2013 Opening Provision (1 January) 0.4 6.4 (Release)/Strengthening for the Year 0.4 0.2 Net Foreign Exchange Differences — (0.1) Closing Provision (31 December) 0.8 6.5

The following table shows the amount of insurance receivables that were past due but not impaired at the end of the year.

31 December 2011 31 December 2012 31 December 2013 £m £m £m 0-3 months past due 34.7 9.6 7.5 4-6 months past due 4.5 2.5 1.7 7-9 months past due 1.9 2.0 1.3 10-12 months past due 2.6 0.6 1.0 More than 12 months past due 2.3 2.1 1.8 Total 46.0 16.8 13.3

Liquidity risk This is the risk the Group may encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. The predominant liquidity risk the Group faces is the daily calls on its available cash resources in respect of claims arising from insurance contracts.

The Group monitors the levels of cash and cash equivalents on a daily basis, ensuring adequate liquidity to meet the expected cash flow requirements due over the short term.

The Group also limits the amount of investment in illiquid securities in line with the Liquidity policy set by the Board. This involves ensuring sufficient liquidity to withstand claim scenarios at the extreme end of business plan projections by reference to modelled Realistic Disaster Scenarios. Contingent liquidity also exists in the form of a Group revolving credit facility.

The tables below present the fair value of monetary assets and the undiscounted value of monetary liabilities of the Group into their relevant maturing groups based on the remaining period at the end of the year to their contractual maturities or expected repayment dates. Borrowings are stated at their nominal value.

234 31 December 2011

Fair values Statement of Financial Up to a 1-3 3-5 Over 5 Assets Position year years years years Equities Total £m £m £m £m £m £m £m Reinsurance assets 503.9 196.1 171.9 69.6 66.3 — 503.9 Financial investments 3,206.2 541.7 1,905.1 284.9 352.6 121.9 3,206.2 Derivative contracts 0.3 0.3 — — — — 0.3 Insurance receivables 479.7 479.7 — — — — 479.7 Cash and cash equivalents 457.8 457.8 — — — — 457.8 4,647.9 1,675.6 2,077.0 354.5 418.9 121.9 4,647.9

Undiscounted values Statement of Financial Up to a 1-3 3-5 Over 5 Liabilities Position year years years years Equities Total £m £m £m £m £m £m £m Insurance contract liabilities 2,922.7 959.0 1,004.1 483.3 476.3 — 2,922.7 Derivative contracts 0.3 0.3 — — — — 0.3 Borrowings 245.0 — 128.0 — 135.0 — 263.0 Insurance and other payables 222.0 222.0 — — — — 222.0 3,390.0 1,181.3 1,132.1 483.3 611.3 — 3,408.0

31 December 2012

Fair values Statement of Financial Up to a 1-3 3-5 Over 5 Assets Position year years years years Equities Total £m £m £m £m £m £m £m Reinsurance assets 361.5 132.9 120.1 54.0 54.5 — 361.5 Financial investments 2,312.1 194.1 1,335.7 265.5 513.2 3.6 2,312.1 Derivative contracts 1.1 1.1 — — — — 1.1 Insurance receivables 320.2 320.2 — — — — 320.2 Cash and cash equivalents 304.9 304.9 — — — — 30.49 3,299.8 953.2 1,455.8 319.5 567.7 3.6 3,299.8

Undiscounted values Statement of Financial Up to a 1-3 3-5 Over 5 Liabilities Position year years years years Equities Total £m £m £m £m £m £m £m Insurance contract liabilities 2,099.0 599.9 674.9 348.7 475.5 — 2.099.0 Derivative contracts 1.8 1.8 — — — — 1.8 Borrowings 121.9 — — — 135.0 — 135.0 Insurance and other payables 175.4 175.4 — — — — 175.4 2,398.1 777.1 674.9 348.7 610.5 — 2,411.2

31 December 2013

Fair values Statement of Financial Up to a 1-3 3-5 Over 5 Assets Position year years years years Equities Total £m £m £m £m £m £m £m Reinsurance assets 374.0 108.3 124.7 62.8 78.2 — 374.0 Financial investments 2,275.9 1,055.7 415.3 251.5 505.8 47.6 2,275.9 Derivative contracts 12.7 12.7 — — — — 12.7 Insurance receivables 351.8 351.8 — — — — 351.8 Cash and cash equivalents 315.7 315.7 — — — — 315.7 3,330.1 1,844.2 540.0 314.3 584.0 47.6 3,330.1

235 Undiscounted values Statement of Financial Up to a 1-3 3-5 Over 5 Liabilities Position year years years years Equities Total £m £m £m £m £m £m £m Insurance contract liabilities 2,097.7 600.1 691.4 356.3 449.9 — 2,097.7 Derivative contracts 11.1 11.1 — — — — 11.1 Borrowings 123.2 — — — 135.0 — 135.0 Insurance and other payables 187.3 187.3 — — — — 187.3 2,419.3 798.5 691.4 356.3 584.9 — 2,431.1

Operational risk Operational risk is the potential for loss arising from the failure of people, process or technology or the impact of external events. The nature of operational risk means that it is dispersed across all functional areas of the Group. Operational risk exposures are managed through a consistent set of management processes that drive risk identification, assessment, control and monitoring.

The Chief Operating Officer chairs the Operational Risk Working Group (ORWG) that provides a dedicated forum for managing operational risk in line with the Operational Risk policy and appetite limits set by the Board. This group reports to the Executive Management where it is augmented by operational risk owners within executive management who actively manage operational risk within their respective areas (such as Underwriting, Claims, Investments and Finance).

An operational risk management framework is in place to ensure an appropriate standard approach is taken to managing operational risk across the group. The key elements of this framework are: • Allocation of responsibility for the identification and assessment of operational risk. Standard tools are used to facilitate these assessments; • Definition of standard elements of sound operating controls that are expected to be in place to address all identified operational risks; • A process that integrates with the Group’s internal model to support the setting and monitoring of operational risk appetite and tolerances; • Governance, reporting and escalation for operational risk; • Infrastructure supporting the operational risk management framework; and • Operational risk management training and awareness.

Achilles Holdings 1 S.à r.l operational risk profile corresponds to that expected of a global speciality (re)insurer. Key areas of operational risk arise from the processes and systems supporting our core underwriting, claims handling and reinsurance functions. Operational risk also arises from our supporting functions (HR, IT, Finance, etc).

Capital management The Group’s capital policy is to hold management capital at an entity level, with additional surplus capital at a Group level. Management capital is the capital required by each entity for current trading purposes based on our business strategy and regulatory requirements. The level of the surplus capital held at Group level is based on our risk appetite and provides flexibility, allows the Group to deal with shock events and to take opportunities as they arise.

The capital policy is set by the Board and is based on the output of the internal model which reflects the risk profile of the business. The policy requires capital to be held well in excess of regulatory minimum requirements and underpins the Group’s balance sheet strength. The policy ensures the capital adequacy of the Group, and each entity, through an efficient capital structure. The Group proactively responds to developments in the financial environment to ensure its capital strength is maintained whilst optimising risk adjusted returns.

The total entity management requirement is the capital required under the capital policy across Brit Syndicates Limited and Brit Insurance (Gibraltar) PCC Limited. The total entity management capital

236 requirement for the Group is £645.0m (2012: £706.0m) (2011: £943.0m). This represents the modelled 1 in 200 best estimate plus a prudent margin (eg. Market load of 35% in Lloyd’s) and is adjusted for changes in foreign exchange rates at the balance sheet date.

Management monitors solvency at a Brit Group level. The Brit Group’s solvency margin (unaudited) at 31 December 2013 was £263.0m (2012: £176.4m) (2011: £187.5m).

(£m) 2011 2012 2013 Net tangible assets 897.2 649.1 649.6 Subordinated debt 133.3 133.3 133.4 Letters of credit capacity/contingent funding 100.0 100.0 125.0 Total available capital 1,130.5 882.4 908.0

Management entity capital requirement(i) 943.0 706.0 645.0 Solvency buffer above requirements(i) 187.5 176.4 263.0 Undrawn credit facility 100.0 100.0 100.0 Solvency buffer including undrawn RCF 287.5 276.4 363.0

(i) unaudited figures

All external capital requirements have been complied with during the year by Achilles Holdings 1 S.à r.l as well as its individual insurance subsidiaries.

Brit Global Specialty solely underwrites through the Group’s wholly-aligned Lloyd’s Syndicate 2987 which benefits from the Lloyd’s credit ratings of A (Excellent) from A.M. Best, A+(Strong) from Fitch and A+ (Strong) from Standard & Poor’s.

5 Segmental information As at 31 December 2013, the reportable segments were identified as follows:

‘Global Specialty Direct’, which underwrites the Group’s international and US business other than reinsurance. In the main, Global Specialty Direct deals with wholesale buyers of insurance, not individuals. Risks are large and usually syndicated by several underwriters—the subscription market.

‘Global Specialty Reinsurance’, which underwrites reinsurance business which is essentially the insurance of insurance and reinsurance companies and includes providing non-proportional cover for major events such as earthquakes or hurricanes. These insurance and reinsurance companies calculate how much risk they want to bear and pass on the remaining exposure to reinsurers in return for a premium.

‘Other underwriting’, which is made up of excess of loss reinsurance ceded from the strategic business units to a cell of Brit Insurance (Gibraltar) PCC Limited and Life Syndicate 389.

‘Other corporate’, which is made up of residual income and expenditure not allocated to other segments.

During 2012, the Group completed the sale of the non-core regional UK business and the sale of its historic UK liabilities. These transactions resulted in the loss of control of a major area of operations. The results of this area of operations, up to the date of sale of the historic UK liabilities in 2012 have therefore been classified as discontinued operations. In 2013, further expenses were incurred as a result of the sale, these are also disclosed as discontinued operations in 2013.

Foreign exchange differences on non-monetary items are separately disclosed. This provides a fairer representation of the claims ratios and financial performance of the SBUs which would otherwise be distorted by the mismatch arising from IFRSs whereby unearned premium, reinsurers share of unearned premium and deferred acquisition costs are treated as non-monetary items and the majority of other assets and liabilities are treated as monetary items. Non-monetary items are carried at historic exchange rates, while monetary items are translated at closing rates.

237 The Group investment return is managed centrally and an allocation is made to each of the strategic business units based on the average risk free interest rate for the period being applied to the insurance funds of each strategic business unit.

The annualised average risk free rate applied to insurance funds was 1.5% for the year ended 31 December 2013 (31 December 2012: 1.69%) (31 December 2011: 1.69%).

Information regarding the Group’s reportable segments is presented below.

The claims ratio is calculated as claims incurred, net of reinsurance divided by earned premiums, net of reinsurance.

The expense ratio is calculated as acquisition costs and other insurance related expenses divided by earned premiums, net of reinsurance.

The combined ratio is the sum of the claims and expense ratios.

238 a) Income statement by segment 12 months ended 31 December 2011

Effect of Total underwriting foreign Total underwriting excluding the exchange after the effect of Global Global effect of foreign on non- foreign exchange Specialty Specialty Other Intra exchange on non- monetary on non-monetary Other Continuing Discontinued Direct Reinsurance Underwriting Group monetary items items items corporate Operations Operations Total £m £m £m £m £m £m £m £m £m £m £m Gross premiums written 829.2 349.9 10.2 (9.4) 1,179.9 — 1,179.9 — 1,179.9 309.4 1,489.3 Less premiums ceded to reinsurers (138.2) (75.4) (0.4) 9.4 (204.6) — (204.6) — (204.6) (47.6) (252.2) Premiums written, net of reinsurance 691.0 274.5 9.8 — 975.3 — 975.3 — 975.3 261.8 1,237.1 Gross earned premiums 856.3 351.9 11.1 (10.1) 1,209.2 10.8 1,220.0 — 1,220.0 327.5 1,547.5 Reinsurers’ share (140.4) (74.8) (0.5) 10.1 (205.6) (0.8) (206.4) — (206.4) (55.4) (261.8) Earned premiums, net of reinsurance 715.9 277.1 10.6 — 1,003.6 10.0 1,013.6 — 1,013.6 272.1 1,285.7 Investment return 25.8 10.5 0.5 — 36.8 — 36.8 27.8 64.6 22.4 87.0 Return on derivative contracts — — — — — — — 5.3 5.3 — 5.3 Net foreign exchange gains — — — — — 2.1 2.1 1.6 3.7 — 3.7 Other income — — — — — — — 0.1 0.1 — 0.1 Total revenue 741.7 287.6 11.1 — 1,040.4 12.1 1,052.5 34.8 1,087.3 294.5 1,381.8

239 Gross claims incurred (501.0) (314.5) (7.1) 8.8 (813.8) — (813.8) — (813.8) (196.7) (1,010.5) Reinsurers’ share 98.2 120.5 0.1 (8.8) 210.0 — 210.0 — 210.0 17.3 227.3 Claims incurred, net of reinsurance (402.8) (194.0) (7.0) — (603.8) — (603.8) — (603.8) (179.4) (783.2) Acquisition costs — commission (207.3) (49.3) (0.2) — (256.8) (2.3) (259.1) — (259.1) (66.9) (326.0) Acquisition costs — other (25.6) (10.8) (2.7) — (39.1) — (39.1) — (39.1) (23.8) (62.9) Other insurance related expenses (58.4) (25.0) (0.5) — (83.9) — (83.9) — (83.9) (1.5) (85.4) Other expenses — — — — — — — (54.4) (54.4) (0.7) (55.1) Net foreign exchange losses — — — — — — — — —— — Total expenses excluding finance costs (694.1) (279.1) (10.4) — (983.6) (2.3) (985.9) (54.4) (1,040.3) (272.3) (1,312.6) Operating profit/(loss) 47.6 8.5 0.7 — 56.8 9.8 66.6 (19.6) 47.0 22.2 69.2 Finance costs (16.7) — (16.7) Share of loss of associated undertakings (0.4) — (0.4) Write-off of negative goodwill 51.9 — 51.9 Profit/(loss) on ordinary activities before tax 81.8 22.2 104.0 Tax expense (0.3) (3.0) (3.3) Profits attributable to owners of the parent 81.5 19.2 100.7 Claims ratio 56.3% 70.0% 66.0% 60.2% 59.6% Expense ratio 40.7% 30.7% 32.1% 37.8% 37.7% Combined ratio 97.0% 100.7% 98.1% 98.0% 97.3% 12 months ended 31 December 2012

Effect of Total underwriting foreign Total underwriting excluding the exchange after the effect of Global Global effect of foreign on non- foreign exchange Specialty Specialty Other Intra exchange on non- monetary on non-monetary Other Continuing Discontinued Direct Reinsurance Underwriting Group monetary items items items corporate Operations Operations Total £m £m £m £m £m £m £m £m £m £m £m Gross premiums written 847.6 300.0 5.4 (5.1) 1.147.9 — 1.147.9 — 1,147.9 150.8 1,298.7 Less premiums ceded to reinsurers (158.4) (57.3) (0.3) 5.1 (210.9) — (210.9) — (210.9) (72.6) (283.5) Premiums written, net of reinsurance 689.2 242.7 5.1 — 937.0 — 937.0 — 937.0 78.2 1,015.2 Gross earned premiums 836.7 307.2 6.0 (5.7) 1,144.2 2.1 1,146.3 — 1,146.3 218.9 1,365.2 Reinsurers’ share (146.7) (60.1) (0.3) 5.7 (201.4) (0.3) (201.7) — (201.7) (45.1) (246.8) Earned premiums, net of reinsurance 690.0 247.1 5.7 — 942.8 1.8 944.6 — 944.6 173.8 1,118.4 Investment return 23.9 10.0 0.3 — 34.2 — 34.2 53.0 87.2 17.7 104.9 Return on derivative contracts — — — — — — — (2.1) (2.1) — (2.1) Other income — — — — — — — 0.7 0.7 — 0.7 Total revenue 713.9 257.1 6.0 — 977.0 1.8 978.8 51.6 1,030.4 191.5 1,221.9 Gross claims incurred (514.8) (163.8) (1.2) 1.1 (678.7) — (678.7) — (678.7) (133.7) (812.4)

240 Reinsurers’ share 114.0 34.0 1.8 (1.1) 148.7 — 148.7 — 148.7 21.4 170.1 Claims incurred, net of reinsurance (400.8) (129.8) 0.6 — (530.0) — (530.0) — (530.0) (112.3) (642.3) Acquisition costs — commission (197.1) (44.9) — — (242.0) (0.5) (242.5) — (242.5) (47.0) (289.5) Acquisition costs — other (34.2) (9.2) (0.2) — (43.6) — (43.6) — (43.6) (10.9) (54.5) Other insurance related expenses (44.8) (18.7) — — (63.5) — (63.5) — (63.5) (4.3) (67.8) Other expenses — — — — — — — (14.2) (14.2) — (14.2) Net foreign exchange losses — — — — — (11.8) (11.8) (14.1) (25.9) — (25.9) Total expenses excluding finance costs (676.9) (202.6) 0.4 — (879.1) (12.3) (891.4) (28.3) (919.7) (174.5) (1,094.2) Operating profit/(loss) 37.0 54.5 6.4 — 97.9 (10.5) 87.4 23.3 110.7 17.0 127.7 Profit on sale of renewal rights — 26.7 26.7 Loss on sale of subsidiary — (14.6) (14.6) Finance costs (14.6) — (14.6) Share of loss of associated undertakings (0.1) — (0.1) Impairment of associated undertaking (0.1) — (0.1) Profit on ordinary activities before tax 95.9 29.1 125.0 Tax expense (5.2) (5.3) (10.5) Profit attributable to owners of the parent 90.7 23.8 114.5 Claims ratio 58.1% 52.5% -10.5% 56.2% 56.1% Expense ratio 40.0% 29.5% 3.5% 37.0% 37.0% Combined ratio 98.1% 82.0% -7.0% 93.2% 93.1% 12 months ended 31 December 2013

Effect of Total underwriting foreign Total underwriting excluding the exchange after the effect of Global Global effect of foreign on non- foreign exchange Specialty Specialty Other Intra exchange on non- monetary on non-monetary Other Continuing Discontinued Direct Reinsurance underwriting Group monetary items items items corporate Operations Operations Total £m £m £m £m £m £m £m £m £m £m £m Gross premiums written 903.1 281.0 6.0 (4.4) 1,185.7 — 1,185.7 — 1,185.7 — 1,185.7 Less premiums ceded to reinsurers (181.5) (50.1) (2.2) 4.4 (229.4) — (229.4) — (229.4) — (229.4) Premiums written, net of reinsurance 721.6 230.9 3.8 — 956.3 — 956.3 — 956.3 — 956.3 Gross earned premiums 868.1 283.8 6.1 (4.2) 1,153.8 (2.1) 1,151.7 — 1,151.7 — 1,151.7 Reinsurers’ share (162.4) (45.7) (2.2) 4.2 (206.1) (0.1) (206.2) — (206.2) — (206.2) Earned premiums, net of reinsurance 705.7 238.1 3.9 — 947.7 (2.2) 945.5 — 945.5 — 945.5 Investment return 16.8 7.8 0.2 — 24.8 — 24.8 32.1 56.9 — 56.9 Return on derivative contracts — — — — — — — 11.0 11.0 — 11.0 Profit on disposal of asset held for sale — — — — — — — 4.4 4.4 — 4.4 Other income — — — — — — — — — 1.4 1.4 Total revenue 722.5 245.9 4.1 — 972.5 (2.2) 970.3 47.5 1,017.8 1.4 1,019.2

241 Gross claims incurred (482.3) (93.1) (3.5) 2.7 (576.2) — (576.2) — (576.2) — (576.2) Reinsurers’ share 111.9 6.0 1.8 (2.7) 117.0 — 117.0 — 117.0 — 117.0 Claims incurred, net of reinsurance (370.4) (87.1) (1.7) — (459.2) — (459.2) — (459.2) — (459.2) Acquisition costs — commission (196.5) (39.3) (0.4) — (236.2) 0.4 (235.8) — (235.8) — (235.8) Acquisition costs — other (38.8) (9.7) (3.2) — (51.7) — (51.7) — (51.7) — (51.7) Other insurance related expenses (43.4) (18.8) — — (62.2) — (62.2) — (62.2) (1.2) (63.4) Other expenses — — — — — — — (16.9) (16.9) ` (16.9) Net foreign exchange losses — — — — — (4.2) (4.2) (65.4) (69.6) — (69.6) Total expenses excluding finance costs (649.1) (154.9) (5.3) — (809.3) (3.8) (813.1) (82.3) (895.4) (1.2) (896.6) Operating profit/(loss) 73.4 91.0 (1.2) — 163.2 (6.0) 157.2 (34.8) 122.4 0.2 122.6 Loss on sale of subsidiary — (1.5) (1.5) Finance costs (15.0) — (15.0) Profit/(loss) on ordinary activities before tax 107.4 (1.3) 106.1 Tax expense (6.5) (0.1) (6.6) Profit/(loss) attributable to owners of the parent 100.9 (1.4) 99.5 Claims ratio 52.5% 36.6% 43.6% 48.5% 48.6% Expense ratio 39.5% 28.5% 92.3% 36.9% 37.0% Combined ratio 92.0% 65.1% 135.9% 85.4% 85.6% b) Statement of financial position by segment As at 31 December 2011

Total underwriting excluding the Effect of Total underwriting effect of foreign foreign after the effect of Global Global exchange on exchange on foreign exchange Specialty Specialty Other Intra non-monetary non-monetary on non-monetary Other Discounted Direct Reinsurance underwriting Group items items items corporate operations Total £m £m £m £m £m £m £m £m £m £m Reinsurance contracts 347.9 168.2 0.3 (35.7) 480.7 (0.6) 480.1 — 86.1 566.2 Intangible assets 47.4 17.9 — — 65.3 — 65.3 1.5 10.0 76.8 Other assets 2,140.9 1,098.2 44.9 — 3,284.0 (1.8) 3,282.2 40.0 1,083.3 4,405.5 Total assets 2,536.2 1,284.3 45.2 (35.7) 3,830.0 (2.4) 3,827.6 41.5 1,179.4 5,048.5 Insurance contracts 1,765.0 905.8 37.1 (35.7) 2,672.2 (8.5) 2,663.7 — 893.3 3,557.0 Other liabilities 109.0 55.9 2.3 — 167.2 — 167.2 290.2 55.1 512.5 Total liabilities 1,874.0 961.7 39.4 (35.7) 2,839.4 (8.5) 2,830.9 290.2 948.4 4,069.5

As at 31 December 2012 242 Total underwriting excluding the Effect of Total underwriting effect of foreign foreign after the effect of Global Global exchange on exchange on foreign exchange Specialty Specialty Other Intra non-monetary non-monetary on non-monetary Other Direct Reinsurance underwriting Group items items items corporate Total £m £m £m £m £m £m £m £m £m Reinsurance contracts 336.4 108.6 0.2 (33.4) 411.8 0.5 412.3 2.0 414.3 Intangible assets 42.5 16.8 — — 59.3 — 59.3 2.7 62.0 Other assets 2,216.9 862.6 1.2 — 3,080.7 1.2 3,081.9 39.9 3,121.8 Total assets 2,595.8 988.0 1.4 (33.4) 3,551.8 1.7 3,553.5 44.6 3,598.1 Insurance contracts 1,832.3 722.4 1.0 — 2,555.7 5.6 2,561.3 — 2,561.3 Other liabilities 133.1 43.7 0.1 — 176.9 — 176.9 149.7 326.6 Total liabilities 1,965.4 766.1 1.1 — 2,732.6 5.6 2,738.2 149.7 2,887.9 As at 31 December 2013

Total underwriting excluding the Effect of Total underwriting effect of foreign foreign after the effect of Global Global exchange on exchange on foreign exchange Specialty Specialty Other Intra non-monetary non-monetary on non-monetary Other Direct Reinsurance underwriting Group items items items corporate Total £m £m £m £m £m £m £m £m £m Reinsurance contracts 401.4 77.6 0.1 (34.0) 445.1 2.1 447.2 2.8 450.0 Intangible assets 43.0 16.1 — — 59.1 — 59.1 3.6 62.7 Other assets 2,298.6 819.0 1.2 — 3,118.8 3.2 3,122.0 21.9 3,143.9 Total assets 2,743.0 912.7 1.3 (34.0) 3,623.0 5.3 3,628.3 28.3 3,656.6 Insurance contracts 1,900.7 677.0 1.0 — 2,578.7 15.2 2,593.9 — 2,593.9 Other liabilities 146.2 52.1 0.1 — 198.4 — 198.4 153.3 351.7 Total liabilities 2,046.9 729.1 1.1 — 2,777.1 15.2 2,792.3 153.3 2,945.6

c) Depreciation, amortisation, impairment and capital expenditure by segment 243 Year ended 31 December 2011

Global Global Specialty Discontinued Other Specialty Direct Reinsurance operations corporate Total £m £m £m £m £m Depreciation of property, plant and equipment 1.1 0.3 0.5 0.8 2.7 Amortisation of intangibles 3.0 1.1 0.8 1.9 6.8 Impairment of intangibles 0.3 0.1 0.1 0.3 0.8 Capital expenditure 1.2 0.2 1.7 0.9 4.0

Year ended 31 December 2012

Global Global Specialty Discontinued Other Specialty Direct Reinsurance operations corporate Total £m £m £m £m £m Depreciation of property, plant and equipment 1.3 0.5 0.1 0.1 2.0 Impairment of property, plant and equipment 0.1 0.1 — — 0.2 Amortisation of intangibles 3.4 1.6 0.2 — 5.2 Impairment of intangibles 0.6 0.2 9.3 — 10.1 Capital expenditure 2.3 0.9 — — 3.2 Year ended 31 December 2013

Global Global Specialty Discontinued Other Specialty Direct Reinsurance operations corporate Total £m £m £m £m £m Depreciation of property, plant and equipment 1.4 0.6 — — 2.0 Impairment of property, plant and equipment 0.2 — — — 0.2 Amortisation of intangibles 3.3 1.5 — — 4.8 Impairment of intangibles 0.2 — — — 0.2 Capital expenditure 4.6 1.1 — — 5.7

Capital expenditure consists of additions of property, plant and equipment and intangible assets but excludes assets recognised on business combinations. d) Geographical information The Group’s strategic business units operate mainly in four geographical areas, though the business is managed on a worldwide basis.

The segmental split shown below is based on the location of the underlying risk.

Year ended 31 Year ended 31 Year ended 31 December 2011 December 2012 December 2013 £m £m £m Gross premiums written United States 346.6 364.7 421.5 United Kingdom 140.2 129.3 93.0 Europe (excluding UK) 55.7 50.6 61.8 Other (including worldwide) 637.4 603.3 609.4 1,179.9 1,147.9 1,185.7

All non-current assets of the Group are located in the United Kingdom.

6 Investment return

Year ended 31 December 2011 Investment Net realised Net unrealised Total investment income gains/(losses) gains return £m £m £m £m Equity securities 3.0 1.8 (9.7) (4.9) Debt securities 68.7 (9.0) 10.1 69.8 Loan instruments Specialised investment funds 4.0 (2.4) (0.7) 0.9 Cash and cash equivalents 2.6 — — 2.6 Total return before expenses 78.3 (9.6) (0.3) 68.4 Investment management expenses (3.8) — — (3.8) Total investment return from continuing operations 74.5 (9.6) (0.3) 64.6 Investment return from discontinued operations 22.1 (2.8) 3.1 22.4 Total investment return 96.6 (12.4) 2.8 87.0

244 Year ended 31 December 2012 Investment Net realised Net unrealised Total investment income gains/(losses) gains return £m £m £m £m Equity securities 1.9 2.0 0.8 4.7 Debt securities 64.5 8.2 1.4 74.1 Loan instruments — — 0.1 0.1 Specialised investment funds 1.5 (14.7) 23.3 10.1 Cash and cash equivalents 2.6 — — 2.6 Total return before expenses 70.5 (4.5) 25.6 91.6 Investment management expenses (4.4) — — (4.4) Total investment return from continuing operations 66.1 (4.5) 25.6 87.2 Investment return from discontinued operations 15.5 1.9 0.3 17.7 Total investment return 81.6 (2.6) 25.9 104.9

Year ended 31 December 2013 Investment Net realised Net unrealised Total investment income gains/(losses) gains return £m £m £m £m

Equity securities 0.3 (0.1) 1.0 1.2 Debt securities 43.5 (15.3) (8.2) 20.0 Loan Instruments 8.3 0.8 3.0 12.1 Specialised investment funds 4.9 15.7 8.3 28.9 Cash and cash equivalents 0.5 0.1 — 0.6 Total return before expenses 57.5 1.2 4.1 62.8 Investment management expenses (5.9) — — (5.9) Total investment return from continuing operations 51.6 1.2 4.1 56.9 Investment return from discontinued operations —— — — Total investment return 51.6 1.2 4.1 56.9

7 Return on derivative contracts

Year ended 31 Year ended 31 Year ended 31 December 2011 December 2012 December 2013 £m £m £m Currency forwards 5.5 (2.8) 13.2 Interest rate swaps — — (2.6) Futures — — 0.4 Options and warrants (0.2) 0.7 — 5.3 (2.1) 11.0

8 Net foreign exchange gains/(losses) The Group recognised foreign exchange losses of £69.6m (2012: losses of £25.9m) (2011: gains of £3.7m) in the income statement in the period.

245 Foreign exchange gains and losses result from the translation of the balance sheet to closing exchange rates and the income statement to average exchange rates. However, as an exception to this, International Accounting Standard 21 ‘The Effects of Changes in Foreign Exchange Rates’ requires that net unearned premiums and deferred acquisition costs (UPR/DAC), being non-monetary items, remain at historic exchange rates. This creates a foreign exchange mismatch, the financial effects of which are shown in the table below.

Year ended Year ended Year ended 31 December 31 December 31 December 2011 2012 2013 £m £m £m Gains/(losses) on foreign exchange arising from: Translation of the balance sheet and income statement 1.6 (14.1) (65.4) Maintaining UPR/DAC items in the balance sheet at historic rates 9.8 (10.5) (6.0) Maintaining UPR/DAC items in the income statement at historic rates (7.7) (1.3) 1.8 Net foreign exchange gains/(losses) 3.7 (25.9) (69.6)

Principal exchange rates applied are set out in the table below.

Year ended Year ended Year ended 31 December 2011 31 December 2012 31 December 2013 Average Closing Average Closing Average Closing US dollar 1.60 1.55 1.59 1.63 1.56 1.66 Canadian dollar 1.59 1.58 1.58 1.62 1.61 1.76 Euro 1.15 1.20 1.23 1.23 1.18 1.20 Australian dollar 1.55 1.52 1.53 1.57 1.62 1.85

In accordance with International Accounting Standard 1 ‘Presentation of Financial statements’, exchange gains and losses are presented on a net basis. They are reported within revenue where they result in a net gain and within expenses where they result in a net loss.

9 Acquisition costs and other operating expenses

Year ended Year ended 31 December Year ended 31 December 2011 31 December 2011 Other operating 2011 Acquisition costs expenses Total £m £m £m Staff costs (Note 10) 17.6 37.3 54.9 Other staff related costs 0.4 11.3 11.7 Accommodation costs 2.5 4.2 6.7 Legal and professional charges 2.4 19.1 21.5 IT costs — 7.0 7.0 Travel and entertaining 1.2 1.2 2.4 Marketing and communications 0.1 4.4 4.5 Amortisation and impairment of intangible assets — 7.4 7.4 Depreciation and impairment of property, plant and equipment — 2.6 2.6 Regulatory levies and charges 13.4 — 13.4 Costs of acquiring Brit Insurance Holdings B.V. — 35.5 35.5 Other 1.5 8.3 9.8 Expenses before commissions 39.1 138.3 177.4 Commission costs 259.1 — 259.1 Acquisition costs and other operating expenses from continuing operations 298.2 138.3 436.5 Acquisition costs and other operating expenses from discontinued operations 90.7 2.2 92.9 Total acquisition costs and other operating expenses 388.9 140.5 529.4

246 Year ended Year ended 31 December Year ended 31 December 2012 31 December 2012 Other operating 2012 Acquisition costs expenses Total £m £m £m Staff costs (Note 10) 16.6 33.6 50.2 Other staff related costs 0.5 3.5 4.0 Accommodation costs 3.1 3.7 6.8 Legal and professional charges 2.0 5.2 7.2 IT costs — 11.2 11.2 Travel and entertaining 1.4 1.5 2.9 Marketing and communications 0.1 4.4 4.5 Amortisation and impairment of intangible assets — 5.8 5.8 Depreciation and impairment of property, plant and equipment — 2.1 2.1 Regulatory levies and charges 18.1 — 18.1 Other 1.8 6.7 8.5 Expenses before commissions 43.6 77.7 121.3 Commission costs 242.5 — 242.5 Acquisition costs and other operating expenses from continuing operations 286.1 77.7 363.8 Acquisition costs and other operating expenses from discontinued operations 57.9 4.3 62.2 Total acquisition costs and other operating expenses 344.0 82.0 426.0

Year ended Year ended 31 December Year ended 31 December 2013 31 December 2013 Other operating 2013 Acquisition costs expenses Total £m £m £m Staff costs (Note 10) 20.8 37.8 58.6 Other staff related costs 0.7 3.1 3.8 Accommodation costs 3.1 3.3 6.4 Legal and professional charges 1.3 7.7 9.0 IT costs 0.6 11.8 12.4 Travel and entertaining 2.0 1.8 3.8 Marketing and communications 0.1 4.4 4.5 Amortisation and impairment of intangible assets 0.5 4.5 5.0 Depreciation and impairment of property, plant and equipment 0.2 2.0 2.2 Regulatory levies and charges 22.1 0.2 22.3 Other 0.3 2.5 2.8 Expenses before commissions 51.7 79.1 130.8 Commission costs 235.8 — 235.8 Acquisition costs and other operating expenses from continuing operations 287.5 79.1 366.6 Acquisition costs and other operating expenses from discontinued operations — 1.2 1.2 Total acquisition costs and other operating expenses 287.5 80.3 367.8

Netted off commission costs are £8.8m (2012: £nil) (2011: £nil) of profit commissions receivable in respect of whole account quota shares ceded by Brit.

247 10 Staff costs

Year ended Year ended Year ended 31 December 31 December 31 December 2011 2012 2013 £m £m £m Wages and salaries 49.2 41.8 48.0 Social security costs 5.4 4.5 6.5 Pension (credit)/charge 0.3 3.9 4.1 Staff costs from continuing operations 54.9 50.2 58.6 Staff costs from discontinued operations 11.4 6.1 1.2 Total staff costs 66.3 56.3 59.8

The average monthly number of employees during the year, including Executive and Non-executive Directors, was as follows:

Year ended Year ended Year ended 31 December 31 December 31 December 2011 2012 2013 Number Number Number Management 31 32 25 Administration 293 156 221 Underwriting and claims 229 178 156 Employees in continuing operations 553 366 402 Employees in discontinued operations 161 70 — Total employees 714 436 402

11 Finance costs

Year ended Year ended Year ended 31 December 31 December 31 December 2011 2012 2013 £m £m £m Revolving credit facility and other bank borrowings 6.7 4.5 4.9 Lower Tier Two subordinated debt 10.0 10.1 10.1 Total finance costs 16.7 14.6 15.0

12 Auditor’s remuneration

Year ended 31 December 2011 Audit of the Audit financial related Tax All other statements fees advisory services Total £m £m £m £m £m Fees payable to the Group’s auditor for the audit of the Group’s annual accounts 0.2 — — — 0.2 Fees payable to the Group’s auditor and its associates for other services: The audit of the Group’s subsidiaries pursuant to legislation 0.4 — — — 0.4 0.6 — — 0.6

Other services pursuant to legislation — 0.2 — — 0.2 Other services relating to taxation — — 0.1 — 0.1 Valuation and actuarial services — — — 0.2 0.2 Services relating to corporate finance transactions entered into or proposed to be entered into by or on behalf of Achilles Holdings 1 S.à r.l or any of its associates — — — 0.1 0.1 0.6 0.2 0.1 0.3 1.2

248 Year ended 31 December 2012 Audit of the financial Audit Tax All other statements related fees advisory services Total £m £m £m £m £m Fees payable to the Group’s auditor for the audit of the Group’s annual accounts 0.3 — — — 0.3 Fees payable to the Group’s auditor and its associates for other services: The audit of the Group’s subsidiaries pursuant to legislation 0.3 — — — 0.3 0.6 — — — 0.6

Other services pursuant to legislation — 0.3 — — 0.3 Other services relating to taxation — — 0.1 — 0.1 Valuation and actuarial services — — — 0.2 0.2 Services relating to corporate finance transactions entered into or proposed to be entered into by or on behalf of the company or any of its associates — — — 0.3 0.3 0.6 0.3 0.1 0.5 1.5

Year ended 31 December 2013 Audit of the financial Audit Tax All other statements related fees advisory services Total £m £m £m £m £m Fees payable to the Group’s auditor for the audit of the Group’s annual accounts 0.3 — — — 0.3 Fees payable to the Group’s auditor and its associates for other services: The audit of the Group’s subsidiaries pursuant to legislation 0.3 — — — 0.3 0.6 — 0.6

Other services pursuant to legislation — 0.3 — — 0.3 Valuation and actuarial services — — — 0.3 0.3 0.6 0.3 — 0.3 1.2

13 Investments in associated undertakings Xbridge Limited Xbridge Limited is an unlisted company registered in England and Wales. Its accounting reference date is 31 December. Xbridge Limited is an insurance intermediary.

Verex Limited Verex Limited is an unlisted company registered in England and Wales. Its accounting reference date is 31 December. Verex Limited provides vehicle manufacturer affinity motor insurance, accident management, network management and related products and services, back office support and administration to vehicle manufacturers, their dealers and associated body shops.

Brit Insurance Holdings B.V.

Xbridge Limited Verex Limited Total £m £m £m At 1 January 2011 11.4 3.9 15.3 Share of loss after tax in the period (0.1) (0.2) (0.3) Movements in loan balances — 0.1 0.1 At 8 March 2011 11.3 3.8 15.1

249 Achilles Holdings 1 S.à r.l.

Xbridge Limited Verex Limited Total £m £m £m On acquisition of Brit Insurance Holdings B.V. 11.3 3.8 15.1 Share of profit/(loss) after tax in the period 0.9 (1.0) (0.1) Effect of associates’ capital movements 0.2 — 0.2 Movements in loan balances 0.1 0.1 0.2 At 31 December 2011 12.5 2.9 15.4

Xbridge Limited Verex Limited Total £m £m £m At 1 January 2012 12.5 2.9 15.4 Share of profit/(loss) after tax in the year 0.8 (0.9) (0.1) Effect of associates’ capital movements 0.4 — 0.4 Movements in loan balances 1.0 — 1.0 Impairment — (0.1) (0.1) Transferred to assets held for sale — (1.9) (1.9) At 31 December 2012 14.7 — 14.7

Xbridge Limited Verex Limited Total £m £m £m At 1 January 2013 14.7 — 14.7 Movements in loan balances 0.1 — 0.1 Transferred to assets held for sale (14.8) — (14.8) At 31 December 2013 ———

14 Assets held for sale Xbridge Limited The Group reclassified its carrying value in Xbridge Limited as held for sale on 14 Jan 2013 when management became committed to a plan to sell its 36.1% holding in Xbridge Limited.

On 20 April 2013, the Group entered into a contract to dispose of its equity holding in Xbridge Limited to Intercede Limited. This disposal received the approval of the Financial Conduct Authority on 24 June 2013 and completed on 17 July 2013. The Group’s loan to Xbridge Limited of £5.2m, together with accrued interest of £1.0m, was also repaid on this date.

Verex Limited On 10 August 2012, the Group entered into various contracts with the other owners of Verex Limited and Jardine Estates Limited. These contracts effectively converted the £6.0m of Verex loan notes and accumulated interest previously held by the Group into 250,000 B shares and a put option whereby Jardine Estates Limited are required to buy the B shares for the higher of 10% of the aggregate value of Verex and £3.5m at any time after 10 August 2016.

The contracts also committed the Group to sell its 35.3% of the ordinary share capital of Verex Limited at par to Jardine Estates Ltd, subject to approval from the Financial Conduct Authority. Accordingly, Verex was classified as an asset held for sale and valued at £1.9m using a discounted cashflow forecast and an appropriate discount rate.

On 8 May 2013, following Financial Conduct Authority approval, the disposal was completed and the carrying value was transferred from asset held for sale to derivative contracts.

Xbridge Limited Verex Limited Total £m £m £m At 1 January 2012 ——— Transferred from investments in associated undertakings — 1.9 1.9 At 31 December 2012 — 1.9 1.9

250 Xbridge Limited Verex Limited Total £m £m £m At 1 January 2013 — 1.9 1.9 Transferred from investments in associated undertakings 14.8 — 14.8 Disposals (14.8) (1.9) (16.7) At 31 December 2013 ———

For further information relating to the disposal of the asset held for sale, refer to Note 15.

15 Disposal of asset held for sale

Verex Limited Xbridge Limited Total 2013 2013 2013 £m £m £m Initial consideration 1.9 17.4 19.3 Deferred consideration — 1.8 1.8 Carrying value (1.9) (14.8) (16.7) Gain on sale — 4.4 4.4

The range of the Xbridge Limited undiscounted deferred consideration is between £nil and £5.3m. The outcome will depend on the performance of Xbridge Limited for the three years commencing 1 January 2013 and on distributions and proceeds that the purchaser receives up to and including their ultimate exit from Xbridge Limited. The deferred consideration of £1.8m has been derived from a probability weighted model of possible outcomes on a discounted basis.

16 Business combinations and acquisitions of non-controlling interests Acquisition of Brit Insurance Holdings B.V. (formerly Brit Insurance Holdings N.V.)

On 9 March 2011, Achilles Netherlands Holdings B.V., a subsidiary undertaking of Achilles Holdings 1 S.à r.l., acquired 99.43% of the ordinary shares of Brit Insurance Holdings N.V. The legal form of Brit Insurance Holdings N.V was converted from a public limited liability company into a private company with limited liability on1 July 2011 and changed its name to Brit Insurance Holdings B.V.

251 The acquisition-date fair value of the consideration was £855.0m which solely constituted cash. The fair value of the identifiable assets and liabilities of Brit Insurance Holdings B.V. as at the date of acquisition and the previous carrying amounts under IFRS immediately before the acquisition were:

Fair value recognised Previous on carrying acquisition value £m £m Property, plant and equipment 5.7 5.7 Goodwill — 63.6 Software 18.0 18.0 Syndicate participation rights 45.4 — Trade names 12.1 — Distribution channels 6.3 — Deferred acquisition costs 186.2 186.2 Reinsurance contracts 638.9 633.6 Financial investments 3,041.9 3,041.9 Insurance and other receivables 581.7 581.7 Cash and cash equivalents 458.5 458.5 Investments in associated undertakings 15.1 15.1 Other assets 31.4 31.4 5,041.2 5,035.7

Insurance contracts 3,681.1 3,655.7 Borrowings 119.8 133.0 Deferred taxation 24.8 10.6 Insurance and other payables 301.7 301.7 Other liabilities 1.7 1.7 4,129.1 4,102.7

Total identifiable net assets 912.1 933.0 Non-controlling interest measured at share of net assets (5.2) Total net assets acquired 906.9 Negative goodwill arising on acquisition (51.9) Total consideration 855.0

Negative goodwill of £51.9m resulting from the acquisition has been recognised on a separate line in the consolidated income statement. Brit Insurance Holdings B.V. was purchased for less than the fair value of its net assets partly because the insurance sector has historically traded at a discount to net asset values as measured under IFRS. In addition, the fair value exercise required by IFRS on acquisition resulted in new assets being recognised that were not previously recognised on an ongoing basis.

Syndicate participation rights, trade names and distribution channels are separable and therefore meet the recognition criteria of International Accounting Standard 38 ‘Intangible Assets’. They were valued by an independent third party using a Multi Period Excess Earnings Methodology (MEEM) for syndication participation rights and distribution channels and a Relief from Royalty methodology for trade names. Syndicate participation rights are deemed to have an indefinite useful life and are therefore not amortised. Trade names and distribution channels are deemed to have useful lives of five years and fifteen years respectively and are being amortised over those periods.

Non-controlling interests of £5.2m were recognised at the acquisition date and were measured as 0.57% of the total acquired net assets.

Acquisition costs of £35.5m were recognised in the consolidated income statement as other operating expenses.

252 17 Tax (expense)/income (i) Tax (charged)/credited to income statement

Year ended Year ended Year ended 31 December 2011 31 December 2012 31 December 2013 £m £m £m Current tax: Current taxes on income for the year 8.4 (25.8) (2.0) United States tax on income for the year (4.1) (3.3) (2.8) 4.3 (29.1) (4.8) Double tax relief 3.1 4.7 2.2 Adjustments in respect of prior years 7.6 (1.9) 2.2 Total current tax 15.0 (26.3) (0.4) Deferred tax: Relating to the origination and reversal of temporary differences (12.7) 22.6 (8.5) Relating to changes in tax rates 1.6 (0.9) 1.4 Adjustments in respect of prior years (4.2) (0.6) 1.0 Total deferred tax (15.3) 21.1 (6.1) Total tax charged to income statement from continuing operations (0.3) (5.2) (6.5) Total tax charged to income statement from discontinued operations (3.0) (5.3) (0.1) Total tax charged to income statement (3.3) (10.5) (6.6)

Tax relating to associated companies of £nil (2012: £nil) (2011: £0.4m) has been credited to the income statement within the Group’s share of loss after tax of associated undertakings.

United States tax and the double tax relief principally arise from taxes suffered as a result of the Group’s operations at Lloyd’s. Double tax relief is effectively limited to an amount equal to the tax due at the UK tax rate on the same source of income.

(ii) Tax (charged)/credited to other comprehensive income

Year ended Year ended Year ended 31 December 2011 31 December 2012 31 December 2013 £m £m £m Current tax on cash contributions made to defined benefit pension scheme (0.5) 1.1 — Deferred tax credit/(charge) on actuarial losses/ gains on defined benefit pension scheme 1.2 1.3 (0.5) 0.7 2.4 (0.5)

253 (iii) Tax reconciliation Based on the analysis of Group profits the weighted average rate of tax is 10.2% (2012: 6.8%) (2011: 15.9%). The tax on the Group’s profits before tax differs from the theoretical amount that would arise based on the weighted average rate of tax as follows:

Year ended Year ended Year ended 31 December 31 December 31 December 2011 2012 2013 £m £m £m Profit on continuing ordinary activities before tax 81.8 95.9 107.4 Gains on sale of renewal rights (Note 15) — 26.7 — Loss on sale of subsidiary (Note 15) — (14.6) (1.5) Income less expenses of discontinued business (Note 15) 22.2 17.0 0.2 Total profit on ordinary activities before tax 104.0 125.0 106.1 Tax calculated at weighted average rate of tax on income (16.5) (8.5) (10.8) Expenses not deductible for tax purposes 3.9 (8.4) (2.0) Income not subject to tax 8.4 7.9 4.6 Taxes on income at rates in excess of the domestic rate and where credit is unavailable (1.0) 1.3 (2.8) Other credits for overseas tax — — 2.2 Effect of temporary differences nor recognised (2.9) (1.2) (2.4) Tax effect of share of results of associated undertakings (0.1) — — Effect of revaluation of deferred tax following change in rate of tax 1.6 0.9 1.4 Adjustments to tax charge in respect of prior years 3.3 (2.5) 3.2 (3.3) (10.5) (6.6)

Tax expense on profit on ordinary activities (0.3) (5.2) (6.5) Tax (expense)/income on profit on discontinued operations (3.0) 2.0 (0.1) Tax expense on sale of renewal rights (Note 15) — (7.3) — Total tax charged to income statement (3.3) (10.5) (6.6)

The weighted average rate of tax is based on the geographic split of Group profit across entities in jurisdictions with differing tax rates. As the mix of taxable profits changes so will the weighted average rate of tax.

The adjustment to tax charge in respect of prior years arises from the finalisation of earlier years’ UK tax computations.

18. Profit/(loss) from discontinued operations An analysis of the result of discontinued operations is as follows:

Year ended Year ended Year ended 31 December 31 December 31 December 2011 2012 2013 £m £m £m Total income 294.5 191.5 1.4 Total expenses (272.3) (174.5) (1.2) 22.2 17.0 0.2 Gain on sale of renewal rights (Note 18a) — 26.7 — Loss on sale of subsidiary (Note 18b) — (14.6) (1.5) Profit/(loss) before tax of discontinued operations 22.2 29.1 (1.3) Tax relating to discontinued operations (3.0) (5.3) (0.1) Profit/(loss) on discontinued operations 19.2 23.8 (1.4)

254 a) Gain on sale of renewal rights On 13 April 2012, the Group completed the sale of its non-core regional UK business to QBE Insurance (Europe) Limited (QBE), presented under IFRS 8 within the UK reporting segment. The business sold to QBE was the Group’s UK regional business. The transaction represented a business transfer whereby renewal rights, operations and assets were acquired by QBE.

Year ended 31 December 2012 £m Proceeds 38.5 Impairment of software (4.3) Impairment of trade names (2.6) Onerous lease provision (2.3) Other expenses (2.6) Gain on sale 26.7 b) Loss on sale of Brit Insurance Limited On 12 October 2012, the Group completed the sale of Brit Insurance Limited to RiverStone Group. Brit Insurance Limited was subsequently renamed RiverStone Insurance Limited. As a result of this transaction, the Brit Group will retain the economic exposure and control of certain classes of business via a reinsurance agreement, including full claims handling authority. These classes form part of the Brit Group’s ongoing core business now being written into Brit Syndicate 2987.

Year ended Year ended 31 December 2012 31 December 2013 £m £m Proceeds 208.2 (1.5) Carrying value (219.6) — Impairment of software (2.4) — Other expenses (0.8) — Loss on sale (14.6) (1.5)

The proceeds recognised in 2012 were dependant on the outcome of certain trading results in RiverStone Insurance Limited. The final outcome of these results has been established in 2013 and the proceeds reduced by £1.5m. The Group’s interest in the IFRS net assets of Brit Insurance Limited prior to disposal were as follows:

£m Deferred acquisition costs 33.0 Reinsurance contracts 565.3 Financial investments 774.8 Insurance and other receivables 133.8 Cash and cash equivalents 38.4 Total assets 1,545.3 Insurance contracts 1,194.8 Current taxation 0.4 Deferred taxation 10.2 Insurance payables 120.3 Total liabilities 1,325.7 Net assets 219.6

255 19. Earnings per share Year ended Year ended Year ended 31 December 2011 31 December 2012 31 December 2013 Earnings — continuing operations 80.9 90.1 100.5 Earnings — discontinued operations 19.1 23.7 (1.4) Earnings — total 100.0 113.8 99.1

Basic weighted average number of Achilles Holdings 1 shares 65.2 79.2 74.7 Employee share options 0.1 0.1 0.1 Diluted weighted average number of Achilles Holdings 1 shares 65.3 79.3 74.8

Basic earnings per share (pence per share) — continuing operations 124.1 113.8 134.5 Basic earnings per share (pence per share) — discontinued operations 29.3 29.9 (1.9) Basic earnings per share (pence per share) — total 153.4 143.7 132.6 Diluted earnings per share (pence per share) — continuing operations 123.9 113.6 134.4 Diluted earnings per share (pence per share) — discontinued operations 29.2 29.9 (1.9) Diluted earnings per share (pence per share) — total 153.1 143.5 132.5

The weighted average number of shares reflects the actual number of Achilles Holdings 1 shares in issue and the actual issuer and redemption made by Achilles Holdings 1 pro-rated for time. It excludes shares held or own shares.

20. Property, plant and equipment Brit Insurance Holdings B.V. Computers and office machinery, Office furniture and refurbishment equipment Total £m £m £m Costs: At 1 January 2011 12.5 8.2 20.7 Additions 0.1 — 0.1 At 8 March 2011 12.6 8.2 20.8 Depreciation: At 1 January 2011 8.4 5.8 14.2 Charge for the period 0.4 0.5 0.9 At 8 March 2011 8.8 6.3 15.1 Carrying amount: At 8 March 2011 3.8 1.9 5.7

256 Achilles Holdings 1 S.à r.l

Computers and office machinery, Office furniture and refurbishment equipment Total £m £m £m Cost: On acquisition of Brit Insurance Holdings B.V. 12.6 8.2 20.8 Additions — 1.4 1.4 At 31 December 2011 12.6 9.6 22.2 At 1 January 2012 12.6 9.6 22.2 Additions 2.3 0.4 2.7 Disposals (0.8) (0.3) (1.1) At 31 December 2012 14.1 9.7 23.8 At 1 January 2013 14.1 9.7 23.8 Additions 0.3 1.1 1.4 Additions through acquisitions — 0.1 0.1 Disposals (8.4) (4.5) (12.9) At 31 December 2013 6.0 6.4 12.4 Depreciation: On acquisition of Brit Insurance Holdings B.V. 8.8 6.3 15.1 Charge for the period 1.0 0.8 1.8 At 31 December 2011 9.8 7.1 16.9 At 1 January 2012 9.8 7.1 16.9 Charge for the year 0.9 1.1 2.0 Impairment 0.2 — 0.2 Disposals (0.8) (0.3) (1.1) At 31 December 2012 10.1 7.9 18.0 At 1 January 2013 10.1 7.9 18.0 Charge for the year 1.0 1.0 2.0 Impairment 0.1 0.1 0.2 Disposals (8.4) (4.5) (12.9) At 31 December 2013 2.8 4.5 7.3 Carrying amount: At 31 December 2011 2.8 2.5 5.3 At 31 December 2012 4.0 1.8 5.8 At 31 December 2013 3.2 1.9 5.1

The gross cost of property, plant and equipment fully depreciated but still in use is £3.2m (2012: £14.5m) (2011: £11.0m).

Of the depreciation charge for the year, £2.0m (2012: £1.9m) (2011: £2.7m) is included in ‘Other operating expenses’ in the income statement and a further £nil (2012: £0.1m) (2011: £nil) is included in the (loss)/profit from discontinued operations.

There were impairments to property, plant and equipment of £0.2m during 2013 (2012: £0.2m) (2011: £nil) which were included in ‘Other operating expenses’.

Further information is given in Note 5c.

257 21. Intangible assets Brit Insurance Holdings B.V.

Distribution Trade Syndicate Renewal channels names participations Rights Software Total £m £m £m £m £m £m Cost: At 1 January 2011 — — — — 37.2 37.2 Additions — — — — 1.0 1.0 At 8 March 2011 — — — — 38.2 38.2 Amortisation: At 1 January 2011 — — — — 19.1 19.1 Charge for the period — — — — 1.1 1.1 At 8 March 2011 — — — — 20.2 20.2 Carrying amount: At 8 March 2011 — — — — 18.0 18.0

Achilles Holdings 1 S.à r.l

Distribution Trade Syndicate Renewal channels names participations Rights Software Total £m £m £m £m £m £m Cost: On acquisition of Brit Insurance Holdings B.V. 6.3 12.1 45.4 — 38.2 102.0 Additions — — — — 1.5 1.5 Disposals — — — — (0.7) (0.7) At 31 December 2011 6.3 12.1 45.4 — 39.0 102.8 At 1 January 2012 6.3 12.1 45.4 — 39.0 102.8 Additions — — — — 0.5 0.5 Disposals — — — — (12.3) (12.3) At 31 December 2012 6.3 12.1 45.4 — 27.2 91.0 At 1 January 2013 6.3 12.1 45.4 — 27.2 91.0 Additions — — — — 4.3 4.3 Additions through acquisitions — — — 1.4 — 1.4 Disposals — — — — (12.1) (12.1) At 31 December 2013 6.3 12.1 45.4 1.4 19.4 84.6

Distribution Trade Syndicate Renewal channels names participations Rights Software Total £m £m £m £m £m £m Amortisation: On acquisition of Brit Insurance Holdings B.V. — — — — 20.2 20.2 Charge for the period 0.3 2.0 — — 3.4 5.7 Impairment — — — — 0.8 0.8 Disposals — — — — (0.7) (0.7) At 31 December 2011 0.3 2.0 — — 23.7 26.0 At 1 January 2012 0.3 2.0 — — 23.7 26.0 Charge for the year 0.4 1.9 — — 2.9 5.2 Impairment — 2.6 — — 7.5 10.1 Disposals — — — — (12.3) (12.3) At 31 December 2012 0.7 6.5 — — 21.8 29.0 At 1 January 2013 0.7 6.5 — — 21.8 29.0 Charge for the year 0.4 1.7 — 0.4 2.3 4.8 Impairment — — — — 0.2 0.2 Disposals — — — — (12.1) (12.1) At 31 December 2013 1.1 8.2 — 0.4 12.2 21.9 Carrying amount: At 31 December 2011 6.0 10.1 45.4 — 15.3 76.8 At 31 December 2012 5.6 5.6 45.4 — 5.4 62.0 At 31 December 2013 5.2 3.9 45.4 1.0 7.2 62.7

258 The 2011 intangible assets and movements during the year comprise the amortisation charge for software owned by Brit Insurance Holdings B.V. for the period 1 January 2011 to 8 March 2011 and the Achilles Holdings 1 S.à r.l. intangible assets on acquisition of Brit Insurance Holdings B.V., and their subsequent movements during the period ended 31 December 2011.

The trade names impairment charge of £2.6m in 2012 is included in the profit from discontinued operations.

The gross cost of software fully amortised but still in use is £8.7m (2012: £13.7m) (2011: £12.7m).

All software additions in 2013, 2012 and 2011 were internally developed.

Of the software amortisation charge for the year, £2.7m (2012: £2.7m) (2011: £3.7m) is included in ‘Other operating expenses’ in the income statement and a further £nil (2012: £0.2m) (2011: £0.8m) is included in the (loss)/profit from discontinued operations.

During 2012 various software systems were impaired down to a recoverable value of nil. Of these, £4.3m related to the sale of the UK renewal rights and a further £2.4m related to the disposal of Brit Insurance Limited and these amounts were included in the profit from discontinued operations in the income statement. A further £0.8m impairment is included in ‘Other operating expenses’.

During 2011, various software systems were impaired down to a recoverable amount of £nil. This was due to those software systems not being put into service and resulted in a charge of £0.8m.

Assets not yet in use with a total cost of £3.8m (2012: £0.1m) (2011: £nil) are included in software.

Further information is given in Note 5c.

22. Deferred acquisition costs Brit Insurance Holdings B.V.

8 March 2011 £m At 1 January 166.7 Acquisition costs incurred in relation to insurance contracts written 73.2 Acquisition costs expenses to the income statement (53.7) At 8 March 2011 186.2

Achilles Holdings 1 S.à r.l.

31 December 31 December 31 December 2011 2012 2013 £m £m £m At 1 January — 156.7 113.3 On acquisition of Brit Insurance Holdings B.V. 186.2 — — Acquisition costs incurred in relation to insurance contracts written 215.0 275.7 299.9 Acquisition costs expensed to the income statement (244.5) (286.1) (287.5) Disposal — (33.0) — At 31 December 156.7 113.3 125.7

259 23. Deferred taxation Brit Insurance Holdings B.V.

Unrealised (profits)/losses on Intangible investments Pensions Assets Underwriting Other Total £m £m £m £m £m £m As at 1 January 2011 (0.4) (2.6) — (17.5) 4.9 (15.6) Movements in the period: (Charged)/credited to income statement (0.1) (0.7) — 5.9 (0.2) 4.9 Tax relating to components of other comprehensive income (Note 17ii) — 0.1 — — — 0.1 At 8 March 2011 (0.5) (3.2) — (11.6) 4.7 (10.6)

Achilles Holdings 1 S.à r.l

Unrealised (profits)/ losses on Intangible investments Pensions Assets Underwriting Other Total £m £m £m £m £m £m On acquisition of Brit Insurance Holdings B.V. (0.5) (3.2) (19.3) (6.5) 4.7 (24.8) Movements in the period: (Charged)/credited to income statement (0.7) (2.5) 0.8 (16.9) (0.8) (20.1) Tax relating to components of other comprehensive income (Note 17ii) — 1.1 — — — 1.1 At 31 December 2011 (1.2) (4.6) (18.5) (23.4) 3.9 (43.8)

As at 1 January 2012 (1.2) (4.6) (18.5) (23.4) 3.9 (43.8) Movements in the year: Credited to income statement 1.5 — 2.6 8.6 9.0 21.7 Deferred tax transferred on disposal of subsidiary — — — 10.3 — 10.3 Tax relating to components of other comprehensive income (Note 17ii) — 1.3 — — — 1.3 At 31 December 2012 0.3 (3.3) (15.9) (4.5) 12.9 (10.5)

As at 1 January 2013 0.3 (3.3) (15.9) (4.5) 12.9 (10.5) Movements in the year: (Charged)/credited to income statement (0.3) (0.6) 3.0 (17.2) 9.0 (6.1) Tax relating to components of other comprehensive income (Note 17ii) — (0.5) — — — (0.5) At 31 December 2013 — (4.4) (12.9) (21.7) 21.9 (17.1)

The difference between the 8 March 2011 deferred taxation balance in Brit Insurance Holdings B.V. and the deferred taxation balance arising on the acquisition of Brit Insurance Holdings B.V. in Achilles Holdings 1 S.à r.l. relates to the fair value adjustments made to the previous carrying values on acquisition.

Deferred tax has not been set up in respect of losses carried forward of £21.7m (2012: £19.5m) (2011: £16.8m) as it is not considered probable that they can be utilised in the foreseeable future.

Deferred tax has not been provided in respect of the profits of subsidiaries in the Group as tax exemptions, for example the participation exemption, are expected to apply.

Deferred tax assets arising on decelerated capital allowances of £5.0m (2012: £5.0m) (2011: nil) have not been provided for as they are not forecast to reverse in the period to 2016.

260 24 Insurance and reinsurance contracts (i) Balances on insurance and reinsurance contracts

31 December 31 December 31 December 2011 2012 2013 £m £m £m Gross Insurance contracts Claims reported and loss adjustment expenses 1,767.7 1,032.2 994.7 Claims incurred but not reported 1,155.0 1,066.8 1,103.0 2,922.7 2,099.0 2,097.7 Unearned premiums 634.3 462.3 496.2 Total insurance contracts 3,557.0 2,561.3 2,593.9

Recoverable from reinsurers Reinsurance contracts Claims reported and loss adjustment expenses 286.1 196.9 202.3 Claims incurred but not reported 221.6 165.0 172.5 Impairment provision (3.8) (0.4) (0.8) 503.9 361.5 374.0 Unearned premiums 62.3 52.8 76.0 Total reinsurance contracts 566.2 414.3 450.0

Net Claims reported and loss adjustment expenses 1,481.6 835.3 792.4 Claims incurred but not reported 933.4 901.8 930.5 Impairment provision 3.8 0.4 0.8 2,418.8 1,737.5 1,723.7 Unearned premiums 572.0 409.5 420.2 Net insurance and reinsurance contracts 2,990.8 2,147.0 2,143.9

Insurance contracts — assumptions and changes in assumptions Process used to decide on assumptions required The risks associated with these insurance contracts and in particular with Casualty insurance contracts are complex and subject to a number of variables that complicate quantitative sensitivity analysis.

The Group uses several statistical methods to incorporate the various assumptions made in order to estimate the ultimate costs of claims. The two methods more commonly used are the chain-ladder and the Bornhuetter-Ferguson methods.

Chain-ladder methods may be applied to premiums, paid claims or incurred claims (i.e. paid claims plus case estimates). The basic technique involves the analysis of historical claims development factors and the selection of estimated development factors based on this historical pattern. The selected development factors are then applied to cumulative claims data for each underwriting year that is not yet fully developed to produce an estimated ultimate claims cost for each underwriting year.

Chain-ladder techniques are most appropriate for mature classes of business that have a relatively stable development pattern. Chain-ladder techniques are less suitable in cases in which the insurer does not have a developed claims history for a particular class of business.

The Bornhuetter-Ferguson method uses a combination of a benchmark or market-based estimate and an estimate based on claims experience. The former is based on a measure of exposure such as premiums; the latter is based on the paid or incurred claims to date. The two estimates are combined using a formula that gives more weight to the experience-based estimate as time passes. This technique is used in situations in which developed claims experience are not available for the projection (recent underwriting years or new classes of business).

261 The choice of selected results for each year of each class of business depends on an assessment of the technique that has been most appropriate to observed historical developments. In certain instances, this has meant that different techniques or combination of techniques have been selected for the individual underwriting year or groups of underwriting years within the same class of business.

Claims for a number of classes of business, including Financial Risk, Mortgage Indemnity Guarantee, Catastrophe Retrocession and Casualty Treaty, do not always conform to the statistical distribution expected. For these classes claims reserves are additionally reviewed on a policy by policy basis by underwriters and claims managers and these reviews take account of market intelligence in addition to notified claims.

In addition to the estimation of claims reserves certain estimates are produced for unearned premiums. For open market business earned premium is calculated at policy level. However, premium derived from delegated underwriting authorities is calculated by applying the 1/144ths method to estimated premiums applied to the master policy. This assumes that attachments to master policies arise evenly throughout the period of that master policy.

Reinsurance outwards premiums are earned according to the nature of the cover. ‘Losses occurring during’ policies are earned evenly over the policy period. ‘Risks attaching’ policies are earned on the same basis as the inwards business being protected.

Changes in assumptions The Group did not change its estimation techniques for the insurance contracts disclosed in this note during the year.

Claims development tables The tables below show the development of claims over a period of time on a gross and net of reinsurance basis.

The claims development tables have been presented on an underwriting year basis.

The tables show the cumulative incurred claims, including both notified and IBNR claims, for each successive underwriting year at the end of each year, together with cumulative paid claims as at the end of the current year.

The claims have been adjusted to make them comparable on a year by year basis.

They have been grossed up to include 100% of the managed syndicate claims rather than the claims that reflects the Brit Insurance percentage ownership of each syndicate’s capacity during the respective underwriting years. In addition, claims in currencies other than Sterling have been retranslated at 31 December 2013 exchange rates.

262 Ultimate gross claims

Intra Group and 2004 and other underwriting prior years 2005 2006 2007 2008 2009 2010 2011 2012 2013 adjustments Total Underwriting year £m £m £m £m £m £m £m £m £m £m £m £m At end of underwriting year 3,216.0 793.9 476.9 640.1 653.6 547.4 561.5 628.3 614.3 598.5 One year later 3,146.9 811.2 495.2 690.7 683.9 565.8 642.5 613.1 600.7 — Two years later 3,027.6 806.1 480.9 694.3 710.0 542.1 677.8 615.1 — — — Three years later 3,006.0 793.8 458.5 721.8 743.5 547.8 673.4 — — — — Four years later 2,988.2 786.0 432.7 712.9 756.3 536.4 ———— — Five years later 2,962.1 761.5 402.3 719.0 758.3 ————— — Six years later 2,918.2 743.0 402.5 720.8 —————— — Seven years later 2,890.3 743.9 406.1 ——————— — Eight years later 2,882.4 740.5 ———————— — Nine years later 2,860.9 ————————— — Total ultimate gross claims at 31 December 2013 2,860.9 740.5 406.1 720.8 758.3 536.4 673.4 615.1 600.7 598.5 8,510.7 Less accumulated gross paid claims (2,740.4) (710.0) (335.6) (565.9) (505.3) (338.7) (410.2) (293.2) (165.9) (31.6) (6,096.8)

263 Unearned premium portion of gross ultimate claims — ———————(27.7) (314.8) (342.5) Claims handling provision 1.9 0.5 1.1 2.4 4.0 3.0 4.0 4.8 6.1 3.9 31.7 Outstanding gross claims at 31 December 2013 122.4 31.0 71.6 157.3 257.0 200.7 267.2 326.7 413.2 256.0 2,103.1 Other corporate adjustments — ————————— (5.4) (5.4) Total outstanding gross claims at 31 December 2013 122.4 31.0 71.6 157.3 257.0 200.7 267.2 326.7 413.2 256.0 (5.4) 2,097.7 Ultimate movement in gross claims during 2013 calendar year (21.5) (3.4) 3.6 1.8 2.0 (11.4) (4.4) 2.0 (13.6) — (44.9) Ultimate net claims

Intra Group and other 2004 and underwriting prior years 2005 2006 2007 2008 2009 2010 2011 2012 2013 adjustments Total Underwriting year £m £m £m £m £m £m £m £m £m £m £m £m At end of underwriting year 2,475.1 549.0 444.8 570.4 578.1 492.2 487.9 547.7 514.2 476.3 One year later 2,355.7 574.8 462.4 587.1 610.8 489.7 529.2 534.8 508.1 — Two years later 2,226.9 569.7 436.6 597.7 623.1 470.6 550.1 529.0 — — Three years later 2,239.0 557.8 414.8 601.5 648.8 456.4 540.1 — — — Four years later 2,212.2 545.7 394.7 588.3 662.3 443.3 ———— Five years later 2,175.7 523.3 364.2 594.8 660.0 ————— Six years later 2,139.1 503.3 360.4 596.9 —————— Seven years later 2,118.0 504.7 359.6 ——————— Eight years later 2,107.8 501.5 ———————— Nine years later 2,089.9 ————————— Total ultimate net claims at 31 December 2013 2,089.9 501.5 359.6 596.9 660.0 443.3 540.1 529.0 508.1 476.3 — 6,704.7 Less accumulated net paid claims (2,001.2) (473.8) (307.4) (471.1) (450.1) (294.6) (336.5) (259.0) (144.1) (29.4) — (4,767.2) 264 Unearned premium portion of net ultimate claims — ———————(23.6) (246.3) — (269.9) Bad debt provision 0.1 — — — 0.1 ————0.6— 0.8 Claims handling provision 1.9 0.5 1.1 2.4 4.0 3.0 4.0 4.8 6.1 3.8 — 31.6 Outstanding net claims at 31 December 2013 90.7 28.2 53.3 128.2 214.0 151.7 207.6 274.8 346.5 205.0 — 1,700.0 Other corporate adjustments — ————————— 23.7 23.7 Total outstanding gross claims at 31 December 2013 90.7 28.2 53.3 128.2 214.0 151.7 207.6 274.8 346.5 205.0 23.7 1,723.7 Ultimate movement in net claims during 2013 calendar year (17.9) (3.1) (0.8) 2.1 (2.3) (13.1) (10.0) (5.8) (6.1) — — (57.0)

(ii) Movements in insurance and reinsurance contracts The net aggregate reserve releases from prior years amounted to £57.3m (2012: £16.4m) (2011: £94.2m). In part this arises from the Group’s reserving philosophy which aims to make the most recent years, with the greatest uncertainty of result, prudently reserved leaving a potential for subsequent release.

The movement in net claims of £57.0m stated in the table above although comparable is on an underwriting year basis and the surpluses in this narrative are on an annually accounted basis. The reconciling items are principally the 2012 underwriting year influencing current and prior year earnings and an element of the 2013 accident year major claims relating to underwriting year policies incepting prior to 2013.

Reserves in Global Specialty Direct and Reinsurance experienced releases of £13.0m (2012: strengthened by £13.0m) (2011: releases of £13.1m) and £45.3m (2012: releases of £26.4m) (2011: £54.7m) respectively with a strengthening of £1.0m (2012: releases of £3.0m) (2011: releases £1.1m) within Other Underwriting. (a) Claims and loss adjustment expenses Brit Insurance Holdings B.V.

Gross Reinsurance Net £m £m £m As at 1 January 2011 2,818.5 (453.0) 2,365.5 Cash paid for claims settled in the period for continuing operations (63.5) 10.2 (53.3) Cash paid for claims settled in the period for discontinued operations (89.4) 28.1 (61.3) Increase in liabilities from continuing operations 190.6 (57.4) 133.2 Increase in liabilities from discontinued operations 46.1 (4.8) 41.3 Net foreign exchange differences (35.6) 7.2 (28.4) As at 8 March 2011 2,866.7 (469.7) 2,397.0

Achilles Holdings 1 S.à r.l

Gross Reinsurance Net £m £m £m As at 1 January 2011 — — — On acquisition 2,866.7 (469.7) 2,397.0 Cash paid for claims settled in the year for continuing operations (610.7) 128.8 (481.9) Cash paid for claims settled in the year for discontinued operations (147.6) 10.6 (137.0) Increase in liabilities from continuing operations 623.2 (152.6) 470.6 Increase in liabilities from discontinued operations 150.6 (12.5) 138.1 Net foreign exchange differences 40.5 (8.5) 32.0 As at 31 December 2011 2,922.7 (503.9) 2,418.8

Gross Reinsurance Net £m £m £m As at 1 January 2012 2,922.7 (503.9) 2,418.8 Cash paid for claims settled in the year for continuing operations (659.7) 124.8 (534.9) Cash paid for claims settled in the year for discontinued operations (165.3) 8.0 (157.3) Increase in liabilities from continuing operations 678.7 (148.7) 530.0 Increase in liabilities from discontinued operations 133.7 (21.3) 112.4 Disposal of subsidiary (734.7) 164.7 (570.0) Net foreign exchange differences (76.4) 14.9 (61.5) As at 31 December 2012 2,099.0 (361.5) 1,737.5

Gross Reinsurance Net £m £m £m As at 1 January 2013 2,099.0 (361.5) 1,737.5 Cash paid for claims settled in the year for continuing operations (542.1) 99.2 (442.9) Increase in liabilities from continuing operations 576.2 (117.0) 459.2 Net foreign exchange differences (35.4) 5.3 (30.1) As at 31 December 2013 2,097.7 (374.0) 1,723.7

265 b) Unearned premiums Brit Insurance Holdings B.V.

Gross Reinsurance Net £m £m £m As at 1 January 2011 666.8 (66.5) 600.3 Premiums written in the period from continuing operations 321.0 (122.4) 198.6 Premiums written in the period for discontinued operations 74.4 (25.0) 49.4 Premiums earned during the period from continuing operations (214.6) 36.4 (178.2) Premiums earned during the period from discontinued operations (58.7) 13.6 (45.1) As at 8 March 2011 788.9 (163.9) 625.0

Achilles Holdings 1 S.à r.l.

Gross Reinsurance Net £m £m £m As at 1 January 2011 — — — On acquisition 814.4 (169.2) 645.2 Premiums written in the year from continuing operations 858.9 (82.2) 776.7 Premiums written in the year for discontinued operations 235.1 (22.6) 212.5 Premiums earned during the year from continuing operations (1,000.3) 166.1 (834.2) Premiums earned during the year from discontinued operations (273.8) 45.6 (228.2) As at 31 December 2011 634.3 (62.3) 572.0

Gross Reinsurance Net £m £m £m As at 1 January 2012 634.3 (62.3) 572.0 Premiums written in the year from continuing operations 1,147.9 (210.9) 937.0 Premiums written in the year for discontinued operations 150.8 (72.6) 78.2 Premiums earned during the year from continuing operations (1,144.2) 201.4 (942.8) Premiums earned during the year from discontinued operations (221.0) 45.4 (175.6) Disposal of subsidiary (105.6) 46.2 (59.4) As at 31 December 2012 462.2 (52.8) 409.4

Gross Reinsurance Net £m £m £m As at 1 January 2013 462.2 (52.8) 409.4 Premiums written in the year from continuing operations 1,185.7 (229.4) 956.3 Premiums earned during the year from continuing operations (1,151.7) 206.2 (945.5) As at 31 December 2013 496.2 (76.0) 420.2

25 Employee benefits The Group has the following pension schemes in operation:

(i) Brit Group Services Limited — Defined Benefit Pension Scheme The Group operates a funded defined benefit pension scheme providing pensions and death benefits to its members. The scheme closed to new entrants on 4 October 2001 and closed to future accrual of benefits on 31 December 2011. All active members of the defined benefit scheme joined the defined contribution plan for future service. Following closure to future accruals, benefits now increase broadly in line with inflation. The weighted average duration to payment of the scheme’s expected cash flows is 18 years (2012: 18 years) (2011: 18 years).

The scheme is approved by HMRC for tax purposes, and is operated separately from the Group and managed by an independent Trustee. The Trustee is responsible for payment of the benefits and management of the plan’s assets. The scheme is subject to UK regulations overseen by the Pensions Regulator, which require the Group and Trustees to agree a funding strategy and contribution schedule

266 for the scheme every three years. The most recent triennial review of the scheme was undertaken as at 31 July 2012 and identified a funding deficit of £11.6m. The Group agreed to pay three contributions of £4.5m each subsequent 31 July and a final contribution of £1.6m on 31 July 2016 to remove this deficit by 31 July 2016. The Group expects to contribute £4.5m to the scheme in 2014.

The Group has also committed to pay further contributions to the scheme of at least £2.0m a year from 1 January 2017 to 31 July 2024. These contributions are payable by Brit Group Services Limited and backed-up by cross-company guarantees from both Brit Insurance Holdings Limited and Brit Overseas Holdings S.à r.l.

Net amount recognised in the statement of financial position for the scheme:

31 December 31 December 31 December 2011 2012 2013 £m £m £m Present value of defined benefit obligation (107.7) (119.1) (125.0) Fair value of scheme assets 126.6 133.8 146.9 Net pension asset 18.9 14.7 21.9

Changes in the net liabilities recognised in the balance sheet:

31 December 31 December 31 December 2011 2012 2013 £m £m £m Opening balance sheet asset 9.6 18.9 14.7 Credit to income statement 6.3 1.0 0.7 Amount recognised outside income statement (2.7) (9.7) 2.0 Contributions paid 5.7 4.5 4.5 Closing balance sheet asset 18.9 14.7 21.9

The net pension asset is expected to become available to the Group in the form of a refund, subject to income tax. This refund is expected to arise in the very long term when the last scheme benefit has been paid at which point the Group would have an unconditional right to any remaining surplus in the scheme.

Net credit recognised in the income statement comprised:

31 December 31 December 31 December 2011 2012 2013 £m £m £m Current Service cost 1.1 — — Curtailments (6.8) — — Net interest on net defined benefit asset (0.6) (1.0) (0.7) Net credit (6.3) (1.0) (0.7)

This credit has been recognised in the operating expenses line of the income statement. Contributions to the Group’s defined contribution pension arrangements are in addition to those set out in this note and are charged directly to the income statement.

The allocation of the scheme’s assets was as follows:

31 December 31 December 31 December 2011 2012 2013 £m £m £m Equities 50.0 61.3 58.4 Index-linked UK government bonds 64.0 58.8 71.2 Non-UK index-linked bonds 7.4 5.4 5.5 Cash and net current assets 1.8 3.3 7.1 Gold and gold mining equities 2.4 3.5 2.1 Other scheme assets 1.0 1.5 2.6 Fair value of scheme assets 126.6 133.8 146.9

267 All scheme assets have quoted prices in active markets. The scheme does not invest directly in property occupied by the Group or in financial securities issued by the Group.

Investment strategy The trustees determine the scheme’s investment strategy after taking appropriate advice from their investment consultants. The Management of the assets is delegated to State Street Global Advisors and Ruffer LLP. The Trustee’s investment objective is to ensure that the scheme has adequate resources to meet its liabilities and thereafter to maximise the long term global rate of return on the assets.

Investment risk is managed by diversifying the assets across asset classes whose return patterns are not highly correlated, and by periodically rebalancing asset classes. The assets include a portfolio of UK index-linked government bonds which aim to match a significant part of the scheme’s inflation- linked benefits and therefore help to reduce the Group’s exposure to investment and inflation risks.

Movements in the present value of the defined benefit obligation were as follows:

31 December 31 December 31 December 2011 2012 2013 £m £m £m Opening defined benefit obligation 105.2 107.7 119.1 Current service cost 1.1 — — Curtailments (6.8) — — Interest on defined benefit obligation 5.6 5.1 5.2 Remeasurements due to: Changes in financial assumptions 4.8 5.4 5.8 Changes in demographic assumptions — 3.6 — Experience on benefit obligations 1.3 0.9 0.1 Benefits paid (3.5) (3.6) (5.2) Closing defined benefit obligation 107.7 119.1 125.0

Movements in the fair value of the scheme assets were as follows:

31 December 31 December 31 December 2011 2012 2013 £m £m £m Opening fair value of scheme assets 114.8 126.6 133.8 Interest income 6.2 6.1 5.9 Actual return excluding interest income 3.3 0.2 7.9 Contributions by the employer 5.7 4.5 4.5 Benefits paid (3.4) (3.6) (5.2) Closing fair value’ of scheme assets 126.6 133.8 146.9

The principal actuarial assumptions at the year-end were:

31 December 31 December 31 December 2011 2012 2013 Discount rate 4.8% 4.4% 4.5% Retail Prices Index (RPI) inflation 3.2% 3.1% 3.5% Consumer Prices Index (CPI) inflation 2.2% 2.1% 2.5% Pension increases in payment 3.1% 3.0% 3.4% Mortality assumption Life expectancy of male aged 60 at balance sheet date 26.4 years 27.3 years 27.4 years Life expectancy of female aged 60 at balance sheet date 28.6 years 29.6 years 29.7 years Life expectancy of male aged 60 retiring in 20 years’ time 28.5 years 29.3 years 29.4 years Life expectancy of female aged 60 retiring in 20 years’ time 29.9 years 31.3 years 31.4 years

268 The assumptions used to determine end-of-year benefit obligations are also used to calculate the following year’s cost.

Sensitivity analysis:

Change in defined benefit Change in assumption obligation at end of period Discount rate Decrease by 0.5% Increase by £11.7m Future RPI inflation increases Increase by 0.5% Increase by £6.5m Future CPI inflation increases Increase by 0.5% Increase by £2.3m Assumed life expectancy at age 60 Increase by 1 year Increase by £3.5m

The calculations in this section have been carried out using the same method and data as the Group’s pensions and accounting figures with each assumption adjusted as shown above. Each assumption has been varied individually and a combination of changes in assumptions could produce a different result.

Risks The Group is exposed to a number of risks in relation to its defined benefit scheme, the most significant of which are detailed below:

Risk

Investment strategy Changes in asset values are not matched by changes in the scheme’s defined benefit obligations. For example, if equity values fall with no changes in corporate bond yields, the net pension asset would reduce. Investment returns Future investment returns are lower than anticipated and so additional contributions are required from the Group to pay all the benefits promised. Improvements in life expectancy Scheme members live longer and so benefits are payable for longer than anticipated. Inflation Actual inflation is higher and so benefit payments are higher than anticipated. Regulatory In future the Scheme may have backdated claims or liabilities arising from future legislation, emerging practice or court judgments.

(ii) Brit Group Services Limited — Defined Contribution Personal Pension Plan From 5 October 2001, Brit Group Services Limited has operated a defined contribution group personal pension plan. The assets of the scheme are held separately from those of the Group in an independently administered fund.

The pension cost charge represents contributions payable by Brit Group Services Limited to the fund and amounted to £4.4m (2012: £5.2m) (2011: £7.1m).

At 31 December 2013 no contributions were payable to the fund (2012: £nil) (2011: £nil).

(iii) Brit Insurance Services USA Inc — 401(k) Safe Harbor Plan Brit Insurance Services USA Inc operates a ‘401(k) Safe Harbor Plan’. The assets of the scheme are held separately from those of the Group in an independently administered fund.

The pension cost charge represents contributions payable by Brit Insurance Services USA Inc to the fund and amounted to £0.3m (2012: £0.1m) (2011: £0.1m).

At 31 December 2013 no contributions were payable to the fund (2012: £nil) (2011: £nil).

269 26 Financial Investments

31 December 31 December 31 December 2011 2012 2013 £m £m £m Equity securities 121.9 3.6 47.6 Debt securities 2,906.9 2,160.4 998.8 Loan instruments — 26.5 292.7 Specialised investment funds 177.4 121.6 936.8 3,206.2 2,312.1 2,275.9

All financial investments have been designated as held at fair value through profit or loss.

Basis for determining the fair value hierarchy of financial instruments The Group has classified fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.

The fair value hierarchy comprises the following levels:

(a) Level 1 — quoted prices (unadjusted) in active markets for identical assets;

(b) Level 2 — inputs other than quoted prices included within Level 1 that are observable for the asset, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

(c) Level 3 — inputs for the asset that are not based on observable market data (unobservable inputs).

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety shall be determined on the basis of the lowest level input that is significant to the fair value measurement. The significance of an input is assessed against the fair value measurement in its entirety.

Fair values determined in whole directly by reference to an active market relate to prices which are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis, i.e the market is still active. Such assets are categorised as Level 1.

Fair values for Level 2 and Level 3 assets include: • values provided at the request of the Group by pricing services and which are not publicly available or values provided by external parties which are readily available but relate to assets for which the market is not always active; and • assets measured on the basis of valuation techniques including a varying degree of assumptions supported by market transactions and observable data.

For all assets not quoted in an active market/no active market, the classification between Level 2 and Level 3 depends on the proportion of assumptions used supported by market transactions and observable data assumed to be used by pricing services.

The principal investments classified as Level 2, and the valuation techniques applied to them are: • Corporate bonds held by the Group which are either directly or indirectly observable but for which there is no active market trading and the amount of information is limited to public information. As a result, these have been classified as Level 2 with the exception of certain corporate bonds which are based on valuation techniques with observable inputs. • Government agency bonds which are not fully guaranteed in the same way as government bonds. There is a secondary market for these bonds but the size of the market and the feature of each security differ. As a result, these bonds are classified as Level 2. • Government-guaranteed bonds for which there isn’t an actively traded market. As a result, these securities are classified as Level 2.

270 • Asset-backed securities which are not traded in active markets and for which prices are based on prepayment models. They are traded on an over-the-counter (OTC) market. Although the volumes are better or much better as the market is standardised, pricing is derived, therefore these securities have been classified as Level 2. • Loan instruments for which the prices are often derived and are not actively traded prices. In terms of volume, loan instruments can be mostly OTC traded, meaning there is no visibility to volume. Private information could be included when pricing a loan instrument. While a certain number of contributors to the price have access to this private information, it is not widely available as per actively traded instruments with market prices. As a result, these securities are classified as Level 2. • Certain fund holdings which have subscriptions and redemptions on a daily basis with sufficient volume at a daily reported redemption price have also been classified as Level 2.

If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset.

Level 3 financial investments are valued using techniques appropriate to the specific investment. The techniques used, amongst others, include fair value by reference to NAVs adjusted and issued by fund managers based on their knowledge of underlying investments and credit spreads of counterparties.

Disclosures of fair values in accordance with the fair value hierarchy

31 December 2011 Level 1 Level 2 Level 3 Total £m £m £m £m Equity securities 119.0 2.4 0.5 121.9 Debt securities 1,138.6 1,756.3 12.0 2,906.9 Specialised investment funds 52.7 21.3 103.4 177.4 1,310.3 1,780.0 115.9 3,206.2

31 December 2012 Level 1 Level 2 Level 3 Total £m £m £m £m Equity securities 3.0 0.6 — 3.6 Debt securities 979.0 1,162.2 19.2 2,160.4 Loan instruments — 26.5 — 26.5 Specialised investment funds — 71.8 49.8 121.6 982.0 1,261.1 69.0 2,312.1

31 December 2013 Level 1 Level 2 Level 3 Total £m £m £m £m Equity securities 47.6 — — 47.6 Debt securities 251.6 489.8 257.4 998.8 Loan instruments — 292.7 — 292.7 Specialised investment funds 792.9 69.6 74.3 936.8 1,092.1 852.1 331.7 2,275.9

All fair value measurements above are recurring. Fair values are classified as Level 1 when the financial instrument or derivative is actively traded and a quoted price is available. If an instrument classified as Level 1 subsequently ceases to be actively traded, it is transferred out of Level 1. In such cases, instruments are classified into Level 2, unless the measurement of its fair value requires the use of significant unobservable inputs, in which case it is classified as Level 3.

For the year to 31 December 2013, there were no transfers of financial assets or liabilities between fair value hierarchy Levels 1 and Level 2 (2012: There were transfers of £7.1m Government Agency Bonds

271 from Level 2 to Level 1). There were transfers of £43.2m Asset-Backed Securities, £35.9m Residential Mortgage-Backed Securities and £8.9m Collateralized Mortgage Obligations between fair value hierarchy Levels 2 and 3 (2012: £1.2m of commercial mortgage backed securities from Level 2 to Level 3). There were no transfers between hierarchy levels for the year ended 31 December 2011.

All unrealised gains of £0.9m (2012: gain of £20.0m) (2011: gain of £2.5m) and realised gains of £0.7m (2012: losses of £17.7m) (2011: loss of £2.7m) on Level 3 financial investments held during the year, are presented in investment return in the income statement.

There was no change to the risks and rewards of ownership to which Achilles Holdings 1 S.à r.l. was exposed.

Equities The Group’s equity positions are classified as Level 1 when the security is actively traded and a reliable price is observable.

Debt securities Fixed income investments held by the Group generally have prices directly or indirectly observable, however, there is limited active market and the amount of public information is limited. As a result, most of the Fixed Income instruments have been classified as Level 2 (apart from money market funds with daily NAV classified as Level 1 and Commercial mortgage backed securities which are classified as Level 3).

Loan instruments Loan instruments have low levels of liquidity. The prices are often derived and they are not actively traded. As a result, they are classified as Level 2.

Reconciliation of movements in Level 3 financial investments measured at fair value

Specialised Equity securities Debt Securities investment funds Total £m £m £m £m At 1 January 2011 1.3 17.4 59.4 78.1 Total losses recognised in the income statement — — (0.2) (0.2) Purchases 0.5 8.3 54.5 63.3 Sales (1.3) (14.0) (10.0) (25.3) Foreign exchange gains/(losses) — 0.3 (0.3) — At 31 December 2011 0.5 12.0 103.4 115.9

Specialised Equity securities Debt Securities investment funds Total £m £m £m £m At 1 January 2012 0.5 12.0 103.4 115.9 Transfers into Level 3 — 1.2 — 1.2 Total gains recognised in the income statement — 0.1 2.2 2.3 Purchases — 17.7 1.1 18.8 Sales (0.5) (11.7) (56.4) (68.6) Foreign exchange losses — (0.1) (0.5) (0.6) At 31 December 2012 — 19.2 49.8 69.0

272 Specialised Equity securities Debt Securities investment funds Total £m £m £m £m At 1 January 2013 — 19.2 49.8 69.0 Transfers into Level 3 — 88.0 — 88.0 Total (losses)/gains recognised in the income statement — (0.4) 6.7 6.3 Purchases — 159.5 73.7 233.2 Sales — (9.1) (52.5) (61.6) Foreign exchange gains/(losses) — 0.2 (3.4) (3.2) At 31 December 2013 — 257.4 74.3 331.7

Total net gains / losses recognised in the income statement in the year in respect of Level 3 financial investments amounted to £1.5m (2012: £2.3m net gains) (2011: £0.2m net losses). Included in this balance are £0.9m unrealised gains (2012: £20.0m unrealised gains) (2011: £2.5m unrealised gains) attributable to assets still held at the end of the year.

There were transfers of £43.2m Asset-Backed Securities, £35.9m Residential Mortgage-Backed Securities and £8.9m Collateralized Mortgage Obligations between fair value hierarchy Levels 2 and 3 (2012: £1.2m of commercial mortgage backed securities from Level 2 to Level 3) (2011: no transfers). Transfers into Level 3 for the year arose for the following reasons • Changes in the market observability of valuation inputs. • Changes in the market observability of inputs used to validate valuations.

The principal investments classified as Level 3, and the valuation techniques applied to them are: • Structured fixed income investments for which there is no active market and require a number of observable and non observable inputs. These investments are valued using third party models such as default or prepayment models and housing prices. • Credit Opportunities funds are valued based on what actually is in the fund on a security by security basis. A number of observable and non observable market characteristics such as benchmark yield curves, credit spreads, estimated default rates, anticipated market interest rate volatility, coupon rates, anticipated timing of principal repayments, underlying collateral etc. are being considered during their valuation.

Sensitivity of Level 3 financial investments measured at fair value to changes in key assumptions The following table shows the sensitivity of the fair value of Level 3 financial investments to changes in key assumptions.

31 December 2011 Effect of possible alternative Carrying amount assumptions (+/-) £m £m Equity securities 0.5 — Debt securities 12.0 0.9 Specialised investment funds 103.4 12.6 115.9

31 December 2012 Effect of possible alternative Carrying amount assumptions (+/-) £m £m Debt securities 19.2 1.0 Specialised investment funds 49.8 7.1 69.0

273 31 December 2013 Effect of possible alternative Carrying amount assumptions (+/-) £m £m Debt securities 257.4 12.9 Specialised investment funds 74.3 5.1 331.7

In order to determine reasonably possible alternative assumptions, the Group adjusted key unobservable model inputs as follows: • For debt securities, the Group adjusted, dependent on the type and valuation methodology of the investment, key variables including the probability of spread movements, leverage ratio changes and changes in mortgage default rates used in the models. • For specialised investment funds, the assumptions have been adjusted by between 5-8% as determined by historic movements in volatility of valuations or price changes in the underlying investments.

27 Derivative contracts

31 December 2011 31 December 2012 31 December 2013 £m £m £m Derivative contract assets Put options — — 2.0 Currency forwards — 1.1 10.7 Warrants 0.3 — — 0.3 1.1 12.7

31 December 2011 31 December 2012 31 December 2013 £m £m £m Derivative contract liabilities Currency forwards 0.3 1.8 8.4 Interest rate swaps — — 2.7 0.3 1.8 11.1

Disclosures of fair values in accordance with the fair value hierarchy

31 December 2011 Derivative contract liabilities Level 1 Level 2 Level 3 Total £m £m £m £m Derivative contract assets — — 0.3 0.3 Derivative contract liabilities — — 0.3 0.3

31 December 2012 Derivative contract liabilities Level 1 Level 2 Level 3 Total £m £m £m £m Derivative contract assets — — 1.1 1.1 Derivative contract liabilities — — 1.8 1.8

31 December 2013 Derivative contract liabilities Level 1 Level 2 Level 3 Total £m £m £m £m Derivative contract assets — 10.7 2.0 12.7 Derivative contract liabilities — 11.1 — 11.1

For further information regarding the fair value hierarchy, refer to Note 26.

Reconciliation of movements in Level 3 derivative contracts measured at fair value

Put options Currency forwards Warrants Total £m £m £m £m At 1 January 2011 — — 0.4 0.4 Total gains recognised in the income statement — (0.3) (0.1) (0.4) At 31 December 2011 — (0.3) 0.3 —

274 Put options Currency forwards Warrants Total £m £m £m £m At 1 January 2012 — (0.3) 0.3 — Total gains recognised in the income statement — (0.4) (0.3) (0.7) At 31 December 2012 — (0.7) — (0.7)

Put options Currency forwards Warrants Total £m £m £m £m At 1 January 2013 — (0.7) — (0.7) Transferred to Level 2 — 0.7 — 0.7 On disposal of asset held for sale 2.0 — — 2.0 At 31 December 2013 2.0 — — 2.0

28 Insurance and other receivables

31 December 2011 31 December 2012 31 December 2013 £m £m £m Arising out of direct insurance operations 261.6 98.8 156.2 Arising out of reinsurance operations 218.1 221.4 195.6 Prepayments 5.0 9.0 8.0 Accrued income 29.0 16.8 5.2 Outstanding settlements on investments — 0.7 12.3 Other debtors 6.8 6.6 3.6 520.5 353.3 380.9

The carrying amounts disclosed above reasonably approximate fair values as all material amounts are due within one year of the date of the statement of financial position.

29 Cash and cash equivalents

31 December 2011 31 December 2012 31 December 2013 £m £m £m Cash at bank and on deposit 451.9 265.6 284.3 Cash equivalents 5.9 39.3 31.4 457.8 304.9 315.7

The carrying amounts disclosed above reasonably approximate fair values.

Included in cash and cash equivalents are amounts totalling £154.2m (2012: £146.6m) (2011: £253.5m) not available for use by the Group which are held within the Lloyd’s syndicates or as Funds at Lloyd’s.

30 Borrowings

31 December 31 December 31 December Effective 2011 2012 2013 Maturity Call interest rate % £m £m £m Non-current Lower Tier Two subordinated debt 2030 2020 6.84 1.8 1.8 1.8 Revolving credit facility 2017 — LIBOR + 3.0 4.8 7.1 8.2 6.6 8.9 10.0

31 December 2011 31 December 2012 31 December 2013 Amortised Amortised Amortised cost Fair value cost Fair value cost Fair value £m £m £m £m £m £m Non-current Lower Tier Two subordinated debt 120.7 101.6 121.9 123.8 123.2 131.0 Revolving credit facility 124.3 128.0 — — — — 245.0 229.6 121.9 123.8 123.2 131.0

275 The fair value of the Lower Tier Two subordinated debt has been determined by reference to a portfolio of securities with similar characteristics with a discount applied to allow for illiquidity. The Lower Tier Two subordinated debt is classified as level 2 in the fair value hierarchy.

Lower Tier Two subordinated debt The Lower Tier Two subordinated debt is listed and callable in whole by the Group on 9 December 2020. Following this date the interest rate resets to 3.4% above the 10-year gilt rate prevailing at the time. The effective interest rate method of accounting has been applied over the term up to the call date.

Revolving credit facility During 2014, the Group renegotiated its revolving credit facility with its existing banking partners, with such amendments to take effect automatically upon Admission. In addition to amendments to reflect the structure of the Group following Admission, the facility was revised, amongst other things, so as to reduce the margin and the expiry date was extended from 31 December 2017 to 31 December 2018. Up to £125m of the facility is available as a letter of credit. At 31 December 2013, a £48.2m (2012: £49.1m) (2011: £nil) letter of credit had been put in place while the remainder of the facility was undrawn (2012: £nil drawn) (2011: £128.0m).

31 Provisions Brit Insurance Holdings B.V. Onerous lease provision Dilapidation £m provision £m Total £m At 1 January 2011 0.3 1.3 1.6 Unwinding of discount — 0.1 0.1 At 8 March 2011 0.3 1.4 1.7

Achilles Holdings 1 S.à r.l. Onerous lease Dilapidation provision provision Total £m £m £m On acquisition of Brit Insurance Holdings B.V. 0.3 1.4 1.7 Amounts utilised during the period (0.3) (0.2) (0.5) Unwinding of discount — 0.2 0.2 At 31 December 2011 — 1.4 1.4 At 1 January 2012 — 1.4 1.4 New provisions 3.4 — 3.4 Amounts utilised during the year (0.8) — (0.8) Unwinding of discount 0.3 0.1 0.4 At 31 December 2012 2.9 1.5 4.4 At 1 January 2013 2.9 1.5 4.4 Amounts utilised during the year (2.1) (0.3) (2.4) Unwinding of discount 0.2 0.2 0.4 At 31 December 2013 1.0 1.4 2.4

32 Insurance and other payables 31 December 31 December 31 December 2011 2012 2013 £m £m £m Arising out of direct insurance operations 25.6 13.2 14.7 Arising out of reinsurance operations 161.6 113.9 111.8 Other taxes and social security costs 2.3 1.3 1.2 Accruals and deferred income 25.0 22.0 31.0 Outstanding settlements on investments — 22.0 23.8 Other creditors 7.5 3.0 4.8 222.0 175.4 187.3

276 The carrying amounts disclosed above reasonably approximate fair values as all amounts are payable within one year of the date of the statement of financial position.

33 Share Capital The subscribed capital of Achilles Holdings 1 S.à r.l., amounting to £705,521 (2012: £793,711) (2011: £793,711), is represented by: • 8,819,016 class A shares, • 8,819,012 class B shares, • 8,819,012 class C shares, • 8,819,012 class D shares, • 8,819,012 class E shares, • 8,819,012 class F shares, • 8,819,012 class G shares, • 8,819,012 class H shares, and with a nominal value of GBP 0.01 each, fully paid.

On 27 June 2013 the shareholders of Achilles Holdings 1 S.à r.l. decided to redeem all of the 8,819,012 class I shares, with a nominal value of £0.01 each and to pay an aggregate redemption price of £95.0m to the shareholders proportional to the number of class I shares held by them. This transaction resulted in a reduction in share capital of £0.1m, a share premium redemption of £0.4m and reserves movement of £94.5m.

The holders of all of the shares listed above will exchange those shares for ordinary shares in the Company. The rights attaching to the ordinary shares in the Company are set out in more details in Section 5 of Part XVI (Additional Information).

34 Share Premium The movements on the share premium account can be summarised as follows:

31 December 31 December 31 December 2011 2012 2013 £m £m £m Share premium account brought forward — 830.5 456.1 Issue of shares, 17 March 2011 879.5 — — Allocation to legal reserve (0.1) — — Issue of shares, 5 April 2011 0.6 — — Issue of shares, 6 April 2011 0.9 — — Redemption of class J shares, 10 June 2011 (50.4) — — Reimbursement to shareholders, 2 March 2012 — (20.0) — Reimbursement to shareholders, 22 June 2012 — (60.0) — Reimbursement to shareholders, 30 October 2012 — (200.0) — Reimbursement to shareholders, 10 December 2012 — (94.4) — Cancellation of shares, 27 June 2013 — — (0.4) Share premium account carried forward 830.5 456.1 455.7

35 Own shares At 31 December 2013, the own shares held in trust amounted to 156,968 (2012: 117,000) (2011: 130,000) with a value of £1.6m (2012: £1.2m) (2011: £1.3m). The main purpose of the own shares is to satisfy awards under the Retention Partnership Plan, a share-based payment scheme.

36 Reserves The reserves balance results from the share cancellation referred to in Note 33 less a legal reserve of £0.1m.

277 In accordance with Luxembourg company law, Achilles Holdings 1 S.à r.l. is required to transfer a minimum of 5% of its net profit for each financial year to a legal reserve. This requirement ceases to be necessary once the balance on the legal reserve reaches 10% of the issued share capital.

37 Commitments Operating lease commitments The Group has entered into a number of operating lease arrangements to lease properties, motor vehicles and office equipment.

Property leases typically have rent reviews every five years where the lease payments could be increased to reflect market rates.

Operating lease payments recognised in the income statement were £3.1m (2012: £3.9m) (2011: £3.5m).

The future minimum lease payments under non-cancellable operating leases were as follows:

Total Total Total 31 December 31 December 31 December 2011 2012 2013 £m £m £m Not later than one year 4.5 3.5 3.4 Later than one year and not later than five years 11.6 9.3 6.5 Later than five years 0.1 0.1 — 16.2 12.9 9.9

38 Cash flows provided by operating activities

Year ended Year ended Year ended 31 December 31 December 31 December 2011 2012 2013 £m £m £m Profit on ordinary activities before tax 81.8 95.9 107.4 Adjustment for non-cash movements: Realised and unrealised losses/(gains) on investments 9.9 (21.0) (5.3) Realised and unrealised (gains)/losses on derivatives (5.3) 0.7 (11.0) Amortisation of intangible assets 6.6 5.0 4.8 Impairment of intangible assets 0.8 0.8 0.2 Depreciation of property, plant and equipment 2.6 1.9 2.0 Impairment of property, plant and equipment — 0.2 0.2 Foreign exchange losses/(gains) on cash and cash equivalent 1.1 4.5 2.0 Negative goodwill (51.9) — — Share of loss after tax of associated undertakings 0.4 0.1 — Charges to equity in respect of employee share schemes 2.8 0.1 0.1 Cash contributions in excess of defined benefit pension scheme charges (13.0) (5.5) (5.2) Interest income (71.6) (67.0) (56.1) Dividend income (6.7) (3.4) (1.4) Finance costs on borrowing 16.7 14.6 15.0 Profit/(loss) on disposal of asset held for sale — — (4.4) Impairment of associated undertakings — 0.1 — Changes in working capital: Deferred acquisition costs 10.0 10.4 (12.4) Insurance and other receivables excluding accrued income 18.2 24.8 (38.6) Insurance and reinsurance contracts 4.8 (214.5) (3.1) Financial investments (294.8) 142.6 41.5 Derivative contracts 5.7 — 10.6 Insurance and other payables (28.1) 73.8 11.6 Provisions (0.2) 3.0 (2.0) Cash flows provided by operating activities (310.2) 67.1 55.9

278 39 Non-controlling interests On 15 March 2013 the Group completed the buy-out of the 0.57% non-controlling interests in Brit Insurance Holdings B.V. remaining from it’s acquisition on 9 March 2011 at a cost of £5.1m.

40 Share-based payments Brit Insurance Holdings B.V. As at 9 March 2011, control of Brit Insurance Holdings B.V. passed to Achilles Netherlands Holdings B.V. As a result of the takeover, the awards outstanding under each of the share-based payment plans vested in accordance with the plan specific rules. The proportion vested reflected employees’ service since date of grant for each award and any stated performance conditions.

All shares issued in respect of the awards which vested as at 9 March 2011 were repurchased by Achilles Netherlands Holdings B.V. for a cash payment of 1,070.0 pence per share.

The compensation cost recognised in the income statement under International Financial Reporting Standard 2 ‘Share-based payments’ (IFRS 2) for the Group’s share-based payment arrangements is shown below:

1 January to 8 March 2011 £m All Employee Share Ownership Plan (ESOP) 0.5 Savings Related Share Option Scheme (SRSOS) 0.1 Performance Share Plan (PSP) 1.5 Bonus Share Matching Plan (BSMP) 2.5 4.6

The amount recognised in equity is shown below:

1 January to 8 March 2011 £m Compensation cost 4.6 BSMP dividend equivalents settled in cash (1.8) 2.8

(i) All Employee Share Ownership Plan As a result of the change of control, all outstanding free and matching shares as at 9 March 2011 were settled in return for a cash payment of 1,070.0 pence per share. A reconciliation of the movement in the free and matching shares awards which had not yet vested unconditionally since 31 December 2010 is presented below:

Number of shares Outstanding and unvested 1 January 2011 116,668 Forfeited (2,948) Vested (113,720) Outstanding and unvested 8 March 2011 —

The weighted average share price at date of vesting during 2011 was 1,070.0p.

279 (ii) Savings Related Share Option Scheme As a result of the change of control, saving ceased and participating employees’ were allowed to apply their savings accrued to the date of control in order to exercise their options. The shares issued in respect of exercised options were repurchased by a cash payment of 1,070.0 pence per option. A reconciliation of the movement in outstanding options under the SRSOS since 31 December 2010 is presented below:

Weighted average Number exercise price of options (pence) Outstanding 1 January 2011 316,155 609.6 Forfeited (206,636) 609.6 Cancellations (6,961) 609.6 Exercised (99,656) 609.6 Lapsed after vesting (2,902) 609.6 Outstanding 8 March 2011 — n/a

There were nil shares (2010: 956) exercisable at 31 December 2011.

The weighted average share price at date of exercise during 2011 was 1,070.0p.

The weighted average remaining contractual life at 31 December 2011 was nil years.

(iii) Performance Share Plan As a result of the change of control, the PSP awards vested immediately in accordance with the specific plan rules. The number of awards which vested was based on participants’ service since the date of grant and the particular performance conditions associated with each grant. The shares issued in respect of vested awards were repurchased for a cash payment of 1,070.0 pence per share.

A reconciliation of the movement in outstanding and unexercised PSP share awards since 31 December 2010 is presented below:

Number of shares Outstanding and unexercised 1 January 2011 2,191,940 Forfeited (941,898) Failed performance conditions and lapsed (79,578) Exercised (1,170,464) Outstanding and unexercised 8 March 2011 —

The weighted average share price at date of exercise during 2011 was 1,070.0p.

The weighted average fair value at date of grant for awards granted during 2011 was not applicable.

(iv) Bonus Share Matching Plan As a result of the change of control, the BSMP awards vested immediately in accordance with the specific plan rules. The number of awards which vested was based on participants’ service since the date of grant and the particular performance conditions associated with each grant. The shares issued in respect of vested awards were repurchased for a cash payment of 1,070.0 pence per share.

A reconciliation of the movement in outstanding and unexercised PSP share awards since 31 December 2010 is presented below:

Number of matching shares Outstanding and unexercised at start of year 1,556,176 Forfeited (710,460) Exercised (845,716) Outstanding and unexercised at end of year —

280 The weighted average share price at date of exercise during 2011 was 1,070.0p.

The weighted average fair value at date of grant for awards granted during 2011 was not applicable.

(v) Executive Share Option Scheme As a result of the change of control, the outstanding ESOS awards were exercised with an effective date of 9 March 2011. The shares issued in respect of exercised options were repurchased by a cash payment of 1,070.0 pence per option. A reconciliation of the movement in outstanding awards since 31 December 2010 is presented below:

Weighted average Number exercise price of options (pence) Outstanding 1 January 2011 185,521 942.0 Exercised (185.521) 942.0 Outstanding 8 March 2011 — n/a

There were nil shares exercisable at the end of the year.

The weighted average share price at date of exercise during 2011 was 1,070.0p.

The weighted average remaining contractual life at 31 December 2011 was nil.

(vi) Executive Share Option Schemes As a result of the change of control any outstanding awards were exercised with an effective date of 9 March 2011. The shares issued in respect of exercised options were repurchased by a cash payment of 1,070.0 pence per option.

A reconciliation of the movement in outstanding awards since 31 December 2010 is presented below:

Weighted average Number of exercise price options (pence) Outstanding 1 January 2011 19,935 1,275.4 Exercised (19,935) 1,070.0 Outstanding 8 March 2011 — n/a

There were nil shares exercisable at 31 December 2011.

The weighted average share price at date of exercise during 2011 was 1,070.0p.

Achilles Holdings 1 S.à r.l. During 2011, selected employees in the senior management team were invited to buy a number of Purchased Shares in Achilles Holdings 1 S.à r.l. under the Retention Partnership Plan. For each Purchased Share bought, the participant was granted 5 nil-cost options over shares in Achilles Holdings 1 S.à r.l. (Retention Options). During 2011, 130,000 Retention Options were granted. The Retention Options will ordinarily vest on an ‘exit’ event such as a sale or listing on a public stock exchange. The calculation of the compensation cost recognised in the income statement in respect of these awards assumes forfeitures due to employee turnover of 5% per annum prior to vesting, with subsequent adjustments to reflect actual experience. The charge to the income statement for the year was £0.1m (2012: £0.1m) (2011: £0.1m). The weighted average fair value at date of grant of awards granted during 2011 was 760p.

Year ended Year ended Year ended 31 December 31 December 31 December 2011 2012 2013 Number of Number of Number of options options options Outstanding at 1 January 130,000 130,000 81,000 Forfeited — (49,000) (9,000) Outstanding at 31 December 130,000 81,000 72,000

281 41 Acquisitions The Group reached an agreement on 15 March, 2013 to acquire a portion of the formerly exclusive wholesale broker, Protected Self Insurance Manager from Risk Placement Services, Inc. The Group purchased this team and access to renewal rights through a cash payment of £0.3m. This has been recognised as a renewal right intangible asset.

The Group reached agreement on 1 May, 2013 to acquire Maiden Specialty from Maiden Re Insurance Company. The Group purchased this team and access and renewal rights and certain items of office equipment through a cash payment of £0.9m and a further £0.4m of estimated deferred consideration. This has been recognised as a renewal right intangible asset of £1.2m and property, plant and equipment of £0.1m.

42 Unconsolidated structured entities As stated in Note 2, the Group has early adopted IFRS 10 ‘Consolidated Financial Statements’ and IFRS 12 ‘Disclosures of Interests in Other Entities’ in these financial statements. During 2013, the Group has invested in three Undertakings for Collective Investments in Transferable Securities (UCITS). The Group has considered whether these investments meet the IFRS 10 ‘Consolidated Financial Statements’ criteria for control and consolidation and has determined that they do not.

In each case, the investment has been made into the sub-fund of an umbrella structure. The purpose of the sub-fund is to invest in fixed income securities. As at 31 December 2013, the Group owns between 98% and 100% of each of the sub-funds.

The three sub-funds meet the definition criteria for structured entities contained in IFRS 12 ‘Disclosures of Interests in Other Entities’ in that they have been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity.

In determining whether the Group controls the sub-funds it has considered the following factors.

The Group has considered how sub-fund investment decisions are made. Investment decisions to select, acquire and dispose of securities are made by the sub-fund manager and an independent investment adviser. The Group does not have the right to direct the sub-fund to enter into, or veto, any significant transactions that it would benefit from.

The Group is not able to use its voting rights in the sub-fund or other rights to remove the sub-fund manager, independent investment adviser, key management personnel who have the ability to direct the investing activities or other service providers such as custodians. These are appointed at umbrella level which is effectively the governing body of the sub-fund. The Group has considered whether it owns sufficient voting or other rights at umbrella level in order to have control or significant influence and has concluded that it does not. This is because it has insignificant voting rights, no right to appoint Directors to the Board and has no other contractual arrangements with the umbrella structure.

Finally, the Group has considered whether the design of the sub-funds has provided it with control by excluding other potential investors. The Group has concluded that there are no significant barriers to entry that would prohibit other potential investors from investing in the sub-fund.

The carrying value of the Group’s investment in these sub-funds as at 31 December 2013 was £651.3m (2012: £nil) (2011: £nil) which also represents the maximum exposure to loss from the Group’s interests in unconsolidated structured entities. The sub-funds are included within the Specialised Investment Funds classification in Note 24 and form part of Financial Investments on the Group statement of financial position.

The Group has provided no financial or other support to these unconsolidated structured entities in the period outside of transactions in the ordinary course of investment management, and has no current intentions to do so.

282 In addition to the three sub-funds referred to above, the Group has the following interests in unconsolidated structured entities.

Fair value Fair value Fair value 31 December 2011 31 December 2012 31 December 2013 £m £m £m Category Mortgage backed securities 122.3 126.7 85.4 Commercial Mortgage backed securities 18.0 18.5 13.3 Other asset backed structures 93.7 136.0 133.0 234.0 281.2 231.7

Whilst individual securities may differ in structure, the principles of the instruments are broadly the same and it is appropriate to aggregate the investments into the categories detailed above.

The assets are included within the debt securities and specialised investment funds classification in Note 24 and form part of Financial Investments on the Group statement of financial position. They are carried at fair value.

Mortgage backed securities are a type of asset-backed security that is secured by a collection of mortgages issued by a regulated financial institution.

Commercial Mortgage backed securities are a type of mortgage-backed security backed by mortgages on commercial rather than residential real estate.

Other asset backed structures are securities, such as bonds or notes, that are collateralised by loans or receivables held by banks and other credit providers and intermediaries.

These structured entities are created to meet specific needs of borrowers and investors which cannot be met from standardised financial instruments available in the capital markets. As such, they provide liquidity to the borrowers in these markets and provide investors with an opportunity to diversify risk and return away from standard corporate fixed income bonds.

Where the Group has invested in these securities, it does this on the basis that these will form part of a liquid, tradable investment portfolio producing a series of cash flows and expected return in accordance with the overall risk appetite set by the Board. The Group’s investment in any such entity is generally small, both in absolute terms but importantly in the context of the structure that it is investing in. This is particularly relevant as the Group requires the investments to be readily realisable within the market, which is largely achieved by ensuring that there are other investors in these securities and that a liquid market exists.

The investments are structured so that there is no expectation that either the Group or the investment manager would be deemed to exercise any significant control over the structure in which the Group invests but still allows the Group to benefit from the cashflows which the structure is designed to create.

The risk that the Group faces in respect of the investments in structured entities is similar to the risk it faces in respect of other financial investments held on the statement of financial position in that the fair value is determined by market supply and demand. This is in turn driven by investor evaluation of the credit risk of the structure and changes in the term structure of interest rates which might change investor expectation of the cashflows associated with the instrument and therefore its value in the market.

As part of the continual management of the investment portfolio, the instruments are stress tested to understand potential changes in their value due to changes in interest rates and credit spreads as well as changes in the certainty of the cashflows contained within the structure. Whilst market conditions could result in reductions in the carrying value of the investments, such situations are modelled as part of the overall assessment of the risks in the investment portfolio to changes in market conditions.

283 The maximum exposure to loss in respect of these structured entities would be the carrying value of the instruments that the Group holds. Generally, default rates would have to increase substantially from their current level before the Group would suffer a loss and this assessment is made prior to investing and continually through the holding period for the security. The Group does not invest in securities which have a contingent liability to the borrowers or structures that provide any type of guarantee, revolving credit facility, callable loans or liquidity arrangement facilities to third parties such as overdrafts.

The Group has provided no financial or other support, other than through the normal purchase of tradable securities, to structured entities either held at the date of the statement of financial position or held during 2012 or 2013 and has no current intention to do so.

43 Consolidated entities All subsidiaries of Achilles Holdings 1 S.à r.l. are 100% owned except where stated.

The Netherlands Registered office: SOM II, Claude Debussylaan 11, 1082 MC, Amsterdam Achilles Netherlands Holdings B.V. Brit Insurance Holdings B.V. Brit Group Holdings B.V. Brit Services B.V.

United Kingdom Registered office: 55 Bishopsgate, London, EC2N 3AS Brit Insurance Holdings Limited Brit Syndicates Limited Brit UW Limited Brit Corporate Holdings Limited Brit Investment Holdings Limited Brit Underwriting Holdings Limited Brit Group Finance Limited Brit Group Services Limited Brit Insurance Services Limited Brit Pension Trustee Limited Brit Corporate Secretaries Limited Brit Corporate Services Limited BGS Services (Bermuda) Limited

Ireland Registered office: 5 Harbourmaster Place, International Financial Services Centre, Dublin 1 Avoca Loan Fund 1

Luxembourg Registered office: 5, rue Guillaume Kroll, L-1882, Luxembourg Achilles Holdings 2 S.à r.l. (94.56%)

Registered office: 15, rue Edward Steichen, L-2540, Luxembourg Brit Overseas Holdings S.à r.l.

United States of America Registered office: 161 North Clark Street, Suite 2900 Chicago IL 60601 Brit Insurance Services USA, Inc.

Gibraltar Registered office: Suite 3C, Eurolife Building, 1 Corral Road, Gibraltar Brit Insurance (Gibraltar) PCC Limited Brit Group Finance (Gibraltar) Limited

All of the above subsidiaries are 100% owned and fully controlled by the group except where stated.

During 2013, the Group has invested in a Qualifying Investment Fund (QIF), Avoca Loan Fund 1, which is a sub-fund of Avoca Capital Investments PLC.

284 Following the adoption of IFRS 10, the Group has considered whether this investment meets the IFRS 10 criteria for control and consolidation and has determined that it does. In determining whether the Group controls the sub-fund it has considered similar factors to those in Note 42.

The carrying value of Brit’s investment in Avoca Loan Fund 1 of £45.0m as at 31 December 2013 (2012: £nil) (2011: £nil) represents the Group’s maximum exposure to loss from the sub-fund.

The Group has provided no financial or other support to Avoca Loan Fund 1 in the period outside of any contractual arrangements in place, and has no current intentions to do so.

44 Related party transactions (i) Key management compensation The amount of the emoluments granted in respect of the financial year to the members of the administrative, managerial and supervisory bodies by reason of their responsibilities, and any commitments arising or entered into in respect of retirement pension for former members of those bodies, are broken down as follows:

Year ended Year ended Year ended 31 December 31 December 31 December 2011 2012 2013 £m £m £m Salaries and other short-term employee benefits 4.9 4.4 6.3 Post-employment benefits 0.6 0.1 0.2 Termination benefits 1.0 0.4 0.5 6.5 4.9 7.0

For the purposes of International Accounting Standard 24, ‘Related Party Disclosures’, key managers are defined as the Board of Directors of Brit Insurance Holdings B.V. and members of the Executive Management Committee which is the primary vehicle for implementing Board decisions in respect of UK managed operations.

(ii) Purchases of products and services and arising year-end balances a) Associated undertakings All of the following trading with associated undertakings is carried out on an arm’s length basis and is settled in cash.

Xbridge Limited A company which was a subsidiary of the Group during 2011 and for a part of 2012 was a member of the panel to which Xbridge Limited introduces insurance business.

During the part of 2012 that Xbridge Limited was a subsidiary, it received commission of £6.5m (2011: £8.2m) for introducing such business.

Verex Limited During the year, Verex Limited has received commission of £nil (2012: £nil) (2011: £0.1m) for introducing insurance business to a Group company. b) Apollo and CVC The Group paid investment management fees to the following companies:

Year ended Year ended Year ended 31 December 2011 31 December 2012 31 December 2013 £m £m £m Apollo Capital Management, LP — — 0.4 Athene Asset Management — 0.8 0.9 CVC Credit Partners, LLC — — 0.1 — 0.8 1.4

285 The Group also paid monitoring fees to the Apollo-Affiliated Funds and the CVC-Affiliated Funds amounting to £2.0 m (2012: £2.0m) (2011: £1.6m). In 2011 the Group also paid the Apollo-Affiliated Funds and the CVC-Affiliated Funds £9.0m in respect of services relating to the acquisition of the Brit Group.

The principal investors in Achilles Holdings 1 S.à r.l., the ultimate parent of the Group, are a number of Apollo and CVC investment funds. Apollo Capital Management, LP and Athene Asset Management are members of the Apollo group and CVC Credit Partners, LLC is a member of the CVC group. This trading was carried out on an arm’s length basis and was settled in cash.

(iii) Loans Achilles Holdings 1 S.à r.l. and its subsidiaries had the following loans with associated undertakings which were all on an arm’s length basis.

Xbridge Limited A Group company granted Xbridge Limited a five year loan facility of up to £6.0m. As at 31 December 2012, £5.2m of this amount had been drawn down (2011: £5.2m). The loan was repaid on the disposal of Xbridge Limited in 2013. For further information, refer to Note 14.

Verex Limited A Group company subscribed for £6.0m of Verex Limited loan notes which it held during 2011 and up to 10 August 2012. On that date, the loan notes and accumulated interest were effectively converted into 250,000 B shares and a put option. For further information, refer to Note 14.

45 Guarantees and contingent liabilities (i) Lloyd’s Assets have been pledged, as Funds at Lloyd’s, by way of deposits and fixed and floating charges for Brit UW Limited, the corporate member of the Group. As at 31 December 2013 the FAL requirement amounted to £551.2m (2012: £631.9m) (2011: £550.5m).

(ii) Revolving credit facility The Group has access to a £225m revolving credit facility.

Guarantees have been made by Achilles Netherlands Holdings B.V., Brit Insurance Holdings B.V., Brit Group Holdings B.V, Brit Overseas Holdings S.à r.l and Brit Insurance Holdings Limited to the syndicated banks providing the facility.

As at 31 December 2013 a £48.2m (US$80.0m) letter of credit had been provided to Lloyd’s (2012: £49.1m) (US$80.0m) (2011: nil).

(iii) Collateral pledged As part of its reinsurance arrangements, a subsidiary company has entered into a collateralised reinsurance arrangement with one counterparty. The fair value of the assets held to support this liability as at 31 December 2013 was £428.1m (2012: £338.3m) (2011: £nil).

(iv) Taxation The Group operates in a wide variety of jurisdictions around the world through its Lloyd’s syndicate and uncertainties thus exist with respect to the interpretation of complex tax laws and practices of those territories. The Group establishes provisions for taxes other than current and deferred income taxes based upon various factors which are continually evaluated, if there is a present obligation as a result of past events, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.

Income taxes are provided as set out accounting policy in Note 2(x).

286 PART XV — TAXATION SECTION A — UK TAXATION

The following statements do not constitute tax advice and are intended only as a general guide to current United Kingdom law and HMRC published practice, which may not be binding on HMRC, as at the date of this document (which are both subject to change at any time, possibly with retrospective effect). They relate only to certain limited aspects of the United Kingdom tax treatment of Shareholders and are intended to apply only to Shareholders who are resident only in the United Kingdom for United Kingdom tax purposes (unless the context requires otherwise) and, if individuals, who are domiciled in the United Kingdom and to whom split-year treatment does not apply and who are and will be the absolute beneficial owners of the Ordinary Shares (otherwise than through an Individual Savings Account or a Self Invested Personal Pension) and who hold, and will hold, the Ordinary Shares as investments (and not as securities to be realised in the course of a trade). They are not exhaustive and may not apply to certain Shareholders, such as dealers in securities, broker dealers, insurance companies and collective investment schemes, Shareholders who are exempt from taxation and Shareholders who have (or are deemed to have) acquired their Ordinary Shares by virtue of an office or employment. Such persons may be subject to special rules.

Shareholders who are in any doubt as to their tax position, or who are subject to tax in any jurisdiction other than the United Kingdom, should consult an appropriate professional adviser.

1. Taxation of dividends 1.1 General There is no United Kingdom withholding tax on dividends, including dividends paid to Shareholders who are not resident (for tax purposes) in the United Kingdom.

1.2 Individual Shareholders When the Company pays a dividend to a Shareholder who is an individual resident (for tax purposes) in the United Kingdom, the Shareholder will be entitled to a tax credit equal to one-ninth of the dividend received.

The dividend received plus the related tax credit (the “gross dividend”) will be part of the Shareholder’s total income for United Kingdom income tax purposes and will be regarded as the top slice of that income. However, in calculating the Shareholder’s liability to income tax in respect of the gross dividend, the tax credit (which equates to 10 per cent. of the gross dividend) is set off against the tax chargeable on the gross dividend.

Basic Rate Taxpayers In the case of a Shareholder who is liable to income tax at the basic rate, the Shareholder will be subject to tax on the gross dividend at the rate of 10 per cent. The tax credit will, in consequence, satisfy in full the Shareholder’s liability to income tax on the gross dividend.

Higher Rate Taxpayers In the case of a Shareholder who is liable to income tax at the higher rate, the Shareholder will be subject to tax on the gross dividend at the rate of 32.5 per cent., to the extent that the gross dividend falls above the threshold for the higher rate of income tax but below the threshold for the additional rate of income tax when it is treated (as mentioned above) as the top slice of the Shareholder’s income. This means that the tax credit will satisfy only part of the Shareholder’s liability to income tax on the gross dividend, so that the Shareholder will have to account for income tax equal to 22.5 per cent of the gross dividend (which equates to 25 per cent. of the dividend received). For example, a dividend of £90 from the Company would represent a gross dividend of £100 (after the addition of the tax credit of £10 (being one-ninth of £90)) and the Shareholder would be required to account for income tax of £22.50 on the dividend, being £32.50 (i.e. 32.5 per cent. of £100) less £10 (the amount of the tax credit).

287 Additional Rate Taxpayers In the case of a Shareholder who is liable to income tax at the additional rate, the Shareholder will be subject to tax on the gross dividend at the dividend additional rate of 37.5 per cent., to the extent that the gross dividend falls above the threshold for the additional rate of income tax when it is treated (as mentioned above) as the top slice of the Shareholder’s income. This means that the tax credit will satisfy only part of the Shareholder’s liability to income tax on the gross dividend, so that the Shareholder will have to account for income tax equal to 27.5 per cent. of the gross dividend (which equates to approximately 30.6 per cent. of the dividend actually received). For example, a dividend of £90 from the Company would represent a gross dividend of £100 (after the addition of the tax credit of £10 (being one-ninth of £90)) and the Shareholder would be required to account for income tax of £27.50 on the dividend, being £37.50 (i.e. 37.5 per cent. of £100) less £10 (the amount of the tax credit).

1.3 Corporate Shareholders Shareholders within the charge to United Kingdom corporation tax which are “small companies” (for the purposes of United Kingdom taxation of dividends) will not generally expect to be subject to tax on dividends from the Company.

Other Shareholders within the charge to United Kingdom corporation tax will not be subject to tax on dividends (including dividends from the Company) so long as the dividends fall within an exempt class and certain conditions are met. For example: (i) dividends paid on shares that are not redeemable and do not carry any present or future preferential rights to dividends or to a company’s assets on its winding up; and (ii) dividends paid to a person holding less than 10 per cent. of the issued share capital of the payer (or any class of that share capital) are generally dividends that fall within an exempt class.

1.4 Tax Credit Other than as set out below, a Shareholder (whether an individual or a company) who is not liable to tax on dividends from the Company will not be entitled to claim payment of the tax credit in respect of those dividends.

The right of a Shareholder who is not resident (for tax purposes) in the United Kingdom to a tax credit in respect of a dividend received from the Company and to claim payment of any part of that tax credit will depend on the existence and terms of any double taxation convention between the United Kingdom and the country in which the holder is resident and the domestic law of that jurisdiction, although generally no such payment will be available.

2. Taxation of chargeable gains 2.1 Individual Shareholders A disposal of Ordinary Shares may give rise to a chargeable gain (or allowable loss) for the purposes of United Kingdom capital gains tax, depending on the circumstances and subject to any available exemption or relief.

2.2 Corporate Shareholders Where a Shareholder is within the charge to corporation tax, including cases where it is not resident (for tax purposes) in the United Kingdom, a disposal of Ordinary Shares may give rise to a chargeable gain (or allowable loss) for the purposes of United Kingdom corporation tax, depending on the circumstances and subject to any available exemption or relief. Indexation allowance may reduce the amount of chargeable gain that is subject to corporation tax, but may not create or increase any allowable loss.

2.3 Shareholders resident outside the United Kingdom A Shareholder that is not resident in the United Kingdom (and, in the case of an individual) is not temporarily non-resident) for United Kingdom tax purposes and whose Ordinary Shares are not held in connection with carrying on a trade, profession or vocation in the United Kingdom generally will not be subject to United Kingdom tax on chargeable gains on the disposal of Ordinary Shares.

288 3. Inheritance tax The Ordinary Shares will be assets situated in the United Kingdom for the purposes of United Kingdom inheritance tax. A gift of such assets by an individual Shareholder, or the death of an individual Shareholder, may therefore give rise to a liability to United Kingdom inheritance tax, depending upon the Shareholder’s circumstances and subject to any available exemption or relief. A transfer of Ordinary Shares at less than market value may be treated for inheritance tax purposes as a gift of the Ordinary Shares. Special rules apply to close companies and to trustees of settlements who hold Ordinary Shares, which rules may bring them within the charge to inheritance tax. The inheritance tax rules are complex and Shareholders should consult an appropriate professional adviser in any case where those rules may be relevant, particularly in (but not limited to) cases where Shareholders intend to make a gift of Ordinary Shares, to transfer Ordinary Shares at less than market value or to hold Ordinary Shares through a company or trust arrangement.

4. Close company The Company and each UK resident member of the Group may be a “close company” within the meaning of Part 10 of the Corporation Tax Act 2010 as at the date of this Prospectus and, if so, may continue to be so following the Offer. As a result, certain transactions entered into by the Company or other members of the Group may have tax implications for Shareholders. In particular, certain gifts, transfers of assets at less than market value or other transfers of value by the Company or other members of the Group may be apportioned to Shareholders for the purposes of United Kingdom inheritance tax, although the payment of a dividend to a Shareholder or the payment of dividends or transfers of assets between members of the Group will not normally attract such an apportionment. Any charge to United Kingdom inheritance tax arising from such a transaction will primarily be a liability of the relevant company, although in certain circumstances Shareholders may be liable for the tax if it is left unpaid by that company. In addition, any transfer of assets at less than market value by the Company or other members of the Group may result in a reduction of a Shareholder’s base cost in his Ordinary Shares for the purposes of United Kingdom taxation of capital gains, although transfers of assets between member of the Group will not normally attract such treatment. Shareholders should consult their own professional advisers on the potential impact of the close company rules.

5. Post-Admission Capital Reduction For the purposes of United Kingdom taxation of capital gains and corporation tax on chargeable gains (“CGT”), the Post-Admission Capital Reduction should be treated as a reorganisation of the Company’s share capital. The effect of this should be that a Shareholder’s resultant holding of Ordinary Shares following the Post-Admission Capital Reduction should be treated as the same asset, acquired at the same time and for the same consideration, as the holding of Ordinary Shares held by that Shareholder prior to the Post-Admission Capital Reduction.

6. Stamp Duty and Stamp Duty Reserve Tax (“SDRT”) The comments in this section relating to stamp duty and SDRT apply whether or not a Shareholder is resident or domiciled in the United Kingdom.

6.1 Sale of Ordinary Shares It has been agreed that any stamp duty chargeable on a transfer on sale of Ordinary Shares or SDRT chargeable on an agreement to transfer Ordinary Shares arising in the United Kingdom (currently at a rate of 0.5 per cent.) on the initial sale of Ordinary Shares to Investors pursuant to the Offer and the Over-allotment Arrangements will be borne by a member of the Group that is not resident for tax purposes in the United Kingdom. No member of the Group will assume any liability in relation to any element of any stamp duty or SDRT arising in the United Kingdom on a transfer of Ordinary Shares to a clearance service or to a depositary receipt issuer or any agent or nominee thereof (currently imposed at a rate of 1.5 per cent.).

6.2 Subsequent dealings in Ordinary Shares Any subsequent dealings in Ordinary Shares will generally be subject to stamp duty or SDRT in the normal way.

289 An instrument effecting the transfer on sale of Ordinary Shares will generally be liable to stamp duty at the rate of 0.5 per cent. (rounded up to the nearest multiple of £5) of the amount or value of the consideration payable. However, where the amount or value of the consideration is £1,000 or less, and provided that the transfer does not form part of a larger transaction or series of transactions where the combined consideration exceeds £1,000, such instrument should be exempt from charge upon certification of such facts.

An unconditional agreement to transfer Ordinary Shares will generally be liable to SDRT at the rate of 0.5 per cent. of the amount or value of the consideration payable, but such liability will be cancelled, or a right to a repayment (generally, with interest) in respect of the payment of such SDRT liability will arise, if the agreement is completed by a duly stamped or exempt transfer within six years of the agreement having become unconditional. Stamp duty and SDRT are normally the liability of the purchaser.

Subject to certain exemptions, a charge to stamp duty or SDRT will arise on the transfer of Ordinary Shares to a person providing a clearance service, its nominee or agent, or to an issuer of depositary receipts, its nominee or agent, where that transfer is not an integral part of an issue of share capital. The rate of stamp duty or SDRT, as the case may be, in such circumstances will generally be 1.5 per cent of the amount or value of the consideration for the transfer or, in some circumstances, the value of the Ordinary Shares concerned (rounded up, in the case of stamp duty, to the nearest multiple of £5).

No stamp duty or SDRT will arise on a transfer of Ordinary Shares into the CREST system provided that the transfer is not for money or money’s worth. Paperless transfers of Ordinary Shares within CREST are liable to SDRT (at a rate of 0.5 per cent. of the amount or value of the consideration payable) rather than stamp duty, and SDRT arising on the agreement to transfer Ordinary Shares under relevant transactions settled within the system or reported through it for regulatory purposes will be collected by CREST.

It should be noted that certain categories of person, including specified market intermediaries, are entitled to an exemption from stamp duty and SDRT in respect of purchases of securities in specified circumstances.

290 SECTION B — US TAXATION

Certain US federal income tax consequences

IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, purchasers of Ordinary Shares are hereby notified that: (a) any discussion of US federal tax issues in this Prospectus is not intended or written to be relied upon, and cannot be relied upon, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code; (b) such discussion is written in connection with the promotion or marketing of the transactions or matters addressed herein; and (c) purchasers should seek advice based on their particular circumstances from an independent tax advisor.

The following is a discussion of the material US federal income tax consequences of the acquisition, ownership and disposition of the Ordinary Shares that are applicable to US Holders, as defined below, that acquire Ordinary Shares pursuant to the Offer. This discussion is not a complete analysis or listing of all of the possible tax consequences of such transactions and does not address all tax considerations that might be relevant to particular holders in light of their personal circumstances or to persons that are subject to special tax rules. In particular, the information set forth below deals only with US Holders that will hold Ordinary Shares as capital assets for US federal income tax purposes (generally, property held for investment) and that do not own, and are not treated as owning, at any time, 10% or more of the total combined voting power of all classes of the Company’s shares entitled to vote. In addition, this description of the material US federal income tax consequences does not address the tax treatment of special classes of US Holders, such as: • financial institutions; • regulated investment companies; • real estate investment trusts; • tax-exempt entities; • insurance companies; • persons holding the Ordinary Shares as part of a hedging, integrated or conversion transaction, constructive sale or “straddle;” • persons that acquired Ordinary Shares through the exercise or cancellation of employee stock options or otherwise as compensation for their services; • US expatriates; • persons subject to the alternative minimum tax; • dealers or traders in securities or currencies; and • holders whose functional currency is not the US dollar.

This summary does not address estate and gift tax consequences or tax consequences under any state, local or non-US laws.

For purposes of this section, “US Holder” means: (1) a citizen of or an individual resident of the United States, as determined for US federal income tax purposes; (2) a corporation (or other entity treated as a corporation for US federal income tax purposes) created or organized under the laws of the United States or any state thereof or the District of Columbia; (3) an estate the income of which is subject to US federal income taxation regardless of its source; or (4) a trust (A) if a court within the United States is able to exercise primary jurisdiction over its administration and one or more US persons have authority to control all substantial decisions of the trust or (B) that has a valid election in effect under applicable Treasury regulations to be treated as a US person.

If a pass-through entity, including a partnership or other entity classified as a partnership for US federal income tax purposes, is a beneficial owner of the Ordinary Shares, the US federal income tax treatment of an owner or partner will generally depend upon the status of such owner or partner and upon the activities of the pass-through entity. A US person that is an owner or partner of a pass- through entity that acquires the Ordinary Shares should consult its tax advisor regarding the tax consequences of acquiring, owning and disposing of Ordinary Shares.

291 The following discussion is based upon the Internal Revenue Code of 1986, as amended (the “Code”), US judicial decisions, administrative pronouncements, existing and proposed Treasury regulations and the Convention between The Government of the United States of America and The Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to taxes on income and on capital gains (the “Treaty”), all as in effect as of the date hereof. All of the preceding authorities are subject to change, possibly with retroactive effect, so as to result in US federal income tax consequences different from those discussed below. The Company has not requested, and will not request, a ruling from the US Internal Revenue Service (the “IRS”) with respect to any of the US federal income tax consequences described below, and as a result there can be no assurance that the IRS will not disagree with or challenge any of the conclusions it has reached and describe herein.

The following discussion is for general information only and is not intended to be, nor should it be construed to be, legal or tax advice to any holder or prospective holder of Ordinary Shares, and no opinion or representation with respect to the US federal income tax consequences to any such holder or prospective holder is made. Purchasers of Ordinary Shares are urged to consult their tax advisors as to the particular consequences to them under US federal, state and local, and applicable non-US tax laws of the acquisition, ownership and disposition of Ordinary Shares.

1. Distributions Subject to the discussion of passive foreign investment companies (“PFICs”), controlled foreign corporations (“CFCs”) and related person insurance income (“RPII”) below, the gross amount of any distribution paid by the Company will generally be subject to US federal income tax as foreign source dividend income to the extent paid out of the Company’s current or accumulated earnings and profits, as determined under US federal income tax principles. Such amount will be includable in gross income by a US Holder as ordinary income on the date that such US Holder actually or constructively receives the distribution in accordance with its regular method of accounting for US federal income tax purposes. The amount of any distribution made by the Company in property other than cash will be the fair market value of such property on the date of the distribution. Dividends paid by the Company will not be eligible for the dividends received deduction allowed to corporations.

Subject to applicable exceptions with respect to short-term and hedged positions, certain dividends received by non-corporate US Holders from a “qualified foreign corporation” may be eligible for reduced rates of taxation. A non-US corporation is treated as a qualified foreign corporation with respect to dividends paid by it on its stock if the stock is readily tradable on an established securities market in the United States. Because the Ordinary Shares will not be readily tradable on an established securities market in the United States, the Company will not be considered a qualified foreign corporation under this rule. A non-US corporation is also treated as a qualified corporation if it is eligible for the benefits of a comprehensive income tax treaty with the United States that the US Treasury Department determines to be satisfactory for these purposes and that includes an exchange of information provision. The US Treasury has determined that the Treaty meets these requirements. Under the Treaty, a UK corporation is eligible for the benefits of the Treaty if the principal class of its shares is listed on the London Stock Exchange and is regularly traded on one or more recognized stock exchanges (including the London Stock Exchange). If, as the Company anticipates, the Ordinary Shares are regularly traded on the London Stock Exchange, the Company would be eligible for the benefits of the Treaty, and dividends paid on the Ordinary Shares would be eligible for reduced rates of taxation. The determination of whether Ordinary Shares are regularly traded in any taxable period is based on the volume of the trades effected in the previous 12-month period (and with respect to 2014, the volume of the trades effected in 2014), and there can be no assurance that the Ordinary Shares will be considered regularly traded in any year. Dividends received by US Holders from a non-US corporation that was a PFIC in either the taxable year of the distribution or the preceding taxable year will not constitute qualified dividends. As discussed below in “Certain US Federal Income Tax Consequences — Passive Foreign Investment Company Considerations,” the Company believes that it is not a PFIC.

To the extent that a distribution exceeds the amount of the Company’s current and accumulated earnings and profits, as determined under US federal income tax principles, it will be treated first as a tax-free return of capital, causing a reduction in a US Holder’s adjusted basis in the Ordinary Shares held by such US Holder (thereby increasing the amount of gain, or decreasing the amount of loss, to

292 be recognized by such US Holder upon a subsequent disposition of the Ordinary Shares), with any amount that exceeds such US Holder’s adjusted basis being taxed as a capital gain recognized on a sale or exchange (as discussed below). However, the Company does not maintain calculations of its earnings and profits in accordance with US federal income tax principles, and US Holders should therefore assume that any distribution by the Company with respect to the Ordinary Shares will constitute ordinary dividend income.

If a US Holder are eligible for benefits under the Treaty, it may be able to claim a reduced rate of UK withholding tax. US Holders should consult their own tax advisors about their eligibility for reduction of UK withholding tax. US Holders may claim a deduction or a foreign tax credit, subject to other applicable limitations, only for tax withheld at the appropriate rate. US Holders should not be allowed a foreign tax credit for withholding tax for any portion of the tax that could have been avoided by claiming benefits under the Treaty. The rules governing the foreign tax credit are complex and involve the application of rules that depend upon a US Holder’s particular circumstances. Accordingly, US Holders are urged to consult their tax advisor regarding the availability of the foreign tax credit under their particular circumstances.

The gross amount of distributions paid in British pounds will be included by US Holders in income in a US dollar amount calculated by reference to the exchange rate in effect on the day the distributions are paid regardless of whether the payment is in fact converted into US dollars. If the British pounds are converted into US dollars on the date of the payment, US Holders should not be required to recognize any foreign currency gain or loss with respect to the receipt of British pounds as distributions. If, instead, the British pounds are converted at a later date, any currency gains or losses resulting from the conversion of the British pounds will be treated as US source ordinary income or loss.

2. Controlled Foreign Corporation Status and Related Person Insurance Income 2.1 Controlled Foreign Corporation Status The Company will be considered a CFC if, on any day of its taxable year, 10% US Shareholders (as defined below) own (directly, indirectly through non-US entities or by attribution by application of the constructive ownership rules of Section 958(b) of the Code) more than 50% of the total combined voting power of all classes of the Company’s voting shares or more than 50% of the total value of all its shares. For purposes of taking into account certain insurance income, the Company will also be a CFC if more than 25% of the total combined voting power of all classes of the Company’s voting shares or more than 25% of the total value of all its shares is owned by 10% US Shareholders and if the gross amount of premiums or other consideration in respect of the reinsurance or the issuing of insurance or annuity contracts exceeds 75% of the gross amount of all premiums or other consideration in respect of all risks. A “10% US Shareholder” is a US person that owns (directly, indirectly through non-US entities or constructively) at least 10% of the total combined voting power of all classes of the Company’s shares entitled to vote. The Company believes that it is currently not a CFC and do not expect to become a CFC because of the anticipated dispersion of its share ownership. However, there can be no assurance that the Company will not become a CFC for any taxable year.

If the Company is a CFC for an uninterrupted period of 30 days or more during a taxable year, any 10% US Shareholder that owns shares in the Company on the last day of the Company’s taxable year must include in its gross income for US federal income tax purposes its pro rata share of the Company’s “subpart F income,” even if the subpart F income is not distributed, but limited by such 10% US Shareholder’s share of the Company’s current-year earnings and profits. “Subpart F income” of a non-US insurance corporation typically includes, among other items, passive income such as interest and dividends as well as certain insurance and reinsurance income (including underwriting and investment income).

If the Company is a CFC, the rules relating to PFICs generally would not apply to a 10% US Shareholder.

2.2 Related Person Insurance Income A different definition of CFC is applicable in the case of a non-US corporation that earns RPII. RPII is “insurance income” of a non-US corporation attributable to an insurance policy or reinsurance contract

293 with respect to which the person (directly or indirectly) insured or reinsured is a “RPII Holder” (as defined below) or a “related person” to such RPII Holder. The Company will be treated as a CFC for RPII purposes (a “RPII CFC”) if, on any day of the Company’s taxable year, US persons that directly or indirectly own any amount of the Company’s shares (each such person, a “RPII Holder”) are treated as owning 25% or more of the Company’s shares by vote or value. Generally, the term “related person” means any person that controls or is controlled by the RPII Holder or any person that is controlled by the same person or persons that control the RPII Holder. Control is defined as ownership of more than 50% of either the value or voting power of the shares of a person after applying certain constructive ownership rules. The RPII rules will apply to the Company if (1) direct and indirect insureds and persons related to such insureds, whether or not US persons, are treated as owning (directly or indirectly) 20% or more of the voting power or value of the Company’s shares and (2) RPII, determined on a gross basis, is 20% or more of the Company’s gross insurance income for the taxable year. While there can be no assurance, the Company believes it is likely that it will not be subject to the RPII rules under these tests. However, if the RPII rules apply, a US Holder that owns any Ordinary Shares on the last day of the Company’s taxable year will be required to include such US Holder’s allocable share of the Company’s RPII for the entire taxable year in gross income for US federal income tax purposes. The US Holder’s share of the RPII for the portion of the taxable year during which the Company was a RPII CFC will be determined as if all such RPII were distributed proportionately only to such RPII Holders at that date, but limited by each such RPII Holder’s share of the Company’s current year earnings and profits as reduced by the RPII Holder’s share, if any, of certain prior-year deficits in earnings and profits. For any year in which the Company’s gross RPII is 20% or more of its gross insurance income for the year and no other exception to application of the RPII rules applies, the Company may seek information from Shareholders as to whether direct or indirect owners of shares at the end of the year are US persons so that the RPII may be determined and apportioned among such persons. To the extent the Company is unable to determine whether a direct or indirect owner of shares is a US person, it may assume that such owner is not a US person, thereby increasing the per share RPII amount for all known RPII Holders. There can be no assurance that the Company will be able to obtain all necessary information to determine the availability of the RPII exceptions and the amount of insurance income that is RPII. If, as believed, the Company is not subject to the RPII rules, US holders will not be required to include RPII in their taxable income. 2.3 Basis Adjustments A US Holder’s tax basis in the Ordinary Shares will be increased by the amount of any subpart F income that such US Holder includes in income under either the RPII or non-RPII CFC rules. Similarly, a US Holder’s tax basis in the Ordinary Shares will be reduced by the amount of distributions of subpart F income that are excluded from income. 2.4 Tax-Exempt Shareholders Tax-exempt entities will be required to treat certain subpart F insurance income, including RPII that is includible in income by the tax-exempt entity, as unrelated business taxable income. Prospective investors that are tax-exempt entities are urged to consult their tax advisors as to the potential impact of the unrelated business taxable income provisions of the Code. A tax-exempt organization that is treated as a 10% US Shareholder or a RPII Holder also must file IRS Form 5471 in the circumstances described above. 2.5 Information Reporting Under certain circumstances, US persons owning stock in a non-US corporation are required to file IRS Form 5471 with their US federal income tax returns. Generally, information reporting on IRS Form 5471 is required by (i) a person that is treated as a RPII shareholder, (ii) a 10% US Shareholder of a non-US corporation that is a CFC for an uninterrupted period of 30 days or more during any tax year of the non-US corporation, and that owned the stock on the last day of that year and (iii) under certain circumstances, a US person that acquires stock in a non-US corporation and as a result thereof owns 10% or more of the voting power or value of such non-US corporation, whether or not such non-US corporation is a CFC. The RPII Rules are particularly complex and their application is uncertain at this. Prospective investors are urged to consult their tax advisors on how these rules may apply to the Company and to payments they may receive with respect to the Ordinary Shares.

294 3. Sale, Exchange or Other Taxable Disposition of Ordinary Shares 3.1 General Provided that the Company is not a PFIC in any taxable year, and subject to the possible application of the CFC rules discussed below, a US Holder generally will recognize gain or loss upon the taxable sale, exchange or other disposition of the Ordinary Shares in an amount equal to the difference between (i) the amount realized upon the sale, exchange or other taxable disposition and (ii) such US Holder’s adjusted tax basis in the Ordinary Shares. Generally, such gain or loss will be capital gain or loss and will be long-term capital gain or loss if, on the date of the sale, exchange or other taxable disposition, such US Holder has held the Ordinary Shares for more than one year. If such US Holder is an individual taxpayer, long-term capital gains for taxable dispositions will be taxed at a maximum rate of 20%. The deductibility of capital losses is subject to limitations under the Code.

Gain or loss, if any, that a US Holder realizes upon a sale, exchange or other taxable disposition of Ordinary Shares will be treated as having a US source for US foreign tax credit limitation purposes. Consequently, a US Holder may not be able to use any foreign tax credits arising from any UK tax imposed on the sale, exchange or other taxable disposition of Ordinary Shares unless such credit can be applied (subject to applicable limitations) against tax due on other income treated as derived from foreign sources or unless an applicable treaty provides otherwise.

If a US Holder receives any foreign currency on the sale of Ordinary Shares, it may recognize ordinary income or loss as a result of currency fluctuations between the date of the sale of Ordinary Shares and the date the sale proceeds are converted into US dollars.

3.2 CFC Rules Section 1248 of the Code generally provides that if a US person sells or exchanges shares in a non- US corporation and such person is a 10% US Shareholder at any time during the five-year period ending on the date of the sale or exchange when such non-US corporation was a CFC, any gain from such sale or exchange may be treated as dividend income to the extent of the CFC’s earnings and profits attributable to such shares during the period that the shareholder held the shares (with certain adjustments). A 10% US Shareholder will be required to report a disposition of shares of a CFC by attaching IRS Form 5471 to the US federal income tax or information return that it would normally file for the taxable year in which the disposition occurs.

Section 1248 of the Code, in conjunction with the RPII rules, also applies to the sale or exchange of shares in a non-US corporation by a US shareholder if the non-US corporation would be treated as a RPII CFC regardless of whether such shareholder is a 10% US Shareholder or whether the corporation qualifies for either the RPII 20% ownership exception or the RPII 20% gross income exception. Existing proposed regulations do not address whether Section 1248 of the Code would apply if a non- US corporation is not a CFC but the non-US corporation has a subsidiary that is a CFC and that would be taxed as an insurance company if it were a domestic corporation. The Company believes, however, that this application of Section 1248 of the Code under the RPII rules should not apply to dispositions of Ordinary Shares because the Company will not be directly engaged in the insurance business. The Company cannot be certain, however, that the IRS will not interpret the proposed regulations in a contrary manner or that the Treasury Department will not amend the proposed regulations to provide that these rules will apply to dispositions of Ordinary Shares. US Holders should consult their tax advisors regarding the effects of these rules on a disposition of Ordinary Shares.

4. Passive Foreign Investment Company Considerations The foregoing discussion assumes that the Company is not, and will not be, a PFIC. If the Company is classified as a PFIC in any year during a US Holder’s holding period, the US federal income tax consequences to such US Holder of the ownership and disposition of the Ordinary Shares could be materially different from those described above. A non-US corporation will be considered a PFIC for any taxable year in which (i) 75% or more of its gross income is “passive income” or (ii) 50% or more of the average value of its assets produce (or are held for the production of) “passive income.” For this purpose, “passive income” generally includes interest, dividends, annuities and other investment income. The PFIC rules also provide that income “derived in the active conduct of an insurance business by a corporation which is predominantly engaged in an insurance business” is not treated as

295 passive income. That exception is intended to ensure that income derived by a bona fide insurance company is not treated as passive income except to the extent that such income is attributable to financial reserves in excess of the reasonable needs of the insurance business. Moreover, for purposes of determining if the non-US corporation is a PFIC, if the non-US corporation owns, directly or indirectly, at least 25%, by value, of the shares of another corporation, it will be treated as if it holds directly its proportionate share of the assets and receives directly its proportionate share of the income of such other corporation.

The Company believes that it currently is not a PFIC for US federal income tax purposes, and the Company does not expect to become a PFIC in the future. However, the determination of PFIC status for any year can only be made on an annual basis after the end of such taxable year, is based on the application of complex US federal income tax rules, which are subject to differing interpretations, and will depend on the composition of the Company’s income, assets and operations from time to time. Because of the above described uncertainties, there can be no assurance that the IRS will not challenge the determination made by the Company concerning its PFIC status or that it will not be a PFIC for any taxable year.

If the Company were classified as a PFIC in any year during a US Holder’s holding period, such US Holder would be subject to special adverse rules, including taxation at maximum ordinary income rates plus an interest charge on both gains on sale and certain dividends, unless such US Holder makes an election to be taxed under an alternative regime. Certain elections may be available to US Holders if the Company were classified as a PFIC. If the Company determines that it is or will become a PFIC, it will provide US Holders with information concerning the potential availability of such elections.

Notwithstanding any election made with respect to the Ordinary Shares, dividends received with respect to the Ordinary Shares will not constitute “qualified dividend income” if the Company is a PFIC in either the year of the distribution or the preceding taxable year. Dividends that do not constitute qualified dividend income are not eligible for taxation at the reduced tax rate discussed above in “Certain US Federal Income Tax Consequences — Distributions.” Instead, such dividends would be subject to tax at ordinary income rates. If US Holders own the Ordinary Shares during any year in which the Company is a PFIC, they must also file IRS Form 8621.

US Holders are urged to consult their tax advisors concerning the US federal income tax consequences of holding the Ordinary Shares if the Company is considered a PFIC in any taxable year.

5. Medicare Tax on Net Investment Income Certain US Holders that are individuals, estates or trusts (other than trusts that are exempt from tax) will be subject to a 3.8% tax on all or a portion of their “net investment income,” which includes dividends on the Ordinary Shares and net gains from the disposition of the Ordinary Shares. US Holders that are individuals, estates or such trusts should consult their tax advisors regarding the applicability of this tax to any of their income or gains in respect of the Ordinary Shares.

6. Information Reporting and Backup Withholding In general, information reporting will apply to dividends paid to a US Holder in respect of Ordinary Shares and the proceeds received by such US Holder from the sale, exchange or other disposition of Ordinary Shares within the United States unless such US Holder is a corporation or other exempt recipient. A backup withholding tax may apply to such payments if a US Holder fails to provide a taxpayer identification number or certification of exempt status or fails to report in full dividend and interest income. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or credit against a US Holder’s US federal income tax liability, provided that the required information is furnished to the IRS in a timely manner.

296 PART XVI — ADDITIONAL INFORMATION

1. Persons responsible The Directors, whose names appear on page 46, and the Company accept responsibility for the information contained in this Prospectus. To the best of the knowledge of the Directors and the Company (who have taken all reasonable care to ensure that such is the case), the information contained in this Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information.

2. Incorporation and activity of the Company The Company was incorporated as a private limited company on 19 December 2013 and subsequently re-registered as a public limited company under the name Brit PLC on 3 March 2014. The Company was incorporated and registered in England and Wales with registered number 8821629. The registered office and head office of the Company is 55 Bishopsgate, London EC2N 3AS, UK telephone number: +44 (0)20 7984 8500.

The principal legislation under which the Company operates and under which the Ordinary Shares were created is the Companies Act.

3. Reorganisation In connection with Admission, the Group undertook a reorganisation of its corporate structure that resulted in the Company becoming the ultimate holding company of the Group and Achilles 1 becoming the Company’s direct subsidiary (the “Reorganisation”). The Reorganisation took place between 19 December 2013 and 28 March 2014 and consisted of the following principal transactions: • the Company was incorporated as a private limited company and subsequently re-registered as a public limited company; • Achilles 1 issued shares to certain of the Selling Shareholders in exchange for shares held by those Selling Shareholders in Achilles 2, with the result that all of the Selling Shareholders held shares in Achilles 1; and • the Company issued shares to the Selling Shareholders in exchange for their shares in Achilles 1.

The Reorganisation was not conditional on Admission becoming effective and has been completed. The Reorganisation did not affect the Group’s operations, which will continue to be carried out through its operating subsidiaries. The following diagram reflects the Group’s corporate structure following the Reorganisation as it will be at Admission.

The Company

100%

Achilles 1

100%

Achilles 2

Other subsidiaries

4. Share capital of the Company On incorporation, the share capital of the Company was £1, consisting of one Ordinary Share of £1.

297 In connection with its re-registration as a public limited company, on 28 February 2014 the Company issued the Redeemable Preference Shares. The Redeemable Preference Shares were fully paid up at issue to their nominal value by virtue of the holders giving an undertaking to pay up £1.00 against each share within one year of their subscription application. Pursuant to the Reorganisation, on 27 March 2014 the Redeemable Preference Shares were redesignated as Ordinary Shares and the undertakings to pay up such shares satisfied.

The Ordinary Shares are in registered form and capable of being held in uncertificated form. No temporary documents of title have been or will be issued in respect of the Ordinary Shares. The Ordinary Shares will rank pari passu for dividends.

As at 27 March 2014, being the latest practicable date prior to the date of this Prospectus, the Company held no treasury shares. No Ordinary Shares have been issued other than fully paid.

The issued and fully paid share capital of the Company as at the date of publication of this Prospectus and immediately following Admission is as follows:

Nominal Value Number of shares issued Amount Ordinary Shares £2 400,000,000 £800,000,000

It is intended, in the period following Admission, that the share capital of the Company will be reduced from £800,000,000 to £4,000,000 by the cancellation of £1.99 from the nominal value of each Ordinary Share (the Post-Admission Capital Reduction). The Directors are not aware of any reason why this Post-Admission Capital Reduction will not be capable of being implemented. The Post-Admission Capital Reduction is being undertaken to create distributable reserves in the Company with the intention of facilitating the payment of dividends to Shareholders. The Post-Admission Capital Reduction has been approved (conditional on Admission) by a special resolution of the shareholders of the Company passed on 27 March 2014, and will require the approval of the Court. Each of the Selling Shareholders has agreed to the Post-Admission Capital Reduction.

The Ordinary Shares carry the right to receive dividends and distributions paid by the Company. The Shareholders have the right to receive notice of and to attend and vote at all general meetings of the Company.

The ISIN number of the Ordinary Shares is GB00BKRV3L73 and SEDOL number BKRV3L7.

Further information on the rights attaching to the Ordinary Shares is set out in section 5 of this Part XVI (Additional Information), and further information on dealing arrangements and CREST is set out in Part VI (Details of the Offer).

5. Information about the Ordinary Shares

5.1 Description of the type and class of securities being offered The Ordinary Shares have a nominal value of £2 each. The Company has and, following the Offer, will have one class of Ordinary Shares, the rights of which are set out in the Articles, a summary of which is set out in section 6 of this Part XVI (Additional Information).

The Ordinary Shares are credited as fully paid and free from all liens, equities, charges, encumbrances and other interests. The Ordinary Shares rank in full for all dividends and distributions on Ordinary Shares of the Company declared, made or paid after their issue.

5.2 Legislation under which the Ordinary Shares are created The Ordinary Shares have been created under the Companies Act.

5.3 Confirmations At the date of this Prospectus, and save as otherwise disclosed in this Part XVI (Additional Information) or Part VI (Details of the Offer): (A) no share or loan capital of the Company has, since the incorporation of the Company, 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;

298 (B) no commission, 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; (C) no share or loan capital of the Company is under option or agreed, conditionally or unconditionally, to be put under option; and (D) the Company held no treasury shares (as defined in the Companies Act).

5.4 Listing Application will be made to the UK Listing Authority for the Ordinary Shares to be admitted to the premium listing segment of the Official List. Application will also be made to the London Stock Exchange for the Ordinary Shares to be admitted to trading on its main market for listed securities.

It is expected that Admission will become effective and that dealings in the Ordinary Shares will commence on the London Stock Exchange by no later than 8:00 a.m. on 2 April 2014.

Admission of the Ordinary Shares is not being sought on any stock exchange other than the London Stock Exchange.

5.5 Form and currency of the Ordinary Shares The Ordinary Shares will be in registered form and will be capable of being held in certificated and uncertificated form. The Registrars of the Company are Computershare Investor Services PLC of The Pavilions, Bridgwater Road, Bristol, BS99 6ZZ.

Title to the certificated Ordinary Shares (if any) will be evidenced by entry in the register of members of the Company and title to uncertificated Ordinary Shares will be evidenced by entry in the operator register maintained by Computershare Investor Services PLC (which will form part of the register of members of the Company).

The Ordinary Shares are denominated in Sterling.

5.6 Rights attached to the Ordinary Shares Each Ordinary Share ranks equally in all respects with each other Ordinary Share and has the same rights (including voting and dividend rights and rights on a return of capital) and restrictions as each other Ordinary Share, as set out in the Articles.

Subject to the provisions of the Companies Act, any equity securities issued by the Company for cash must first be offered to Shareholders in proportion to their holdings of Ordinary Shares. The Companies Act and the Listing Rules allow for the disapplication of pre-emption rights which may be waived by a special resolution of the Shareholders, either generally or specifically, for a maximum period not exceeding five years.

Except in relation to dividends which have been declared and rights on a liquidation of the Company, the Shareholders have no rights to share in the profits of the Company.

The Ordinary Shares are not redeemable. However, the Company may purchase or contract to purchase any of the Ordinary Shares on or off-market, subject to the Companies Act and the requirements of the Listing Rules. The Company may purchase Ordinary Shares only out of distributable reserves or the proceeds of a new issue of shares made to fund the repurchase.

Further details of the rights attached to the Ordinary Shares in relation to attendance and voting at general meetings, entitlements on a winding-up of the Company, transferability of shares, voting and dividends are set out in section 6 of this Part XVI (Additional Information).

299 5.7 Authorisations relating to the share capital of the Company By resolutions of the Shareholders passed on 27 March 2014, it was resolved that, subject to and conditional upon Admission: (A) the Board be generally and unconditionally authorised to exercise all of the powers of the Company to allot shares in the Company and to grant rights to subscribe for or to convert any security into shares in the Company: (i) up to an aggregate nominal amount of £266,666,664.00, which shall be reduced to £1,333,333.32 following the Post Admission Capital Reduction (such amounts to be reduced by the nominal amount of any shares in the Company allotted or rights to subscribe for or to convert any security into shares in the Company granted under sub- paragraph (ii) below in excess of such sum); and (ii) comprising equity securities (as defined in section 560(1) of the Companies Act) up to an aggregate nominal amount of £533,333,328.00, which shall be reduced to £2,666,666.64 following the Post Admission Capital Reduction (such amount to be reduced by any allotments of any shares in the Company or grants of rights to subscribe for or to convert any security into shares in the Company made under sub-paragraph (i) above) in connection with an offer by way of a rights issue: (a) to holders of Ordinary Shares in proportion (as close as may be practicable) to their existing holdings; and (b) to holders of other equity securities as required by the rights of those securities or as the Board otherwise considers necessary, and so that the Board may impose any limits or restrictions and make any arrangements which it considers necessary or appropriate to deal with treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter,

such authorities to apply until the end of the next annual general meeting of the Company (or, if earlier, until the close of business on 27 June 2015) but, in each case, during this period the Company may make offers and enter into agreements which would, or might, require shares to be allotted or rights to subscribe for or convert securities into shares to be granted after the authority ends and the Board may allot shares or grant rights to subscribe for or convert securities into shares in the Company under any such offer or agreement as if the authority had not ended;

(B) the Board be given the power to allot equity securities (as defined in section 560(1) of the Companies Act) for cash under the authority given by the resolution described in paragraph (A) above and/or to sell Ordinary Shares held by the Company as treasury shares for cash as if section 561 of the Companies Act did not apply to any such allotment or sale, such power to be limited: (i) to the allotment of equity securities and sale of treasury shares for cash in connection with an offer of, or invitation to apply for, equity securities (but in the case of the authority granted under paragraph (ii) of the resolution described at paragraph (A) above, by way of a rights issue only): (a) to holders of Ordinary Shares in proportion (as nearly as may be practicable) to their existing holdings; and (b) to holders of other equity securities, as required by the rights of those securities, or as the Board otherwise considers necessary as permitted by the rights of those securities, and so that the Board may impose any limits or restrictions and make any arrangements which it considers necessary or appropriate to deal with treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter; and (ii) in the case of the authority granted under paragraph (i) of the resolution described at paragraph (A) above and/or in the case of any sale of treasury shares for cash, to the allotment (otherwise than under paragraph (i) above) of equity securities or sale of treasury shares up to a nominal amount of £40,000,000, which shall be reduced to £200,000 following the Post Admission Capital Reduction such power to apply until the

300 end of the next annual general meeting of the Company (or, if earlier, until the close of business on 27 June 2015) but, in each case, during this period the Company may make offers and enter into agreements which would, or might, require equity securities to be allotted (and treasury shares to be sold) after the power ends and the Board may allot equity securities (and sell treasury shares) under any such offer or agreement as if the power had not ended; and (C) the Company be authorised for the purposes of section 701 of the Companies Act to make one or more market purchases (as defined in section 693(4) of the Companies Act) of its Ordinary Shares, such power to be limited: (i) to a maximum number of 20,000,000 Ordinary Shares; (ii) by the condition that the minimum price which may be paid for an Ordinary Share is its nominal value and the maximum price which may be paid for an Ordinary Share is the highest of: (a) an amount equal to 5% above the average market value of an Ordinary Share for the five business days immediately preceding the day on which that Ordinary Share is contracted to be purchased; and (b) the higher of the price of the last independent trade and the highest current independent bid on the trading venue where the purchase is carried out, in each case, exclusive of expenses, such power to apply until the end of the next annual general meeting of the Company (or, if earlier, until the close of business on 27 June 2015) but, in each case, so that the Company may enter into a contract to purchase Ordinary Shares which will or may be completed or executed wholly or partly after the power ends and the Company may purchase Ordinary Shares pursuant to any such contract as if the power had not ended.

5.8 Description of restrictions on free transferability Save as set out in section 6.9 of this Part XVI (Additional Information), the Ordinary Shares are freely transferable and there are no restrictions on transfer.

The Company may, under the Companies Act, send out statutory notices to those it knows or has reasonable cause to believe have an interest in its shares, asking for details of those who have an interest and the extent of their interest in a particular holding of shares. When a person receives a statutory notice and fails to provide any information required by the notice within the time specified in it, the Company can apply to the court for an order directing, among other things, that any transfer of shares which are the subject of the statutory notice is void.

6. Summary of the Articles The Articles adopted on 27 March 2014 and conditional upon Admission becoming effective, contain (among others) provisions to the following effect:

6.1 Unrestricted objects The objects of the Company are unrestricted.

6.2 Limited liability The liability of each of the Company’s members is limited to any unpaid amount on the shares in the Company respectively held by them.

6.3 Change of name The Articles allow the Company to change its name by resolution of the Board. This is in addition to the Company’s statutory ability to change its name by special resolution under the Companies Act.

6.4 Share rights Subject to any rights attached to existing shares, shares may be issued with such rights and restrictions as the Company may by ordinary resolution decide, or (if there is no such resolution or so far as it does not make specific provision) as the Board may decide. Such rights and restrictions shall apply as if they were set out in the Articles. Redeemable shares may be issued, subject to any rights

301 attached to existing shares. The Board may determine the terms and conditions and the manner of redemption of any redeemable share so issued. Such terms and conditions shall apply to the relevant shares as if they were set out in the Articles. Subject to the Articles, any resolution passed by the shareholders and other shareholders’ rights, the Board may decide how to deal with any shares in the Company.

6.5 Voting rights Members will be entitled to vote at a general meeting or class meeting whether on a show of hands or a poll, as provided in the applicable statutes. The Companies Act provides that: (A) on a show of hands every member present in person has one vote and every proxy present who has been duly appointed by one or more members will have one vote, except that a proxy has one vote for and one vote against if the proxy has been duly appointed by more than one member and the proxy has been instructed by one or more members to vote for and by one or more other members to vote against. For this purpose the Articles provide that, where a proxy is given discretion as to how to vote on a show of hands, this will be treated as an instruction by the relevant member to vote in the way that the proxy decides to exercise that discretion; and (B) on a poll every member has one vote per share held by him and he may vote in person or by one or more proxies. Where he appoints more than one proxy, the proxies appointed by him taken together shall not have more extensive voting rights than he could exercise in person.

This is subject to any special rights or restrictions as to voting which are given to any shares or on which shares are held.

In the case of joint holders of a share the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders and, for this purpose, seniority shall be determined by the order in which the names stand in the register in respect of the joint holding.

6.6 Restrictions No member shall be entitled to vote at any general meeting or class meeting in respect of any share held by him if any call or other sum then payable by him in respect of that share remains unpaid or if a member has been served with a restriction notice (as defined in the Articles) after failure to provide the Company with information concerning interests in those shares required to be provided under the Companies Acts.

6.7 Dividends and other distributions The Company may by ordinary resolution from time to time declare dividends not exceeding the amount recommended by the Board. Subject to the Companies Acts, the Board may pay interim dividends, and also any fixed rate dividend, whenever the financial position of the Company, in the opinion of the Board, justifies its payment. If the Board acts in good faith, it is not liable to holders of shares with preferred or pari passu rights for losses arising from the payment of interim or fixed dividends on other shares.

The Board may withhold payment of all or any part of any dividends or other moneys payable in respect of the Company’s shares from a person with a 0.25% or greater holding, in number or nominal value, of the shares of the Company or of any class of such shares (in each case, calculated exclusive of any shares held as treasury shares) (in this section, a “0.2% interest”) if such a person has been served with a restriction notice (as defined in the articles) after failure to provide the Company with information concerning interests in those shares required to be provided under the Companies Acts.

Except insofar as the rights attaching to, or the terms of issue of, any share otherwise provide, all dividends shall be apportioned and paid pro rata according to the amounts paid up on the share during any portion of the period in respect of which the dividend is paid. Except as set out above, dividends may be declared or paid in any currency.

302 The Board may if authorised by an ordinary resolution of the Company offer ordinary Shareholders (excluding any member holding shares as treasury shares) in respect of any dividend the right to elect to receive Ordinary Shares by way of scrip dividend instead of cash.

Any dividend unclaimed after a period of 12 years from the date when it was declared or became due for payment shall be forfeited and revert to the Company unless the Board decides otherwise.

The Company may stop sending cheques, warrants or similar financial instruments in payment of dividends by post in respect of any shares or may cease to employ any other means of payment, including payment by means of a relevant system, for dividends if either (i) at least two consecutive payments have remained uncashed or are returned undelivered or that means of payment has failed or (ii) one payment remains uncashed or is returned undelivered or that means of payment has failed and reasonable enquiries have failed to establish any new postal address or account of the holder. The Company may resume sending dividend cheques, warrants or similar financial instruments or employing that means of payment if the holder requests such resumption in writing.

6.8 Variation of rights Subject to the Companies Acts, rights attached to any class of shares may be varied with the written consent of the holders of not less than three-fourths in nominal value of the issued shares of that class (calculated excluding any shares held as treasury shares), or with the sanction of a special resolution passed at a separate general meeting of the holders of those shares. At every such separate general meeting (except an adjourned meeting) the quorum shall be two persons holding or representing by proxy not less than one-third in nominal value of the issued shares of the class (calculated excluding any shares held as treasury shares).

The rights conferred upon the holders of any shares shall not, unless otherwise expressly provided in the rights attaching to those shares, be deemed to be varied by the creation or issue of further shares ranking pari passu with them.

6.9 Transfer of shares The shares are in registered form. Any shares in the Company may be held in uncertificated form and, subject to the Articles, title to uncertificated shares may be transferred by means of a relevant system. Provisions of the Articles do not apply to any uncertificated shares to the extent that such provisions are inconsistent with the holding of shares in uncertificated form or with the transfer of shares by means of a relevant system.

Subject to the Articles, any member may transfer all or any of his certificated shares by an instrument of transfer in any usual form or in any other form which the Board may approve. The instrument of transfer must be signed by or on behalf of the transferor and (in the case of a partly-paid share) the transferee.

The transferor of a share is deemed to remain the holder until the transferee’s name is entered in the register.

The Board can decline to register any transfer of any share which is not a fully paid share. The Board may also decline to register a transfer of a certificated share unless the instrument of transfer: (A) is duly stamped or certified or otherwise shown to the satisfaction of the Board to be exempt from stamp duty and is accompanied by the relevant share certificate and such other evidence of the right to transfer as the Board may reasonably require; (B) is in respect of only one class of share; and (C) if to joint transferees, is in favour of not more than four such transferees.

Registration of a transfer of an uncertificated share may be refused in the circumstances set out in the uncertificated securities rules (as defined in the Articles) and where, in the case of a transfer to joint holders, the number of joint holders to whom the uncertificated share is to be transferred exceeds four.

303 The Board may decline to register a transfer of any of the Company’s certificated shares by a person with a 0.2% interest if such a person has been served with a restriction notice (as defined in the Articles) after failure to provide the Company with information concerning interests in those shares required to be provided under the Companies Act, unless the Board is satisfied that they have been sold outright to an independent third party.

6.10 Sub-division of share capital Any resolution authorising the Company to sub-divide any of its shares may determine that, as between the holders of the divided shares, different rights and restrictions of a kind which the Company can apply to new shares can apply to different divided shares.

6.11 General meetings The Articles rely on the Companies Act provisions dealing with the calling of general meetings. Under the Companies Act an annual general meeting must be called by notice of at least 21 days. Upon listing, the Company will be a “traded company” for the purposes of the Companies Act and as such will be required to give at least 21 days’ notice of any other general meeting unless a special resolution reducing the period to not less than 14 days has been passed at the immediately preceding annual general meeting or at a general meeting held since that annual general meeting or, prior to the Company’s first annual general meeting following Admission, at any other general meeting following Admission.

Notice of a general meeting must be given in hard copy form, in electronic form, or by means of a website and must be sent to every member and every Director. It must state the time and date and the place of the meeting and the general nature of the business to be dealt with at the meeting. As the Company will be a traded company, the notice must also state the website address where information about the meeting can be found in advance of the meeting, the voting record time, the procedures for attending and voting at the meeting, details of any forms for appointing a proxy, procedures for voting in advance (if any are offered), and the right of members to ask questions at the meeting. In addition, a notice calling an annual general meeting must state that the meeting is an annual general meeting.

Each director shall be entitled to attend and speak at any general meeting. The chairman of the meeting may invite any person to attend and speak at any general meeting where he considers that this will assist in the deliberations of the meeting.

6.12 Directors (A) Number of Directors The Directors shall be not less than two and not more than 15 in number. The Company may by ordinary resolution vary the minimum and/or maximum number of Directors.

(B) Directors’ shareholding qualification A Director shall not be required to hold any shares in the Company.

(C) Appointment of Directors Directors may be appointed by the Company by ordinary resolution or by the Board. A Director appointed by the Board holds office only until the next following annual general meeting of the Company and is then eligible for re-appointment. The Board or any committee authorised by the Board may from time to time appoint one or more Directors to hold executive office for such period and on such terms as they may determine and may also revoke or terminate any such appointment.

(D) Retirement of Directors At every annual general meeting of the Company any Director who has been appointed by the Board since the last annual general meeting, or who held office at the time of the two preceding annual general meetings and who did not retire at either of them, or who has held office with the

304 Company, other than executive office, for a continuous period of nine years or more at the date of the meeting, shall retire from office and may offer himself for re-appointment by the members.

(E) Removal of Directors by special resolution The Company may by special resolution remove any Director before the expiration of his period of office.

(F) Vacation of office The office of a Director shall be vacated if: (i) he resigns or offers to resign and the Board resolves to accept such offer; (ii) he is removed by resolution or notice passed or given by all of the other Directors and all of the other directors are not less than three in number; (iii) he is or has been suffering from mental or physical ill health and the Board resolves that his office be vacated; (iv) he is absent without the permission of the Board from meetings of the Board (whether or not an alternate director appointed by him attends) for six consecutive months and the Board resolves that his office is vacated; (v) he becomes bankrupt or compounds with his creditors generally; (vi) he is prohibited by a law from being a Director; (vii) he ceases to be a Director by virtue of the Companies Act; or (viii) he is removed from office pursuant to the Articles. If the office of a Director is vacated for any reason, he must cease to be a member of any committee or sub-committee of the Board.

(G) Alternate Directors Any Director may appoint any person to be his alternate and may at his discretion remove such an alternate Director. If the alternate Director is not already a Director, the appointment, unless previously approved by the Board, shall have effect only upon and subject to being so approved.

(H) Proceedings of the Board Subject to the provisions of the Articles, the Board may meet for the despatch of business, adjourn and otherwise regulate its meetings as it thinks fit. The quorum necessary for the transaction of the business of the Board may be fixed by the Board and, unless so fixed at any other number, shall be two. A meeting of the Board at which a quorum is present shall be competent to exercise all the powers, authorities and discretions vested in or exercisable by the Board. The Board may appoint a Director to be the chairman or a deputy chairman and may at any time remove him from that office. Questions arising at any meeting of the Board shall be determined by a majority of votes. In the case of an equality of votes the chairman of the meeting shall have a second or casting vote. All or any of the members of the Board may participate in a meeting of the Board by means of a conference telephone or any communication equipment which allows all persons participating in the meeting to speak to and hear each other. A person so participating shall be deemed to be present at the meeting and shall be entitled to vote and to be counted in the quorum. The Board may delegate any of its powers, authorities and discretions (with power to sub-delegate) to any committee, consisting of such person or persons as it thinks fit, provided that the majority of persons on any committee or sub-committee must be Directors. The meetings and proceedings of any committee consisting of two or more members shall be governed by the provisions contained in the Articles for regulating the meetings and proceedings of the Board so far as the same are applicable and are not superseded by any regulations imposed by the Board.

305 (I) Remuneration of Directors Each of the Directors shall be paid a fee at such rate as may from time to time be determined by the Board, but the aggregate of all such fees so paid to the Directors shall not exceed £2 million per annum or such higher amount as may from time to time be decided by ordinary resolution of the Company. Any Director who is appointed to any executive office shall be entitled to receive such remuneration (whether by way of salary, commission, participation in profits or otherwise) as the Board or any committee authorised by the Board may decide, either in addition to or in lieu of his remuneration as a Director. In addition, any director who performs services which in the opinion of the Board or any committee authorised by the Board go beyond the ordinary duties of a director, may be paid such extra remuneration as the Board or any committee authorised by the Board may determine. Each Director may be paid his reasonable travelling, hotel and incidental expenses of attending and returning from meetings of the Board, or committees of the Board or of the Company or any other meeting which as a Director he is entitled to attend, and shall be paid all other costs and expenses properly and reasonably incurred by him in the conduct of the Company’s business or in the discharge of his duties as a Director. The Company may also fund a Director’s or former director’s expenditure and that of a Director or former Director of any holding company of the Company for the purposes permitted under the Companies Acts and may do anything to enable a Director or former Director or a Director or former Director of any holding company of the Company to avoid incurring such expenditure as provided in the Companies Acts.

(J) Pensions and gratuities for Directors The Board or any committee authorised by the Board may exercise the powers of the Company to provide benefits either by the payment of gratuities or pensions or by insurance or in any other manner for any Director or former Director or his relations, dependants or persons connected to him, but no benefits (except those provided for by the Articles) may be granted to or in respect of a Director or former Director who has not been employed by or held an executive office or place of profit under the Company or any of its subsidiary undertakings or their respective predecessors in business without the approval of an ordinary resolution of the Company.

(K) Directors’ interests The Board may, subject to the provisions of the Articles, authorise any matter which would otherwise involve a Director breaching his duty under the Companies Acts to avoid conflicts of interest. Where the Board gives authority in relation to a conflict of interest or where any of the situations described in (i) to (v) below applies in relation to a Director, the Board may (a) require the relevant Director to be excluded from the receipt of information, the participation in discussion and/or the making of decisions related to the conflict of interest or situation; (b) impose upon the relevant Director such other terms for the purpose of dealing with the conflict of interest or situation as it may determine; and (c) may provide that the relevant Director will not be obliged to disclose information obtained otherwise than through his position as a Director and that is confidential to a third party or to use or apply the information in relation to the Company’s affairs, where to do so would amount to a breach of that confidence. The Board may revoke or vary such authority at any time. Subject to the provisions of the Companies Acts, and provided he has declared the nature and extent of his interest to the Board as required by the Companies Acts, a director may: (i) be party to, or otherwise interested in, any contract with the Company or in which the Company has a direct or indirect interest; (ii) hold any other office or place of profit with the Company (except that of auditor) in conjunction with his office of Director for such period and upon such terms, including remuneration, as the Board may decide; (iii) act by himself or through a firm with which he is associated in a professional capacity for the Company or any other company in which the Company may be interested (otherwise than as auditor);

306 (iv) be or become a director or other officer of, or employed by or a party to a transaction or arrangement with, or otherwise be interested in any holding company or subsidiary company of the Company or any other company in which the Company may be interested; and (v) be or become a director of any other company in which the Company does not have an interest and which cannot reasonably be regarded as giving rise to a conflict of interest at the time of his appointment as a director of that other company. The Board may also make such additional arrangements as they deem fit to deal with any actual or potential conflict of interest or duty of any Director. Such arrangements may, in particular, permit a Director to make a general disclosure to the Board of potential conflicts of interest or duty and may permit the existence of any such potential conflict which becomes an actual conflict on such terms as the Directors consider appropriate. The relevant Director, and any other Director with a similar interest, will not be counted in the quorum and will not vote on a resolution approving such arrangements, and may be excluded from any meeting of the Directors while the relevant proposal is under consideration. A Director shall not, by reason of his office be liable to account to the Company or its members for any benefit realised by reason of having an interest permitted as described above or by reason of having a conflict of interest authorised by the Board and no contract shall be liable to be avoided on the grounds of a Director having any such interest.

(L) Restrictions on voting No Director may vote on or be counted in the quorum in relation to any resolution of the Board concerning his own appointment, or the settlement or variation of the terms or the termination of his own appointment, as the holder of any office or place of profit with the Company or any other company in which the Company is interested save to the extent permitted specifically in the Articles. Subject to certain exceptions set out in the Articles, no Director may vote on, or be counted in a quorum in relation to, any resolution of the Board in respect of any contract in which he has an interest and, if he does so, his vote shall not be counted. Subject to the Companies Acts, the Company may by ordinary resolution suspend or relax to any extent the provisions relating to Directors’ interests or the restrictions on voting or ratify any transaction not duly authorised by reason of a contravention of such provisions.

(M) Borrowing and other powers Subject to the Articles and any directions given by the Company by special resolution, the business of the Company will be managed by the Board who may exercise all the powers of the Company, whether relating to the management of the business of the Company or not. In particular, the Board may exercise all the powers of the Company to borrow money, to guarantee, to indemnify, to mortgage or charge any of its undertaking, property, assets (present and future) and uncalled capital and to issue debentures and other securities and to give security for any debt, liability or obligation of the Company or of any third party. The Board must restrict the borrowings of the Company and exercise all voting and other rights or powers of control exercisable by the Company in relation to its subsidiary undertakings so as to secure that no money is borrowed if the total amount outstanding of all borrowings (as defined in the Articles) by the Group (exclusive of borrowings within the Group) then exceeds, or would as a result of such borrowing exceed, an amount equal to three times the Company’s adjusted capital and reserves (as defined in the Articles). However, the members may pass an ordinary resolution allowing borrowings to exceed such limit.

(N) Indemnity of Directors To the extent permitted by the Companies Acts, the Company may indemnify any Director or former Director of the Company or any associated company against any liability and may purchase and maintain for any Director or former Director of the Company or any associated company insurance against any liability.

307 6.13 Methods of service Any notice, document (including a share certificate) or other information may be served on or sent or supplied to any member of the Company personally, by post, by means of a relevant system, by sending or supplying it in electronic form to an address notified by the member to the Company for that purpose, where appropriate, by making it available on the Website and notifying the member of its availability, or by any other means authorised in writing by the member.

The Company has served notice on its existing members of its intention to communicate with them via the Website and has sought their acceptance to communicate with them by way of other electronic means.

7. Mandatory bids and compulsory acquisition rules relating to Ordinary Shares Other than as provided by the Takeover Code and Chapter 28 of the Companies Act, there are no rules or provisions relating to mandatory bids and/or squeeze-out and sell-out rules relating to the Company.

7.1 Mandatory bid The Takeover Code applies to the Company. Under Rule 9 of the Takeover Code, if an acquisition of interests in shares were to increase the aggregate holding of the acquirer and its concert parties to interests in shares carrying 30 per cent. or more of the voting rights in the Company, the acquirer and, depending on circumstances, its concert parties would be required (except with the consent of the Panel on Takeovers and Mergers) to make a cash offer for the outstanding shares in the Company at a price not less than the highest price paid for interests in shares by the acquirer or its concert parties during the previous 12 months. This requirement would also be triggered by any acquisition of interests in shares by a person holding (together with its concert parties) shares carrying between 30 per cent. and 50 per cent. of the voting rights in the Company if the effect of such acquisition were to increase that person’s percentage of the total voting rights in the Company.

7.2 Rule 9 disclosures (A) Stabilisation arrangements in connection with the Offer Under the stabilisation arrangements described on page 55 of this document, the Stabilising Manager may borrow Ordinary Shares (representing in aggregate up to 10 per cent. of the Ordinary Shares available in the Offer) from the Major Shareholders under the terms of the Stock Lending Agreement for the purposes of satisfying over-allotments of Ordinary Shares. The Stabilising Manager will, within 30 calendar days of the date of the commencement of conditional dealings of the Ordinary Shares on the London Stock Exchange, redeliver to the Major Shareholders any equivalent securities in respect of any borrowing it makes under the terms of the Stock Lending Agreement by transferring the same number of Ordinary Shares to the Major Shareholders as the Stabilising Manager has borrowed from the Major Shareholders. The Stabilising Manager may also utilise the Over-allotment Option to acquire Ordinary Shares representing in aggregate up to 10 per cent. of the Ordinary Shares available in the Offer (prior to the utilisation of the Over-allotment Arrangements) from the Major Shareholders, whereupon the Major Shareholders will be obliged to transfer such Ordinary Shares to the Stabilising Manager.

As a result of the combined effect of lending Ordinary Shares pursuant to the Stock Lending Agreement and granting the Over-allotment Option, each Major Shareholder’s shareholding in the Company can only remain the same or decrease from what its shareholding would be if it were not party to any stabilisation arrangements. In particular, each Major Shareholder’s shareholding in the Company will decrease by the number of Ordinary Shares (if any) which the Stabilising Manager (i) borrows from that Major Shareholder under the terms of the Stock Lending Agreement and/or (ii) acquires from that Major Shareholder pursuant to utilisation of the Over-allotment Option. At the end of the Stabilisation Period, each Major Shareholder’s shareholding in the Company will increase again when the Stabilising Manager transfers back to that Major Shareholder the number of Ordinary Shares lent to the Stabilising Manager under the Stock Lending Agreement.

308 The Panel has confirmed, on an ex parte basis, to the Company that no mandatory offer for the Company need be made as a result of any reduction and subsequent increase in a Major Shareholder’s shareholding in the Company as a result of the arrangements and transactions described above. In particular, the Takeover Panel has confirmed that, pursuant to Note 4 to the definition of “interests in securities” in, and Notes 17 and 18 to Rule 9.1 of, the Takeover Code, the Major Shareholders will not be treated as having disposed of an interest in any Ordinary Shares when they lend Ordinary Shares to the Stabilising Manager under the Stock Lending Agreement and will not therefore be treated as having increased their interest in Ordinary Shares upon the repayment of such loan.

An announcement will be made by the Company or by the Stabilising Manager on its behalf following utilisation of the Over-allotment Option, not later than one week after the end of the stabilisation period, and a further announcement will be made to record the movements that have taken place in the Major Shareholders’ shareholding in the Company consequent upon the arrangements referred to above.

(B) Share buy-back authorisations When a company redeems or purchases its own voting shares, under Rule 37 of the Takeover Code any resulting increase in the percentage of shares carrying voting rights in which a person or group of persons acting in concert is interested will be treated as an acquisition for the purpose of Rule 9 of the Takeover Code. Rule 37 of the Takeover Code provides that, subject to prior consultation, the Panel will normally waive any resulting obligation to make a general offer if there is a vote of independent shareholders and a procedure along the lines of that set out in Appendix 1 to the Takeover Code is followed. Appendix 1 to the Takeover Code sets out the procedure which should be followed in obtaining that consent of independent shareholders. Under Note 1 on Rule 37.1 of the Takeover Code, a person who comes to exceed the limits in Rule 9.1 in consequence of a company’s purchase of its own shares will not normally incur an obligation to make a mandatory offer unless that person is a director, or the relationship of the person with any one or more of the directors is such that the person is, or is presumed to be, acting in concert with any of the directors.

Under Note 5 on Rule 37 of the Takeover Code, notwithstanding that the redemption or purchase of shares by a company is made conditional upon the prior approval of the transaction by a vote in general meeting of a majority of the independent shareholders: the Panel will not normally waive an obligation to make a mandatory offer under Rule 9 of the Takeover Code if the relevant person, or any member of the relevant group of persons acting in concert, has acquired an interest in shares in the knowledge that the company intended to seek permission from its shareholders to redeem or purchase its own shares; and a waiver will be invalidated if any acquisitions are made by the relevant person, or by any member of the relevant group of persons acting in concert, in the period between the publication of the relevant circular sent by the company to its shareholders and the shareholders’ meeting.

The Panel must be consulted in advance in any case where Rule 9 of the Takeover Code might be relevant. This will include any case where a person or group of persons acting in concert is interested in shares carrying 30 per cent. or more but does not hold shares carrying more than 50 per cent. of the voting rights of a company, or may become interested in 30 per cent. or more on full implementation of the proposed purchase by the Company of its own shares. In addition, the Panel should always be consulted if the aggregate interests in shares of the directors and any other persons acting in concert, or presumed to be acting in concert, with any of the directors amount to 30 per cent. or more, or may be increased to 30 per cent. or more on full implementation of the proposed purchase by the Company of its own shares.

Subject to certain limits, the Company has authority to purchase Ordinary Shares under the terms of the shareholder resolutions summarised in section 5.7 of this Part XVI (Additional Information). The maximum number of Ordinary Shares that the Company may purchase under this authority is 20,000,000. The authority is due to expire at the conclusion of the first annual general meeting of the Company following Admission or 27 June 2015, whichever is later.

If, prior to such expiry: • the Company were to exercise that authority in full; • the aggregate percentage shareholding of (i) the CVC-Affiliated Funds in the Company is 33.6 per cent. and (ii) the Apollo-Affiliated Funds in the Company is 39.7 per cent.; and

309 • none of the Ordinary Shares which the Major Shareholders hold are purchased by the Company under that authority and no Ordinary Shares had been issued by the Company between the date of Admission and the date that the authority is fully exercised, then the CVC-Affiliated Funds’ shareholding in the Company would increase to a maximum holding of approximately 35.4 per cent. and the Apollo-Affiliated Funds’ shareholding in the Company would increase to a maximum holding of approximately 41.8 per cent.

The Major Shareholders’ aggregate shareholding will be lower, and will therefore increase by a lesser amount, to the extent that the Stabilising Manager had exercised the Over-allotment Option by acquiring further Ordinary Shares from the Major Shareholders.

Notwithstanding the provisions of Rule 37 of the Takeover Code, the Panel has confirmed, on an ex parte basis to the Company that it would not require a Selling Shareholder and any person deemed to be acting in concert with that Selling Shareholder to make a mandatory offer under Rule 9 of the Takeover Code on the grounds that its or their interest in the Ordinary Shares has increased as a result only of the purchase by the Company of its own shares pursuant to the authority conferred by the shareholder resolutions summarised above. This confirmation has been given by the Panel on the basis that the consequences of such a purchase by the Company of its own shares has been fully disclosed to prospective Investors in this document.

The Company currently expects to seek renewal of this authority from Shareholders at the first annual general meeting of the Company following Admission and to seek Shareholder consent to an equivalent waiver in respect of any renewed authority to purchase Ordinary Shares that is sought. The granting of the waiver will then also be subject to renewed approval from the Panel, without which Rule 9 of the Takeover Code will apply with respect to increases in interests in Ordinary Shares in the Company caused by the purchase by the Company of its own shares.

7.3 Squeeze-out

Under the Companies Act, if a “takeover offer” (as defined in section 974 of the Companies Act) is made for the Ordinary Shares and the offeror were to acquire, or unconditionally contract to acquire, not less than 90 per cent. in value of the Ordinary Shares to which the offer relates and not less than 90 per cent. of the voting rights carried by the Ordinary Shares to which the offer relates, it could, within three months of the last day on which its takeover offer can be accepted, compulsorily acquire the remaining 10 per cent. The offeror would do so by sending a notice to outstanding members telling them that it will compulsorily acquire their Ordinary Shares and then, six weeks later, it would execute a transfer of the outstanding Ordinary Shares in its favour and pay the consideration for the outstanding Ordinary Shares to the Company, which would hold the consideration on trust for outstanding members. The consideration offered to the members whose shares are compulsorily acquired under this procedure must, in general, be the same as the consideration that was available under the original offer unless a member can show that the offer value is unfair.

7.4 Sell-out

The Companies Act also gives minority members a right to be bought out in certain circumstances by an offeror who has made a takeover offer. If a takeover offer related to all the Ordinary Shares and, at any time before the end of the period within which the offer could be accepted, the offeror held or had agreed to acquire not less than 90 per cent. in value of the Ordinary Shares and not less than 90 per cent. of the voting rights carried by the Ordinary Shares, any holder of Ordinary Shares to which the offer related who had not accepted the offer could, by a written communication to the offeror require it to acquire those Ordinary Shares. The offeror is required to give any member notice of his/her right to be bought out within one month of that right arising. The offeror may impose a time limit on the rights of minority members to be bought out, but that period cannot end less than three months after the end of the acceptance period or, if later, three months from the date on which notice is served on members notifying them of their sell- out rights. If a member exercises his/her rights, the offeror is entitled and bound to acquire those Ordinary Shares on the terms of the offer or on such other terms as may be agreed.

310 8. Organisational Structure As at the date of this Prospectus, the Group comprises the Company and its subsidiary undertakings. The Company has the following subsidiaries, all of which are directly or indirectly 100% owned by it:

Country of Name incorporation Proportion of ownership interest Principal activity Achilles Holdings 1 S.à r.l. Luxembourg 100% owned by Brit PLC Intermediate Holding Company Achilles Holdings 2 S.à r.l. Luxembourg 100% owned by Achilles Holdings 1 Intermediate Holding S.à r.l. Company Achilles Netherlands Netherlands 100% owned by Achilles Holdings 2 Intermediate Holding Holdings B.V. S.à r.l. Company Brit Insurance Holdings Netherlands 100% owned by Achilles Intermediate Holding B.V. Netherlands Holdings B.V. Company Brit Group Holdings B.V. Netherlands 100% owned by Brit Insurance Intermediate Holding Holdings B.V. Company Brit Group Finance Gibraltar 100% owned by Brit Group Finance Company (Gibraltar) Limited Holdings B.V. Brit Services B.V. Netherlands 100% owned by Brit Group Service Company Holdings B.V. (Dormant) Brit Overseas Holdings Luxembourg 100% owned by Brit Group Intermediate Holding S.a` r.l. Holdings B.V. Company Brit Insurance (Gibraltar) Gibraltar 100% owned by Brit Overseas Regulated Insurance PCC Limited Holdings S.a` r.l. Entity Brit Insurance Holdings England and 100% owned by Brit Overseas Intermediate Holding Limited Wales Holdings S.a` r.l. Company Brit Corporate Holdings England and 100% owned by Brit Insurance Intermediate Holding Limited Wales Holdings Limited Company Brit Group Finance England and 100% owned by Brit Corporate Finance Company Limited Wales Holdings Limited Brit Group Services England and 100% owned by Brit Corporate Service Company Limited Wales Holdings Limited Brit Pension Trustee England and 100% owned by Brit Group Service Company Limited Wales Services Limited (Dormant) Brit Corporate Services England and 100% owned by Brit Group Service Company Limited Wales Services Limited (Dormant) Brit Corporate Secretaries England and 100% owned by Brit Group Service Company Limited Wales Services Limited (Dormant) Brit Underwriting Holdings England and 100% owned by Brit Insurance Intermediate Holding Limited Wales Holdings Limited Company Brit Syndicates Limited England and 100% owned by Brit Underwriting Lloyd’s Managing Wales Holdings Limited Agency Brit Insurance Services England and 100% owned by Brit Underwriting Service Company Limited Wales Holdings Limited Brit Insurance Services Illinois, 100% owned by Brit Underwriting Service Company USA, Inc. United States Holdings Limited Brit UW Limited England and 100% owned by Brit Underwriting Syndicate member Wales Holdings Limited BGS Services (Bermuda) England and 100% owned by Brit Underwriting Service Company Limited Wales Holdings Limited Brit Investment Holdings England and 100% owned by Brit Insurance Investment Holding Limited Wales Holdings Limited Company Avoca Loan Fund 1 Ireland 100% owned by Brit Insurance Investment Fund (Gibraltar) PCC Limited

311 9. Interests of major shareholders and selling shareholders 9.1 Major Shareholders Insofar as was known to the Company as at 27 March 2014 (being the latest practicable date prior to the date of this Prospectus), CVC-Affiliated Funds and Apollo-Affiliated Funds will, on Admission, be directly or indirectly interested in 3% or more of the voting rights of the Company (being the threshold for notification of voting rights that will apply to the Company and Shareholders as of Admission pursuant to Chapter 5 of the Disclosure and Transparency Rules of the FCA). CVC-Affiliated Funds and Apollo-Affiliated Funds’ expected interests both immediately prior to and immediately following Admission are disclosed in the table set out in section 10.2 of this Part XVI (Additional Information).

9.2 Selling Shareholders 100,000,000 Ordinary Shares will be sold by the Selling Shareholders pursuant to the Offer (representing 25.0% of the Ordinary Shares at Admission). The Selling Shareholders are the CVC Affiliated Funds, the Apollo Entities and the Management Shareholders. The CVC Affiliated Funds and the Apollo Entities may sell up to a further 10,000,000 Ordinary Shares pursuant to the Over-allotment Option.

The following table sets out the interests that each Selling Shareholder is expected to have in the issued share capital of the Company immediately prior to and immediately following Admission.

Ordinary Shares to be Interests immediately prior sold pursuant to the Interests immediately to Admission Offer following Admission % of total % of total issued issued share share capital of capital of the %of the Selling Shareholder No. Company No. holding No. Company Apollo Entities(1)(2) 212,017,331 53.0% 53,018,252 25.0% 158,999,079 39.7% CVC-Affiliated Funds(1)(2) 179,438,409 44.9% 44,871,377 25.0% 134,567,032 33.6% Mark Cloutier(1)(2)(3)* 1,606,368 0.4% 401,592 25.0% 1,204,776 0.3% Matthew Wilson(1)(2)(3)* 1,027,090 0.3% 256,773 25.0% 770,317 0.2% Other Management Shareholders(1)(3) 5,910,778 1.5% 1,452,006 24.6% 4,458,772 1.1%

N.B. Figures in the above table do not take into account any exercise of the Over-allotment Option. (1) For the purposes of the Offer, the business address of the CVC-Affiliated Funds is 22-24 Seale Street, St. Helier, Jersey, JE2 3QG, the business address of the Apollo Entities is 190 Elgin Avenue, Grand Cayman KY1-9005, Cayman Islands and the business address of Mark Cloutier, Matthew Wilson and the other Management Shareholders is 55 Bishopsgate, London, EC2N 3AS. (2) Shares held directly in the Company. (3) Shares held through SJT Limited, the trustee of the Brit EBT. * Mark Cloutier and Matthew Wilson hold their Shares both directly in the Company and also through SJT Limited.

As at 27 March 2014 (the latest practicable date prior to the date of this Prospectus) and immediately after Admission: (A) save for CVC-Affiliated Funds and Apollo-Affiliated Funds, the Company is not aware of any persons who, directly or indirectly, jointly or severally, will exercise or could exercise control over the Company; and (B) neither Major Shareholder has or will have different voting rights.

312 10. Directors and Senior Managers 10.1 Other directorships and partnerships

The details of those companies and partnerships outside the Group of which the Directors and Senior Managers are currently directors or partners, or have been directors or partners at any time during the previous five years prior to the date of this Prospectus, are as follows:

Position Name Position Company/Partnership still held Richard Ward Director Partnership Life Assurance Company Yes Limited Director Partnership Home Loans Limited Yes Director Partnership Assurance Group PLC Yes Member Council of Lloyd’s and Lloyd’s Franchise No Board Advisory Board Financial Services Knowledge Transfer No Network CEO Lloyd’s of London Limited No Director Geneva Association No Non-Executive Director LCH.Clearnet Group No (formerly London Clearing House Limited) Mark Cloutier Director Riverstone Insurance Limited No Director Brit Insurance Services Australia Limited No (In liquidation) Non-Executive Director Alea Group Holdings (Bermuda) Ltd No (Inactive Company) Director Alea Corporate Member Limited (Inactive No Company) Director President Alea Syndicate Management Limited No (Inactive Company) E.W. Blanch Insurance Services Inc. No Ipe Jacob Director Cobex Investments Limited Yes Non-Executive Director Age UK Enterprises Limited Yes Non-Executive Director City International Insurance Company Yes Limited (Inactive Company) Hans-Peter Non-Executive Director Asia Capital Re Group Yes Gerhardt Non-Executive Director Asia Capital Re Holdings Yes CEO Paris Re Holdings Ltd No Willem Stevens Member of supervisory AZL N.V. Yes board Member of supervisory Stichting Exploitatie Nederlandse Yes board Staatsloterij Member of supervisory Holland Casino N.V. Yes board Vice-chairman of supervisory Stichting Diabetes Onderzoek Nederland Yes council Managing Director Michelin Finance B.V. Yes Chairman Stichting VEROZ Yes Chairman Voting Foundation Sequoia Healthcare Yes Chairman Voting Foundation uniQure N.V. Yes Member of supervisory Ermenegildo Zegna International N.V. No board Member of supervisory Goedland N.V. No board Member of supervisory N.V. Luchthaven Schiphol No board Member of supervisory TBI Holdings B.V. No board Chairman of supervisory Onze Lieve Vrouwe Gasthuis No council (Amsterdam City Hospital) Vice-chairman Het Concertgebouw Fonds No

313 Position Name Position Company/Partnership still held Maarten Hulshoff Member of the Board HB Reavis Group Yes Member of Supervisory Goedland N.V. Yes Board Member of Advisory Board Westplan Investments Yes Member of the Board Wilhelmina Aleida Foundation Yes Member of the Board Damen Shipyards Group Yes Chairman of Supervisory Credit Europe Bank N.V. No Board Member of the Supervisory NIBC No Board Sachin Khajuria Partner Apollo Global Management LLC Yes Partner Apollo Management International LLP Yes Director McGraw-Hill Global Education Yes UK Holdco II Limited Director McGraw-Hill Global Education UK No Holdco Limited Director 19 and 21 Abbey Road Limited (Inactive No company) Director 19-21 Abbey Road (RTM) Company No Limited (Inactive company) Gernot Lohr Non-Executive Director Athene Life Re Ltd Yes Partner Apollo Global Management LLC Yes Director Financial Credit Investment I Limited Yes Director Financial Credit Investment II Limited Yes Director Countrywide Holdings Ltd No Non-Executive Director Countrywide PLC No Director Catalina Holdings (Bermuda) Ltd No Kamil Salame Director CL Intermediate (UK) Limited Yes Director Cunningham Lindsey Acquisition Yes Holdings Limited Director Avolon Aerospace Limited Yes Partner CVC Capital Partners Advisory (US) Yes Jonathan Feuer Director CVC Capital Partners SICAV-FIS S.A. Yes Director CVC Capital Partners Limited Yes Director Flexibon Limited Yes Partner Mayfair Property and Estates LLP Yes Non-Executive Director Debenhams PLC No Director CL Acquisition Holdings Limited No Director Avolon Aerospace Limited No Director Avolon Aerospace Finance II Limited No Director I-MED Holdings PTY Limited No Andrew Baddeley Director Hillcrest Residents Association Limited Yes LLP Member Nomina No 207 LLP Yes Director Atrium 5 Limited No Director Atrium Underwriters Limited No Director Atrium Insurance Agency Limited No Director Atrium Group Services Limited No Director Atrium Underwriting Group Limited No Director Atrium 7 Limited (Inactive company) No Director Atrium 8 Limited (Inactive company) No Director Atrium 9 Limited (Inactive company) No Director Atrium Capital Limited (Inactive company) No Director Atrium 2 Limited (Inactive company) No Director Atrium 10 Limited (Inactive company) No Director Newcockell Limited (Inactive company) No Director Atrium Underwriting Holdings Limited No (Inactive company)

314 Position Name Position Company/Partnership still held

Director Atrium 4 Limited (Inactive company) No Director Atrium 1 Limited (Inactive company) No Director Atrium 3 Limited (Inactive company) No Director Atrium 6 Limited (Inactive company) No Director 609 CAPITAL Limited No Matthew Wilson Non-Executive Director Lloyd’s Market Association Yes Director 9 South Cliff Residents Company Limited Yes Director Riverstone Insurance Limited No Nigel Meyer Director Luc Holdings Limited No Director Aviva Consumer Products UK Limited No Director RAC Pension Trustees Limited No Lorraine Denny Director Andoversford Securities Limited Yes Mark Allan Non-Executive Director Xbridge Limited No

10.2 Conflicts of interest Save as set out below, there are no actual or potential conflicts of interest between the duties owed by Directors or the Senior Managers to the Company and the private interests and/or other duties that they may also have:–

(A) Sachin Khajuria and Gernot Lohr represent the Apollo-Affiliated Funds and Kamil Salame and Jonathan Feuer represent the CVC-Affiliated Funds. Under the terms of the Relationship Agreements, but without prejudice to applicable law, where the Company shall have given notice to AIF VII Euro Holdings, L.P. or the relevant CVC-Affiliated Funds (as the case may be) of the existence of any matter in respect of which it, any of its affiliates or a Representative Director appointed by it has a direct or indirect conflict of interest or duty (as determined by the Board (excluding the directors nominated for appointment by that Shareholder) in its absolute discretion), AIF VII Euro Holdings, L.P. or the relevant CVC-Affiliated Funds (as the case may be) shall require the Representative Director(s) nominated for appointment by them: (i) not to vote on that matter at any meeting of the Board or any committee of the Board; and (ii) insofar as requested by the Board (excluding the directors nominated for appointment by that Shareholder), not to participate in any meeting of the Board or any committee of the Board while such matter is being discussed. (B) Kamil Salame is a director of Cunningham Lindsey Group which has in the past and may in the future provide loss adjusting services to the Group. (C) Hans-Peter Gerhardt is a director of Asia Capital Re, a reinsurer in Asia. There is the potential that the Group may from time to time enter into reinsurance arrangements with Asia Capital Re.

10.3 Directors’ and Senior Managers’ Confirmations As at the date of this Prospectus, none of the Directors or members of the Senior Management has during the last five years: (A) had any convictions in relation to fraudulent offences; (B) been associated with any bankruptcies, receiverships or liquidations acting in the capacity of any of the positions set out against the name of the Director or Senior Manager (as relevant) in section 10.1 of this Part XVI (Additional Information); (C) been subject to any official public incrimination and/or sanctions by any statutory or regulatory authorities including where relevant, designated professional bodies; or (D) 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.

10.4 Interests of Directors and Senior Managers in the share capital of the Company Set out below are the direct and indirect interests of the Directors and Senior Managers in the Ordinary Shares expected to exist immediately following Admission.

315 Interests in the issued share Interests in the issued share capital capital of the Company as at 28 March of the Company immediately 2014 following completion of the Offer % of issued % of issued share share Director/Senior capital of the capital of the Manager Shareholding Company Shareholding Company Mark Cloutier(1)(2)* 1,606,368 0.4% 1,204,776 0.3% Richard Ward(2) 102,750 0.0% 102,750 0.0% Hans-Peter Gerhardt(2) 106,126 0.0% 79,594 0.0% Andrew Baddeley(2) 287,701 0.1% 215,776 0.1% Matthew Wilson(1)(2)* 1,027,090 0.3% 770,317 0.2% Mark Allan(2) 296,614 0.1% 222,460 0.1% Nigel Meyer(2) 323,352 0.1% 242,514 0.1% Shane Kingston(2) 218,870 0.1% 164,152 0.0% John Stratton(2) 426,019 0.1% 319,514 0.1% Steve Robson(2) 75,019 0.0% 56,264 0.0% Lorraine Denny(2) 168,093 0.0% 126,070 0.0%

(1) Shares held directly in the Company. (2) Shares held through SJT Limited, the trustee of the Brit EBT. * Mark Cloutier and Matthew Wilson hold their Shares both directly in the Company and also through SJT Limited, the trustee of the Brit EBT.

Save as set out above, no Director or Senior Manager has any interests (beneficial or non-beneficial) in the share capital of the Company. Save as set out above, no Director or Senior Manager holds an interest in any other securities of the Company.

10.5 Indemnity Insurance Each of the Directors has the benefit of indemnity insurance maintained by the Group on their behalf indemnifying them against liabilities they may potentially incur to third parties as a result of their position as Director.

10.6 Transactions with Directors and Senior Managers None of the Directors has or has had any interest in any transaction which is or was unusual in its nature or conditions or significant to the business which was effected by any member of the Group during the current or immediately preceding financial year, or which was effected during an earlier financial year and remains in any respect outstanding or unperformed.

None of the Directors has or had a beneficial interest in any contract to which any member of the Group was a party during the current or immediately preceding financial year.

Mark Cloutier, Mark Allan, Nigel Meyer, Shane Kingston, John Stratton and Matthew Wilson have all entered into loans with Achilles, as detailed in section 14 of Part XIII (Operating and Financial Review). Save as set out in the previous sentence, there are no outstanding loans or guarantees granted or provided by any member of the Group for the benefit of any of the Directors.

10.7 Directors’ Service contracts, remuneration and emoluments Service contract of the Executive Director The Executive Director has a service contract with the Group (through Brit Group Services Limited (“BGSL”)) relating to the provision of services to the Group. The principal terms of the Executive Director’s contract are summarised below.

(A) General terms Mark Cloutier will be paid an annual base salary of £450,000 which is reviewed annually. He is eligible to participate in BGSL share incentive schemes and, at the discretion of the Remuneration Committee, in BGSL’s bonus plan.

316 His benefit package includes private health cover, permanent health cover and life assurance cover. Mark Cloutier is entitled to join the GPPP (please refer to section 17.3 of this Part XVI (Additional Information)). BGSL contributes to that scheme (or to a pension plan nominated by Mark).

In addition to normal public holidays, Mark Cloutier is entitled to 27 working days of paid holiday in each complete holiday year.

(B) Termination provisions Mark Cloutier’s service agreement can be terminated by either him or BGSL giving not less than six months’ written notice.

BGSL may put Mark Cloutier on garden leave during his notice period. During this period he remains an employee of BGSL and is subject to certain restrictions.

BGSL may elect to terminate Mark Cloutier’s employment immediately by making a payment in lieu of notice equivalent to his basic salary for the notice period in monthly instalments which will continue until the expiry of the notice period or the date on which Mark commences new employment which is comparable to his position with BGSL.

In addition, his employment is terminable with immediate effect in certain circumstances; including where he (i) commits a material or persistent breach of his obligations under his service agreement; (ii) is guilty of gross misconduct or gross negligence; (iii) is guilty of conduct which in the reasonable opinion of the Board has brought himself or the Group into disrepute or prejudiced the interests of the Group; (iv) is convicted of a criminal offence other than an offence which does not in the reasonable opinion of the Board affect his position; (v) is declared bankrupt; or (vi) is prohibited by law or any regulator from being a director or carrying out his duties under his service agreement.

The service agreement also contains post-termination restrictions. For a period of six months after termination (less any period spent on garden leave), he may not be concerned in any competing business. For a period of 12 months after termination (less any period spent on garden leave) he may not solicit or employ any senior employees from BGS in connection with any competing business.

Summary of service contract Particulars of the service contract entered into with the Executive Director as at 27 March 2014 (being the latest practicable date prior to publication of this Prospectus) are set out below:

Notice Notice Date of period by period by appointment to Company Director Name Position the Board (months) (months) Mark Cloutier CEO 27 March 2014 six six

Non-Executive Directors’ letters of appointment and fees The Company has nine Non-Executive Directors: the Chairman, four non-independent Non-Executive Directors and four Independent Non-Executive Directors. They were appointed by letter of appointment for an initial term of two years. The principal terms of these letters are set out below:

(A) General Terms

Date of appointment to Name Title the Board Richard Ward Non-Executive Chairman 27 March 2014 Ipe Jacob Independent Non-Executive Director 27 March 2014 Hans Peter Gerhardt Independent Non-Executive Director 27 March 2014 Maarten Hulshoff Independent Non-Executive Director 27 March 2014 Willem Stevens Independent Non-Executive Director 27 March 2014 Gernot Lohr Non-Executive Director 27 March 2014 Sachin Khajuria Non-Executive Director 27 March 2014 Kamil Salame Non-Executive Director 27 March 2014 Jonathan Feuer Non-Executive Director 27 March 2014

317 Richard Ward will, from Admission, be paid an annual fee of £250,000. Each of Maarten Hulshoff and Willem Stevens are entitled to receive an annual fee of £75,000. Hans-Peter Gerhardt is entitled to an annual fee of CHF 162,000 and Ipe Jacob is entitled to an annual fee of £150,000. The additional remuneration paid to Hans-Peter Gerhardt and Ipe Jacob is in recognition of (a) in the case of Hans-Peter Gerhardt, his position as chair of the Underwriting Committee and (b) in the case of Ipe Jacob, his position as a non-executive director of BSL and chair of the audit committees of BIG and BIHL. Gernot Lohn, Sachin Khajuria, Kamil Salame and Jonathan Feuer are not entitled to any fee in respect of their appointment. In addition, the Chairman, the Independent Non-Executive Directors and the non-independent Non-Executive Directors are entitled to be reimbursed for reasonable expenses properly incurred arising from the performance of their duties as a director of the Company. They may not participate in any pension or share scheme, or be entitled to any bonus, operated by the Company. The non-independent Non-Executive Directors, Gornot Lohr, Sachin Khajuria, Kamil Salame and Jonathan Feuer, each as a Representative Director of a Major Shareholder, are required, during the term of their appointment, to comply with the terms of the applicable Relationship Deed which governs the relationship between each of the Major Shareholders and the Company (further details of which are set out in section 21.4 of this Part XVI (Additional Information)).

(B) Termination provisions (i) Independent Non-Executive Directors and Chairman The appointment of the Chairman and each Independent Non-Executive Director is terminable by either the Independent Non-Executive Director or the Company on three months’ notice. Their appointments may also be terminated with immediate effect by the Company if the Independent Non-Executive Director (i) is unable to perform his duties through ill-health for up to twenty six weeks in any twelve month period; (ii) is disqualified from acting as a director or is removed from office; (iii) fails to be re-appointed or re-elected, or retires or vacates his office, in accordance with the Articles; or (iv) commits a serious or material breach of, or fails to observe, his obligations under the letter of appointment or duties to the Company or is guilty of conduct bringing any member of the Group of himself into disrepute.

(ii) Non-independent Non-Executive Directors The appointment of any non-independent Non-Executive Director will terminate on the individual resigning from his office with the Company and on termination of the applicable Relationship Deed. The Company may terminate the appointment immediately in certain circumstances set out in the applicable Relationship Deed including where the individual is (i) disqualified from acting as a director; or (ii) commits a material breach of his duties to the Company or his obligations under his letter of appointment.

11. Directors’ and Senior Managers’ Remuneration in 2013 11.1 Directors’ Remuneration for year ending 31 December 2013 Under the terms of their service agreements, letters of appointment and applicable incentive plans, the remuneration and benefits to the Board who served during 2013, in respect of the year ended 31 December 2013, were as follows: Executive Director: Mark Cloutier received total remuneration of £1,679,537 in 2013. This comprised salary of £450,000 (plus £4,167 backdated pay), a bonus of £1,125,000 in respect of 2012, benefits in kind of £597 and a pension allowance of £99,773. He will also receive a bonus for 2013 of £1,250,000, payable in April 2014. Non-Executive Directors: Hans-Peter Gerhardt received an annual fee of CHF 245,000 (converted to £165,000) and Ipe Jacob received an annual fee of £150,000. Each of Willem Stevens and Maarten Hulshoff received an annual fee of £55,000 paid in euros.

318 Sachin Khajuria, Kamil Salame, Gernot Lohr and Jonathan Feuer did not receive a fee for their appointments. Dr Richard Ward received a fee for the period from 1 February 2014 at the rate of £250,000 per annum.

11.2 Senior Managers’ Remuneration for year ending 31 December 2013 The aggregate remuneration paid (including salary and other benefits) to the Senior Managers by the Company and its subsidiaries for the financial year ended 31 December 2013 was £6,186,617.

12. Related party transactions Save as disclosed in the Group’s historical financial information set out in the related party transaction notes to the financial statements for 2011, 2012 and 2013 contained in Part XIV (Financial Information) and section 14 of Part XIII (Operating and Financial Review), no member of the Group entered into any related party transactions (which for these purposes are those set out in the standards adopted according to Regulation (EC) 1606/2002) during 2011, 2012 or 2013. For the period between 31 December 2013 and the date of this Prospectus, no member of the Group has entered into any related party transactions.

13. Remuneration strategy 13.1 Remuneration policy for directors and senior management In anticipation of Admission, a review of the Group’s incentive arrangements in place for its Directors (including the Executive Director) and Senior Management was undertaken to ensure that they are appropriate for the listed company environment.

Following this review, the Company currently has a total compensation philosophy, whereby base salaries and benefits (including incentive arrangements) are managed together in the context of employee and business performance with reference to external market compensation practices. The Company’s remuneration strategy has been designed with the intention of providing overall pay packages that: • recognise the strong link between variable compensation and performance at Company, business unit and individual levels; • reward employees for delivering the Group’s business plan and key strategic goals; • reward superior performance through incentive compensation; • appropriately reflect the risk appetite incorporated into the business strategy as well as being balanced against the Group’s audit and compliance obligations; • align employees’ interests with the interests of Shareholders and other external stakeholders; and • enable the Company to recruit, retain and motivate employees of the highest calibre.

Consistent with its remuneration strategy, the Remuneration Committee intends to agree a post- Admission remuneration policy under which: • base salaries will be set at competitive levels compared to peers and other companies that the Remuneration Committee consider to be of an equivalent size and complexity to the Company, with scope to position between median and upper quartile for key individuals; • performance-related pay, based on targets which the Remuneration Committee views as stretching, will form a significant part of remuneration packages for Directors and Senior Management; and • the Remuneration Committee intends to keep an appropriate balance between rewards for delivery of short-term and longer-term performance targets.

The remuneration framework currently intended to deliver this policy for executive directors and senior management post-Admission is expected to be a combination of base salary and benefits (including annual cash bonus awards under the Group Bonus Plan and annual awards under the long term incentive plan (“LTIP”) — further details are set out below and the key terms of the LTIP are set out in section 14.1 of this Part XVI (Additional Information)). In addition, executive directors and senior

319 management will be eligible to participate in the share ownership plan (“SIP”) on the same terms as other Group employees. The key terms of the SIP are set out in section 14.3 of this Part XVI (Additional Information).

It is intended that the Executive Director and Senior Management will be subject to share ownership guidelines with the aim of encouraging them to build-up a holding of Ordinary Shares over a period of five years from Admission (or, if later, within five years of the individual becoming subject to the share ownership guidelines) and to maintain such holding. Initially, the intention is for the level of holding to be 200 per cent of base salary for the Executive Director and 100 per cent for members of Senior Management. Further details of the proposed share ownership guidelines are set out below.

The Company will be required to submit its remuneration policy (to the extent that it relates to the Directors) to a binding vote of Shareholders at the Company’s 2015 annual general meeting and, usually, every three years thereafter. Accordingly, the Company will outline the above policy and any changes for its future policy relating to the Directors’ remuneration in its report and accounts for its financial year ending 31 December 2014, as well as detailing the implementation of the policy set out above.

13.2 Base salary Base salaries will typically be reviewed on an annual basis. In practice, the actual salaries of executive directors and senior management will depend on their experience and the scope of their role and with regard to practices at peer companies of equivalent size and complexity in line with the remuneration policy outlined above. In considering the base salary (and other elements of remuneration) of executive directors and senior management, due regard will be taken of the pay and conditions of the workforce generally. The base salary for the Executive Director is currently £450,000 per annum.

13.3 Annual cash bonus The Executive Director and Senior Management are eligible to participate in an annual bonus plan known as the “Group Bonus Plan”, which was operated prior to Admission. The Group Bonus Plan will not be affected by Admission and it is currently intended that this plan will continue to operate following Admission.

Under the Group Bonus Plan, all cash bonuses are subject to the achievement of performance conditions, which consist of three elements: Group, business unit and individual performance. Following Admission, performance conditions will be set by the Remuneration Committee at the beginning of each financial year in which cash bonus awards are granted. Any annual incentive awards for the Executive Director and Senior Management for the financial year ending 31 December 2014 will be determined by a combination of performance against Group profit targets and performance measures appropriate to an individual’s role.

Prior to 2013, the Executive Director’s bonus opportunity was uncapped but the amount to be paid in respect of 2013 will amount to 278% of basic salary. The maximum bonus opportunity for the financial year ending 31 December 2014 would be capped at 200 per cent of base salary.

It is currently intended that a proportion of any annual bonus earned by the Executive Director and members of Senior Management in respect of each financial year will be deferred into awards over Ordinary Shares under a new deferred share bonus plan which was adopted by the Board, conditional on Admission, on 27 March 2014 (“DSBP”) with such awards normally vesting after a three-year deferral period, subject to malus and clawback as described in section 13.7 of this Part XVI (Additional Information). For the financial year ending 31 December 2014, 35 per cent of any annual bonus earned will normally be deferred under the DSBP for a period of three years.

Bonus payments are non-pensionable.

A summary of the key terms of the DSBP is set out in section 14.2 of this Part XVI (Additional Information).

13.4 Pensions and benefits For details of the Group’s pension arrangements (and the Executive Director’s and Senior Management’s participation in such arrangements), please refer to section 17 of this Part XVI (Additional Information).

320 13.5 Long-term incentives The Group’s ongoing long-term incentive policy for executive directors and senior management following Admission is expected to be delivered through the LTIP which was adopted by the Board, conditional on Admission, on 27 March 2014 and which is intended to reflect relevant market practice, including FTSE-listed insurance companies.

It is currently anticipated that LTIP Awards will be granted on an annual basis and, in the case of executive directors, will provide for a normal vesting period no earlier than the third anniversary of the date of grant, subject to performance conditions set by the Remuneration Committee. The number of Ordinary Shares under any LTIP Awards will be capped at a number of Ordinary Shares equal in value to 225 per cent of base salary, determined at the date of grant.

Any LTIP Award granted to an executive director will be subject to performance conditions and it is also expected that any LTIP Award granted to senior management would also be subject to performance conditions. It is currently envisaged that any LTIP Awards granted to the Executive Director and Senior Management in 2014 will be subject to performance measures relevant to the Group’s business strategy based on a combination of total shareholder return and a financial performance measure, such as return on equity. It is expected that initial awards to the Executive Director and Senior Management will vest over a period of three to five years. Performance conditions and grant levels for LTIP Awards granted to an executive director will be disclosed in the Company’s reports and accounts each year.

A summary of the key terms of the LTIP are set out in section 14.1 of this Part XVI (Additional Information).

13.6 IPO Awards After Admission, the Remuneration Committee intends to grant one-off “IPO Awards” to all employees who have been employed by the Group for at least six months at Admission (including the Executive Director) in order to reward those employees on the occasion of Admission. The SIP has been designed to comply with the requirements for tax-advantaged employee share plans in the UK and so it is envisaged that any IPO Awards granted will provide these rewards to UK employees in a tax- efficient manner.

It is intended that any IPO Awards granted will be in the form of a right to receive free Ordinary Shares (known as “Free Shares”) under the SIP and shall not be subject to performance conditions or the operation of malus. It is also anticipated that the award levels of any IPO Awards may be dependent on length of service and may be calculated on the basis of the Offer Price (provided that, at the date of grant, the total value of Ordinary Shares underlying each employee’s IPO Award shall not exceed the statutory maximum for the 2014/2015 tax year as set out in the relevant tax legislation).

Holders of any such IPO Awards may be required to automatically re-invest any dividends received in respect of their Free Shares in further Ordinary Shares (known as “Dividend Shares”).

Any Free Shares forming part of an IPO Award are likely to be subject to a three-year holding period and to be subject to forfeiture if the employee leaves employment with the group. Any Dividend Shares acquired must be held for three years in order for UK employees to benefit from the tax-advantaged provisions of the SIP.

Any Ordinary Shares used to satisfy any such IPO Awards will be newly issued Ordinary Shares.

Further details of the key terms of the SIP are set out in section 14.3 of this Part XVI (Additional Information).

13.7 Malus and clawback Malus and clawback (as relevant) provisions may be operated at the discretion of the Remuneration Committee in respect of awards granted under the LTIP and the DSBP in certain circumstances (including, but not limited to, a material misstatement of the Company’s financial results, a material failure of risk management by any member of the Group or a relevant business unit, material

321 reputational damage to any member of the Group or relevant business unit, or if the participant’s employment is terminated for gross misconduct).

13.8 Share ownership guidelines The Remuneration Committee intends to agree share ownership guidelines to operate post-Admission in order to encourage the Executive Director and the members of Senior Management to build or maintain (as relevant) a shareholding in the Company equivalent in value to 200 per cent of his base salary for the Executive Director and 100 per cent of their respective base salaries for members of Senior Management. The relevant threshold is expected to be reached and maintained within five years from Admission or, if later, from the date when the individual became subject to the share ownership guidelines.

It is anticipated that Ordinary Shares held at Admission, together with any Ordinary Shares acquired following Admission, will count towards the thresholds set out in the share ownership guidelines. It is also anticipated that Ordinary Shares held or acquired by spouses, civil partners and minor children may be permitted to count towards the threshold.

14. Share-based incentive arrangements Following Admission, the Company intends to operate two discretionary executive share plans (together, the “Executive Share Plans”): LTIP (defined below) and a deferred share bonus plan (the “DSBP”, which is defined below). The Company also intends to operate a tax-advantaged all-employee share plan (the “SIP”, which is defined below) in order to encourage share ownership at all levels in a tax-efficient manner. The Executive Share Plans and the SIP are, together, the “New Plans”.

References in this section 14 to the Board include any designated committee of the Board.

The principal features of the New Plans are summarised below.

14.1 The Brit Long Term Incentive Plan (LTIP) Status The LTIP is a discretionary executive share plan, which was adopted by the Board (conditional upon Admission) on 27 March 2014.

Under the LTIP, the Remuneration Committee may, within certain limits and subject to any applicable performance conditions, grant to eligible employees: (i) nil-cost options over Ordinary Shares (“LTIP Options”); (ii) conditional awards (i.e. a right to receive free Ordinary Shares) (“LTIP Conditional Awards”); and/or (iii) awards over forfeitable Ordinary Shares (“LTIP Restricted Awards”), (together “LTIP Awards”)

The Remuneration Committee may also decide to grant cash-based awards of an equivalent value to share-based awards.

No payment is required for the grant of an LTIP Award.

Eligibility All employees (including the Executive Director) are eligible to participate in the LTIP at the discretion of the Remuneration Committee.

Limits The LTIP may operate over new issue Ordinary Shares, treasury Ordinary Shares or Ordinary Shares purchased in the market.

The rules of the LTIP provide that, in any period of ten calendar years, not more than ten per cent of the Company’s issued ordinary share capital may be issued under the LTIP and under any other employee share scheme adopted by the Company.

322 In addition, the rules of the LTIP provide that, in any period of ten calendar years, not more than five per cent of the Company’s issued ordinary share capital may be issued under the LTIP and under any other executive share scheme adopted by the Company. Ordinary Shares issued out of treasury under the LTIP will count towards these limits for so long as this is required under institutional shareholder guidelines. Ordinary Shares issued to any employee benefit trust before the Company was listed on the London Stock Exchange will not count towards these limits.

Grant of LTIP Awards The Remuneration Committee may grant LTIP Awards with a maximum total market value of up to 225 per cent of annual base salary.

LTIP Awards may be granted: (i) following Admission; (ii) within 42 days of the announcement by the Company of its results for any period; or (iii) at any other time that the Remuneration Committee, at its discretion, may deem there are exceptional circumstances which justify the granting of LTIP Awards.

However, no LTIP Awards may be granted more than ten years after Admission. LTIP Awards are not transferable other than to the participant’s personal representatives in the event of his death. The benefits received under the LTIP are not pensionable.

Performance and other conditions The Remuneration Committee will impose performance conditions on the vesting of LTIP Awards which are granted to an executive director. The Remuneration Committee may also, at its discretion, decide to impose performance conditions on the vesting of LTIP Awards which are granted to employees other than an executive director (and it is expected that any LTIP Award granted to senior management would be subject to performance conditions). In exceptional circumstances, any performance conditions applying to LTIP Awards may be varied if the Remuneration Committee considers that it would be appropriate to amend such performance conditions provided the Remuneration Committee considers that the new performance conditions are fair and reasonable and are not materially less challenging than the original performance conditions would have been had these circumstances not arisen.

Where performance conditions are specified for LTIP Awards, the underlying measurement period for such conditions will comprise at least three years for an executive director and, for other employees, will ordinarily comprise three years (but may be such shorter or longer period as the Remuneration Committee may determine).

It is currently envisaged that any LTIP Awards granted to the Executive Director and Senior Management in 2014 will be subject to performance measures based on a combination of total shareholder return and a financial performance measure, such as return on equity.

The Remuneration Committee may also impose other conditions on the vesting of LTIP Awards.

Vesting and exercise LTIP Options will normally become exercisable, LTIP Conditional Awards will normally vest and LTIP Restricted Awards will cease to be subject to forfeiture, on the third anniversary of the date of granting the LTIP Award (or such other date(s) as the Remuneration Committee may determine) or, if later, the expiry of any relevant performance period to the extent that any applicable performance conditions have been satisfied and to the extent permitted under any operation of malus. LTIP Options will normally remain exercisable until the tenth anniversary (or a shorter period at the discretion of the Remuneration Committee) of the date of granting the LTIP Option.

For initial awards, the current expectation is that vesting of awards to the Executive Director and Senior Management will occur over a period of three to five years.

Cessation of employment As a general rule, an unvested LTIP Award (and, where a participant is dismissed for cause, any vested LTIP Options) will lapse immediately upon a participant ceasing to be employed by or to hold

323 office within the Group. However, if a participant so ceases because of his ill-health, injury or disability (in each case, evidenced to the satisfaction of the Remuneration Committee), or the business or employing company for which he works being transferred out of the Group or in other circumstances at the discretion of the Remuneration Committee (each an “LTIP Good Leaver Reason”), his LTIP Award will ordinarily vest on the date when it would have vested if he had not so ceased to be a Group employee or director subject to: (i) the satisfaction of any applicable performance conditions measured over the original performance period; (ii) the operation of malus; and (iii) the reduced period of time between grant and the participant’s cessation of employment as a proportion of the normal vesting period.

If a participant ceases to be a Group employee or director for an LTIP Good Leaver Reason, the Remuneration Committee can alternatively decide that his LTIP Award will vest early when he leaves (or on such other date between the date of dismissal/notice and the original vesting date as the Remuneration Committee may determine). If a participant dies, his LTIP Award will vest on the date of his death (unless the Remuneration Committee decides that his LTIP Award will vest on the date when it would have vested if he had not died, in which case the normal vesting provisions for leavers (above) will apply). The extent to which an LTIP Award will vest in these situations will be subject to: (i) the extent to which any applicable performance conditions have been satisfied at the date of cessation (which may include regard to projected performance over the full period); (ii) the operation of malus; and (iii) the proportion of the vesting period that has then elapsed.

To the extent that LTIP Options vest in accordance with the above provisions, they may be exercised for a period of twelve months following vesting and will otherwise lapse at the end of that period. To the extent that a participant who leaves in circumstances other than dismissal for cause held vested LTIP Options, they may be exercised for a period of twelve months following the date of cessation and will otherwise lapse at the end of that period.

Corporate events In the event of a takeover or winding up of the Company (other than an internal reorganisation), LTIP Awards may vest early subject to: (i) the extent that any applicable performance conditions have been satisfied at that time (which may include regard to projected performance over the full period); (ii) the operation of malus; and (iii) the reduced period of time between grant and early vesting as a proportion of the vesting period that has then elapsed.

In the event of an internal corporate reorganisation, LTIP Awards will (provided that the acquiring company consents) be replaced by equivalent new awards over shares in the acquiring company unless the Remuneration Committee decides that LTIP Awards should vest as in the case of a takeover.

If a demerger, special dividend or other corporate event is proposed which, in the opinion of the Remuneration Committee, would affect the market price of Ordinary Shares to a material extent and it is not appropriate or practicable to adjust the number or class of Ordinary Shares under LTIP Awards as detailed below, the Remuneration Committee may decide that LTIP Awards will vest as in the case of a takeover.

To the extent that LTIP Options vest in accordance with the above provisions, they may be exercised for a period of one month and will otherwise lapse at the end of that period. To the extent that a participant already held vested LTIP Options, they may be exercised for a period of one month from the relevant event and will otherwise lapse at the end of that period.

Variation of capital If there is a variation of share capital of the Company or, in the event of a demerger, payment of a special dividend or other corporate event which materially affects the market price of the Ordinary Shares, then the Remuneration Committee may make such adjustments as it considers appropriate to the number or class of Ordinary Shares under LTIP Awards in order to retain the economic value of the LTIP Awards as it was immediately prior to such event.

324 Malus and clawback In certain circumstances where the Remuneration Committee considers such action reasonable and appropriate, the Remuneration Committee may decide: (i) at any time prior to the issue, transfer or release (as the case may be) of the Ordinary Shares underlying an LTIP Award that a participant’s LTIP Award will be subject to malus; and/or (ii) at any time prior to the third anniversary of such issue, transfer or release (as the case may be) that a participant’s LTIP Award will be subject to clawback. Such circumstances include (but are not limited to) where, broadly, there has been: (i) a material misstatement of the Company’s financial results; (ii) a material failure of risk management by any member of the Group or a relevant business unit; (iii) material reputational damage to any member of the Group or relevant business unit; or (iv) if the participant’s employment is terminated for gross misconduct.

The operation of malus may be satisfied in a number of ways, including by reducing the number of Ordinary Shares under an LTIP Award, cancelling an LTIP Award or imposing further conditions on an LTIP Award.

The operation of clawback may be satisfied in a number of ways, including by way of a reduction in the amount of any future bonus, the vesting of any subsisting or future share awards or LTIP Awards, the number of Ordinary Shares under any vested but unexercised option granted under certain share incentive plans and/or a requirement to make a cash payment.

Dividend equivalents The Remuneration Committee may decide at any time prior to the issue, transfer or release (as the case may be) of the Ordinary Shares underlying an LTIP Award that participants will receive an amount (in cash and/or additional Ordinary Shares) equal in value to any dividends that would have been paid on those Ordinary Shares by reference to dividend record dates falling between the time when the relevant LTIP Awards were granted and the time when the LTIP Awards vested (or, in the case of an LTIP Option, such later date that the Remuneration Committee may determine, not being later than the date of acquisition of the Ordinary Shares). This amount may assume the reinvestment of dividends, may exclude or include special dividends and any such amount will be payable shortly after vesting, or (if applicable) exercise, of the relevant LTIP Award.

Rights attaching to Ordinary Shares LTIP Awards will not confer any rights on any employee holding such LTIP Awards until: (i) the relevant LTIP Conditional Award has vested, the relevant LTIP Option has been exercised or the relevant LTIP Restricted Award has been released; and (ii) either (a) (in the case of an LTIP Conditional Award or an LTIP Option) the employee in question has received the underlying Ordinary Shares, or (b) (in the case of an LTIP Restricted Award) the underlying Ordinary Shares have ceased to be subject to forfeiture. Any Ordinary Shares allotted when an LTIP Option is exercised or an LTIP Conditional Award vests or released when the Ordinary Shares underlying an LTIP Restricted Award cease to be subject to forfeiture will rank equally with Ordinary Shares then in issue (except for rights arising by reference to a record date prior to their allotment or release).

Alternative settlement At its discretion, the Remuneration Committee may decide to satisfy LTIP Awards with a cash payment equal to any gain that a participant would have made had the LTIP Awards been satisfied with Ordinary Shares in the usual manner.

Amendments The Remuneration Committee may, at any time, amend the provisions of the LTIP in any respect, except as set out below.

The prior approval of Shareholders at a general meeting of the Company must be obtained in the case of any amendment to the advantage of participants which is made to the provisions relating to eligibility, individual or overall limits, the basis for determining an employee’s entitlement to, and the terms of, Ordinary Shares or cash provided under the LTIP, the adjustments that may be made in the event of any variation to the share capital of the Company and/or the rule relating to such prior

325 approval. However, Shareholder approval is not required for: (i) any minor amendment to benefit the administration of the LTIP, to take account of the provisions of any proposed or existing legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for employees, the Company and/or its subsidiaries or (ii) any permitted alteration to the performance conditions or any other conditions.

Amendments to the material disadvantage of participants (other than a permitted alteration to the performance conditions or any other conditions) may only be made in respect of subsisting rights if such disadvantaged participants are invited to agree such amendment and the majority of those participants who respond (by reference to the number of Ordinary Shares they have under LTIP Award) consent to such amendment.

Overseas plans The Remuneration Committee may, at any time, establish further plans for overseas territories, any such plan to be similar to the LTIP but modified to take account of local tax, exchange control or securities laws. Any Ordinary Shares made available under such further overseas plans must be treated as counting against the limits on individual and overall participation in the LTIP.

14.2 The Brit Deferred Share Bonus Plan (DSBP) Status The DSBP is a discretionary executive share plan, which was adopted by the Board, and is conditional on Admission on 27 March 2014.

Under the DSBP, the Remuneration Committee may, within certain limits and on a discretionary basis, grant to eligible employees: (i) nil -cost options over Ordinary Shares (“DSBP Options”); (ii) conditional awards (i.e. a right to receive free Ordinary Shares) (“DSBP Conditional Awards”); (iii) awards over forfeitable Ordinary Shares (“DSBP Restricted Awards”), (together “DSBP Awards”).

The Remuneration Committee may also decide to grant cash-based awards of an equivalent value to share-based awards.

No payment is required for the grant of a DSBP Award.

Eligibility All employees (including the Executive Director) are eligible to participate in the DSBP at the discretion of the Remuneration Committee.

Limits The DSBP may operate over new issue Ordinary Shares, treasury Ordinary Shares or Ordinary Shares purchased in the market.

The rules of the DSBP provide that, in any period of ten calendar years, not more than ten per cent of the Company’s issued ordinary share capital may be issued under the DSBP and under any other employees’ share scheme adopted by the Company.

In addition, the rules of the DSBP provide that, in any period of ten calendar years, not more than five per cent of the Company’s issued ordinary share capital may be issued under the DSBP and under any other executive share scheme adopted by the Company.

Ordinary Shares issued out of treasury under the DSBP will count towards these limits for so long as this is required under institutional shareholder guidelines. Ordinary Shares issued to any employee

326 benefit trust before the Company was listed on the London Stock Exchange will not count towards these limits.

Grant of DSBP Awards The Remuneration Committee may determine that a proportion of a participant’s annual bonus will be deferred into Ordinary Shares. If the Remuneration Committee makes such a determination, a DSBP Award will be granted to the participant over Ordinary Shares with a total market value not exceeding the amount of the bonus being deferred.

DSBP Awards may be granted: (i) within 42 days of the announcement by the Company of its results for any period, or (ii) at any other time that the Remuneration Committee, at its discretion, may deem there are exceptional circumstances which justify the granting of DSBP Awards.

However, no DSBP Awards may be granted more than ten years after Admission. DSBP Awards are not transferable other than to the participant’s personal representatives in the event of his death. The benefits received under the DSBP are not pensionable.

Vesting and exercise DSBP Options will normally become exercisable, DSBP Conditional Awards will normally vest and DSBP Restricted Awards will cease to be subject to forfeiture, on the third anniversary of the date of granting the DSBP Award (or such other date(s) that the Remuneration Committee may determine in line with market practice) to the extent permitted under any operation of malus. DSBP Options will normally remain exercisable until the tenth anniversary (or a shorter period at the discretion of the Remuneration Committee) of the date of granting the DSBP Option.

Cessation of employment As a general rule, an unvested DSBP Award (and, where a participant is dismissed for cause, any vested DSBP Options) will lapse immediately upon a participant ceasing to be employed by or to hold office within the Group. However, if a participant so ceases because of his ill-health, injury or disability (in each case, evidenced to the satisfaction of the Remuneration Committee), or the business or employing company for which he works being transferred out of the Group or in other circumstances at the discretion of the Remuneration Committee (each a “DSBP Good Leaver Reason”), his DSBP Award will ordinarily vest on the date when it would have vested if he had not so ceased to be a Group employee or director subject to: (i) the operation of malus; and (ii) the reduced period of time between grant and the participant’s cessation of employment as a proportion of the normal vesting period.

If a participant ceases to be a Group employee or director for a DSBP Good Leaver Reason, the Remuneration Committee can alternatively decide that his DSBP Award will vest early when he leaves (or on such other date between the date of dismissal/notice and the original vesting date as the Remuneration Committee may determine). If a participant dies, his DSBP Award will vest on the date of his death (unless the Remuneration Committee decides that his DSBP Award will vest on the date when it would have vested if he had not died, in which case the normal vesting provisions for leavers (above) will apply). The extent to which a DSBP Award will vest in these situations will be subject to: (i) the operation of malus; and (ii) the proportion of the vesting period that has then elapsed.

To the extent that DSBP Options vest in accordance with the above provisions, they may be exercised for a period of twelve months following vesting and will otherwise lapse at the end of that period. To the extent that a participant who leaves in circumstances other than dismissal for cause held vested DSBP Options, they may be exercised for a period of twelve months following the date of cessation and will otherwise lapse at the end of that period.

Corporate events In the event of a takeover or winding up of the Company (other than an internal reorganisation), DSBP Awards may vest early subject to: (ii) the operation of malus; and (ii) the reduced period of time between grant and early vesting as a proportion of the vesting period that has then elapsed.

In the event of an internal corporate reorganisation, DSBP Awards will (provided that the acquiring company consents) be replaced by equivalent new awards over shares in the acquiring company

327 unless the Remuneration Committee decides that DSBP Awards should vest as in the case of a takeover.

If a demerger, special dividend or other corporate event is proposed which, in the opinion of the Remuneration Committee, would affect the market price of Ordinary Shares to a material extent and it is not appropriate or practicable to adjust the number or class of Ordinary Shares under DSBP Awards as detailed below, the Remuneration Committee may decide that DSBP Awards will vest as in the case of a takeover.

To the extent that DSBP Options vest in accordance with the above provisions, they may be exercised for a period of one month and will otherwise lapse at the end of that period. To the extent that a participant already held vested DSBP Options, they may be exercised for a period of one month from the relevant event and will otherwise lapse at the end of that period.

Variation of capital If there is a variation of share capital of the Company or, in the event of a demerger, payment of a special dividend or other corporate event which materially affects the market price of the Ordinary Shares, then the Remuneration Committee may make such adjustments as it considers appropriate to the number or class of Ordinary Shares under DSBP Awards in order to retain the economic value of the DSBP Awards as it was immediately prior to such event.

Malus and clawback In certain circumstances where the Remuneration Committee considers such action reasonable and appropriate, the Remuneration Committee may decide: (i) at any time prior to the issue, transfer or release (as the case may be) of the Ordinary Shares underlying a DSBP Award that a participant’s DSBP Award will be subject to malus; and/or (ii) at any time prior to the third anniversary of such issue, transfer or release (as the case may be) that a participant’s DSBP Award will be subject to clawback. Such circumstances include (but are not limited to) where, broadly, there has been: (i) a material misstatement of the Company’s financial results; (ii) a material failure of risk management by any member of the Group or a relevant business unit; (iii) material reputational damage to any member of the Group or relevant business unit; or (iv) if the participant’s employment is terminated for gross misconduct.

The operation of malus may be satisfied in a number of ways, including by reducing the number of Ordinary Shares under a DSBP Award, cancelling a DSBP Award or imposing further conditions on a DSBP Award.

The operation of clawback may be satisfied in a number of ways, including by way of a reduction in the amount of any future bonus, the vesting of any subsisting or future share awards or DSBP Awards, the number of Ordinary Shares under any vested but unexercised option granted under certain share incentive plans and/or a requirement to make a cash payment.

Dividend equivalents The Remuneration Committee may decide at any time prior to the issue, transfer or release (as the case may be) of the Ordinary Shares underlying a DSBP Award that participants will receive an amount (in cash and/or additional Ordinary Shares) equal in value to any dividends that would have been paid on those Ordinary Shares by reference to dividend record dates falling between the time when the relevant DSBP Awards were granted and the time when the DSBP Awards vested (or, in the case of a DSBP Option, such later date that the Remuneration Committee may determine, not being later than the date of acquisition of the Ordinary Shares). This amount may assume the reinvestment of dividends, may exclude or include special dividends and any such amount will be payable shortly after vesting, or (if applicable) exercise, of the relevant DSBP Award.

Rights attaching to Ordinary Shares DSBP Awards will not confer any rights on any employee holding such DSBP Awards until: (i) the relevant DSBP Conditional Award has vested, the relevant DSBP Option has been exercised or the

328 relevant DSBP Restricted Award has been released; and (ii) either (a) (in the case of a DSBP Conditional Award or an DSBP Option) the employee in question has received the underlying Ordinary Shares, or (b) (in the case of an DSBP Restricted Award) the underlying Ordinary Shares have ceased to be subject to forfeiture. Any Ordinary Shares allotted when an DSBP Option is exercised or an DSBP Conditional Award vests or released when the Ordinary Shares underlying an DSBP Restricted Award cease to be subject to forfeiture will rank equally with Ordinary Shares then in issue (except for rights arising by reference to a record date prior to their allotment or release).

Alternative settlement At its discretion, the Remuneration Committee may decide to satisfy DSBP Awards with a cash payment equal to any gain that a participant would have made had the DSBP Awards been satisfied with Ordinary Shares in the usual manner.

Amendments The Remuneration Committee may, at any time, amend the provisions of the DSBP in any respect, except as set out below.

The prior approval of Shareholders at a general meeting of the Company must be obtained in the case of any amendment to the advantage of participants which is made to the provisions relating to eligibility, individual or overall limits, the basis for determining an employee’s entitlement to, and the terms of, Ordinary Shares or cash provided under the DSBP, the adjustments that may be made in the event of any variation to the share capital of the Company and/or the rule relating to such prior approval. However, Shareholder approval is not required for any minor amendment to benefit the administration of the DSBP, to take account of the provisions of any proposed or existing legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for employees, the Company and/or its subsidiaries.

Amendments to the material disadvantage of participants (other than a permitted alteration to the performance conditions or any other conditions) may only be made in respect of subsisting rights if such disadvantaged participants are invited to agree such amendment and the majority of those participants who respond (by reference to the number of Ordinary Shares they have under DSBP Award) consent to such amendment.

Overseas plans The Remuneration Committee may, at any time, establish further plans for overseas territories, any such plan to be similar to the DSBP but modified to take account of local tax, exchange control or securities laws. Any Ordinary Shares made available under such further overseas plans must be treated as counting against the limits on individual and overall participation in the DSBP.

14.3 The Brit All-Employee Share Plan (SIP)

Status The SIP is an all-employee share ownership plan, which was adopted by the Board (conditional on Admission and subject to any amendments required by the relevant tax legislation in order for the SIP to be certified as tax-advantaged) on 27 March 2014. The SIP has been designed to comply with the relevant UK tax legislation so that, in the future, its rules can be certified as complying with the requirements of that legislation in order to provide Ordinary Shares to UK employees under the SIP in a tax-efficient manner.

Under the SIP, eligible employees may be: (i) awarded up to £3,000 worth of free Ordinary Shares (Free Shares) each year; (ii) offered the opportunity to buy Ordinary Shares with a value of up to the lower of £1,500 and ten per cent of the employee’s pre-tax salary a year (“Partnership Shares”); (iii) given up to two free Ordinary Shares (“Matching Shares”) for each Partnership Share bought; and/or

329 (iv) allowed or required to purchase Ordinary Shares using any dividends received on Ordinary Shares held in the SIP (Dividend Shares).

The limits set out above are the current limits under the applicable SIP legislation. The Board may determine that different limits shall apply in the future should the relevant legislation change in this respect. (Please note that the Free Shares and Partnership Shares limits set out above are expected to increase to £3,600 per year and £1,800 per year respectively from 6 April 2014 in line with the UK Government’s proposed changes to the applicable tax legislation that were announced in the 2013 Autumn Statement.)

IPO Awards After Admission, the Remuneration Committee intends to grant one-off “IPO Awards” to certain employees under the SIP. Please refer to section 13.6 of this Part XVI (Additional Information) for further details of the IPO Awards, which may be granted.

SIP Trust The SIP operates through a UK-resident trust (the “SIP Trust”). The SIP Trust purchases or subscribes for shares that are awarded to or purchased on behalf of employees under the SIP.

An employee will be the beneficial owner of any Ordinary Shares held on his behalf by the trustee of the SIP Trust. Any Ordinary Shares held in the SIP Trust will rank equally with Ordinary Shares then in issue. If an employee ceases to be employed by the group (please note that the definition of group in the legislation relevant to the SIP is different from the term Group as defined in this prospectus), he will be required to withdraw his Free, Partnership, Matching and Dividend Shares from the SIP Trust (or the Free Shares or Matching Shares may be forfeited as described below).

Eligibility Each time that the Board decides to operate the SIP, all UK resident tax-paying employees (including the Executive Director) must be offered the opportunity to participate. Other employees may be permitted to participate. Employees invited to participate must have completed a minimum qualifying period of employment before they can participate. That period must not exceed 18 months or, in certain circumstances, six months. The IPO Awards referred to above will be offered to all employees who have been employed by the Group for at least six months at Admission.

Limits The SIP may operate over new issue Ordinary Shares, treasury Ordinary Shares or Ordinary Shares purchased in the market. However, as referred to above, any Ordinary Shares used to satisfy the grant of any IPO Awards will be newly issued Ordinary Shares.

The rules of the SIP provide that, in any period of ten calendar years, not more than ten per cent of the Company’s issued ordinary share capital may be issued under the SIP and under any other employee share scheme adopted by the Company. Ordinary Shares issued out of treasury for the SIP will count towards this limit for so long as this is required under institutional shareholder guidelines. Ordinary Shares issued to any employee benefit trust before the Company was listed on the London Stock Exchange will not count towards this limit.

No awards of any Free, Partnership, Matching or Dividend Shares may be granted more than ten years after the date of Admission.

Free Shares Up to £3,000 worth of Free Shares may be awarded to each employee in a tax year (but this limit is expected to increase to £3,600 per year from 6 April 2014 in line with the UK Government’s proposed changes to the applicable tax legislation that were announced in the 2013 Autumn Statement). Free Shares must be awarded on the same terms to each employee, but the number of Free Shares awarded can be determined by reference to the employee’s remuneration, length of service, number of hours worked and/or objective performance criteria. The award of Free Shares can, if the Company so

330 chooses, be subject to the satisfaction of a pre-award performance target which measures the objective success of the individual, team, division or business.

There is a holding period of between three and five years (the precise duration to be determined by the Board) during which the employee cannot withdraw the Free Shares from the SIP Trust (or otherwise dispose of the Free Shares) unless the employee leaves employment with the group.

At its discretion, the Board may provide that some or all of the Free Shares will be forfeited if the employee leaves employment with the group other than in the circumstances of injury, disability, redundancy, transfer of the employing business or company out of the group, on retirement or on death (each a “SIP Good Leaver Reason”). Forfeiture can only take place within three years of the Free Shares being awarded.

Details of the Free Shares which may be awarded as part of any IPO Awards granted are set out in section 13.6 of this Part XVI (Additional Information).

Partnership Shares The Board may allow an employee to use pre-tax salary to buy Partnership Shares. The maximum limit is the lower of £1,500 or ten per cent of pre-tax salary in any tax year (but this limit is expected to increase to £1,800 per year from 6 April 2014 in line with the UK Government’s proposed changes to the applicable tax legislation that were announced in the 2013 Autumn Statement). If a minimum amount of deductions is set, it shall not be greater than £10. The salary allocated to Partnership Shares can be accumulated for a period of up to twelve months (the “Accumulation Period”) or Partnership Shares can be purchased out of deductions from the employee’s pre-tax salary when those deductions are made. In either case, Partnership Shares must be bought within 30 days of, as appropriate, the end of the Accumulation Period or the deduction from pay. If there is an Accumulation Period, the number of Ordinary Shares purchased shall be determined by reference to the market value of the Ordinary Shares at the start of the Accumulation Period, at the end of the Accumulation Period or the lower of the two.

An employee may stop and start (or, with the agreement of the Company, vary) deductions at any time although an employee may only restart deductions once per Accumulation Period. Once acquired, Partnership Shares may be withdrawn from the SIP by the employee at any time (subject to the deduction of income tax and National Insurance contributions) and will not be capable of forfeiture.

Matching Shares The Board may offer Matching Shares free to an employee who has purchased Partnership Shares. If awarded, Matching Shares must be awarded on the same basis to all employees up to a maximum of two Matching Shares for every Partnership Share purchased.

There is a holding period of between three and five years (the precise duration to be determined by the Board) during which the employee cannot withdraw the Matching Shares from the SIP Trust.

The Board can, at its discretion, provide that the Matching Shares will be forfeited if the associated Partnership Shares are withdrawn by the employee (other than on a corporate event or where the employee leaves employment with the group for a SIP Good Leaver Reason) or if the employee leaves employment with the group other than for a SIP Good Leaver Reason. Forfeiture can only take place within three years of the Matching Shares being awarded.

Reinvestment of dividends The Board may allow or require an employee to reinvest the whole or part of any cash dividends paid on Ordinary Shares held in the SIP. Dividend Shares must be held in the SIP Trust for three years, unless the employee leaves employment with the group. Once acquired, Dividend Shares are not capable of forfeiture. As referred to above, the holders of any Free Shares awarded as part of any IPO Awards granted may be required to purchase Dividend Shares with any dividends received from those Free Shares.

331 Corporate events In the event of a general offer being made to Shareholders, or a similar takeover event taking place during a holding period, employees will be able to direct the trustee of the SIP Trust as to how to act in relation to their Ordinary Shares held in the SIP. In the event of a corporate re-organisation, any Ordinary Shares held by employees may be replaced by equivalent shares in a new holding company.

Variation of capital Ordinary Shares acquired on a variation of share capital of the Company will usually be treated in the same way as the Ordinary Shares acquired or awarded under the SIP in respect of which the rights were conferred and as if they were acquired or awarded at the same time. In the event of a rights issue during a holding period, participants will be able to direct the trustee of the SIP Trust as to how to act in respect of their Ordinary Shares held in the SIP.

Rights attaching to Ordinary Shares Any Ordinary Shares allotted under the SIP will rank equally with Ordinary Shares then in issue (except for rights arising by reference to a record date prior to their allotment).

Amendments The Board (with the consent of the trustees of the SIP Trust) may at any time amend the rules of the SIP.

The prior approval of Shareholders at a general meeting of the Company must be obtained in the case of any amendment to the advantage of participants which is made to the provisions relating to eligibility, individual or overall limits, the basis for determining an employee’s entitlement to, and the terms of, Ordinary Shares provided under the SIP, the adjustments that may be made in the event of any variation to the share capital of the Company, save that there are exceptions for any minor amendment to benefit the administration of the SIP, to take account of any change in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for employees, the Company and/or its subsidiaries.

Overseas plans The Remuneration Committee may, at any time, establish further plans for overseas territories, any such plan to be similar to the SIP but modified to take account of local tax, exchange control or securities laws. Any Ordinary Shares made available under such further overseas plans must be treated as counting against the limits on individual and overall participation in the SIP.

15. Employee benefit trusts The Company may operate the Executive Share Plans in conjunction with the Brit Management Equity Plan Employee Trust or any other employee benefit trust that may be established by the Company or any other member of its Group in the future and, as noted in section 14.3 of this Part XVI (Additional Information), the SIP will operate through the SIP Trust (each such trust an “EBT”).

Each EBT may acquire Ordinary Shares and shall be entitled to hold or distribute Ordinary Shares in respect of share-based awards granted pursuant to the Share Plans. The trustee of an EBT may buy Ordinary Shares in the market or subscribe for them. An EBT may be funded by way of loans and other contributions from the Company and other group companies.

An EBT may not, at any time without prior shareholder approval, hold more than five per cent of the issued ordinary share capital of the Company (or such other greater percentage as may be required under institutional investor guidelines from time to time). Ordinary Shares held by the trustee of any EBT as nominee for any person will not count towards this limit.

332 16. Employees The Group employs approximately 413 people. The average monthly number of employees (including the Executive Director) employed by the Group for the years ended 31 December 2011, 2012 and 2013 was as follows:

Year ended 31 December 2011 2012 2013 Total Employees 552 430 413

17. Pensions 17.1 Summary of UK pension benefits The Group provides a defined benefit pension scheme and a defined contribution pension plan in the UK. The UK defined benefit scheme is a legacy arrangement – it is closed to new entrants and no further benefits are accruing under it.

17.2 Defined Benefit Scheme The Defined Benefit Scheme provides defined benefits for its members, who are employees or former employees of Brit Group Services Limited. This scheme was closed to new members with effect from 4 October 2001 and was closed to future accrual of benefits on 31 December 2011. All active members of the Defined Benefit Scheme joined the defined contribution plan for future service. As at July 2013 the Defined Benefit Scheme had 567 members of whom 275 were in receipt of pension.

The Defined Benefit Scheme is operated separately from the Group and managed by an independent board of Trustees. The Trustees are responsible for payment of the benefits and management of the plan’s assets. The Defined Benefit Scheme is subject to UK regulations, which require the Group and Trustees to agree a funding strategy and contribution schedule for the Defined Benefit Scheme every three years.

Contributions to the Defined Benefit Scheme are made in accordance with the contribution schedule agreed following each triennial actuarial valuation. The last actuarial valuation of the Defined Benefit Scheme as at 31 July 2012 calculated the technical provisions at £141.6 million, resulting in a deficit of £11.6 million. As a consequence the Group agreed to pay contributions of £4.5 million per annum until 31 July 2015 and £1.6 million on 31 July 2016 to eliminate that deficit.

The defined benefit obligation is calculated annually by independent actuaries using the projected unit method and the funding position of the Defined Benefit Scheme has been updated. As at 31 July 2013, the technical provisions remain the same (£141.6 million) but the funding position of the Defined Benefit Scheme had improved, leading to a surplus of £3.4 million at that date.

17.3 Brit Group Personal Pension Plan (“GPPP”) The GPPP is a group personal pension plan established on 5 October 2001. The benefits under the GPPP are provided entirely from the contributions made to the GPPP and the investment returns on those contributions. The GPPP is administered by Legal and General and membership of the GPPP is open to all permanent Brit employees.

The level of employer contribution depends on the date on which the member joined the GPPP. For members who joined the GPPP on or before 31 May 2011, the employer contribution is dependant on the member’s age. The level of contribution ranges from 6% of pensionable earnings (basic pay excluding bonus) for members aged between 18 and 24, and 25% of pensionable earnings for members between 56 and the normal retirement date (currently 65).

For members who joined the GPPP on or after 1 June 2011, the employer contribution is dependant on the member’s employee grouping. The Group contributes 15% of pensionable earnings to the GPPP on behalf of Executive Management Committee members and 10% of pensionable earnings to the GPPP on behalf of Senior Management. The Executive Director is not a member of the GPPP and instead receives a monthly taxable pension allowance of 25% of pensionable earnings from the Group as an alternative to the pension contributions that the Group would otherwise have paid on his behalf.

333 The pension allowance is paid on a cost neutral basis for the Group (as it is adjusted to take into consideration employer’s National Insurance contributions). All other member employees receive an employer contribution of 8% of pensionable earnings.

The assets of the GPPP are held separately from those of the Group in an independently administered fund. In year 2013 the Group paid £4.4 million (2012: £5.2 million; 2011: £7.1 million) in contributions to the GPPP.

17.4 Brit Insurance Services USA Inc — 401(k) Safe Harbor Plan BISI operates a ‘401(k) Safe Harbor Plan’ (the “Safe Harbor Plan”) in the United States. The assets of the Safe Harbor Plan are held separately from those of the Group in an independently administered fund. In 2013, BISI contributed £0.3 million to the Safe Harbor Plan (2012: £0.1 million; 2011: £0.1 million). At 31 December 2013, no contributions were payable to the Safe Harbor Fund.

18. The Working Capital Statement The Company is of the opinion that the working capital available to the Group is sufficient for the Group’s present requirements, that is, for at least the next 12 months from the date of the publication of this Prospectus.

19. Significant change

There has been no significant change in the financial or trading position of the Group since 31 December 2013 being the date to which the historical financial information in Part XIV (Financial Information) was prepared.

20. Litigation The Group is involved in claims litigation in the ordinary course of its underwriting business. The Group is also occasionally joined as one of the numerous defendants in class actions brought against Lloyd’s syndicates.

There are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Group is aware), which may have or have had during the 12 months preceding the date of this Prospectus, significant effect on the Group or its financial position or profitability.

21. Material contracts Save as disclosed below, there are no contracts (other than contracts entered into in the ordinary course of business) to which the Company or any member of the Group is a party which: (i) are, or may be, material to the Group and which have been entered into in the two years immediately preceding the date of this Prospectus; or (ii) contain obligations or entitlements which are, or may be, material to the Group as at the date of this Prospectus.

21.1 Disposals Sale of non-core regional business and Brit Insurance Limited In 2012, the Group undertook a strategic review of the business of the Group and decided to sell its non-core regional UK business and the historical UK liabilities within Brit Insurance Limited.

(A) Business sale to QBE On 3 April 2012, the Group announced the sale by Brit Insurance Limited (“BIL”) and BGSL of the Group’s non-core regional UK business (“Brit UK”) to QBE Management Services (UK) Limited (“QBE”). The sale completed on 13 April 2012. The transaction represented a business sale whereby renewal rights, operations and assets were acquired by QBE. There was no transfer of historical liabilities. In addition, all Brit UK underwriting-related employees transferred to QBE.

BIL and BGSL together received an initial cash consideration at completion of £30 million plus £1.0 million and deferred cash consideration of £7.5 million 90 days after completion. BIL gave QBE certain

334 customary warranties in relation to title and capacity and limited business-related warranties under the disposal agreement dated 3 April 2012 (the “Brit UK Disposal Agreement”). The warranties expired 18 months after the date of the Brit UK Disposal Agreement, except for tax warranties (liability for which is due to expire five years after the date of the Brit UK Disposal Agreement). BIL’s total aggregate liability in respect of the warranties is limited to 50% of the initial and deferred consideration. BIL’s liability under the Brit UK Disposal Agreement (and the transitional services agreement discussed below) is indemnified by Brit Insurance Holdings Limited pursuant to a sale agreement in respect of BIL (discussed below).

The disposal constituted a relevant transfer for the purposes of the Transfer of Undertakings (Protection of Employment) Regulations 2006 as amended (“TUPE”) and 161 BGSL employees transferred to QBE on the completion date under the Brit UK Disposal Agreement and in accordance with TUPE. BIL entered into a transitional services agreement with QBE on 13 April 2012 (the “Brit UK TSA”) in respect of the provision to QBE of access to information, infrastructure, and certain support services. The transitional services were provided for varying durations of up to 18 months after completion and have all now expired.

(B) Sale of Brit Insurance Limited On 18 June 2012, the Group announced the sale by Brit Insurance Holdings Limited (“BIHL”) of BIL, its wholly owned FSA-regulated insurance company, to RiverStone Holdings Limited (“RSHL”), a member of the Fairfax financial group. The sale completed on 12 October 2012 and BIL was subsequently renamed RiverStone Insurance Limited. BIL encompassed the Group’s legacy portfolio of UK insurance business and the disposal was part of a strategic transformation of the Group to restructure its capital base and establish itself as a pure Lloyd’s specialty underwriter.

Under the terms of the sale agreement dated 16 June 2012 (the “RiverStone Sale Agreement”), RSHL paid consideration at completion of £206,674,000 with additional cash received according to the price adjustment mechanisms in the RiverStone Sale Agreement of £345,000. BIHL gave RSHL certain customary warranties in relation to title and capacity as well as warranties on claims, accounts, reinsurance and business and operations. BIHL and RSHL entered into a tax deed on 12 October 2012 (the “RiverStone Tax Deed”) pursuant to which BIHL agreed to indemnify RSHL for tax liabilities arising out of events occurring and profits earned prior to completion. RSHL agreed to reimburse BIHL for any tax credit or relief received after completion relating to tax liabilities prior to completion. The warranties are due to expire on 31 March 2014 (by which time RSHL must have notified BIHL of any claim) and in respect of claims under the RiverStone Tax Deed, liability is due to expire six years after the date of the RiverStone Sale Agreement. BIHL’s total liability is limited to: £130 million in respect of warranty claims (other than as to title); the amount of the initial and deferred consideration in respect of title warranties; and £400 million in respect of claims under the RiverStone Tax Deed. Brit Overseas Holding S.À.R.L, the parent company of BIHL, guaranteed BIHL’s liabilities to RSHL, including warranties and indemnities given by BIHL under the RiverStone Sale Agreement and RiverStone Tax Deed.

BIHL entered into a transitional services agreement with RSHL (the “RiverStone TSA”) for the provision to BIL and other members of the RiverStone group of certain post-completion services to enable RiverStone to manage the business and comply with BIL’s obligations under the pre-existing Brit UK TSA. The transitional services have all now expired save that BIHL agreed to extend the provision of a licence to access an IT system in respect of managing 190 motor claims until 30 September 2014. BIHL also granted RSHL an indemnity under the terms of the RiverStone Sale Agreement in relation to BIL’s liabilities under the Brit UK Disposal Agreement and Brit UK TSA with QBE.

Prior to the sale, BIL entered into a reinsurance agreement (the “RiverStone Reinsurance Agreement”) with BIG under the terms of which BIL ceded to BIG with effect from 1 October 2012 (the “Effective Date”) all liabilities of BIL under certain classes of business (including Casualty Treaty, EL/ PL and FI classes) such that the liabilities and claims handling authority for those classes of business (which form part of the Group’s core business now being written in to its Lloyd’s Syndicate) were retained within the Group. BIL paid BIG a premium amount of £378.2 million (after adjusting for paid claims in the period up to the Effective Date) and an amount of £7.2 million in respect of claims handling costs. The premium is subject to further adjustments for movements in ultimates up to expiry

335 of the contract. The RiverStone Reinsurance Agreement will expire at the earlier of (i) extinguishment of all BIL’s liabilities under the reinsured classes of business; (ii) commutation of the agreement initiated by BIL at any time after 18 months from the Effective Date or automatic commutation 84 months from the date of the Effective Date (for more information, please refer to risk factor 1.14 in Part II (Risk Factors)); (iii) mutual agreement of BIL and BIG to terminate; or (iv) the merger or relinquishment of control of BIG to another company or individual.

21.2 Outsourcing agreement with Infosys On 19 July 2011, BGSL entered into an outsourcing services agreement with Infosys BPO Limited and Infosys Limited (together, “Infosys”) relating to the provision to the Group of a range of operational and IT services (the “Infosys Agreement”). Under the terms of the Infosys Agreement, the Group outsourced certain non-customer facing activities including IT infrastructure and application support, IT end-user services, credit control, policy processing and cover holder review. Infosys has not been granted exclusivity in respect of any of the services.

The initial term of the Infosys Agreement is five years from 31 October 2011 to 31 October 2016, with the option for BGSL to extend twice, for a period for one year each, on the provision to Infosys of four months’ notice. BGSL may terminate the Infosys Agreement in whole or in part in certain standard circumstances including for material breach by Infosys (where such breach is not capable of remedy or, being capable of remedy, is not remedied within 30 days) and for convenience upon three months’ notice with the payment of certain termination charges.

The service charges payable by BGSL under the Infosys Agreement consist of fixed charges, variable charges calculated on the basis of usage and certain one-off charges.

21.3 Group financing arrangements (A) Subordinated Debt On 9 December 2005, Brit Insurance Holdings PLC (now Brit Insurance Holdings Limited) issued £150.0 million of Lower Tier 2 subordinated unsecured notes at an interest rate of 6.625% per annum (the “Notes”). On 4 November 2009, Brit Insurance Holdings PLC was replaced as issuer by Brit Insurance Holdings N.V. (the “Note Issuer”), and Brit Insurance Holdings PLC became the guarantor of the Notes (the “Note Guarantor”). The guarantee is also unsecured and subordinated.

The Notes may be redeemed by the Note Issuer in full (but not in part) on 9 December 2020. Assuming the Notes are not redeemed, from 9 December 2020, the interest rate will be 3.4% per annum above the ten-year gilt rate prevailing at the time. The Notes have a final maturity date of 9 December 2030. They have no financial covenants, and do not restrict the Note Issuer or the Note Guarantor from paying dividends. In October 2008, the Note Issuer bought back £14.998 million of Notes, leaving approximately £135.0 million outstanding. At the last practicable date prior to publication of this Prospectus, 27 March 2014, the Notes were rated BB+ by Fitch.

(B) Revolving Credit Facility The Group presently has access to a Revolving Credit Facility. As of Admission, this will continue to be provided by a syndicate of four banks led by the Royal Bank of Scotland. The Revolving Credit Facility provides for £225.0 million of committed financing, of which £125.0 million is available as letters of credit. The terms of the Revolving Credit Facility are described in section 10.3 of Part XIII (Operating and Financial Review).

21.4 Relationship Agreements On 28 March 2014, the Company entered into the Relationship Agreements with: (i) certain of the Major Shareholders affiliated with Apollo Global Management LLC, namely AIF VII Euro Holdings L.P., AP Helios Co-Invest L.P. and AP Selene Co-Invest L.P. (together, the “Apollo Entities”); and (ii) the CVC-Affiliated Funds. The Relationship Agreements will, after Admission, regulate the relationship between the Company (on the one hand) and each of the Apollo Entities and the CVC-Affiliated Funds

336 (on the other hand). The principal purpose of the Relationship Agreements is to ensure that the Company is capable at all times of carrying on its business independently of the Apollo Entities and the CVC-Affiliated Funds.

Each of the Relationship Agreements will take effect on Admission and will continue until the Apollo Entities or the CVC-Affiliated Funds (as the case may be) and their respective affiliates hold in aggregate less than five per cent. of the aggregate voting rights in the Company, in which case the relevant Relationship Agreement will terminate immediately.

The Relationship Agreements regulate the continuing relationship between each of the Apollo Entities and the CVC-Affiliated Funds (on the one hand) and the Company (on the other hand) after Admission. In particular: • AIF VII Euro Holdings, L.P. shall have the right to nominate: (i) two persons as Directors for so long as the Apollo Entities (in aggregate) hold 10 per cent. or more of the aggregate voting rights in the Company; and (ii) one person as a Director for so long as the Apollo Entities (in aggregate) hold five per cent. or more, but less than 10 per cent., of the aggregate voting rights in the Company;

• the CVC-Affiliated Funds (excluding Bishop, L.P.) shall have the right to nominate: (i) two persons as Directors for so long as they (in aggregate) hold 10 per cent. or more of the aggregate voting rights in the Company; and (ii) one person as a Director for so long as they (in aggregate) hold five per cent. or more, but less than 10 per cent., of the aggregate voting rights in the Company;

• one Representative Director appointed by each of AIF VII Euro Holdings, L.P. and the CVC- Affiliated Funds shall be appointed to each of the Remuneration Committee, the Nomination Committee, the Audit Committee, Risk Oversight Committee, the Underwriting Committee and the Investment Committee of the Board, and will remain a member thereof for so long as he is a Director;

• the Company may, by written notice, immediately terminate the appointment of a Representative Director in certain circumstances, including if such Representative Director: (i) is disqualified by law from acting as a director for any reason; or (ii) is required to resign as a Director when a takeover offer for the entire issued share capital of the Company has become wholly unconditional and he has been required to do so by the Board at a time when the shareholder who appointed him holds less than 10 per cent. of the aggregate voting rights in the Company. In the Relationship Agreements, the Company undertakes to procure that no Representative Director will be removed from office pursuant to the mechanism in the Articles of Association which provides for any Director to be removed by a unanimous vote of the other Directors;

• the Apollo Entities and the CVC-Affiliated Funds agree that they will not, and will procure that affiliates which they control (excluding any portfolio companies in which they have made an investment) (“controlled affiliates”) will not, act in a manner which would be inconsistent with: (i) the principle of equality of treatment of shareholders set out in the Listing Rules; and (ii) the independence of the Board being maintained in accordance with the rules of the London Stock Exchange or the UKLA applicable to the Company;

• each of AIF VII Euro Holdings, L.P. and the CVC-Affiliated Funds (excluding Bishop, L.P.) undertakes that: (i) all transactions and relationships between it and any of their respective controlled affiliates (on the one hand) and the Company and any of its subsidiaries (on the other hand) will be conducted at arm’s length and on normal commercial terms; (ii) neither it nor any of its controlled affiliates will take any action that would have the effect of preventing the Company from complying with its obligations under the Listing Rules; and (iii) neither it nor any of its controlled affiliates will propose or procure the proposal of a shareholder resolution which is intended or appears to be intended to circumvent the proper application of the Listing Rules. Each of AIF VII Euro Holdings, L.P. and the CVC-Affiliated Funds (excluding Bishop, L.P.) undertakes to ensure that their respective associates (as defined in the Listing Rules) will comply with the same undertakings set out in (i) to (iii) to the extent that the Listing Rules so require from time to time;

• each of the Apollo Entities and CVC-Affiliated Funds undertake that they will not, and will procure that their respective controlled affiliates will not, take any action which would: (i) prevent the

337 Company from conducting its businesses for the benefit of its shareholders as a whole; (ii) have the effect of directing the day to day operational management of the Company; or (iii) prevent the Company from carrying on its business independently;

• if the Company gives notice to AIF VII Euro Holdings, L.P. or the CVC-Affiliated Funds (excluding Bishop L.P.) that a matter being considered presents a conflict of interests in respect of AIF VII Euro Holdings, L.P. or CVC-Affiliated Funds (as applicable), then AIF VII Euro Holdings, L.P. or the CVC-Affiliated Funds (excluding Bishop L.P.) (as applicable) will require its Representative Director(s) not to vote on that matter at any meeting of the Board or any committee of the Board. The board of directors of the Company (excluding the directors nominated for appointment by AIF VII Euro Holdings, L.P. or the CVC-Affiliated Funds (excluding Bishop L.P.), as the case may be), shall be responsible for determining, in cases of doubt, whether a conflict of interest exists;

• without prejudice to any requirement for a Representative Director not to vote on a matter that presents a conflict, the Company undertakes to use all reasonable endeavours to procure that the Board specifically authorises, in accordance with the Articles of Association, any interest of a Representative Director that conflicts, or may possibly conflict, with the interests of the Company and that arises solely in consequence of the relevant Representative Director being a director, officer, adviser or employee of AIF VII Euro Holdings, L.P. or the CVC-Affiliated Funds (excluding Bishop L.P.) (or any of their respective associates) (as the case may be);

• the Company agrees to provide, and to procure that the Group’s senior management and members of the Board shall provide, such cooperation, information and assistance as the Apollo Entities or the CVC-Affiliated Funds (as the case may be) reasonably request in relation to any proposed sale, including, without limitation, but at the cost of the Apollo Entities or the CVC Entities (excluding Bishop L.P.) (as the case may be), the preparation and distribution of a prospectus and the entering into of an underwriting or placing agreement containing warranties and indemnities similar to those contained in the Underwriting Agreement; and

• subject to certain exemptions (including typical rights issues, placings and option grants under employee share schemes), the Company undertakes not to issue any Ordinary Shares or other equity securities (or grant any right to subscribe for Ordinary Shares) without the prior consent of the Apollo Entities and the CVC-Affiliated Funds.

The Company agrees not to undertake any transaction in Ordinary Shares which may reasonably be expected to give rise to any obligation for the Apollo Entities or the CVC-Affiliated Funds (and/or their respective concert parties) to make a general offer in accordance with Rule 9 of the Takeover Code unless the Company has first obtained the approvals required under the Takeover Code, or otherwise obtained the necessary waivers or consents from the Takeover Panel, to prevent such obligation from applying. Furthermore, for so long as either the Apollo Entities or the CVC-Affiliated Funds (and their respective concert parties) hold in aggregate an interest in 30 per cent. or more of the aggregate voting rights in the Company and subject (where necessary) to the prior consent of the Takeover Panel, the Company undertakes to procure that at the first annual general meeting of the Company and thereafter once in every calendar year, the Company shall propose to its independent shareholders a resolution to waive, in accordance with Schedule 1 to the Takeover Code, all obligations of the Apollo Entities and/or the CVC-Affiliated Funds (and their respective concert parties), as applicable, to make a general offer for Ordinary Shares in accordance with Rule 9 of the Takeover Code that may otherwise arise as a result of the Company purchasing or effecting any other transaction in relation to Ordinary Shares or related securities.

The Board believes that the terms of the Relationship Agreements will enable the Company to carry on its business independently from the Apollo Entities and the CVC-Affiliated Funds, and ensure that all transactions and relationships between the Company and the members of the Group (on the one hand) and the Apollo Entities, the CVC-Affiliated Funds (on the other hand) are, and will be, at arm’s length and on a normal commercial basis.

21.5 Underwriting Agreement The Company, the Directors, the Apollo Entities, the CVC-Affiliated Funds and the Underwriters have entered into the Underwriting Agreement pursuant to which, on the terms and subject to certain conditions contained in the Underwriting Agreement which are customary in agreements of this nature,

338 each of the Underwriters has severally agreed to underwrite a proportion of, and together to underwrite in aggregate all of the Offer Shares available under the Offer. The Offer is conditional upon, inter alia, Admission becoming effective not later than 8:00 a.m. on 2 April 2014 (or such later date and time as the Joint Global Coordinators may agree in writing with the Company and the CVC-Affiliated Funds and the Apollo Entities) and the Underwriting Agreement becoming unconditional in all respects and not having been terminated in accordance with its terms. The Underwriting Agreement can be terminated at any time prior to Admission in certain customary circumstances set out in the Underwriting Agreement. If these termination rights are exercised, the Offer will lapse and any monies received in respect of the Offer will be returned to applicants without interest. The Underwriting Agreement provides for the Underwriters to be paid a commission in respect of the Offer Shares and any Over-allotment Shares sold following exercise of the Over-allotment Option. The aggregate commission excluding any discretionary commission will be equal to 2.0% of the Offer Price, multiplied by the aggregate number of the Offer Shares sold. Each Underwriter will be entitled to receive a proportion of such commissions. Any commissions received by the Underwriters may be retained and any Ordinary Shares acquired by them as Underwriters may be retained or dealt in, by them, for their own benefit. Allocations of the Offer Shares among prospective Investors will be proposed by the Joint Global Coordinators for final determination by the Company, the Apollo Entities and the CVC-Affiliated Funds. All Offer Shares and all Over-allotment Shares sold pursuant to the Offer will be sold, payable in full, at the Offer Price in accordance with the terms of the Offer. The Apollo Entities and the CVC-Affiliated Funds have granted the Stabilising Manager the Over- allotment Option, pursuant to which the Stabilising Manager may require those entities to sell Over- allotment Shares of up to 10.0% of the aggregate number of Offer Shares at the Offer Price to cover over-allotments, if any, made in connection with the Offer. The Over-allotment Option may be exercised, in whole or in part, at any time during the period from the commencement of conditional dealings of Ordinary Shares on the London Stock Exchange and ending 30 calendar days thereafter. Save as required by law, the Stabilising Manager does not intend to disclose the extent of any over- allotments made and/or any stabilisation transactions carried out. The Company has agreed to pay or cause to be paid (together with any applicable VAT) certain costs, charges, fees and expenses of or arising in connection with, or incidental to, the Offer. Brit Insurance Holdings B.V. has agreed to pay, subject to certain exemptions, any stamp duty and stamp duty reserve tax in connection with the offer. Each of the Company, the Directors, the Apollo Entities and the CVC-Affiliated Funds has given customary representations, warranties and undertakings to the Underwriters and Company has given certain customary indemnities to the Underwriters. The parties (other than Brit Insurance Holdings B.V.) to the Underwriting Agreement have given certain covenants to each other regarding compliance with laws and regulations affecting the making of the Offer in relevant jurisdictions. The Company, the Apollo Entities and the CVC-Affiliated Funds have agreed that, subject to certain exceptions, during the period of 180 days from the date of Admission, they will not, without the prior written consent of the Joint Global Coordinators (on behalf of the Banks), offer, sell or contract to sell, or otherwise dispose of, any Ordinary Shares. In addition, each of the Directors has agreed to a corresponding undertaking during the period of 365 days from the date of Admission. Certain of the Management Shareholders who are also Selling Shareholders have agreed to similar undertakings with the Company during the period of 365 days from the date of Admission. Further details of the lock-up arrangements are set out in Part VI (Details of the Offer).

22. Property The Group operates from 13 premises worldwide. The premises are predominantly leasehold or managed and primarily house professional staff including the finance, actuarial, investment management, risk management, legal, company secretarial, internal audit, IT, HR and underwriting teams. The majority of the Group’s business is operated out of the Bishopsgate, London premises in the UK, though the Group also has staff located in the United States, Gibraltar and the Netherlands. The Group’s principal property interest is its leasehold premises in London. The Group leases its

339 Bishopsgate premises under three leasehold agreements: (i) lower ground and second floor office space for annual rent of £1,191,909.50; (ii) part basement and first floor office space for an annual rent of £1,196,420 plus £7,000 per annum for 2 car spaces; and (iii) part basement office space for an annual rent of £96,227. The current term of all the Bishopsgate leases expires 24 March 2016.

23. Environmental matters The Board believes that the Group has no material environmental compliance costs or environmental liabilities.

24. Consents Ernst & Young LLP has given and has not withdrawn its written consent to the inclusion in this Prospectus of the report set out on pages 202-203 of Part XIV (Financial Information) and the references thereto in the form and context in which they appear and has authorised the contents of its report for the purposes of item 5.5.3R(2)(f) of the Prospectus Rules.

25. Documents available for inspection Copies of the following documents may be inspected at the registered office of the Company, 55 Bishopsgate, London, EC2N 3AS, and the offices of Slaughter and May, One Bunhill Row, London EC1Y 8YY during normal business hours on any weekday (Saturdays, Sundays and public holidays excepted) for the duration of the Offer: • the Articles; • the report of Ernst & Young LLP set out in Part XIV (Financial Information) of this Prospectus; • consent letters; and • a copy of this Prospectus.

In addition the Prospectus will be published in electronic form and available on the Website at www.britinsurance.com, subject to access restrictions.

For the purposes of Rule 3.2.4R(2) of the Prospectus Rules, the Prospectus will be published in printed form and available free of charge for the duration of the Offer at the registered office of the Company in the UK at 55 Bishopsgate, London, EC2N 3AS.

26. Sources of information 26.1 Financial information Unless otherwise stated, in this Prospectus financial information in relation to the Group referred to in the document has been extracted without material adjustment from the Historical Financial Information set out in Part XIV (Financial Information) or has been extracted from those of the Group’s accounting records that have been used to prepare that financial information. Investors should ensure that they read the whole of this Prospectus and not only rely on the key information or information summarised within them.

Ernst & Young’s report on the Financial Information is set out in Part XIV (Financial Information). Unless otherwise indicated, none of the financial information relating to the Group or any operating information relating to the Group has been audited (even where such operating information includes certain financial metrics).

26.2 Unaudited operating information Unaudited operating information in relation to the Group is derived from the following sources: (i) management accounts for the relevant accounting periods presented; and (ii) internal financial reporting systems supporting the preparation of financial statements. Operating information derived from management accounts or internal reporting systems in relation to the Group is to be found

340 principally in Part VII (Information on the Group and its Industry) and Part XIII (Operating and Financial Review).

Management accounts are prepared using information derived from accounting records used in the preparation of the Group’s Historical Financial Information, but may also include certain other management assumptions and analyses.

26.3 Industry and market data Industry data have been obtained from industry publications, market participants and surveys. Such third party sources of information include: Swiss Re’s Sigma studies dated 27 March 2013 and 18 December 2013; a survey dated August 2013 carried out by Gracechurch Consulting in 2013; and a report by Aon Benfield entitled “Natural Catastrophies and their Impact on Reinsurance” dated 14 May 2012.

Where third party information has been used in the document, the source of such information has been identified. The Company confirms that the information provided by the third parties referred to above has been accurately reproduced. So far as the Company is aware and has been able to ascertain from information published by such third parties, no facts have been omitted which would render the reproduced information inaccurate or misleading.

27. No incorporation of website information The contents of the Group’s websites do not form any part of this Prospectus.

28. Expenses of the offer The total costs and expenses of, and incidental to, the Admission and the Offer (including the listing fees, advisers’ fees, professional fees and expenses and the costs of printing and distribution of documents), are estimated to amount to £8.9 million (including VAT) and are payable by the Group. In addition, commissions which are expected to amount to approximately £4.7 million (assuming that there is no exercise of the Over-allotment Option and excluding any discretionary commissions) are payable by the CVC-Affiliated Funds and the Apollo Entities.

29. Auditors The auditor of the Group for each of the financial years ended 31 December 2011, 31 December 2012 and 31 December 2013 was Ernst & Young Société anonymé of 7, rue Gabriel Lippmann, Parc d’Activité Syrdall 2, L-5365 Munsbach, B.P. 780, L-2017 Luxembourg, which is registered as “Cabinet de Révision agréé” to carry out audit work by the “Institut des Réviseur d’Entreprises” (Luxembourg).

341 PART XVII — DEFINITIONS The definitions set out below apply throughout this Prospectus unless the context requires otherwise. Certain terms which are defined in other parts of this Prospectus and which are only used within discrete sections are not set out below. Achilles 1 means Achilles Holdings 1, S.à r.l.; Achilles 2 means Achilles Holdings 2, S.à r.l.; Admission means the admission of the Ordinary Shares to the Official List and to trading on the main market for listed securities of the London Stock Exchange becoming effective in accordance with LR 3.2.7G of the Listing Rules and paragraph 2.1 of the Admission and Disclosure Standards published by the London Stock Exchange; Apollo-Affiliated Funds means: • AIF VII Euro Holdings, L.P., AP Achilles Holdings (EH-1), LLC, AP Achilles Holdings (EH-2), LLC, AP Achilles Holdings (EH-3), LLC, and AP Achilles Holdings (EH-4), LLC; • AP Helios Co-Invest, L.P.; and • AP Selene Co-Invest, L.P.; Apollo Entities means: • AIF VII Euro Holdings, L.P.; • AP Helios Co-Invest, L.P.; and • AP Selene Co-Invest, L.P.; attritional loss means a common loss, as opposed to a major or catastrophe loss, associated with ordinary insurance and/or reinsurance operations; attritional loss ratio means attritional claims, excluding major claims and reserve movements, expressed as a percentage of NEP; Articles means the Articles of Association of the Company; Audit Committee means the audit committee of the Board; Banks means J.P. Morgan Cazenove, UBS Investment Bank, Canaccord Genuity Limited and Numis Securities Limited; BGSB means Brit Global Specialty Bermuda, the business of the Group operated in Bermuda; BGSL means Brit Group Services Limited, a company incorporated in England and Wales with registered number 02245562; BGSU means Brit Global Specialty USA, the business of the Group operated in the United States, of which BISI is the managing general agent; BIG means Brit Insurance (Gibraltar) PCC Limited, a company incorporated in Gibraltar, with registered number 99532; BIG Board means the board of directors of BIG from time to time; BIHL means Brit Insurance Holdings Limted, a company incorporated in England and Wales with registered number 03121594; BIL means Brit Insurance Limited (please refer to section 21.1B of Part XVI (Additional Information)); binder business refers to business conduct by a coverholder acting under a binding authority;

342 binding authority means an agreement between a Lloyd’s managing agent and a coverholder under which the Lloyd’s managing agent delegates its authority to enter into a contract or contracts of insurance to be underwritten by the members of a syndicate;

BISI means Brit Insurance Services USA, Inc., a company incorporated in Illinois, USA, with registered number 6634-884- 9;

Board means the board of directors of the Company from time to time;

Brit EBT means the Brit Management Equity Plan Employee Trust;

Brit Group means Brit Insurance Holdings B.V. and its subsidiaries;

Brit UK means the Group’s non-core regional UK business;

Brit UW Brit UW Limited, a company incorporated in England and Wales with registered number 3217775. broker means one who negotiates contracts of insurance or reinsurance, receiving a commission for placement and other services rendered, between (1) a policy holder and a primary insurer, on behalf of the insured party, (2) a primary insurer and reinsurer, on behalf of the primary insurer or (3) a reinsurer and a retrocessionaire, on behalf of the reinsurer;

BSL or Brit Syndicates Limited means Brit Syndicates Limited, a company incorporated in England and Wales with registered number 824611;

BSL Board means the board of directors of BSL from time to time; byelaws means the primary rules made by the Council of Lloyd’s regarding the conduct of insurance business at Lloyd’s;

CAGR means compound annual growth rate; capacity or stamp capacity or means, in relation to a syndicate, the limit (for the time being underwriting capacity prescribed) on the amount of insurance business that is able to be allocated to a particular year of account which is to be accepted by a syndicate, such limit being expressed as the maximum amount of premium income arising out of insurance business underwritten through that syndicate or, in relation to a member of Lloyd’s, the member’s Overall Premium Limit (in each case, net of acquisition costs); catastrophe or Cat means perils including earthquakes, hurricanes, hailstorms, severe winter weather, floods, fires, tornadoes, explosions and other natural or man-made disasters. Catastrophe losses may also arise from acts of war, acts of terrorism and political instability; catastrophe loss means loss and directly identified loss adjustment expenses resulting from catastrophes (natural or man-made) that generate significant level of insured losses;

Central Fund means a fund established pursuant to the New Central Fund Byelaw (No. 23 of 1996) by Lloyd’s primarily as a policyholder’s protection fund in the event of a member being unable to meet his underwriting liabilities. The Central Fund may, with exceptions, also be used for any purpose which may appear to the Council to further any of the objects of Lloyd’s;

343 CEO means chief executive officer;

CFO means chief financial officer;

Chairman means the chairman of the Board;

CIO means chief investment officer;

City Code means the City Code on Takeovers and Mergers, issued and administered by the UK Takeover Panel; claims ratio means net claims incurred as a percentage of NEP (excluding the effect of foreign exchange movements on non-monetary items). The claims ratio is the aggregate of the reserve release ratio, major claims ratio and the attritional loss ratio; clash reinsurance means a form of liability reinsurance that provides additional cover in the event that the reinsured is exposed to multiple claims from two or more of its insureds arising out of the same loss occurrence;

Co-Lead Managers means:

• Canaccord Genuity Limited; and • Numis Securities Limited; combined ratio means the sum of the Group’s claims ratio and the expense ratio; commission ratio means acquisition costs including brokers’ commissions as a percentage of NEP (excluding the effect of foreign exchange movements on non-monetary items); commutation means an agreement between a ceding insurer and a reinsurer that provides for the valuation, payment, and complete discharge of all obligations between the parties under a particular reinsurance contract;

Companies Act means the UK Companies Act 2006 (as amended);

Company or Issuer means Brit PLC;

Corporation of Lloyd’s means the corporation which oversees and supports the Society (please refer to section 5 of Part VII (Overview of Lloyd’s of London) for further details;

Council of Lloyd’s or the Council means the governing body of Lloyd’s constituted by the Lloyd’s Act 1982 (please refer to section 5 of Part VIII (Overview of Lloyd’s of London) for further details);

Court means the Companies Court; coverholder means a partnership or company authorised by a managing agent to enter into a contract of insurance which is to be underwritten by the members of a syndicate managed by it;

CREST means the electronic transfer and settlement system for the paperless settlement of trades in listed securities operated by Euroclear UK & Ireland Limited;

CRO means chief risk officer;

344 CVC-Affiliated Funds means:

• CVC European Equity Partners V (A) L.P., CVC European Equity Partners V (B) L.P., CVC European Equity Partners V (C) L.P., CVC European Equity Partners V (D) L.P., and CVC European Equity Partners V (E) L.P.; and • Bishop, L.P.;

CUO means chief underwriting officer;

Defined Benefit Scheme means the Brit Group Services Limited Retirement Benefits Scheme, the principal terms of which are summarised in section 17 of Part XVI (Additional Information); direct (business) refers to direct insurance (as opposed to reinsurance);

Directors or Board means the Executive and Non-Executive Directors of the Company;

Dividend Shares has the meaning given in section 13.6 and discussed further in section 14.3 of Part XVI (Additional Information);

DSBP means the Brit Deferred Share Bonus Plan, as set out in section 14.2 of Part XVI (Additional Information);

DTCC means the Depository Trust Company, the US clearing system;

EBT has the meaning given in section 15 of Part XVI (Additional Information);

ECA means Economic Capital Assessment;

EIOPA means the European Insurance and Occupational Pensions Authority;

EMC or Executive Management means a committee consisting of the Senior Management and Committee the CEO;

Euro, EUR or € means the currency introduced at the start of the third stage of European Economic and Monetary Union pursuant to the Treaty establishing the European Community, as amended;

European Economic Area or EEA means the European Union, Iceland, Norway and Liechtenstein;

European Union or EU means the economic and political union of 28 Member States which are located primarily in Europe; excess and surplus lines or means a generic US regulatory classification referring to surplus lines or E&S insurance coverage not ordinarily written by insurers fully ‘‘admitted’’ in various states. The E&S lines business is largely unregulated as to rate and form but insurers must be authorised to write such business in a state by the local regulator; excess of loss means a type of reinsurance that covers specified losses incurred by the reassured party in excess of a stated amount (the excess) up to a higher amount, for example £5 million excess of £1 million. Such coverage can operate on a per loss basis or an aggregate basis;

Exchange Act means the United States Securities Exchange Act of 1934, as amended;

345 Executive Director Mark Cloutier;

Executive Share Plans has the meaning given in section 14 of Part XVI (Additional Information); expense ratio in relation to the Group, means the sum of its commission ratio and operating expense ratio;

FAL or funds at Lloyd’s means funds held in trust at Lloyd’s to support a member’s underwriting activities;

FCA means the UK Financial Conduct Authority established pursuant to the Financial Services Act 2012 and responsible for, among other things, the conduct regulation of all firms authorised and regulated under FSMA and the prudential regulation of firms which are not regulated by the PRA;

First Dollar means an insurance policy written with low excess and deductible, and written in the admitted market; franchise (Lloyd’s) means the brand of Lloyd’s, including its worldwide trading licences, financial strength rating, mutual security and other support services that enable members to underwrite insurance and reinsurance at Lloyd’s on a global basis;

Franchise Board means the board known as the “Lloyd’s Franchise Board”, established by the Council of Lloyd’s which is responsible for developing and directing the implementation of the franchise policy to create and maintain a commercial environment at Lloyd’s in which the long-term return to all capital providers is maximised;

Free Shares has the meaning given in section 13.6 and discussed further in section 14.3 of Part XVI (Additional Information);

FSA means the Financial Services Authority, the former regulatory body responsible for supervision of financial services other than consumer credit activities in the UK;

FSC means the Gibraltar Financial Services Commission, a statutory body corporate established by the 1989 Financial Services Commission Ordinance (since replaced by the Financial Services Commission Act 2007), responsible for regulating investment business in Gibraltar;

FSMA means the UK Financial Services and Markets Act 2000 (as amended);

FY means the financial year ended 31 December;

Gross net premium or GNP means premiums contracted for less cancellations, return premiums and commissions to intermediaries;

GPPP means the Brit Group Personal Pension Plan details of which are set out in section 17.3 of Part XVI (Additional Information);

Group means, prior to the Reorganisation, Achilles Holdings 1 S.à r.l. and its subsidiaries and subsidiary undertakings and, with effect from the Reorganisation, the Company and its subsidiaries and subsidiary undertakings, and, in each case, where the context requires, its associated undertakings;

346 GWP or gross written premium or means premiums contracted for before any deductions; gross premiums written HMRC means Her Majesty’s Revenue & Customs; IAS means one of the international accounting standards established by the International Accounting Standards Board; IBNR means, in relation to claims, incurred but not reported, including claims which are incurred but not enough reported; ICA means individual capital assessment; ICOBS means the FCA’s Insurance Conduct of Business Sourcebook which contains conduct of business requirements in relation to the distribution and sale of insurance products; IFRS means International Financial Reporting Standards, as adopted by the European Commission for use in the European Union; individual capital means syndicate assets and Lloyd’s member assets; industry loss warranty or ILW means a form of reinsurance or derivative contract through which a company or organisation (often an insurer) can gain coverage based on the total insured loss experienced by the industry rather than their own losses from a specified event. The contracts have a specified limit which denotes the amount of compensation the buyer receives if the industry loss warranty is triggered; Integrated Lloyd’s Vehicle or ILV means a company which owns a corporate member of a syndicate and the managing agent of that syndicate; Investor means any person who acquires Ordinary Shares pursuant to the Offer; Investment Committee means the investment committee of the Board; inward insurance means the granting of reinsurance cover; IPO Awards has the meaning given in section 13.6 of Part XVI (Additional Information); ISIN means International Securities Identification Number; IT means information technology; Joint Bookrunners means each of J.P. Morgan Cazenove and UBS Investment Bank; Joint Global Coordinators means each of J.P. Morgan Cazenove and UBS Investment Bank; J.P. Morgan Cazenove means J.P. Morgan Securities plc, a company registered in England and Wales with company number 02711006 and authorised by the PRA and regulated by the PRA and the FCA in the UK; lead underwriter means the underwriter of a syndicate or insurance company who is responsible for setting the terms of an insurance or reinsurance contract that is subscribed by more than one syndicate or insurance company and who generally has primary responsibility for handling any claims arising under such a contract. “Leading business” means, in relation to the Group, business where the Group acts as lead underwriter; LIBOR means the daily London Interbank Offered Rate set by the British Banking Association; line means the proportion of an insurance (or reinsurance) risk that is accepted by an underwriter or which an underwriter is willing to accept;

347 line slip means an agreement by which a managing agent delegates to another managing agent authority to accept an agreed share of certain risks on its behalf;

Listing Rules means the listing rules of the FCA relating to Admission to the Official List;

Lloyd’s means the Society of Lloyd’s and Corporation of Lloyd’s created and governed by the Lloyd’s Acts 1871-1982, including the Council of Lloyd’s (and its delegates and other persons through whom the Council may act), as the context may require;

Lloyd’s Accounts Regulations means the Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2008 SI 2008/1950;

Lloyd’s China Platform means the branch of Lloyd’s in Shanghai in the People’s Republic of China operated through Lloyd’s Insurance Company (China) Limited, on which certain Lloyd’s syndicates have representation;

Lloyd’s Valuation of Liabilities means guidance and clarification for actuaries preparing Rules statements of actuarial opinion in relation to Lloyd’s syndicates on syndicate technical provisions for solvency and include sample opinion wordings;

London Market refers to the London insurance market, which includes the Lloyd’s market;

London Stock Exchange means London Stock Exchange PLC; long tail means insurance business where it is known from experience that notification and settlement of claims could take many years; loss adjuster means an independent claims specialist who investigates large or complex claims on behalf of insurance companies;

LTIP means the Brit Long Term Incentive Plan details of which are set out in section 14.1 of Part XVI (Additional Information);

Major claims ratio means claims and reserve movements (net of reinstatement, retrocession and tax) on natural or man-made catastrophes and on large single risk loss events, in each case in excess of £10.0 million, as a percentage of net earned premiums;

Major Shareholder means each of the CVC-Affiliated Funds and the Apollo- Affiliated Funds;

Management Shareholders means the existing Shareholders who are either Directors, Senior Managers or other employees (including, for the avoidance of doubt, Mark Cloutier and Matthew Wilson); managing agent means an underwriting agent at Lloyd’s responsible for, among other things, managing a syndicate and employing the active underwriter; managing general agent or MGA means, in the United States, an insurance intermediary vested with underwriting authority from an insurer;

348 Member State means a member state of the European Union;

Model Code means the model code published in Annex I to LR9 of the Listing Rules; net earned premium or NEP means the net written premium adjusted by the change in net unearned premium (i.e. the premium for which insurance exposure has yet to be incurred) for a year; net investment yield means investment return (net of investment management fees) expressed as a percentage of average invested assets during a particular period; net tangible assets means the total assets of a company, minus any intangible assets such as goodwill, patents and trademarks, less all liabilities and the par value of preferred shares; net written premium or NWP means the total premium on insurance underwritten by an insurer during a specified period after the deduction of premium applicable to reinsurance and retrocession;

New Plans has the meaning given in section 14 of Part XVI (Additional Information);

Nomination Committee means the nomination committee of the Board or a sub- committee of it;

Non-Executive Directors means each of Dr. Richard Ward, Ipe Jacob, Willem Stevens, Maarten Hulshoff, Sachin Khajuria, Gernot Lohr, Kamil Salame, Jonathan Feuer, and Hans-Peter Gerhardt;

Notes means the £150.0 million, 6.625% Lower Tier 2 subordinated unsecured notes issued by Brit Insurance Holdings PLC (now Brit Insurance Holdings Limited) on 9 December 2005, as described in section 21.3 of Part XVI (Additional Information);

Offer means the offer of Ordinary Shares to certain institutional investors, including QIBs in the United States described in Part VI (Details of the Offer), being made by way of this Prospectus;

Offer Price means 240 pence;

Offer Shares means the Ordinary Shares subject to the Offer as described in Part VI (Details of the Offer);

Official List means the Official List maintained by the FCA; open market means insurance business that may be offered to and placed with any managing agent that is willing to underwrite it on behalf of its managed syndicate. This excludes business that is underwritten pursuant to a binding authority or underwritten on either treaty or quota share reinsurance forms; operating expense ratio means the Group’s insurance related expenses (excluding corporate costs not related to the underwriting process) as a percentage of NEP (excluding the effect of foreign exchange movements on non-monetary items);

OPL or Overall Premium Limit means, in relation to a member of Lloyd’s, the limit for the amount of insurance business which is to be underwritten on the member’s behalf from time to time, such limit being expressed as the maximum permissible amount of its premium income allocable to any year of account;

349 Ordinary Shares or Shares means the ordinary shares of £2 each in the Company, the nominal value of which is, following Admission and subject to the approval of the Court, to be reduced from £2 to £0.01 each pursuant to the Post-Admission Capital Reduction; outwards reinsurance means the purchase of reinsurance cover;

Over-allotment Arrangements means the arrangements pursuant to which Ordinary Shares representing up to an additional 10 per cent. of the total number of Ordinary Shares comprised in the Offer (before utilisation of the Over-allotment Option) may be made available to investors;

Over-allotment Option means the over-allotment option granted by the CVC-Affiliated Funds and the Apollo Entities to the Stabilising Manager in the Underwriting Agreement;

Over-allotment Shares means those Ordinary Shares that are the subject of the Over- allotment Option;

PCC means a protected cell company, which is a corporate entity incorporated under the Gibraltar Protected Cell Companies Act 2001;

PD Regulation means the Prospectus Directive Regulation (2004/809/EC);

PFIC means a passive foreign investment company (for more information please refer to Section B of Part XV (Taxation);

PI means “professional indemnity”;

Portfolio Director means the employees of the Group so appointed in relation to the Group’s underwriting portfolios: short tail direct, long tail direct, short tail reinsurance and long tail reinsurance;

Post Admission Capital Reduction has the meaning given in section C.1 of Part I (Summary);

PRA means the UK Prudential Regulation Authority established pursuant to the Financial Services Act 2012 and responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms;

Premium Listing means the premium listing segment of the Official List;

Prospectus means this document;

Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive (2010/73/EU) to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in each Relevant Member State;

Prospectus Rules means the prospectus rules of the FCA made under Part VI of FSMA relating to offers of securities to the public and admission of securities to trading on a regulated market;

PTF or premium trust fund means the premiums and other monies that members receive in respect of their underwriting at Lloyd’s which are held by their managing agents in trust for them subject to the discharge of their underwriting liabilities;

350 QBE means QBE Insurance (Europe) Limited;

Qualified Institutional Buyer or means Qualified Institutional Buyer as defined in Rule 144A; QIBs

Qualified Investor means an investor who accepts the terms of this Prospectus (for more information, please refer to the Important Notice on pages 1-3 of the Prospectus); quota share means a type of reinsurance which provides that the reassured shall cede to the reinsurer a specified percentage of all the premiums that it receives in respect of a given section or all of its underwriting account for a given period in return for which the reinsurer is obliged to pay the same percentage of any claims and specified expenses arising on the reinsured account;

Realistic Disaster Scenarios or RDS means specific scenarios which the Group uses to test its ability to withstand certain types of disaster;

Redeemable Preference Shares means 50,000 redeemable non-voting preference shares of £1.00 each in the capital of the Company;

Registrar means Computershare Investor Services PLC;

Regulation S means Regulation S under the US Securities Act; reinsurance means the transfer of some or all of an insurance risk to another insurer. The company transferring the risk is called the “ceding company” and the company assuming the risk is called the “assuming company” or the “reinsurer”; reinsurance to close or RITC means a reinsurance agreement under which the members of a syndicate for a year of account are reinsured by underwriting members who comprise that or another syndicate for a later year of account against all liabilities arising out of insurance business underwritten by the members for that year of account;

Relationship Agreements means:

• the relationship agreement between the Company and certain of the Apollo-Affiliated Funds dated 28 March 2014; and • the relationship agreement between the Company and the CVC-Affiliated Funds dated 28 March 2014, as described more fully in section 21.4 of Part XVI (Additional Information);

Relevant Member State means each Member State of the European Economic Area that has implemented the Prospectus Directive;

Remuneration Committee means the remuneration committee of the Board or a sub- committee of it;

Reorganisation means the reorganisation described in section 3 of Part XVI (Additional Information);

Representative Director means a Director nominated by a Major Shareholder pursuant to the Relationship Agreement;

351 reserve release ratio means reserve releases/strengthening (net of reinsurance) and prior year margin movement as a percentage of net earned premiums for the period in which the reserves are released/ strengthened; retrocession means a reinsurance of a reinsurer by another reinsurer. It serves to ‘lay-off’ risk. A retrocessionaire is the reinsurer under a retrocession; Revolving Credit Facility or RCF means the Group’s revolving credit facility agreement dated 21 December 2007 (as amended and restated from time to time) as described in section 21.3B of Part XIII (Operating and Financial Review); re-underwrite means to change an insurance policy or series of policies when that policy or those policies comes or come up for renewal, including changes in pricing and terms and conditions; risk excess of loss means a type of reinsurance that covers specified losses incurred by the reassured in excess of a stated amount (the excess) per risk up to a higher amount, for example £5 million excess of £1 million; Risk Management Framework or means the Group’s own internal framework for risk RMF management (for more information, please refer to section 13 or Part VII (Information on the Group and its industry)); Risk Oversight Committee means the risk committee of the Board; RiverStone Reinsurance has the meaning given in section 21.1(B) of Part XVI Agreement (Additional Information); RoNTA means profit after tax before the effects of foreign exchange on non-monetary items and before any charges in respect of intangible assets (including impairment charges), divided by the NTA at the beginning of that period that period (adjusted on a weighted average basis for capital distributions, share buybacks or share issues during the period); RoNTA (excluding all foreign means profit after tax before the effects of foreign exchange exchange movements) movement on monetary and non-monetary items, before the return on currency related derivative contracts and before charges in respect of intangible assets (including impairment charges), divided by net tangible assets at the beginning of the period (adjusted on a weighted average basis for capital distributions, share buybacks or share issues during the period; Rule 144A means Rule 144A under the US Securities Act; SBU means the Group’s strategic business units, details of which are set out in section 1 of Part XIII (Operating and Financial Review); SDRT means stamp duty reserve tax; SEDOL means Stock Exchange Daily Official List; self-insured retention or SIR means the amount of any loss or combination of losses that would otherwise be payable under an insurance/reinsurance contract which the insured/reassured must bear itself before the insurer or reinsurer becomes liable to make any payment under that contract. Compare deductible and excess; Selling Shareholders means the Shareholders who choose to sell their Ordinary Shares in the Offer;

352 Senior Management or Senior means the persons named as Senior Managers in Part IX Managers (Directors, Senior Management and Corporate Governance);

Shareholders means holders of Ordinary Shares; short tail means a type of insurance where claims are usually made during the term of the policy or shortly after the policy has expired. Property insurance is an example of short tail business. The opposite of short tail business is long tail business;

SIP has the meaning given in section 14.3 of Part XVI (Additional Information).

Society (Lloyd’s) means the Society incorporated by Lloyd’s Act 1871 by the name of Lloyd’s;

Solvency Capital Requirement or means the higher of the two capital levels required by Solvency SCR II. The SCR is the prudent amount of assets to be held in excess of liabilities and functions as an early warning mechanism if it is breached. The SCR is calculated using either the standard formula or an approved internal model;

Solvency II Directive or Solvency II means the amended proposal for a directive of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (recast) (presented by the Commission pursuant to Article 250 (2) of the EC Treaty) (Proposal COM (2008) 119 final);

Sponsor means J.P. Morgan Cazenove;

Stabilising Manager means J.P. Morgan Securities plc;

Sterling, £, pence or p means the lawful currency of the UK;

Stock Lending Agreement means the stock lending agreement between the Stabilising Manager and the Major Shareholders; syndicate means a group of underwriting members of Lloyd’s or a single corporate member underwriting insurance business at Lloyd’s through the agency of a managing agent to which a particular syndicate number is assigned by or with the authority of the Council;

Syndicate means Lloyd’s Syndicate 2987;

SYSC means the Senior Management Arrangements, Systems and Controls sourcebook of the FCA Handbook;

Takeover Code means the Takeover Code on Takeovers and Mergers;

Takeover Panel means the Panel on Takeovers and Mergers;

Technical Actuarial Standards means a set of both generic and specific actuarial standards that actuaries must comply with and which are issued and maintained by the Financial Reporting Council; treaty means a reinsurance contract pursuant to which the reinsurer is obliged to accept, within agreed limits, all risks underwritten by the reinsured within specified classes of business in a given time period;

353 third party underwriting means underwriting arrangements entered into by the Group and a third party, as opposed to intra-group insurance or reinsurance arrangements involving BIG. This term should is not to be confused with “third party liability insurance” or any such similar term, which refers to a specific type of insurance arrangement where the insured or reinsured takes out insurance cover in relation to potential liabilities owed to third parties;

UBS Investment Bank means UBS Limited, a private company registered in England and Wales with registered number 02035362 and authorised by the PRA and regulated by the FCA and the PRA in the UK;

UK means the United Kingdom of Great Britain and Northern Ireland;

UK Corporate Governance Code means the UK Corporate Governance Code dated September 2012 issued by the Financial Reporting Council;

UK GAAP means generally accepted accounting practice in the United Kingdom;

UK Listing Authority means the FCA acting as the competent authority under Part VI of FSMA;

ULR or ultimate loss ratio as calculated on a Lloyd’s basis and in this prospectus, means the total forecast claims divided by total forecast premium expected to arise from a policy or class of business (including acquisition costs but excluding commission). Losses include those paid, those notified and IBNR;

Underwriters means the Banks;

Underwriting Agreement means the underwriting agreement entered into between the Company, Brit Insurance Holdings B.V. the CVC-Affiliated Funds, the Apollo Entities, the Directors and the Underwriters on 28 March 2014 and described in Part XVI (Additional Information); underwriting capacity please refer to “capacity”, above;

Underwriting Commitee means the underwriting committee of the Board;

United States or US means the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia; uSCR or Ultimate Solvency means an assessment prepared by a managing agent Capital Requirement produces stating how much capital a syndicate requires to cover its underlying business risks at a 99.5% confidence level;

US dollars, USD or $ means the lawful currency of the United States;

US Securities Act means the United States Securities Act of 1933, as amended; value creation means the increase in net tangible assets during a period, before capital distributions and dividends;

VAT means value added tax; and

Website means www.britinsurance.com.

354 Printed by RR Donnelley, 686313

BRIT PLC 55 BISHOPSGATE LONDON EC2N 3AS