Direct Line Insurance Group Plc

LISTING PARTICULARS DATED 3 JUNE 2020

Direct Line Insurance Group plc

(incorporated with limited liability in England and Wales under the Companies Act 1985 with registered number 02280426) £260,000,000 4.000 per cent. Subordinated Tier 2 Notes due 2032 Issue Price 99.604 per cent. The £260,000,000 4.000 per cent. Subordinated Tier 2 Notes due 2032 (the “Notes”) will be issued by Direct Line Insurance Group plc (the “Issuer”) on 5 June 2020 (the “Issue Date”). The Notes will constitute direct, unsecured and subordinated obligations of the Issuer. The terms and conditions of the Notes are set out more fully in “Terms and Conditions of the Notes” below (the “Conditions”, and references to a numbered “Condition” should be read accordingly). The Notes will bear interest on their outstanding principal amount from (and including) the Issue Date at a fixed rate of 4.000 per cent. per annum. Interest will be payable on the Notes semi-annually in arrear on 5 June and 5 December (each an “Interest Payment Date”) in each year commencing on 5 December 2020, provided that payments of interest will be mandatorily deferred (i) on any Mandatory Interest Deferral Date (as defined in the Conditions) and/or (ii) if such payment could not be made in compliance with the Solvency Condition (as defined in the Conditions). Any interest which is deferred will, for so long as it remains unpaid, constitute “Arrears of Interest”. Arrears of Interest will not themselves bear interest, and will be payable as provided in Condition 6.4. Subject to compliance with the Redemption and Purchase Conditions (as defined in Condition 7.2), the Notes will be redeemed by the Issuer on 5 June 2032 (the “Maturity Date”) and may be redeemed at the option of the Issuer on any day falling in the period commencing on (and including) 5 December 2031 to (but excluding) the Maturity Date, in each case at their principal amount together with any Arrears of Interest and any other accrued and unpaid interest thereon. Upon the occurrence of certain specified events relating to taxation or following the occurrence of (or if there will occur in the forthcoming six months) a Capital Disqualification Event (as defined herein), or if a Clean-up Call Event occurs, the Issuer may elect to redeem the Notes at their principal amount together with any Arrears of Interest and any other accrued and unpaid interest thereon or (in the case of a relevant tax event or Capital Disqualification Event), to vary or substitute the Notes for Qualifying Tier 2 Notes (as defined herein), in each case subject to satisfaction of the Regulatory Clearance Condition, certain other conditions and to compliance with the Redemption and Purchase Conditions, all as more fully described in the Conditions. The Notes will be in registered form and will be issued in denominations of £200,000 and integral multiples of £1,000 in excess thereof. This document has been approved by the Irish Stock Exchange plc trading as Euronext Dublin (“Euronext Dublin”) as Listing Particulars. Application has been made to Euronext Dublin for the Notes to be admitted to the official list (the “Official List”) and to trading on the Global Exchange Market of Euronext Dublin (“GEM”). References in these Listing Particulars to the Notes being “listed” (and all related references) shall mean that the Notes have been admitted to the Official List and have been admitted to trading on GEM. GEM is the exchange regulated market of Euronext Dublin and is not a regulated market for the purposes of Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments, as amended (“MiFID II”). The Notes have not been and will not be registered under the U.S. 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. Subject to certain exceptions, Notes may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S. persons. The Notes have been assigned a rating of “Baa1” by Moody’s Investors Service Limited (“Moody’s”). Moody’s is established in the United Kingdom and is registered under Regulation (EC) No. 1060/2009 (as amended) of the European Parliament and of the Council of 16 September 2009 on credit rating agencies (the “CRA Regulation”). A rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency. You should read the whole of this document and the documents incorporated herein by reference. In particular, your attention is drawn to the risk factors described in the section entitled “Risk Factors”, which you should read in full. Certain information in relation to the Issuer has been incorporated by reference into this document, as set out in “Documents Incorporated by Reference”. Capitalised terms used but not otherwise defined in these Listing Particulars shall, unless the context requires otherwise, have the meaning given to them in the Conditions.

Global Co-ordinator to the Issuer NatWest Markets

Joint Lead Managers Goldman Sachs International Morgan Stanley NatWest Markets

IMPORTANT NOTICES

This document constitutes the Listing Particulars in respect of the admission of the Notes to the Official List and to trading on GEM and for the purpose of giving information with regard to the Issuer and the Issuer and its subsidiaries taken as a whole (the “Group”) and the Notes which, according to the particular nature of the Issuer and the Notes, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the Issuer. The Issuer accepts responsibility for the information contained in this document. To the best of the knowledge and belief of the Issuer (which has taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information.

These Listing Particulars are to be read in conjunction with all the documents which are incorporated herein by reference (see “Documents Incorporated by Reference”).

These Listing Particulars do not constitute an offer of, or an invitation by or on behalf of the Issuer or the Joint Lead Managers (as defined in “Subscription and Sale” below) to subscribe or purchase, any of the Notes. The distribution of these Listing Particulars and the offering of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession these Listing Particulars come are required by the Issuer and the Joint Lead Managers to inform themselves about and to observe any such restrictions. For a description of certain further restrictions on offers and sales of the Notes and distribution of these Listing Particulars, see “Subscription and Sale”.

No person is or has been authorised to give any information or to make any representation other than those contained in these Listing Particulars in connection with the issue or sale of the Notes and, if given or made, such information or representations must not be relied upon as having been authorised by or on behalf of the Issuer or the Joint Lead Managers. Neither the delivery of these Listing Particulars nor any sale made in connection herewith shall, under any circumstances, create any implication that there has been no change in the affairs of the Issuer since the date hereof or the date upon which these Listing Particulars have been most recently amended or supplemented or that there has been no adverse change in the financial position of the Issuer since the date hereof or the date upon which these Listing Particulars have been most recently amended or supplemented or that any other information supplied in connection with the Notes is correct as of any time subsequent to the date on which it is supplied or, if different, the date indicated in the document containing the same.

To the fullest extent permitted by law, the Joint Lead Managers accept no responsibility whatsoever for the contents of these Listing Particulars or for any other statement, made or purported to be made by a Joint Lead Manager or on its behalf in connection with the Issuer, the Group or the issue and offering of the Notes. Each Joint Lead Manager accordingly disclaims all and any liability whether arising in tort or contract or otherwise (save as referred to above) which it might otherwise have in respect of these Listing Particulars or any such statement.

The Notes have not been and will not be registered under the U.S. 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. Subject to certain exceptions, Notes may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S. persons.

None of the Issuer or the Joint Lead Managers is providing any advice or recommendation in these Listing Particulars on the merits of the purchase, subscription for, or investment in, the Notes or the exercise of any rights conferred by the Notes.

Each potential investor in the Notes should determine the suitability of such investment in light of its own circumstances. In particular, each potential investor should:

(i) have sufficient knowledge and experience to make a meaningful evaluation of the Notes, the merits and risks of investing in the Notes and the information contained or incorporated by reference in these Listing Particulars;

(ii) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Notes and the impact the Notes will have on its overall investment portfolio;

(iii) have sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes, including, but not limited to, any currency exchange risk where the currency for principal, premium or interest payments is different from the potential investor’s main operating currency;

(iv) understand thoroughly the terms of the Notes, including (without limitation) the situations in which interest payments may be deferred and/or payments of principal may be suspended; and

(v) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.

These Listing Particulars have been prepared on the basis that any purchaser of Notes is a person or entity having sufficient knowledge and experience of financial matters as to be capable of evaluating the merits and risks of the purchase. Before making any investment decision with respect to the Notes, prospective investors should consult their own counsel, accountants or other advisers and carefully review and consider their investment decision in the light of the foregoing. An investment in the Notes is only suitable for financially sophisticated investors who are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses which may result therefrom.

In these Listing Particulars, unless otherwise specified or the context otherwise requires, references to “£”, “Sterling” or “pounds” are to the lawful currency of the United Kingdom, and “pence” or “p” shall be construed accordingly.

The financial information presented in a number of tables in these Listing Particulars has been rounded to the nearest whole number or the nearest decimal place. Therefore, the sum of the numbers in a column may not conform exactly to the total figure given for that column. In addition, certain percentages presented in the tables in these Listing Particulars reflect

calculations based upon the underlying information prior to rounding, and, accordingly, may not conform exactly to the percentages that would be derived if the relevant calculations were based upon the rounded numbers.

OFFER RESTRICTIONS

These Listing Particulars do not constitute an offer to sell or the solicitation or recommendation of an offer to buy or subscribe for the Notes in any jurisdiction to any person to whom it is unlawful to make the offer or solicitation in such jurisdiction. The distribution of these Listing Particulars and the offer or sale of Notes may be restricted by law in certain jurisdictions. Neither the Issuer nor any of the Joint Lead Managers makes any representation that these Listing Particulars may be lawfully distributed, or that the Notes may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, nor do they assume any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by the Issuer or any of the Joint Lead Managers which is intended to permit a public offering of the Notes or the distribution of these Listing Particulars in any jurisdiction where action for that purpose is required. Accordingly, no Notes may be offered or sold, directly or indirectly, and neither these Listing Particulars nor any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession these Listing Particulars or any Notes may come must inform themselves about, and observe, any such restrictions on the distribution of these Listing Particulars and the offering and sale of Notes. In particular, there are restrictions on the distribution of these Listing Particulars and the offer or sale of Notes in the United States, the United Kingdom, the European Economic Area (“EEA”), Hong Kong and Singapore, see “Subscription and Sale”.

RESTRICTIONS ON MARKETING AND SALES TO RETAIL INVESTORS

MiFID II PRODUCT GOVERNANCE / PROFESSIONAL INVESTORS AND ECPs ONLY TARGET MARKET – Solely for the purposes of each manufacturer’s product approval process, the target market assessment in respect of the Notes has led to the conclusion that: (i) the target market for the Notes is eligible counterparties (“ECPs”) and professional clients only, each as defined in MiFID II; and (ii) all channels for distribution of the Notes to eligible counterparties and professional clients are appropriate. Any person subsequently offering, selling or recommending the Notes (a “distributor”) should take into consideration the manufacturers’ target market assessment; however, a distributor subject to MiFID II is responsible for undertaking its own target market assessment in respect of the Notes (by either adopting or refining the manufacturers’ target market assessment) and determining appropriate distribution channels.

PROHIBITION OF SALES TO EEA AND UK RETAIL INVESTORS – The Notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the EEA or the United Kingdom. For these purposes, a retail investor means a person who is one (or both) of: (i) a retail client as defined in point (11) of Article 4(1) of MiFID II and (ii) a customer within the meaning of Directive (EU) 2016/97 (as amended) where that customer would not qualify as a professional client as defined

in point (10) of Article 4(1) of MiFID II. Consequently, no key information document required by Regulation (EU) No. 1286/2014 (as amended, the “PRIIPs Regulation”) for offering or selling the Notes or otherwise making them available to retail investors in the EEA or the United Kingdom has been prepared and therefore offering or selling the Notes or otherwise making them available to any retail investor in the EEA or the United Kingdom may be unlawful under the PRIIPs Regulation.

NOTIFICATION UNDER SECTION 309B(1)(C) OF THE SECURITIES AND FUTURES ACT (CHAPTER 289) OF SINGAPORE, AS MODIFIED OR AMENDED FROM TIME TO TIME – In connection with Section 309B of the Securities and Futures Act (Chapter 289) of Singapore (the “SFA”) and the Securities and Futures (Capital Markets Products) Regulations 2018 of Singapore (the “CMP Regulations 2018”), the Issuer has determined, and hereby notifies all relevant persons (as defined in Section 309A(1) of the SFA), that the Notes are ‘prescribed capital markets products’ (as defined in the CMP Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).

Stabilisation

In connection with the issue of the Notes, NatWest Markets Plc (in such capacity, the “Stabilising Manager”) (or any person acting on behalf of the Stabilising Manager) may over-allot Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However, stabilisation may not necessarily occur. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the Notes is made and, if begun, may cease at any time, but it must end no later than the earlier of 30 days after the issue date of the Notes and 60 days after the date of the allotment of the Notes. Any stabilisation action or over-allotment must be conducted by the Stabilising Manager (or any person acting on behalf of the Stabilising Manager) in accordance with all applicable laws and rules.

Forward-Looking Statements

These Listing Particulars include certain “forward-looking statements”, including any information as to the Group’s strategy, plans or future financial or operating performance. Statements that are not historical facts, including statements about the beliefs and expectations of the Issuer and the Group and the Issuer’s directors or management, are forward-looking statements. Words such as “believes”, “anticipates”, “estimates”, “expects”, “intends”, “plans”, “aims”, “potential”, “will”, “would”, “could”, “considered”, “likely”, “targets”, “projects”, “may”, “should”, “continue”, “ambition”, “aspire”, “guidance”, “mission”, “outlook”, “over the medium term”, “predicts”, “propositions”, “seeks”, “strategy” and variations of these words and similar future or conditional expressions, or discussions of strategy, plans, objectives, goals, future events or intentions, are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. They appear in several places throughout this document and include statements regarding the intentions, beliefs or current expectations of the Issuer’s directors concerning, among other things: the Group’s results of operations, financial condition, prospects, growth, strategies and the industry in which the Group operates. Examples of forward-looking statements include financial targets and guidance which are contained in this

document specifically with respect to the return on tangible equity, solvency capital ratio, the Group’s combined operating ratio, percentage targets for current-year contribution to operating profit, prior-year reserve releases, cost reduction, reductions in expense and commission ratios, investment income yield, net realised and unrealised gains, capital expenditure and risk appetite range. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend upon future circumstances that may or may not occur, many of which are beyond the control of the Issuer or the Group and all of which are based on the Issuer’s current beliefs and expectations about future events.

Forward-looking statements are not guaranteeing future performance. The Group’s actual results of operations, financial condition and the development of the business sector in which the Group operates may differ materially from those suggested by the forward-looking statements contained in this document, for example directly or indirectly as a result of, but not limited to:

– United Kingdom (“UK”) domestic and global economic business conditions;

- the direct and indirect impacts and implications of the coronavirus COVID-19 on the economy, nationally and internationally, and on the Group, its operations and prospects;

– the outcome of discussions between the UK and the European Union (“EU”) regarding the terms, following Brexit, of any future trading and other relationships between the UK and the EU;

– the terms of future trading and other relationships between the UK and other countries following Brexit;

– market-related risks such as fluctuations in interest rates and exchange rates;

– the policies and actions of regulatory authorities and bodies (including changes related to capital and solvency requirements or the Ogden discount rate or rates, or in response to the COVID-19 pandemic and its impacts on the economy and customers);

– the impact of competition, currency changes, inflation and deflation;

– the timing impact and other uncertainties of future acquisitions, disposals, partnership arrangements, joint ventures or combinations within relevant industries; and

– the impact of tax and other legislation and other regulation and of court, arbitration, regulatory or ombudsman decisions (including in connection with COVID-19) in the jurisdictions in which the Group and its affiliates operate.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors, including the risk factors set out in the section entitled “Risk Factors”, many of which are beyond the Group’s control, and which may cause the actual results, performance or achievements of the Issuer or the Group, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding

the present and future business strategies of the Issuer and the Group and the environment in which the Issuer and the Group will operate in the future. These forward-looking statements speak only as at the date of these Listing Particulars.

Except as required by applicable law or regulation or the rules of Euronext Dublin, the Issuer expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in these Listing Particulars to reflect any change in the Issuer’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Alternative Performance Measures (“APMs”)

These Listing Particulars includes certain financial metrics which the Issuer considers to constitute APMs and which are provided in addition to the financial performance measures established by International Financial Reporting Standards (“IFRS”). The Issuer believes the APMs provide investors with meaningful, additional insight as to underlying performance of the Issuer. An investor should not consider non-IFRS financial measures as alternatives to measures reflected in the Group financial information, which has been prepared in accordance with IFRS. In particular, an investor should not consider such measures as alternatives to profit after tax, operating profit or any other performance measures derived in accordance with IFRS or as an alternative to cash flow from operating activities as a measure of the Group’s activity. The Group’s non-IFRS financial measures may not be comparable with similarly titled financial measures reported by other companies.

TABLE OF CONTENTS

OVERVIEW ...... 9

RISK FACTORS ...... 20

DOCUMENTS INCORPORATED BY REFERENCE ...... 74

TERMS AND CONDITIONS OF THE NOTES ...... 75

SUMMARY OF PROVISIONS RELATING TO THE NOTES WHILE IN GLOBAL FORM ..... 110

USE OF PROCEEDS ...... 114

INFORMATION ON THE ISSUER AND THE GROUP ...... 115

MANAGEMENT ...... 131

REGULATORY OVERVIEW ...... 133

TAXATION ...... 140

SUBSCRIPTION AND SALE ...... 142

GENERAL INFORMATION ...... 145

OVERVIEW

This overview must be read as an introduction to these Listing Particulars and any decision to invest in the Notes should be based on a consideration of these Listing Particulars as a whole, including the documents incorporated by reference herein. Capitalised terms which are defined in “Terms and Conditions of the Notes” have the same meaning when used in this overview.

Issuer Direct Line Insurance Group plc.

Legal Entity Identifier (LEI): 213800FF2R23ALJQOP04

Group The Issuer and its Subsidiaries taken together.

Joint Lead Managers Goldman Sachs International

Morgan Stanley & Co. International plc NatWest Markets Plc.

Trustee BNY Mellon Corporate Trustee Services Limited.

Principal Paying Agent The Bank of New York Mellon, London Branch.

Registrar The Bank of New York Mellon SA/NV, Luxembourg Branch.

Notes £260,000,000 4.000 per cent. Subordinated Tier 2 Notes due 2032.

Issue Date 5 June 2020.

Issue Price 99.604 per cent.

Status and Subordination The Notes will constitute direct, unsecured and subordinated obligations of the Issuer and will rank pari passu and without any preference among themselves.

The rights and claims of the Noteholders against the Issuer will be subordinated as described in Condition 4 (Subordination).

Solvency Condition Other than in an Issuer Winding-Up, all payments in respect of or arising from (including any damages for breach of any obligations under) the Notes and under the Trust Deed in respect thereof (other than payments made to the Trustee acting on its own account under the Trust Deed) shall be conditional upon the Issuer being solvent at

the time for payment by the Issuer and no amount shall be due and payable by the Issuer in respect of or arising from (including any damages for breach of any obligations under) the Notes and the Trust Deed (other than as aforesaid) except to the extent that the Issuer could make such payment and still be solvent immediately thereafter.

For these purposes, the Issuer will be “solvent” if (i) it is able to pay its debts owed to Senior Creditors and Pari Passu Creditors as they fall due and (ii) its Assets exceed its Liabilities (other than Liabilities to persons who are Junior Creditors).

Any payment of interest that would have been due and payable but for the Solvency Condition being satisfied shall be deferred and shall be paid only as provided in Condition 6 (Deferral of Interest).

No set-off By the holding, acquisition or acceptance of the Notes, subject to applicable law, each Noteholder will be deemed to have waived any right of set-off or counterclaim that such Noteholder might otherwise have against the Issuer in respect of or arising under the Notes or the Trust Deed.

Interest Rate The Notes will bear interest on their outstanding principal amount from (and including) the Issue Date at the rate of 4.000 per cent. per annum payable (subject as provided under “Solvency Condition” above and “Deferral of Interest” below) semi-annually in arrear on 5 June and 5 December (each an “Interest Payment Date”) in each year from (and including) 5 December 2020.

Deferral of Interest Payment of interest on the Notes will be mandatorily deferred in full on each Mandatory Interest Deferral Date.

“Mandatory Interest Deferral Date” means each Interest Payment Date in respect of which a Regulatory Deficiency Interest Deferral Event has occurred and is continuing or would occur if payment of interest were to be made on such Interest Payment Date.

the case may be, such breach is, an event) which under the Relevant Rules would require the Issuer to defer payment of interest (including Arrears of Interest) in respect of the Notes (on the basis that the Notes are intended to qualify as Tier 2 Capital under the Relevant Rules).

The deferral of interest as described above or as a result of the operation of the Solvency Condition will not constitute a default under the Notes for any purpose.

Arrears of Interest Any interest on the Notes that is mandatorily deferred shall, together with any other interest not paid on any earlier Interest Payment Dates (without double counting), to the extent and so long as the same remains unpaid, constitute “Arrears of Interest”. Arrears of Interest shall not themselves bear interest and shall be payable as provided in Condition 6.4 (Payment of Arrears of Interest).

Redemption at Maturity Subject to the Conditions to Redemption and Purchase as provided below, and unless previously redeemed or purchased and cancelled in accordance with the Conditions, and subject to deferral as provided above, the Issuer will redeem the Notes at their principal amount outstanding on 5 June 2032 (the “Maturity Date”) together with any Arrears of Interest and any other accrued and unpaid interest to (but excluding) the Maturity Date.

Redemption at the option of the Subject to certain conditions (including the Conditions to Issuer Redemption and Purchase), the Issuer may, at its option and upon notice to the Noteholders, redeem all (but not some only) of the Notes, on any day falling in the period commencing on (and including) 5 December 2031 and ending on (but excluding) the Maturity Date at their principal amount outstanding together with any Arrears of Interest and any other accrued and unpaid interest to (but excluding) the date of redemption.

(A) as a result of any change in, or amendment to, the laws or regulations of a Relevant Jurisdiction, or any change in the application or official interpretation of the laws or regulations of a Relevant Jurisdiction (a “Tax Event”), which change or amendment becomes effective after the Issue Date, on the next

Interest Payment Date either:

(i) the Issuer would (if it were to make a payment of interest on such date) be required to pay Additional Amounts; or

(ii) the payment of interest would no longer be deductible for United Kingdom tax purposes; or

(iii) in respect of the payment of interest, the Issuer would not to any material extent be entitled to have any attributable loss or non-trading deficit set against the profits (assuming there are any) of companies with which it is grouped for applicable United Kingdom tax purposes (whether under the group relief system current as at the Issue Date or any similar system or systems having like effect as may from time to time exist); and

(B) the effect of the foregoing cannot be avoided by the Issuer taking reasonable measures available to it,

the Issuer may, upon notice to the Noteholders either (at its sole discretion):

(1) redeem all (but not some only) of the Notes at any time at their principal amount outstanding together with Arrears of Interest and any other accrued and unpaid interest to (but excluding) the date of redemption; or

(2) substitute at any time all (but not some only) of the Notes for, or vary the terms of the Notes so that they become or remain, Qualifying Tier 2 Notes.

Redemption, substitution or Subject to certain conditions (including, in the case of variation at the option of the redemption, the Conditions to Redemption and Purchase), Issuer due to a Capital if at any time a Capital Disqualification Event has occurred Disqualification Event and is continuing, or, as a result of any change in, or amendment to, or any change in the application or official interpretation of, any applicable law, regulation or other official publication, a Capital Disqualification Event will occur within the forthcoming period of six months, then the Issuer may, upon notice to Noteholders either (at its sole discretion):

(i) redeem all (but not some only) of the Notes at any

time at their principal amount outstanding together with any Arrears of Interest and any other accrued and unpaid interest to (but excluding) the date of redemption; or

(ii) substitute at any time all (but not some only) of the Notes for, or vary the terms of the Notes so that they become or remain, Qualifying Tier 2 Notes.

A “Capital Disqualification Event” is deemed to have occurred if, as a result of any replacement of or change to (or change to the interpretation by the Relevant Regulator or any court or authority entitled to do so of) the Relevant Rules:

(i) the whole or any part of the Notes are no longer capable of counting as Tier 2 Capital for the purposes of the Issuer; and/or

(ii) the whole or any part of the Notes are no longer capable of counting as Tier 2 Capital for the purposes of the Group,

in each case whether on a solo, group or consolidated basis, and except where such non-qualification is only as a result of any applicable limitation on the amount of such capital (other than a limitation derived from any transitional or grandfathering provisions under the Relevant Rules).

Clean-up redemption at the Subject to certain conditions (including the Conditions to option of the Issuer Redemption and Purchase), if at any time after the Issue Date, eighty (80) per cent. or more of the aggregate principal amount of the Notes originally issued (and, for these purposes, any Further Notes issued will be deemed to have been originally issued) has been purchased and cancelled (a “Clean-up Call Event”), then the Issuer may, upon notice to Noteholders, redeem all (but not some only) of the Notes at any time at their principal amount outstanding together with any Arrears of Interest and any other accrued and unpaid interest to (but excluding) the date of redemption.

Purchases Subject to certain conditions (including the Conditions to Redemption and Purchase), the Issuer or any of its Subsidiaries may at any time purchase Notes in any manner and at any price.

Conditions to Redemption and Subject to certain conditions, and save as otherwise

Purchase permitted pursuant to Condition 7.3 (Waiver of Redemption and Purchase Condition relating to Solvency Capital Requirement by Relevant Regulator), the Issuer may not redeem or purchase any Notes unless each of the following conditions, to the extent required pursuant to the Relevant Rules at the relevant time, is satisfied:

(A) the relevant date of any redemption or purchase is on or after the fifth (5th) anniversary of the Reference Date unless:

(i) such redemption or purchase is funded out of the proceeds of a new issuance of, or the Notes are exchanged into, Tier 1 Own Funds or Tier 2 Own Funds of the same or a higher quality than the Notes; or

(ii) in the case of a redemption at the option of the Issuer for taxation reasons or redemption at the option of the Issuer due to a Capital Disqualification Event, the Issuer has demonstrated to the satisfaction of the Relevant Regulator that:

(1) the Solvency Capital Requirement of the Issuer and/or the Group (as applicable), after the redemption, will be exceeded by an appropriate margin, taking into account its solvency position and its medium-term capital management plan; and

(2) either (a) (in the case of a redemption at the option of the Issuer for taxation reasons) the applicable change in tax treatment is material and was not reasonably foreseeable as at the Issue Date (and, if any Further Notes are issued, at the issue date of such Further Notes), or (b) (in the case of a redemption at the option of the Issuer due to a Capital Disqualification Event) the relevant change in the regulatory classification of the Notes is sufficiently certain and was not reasonably foreseeable as at the Issue Date (and, if any Further Notes are issued, at the issue date of such Further Notes);

(B) the Solvency Condition is met immediately prior to the redemption or purchase of the Notes (as applicable) and the redemption or purchase (as applicable) would not cause the Solvency Condition to be breached;

(C) the Solvency Capital Requirement is met immediately prior to the redemption or purchase of the Notes (as applicable) and the redemption or purchase (as applicable) would not cause the Solvency Capital Requirement to be breached;

(D) the Minimum Capital Requirement is met immediately prior to the redemption or purchase of the Notes (as applicable) and the redemption or purchase (as applicable) would not cause the Minimum Capital Requirement to be breached;

(E) no Insolvent Insurer Winding-up has occurred and is continuing;

(F) the Regulatory Clearance Condition is satisfied; and/or

If on the proposed date for redemption of the Notes the conditions to redemption and purchase are not met, redemption of the Notes shall instead be suspended and such redemption shall occur only in accordance with Condition 7.4 (Suspension of Redemption).

If on the proposed date for any purchase by the Issuer of the Notes, the Redemption and Purchase Conditions are not met, such purchase of the Notes shall be cancelled.

Any such suspension or cancellation will not constitute a default by the Issuer and will not give Noteholders or the Trustee any rights to accelerate, or take enforcement action under, the Notes.

Preconditions to redemption, Prior to the publication of any notice of redemption, variation, substitution for variation or substitution for taxation reasons, or following a taxation reasons, Capital Capital Disqualification Event or Clean-up Call Event, the Disqualification Event or Clean- Issuer shall deliver to the Trustee a directors’ certificate up Call Event stating that (i) as the case may be, the Issuer is entitled to redeem, substitute or vary the Notes on the grounds that a Tax Event, a Capital Disqualification Event or a Clean-up Call Event has occurred and is continuing as at the date of the certificate or, as the case may be, (in the case of a Capital Disqualification Event) will occur within a period of six (6) months and (in the case of a Tax Event or a Capital Disqualification Event) that it would have been reasonable for the Issuer to conclude, judged at the Issue Date, such Tax Event or Capital Disqualification Event was unlikely to occur and (in the case of a Tax Event) the effect of the same cannot be avoided by the Issuer taking reasonable measures available to it, and (ii) the Conditions to Redemption and Purchase have been met.

The Issuer shall not be entitled to amend or otherwise vary the terms of the Notes or substitute the Notes unless:

(i) it has notified the Relevant Regulator in writing of its intention to do so; and

(ii) the Regulatory Clearance Condition has been satisfied.

Withholding tax and additional Payments on the Notes by or on behalf of the Issuer shall amounts be made without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature (“Taxes”) imposed or levied by or on behalf of the Relevant Jurisdiction unless the withholding or deduction of the Taxes is required by law. In any such event, the Issuer will, subject to certain exceptions set out in Condition 9 (Taxation), pay such additional amounts in respect of interest (including, for the avoidance of doubt, any Arrears of Interest) but not in respect of any payments of principal, as may be necessary in order that the net amounts received by the Noteholders after the withholding or deduction shall equal the respective amounts which would have been received in respect of the Notes in the absence of the withholding or deduction.

“Relevant Jurisdiction” means the United Kingdom or any political subdivision or any authority thereof or therein

having power to tax or any other jurisdiction or any political subdivision or any authority thereof or therein having power to tax to which the Issuer becomes subject in respect of payments made by it of principal and interest on the Notes.

Enforcement If default is made by the Issuer in the payment of principal or any interest (including, without limitation, any Arrears of Interest) in respect of the Notes and such default continues for a period of seven (7) days or more, the Trustee may at its discretion, and if so requested by Noteholders of at least one-fifth in principal amount of the Notes then outstanding or if so directed by Extraordinary Resolution shall (but in each case subject to it having been indemnified and/or secured and/or prefunded to its satisfaction), institute proceedings for the winding-up of the Issuer in England and Wales (but not elsewhere).

In the event of an Issuer Winding-Up (whether in England and Wales or elsewhere and whether or not instituted by the Trustee), the Trustee may prove in the winding-up of the Issuer and/or (as the case may be) claim in the liquidation or administration of the Issuer, such claim being as provided in Condition 11.2 (Amount payable on an Issuer Winding-Up) and subordinated in the manner described in Condition 4.2 (Ranking on an Issuer Winding- Up).

Events of Default The Notes contain limited events of default and restricted enforcement rights, as provided in Condition 11 (Events of Default).

Form The Notes will be issued in registered form and represented upon issue by a registered global certificate (the “Global Certificate”) which will be registered in the name of a nominee for a common depositary (the “Common Depositary”) for Clearstream Banking S.A. (“Clearstream, Luxembourg”) and Euroclear Bank SA/NV (“Euroclear”) on or about the Issue Date.

Denomination The Notes will be issued in denominations of £200,000 each and integral multiples of £1,000 in excess thereof.

Meetings of Noteholders The Conditions contain provisions for calling meetings of Noteholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Noteholders including Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in a manner contrary to the majority.

The Conditions may also be amended with Noteholder consent given by way of (i) a written resolution executed, or (ii) electronic consents given through the relevant clearing system(s), in each case by or on behalf of the holders of ninety (90) per cent. in principal amount of the Notes outstanding.

Issuer Substitution Subject to the satisfaction of the Regulatory Clearance Condition and certain other conditions, the Trustee may agree with the Issuer, without the consent of the Noteholders and subject to the Notes being (other than where the Substitute Obligor is the successor in business to the Issuer) unconditionally and irrevocably guaranteed by the Issuer on a subordinated basis equivalent to Condition 4 (Subordination), to the substitution of a subsidiary or parent company of the Issuer or the successor in business to the Issuer, in any such case, in place of the Issuer as principal debtor under the Trust Deed and the Notes.

Listing Application has been made for the admission of the Notes, when issued, to listing on the Official List and to trading on GEM.

Ratings The Notes have been assigned a rating of “Baa1” by Moody’s.

A rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency. A revision, suspension, reduction or withdrawal of a rating may adversely affect the market price of the Notes.

Governing Law The Notes and the Trust Deed and any non-contractual obligations arising out of or in connection with the Notes or the Trust Deed will be governed by, and construed in accordance with, English law.

ISIN XS2183817407.

Common Code 218381740.

CFI/FISN: See the website of the Association of National Numbering Agencies (“ANNA”) or alternatively sourced from the responsible National Numbering Agency that assigned the ISIN.

Clearing Systems Euroclear and Clearstream, Luxembourg.

Selling Restrictions There are restrictions on the distribution of these Listing Particulars and the offer or sale of Notes in the United States, the United Kingdom, the EEA , Hong Kong and Singapore - see “Subscription and Sale”.

Reg S Category 2: The Notes have not been and will not be registered under the Securities Act and, subject to certain exceptions, may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons.

MiFID II Product Governance/ Solely for the purposes of each manufacturer’s product PRIIPs Regulation: approval processes, the manufacturers have concluded that: (i) the target market for the Notes is eligible counterparties and professional clients only; and (ii) all channels for distribution of the Notes to eligible counterparties and professional clients are appropriate. No PRIIPs Regulation key information document has been prepared as the Notes are not available to retail investors in the EEA or the United Kingdom.

Use of Proceeds The net proceeds of the Notes will be used for the general corporate purposes of the Group.

RISK FACTORS

The Notes are being offered to professional investors only and are not suitable for retail investors. Investors should not purchase the Notes in the primary or secondary markets unless they are professional investors. Investing in the Notes involves risks. Prospective investors should have regard to the factors described in this section before deciding whether to invest in the Notes.

The Issuer believes that the following factors may affect its ability to fulfil its obligations under the Notes. Most of these factors are contingencies which may or may not occur and the Issuer is not in a position to express a view on the likelihood of any such contingency occurring. Any of these risk factors, individually or in the aggregate, could have an adverse effect on the Issuer.

In addition, factors which the Issuer believes may be material for the purpose of assessing the market risks associated with the Notes are described below.

The Issuer believes that the factors described below represent the principal risks inherent in investing in the Notes, but the inability of the Issuer to pay interest, principal or other amounts on or in connection with the Notes may occur for other reasons, and the Issuer does not represent that the statements below regarding the risks of holding the Notes are exhaustive. Prospective investors should also read the detailed information set out elsewhere in these Listing Particulars (including any documents incorporated by reference herein) and reach their own views prior to making any investment decision.

Unless the context requires otherwise, capitalised terms which are defined in “Terms and Conditions of the Notes” have the same meaning when used herein.

Factors that may affect the Issuer’s ability to fulfil its obligations under the Notes

Risks related to the Group’s business

The Group’s technical reserves may not adequately cover actual claims

Due to the uncertain nature and timing of the risks which the Group incurs in underwriting insurance products, it cannot precisely determine the amounts that it will ultimately pay to meet the liabilities covered by the insurance policies underwritten or the timing of payment and settlement of those liabilities. As such, the Group’s technical reserves may prove to be inadequate to cover actual claims costs, particularly when the settlement of liability or payments of claims may not occur until well into the future, for example, and in particular, for bodily injury claims.

The Group maintains technical reserves to cover the estimated cost of future claims payments and related administrative expenses, with respect to losses or injuries which have been incurred but have not been fully settled at the balance sheet date or which may occur in the future against insurance policies which have already been written prior to the balance sheet date. This includes losses or injuries that have been reported to the Group and those that have not yet been reported. The technical claims reserves maintained by the Group represent estimates of all expected future

payments, including related administrative expenses, to bring every claim (whether reported or not) which has occurred prior to the balance sheet date to final settlement. The Group’s IFRS premium reserves represent the higher of unexpired premiums or the estimated ultimate cost of the Group’s exposure to claims and expenses occurring after the balance sheet date against business which was written prior to such date.

There is a risk of understatement or overstatement of reserves arising from the uncertain nature of claims; data issues and changes to the claims reporting process; operational failures; failure to recognise claim trends in the market; and changes in underwriting and business written.

The Group estimates technical reserves using a range of actuarial and statistical projections and assumptions across a range of variables such as the time required to learn of and settle claims, facts and circumstances known at a given time, estimates of trends, trends in the number of claims or claims of certain types, inflation in claims severity and expected future claims payment patterns. Estimates are also dependent on other variable factors including the legal, social, economic and regulatory environments, including the impacts of events such as COVID-19 (see further “The COVID-19 pandemic has and will have far reaching impacts, including the responses of governments, regulators, customers and markets to the pandemic”), results of litigation or other judicial or quasi-judicial decisions, regulatory intervention, rehabilitation and mortality trends, business mix, consumer behaviour, market trends, underwriting assumptions, risk pricing models, inflation in medical care costs, future earnings inflation and other relevant forms of inflation, exchange rate movements, the cost of repairs and replacement, and estimated future receipts from third parties such as other insurers and reinsurance recoveries, as well as changes in internal claims handling processes. The inevitable variations in any of these factors contribute to the uncertainty of the technical reserves estimate. While most of the Group’s technical reserves under IFRS are held on an undiscounted basis and, therefore, do not allow for the investment income which will be earned on the technical reserves after the balance sheet date up until the claims are fully settled, the technical reserves held in respect of periodical payment orders (“PPOs”) are held on a discounted basis. The size and nature of the PPO reserves are also exposed to the risk of changes in mortality, cost of care, advances in medical treatment and associated costs and other inflation, the timing of future cash flows or level of investment income. The Group’s employers’ liability business is also exposed to the risk of disease related claims in respect of currently unknown exposures being identified at a future date.

For claims, especially those which take several years to settle, such as bodily injury, illness, and public and employers’ liability, it has been necessary historically, and may over time continue to be necessary, for the Group to revise its estimates of the total costs to settle the claims and, therefore, increase or release its related technical reserves.

The Group’s technical reserves are particularly susceptible to potential retrospective changes in regulation, regulatory approach, legislation and/or new court decisions. This is illustrated by the reduction in the “Ogden discount rate”, which is the discount rate set by the government of the United Kingdom (“UK”) and used (among other things) by Courts to calculate lump sum awards in bodily injury cases. The Ogden discount rate was originally reduced from 2.5 per cent. to minus 0.75 per cent. in March 2017, regardless of whether the insurance to which the claim relates was priced on that basis or not. On 15 July 2019, the Lord Chancellor announced a further change to the discount rate raising it to minus 0.25 per cent. The new discount rate came into force on 5

August 2019. Although the Association of British Insurers has challenged the original decision to reduce the discount rate and the Lord Chancellor’s use of the prudence principle, any change to the discount rate will impact future claims associated with bodily injury claims and as a consequence on claims reserves with a lower discount rating leading to an increase in claims costs. The net reduction relative to the 2.5 per cent. rate has led to an increase in the amount of claims reserves necessary for the Group to hold, specifically in relation to those claims that are settled as lump sums by the Courts.

The UK Government introduced measures in the Civil Liability Act 2018 to reform the law on how the discount rate is to be set. Under the Civil Liability Act 2018 the new personal injury discount rate will be reviewed within a five-year period, with future reviews advised by an expert panel and required within five years of the last. There may yet be further changes to the process by which the rate is set and therefore to the rate itself. Any such change may have a material impact on the Group. Increases or decreases to the Ogden discount rate could also affect the propensity of PPO claims. An increase in healthcare inflation, claimant longevity or the propensity to award PPOs, rather than lump sums, could increase the value of future claims settlements and thereby increase the costs of these settlements.

The frequency at which PPOs settle bodily injury claims, under which annually indexed payments are made periodically over several years or even the lifetime of the injured party, could also change. Any changes in the propensity for claimants to settle bodily injury claims using a PPO relative to the estimates made when setting the technical reserves would have a similarly retrospective effect. The uncertainty around the utilisation of PPOs to settle bodily injury claims makes the estimation of technical reserves increasingly complex and uncertain due to the increased range of assumptions required, such as the future propensity of such settlement methods, estimated rates of inflation, estimated mortality trends for impaired lives, payment patterns, investment income and the impact of reinsurance recoveries which will occur many years into the future with a resultant increase in the associated credit or other non- payment risk. The fact that these claims take many years to ultimately settle increases the uncertainty around their estimation, which could have a material adverse effect on the Group’s business, prospects, results of operations and financial position, particularly because the board of directors of the Issuer (the “Directors” or the “Board”) believes these claims could represent an increasing proportion of claims reserves in the future.

Consequently, changes in any of these trends or other variable factors, including risks around the accuracy of the data used to estimate the technical reserves, may result in actual future claims costs and related expenses paid differing, potentially significantly, from the estimates reflected in the claims and premium reserves in the Group’s financial statements. To the extent that the Group’s technical reserves are subsequently estimated to be insufficient to cover the future cost of claims or administrative expenses, it will have to increase its technical reserves and incur a corresponding reduction in its earnings/net income in the period in which the deficiency is identified. In addition, if the Group’s technical reserves are excessive as a result of an over-estimation of risk, it may set premiums at levels which are too high and potentially may not be able to compete effectively, which may result in a loss of customers and premium income. In recent periods, the Issuer has earned substantial profits from releases of reserves from prior years, and there can be no assurance that the Group will be able to make similar releases in future periods. Assuming current claims trends continue, the Group expects prior- year reserve releases to continue to reduce further in future years, although they are expected

to remain a significant contribution to profits. Conversely, if the Group charges premiums that are insufficient for the cover provided, it may suffer underwriting losses, leading to a reduction in earnings. Both of these could have a material adverse effect on its current and future business, prospects, results of operations and financial position. Any increase in the technical reserves held and/or estimates or expectations of the uncertainty around those technical reserves could also lead to increased capital being required and increased uncertainty around the Group’s current and future profitability.

The Group’s underwriting assumptions and risk pricing models may not reflect its overall risk exposure

The Group’s results depend significantly on whether its actual claims and expense experience, and investment income experience, in terms of ultimate cost and timing of cash flows, is consistent with the assumptions and pricing models it has used in underwriting and setting prices for its products. These assumptions are based on a variety of factors which may include historical data, estimates, assumptions or individual expert judgments in respect of known or potential future changes and statistical projections of what the Group believes will be the costs and cash flows of its assets and liabilities. When underwriting policies, the Group is subject to concentration risk in a variety of forms, including geographic concentration risk; product concentration risk; and sector concentration risk.

The Group is subject to the risk of loss due to fluctuations in the timings, amount, frequency and severity of an insured event relative to the expectations at the time of underwriting. Key drivers for this include reserving, underwriting, distribution, pricing and reinsurance risk. If the Group’s actual claims and expense experience, or investment income, differ from the underlying assumptions and estimates it used in establishing such assets and liabilities or pricing its business, or if the Group’s pricing is different to the market price for similar insurance products, this could have an adverse effect on the Group’s revenue generation, profit and financial position.

Statistical methods, models or individual expert judgments may not accurately quantify the Group’s risk exposure, including if circumstances arise that were not observed in historical data or if the data otherwise proves to be inaccurate or inappropriate. In addition, the statistical methods, models or individual judgments themselves may be flawed, leading to inaccurate pricing of risk despite access to accurate data and accurate assessment of other risks. The Group’s ability to quantify risk exposure, and as a result price insurance products successfully, is subject to risks and uncertainties including, without limitation: exposure to claims inflation; changes in claims frequency; unanticipated legal and regulatory decisions, changes and costs; changes in mortality or rehabilitation trends; assumptions on weather trends; unexpected or new types of claims; unexpected events or series of events or concurrency of events; changes in social or market trends, including customer and claimant behaviour; changes in economic conditions; potential inaccuracies in the data collected from internal or external parties and/or used within the modelling and pricing processes; incorrect or incomplete analysis of data; potentially inaccurate or inappropriate policy terms and conditions; inappropriate or incomplete purchase of reinsurance or receipt of recoveries therefrom; changes in the internal operating environment within the Group; the selection of inappropriate pricing methodologies; assumptions for future investment income and the uncertainties inherent in estimates and assumptions, including those used throughout the pricing and underwriting processes.

The actual claims payments may vary, perhaps significantly, from those estimated both in amount and in timing of payments, particularly if the payments occur well into the future. This may have a material adverse effect on the Group’s business, prospects, results of operations and financial position and it may be necessary for the Group to increase prices for future insurance policies and to set aside additional reserves for existing, previously written policies, as well as increasing the capital it will be required to hold due to the increased uncertainty around future profitability.

The Group’s results depend on the performance of its investment portfolio, and changes in economic and financial market conditions may have a significant adverse effect on the value of, and income generated by, the Group’s investment portfolio

The Group’s investment returns, which are a significant contributor to the Group’s profitability in any given year, are highly susceptible to changes in interest rates and credit spreads. The Group’s investment returns are subject to a variety of risks, including risks related to general global economic conditions, market volatility and interest rate fluctuations, liquidity risk, credit and counterparty risk and property risk. Changes in these factors can be very difficult to predict. However, recently the global financial markets have experienced significant disruptions and volatility as a result of, among other things, the economic consequences arising from COVID-19 and volatile oil prices which can result in significant credit downgrades of investments and possible impairments in the investment portfolio. The Group is subject to the risk of loss resulting from fluctuations in the level and in the volatility of market prices of assets, liabilities and financial instruments.

The value of the Group’s investment portfolio will be affected by global markets in interest rates, credit spreads, changes in the credit ratings of the issuers of the securities, and liquidity generally in markets, which may affect returns on, and the market values of, UK and international assets held in the Group’s investment portfolios. In particular, a significant change in interest rates or credit spreads could result in significant losses, realised or unrealised, in the fair value of the Group’s current investment portfolio holdings and, consequently, could have an adverse effect on its financial results and capital position. Lower interest rates could also affect income derived from fixed income investments as borrowers seek to refinance at lower interest rates, redeeming current debt instruments and requiring the Group to reinvest the proceeds in securities with lower interest yields. During periods of rising interest rates, prices of fixed income securities tend to fall and realised gains upon their sale are reduced or realised losses are increased, but reinvestments take place at a higher yield. When the credit rating of an issuer of debt securities falls, or the credit spread with respect to an issuer increases, the value of the fixed income securities may also decline. Given that the Group’s liabilities are predominantly in sterling, the investment portfolio has a strong UK focus. As such changes in UK financial markets may have a more material impact on income and the aggregate change in asset valuations within the portfolio relative to the impact of similar changes in other global financial markets.

The Group is directly and indirectly exposed to debt securities issued by sovereign states and other industry sector issuers, notably financial services institutions. The Group looks to diversify its exposure to debt security issuers and industry sectors by investing across global debt markets in addition to the UK debt market. Debt securities invested into include investment grade as well as an allocation to non-investment grade. The value of these instruments will be

affected by developments in global debt markets, the global economy as a whole and developments specific to the issuers of those securities. In addition, there can be no assurance that the Group will not have more varied exposure in the future, that the Group will not incur losses as a result of indirect exposure, or that the risks associated with its direct holdings will not increase as a result of adverse changes in the global debt markets.

The Group’s investment portfolio also contains assets based on a floating rate of return (notably its cash holdings, infrastructure and commercial real estate loans) which may be adversely affected by changes in UK or United States (“US”) interest rates. 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. The Group may not be able to appropriately or effectively mitigate interest rate sensitivity in a changing interest rate environment. A changing interest rate environment will impact the Group’s returns from its floating rate assets and interest rate swaps entered into to change the interest rate characteristics of fixed-rate assets or debt to a floating basis.

Because of the unpredictable nature of the frequency, size and timing of losses, including payments that may arise under the Group’s insurance policies, the Group’s liquidity needs could be substantial from time to time. Illiquidity of certain investments may prevent the Group from selling assets in a timely manner. This may force the Group to liquidate its investments at times and prices that are not optimal. This could have a material adverse effect on the performance of its investment portfolio and therefore a material adverse effect on the Group’s business, prospects, results of operations and financial position.

The Group’s non-sterling assets are currency hedged back to sterling using a rolling programme of foreign exchange forward contracts. The Group has also entered into interest rate swap contracts to reduce some of its exposure to the impact of changes in the interest rate environment in the US and Eurozone on the market value of relevant debt securities. If those hedges prove ineffective or are not entered into, the impact of fluctuation in foreign currency exchange rates and interest rates could adversely affect the Group’s business, prospects, results of operations and financial position.

The Group presently holds a UK commercial property portfolio as part of its investment strategy. Property can be subject to higher volatility and lower liquidity compared to other investments as it can be impacted by a range of factors generally outside of the Group’s control, such as economic conditions, construction certification and the demand and supply for commercial property, with the consequent effects on market prices. Independent valuations of the Group’s property portfolio may therefore reflect gains or losses, driven by economic conditions and national and regional property market conditions. In the event the property market declines, there can be no assurance as to the amount or timing of future losses or impairments of the Group’s investments, which may, in each case, adversely affect its business, prospects, results of operations and financial position.

The Group invests in long-dated loans, which finance infrastructure projects, focussing on social infrastructure projects (such as schools and hospitals) and purchasing loans in the secondary market (after the construction phase of the project has been completed). The value of infrastructure loans may be impacted by a number of factors outside the Group’s control such

as economic conditions, political developments, construction certification and the adequacy of the continuing supply of services provided by the underlying infrastructure assets.

The Group undertakes an annual asset liability study and reviews regularly the suitability of investment strategy supporting the liabilities and capital of the Group. The development of the Group’s investment portfolio in the future may therefore reflect increases or decreases in exposure to existing asset classes within the portfolio, or the inclusion of new asset classes or exiting an existing asset class. The Group also keeps under review its hedging strategy supporting non-sterling investments and may consider adjustments from time to time reflecting underlying asset class changes or market conditions.

Catastrophes, including natural disasters and pandemics, may cause the Group to incur substantial losses

The Group is predominantly a personal lines insurer and, like all general insurance companies, it is subject to losses from unpredictable events that may affect multiple covered risks. In the UK, such events include both natural and man-made events, such as, but not limited to, windstorms, coastal inundation, floods, severe hail, severe winter weather, severe prolonged dry weather, other weather-related events, epidemics, pandemics, earthquakes, large-scale fires, industrial explosions and other man-made disasters such as civil unrest and terrorist attacks.

The extent of the Group’s losses from such catastrophic events is a function of their frequency, the severity of each individual event and the reinsurance arrangements the Group has in place. Some catastrophes, such as explosions, occur in small geographic areas, while others, including windstorms and floods, may produce significant damage to large, heavily populated and/or widespread areas. The Group generally seeks to reduce its exposure to such events by utilising selective underwriting and pricing practices, purchasing appropriate reinsurance, managing reinsurer concentration risk, excluding certain events under policy terms and conditions and participating in relevant government-sponsored schemes such as Pool Re, which offers some reinsurance coverage for UK claims arising from terrorist attacks, and Flood Re, which is a levy-based system aimed at ensuring flood insurance in flood risk areas remains affordable and available by guaranteeing cover to high risk properties using a pool of capital from which to settle flood claims. However, its efforts to reduce, appropriately price, or set appropriate underwriting terms for, its exposure may not be successful. In addition, government or industry schemes, such as those relating to flood control, are subject to change which could result in pricing risk if the Group is unable to price its products appropriately or result in reputational risk if the Group is suddenly forced to change its pricing or policy coverage.

The Group is also subject to the consequences of disruption to financial markets and global supply chains due to these types of events (including the potential impact of the Coronavirus outbreak, specifically the disease COVID-19) which, over time, could impact the performance of the Group’s investments and the cost and speed of fulfilling customers’ claims.

The frequency and severity of catastrophes in general are inherently unpredictable and subject to long term external influences, such as climate change, and a single catastrophe or multiple catastrophes in any period could have a material adverse effect on the Group’s business, prospects, results of operations and financial position.

Climate change may increase the frequency and/or severity of general insurance claims and make it more difficult to provide insurance cover at prices customers can afford, while the impacts of transition risks associated with climate change, and regulatory measures adopted in response to climate change, could adversely affect the Group’s results of operations and its long-term strategy

The Group recognises that climate change potentially poses material long-term financial risks to the business, due to physical, transition and liability risks, all of which can manifest themselves through a range of existing risks including insurance market, operational, strategic and reputational risks.

Physical risks are the direct risks resulting from weather-related events (see further “Catastrophes, including natural disasters, may cause the Group to incur substantial losses”), including the potential to affect both the frequency and severity of natural catastrophe and other weather-related events. Climate change may result in the Group’s pricing being based on inadequate or inaccurate data or inappropriate assumptions, and may cause the Group to incorrectly estimate future increases in the frequency and severity of claims. As a result, the Group could underprice risks, which could negatively affect its loss ratio for general insurance business, or the Group could overprice risks, which could reduce its business volume and competitiveness. Weather-related events may also result in risks arising from the operational impacts of weather events, for example vacating offices due to flooding.

Climate change presents transitional risks from efforts to mitigate climate change. Governmental and corporate efforts to transition to a low carbon economy in the coming decades could have an adverse impact on global investment assets. There is also an increasing expectation from stakeholders of the Group to understand, manage and provide transparency of its exposure to climate-related risks. A failure to appropriately address these expectations could lead to a loss of customers or investors. This could lead to adverse effects for the Group’s financial condition, business and prospects. The Group also faces risks from the potential re- pricing of carbon-intensive financial assets. Transition may change demands for products and social attitudes to insurance cover for specific sectors. Failure to adapt the Group’s investments in response to transition risks may result in the Group’s financial assets decreasing in value, its liabilities increasing in value and changes in market share. There are opportunities, as well as threats, for the Group by choosing to invest in the right assets, understanding the changing liabilities and providing the right insurance products to meet changing customer needs.

There is some potential exposure to liability arising through the Group’s commercial liability insurance offering. There are two types of coverage that may have an elevated exposure to climate liability risk: insurance against the risks due to pollution on agricultural insurance policies, and professional indemnity covers. The Group has reinsured both of these risks.

The impacts of potential physical, transition and liability risks arising in the wider economy can also have an indirect impact on the investment portfolio through their influence on the value of assets.

In addition, regulators are increasingly focussed on issues relating to sustainable finance and climate change. In April 2019, the Prudential Regulation Authority (“PRA”) published a supervisory statement setting out its expectations on insurers’ and banks’ approaches to

managing physical, transition and liability risks from climate change (SS3/19). The PRA’s 2019 Insurance Stress Test also included an exploratory exercise based on the physical and transition risks arising from climate change, while in July 2019 the PRA announced plans to explore the UK financial system’s resilience to the risk from climate change as part of the 2021 Biennial Exploratory Scenario.

It is likely that the Group will be exposed to increased regulatory expectations relating to climate change, and there may be further changes to the regulatory regime to which the Group is subject to reflect risks relating to climate change. Each of these developments may have a material adverse effect on the business of the Group and its strategy and profitability, and therefore on its financial condition, results of operations and/or future prospects.

Regulatory focus on sustainable finance and the risks that climate change could have on governance, risk management, strategy setting and the stability of the financial system may also accelerate actions of market participants, which may in turn have an impact on the availability and attractiveness of certain securities.

The Group’s business is concentrated in the UK

The Group generates nearly all of its income in the UK and is therefore particularly exposed to the economic, market, fiscal, regulatory, legislative, political and social conditions in the UK. In addition, the Group is exposed to the incidence and severity of catastrophic events in the UK, whether natural or man-made, and weather events (such as the storms Ciara, Dennis and Jorge), even if not rising to the level of catastrophes, can lead to volatility in the Group’s results of operations due to concentration of its home insurance business in the UK.

The Group’s investment portfolio is particularly exposed to changes in UK economic and market conditions, especially in relation to its exposure to sovereign yields and UK financial services- related debt, but is also exposed to changes in the EU and US economic and market conditions. Economic conditions have been difficult and volatile in the UK since 2008, even more so since the UK public’s vote to leave the EU in June 2016 (see further “Uncertainty surrounding the UK’s exit from the EU and any resulting changes in law and regulation could adversely affect the Group”) and pursuant to developments in relation to the global impact of COVID-19 (see further “The COVID-19 pandemic has and will have far reaching impacts, including the responses of governments, regulators, customers and markets to the pandemic”) and it is possible that further deterioration in these conditions or a long-term persistence of these conditions might result in a downturn in new business and sales volumes of the Group’s products, an increase in claims, and a decrease of its investment return, which, in turn, could have a material adverse effect on the Group’s business, prospects, results of operations and financial position. The UK may enter into a prolonged period of reduced growth as a result of COVID-19 and this may be exacerbated should negotiations during the implementation period regarding the UK’s exit from the EU break down without any free trade agreement being agreed. There is also uncertainty as to what trade agreements may or may not be agreed with key non- EU countries to supersede such arrangements previously subject to EU trade agreements. This could reduce insurance sales and the value of the Group’s investment portfolio. Risks surrounding the implementation period negotiations include: the consequences of higher than expected claims inflation; potential increases in UK credit spreads; recruitment and retention of people; potential changes to direct and indirect tax; and the regulatory impact on the Group’s

capital position. The most significant adverse outcome would be expected to arise in the event that an economic recession is triggered due to ongoing uncertainty. The UK also remains exposed to wider political uncertainty, including in relation to calls for a second referendum on Scotland’s independence from the UK, which may impact the Group’s business, prospects, results of operations and financial position.

Uncertainty surrounding the UK’s exit from the EU and any resulting changes in law and regulation could adversely affect the Group

On 29 March 2017, the UK gave formal notice (the “Article 50 Notice”) of its intention to leave the EU. The delivery of the Article 50 Notice triggered a two-year period of negotiation to determine the terms on which the UK will exit the EU and the framework for the UK’s future relationship with the EU, which was further extended to 31 January 2020. The UK left the EU on 31 January 2020. The UK has now entered an implementation period, in which the UK continues to abide by EU rules and legislation, which is expected to last until 31 December 2020 (but could yet be extended, albeit requiring a change to the law), during which time negotiations in respect of a long-term relationship between the EU and UK will take place. There is uncertainty as to what trading agreements may or may not be agreed with key non-EU countries to supersede such arrangements previously subject to EU trade agreements. Accordingly, there remains uncertainty as to the effect of the UK’s exit from the EU on the Group.

The consequences of the UK’s future relationship with the EU are as yet unknown but may result in a period of reduced economic growth, potentially reducing insurance sales and the value of the Group’s investment portfolio, as well as the uncertainties about the process and outcome of the exit to the financial markets and future regulation. In addition, many of the regulations to which the Group is subject are derived from EU Directives and Regulations. It is unclear whether, in the medium term, the UK may seek to impose additional or divergent regulation on businesses such as the Group, and, if so, what the effect of such regulation on the business of the Group would be, for example, whether changes to any domesticated version of the Directive 2009/138/EC of the European Union of 25 November, 2009 on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II) (as amended) (“Solvency II”) regime or other prudential rules on capital adequacy frameworks may result in increased capital requirements or an increased number of regulatory investigations and actions – see “The Group is subject to extensive regulatory supervision, including requirements to maintain certain licences, permissions and/or authorisations, both in the UK and internationally and may be affected by changes in law and regulation, changes in interpretation or emphasis with respect to existing law and regulation and/or industry wide changes in approach to law and regulation and/or potential interventions by the FCA, PRA and other regulators”. Other effects may include: changes to the value of sterling which impact claims and non-claims supplier costs; inflation; impacts on credit spreads which in turn could impact on the Group’s investments and capital; recession; difficulties in the recruitment and retention of people; impacts on the speed of delivery and cost of goods and services required by the business including for fulfilling insurance claims made by customers, for example because of delays at borders caused by increased border regulations and by additional costs caused by increased tariffs and devaluation of sterling; availability of reinsurers authorised to write business in the UK; additional complexities relating to data transfers; the removal of the European Health Insurance Card (“EHIC”) leading to greater reliance on travel insurance; travel disruption; increased use of Green Cards (internationally recognised certificates that act as proof of insurance, including in the EU); potential changes to

direct and indirect tax; and the regulatory impact on our capital position, including the possibility of increased regulatory protectionism with subsidiaries required to hold higher levels of capital and dividends being blocked (see “The Group is required to maintain significant levels of capital and to comply with a number of regulatory requirements relating to its operations, solvency and reporting bases”).

If the outcome of the trade discussions (or their failure) during the implementation period were to lead to significant disruption, then the impact on the Group could be correspondingly disruptive and potentially material. The Group has identified a number of possible implications of a potential disruptive end to existing trading and other arrangements between the UK and the EU (and other key non-EU countries), including:

• an adverse impact on the Group’s investment portfolio and in particular credit spreads related to debt securities and therefore the Group’s solvency capital coverage ratio;

• market risk driven by the sensitivity of the values of the Group’s assets and investments to changes in credit spread and the Group’s exposure to losses as a result of changes in interest rate term structure or volatility, which could adversely impact on the Group’s investments and therefore capital, solvency coverage ratio, and appropriateness of paying dividends. For example, it is estimated that a 100bps increase in credit spreads would have a 9pts negative impact on the Group’s solvency capital ratio as at 31 December 2019 (assuming the impact is only on available-for-sale assets (excluding illiquid assets such as infrastructure debt) and assumes no change in the SCR); and

• delays and extra costs resulting in an adverse impact on the Group’s ability to deal with claims made under insurance policies due to difficulties acquiring a wide range of goods and services which are sourced from within the EU (and other key non-EU countries), including the imposition of tariffs and quotas.

The potential impact of exiting the EU on the Group’s operations and investment assets remains uncertain and adverse outcomes from the UK’s negotiations with the EU could adversely affect the Group’s business, results of operations and/or financial position.

At present, UK insurance undertakings (including the Group’s regulated insurance subsidiaries) are able to carry on business throughout the EEA without requiring separate authorisation under the laws of the EEA states in which they do so. These so-called “passporting” rights derive from Solvency II and other EU Directives and, absent any further agreement between the EU and UK, will cease to apply to UK insurance undertakings, including the Group’s regulated insurance subsidiaries, from the end of the implementation period. While the Group’s EEA insurance business is limited to its relatively limited operations in the Republic of Ireland (which itself forms part of a UK partner’s wider business) the Group has obtained approval in principle from the Central Bank of Ireland for the establishment of a formal third country branch in the Republic of Ireland if necessary to ensure that the Group can continue to service this business after the end of the implementation period. This is intended to mitigate the expected restrictions that the loss of passporting rights will place on the Group’s ability to access the EEA market and service existing EEA customers, in particular in the Republic of Ireland, but there may still be complexity and costs associated with operating in the EEA, the Group may

become subject to differing capital or other requirements imposed under Irish law and/or the anticipated loss of passporting rights could otherwise adversely affect the Group’s business, results of operations and/or financial position.

The COVID-19 pandemic has and will have far reaching impacts, including the responses of governments, regulators, customers and markets to the pandemic

The outbreak of COVID-19 has spread rapidly globally in recent months and disrupted various markets, resulting in uncertainty about the development of the economies affected by the outbreak. The majority of the Group’s operations are concentrated in the UK (see further “The Group’s business is concentrated in the UK”) which has been, and is expected to continue to be, exposed to the COVID-19 outbreak. The Group is affected by the COVID-19 outbreak through its direct and indirect impact on customers, counterparties, employees and other stakeholders of the Group, as a result of, among others, public health measures, such as business closings and restrictions on travel and gatherings. The exact consequences of the COVID-19 outbreak are highly uncertain and it is not possible to predict with any certainty whatsoever the spread or duration of the pandemic or its full effect on global and local economies. There can be no assurances that the adverse impact of the outbreak will not lead to a tightening of liquidity conditions or funding uncertainty.

COVID-19 could, depending on the nature, length and severity of the disease, materially adversely impact the Group, for example by way of increased claims and decreased financial performance of the Group’s travel insurance business and other types of cover such as business interruption and employers’ liability and public liability; regulators, courts and other bodies such as the Financial Ombudsman Service could impose liabilities (through interpretation or regulation or changes to existing rules or interpretations) beyond or outside what is covered (and/or believed to be and/or intended to be covered) under the terms and conditions of certain types of cover (see further “The Group is subject to extensive regulatory supervision, including requirements to maintain certain licences, permissions and/or authorisations, both in the UK and internationally and may be affected by changes in law and regulation, changes in interpretation or emphasis with respect to existing law and regulation and/or industry wide changes in approach to law and regulation and/or potential interventions by the FCA, PRA and other regulators”); it could impact the Group’s investments and capital if investments decrease in value; it could directly and indirectly impact the Group from a people and logistics perspective if staff, employees or contractors are affected either by illness from the disease and/or due to offices being closed and/or due to travel restrictions and/or due to different requirements or guidance imposed or announced by authorities in the different countries in which the Group has offices and operations, including, as well as and in addition to the United Kingdom, India and the Republic of South Africa; it could adversely impact the Group’s counter-parties and their ability to fulfil their obligations to the Group, the Group’s staff/employees/contractors and consultants and their ability to assist the Group and therefore lead to the delay or hindrance of IT and change programmes, and the Group’s supply chain and cause the fulfilment of claims to be delayed and/or be more costly if goods required to fulfil claims (e.g. household or motor goods/parts) cannot be obtained as readily as usual. For example, travel claims continue to develop reflecting international and domestic travel restrictions and isolation measures resulting from COVID-19. The Group is also subject to consequences of operational responses due to these types of events, including the large majority of its people working from home and changes in working practices or operating on a

reduced service. This may, in turn, impact business continuity and the quality of customer service. Customer needs and/or behaviours may also evolve as a result of COVID-19, which could affect the nature of the Group’s customer risk exposures.

The FCA may take other actions that it considers appropriate for the furtherance of its strategic objective of ensuring the proper functioning of UK financial markets, or its operational objectives of securing an appropriate degree of protection for consumers of financial services and protecting and enhancing the integrity of the UK financial system. On 1 May 2020 the FCA announced that, in the light of business interruption caused by COVID-19 and its awareness of legal uncertainty as regards whether commercial policyholders are covered by certain business interruption insurance policies, the FCA would seek an authoritative declaratory judgment from the English courts regarding the meaning and effect of some business interruption insurance policy wordings. On 15 May 2020, the FCA invited policyholders of business interruption insurance who are in dispute with their insurers over the terms of their policies, together with insurance intermediaries who are aware of such disputes, to share their arguments with the FCA so that these can be taken into account and, if relevant, put forward in the FCA’s proceedings. If the FCA’s test case proceeds, any determination by the English courts as to the meaning and effect of the relevant business interruption insurance policy wordings would be binding on any member of the Group that is, or becomes, a party to those proceedings or, if such entities are not a party to those proceedings may otherwise impact the Group’s assessment and interpretation of business interruption cover. In either case, depending on the circumstances, this may materially adversely impact the Group’s business, results of operations, and financial condition of the Group.

The FCA’s action does not prevent policyholders from pursuing claims concerning business interruption cover, including the question of whether and to what extent such cover applies to COVID-19, through the courts, nor does it prevent policyholders who are eligible to do so from referring complaints to the Financial Ombudsman Service. Any adverse determination of such claims may result in additional liabilities (through interpretation or regulation) beyond what is considered to be covered under the terms and conditions of such policies. Individuals and other eligible policyholders may similarly be able to bring claims through the courts, or refer complaints to the Financial Ombudsman Service, in relation to other disputes around insurance coverage arising from COVID-19 with the same consequences and risks.

In addition, the FCA has published for public consultation draft guidance on how it expects insurance firms to ensure products continue to offer value and are appropriate for customers taking into account the impact of COVID-19 and the firm’s ability to deliver the benefits promised, and to help customers who may be finding it difficult to pay premiums as a result of COVID-19. If that guidance is adopted in the form published for consultation, it will set out the FCA’s expectations that insurers reassess the value of their insurance products in the context of the ongoing COVID-19 pandemic and consider appropriate action, which may include changing how benefits are delivered, refunding or reducing premiums, or providing alternative comparable benefits. Separate FCA guidance published in final form on 14 May 2020 sets out the FCA’s expectations in relation to customers experiencing financial difficulties as a result of the COVID- 19 pandemic. That guidance provides examples of the actions that firms may take in relation to such customers, which include re-assessing the risk profile of the customer to determine if lower premiums could be offered, considering whether other products might meet the customer’s needs better, payment holidays, waiving certain fees, relaxing charges and partly refunding

premium payments. Each and any of these developments may, depending on the circumstances, materially adversely impact the Group’s business, operations and the financial condition of the Group.

Actions taken by governments, central banks and/or supervisory authorities in response to the COVID-19 pandemic could potentially impact the Group’s business, including by limiting the flexibility of the Group in relation to solvency, capital, liquidity, asset management and business strategy. For example, in April 2020 the European Insurance and Occupational Pensions Authority (“EIOPA”) publicly urged insurers to suspend distributions to shareholders in the light of COVID-19. The PRA has stated that it requires boards of insurers to pay close attention to the need to protect policyholders and to maintain their firms’ safety and soundness when making decisions on distributions and/or variable remuneration, and has welcomed the decisions of a number of UK insurers and their groups to pause dividend payments in the light of COVID-19. The PRA has also stated that decisions regarding capital or significant risk management issues need to be informed by a range of evolving scenarios, including very severe ones. There is a risk that supervisory authorities could introduce additional guidance, conditions or restrictions in relation to capital requirements, distributions (including the payment of interest on the Notes) and/or liquidity. Supervisory authorities may also interpret their own regulatory policies and expectations so as to require, or strongly encourage, payments to be made on policies, for example in circumstances where payments would not otherwise be required under the contractual terms of the relevant policy, which could result in substantial legal liabilities or significant regulatory action.

If the spread of COVID-19 is prolonged and/or further diseases emerge that give rise to similar macroeconomic effects, macroeconomic conditions may be adversely affected potentially resulting in an economic downturn in the countries in which the Group operates and the global economy more widely, which could materially adversely impact the business, results of operations, and financial condition of the Group.

Factors outside the Group’s control, including adverse economic conditions or political developments may adversely affect the Group’s business, results and financial condition, and these adverse economic conditions may continue in certain markets

As a general insurer, the Group’s return on investments and results of operations are materially affected by volatility in the worldwide financial markets and changes in general macroeconomic conditions. Increased volatility in the financial markets in recent years and prolonged low yields in the global fixed income markets have been influenced by a wide variety of factors, including:

• disruption to financial markets due to unpredictable events and catastrophes, including COVID-19 (see further “The COVID-19 pandemic has and will have far reaching impacts, including the responses of governments, regulators, customers and markets to the pandemic”);

• levels of growth in the global economy;

• high levels of sovereign debt;

• inflationary or deflationary threats;

• extensive use of macroeconomic and monetary policy tools by governments, central banks and other institutions, and uncertainty about future interest rate movements in the UK and other developed markets;

• the solvency of financial institutions and the evolving state of regulatory capital requirements for insurance companies; and

• the failure of governments to agree upon, and implement, necessary fiscal, monetary and regulatory reforms.

Ongoing uncertainty over future fiscal, trade and monetary policy, particularly within the EU and the US, and any further instability affecting one or more EU Member States, the United Kingdom, or financial institutions, could continue to further disrupt global markets, including equity and fixed income markets. This may have a material adverse impact on the Group’s investment portfolio and investment income due to continuing low interest rates and general market volatility. See “The Group’s results depend on the performance of its investment portfolio, and changes in the economic and financial market conditions may have a significant adverse effect on the value of, and income generated by, the Group’s investment portfolio” for further information on the risks related to the Group’s investment portfolio and investment income.

Macroeconomic conditions can impact the Group’s underwriting results as well. In a sustained economic phase of low growth and high public debt, characterised by higher unemployment, lower household income, lower corporate earnings, lower business investment and lower consumer spending, the demand for financial and insurance products could be adversely affected, with customer behaviour and confidence exacerbating the unfavourable impact on demand. In addition, under these conditions, the Group may experience an elevated incidence of claims.

A continuing period of low interest rates or interest rate volatility could adversely affect claims settlements

The current economic environment could give rise to a continuing period of low interest rates or increased interest rate volatility, which could impact claims settlements and, as a result, the financial performance and overall capital position of the Group. Since the Ogden discount rate is used to calculate the present value of future costs or lost earnings in the cases of bodily injury or death, periods of sustained low interest rates or increased interest rate volatility could result in pressure to reduce the Ogden discount rate to compensate for lower or uncertain expected returns, thereby increasing the present value of those future costs and the value of lump sum payments owed to settle claims. Fear of low or volatile returns on claims settlements caused by low or volatile interest rates could also encourage more claimants to pursue PPO awards for bodily injury claims instead of lump sum awards. In 2017, the UK government announced a reduction in the Ogden discount rate, resulting in a corresponding increase in the value of future claims settlements. The discount rate was originally reduced from 2.5 per cent. to minus 0.75 per cent. On 15 July 2019, the Lord Chancellor announced a further change to the discount rate raising it to minus 0.25 per cent. The new discount rate came into force on 5 August 2019. Although the Association of British Insurers has challenged the original decision to reduce the discount rate and the Lord Chancellor’s use of the prudence principle, any change to the discount

rate will impact future claims associated with bodily injury claims and as a consequence on claims reserves with a lower discount rating leading to an increase in claims costs.

The UK Government introduced measures in the Civil Liability Act 2018 to reform the law on how the discount rate is to be set. Under the Civil Liability Act 2018, the new personal injury discount rate will be reviewed within a five-year period, with future reviews advised by an expert panel and required within five years of the last. Any further decrease or increase in the Ogden discount rate or an increase in the propensity of PPO claims could increase the likelihood of a mismatch between the assumptions underlying the historical and future pricing of the Group’s products and the actual claims and expenses experience. Further, if the current economic environment worsens, the Group would not only experience retrospective changes to its reserves, it may not be able to recover such future higher claims costs through higher prices, which could ultimately have a negative impact on the Group’s current and future financial performance and, hence, potential capital requirements and/or held capital. Any such changes could adversely affect the Group’s business, prospects, results of operations and financial position.

On 27 July 2017, the Chief Executive of the Financial Conduct Authority (“FCA”) questioned the sustainability of LIBOR benchmarks and announced that the FCA will no longer persuade, or use its powers to compel, panel banks to submit rates for the calculation of LIBOR after 2021. Thereafter, the continuation of LIBOR cannot be guaranteed, and the FCA plans to transition to one or more alternative reference rates. Whilst the transition away from LIBOR is progressing, and it is becoming clearer which alternative reference rates will substitute LIBOR in existing instruments, uncertainty still remains. The Group has prepared a LIBOR transition plan which was reviewed by the Group’s Investment Committee in November 2019.

Reinsurance may not be available, affordable or adequate to protect the Group against losses, and reinsurers may dispute or default on their reinsurance obligations

As part of its overall risk mitigation and capital management strategy, the Group purchases reinsurance to cover certain risks to which it is exposed, such as accumulated claims from major weather-related catastrophes through its home and commercial business, single or accumulated large claims through its motor or travel business and single large claims in its commercial property and liability businesses, which lie outside the Group’s risk appetite. The Group’s purchase of reinsurance reflects the insurance industry practice of using reinsurance to seek to manage risk exposure. Market conditions beyond the Group’s control determine the availability and cost of appropriate reinsurance and the receipt of future reinsurance recoveries as well as the financial strength of reinsurers. Like insurance, reinsurance has been and may continue to be cyclical and exposed to substantial market losses, which may adversely affect reinsurance pricing and availability, or its terms and conditions. Similarly, risk appetite among reinsurers may change, resulting in changes in price or willingness to reinsure certain risks in the future. The Group has material long term exposure to reinsurers in relation to its PPO claims provisions, where recoveries due from reinsurers in relation to such claims will occur significantly into the future, which increases the credit risk associated with such recoveries. Future changes in risk appetite and pricing by reinsurers may be particularly acute within motor reinsurance, where the increased uncertainty around the propensity for awarding of PPOs to settle bodily injury claims and the uncertainty around any further changes in the Ogden discount rate has already led to considerable uncertainty around the price and availability of motor reinsurance and the scope and coverage of specific risks within reinsurance treaties may

change over time. Any of these occurrences and/or significant changes in reinsurance pricing may result in the Group being forced to obtain reinsurance on less favourable terms or not being able to or choosing not to obtain reinsurance thereby exposing the Group to increased retained risk.

The Group currently purchases reinsurance under various agreements that cover defined blocks of business generally on a yearly renewable, per risk excess of loss or catastrophe excess of loss basis. These reinsurance agreements are designed to transfer risk and moderate the effect of losses to the Group. The amount of any particular risk that the Group decides to retain depends on an evaluation of the specific risk, and is therefore subject to uncertainty through the need to estimate likely future impact and, in certain circumstances, is subject to maximum limits based on the characteristics of coverage. Under the terms of these reinsurance agreements and in return for the premium paid, the reinsurer agrees to reimburse the Group for a portion of the claim paid to a policyholder and/or third-party claimant, or a portion of claims paid to a number of policyholders in the case of a catastrophic event. However, the insurance subsidiaries within the Group remain liable to their policyholders if any reinsurer fails to meet its reinsurance obligations, whether due to the reinsurer experiencing financial difficulties, a dispute over policy coverage between the Group and the reinsurer, or otherwise.

The Group’s largest reinsurance exposures are currently with R&V Re, General Re, and Munich Re which together have historically underwritten a substantial portion of the Group’s overall reinsurance programmes. While the Group has not previously been materially impacted by a default by a reinsurer and only purchases reinsurance from reinsurers with at least an “A-” (or equivalent) rating for short tail and an “A+” (or equivalent) rating for longer tail covers, these criteria are applied at the time a contract is placed and the Group may therefore have exposure to reinsurers below the rating requirement, if the relevant reinsurer is downgraded during the life of the contract. The time period of the life of this contract may be significant owing to, among other reasons, the length of time to settle injury claims including PPOs. A default by a reinsurer to which the Group has material exposure or disputes as to reinsurance policy coverage could expose the Group to significant losses and therefore have a material adverse effect on its business, prospects, results of operations and financial position. Further, there is uncertainty as to the conditions subject to which EU reinsurers will be permitted to continue to write business with UK insurers on a cross-border basis, or to write business with UK insurers from UK branches, following the UK’s exit from the EU.

Third party reinsurers’ unwillingness or inability to meet their obligations under reinsurance agreements, or potential termination of any of the reinsurance treaties or failure of these treaties to continue on terms similar to those presently in force, could have a material adverse effect on the Group’s business, results of operations, financial condition and prospects.

The Group is exposed to counterparty risk, particularly in relation to other financial institutions including reinsurers

The Group is exposed to counterparty risk in relation to third parties in a number of ways, including but not limited to, holdings of fixed income instruments in its investment portfolios, its cash holdings, through reinsurance counterparties, policyholders, brokers, distribution partners and other supplier contracts, and credit risk. Credit risk is the risk of loss resulting from defaults

in obligations due and/or changes in credit standing of either issuers of securities, counterparties or any debtors to which the Group is exposed.

The Group’s business could suffer significant losses due to defaults on fixed income investments or defaults on interest payments, or the Group’s reinsurers or other counterparties could fail to honour their obligations. Any losses from counterparties’ failure to honour obligations and payments could have a material adverse effect on the Group’s business, prospects, results of operations and financial position.

In the global financial system, financial institutions are interdependent, including with respect to reinsurers. The interdependence of financial institutions means that the failure of a sufficiently large and influential financial institution or other major counterparty (for example, a sovereign issuer), for whatever reason, could materially disrupt markets and could lead to a chain of defaults by counterparties. This risk, known as “systemic risk”, could adversely impact the Group in many ways, some of which may be unpredictable, and may also adversely impact future sales as a result of reduced confidence in the insurance industry, difficulties encountered in clearing premiums and payments through the banking system or reduced ability or willingness to buy cover on the part of customers due to, for example, a customer not being able to obtain a mortgage, and adversely affect the Group’s ability to recover from its reinsurance policies. The Group believes that, despite increased focus by regulators with respect to systemic risk, this risk remains part of the financial system and dislocations caused by the interdependence of financial market participants could adversely affect its business, prospects, results of operations and financial position.

The insurance business has historically been cyclical, experiencing periods of excess underwriting capacity and unfavourable premium rates and policy terms, and such cycles may occur again

Insurers have historically experienced significant fluctuations in operating results due to competition, the frequency or severity of catastrophic events, the levels of underwriting capacity, general social, legal or economic conditions and other factors. The supply of insurance capacity is related to prevailing prices, the level of insured losses and the level of industry profitability and capital surplus which, in turn, may fluctuate in response to changes in inflation rates, the rates of return on investments being earned by the insurance industry, as well as other social, economic, legal and political changes. As a result, the insurance business has historically been cyclical, characterised by periods of intense competition in relation to price and policy terms and conditions often due to excessive underwriting capacity, as well as periods when shortages of capacity have seen increased premium rates and policy terms and conditions that are more advantageous to underwriters. Increases in the supply of insurance (whether through an increase in the number of competitors, an increase in the capitalisation available to insurers, or otherwise) and, similarly, reduction in consumer demand for insurance, could have adverse consequences for the Group, including fewer contracts written, lower premium rates, increased expenses for customer acquisition and retention, and less favourable policy terms and conditions for the Group, any of which could adversely affect its business, prospects, results of operations and financial position.

The Group is required to maintain significant levels of capital and to comply with a number of regulatory requirements relating to its operations, solvency and reporting bases

The Issuer and its regulated insurance subsidiaries are required by the Solvency II regime and rules made by the PRA under that regime to hold regulatory risk-based capital. These regulatory requirements apply to individual insurance subsidiaries on an individual basis and to the Group as a whole on a consolidated basis. In addition, the Issuer and its regulated insurance subsidiaries aim to hold a significant margin of solvency in excess of the value of their regulatory risk-based capital. The amount of regulatory and economic capital required in the past has both increased and decreased over time, and may from time to time in the future also increase and decrease for a number of reasons, including the level of risk facing the insurance and other subsidiaries in the Group, and economic and general insurance market cycles.

Solvency II imposes risk-based capital requirements on European-domiciled insurance companies. Insurers are required to calculate solvency capital requirements (“SCR”) by using a detailed standard formula approach or by developing their own internal model, which must be approved by the relevant regulator(s). From July 2016 the Group received approval from the PRA to use a partial internal model (“PIM”) to calculate its solvency capital requirements. The PRA has also approved the Group’s application of a volatility adjustment (the “VA”) to the relevant risk-free interest rate term structure when calculating its best estimate liabilities. The Group continues to monitor its capital position and take the steps required to maintain a strong capital position with adequate capital buffers. Failure to achieve and maintain adequate capital buffers could have an adverse impact on growth prospects for the Group. There is a risk that in the future changes may be required to be made to the PIM, VA or other approvals granted to the Group, which could have a material impact on the Group’s Solvency II capital position. Where changes are required to the PIM, VA or other approvals that apply to the Group (for example, as a result of a change to the risk profile of the Group) and those changes are subject to regulatory approval, there is a risk that the approval is delayed or not given. In such circumstances, changes in the Group’s risk profile would not be appropriately reflected in the calculation of its technical provisions and capital requirements, which could have a material impact on the Group’s Solvency II capital position. There is also a risk that the regulator may withdraw or impose further conditions on the approvals granted to the Group, change its approach to the calculation of capital requirements and/or treatment of capital resources, including potentially as a result of the UK’s decision to leave the EU, which could adversely impact the Group’s capital position.

The European Commission began a review in late 2016 of some aspects of the Solvency II legislative package, which is expected to continue until 2021. Regulatory policy may continue to evolve under the Solvency II regime, and for as long as the Group remains subject to Solvency II, or any UK domestic regime implementing or replacing Solvency II, there is a risk that further approvals would be required for the Group to conduct its business or calculate its capital requirements and/or resources as it does at present.

The PRA continues to update and refine its policy on the implementation of Solvency II. Recent updates include policy statement 10/20 (“PS10/20”) which was published in April 2020 in response to consultation paper 16/19 “Solvency II: Group availability of subordinated liabilities and preference shares” (“CP16/19”), which sets out the PRA’s approach to the determination of

the availability of subordinated liabilities and preference shares as group own funds, and its expectations of firms in presenting relevant analysis to the PRA. The annex to PS10/20 sets out the amendments to supervisory statement 9/15 “Solvency II: Group supervision” (“SS9/15”) to reflect the approach.

The Group’s capital position can be adversely impacted by a number of factors, in particular factors that erode the Group’s capital resources and could impact the quantum of risk to which the Group is exposed. Such factors include lower than expected earnings and accumulated market impacts (such as interest rates, foreign exchange, changes in pension schemes and related liabilities (see also “Pension schemes and related liabilities may impact the Group”) and asset valuation). In addition, any event that erodes current profitability or is expected to reduce future profitability or make profitability more volatile could impact the Group’s capital position, which in turn could have a compounding or pro-cyclical negative effect on the Group’s results of operations. The PRA may also strongly encourage capital add-ons in certain circumstances, which would increase the capital requirements to which the Group and/or its regulated insurance subsidiaries are subject.

The Group’s Board is responsible for managing the capital position of the Group. In the event that regulatory capital requirements are, or may be, breached, the PRA, in the interests of policyholder security, is likely to require the Issuer or the Group’s regulated subsidiaries to take remedial action, which could possibly include measures to restore the individual subsidiary’s capital and solvency positions to acceptable levels, for the purposes of ensuring that the financial resources necessary to meet obligations to policyholders are maintained. Such measures would be likely to impact the Group as a whole and the PRA additionally has a power of direction over the Company, as an unregulated holding company, should the need arise.

For example, the Group might be required to cease to write or reduce writing new business, increase prices or restrictions may be imposed on the fungibility or movement of capital between the Group entities. The Group might also have to raise additional capital in the form of debt or equity, which, if from external sources, might be possible only on unfavourable terms or not at all, due to factors outside the Group’s control such as market conditions. The Group may also need to purchase more risk hedging instruments including increasing its reinsurance coverage or divesting additional parts of its business and investment portfolio, any of which may be difficult or costly or result in a significant loss, particularly in cases where such measures need to be undertaken in a short time frame. The Group and its regulated subsidiaries might also have to reduce the amount of dividends they pay to their respective shareholders, or possibly cease paying such dividends to meet their regulatory capital requirements. In addition, the Board could decide to hold higher surplus above regulatory capital or the supervisory authorities could decide to increase the regulatory capital requirements of the Issuer or any of the Group’s regulated subsidiaries. These decisions might be taken for a variety of reasons, including: any future economic downturn; the risk profile of peer companies of the Group and the industry as a whole; the specific current or potential future risk profile of the Group’s individual businesses; and the strategic initiatives that have recently been taken or identified by the Group (or which are taken or identified in the future).

There is a risk that the developments referred to above, or other changes to the regulatory framework within which the Group operates, could have a material impact on the Group’s Solvency II capital position (or that of its regulated insurance subsidiaries). This could have a

material adverse effect on the business, results of operations and financial condition of the Group, as well as its ability to remain in compliance with its regulatory obligations.

If the regulatory capital requirements are not met (because the Group could not take appropriate measures or because the measures were not sufficiently effective), the Group’s regulated insurance subsidiaries could lose key licences and hence be forced to cease some or all of its insurance and/or business operations. In such circumstances, the ability of the Issuer to pay dividends would be impacted, and the Group may be limited in its ability to draw upon the resources of, or satisfy intra-group arrangements with respect to its regulated subsidiaries. Any of these measures could have a material adverse effect on the Group’s business, prospects, results of operations and financial position. In an extreme scenario (which the Board considers highly unlikely), where external equity and debt capital cannot be raised, even on unfavourable terms, and where all other remedial actions are insufficient to meet regulatory requirements, the Group could no longer be able to trade and could be required to put all of its business into run off.

The Group is subject to extensive regulatory supervision, including requirements to maintain certain licences, permissions and/or authorisations, both in the UK and internationally and may be affected by changes in law and regulation, changes in interpretation or emphasis with respect to existing law and regulation and/or industry wide changes in approach to law and regulation and/or potential interventions by the FCA, PRA and other regulators

The Group’s insurance subsidiaries in the UK are subject to detailed and comprehensive government regulation and legislation (see generally “Regulatory Overview”). Regulatory authorities have broad powers over many aspects of the insurance business, which may include marketing and selling practices, advertising, licensing agents, product development and structures, premium rates, policy forms, claims and complaint handling practices, data and records management, systems and controls, capital requirements and adequacy, and permitted investments. For example, the FCA and the PRA have the power to make enquiries of the companies they regulate regarding their compliance with regulations governing the operation of businesses, and the Group faces the risk that the PRA or the FCA might find that it has failed to comply with applicable regulations or has not undertaken corrective action where required. The PRA and FCA are primarily concerned with (i) financial stability and the protection of policyholders and third-party claimants, and (ii) consumer issues and the overall fairness of insurance products, respectively, rather than the interests of the Group’s shareholders or creditors. Insurance and non-insurance laws, regulations and policies currently affecting the Group, and the approach and attitude of insurance regulators may change at any time in ways which have an adverse effect on the Group’s business.

In order to conduct business in the UK, the Group must obtain and maintain certain licences, permissions and authorisations (such as permission from the PRA to conduct insurance activities in the UK under the Financial Services and Markets Act (“FSMA”)) and must comply with rules made by the PRA and the FCA under FSMA. The FCA and PRA each have significant statutory powers in respect of the supervision and regulation of the regulated entities in the Group and may use these statutory powers to make regulatory interventions, including through investigations, requests for data and analysis, interviews or reviews and requiring the production of skilled persons reports under section 166 of the FSMA. Failure to comply with the rules,

guidance, or regulatory policy made by the PRA or FCA, applicable financial services and insurance laws (including FSMA) or the terms of applicable regulatory permissions, approvals and waivers may lead to legal or regulatory disciplinary action, the imposition of fines or the revocation of licences, permissions or authorisations, which could have a material adverse impact on the Group’s continued conduct of business.

As the UK regulator with responsibility for the supervision of UK insurers’ conduct of business, issues relating to the conduct of business are the key area of focus for the FCA’s supervision of insurers. In recent years, the FCA has reviewed insurers’ pricing practices, including under the Market Study on General insurance pricing practices, the final outcomes of which are due for publication in the second half of 2020. The FCA has also been focused on firms’ culture and governance, operational resilience, management of regulatory change, the general insurance distribution chain, vulnerable customers, affordability as it relates to consumer credit, complaint handling and the appropriate establishment of customers’ demands and needs as per the requirements under Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (recast) (as amended) (the “Insurance Distribution Directive”). Climate change is also receiving increased scrutiny from regulators and investors. The PRA has continued to focus generally on the pillars of its financial risk framework, namely reserving, solvency, pricing, reinsurance and investments as well as operational resilience, cyber underwriting risk and the financial risks arising from climate change.

In addition to consumer protection measures imposed on the Group by financial services regulators, the Group is also subject to competition and consumer protection laws enforced by the FCA, the Competition and Markets Authority (“CMA”) and the European Commission, such as laws relating to price fixing, collusion and other anticompetitive behaviour in the UK and elsewhere. For example, pursuant to the CMA’s Private Motor Insurance (PMI) Order, all private motor insurers are required to submit annual compliance reports to the CMA. The CMA’s regime is further supported by formal cooperation between the CMA and the FCA, along with the FCA’s furtherance of its operational objective to promote effective competition in the interests of consumers, and its duty to promote effective competition when addressing its other operational objectives. This is further supported by the FCA’s concurrent powers with the CMA to enforce competition laws in the UK insofar as they relate to the provision of financial services. Failure to comply with the applicable regulations, applicable laws (related to insurance, competition or anything else applicable to the Group), and public approvals and policies, and amendments to regulatory approach, may lead to legal or regulatory disciplinary action, the imposition of fines or the revocation of licences, permissions or authorisations, which could have a material adverse impact on the Group’s continued conduct of business.

In addition, the Group, like many other financial institutions, has come under greater regulatory scrutiny in recent years and expects similar conditions to continue for the foreseeable future, in particular relating to compliance with new and existing corporate governance, employee compensation, conduct of business, product governance, anti-money laundering, anti-terrorism and sanctions laws and regulations, as well as the provisions of applicable sanctions requirements (see “Regulatory Overview”). Regulatory investigations and/or enforcement actions against the Group in relation to anti-money laundering, anti-terrorism and sanctions, laws or regulations could result in fines, other sanctions, including payments with respect to liabilities relating to historical business, and immediate reputational and regulatory risks, and

could materially adversely impact its business, prospects, results of operations and financial position.

Changes in either the regulatory requirements that apply to the Group, such as prudential rules on capital adequacy frameworks or conduct rules and their application, or the approach and/or architecture of national and/or EU financial services regulators (which, in practice, may continue to impact the UK despite the UK’s exit from the EU), in particular a principles-based approach to compliance, may expose the Group to an increased risk of regulatory investigations or other regulatory actions. Further, the insurance and wider financial services industries face a number of regulatory initiatives aimed at addressing lessons learned from the financial crisis and other industry-level issues such as payment protection insurance mis-selling. Any of these measures may result in increased regulatory action (including investigations and/or enforcement action against the Group), require the Group to hold additional regulatory capital (or regulatory capital of a higher quality) or otherwise affect the business, operations, results or financial condition of the Group.

The existing regulation of insurance business in the EU is largely based on the requirements of relevant EU directives, principally Solvency II and the Insurance Distribution Directive. Given the UK’s exit from the EU, however, it is anticipated that there will be changes in the UK regulatory framework. The FCA and PRA are also likely to have greater flexibility to create additional rules which could impact the Group positively or negatively. Presently, a significant portion of the relevant regulatory regime applicable to the Group is derived from EU sources and is subject to oversight by EU bodies, such as EIOPA and the European Commission. The UK’s exit from the EU may present an opportunity for the UK government and regulators to reduce the cost and impact of regulation on the UK insurance industry, although the intended direction of travel is not yet clear and will depend in part on the outcome of ongoing trade negotiations between the UK and the EU. It is not possible to predict the manner and extent to which the UK’s exit from the EU will affect the Group and it may require the Group to take mitigating action, which may have a material effect on the Group’s business.

In addition, it is as yet unclear how the UK’s exit from the EU will affect the operation and approach of UK regulatory bodies (see “Changes in laws, regulations, government policies and their enforcement and interpretations could adversely affect the Group” and “Uncertainty surrounding the UK’s exit from the EU and any resulting changes in law and regulation could adversely affect the Group”). It is likely that any changes would impact how the Group would interact with its financial services regulators going forward. While the Group would seek to ensure that it is prepared for any changes in this regard, there are additional risks associated with the uncertainty, including in relation to the application of existing powers, any new powers and whether any change to the operation or approach of the UK regulators would result in more intrusive and intensive regulation or supervision and/or changes in business practices, including remuneration policies adding additional burdens on the Group’s resources and further compliance risk. Any change in regulatory focus in the UK or EU on product regulation may also have an impact on the Group’s ability to sell certain products in the future, which may adversely affect the Group and its distribution arrangements. Although the Group’s operations outside the UK are very limited (see “Uncertainty surrounding the UK’s exit from the EU and any resulting changes in law and regulation could adversely affect the Group”), the Group could be impacted by these regulatory changes as well as other global initiatives, European initiatives and national initiatives in the markets within which it operates.

The International Association of Insurance Supervisors (“IAIS”) adopted The Common Framework for the Supervision of Internationally Active Insurance Groups (“ComFrame”) in November 2019, establishing supervisory standards and guidance focussing on the effective group-wide supervision of internationally active insurance groups. As part of ComFrame, the IAIS is developing an insurance capital standard (“ICS”) which aims to provide a globally comparable risk- based measure of capital adequacy of internationally active insurance groups. There is a risk that one or more regulators of entities in the Group may, whether as a result of the ICS or otherwise, change their approach to the calculation of capital requirements and/or treatment of capital resources which could adversely impact the Group’s capital position. There remains considerable uncertainty as to how this standard will interact with Solvency II and, in view of the UK’s exit from the EU, any future capital regime for UK insurers.

Regulatory action, wherever arising, against a member of the Group or a determination that the Group or any of its members have failed to comply with applicable law or regulation, including, without limitation, any of the examples discussed herein, could result in fines and losses as well as adverse publicity for, or negative perceptions regarding, the Group, which in turn could have an adverse effect on the Group’s business, prospects, results of operations and financial position, or otherwise divert management’s attention from the day-to-day management of the business, potentially impacting its ongoing or future performance.

The Group may in future become subject to regimes governing the recovery, resolution or restructuring of insurance companies and, as the scope and implications of these regimes are still evolving, it is unclear what the consequences could be for the Group

As part of the global regulatory response to the risk that systemically important financial institutions could fail, banks, and more recently insurance companies, have been the focus of new recovery and resolution planning requirements developed by regulators and policy makers nationally and internationally.

Recovery and resolution reforms for banks in the EEA now provide resolution authorities with the power to write down indebtedness or to convert that indebtedness to capital (known as “bail-in”), as well as other resolution powers. While organisations such as the Financial Stability Board have previously considered introducing recovery and resolution regimes for insurers (in particular those that are systemically important), there is still a lack of consensus in the area, and, it remains unclear whether, and in what form, the recovery and resolution regimes currently applicable to banks could be extended to insurance companies. It therefore remains unclear what recovery and resolution regime could apply to the Group in the future and, consequently, what the implications could be for the Group and its creditors.

Changes in laws, regulations, government policies and their enforcement and interpretations could adversely affect the Group

The Group will not always be able to predict accurately the impact on the Group’s business, prospects, results of operations and financial position of future legislation or regulation or changes in the enforcement, interpretation or operation of existing legislation or regulation. Changes in government policy, legislation or regulatory interpretation or enforcement (at a national and/or EU level) applying to companies in the financial services and insurance industries in any of the markets in which the Group operates may be applied retrospectively,

and may adversely affect the Group’s underlying profitability, its product range, distribution channels, capital requirements and, consequently, results and financing requirements. Examples of recent or future legislation or regulation include the Ogden discount reduction rate, implementation of, and ongoing changes to, Solvency II, the European General Data Protection Regulation (“GDPR”), the Insurance Distribution Directive, Vehicle Technology and Aviation Bill 2016-17, an insurance premium tax increase, whiplash reform and new FCA renewal regulations, in addition to future legislation or regulatory changes arising from the UK’s exit from the EU.

The Group’s technical provisions are exposed to retrospective and prospective legal changes through court awards and other changes, such as the impact of changes to the Ogden discount rate, allowance of a new head of claim or type of claim, and other inflationary trends. In addition, changes in the enforcement of laws, regulations or government policies as a result of political developments, worsening economic conditions or, in certain cases, introduction of government austerity measures, or otherwise, could result in an increase in the frequency or quantum of fines or other adverse government intervention, and, in turn, reputational and other adverse impacts to the Group’s business. The Group may also face increased compliance costs due to such changes to financial services legislation or regulation, or due to the need to set up additional compliance controls. Any such changes could have a material adverse effect on the Group’s business, prospects, results of operations and financial position.

Litigation and regulatory investigations and sanctions may have a material adverse effect on the Group

The Group faces risk of litigation and regulatory investigations and actions in the conduct of its business, including by the FCA, the PRA, the CMA, the Information Commissioner’s Office, the Solicitors Regulation Authority and the Financial Ombudsman Service as well as commercial disputes with counterparties. In recent years, the financial services industry and financial products have increasingly been the subject of litigation, investigation and regulatory activity by various governmental, supervisory and enforcement authorities. Such litigation and investigations have involved common industry practices such as the disclosure of contingent commissions, referral fees, and the sale and ongoing handling of payment protection insurance policies, and may also arise out of regulatory self-reporting obligations with respect to issues such as operational errors or loss of customer data, any of which could result in significant fines and/or other costly sanctions, or cause damage to the brands or reputations.

The Group cannot predict the effect that the current trend towards increased litigation and investigation will have on its business or the broader insurance or financial services industries. Current and future investigations by supervisory authorities could result in sanctions, require the Group to take costly measures or result in changes in laws and regulations in a manner that is adverse to the Group and its business. Changes to the pricing or structure of any products resulting from legal or regulatory action, a substantial legal liability (including results of litigation requiring payments or settlement to policyholders or any class of policyholders) or a significant regulatory action could have a material adverse effect on the Group’s business, prospects, results of operations and financial position. In addition, the Group’s reputation could suffer, it could be fined or prohibited from engaging in its business activities or be sued by customers or other third parties if it does not comply with applicable laws, regulations or contractual

obligations. It is inherently difficult to predict the outcome of many of the pending or potential future claims, regulatory proceedings and other adversarial proceedings involving the Group.

The Group is also exposed to the risk of regulatory review of types of business sold under past market practices, changes to the tax regime affecting products, and regulatory reviews of products sold and industry practices, including, in the latter case, lines of business it has closed. Each of these risks may affect the Group’s business, prospects, results of operations and financial position.

The Group is exposed to particular risks specific to motor insurance

Motor insurance is the Group’s largest product line by volume of in-force policies and gross written premiums (“GWPs”), and represents a core and material component of the Group’s overall business going forward. While many of the risks inherent to the sale and administration of motor insurance are similar to all general insurance business lines, and are therefore discussed in greater detail elsewhere in this section, there remain several risks that are more relevant or even specific to this product, including:

• Increased propensity of severe bodily injury claims to settle using PPOs, which exposes the Group to further earnings-related inflation as well as additional mortality, investment income and reinsurance credit risks (see “The Group is exposed to counterparty risk, particularly in relation to other financial institutions including reinsurers”).

• Increased bodily injury or third-party property damage claims, which could be caused by, among others, an increased propensity of third parties to claim, increased size or severity of claims, and increased fraud associated with staged accidents, falsified claims or other fraudulent reporting.

• Enhancements in medical knowledge and techniques as well as the increasing use of rehabilitation, resulting in increased life expectancy for (severely) injured claimants, with expensive medical and rehabilitation regimes required for longer periods.

• The potential for one or more global reinsurers in the future to fail, change their risk appetite and/or alter the nature or terms of their reinsurance cover, such as removing unlimited bodily injury cover.

• Uncertainty of the outcome or impact of potential regulatory or legislative changes as a result of either current investigations and initiatives or potential future initiatives, such as reforms to the whiplash injury compensation system introduced under the Civil Liability Act 2018 which were due to come into effect in April 2020 but which have now been delayed until April 2021 (see “The Group is subject to extensive regulatory supervision, including requirements to maintain certain licences, permissions and/or authorisations, both in the UK and internationally”).

• The exposure of motor insurance reserves to retrospective and prospective legal changes through court awards, other changes and other inflationary trends, such as

the impact of changes to the Ogden discount rate and the 2016 European Court of Justice decision regarding the case of Damijan Vnuk, who was injured by a tractor while on private land, which may require owners of vehicles used on private land to take out third-party motor insurance. This is not currently compulsory in the UK. The UK government is obliged under UK law to give effect to the judgment, but, although acknowledging this obligation and stating it will carry it out, it has undertaken a consultation including discussion of the possibility of the judgment being overturned or the effect of the UK’s exit from the EU. Notwithstanding the Road Traffic Act 1998 has not yet been extended to effect the judgment, the Supreme Court recently confirmed (by refusing leave to appeal in the case of Lewis v MIB (Tindale)) that the Motor Insurance Directive is directly effective against the Motor Insurance Bureau (“MIB”) thereby extending the liabilities of the MIB by compelling it to meet claims for uninsured motor accidents which occur on private land. While this could lead to increased MIB levies on insurers, the full implications are not yet known.

• Changes in the frequency and severity of motor accidents due to potential changes in the economy, changes in fuel prices and technological changes, such as crash- prevention technologies, connected vehicles, telematics and driverless cars, to vehicles and roadways and other reasons.

• Consequent changes to the motor insurance products required as the sharing economy develops and the risk shifts from driver to vehicle.

The occurrence or persistence of any of these factors could have a material adverse effect on the Group’s business, prospects, results of operations and financial position.

The Group is exposed to foreign exchange rate risk

In addition to foreign exchange rate risk impacting the investment portfolio, the Group’s travel, motor and certain other insurance policies may be exposed to foreign exchange risk on claims or losses incurred outside of the UK. The Group has also entered into material outsourcing agreements and has supplier agreements pursuant to which the costs of underlying services are incurred in currencies other than sterling. The Group’s costs may therefore be impacted by foreign exchange gains or losses arising from settling claims or paying for services not derived in sterling.

The Group is exposed to the risk of damage to its brands, the brands of its distribution partners and its reputation

The Group’s success and results are dependent on the strength and reputation of the Group and its brands. The Group and its brands are vulnerable to adverse market perception as it operates in an industry where integrity, customer trust and confidence are paramount. The Group relies on its principal brands, Direct Line and Churchill, but is also dependent on its other brands, such as Privilege, Green Flag and NIG, and brands associated with its distribution partner, such as Royal Bank of Scotland Group plc and its subsidiaries (“RBS”), National Westminster Bank plc (“NatWest”), The Prudential Assurance Company Limited (“Prudential”) and Volkswagen Insurance Service (Great Britain) Limited. The Group is exposed to the risk that litigation, employee misconduct, operational failures, the outcome of regulatory or other investigations or

actions, press and media (including social media) speculation and negative publicity, amongst others, whether or not founded, could damage its brands or reputation. Any of the Group’s brands or the Group’s reputation could also be harmed if products or services sold by the Group (or any of its distribution partners or intermediaries on behalf of the Group) do not perform as expected (whether or not the expectations are founded) or customers’ expectations for the product change.

Negative publicity could result, for instance, from an allegation or determination that the Group has failed to comply with regulatory or legislative requirements, from failure in business continuity or performance of the Group’s information technology systems, loss of customer data or confidential information, fraudulent activities, unsatisfactory service and support levels or insufficient transparency or disclosure of information. Further, damage to the reputation of any of the Group’s non-insurance products or companies, could negatively affect the reputation of the Group’s insurance brands. Similarly, damage to any of the Group’s individual brands could limit the Group’s ability to cross-sell those products in line with its strategy. Negative publicity adversely affecting the Group’s brands or its reputation could also result from misconduct or malpractice by outsourcing partners, both in local territories or off-shore, intermediaries, brokers, business promoters or other third parties linked to the Group (such as strategic partners, distributors and suppliers). Further, to the extent that negative publicity or reputational damage to the Group impacts one of the Group’s partners, either in terms of reputational damage or sales of its products, the Group may be liable for contractually based fines or damages payments to such parties.

The Group’s brand and reputation could also face threats from external risks such as regulatory intervention or enforcement action, whether directly or as part of a larger and more general action against other companies that operate in the same sectors as the Group’s operating entities.

Any damage to the Group’s brands or reputation could cause existing customers, partners or intermediaries to withdraw their business from the Group and potential customers, partners or intermediaries to be reluctant or elect not to do business with the Group. Such damage to the Group’s brands or reputation could cause disproportionate damage to the Group’s business, even if the negative publicity is factually inaccurate or unfounded. Furthermore, negative publicity could result in greater regulatory scrutiny and influence market or rating agencies’ perception of the Group, which could make it more difficult for the Group to maintain its credit rating. The Group might incur significant costs in seeking to avoid negative publicity and/or in defending itself against reputationally damaging accusations and/or events. The occurrence of any of these events or actions could have an adverse effect on the Group’s business, prospects, results of operations and financial position.

The Group has a number of strategic distribution partnerships that are material to its business

The Group has entered into various strategic distribution partnerships that are important to the marketing and distribution of its products, and sells insurance under a number of key partner brands, including RBS and NatWest. The Group’s previous Prudential partnership changed to a brand licence arrangement from the first quarter of 2017, and its former home partnership with Nationwide ended in December 2017 when new business ceased to be written. The Group’s

distribution partnerships with RBS and NatWest accounted for a substantial portion of GWP for its home business in 2019. While the proportion of partnership GWP represented by the home business decreased following the exit of the Nationwide partnership, a significant proportion of customers in the travel and rescue business will continue to be through the Group’s partnerships. The Group continues to consider other strategic distribution partnerships in the UK.

The Group’s distribution partners are operationally independent of the Group. The Group’s distribution agreements tend to cover a three-to five-year period, and as a result the Group may not be able to exit potentially disadvantageous contracts in a timely manner or without significant expense. In addition, several of the Group’s distribution agreements could expire in close succession, which could result in a disproportionate adverse impact on the Group’s distribution business if its partners do not seek to renew on similar terms, or at all. Growth in the Group’s partnership distribution business may potentially result in a reduction in customers of the Group’s proprietary brands and diminish the long-term benefits of those customer relationships.

The Group’s distribution partnerships could be terminated as a result of a variety of events, including breach of contract, a downgrade in the Group’s credit rating and counterparty insolvency. The business generated through the Group’s distribution partnerships could also be adversely affected by adverse changes to the Group’s reputation or the reputation of its partners or changes in the business strategy of its partners, particularly if a partner chose to exit the general insurance business altogether. Termination of, or any other material change to, the Group’s relationships with its partners could adversely affect the sale of its products and its growth opportunities in the UK and elsewhere, and could therefore have an adverse effect on its business, prospects, results of operations and financial position. Termination of, either current or past, distribution relationships can also result in disputes over the dissolution or final settlement of distribution agreements, which can potentially lead to litigation and, further, the Group could be required to continue to fulfil its partner obligations in the event of the termination of a relationship. The distribution agreements also include various requirements on the Group, and the Group may have to pay significant fees or damages under the arrangements if it fails to fulfil these obligations. The terms and conditions of the Group’s agreements with partners are also subject to change from time to time, and the Group may be unable to renew its agreements with partners on similar terms, or at all.

Regulatory and other developments can have an impact on how the Group manages these distribution partnerships and/or their expected financial performance. Industry-wide considerations, such as the sale of packaged bank accounts (where the Group’s products may be sold as part of a suite of benefits for the holder of that account) may result in new rules and regulations on the sale of these products. The outcome of these changes could force the Group and its partners to reassess their respective responsibilities and the overall pricing and packaging advantages to their products, which could adversely affect the strategic importance of these distribution channels.

Distribution channels may also be adversely affected should the FCA, in any future review of the distribution model of the Group or the activities of any relevant distributors, consider that any of the distribution agreements the Group has for payments made and services provided to the Group, are or are at risk of non-compliance with its interpretation of its rules or the spirit thereof. Further, in the event of any mis-selling of products by financial intermediaries or other

distribution partners, the Group could face the risk of regulatory censure from the FCA, fines and related compensation costs and reputational damage.

Legal and regulatory change implemented through the Insurance Distribution Directive (the “IDD”), which has applied since 1 October 2018, the EU’s PRIIPs Regulation, which came into effect on 1 January 2018 and MiFID II and associated implementing measures, which came into effect on 3 January 2018, may lead to a decline in the number and/or size of distribution firms, as financial advisers may decide to consolidate or to leave the sector in response to increased compliance costs and the higher professional standards required. If a reduction in the capacity of the intermediary distribution sector does occur, this may result in fewer opportunities for the Group’s products to be distributed by intermediary firms. The impact of these changes could adversely affect the strategic importance of these financial intermediaries as a distribution channel for the Group. Regulatory changes and the manner in which they are implemented could increase the costs of doing business, as a result of additional distribution and compliance costs, reduce access to liquidity and limit the scope of permissible activities. While these changes will impact the entire industry, they could alter the competitive balance and could impact the Group more than some of its competitors.

Downgrades of or the revocation of the Group’s financial strength credit ratings could affect its standing in the market, result in a loss of business and reduce earnings through increased costs of borrowing

The Group aims to maintain an Insurer Financial Strength Rating in the ‘A’ range, in order to support the Commercial broker and Partnership business and to provide swift access to debt markets. Moody’s provide insurance financial strength ratings for U K Insurance Limited, the Group’s principal underwriter. Moody’s rate U K Insurance Limited as ‘A1’ for insurance financial strength (strong) with a stable outlook, as last confirmed on 9 January 2020.

At the Group’s request, Standard & Poor’s has terminated all its ratings on the Group effective from 24 January 2020. This decision was made as part of the Group’s focus on improving efficiency and reducing costs. Members of the Group may have other ratings assigned by other rating agencies in the future. U K Insurance’s insurer financial strength ratings are subject to periodic review by, and may be revised downward or revoked at the sole discretion of Moody’s.

Moody’s is a credit rating agency established in the United Kingdom and registered under Regulation (EC) No 1060/2009 and is included in the list of credit rating agencies published by the European Securities and Markets Authority on its website in accordance with such Regulation. The rating assigned by the rating agency is neither an evaluation directed towards investors in the Notes nor a recommendation to buy, sell or hold the Notes.

Any downgrade in or revocation of U K Insurance’s ratings may adversely affect the Group’s liquidity and the cost of raising capital or cause the Group to incur additional financial obligations. Furthermore, downgrade or revocation could have a negative impact on the Group’s public reputation and competitive position in the market, especially in relation to its distribution arrangements and commercial business where partners or customers may not be willing or permitted to place their insurance with a lower rated insurer, which could result in reduced business volumes and income. The occurrence of any of the above could have an adverse effect on the Group’s business, prospects, results of operations and financial position. Further,

interest rates paid on borrowings by the entities within the Group are influenced by the existence and strength of the ratings above, and so a downgrade or revocation could affect the borrowing costs and/or future financial flexibility of the Group. The occurrence of any of the above could have a material adverse effect on the Group’s business, results of operations, financial condition and prospects.

The Group faces significant competition from other insurance companies and others

The Group faces significant competition (current and future) from domestic insurers, other international insurance groups and others (in any such case whether established or new entrants to the market or start-up operations) in each of the Group’s principal markets, which offer or may in the future offer the same or similar products and services as the Group. The Group operates in markets in which the most important competitive factors for general insurance products include brand recognition, the utilisation of various distribution channels, product price, the quality of customer services before and after a contract is entered into (including claims handling), product innovation and policy terms and conditions.

If the Group is unable or is perceived to be unable to compete effectively within its core markets or products, its competitive position may be adversely affected. In particular, competitive pressures may, among other things, compel the Group to reduce prices, which may adversely affect its operating margins, underwriting results and capital requirements, or reduce its market share, any of which could have an adverse effect on its business, prospects, results of operations and financial position.

The Group is exposed to further changes in the competitive landscape including increased competition from price comparison websites for home insurance distribution and from new and disruptive market entrants, the long-term implications of which are not yet fully understood

Competition in the industry continues to intensify with the emergence of the ‘FinTech’ sector, and its sub-sector ‘InsurTech’, creating additional choice beyond existing insurance providers and threatening to disrupt traditional business models. FinTech and InsurTech (herein after referred to together as ‘FinTech’) refer to financial services or insurance companies that leverage technological expertise and capabilities to better serve customers’ needs, or to provide services to incumbent insurers. This can include: improving customer service; creating propositions for unserved or under-served market segments; providing services to assist incumbent insurers with improving their efficiency, proposition or services; or creating new or improved production distribution methods. FinTech companies can potentially serve and adapt to customers’ demands more effectively than traditional insurers, since FinTech companies often have greater organisational flexibility and typically have a concentration of technological skills and capabilities beyond that of incumbent insurers. Narrower service or product offerings can also allow FinTech companies to provide more bespoke customer offerings, since the often far wider product ranges of traditional insurers are more difficult to tailor to individual customers.

Though the long-term implications of the emergence of the FinTech sector cannot be fully predicted, FinTech companies may create increased competition in the UK general insurance market. While it is too early to determine the implications of COVID-19, the Issuer has observed an increase in the number of FinTech companies failing as a result of the immediate economic

impacts. However, the Issuer would expect the capabilities FinTech companies use and their approaches to meeting customer needs to still provide a basis for competition for other players in the future. The UK general insurance market may also face further disruption in the long-term through new data sharing technologies, such as those developed in response to the CMA’s Open Banking standard, and, more generally, other Application Programming Interfaces (“APIs”), which may create new and significant routes to market. Potential disruption from the likes of major online retail organisations which have not previously been active in the insurance market, and data sharing technologies such as Open Banking and APIs, may create new and significant routes to market. The Group may need to invest significant amounts in improving legacy systems, recruit technologically focused employees or create new propositions in order to compete with the services being offered by FinTech companies to the Group’s traditional target customers.

Price Comparison Websites (“PCWs”) are intermediaries that present multiple insurance quotes to a given buyer, allowing the buyer to make a comparison between insurance offerings based on a single set of information provided to the PCW. Competition for home insurance customers is expected to intensify in coming years as a higher percentage of policies are acquired through PCWs (for example, Comparethemarket.com and Gocompare.com). This trend is expected to mirror the shift in motor insurance distribution, but at a slower rate than has occurred in the motor market. This trend may be accelerated in a recessionary environment where pressure on consumer spending encourages consumers to shop more for the best price.

Consumer behaviour and attitudes, technological changes, regulatory and legislative changes and actions and other factors also affect competition. In the near term, the Group expects data to emerge as a key area of innovation, as insurers learn to access and use new sources of customer data to improve their understanding of risk and improve customer journeys. The Group expects a greater focus on transparency and fairness, and developments in new car technology, particularly automated driving and electric vehicles, are likely to be new areas of competition. Generally, the Group could lose market share, incur losses on some or all of its activities and experience lower growth if it is unable to offer competitive, attractive and innovative products and services that are also profitable, does not choose the right marketing approach, product offering or distribution strategy, fails to implement such strategies successfully or fails to anticipate, successfully adapt or adhere to such demands and changes. In particular, competitive pressures from PCWs and other new technologies and distribution channels may require changes to the Group’s business operations, including IT systems and functionality, and the Group may not be able to effectively respond to these new developments in a timely and/or appropriate manner, which could have an adverse effect on the Group’s business, prospects, results of operations and financial position. Any such increases in competition could result in increased pressure on product pricing, and commissions and other acquisition costs on a number of products, which, in turn, could harm the Group’s ability to maintain or increase its market share or have an adverse effect on the Group’s business, prospects, results of operations and financial position.

Changes to customers’ behaviour could reduce demand for the Group’s products

New developments could result in reduced demand for the Group’s products and require the Group to expend significant energy and resources and incur significant expenditure to change its product offering, build new risk and pricing models, modify and renew its operating and IT systems and/or retrain or hire new employees. The Group may not be able to respond to

changes effectively or on a cost-efficient basis, which could have a material adverse effect on its business, prospects, results of operations and financial condition.

The Group is exposed to changes in the behaviour of its customers and the markets in which it sells its insurance products. For example, changes in lifestyle, technology, or regulation could significantly alter customers’ actual or perceived need for insurance and the types of insurance sought. For example, in 2019, motor market premium inflation did not match expectations of claims inflation, which led to a slowdown in customer shopping behaviour and a reduction in new business. Increases in vehicle technology are also beginning to cause an increase in claims inflation. The continued political uncertainty (including post-Brexit) could also have an impact on claims inflation and market behaviour (for example, recession affects customer behaviour).

Changes in technology could also give rise to new types of entrants into the insurance and/or insurance sales markets, for example, from the safety-improvement technologies relating to vehicles, driverless cars and the new sharing economy increasing the ties between insurance policy and asset, rather than policyholder, or the development of new distribution channels requiring further adaptation of the Group’s business and operations. The Group is seeing growing demand for online sales and service in all of the jurisdictions in which it operates. For example, competitive pressures from PCWs in the UK and other new technologies and distribution channels (including changes driven by an increasingly digital society), may require changes to the Group’s business operations (including IT systems and functionality), may put pressure on premiums that can be charged and may create the need for different product structures such as modular “build your own” products. Failure to update its IT systems adequately may result in the Group being unable to match the products or pricing of its competitors and therefore being unable to maintain its competitive position. The Group could lose market share, incur losses on some or all of its activities or experience lower growth if it is unable to offer competitive and attractive products and services that are also profitable, if it does not choose the right marketing approach, product offering or distribution strategy or if it fails to anticipate or successfully adapt to change.

To the extent the Group offers new products and services in response to changes in customer behaviour, it may face difficulty in adequately pricing, and therefore in achieving profitability, from offering these new products and services. In addition, the introduction of additional products and services (which may include offerings outside of core traditional insurance products) could subject the Group to additional regulation or regulatory oversight and consequently to higher internal compliance expenses. There is a risk that new products offered by the Group may not be successful which could have an adverse impact on the Group’s business, financial condition, results of operations and prospects.

Changes to customer behaviour could also result in higher customer turnover, which in turn could lead to higher overall costs and/or lower or eliminated profit margins due to increased pricing pressure. Such changes could have an adverse effect on the Group’s business, prospects, results of operations and financial position.

The Group’s claims management processes may be inefficient, leading to additional claims-related expenses and adverse inflation effects upon claims

A key assumption used in the pricing of the Group’s insurance products as well as the provisions for claims is the relative time and efficiency with which claims will be notified, processed and paid. Efficient and effective claims management depends, among other things, on well-trained personnel making accurate and timely decisions with respect to claims handling. Inefficiencies and inaccuracies in managing and paying claims can lead to issues such as inaccurate indemnity decisions, inappropriate claims reserving and/or payment decisions, increased fraud and inaccurate management information for reserving and pricing, resulting in additional claims costs and claims handling related expenses as well as increased risk that technical reserves and/or pricing models will be inappropriate or inaccurate. If the Group’s claims management processes prove to be inefficient or ineffective or it otherwise suffers from costs or expenses above expected levels, the Group could be forced to refine its pricing models, potentially resulting in a loss of business, and increase its technical reserves. Such additional costs or inflation effects could harm the Group’s profitability, which could have an overall adverse effect on the Group’s business, prospects, results of operations and financial position.

The Group is exposed to fraud risks

The Group is vulnerable to internal and external fraud from a variety of sources such as employees, suppliers, intermediaries, customers and other third parties. This includes both policy (i.e. application-related) fraud and claims fraud. Although the Group employs fraud detection processes to help monitor and combat fraud, the Group is at risk from customers who misrepresent or fail to provide full disclosure of the risks covered before such cover is purchased, from policyholders who file fraudulent or exaggerated claims and from a range of other fraud related exposures, such as the fraudulent use of Group-related confidential information. These risks are higher in periods of financial stress and include payment security risks.

Additionally, the Group is vulnerable to risk from employees, staff members and suppliers who circumvent or fail to follow procedures designed to prevent fraudulent activities. The occurrence or persistence of fraud in any aspect of the Group’s business could damage its reputation and brands as well as its financial standing, and could have a material adverse effect on its business, prospects, results of operations and financial position.

The Group is exposed to conduct risk

The Group is also exposed to the risk that decisions, acts, omissions, errors, misconduct and other behaviours of its Directors, employees or agents result in unfair treatment of customers or clients, or otherwise detrimental customer, client, employee or other stakeholder outcomes. This might arise where, inter alia, the Group fails to design or maintain appropriate policies and procedures, to communicate appropriately with customers or clients, to deal with complaints efficiently, to ensure that its processes deliver appropriate outcomes for customers or to provide appropriate advice to customers or clients (such as advice services provided by DLG Legal Services). The Group might also be exposed to conduct risk by the conduct or misconduct of employees, over which the Group only has limited control by way of employee policies and procedures.

Conduct risk is an area of close regulatory scrutiny and a failure by the Group (or its employees) to protect the interests of customers or clients could lead to legal proceedings or enforcement

action by regulators against both individuals and the Group. This could in turn lead to regulatory or legal censure, financial penalties, prosecution, reputational damage, other non-budgeted operational risk losses, and/or suspension or revocation of regulatory permissions, licences or approvals, which could in turn have a material adverse effect on the Group’s business and prospects.

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

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

The Group’s operations support complex transactions and are highly dependent on the proper functioning of information technology and communication systems

The Group relies heavily on its operational processes and on information technology and communication systems (“IT”) to conduct its business, including the pricing and sale of its products, measuring and monitoring its underwriting liabilities, processing claims, assessing acceptable levels of risk exposure, setting required levels of provisions and capital and maintaining customer service and accurate records.

These processes and systems may not operate as expected, may not fulfil their intended purpose or may be damaged or interrupted by failure of a third party supplier, third party supplier error, terrorist acts, natural disasters, telecommunications and network failures, power losses, physical or electronic security breaches, fraud, identity theft, process failures, increases in usage, human error, computer viruses, computer hacking, malicious employee attacks or similar events. Any failure of the Group’s IT and communications systems and / or third-party infrastructure on which the Group relies could lead to significant costs and disruptions that could materially adversely affect the overall operational or financial performance of the business as well as harm the Group’s reputation and/or attract increased regulatory scrutiny.

Improvements to the IT infrastructure continues to be a focus of the Group, but the implementation, integration and roll-out of a range of new IT systems is inherently complex and challenging. The Group continues to undergo and oversee an ambitious and complex programme of activity to upgrade and better integrate the major IT systems within the Group’s technology infrastructure, aiming to improve the digital offering, pricing and underwriting

capability, customer experience and operational efficiency. The Group is also completing the re- engineering of its technology platform to support these new systems and enhance productivity. The Group has incurred significant capital expenditure in the technology upgrade programme. The risk remains that the Group’s IT infrastructure is insufficient to deliver its strategy or that the roll-out of the IT infrastructure is unsuccessful and leads to disruption on the operations of the Group.

While the Group does have in place disaster recovery and business continuity contingency plans, the occurrence of a serious disaster resulting in interruptions, delays, the loss or corruption of data or the cessation of the availability of systems, could have a material adverse impact on the Group’s business, prospects, results of operations or financial position.

The Group is dependent on the use of third-party IT, software, data and service providers

Certain of the Group’s IT and operational support functions are outsourced to third parties but remain critical to the Group’s business, such as maintenance of applications and systems and mitigating against an evolving cyber threat landscape. Some of these functions are sourced by the Group directly while others are or will be provided to the Group indirectly through relationships between third parties.

The Group is reliant in part on the continued performance, accuracy, compliance and security of all these service providers. If the contractual arrangements with any third-party providers are terminated, the Group may not find an alternative outsource provider or supplier for the services, on a timely basis, on equivalent terms or without significant expense or at all. Availability of these services may also be impacted by COVID-19 (see further “The COVID-19 pandemic has and will have far reaching impacts, including the responses of governments, regulators, customers and markets to the pandemic”), especially if remote working and lockdown arrangements are prolonged.

In addition, the Group is dependent on the use of certain third-party software and data in order to conduct its business, including in pricing of products and reserving claims. Further, the outsourcing to third parties has involved the relocation of some of the Group’s back office and other operations to third-party providers based in India and South Africa and may include additional relocation of operations (both front and back office) to areas outside the UK in the future. Regulatory risk in respect of this outsourcing, as with other outsourcing arrangements put in place by the Group, rests with the Group. The outsourced nature of the services provided means that there remains a risk that customer outcomes or services standards may fall below required levels. In the event that an outsourcing partner fails to adhere to adequate contractual or regulatory standards, the Group is exposed to the risk of regulatory action and reputational harm, and such failure may have a material adverse effect on the Group’s financial condition.

The information and processes the Group uses may be protected by patents, copyrights in software or other materials, rights in databases, rights of confidence or other intellectual property rights owned by third parties. The Group seeks to obtain such licences or consents in respect of any intellectual property rights owned by third parties that it may identify as necessary to its business but claims that its activities infringe such third-party intellectual property rights could adversely affect the Group’s business.

Third-party providers may mishandle the Group’s customer data, which would result in the Group having to make notifications of such incidents to the relevant regulators potentially leading to investigation and/or action by a regulator. Any reduction in third-party product quality or any failure by a third party to comply with the Group’s licensing or regulatory requirements, including requirements with respect to the handling of customer data, could cause a material disruption to or adverse financial and/or reputational impact on the Group’s business. Any of these events could have a material adverse effect on the Group’s business, prospects, results of operations and financial position.

Failure to maintain the availability of its systems and adequately safeguard and protect its data, including customer and employee information, due to accidental loss, cyber- crime, the occurrence of disasters, or other unanticipated events could have a material adverse effect on the Group

The Group collects and processes personal data (including name, address, age, bank and credit card details and other personal data including information which falls within special categories of personal data) from its customers, third-party claimants, business contacts and employees as part of the operation of its business, and therefore it must comply with data protection and privacy laws and industry standards in the UK.

Those laws and standards impose certain requirements on the Group in respect of the collection, use, processing and storage of such personal information. For example, under UK and EU data protection laws and regulations, when collecting personal data, certain information must be provided to the individual whose data is being collected. This information includes the identity of the data controller, the purpose for which the data is being collected and any other relevant information relating to the processing. There is a risk that data collected by the Group and its appointed third parties is not processed in accordance with notifications made to, or obligations imposed by, data subjects, regulators, or other counterparties or applicable law. Failure to operate effective data collection controls could potentially lead to regulatory censure, fines, reputational and financial costs as well as result in potential inaccurate rating of risks or overpayment of claims. There is also a risk that the implications of needing to adhere to the GDPR standard definition of consent in respect to obligations in Privacy & Electronic Communications Regulations could impact the Group’s use of cookies in relation to marketing, customer insight and other activities.

The Group is also required to comply with data protection and privacy laws and industry standards in the UK and the countries of residence of the Group’s customers. This includes compliance with the GDPR which came into effect on 25 May 2018. The GDPR imposes a higher compliance burden in the industry on companies who retain customer data and may impair ability to use data. Companies and organisations must ensure that they process personal data while having adequate measures in place to protect an individual’s rights in respect of that data. It significantly increases the cost of non-compliance, both in terms of potential financial penalties and broader reputational damage. In particular, fines under the GDPR are based on a two-tier system, and fines up to the greater of €10 million or 2 per cent. of annual global turnover, or, for more severe infringements, the greater of €20 million or 4 per cent. of annual global turnover, may be imposed.

The Group is also subject to certain data protection industry standards, and may be contractually required to comply with those standards. For example, as a major processor of payments from payment cards, the Group is required to comply with the Payment Card Industry Data Security Standard (“PCI DSS”) as part of its contractual obligations to merchant acquirers. The Group was assessed as PCI DSS compliant as of December 2019. Failure to maintain PCI DSS compliance could result in contractual penalties, reputational damage and other liabilities.

In addition, the Group is exposed to the risk that the personal data it controls could be wrongfully accessed, copied, destroyed and/or used, whether by employees or other third parties, or otherwise lost or disclosed or processed in breach of data protection regulations. If the Group or any of the third-party service providers on which it relies fail to process, store or protect such personal data in a secure manner or if any such theft or loss of personal data were otherwise to occur, the Group could face liability under data protection laws. This could also result in damage to the Group’s brands and reputation as well as the loss of new or repeat business, and/or the Group incurring a large fine, any of which could, to the extent not mitigated by the Group’s disaster recovery and business continuity contingency plans, have a material adverse effect on the Group’s business, prospects, results of operations and financial position. In addition, in the event of a data loss the Group could also face enforcement action from the FCA, as any loss/unauthorised access to data could be construed as a failure of the Group’s systems and controls.

The Group could be adversely affected by the loss of one or more key employees, or by an inability to attract and retain, or obtain PRA and/or FCA approval for, qualified personnel

The Group depends on the continued contributions of its senior management and other key employees, a number of whom have only recently joined the Group. The loss of services of one or more of the Group’s key employees could adversely affect its business. In addition, the Group may need to temporarily fill certain key roles with interim employees while recruitment of permanent staff remains ongoing. The Group’s continued success also depends on its ability to attract, motivate and retain highly competent people, particularly those with financial, IT, underwriting, actuarial, Solvency II, data, Agile ways and structures of working, IFRS17 and other specialist skills. Competition for senior managers as well as personnel with these skills and proven ability is intense among insurance companies. The Group competes with other financial services groups for skilled personnel, primarily on the basis of its reputation, culture, financial position, remuneration policies and support services, and may incur additional costs to recruit and retain appropriately qualified individuals.

In addition, the PRA and FCA are responsible for the supervision of individuals with significant influence over the key functions of an insurance business, such as finance, audit, risk and other significant management functions, and such individuals must be approved by the PRA and/or FCA before they may take up those responsibilities. The PRA and/or FCA will only approve individuals for such functions if they are satisfied that they have appropriate qualifications and/or experience and are fit and proper to perform those functions, and may withdraw its approval for individuals whom it deems are no longer fit and proper to perform those functions.

If the Group were unable to attract and retain, or obtain PRA and/or FCA approval for, directors and highly skilled personnel, and to retain, motivate and train its staff effectively, this could adversely affect its competitive position, which could in turn result in an adverse effect to its business, prospects, results of operations and financial position.

The Group relies on intermediaries to market and distribute insurance, particularly within its commercial business

The Group relies on intermediaries for the marketing and distribution of a majority of its commercial products and services. The Group’s intermediaries are independent of the Group. In most cases, the Group does not have exclusivity agreements in place with its intermediaries, and as a result they are free to offer products from other insurance companies as well, with no obligation to give priority to the products of the Group. The successful distribution of the Group’s commercial products therefore depends on the preferences of intermediaries for the Group’s products and services, and the Group competes with other insurers and financial institutions to attract and retain commercial relationships with intermediaries. In addition, some of the Group’s commercial business brokers have the ability to make underwriting or claims handling decisions that could affect the Group, and may sell insurance or pay claims under circumstances otherwise outside the underwriting or claims handling policies set by the Group. Failure to maintain relationships with intermediaries or underwriting or claims handling decisions made by intermediaries in contravention of Group policies could result in a loss of market share for the Group’s commercial products or a reduction in the sale or profitability of its products, which could, in turn, have an adverse effect on its business, prospects, results of operations and financial position.

The implementation of complex strategic change initiatives gives rise to significant execution risks, which may affect the operational capacity of the Group and may adversely impact the Group if these initiatives fail to meet their objectives

The markets in which the Group operates are characterised by continued improvements in operational infrastructure, including changes to reflect customer requirements and preferences, the introduction of new technologies and developments in industry and regulatory standards. These changes could render the Group’s existing technology, systems and control environment obsolete.

In response to such challenges, and as part of the implementation of its operations and optimisation of its business strategy, the Group has implemented, and will continue to implement, a number of change initiatives. Whilst these strategic change initiatives may be large scale, ambitious and complex with resulting interdependencies, such initiatives may be necessary to reduce conduct risk, improve customer experiences, and strengthen the Group’s efficiency and platform for future growth. These changes may include, but are not limited to, IT systems, technology infrastructure, internal reorganisations and changes in ways of working towards an increasingly agile operating model. In addition, shutdown and other restrictive measures introduced in the United Kingdom have required the Group to invoke contingency plans for remote working, including cancellation of physical meetings and changes to working locations. The changes made to the Group’s operating model to move to remote working may increase the risk of operational losses arising from sources such as pricing errors, claims

processing errors and fraud, and may result in reduced personnel availability which could impact continuity of service to customers.

Significant operational execution risks arise from strategic change initiatives, including in relation to business functions and processes (data, systems and people) and third party arrangements. It is also possible that there may be insufficient organisational capacity to absorb the anticipated changes. Any disruption caused by, or failure to successfully implement any of, the strategic changes could have an adverse impact on the Group’s ordinary course business and, consequently, its financial condition, results of operations and prospects, or otherwise harm the Group’s reputation. Further, failure to manage and implement the change programme successfully could result in delays to the development and roll-out of the change programme, poorer customer experiences, negative impacts on employee engagement, or potential overspend on the project itself. The scale and nature of the change programmes may cause disruption to resourcing through heightened uncertainty, increased workloads and short-term resource stretch, which, in turn, result in the transformation activities being delayed or not delivered at all and/or the disruption of business as usual activities, all of which may affect the Group’s operations.

The Group’s aim to transform into a nimble and cost efficient business could involve changes to operating models including moving reporting lines and introducing more agile ways of working. These changes could cause disruption, both during and after implementation. The Group seeks to be efficient and reduce its expenses where possible and appropriate. These measures could include or lead to reductions in head count that could in turn lead to risks as people leave the Group and/or work is moved to be undertaken by different parts of the Group and/or third parties. If these changes are not managed effectively, this could lead to unrealised business opportunities, poor project delivery, poorly aligned systems and practices, cultural dissonance, high levels of staff / employee turnover and failure to deliver expected and intended business and financial outcomes.

The Group may not be able to optimally choose, complete, implement, integrate or adapt such strategies to changing conditions successfully or in line with the Group’s expectations. Strategic risk is also influenced by external developments such as the UK’s exit from the EU and motor market conditions. In addition, market disruption caused by events such as COVID-19 which may delay implementation of strategic change initiatives, as changes made to the Group’s operating model to move to remote working may increase the risk of operational losses. This may result in a failure to achieve in the near or long term the financial results or strategic objectives projected, and significant operational disruption. Inability to realise these benefits may affect the Group’s results and operations, as well as impact internal control systems, management resources, and ability to attract and retain employees. Periods of strategic transformation may also lead to unanticipated reputational or financial damage, if resources typically focussed on ordinary course business are diverted to transformation delivery, which brings risks to customer outcomes.

The Group may make acquisitions or disposals

The Group has acquired and may from time to time acquire and dispose of businesses as part of its normal operations and optimisation of its business portfolio. To the extent that it decides to make acquisitions or disposals in the future, the Group may not be able to identify and complete

such acquisitions or disposals, on acceptable terms or on a timely basis. The integration of acquisitions may not be successful or in line with the Group’s expectations and the acquired business may fail to achieve in the near or long term the financial results projected or the strategic objectives of the relevant acquisition (such as cost savings or synergies). Inability to realise expected benefits from acquisitions or disposals may affect the Group’s results of operations. Acquisitions and disposals, including unsuccessful integrations and divestments, can also place a material strain on Group-wide internal control systems and management resources.

Pension schemes and related liabilities may impact the Group

The Group’s employees are able to participate in The Direct Line Group Personal Pension which is a contract based defined contribution pension scheme. The legacy pension arrangements are closed to new entrants and future accrual. There is a small legacy defined benefits scheme, for which there was a small net surplus (£9.7 million on an IAS19 basis) in the financial year ended 31 December 2019. Disposals made by the Group could affect the position of the Group’s pension trustees in respect of the defined benefits scheme and potentially generate additional liabilities for the Issuer. Were the defined benefit scheme to be subject to a buy-out transfer to a third party, any such surplus accordingly would cease to be taken into account in, and would therefore likely reduce, the Group’s capital and may also affect the Group’s solvency ratio.

The Group’s contributions to its pension and other post-retirement benefits plans depend on plan performance and mortality experience, interest rates, fluctuations in fixed income markets (including the potential impact of COVID-19), pension funding legislation and other factors. There is a risk that future funding valuation may show a deterioration in the scheme’s financial position as a result of which the Group may agree to higher contributions than previously. Any surplus or deficit in the defined benefit pension scheme will affect shareholders’ equity, although the IFRS position may diverge from the scheme funding position.

Key assumptions inherent in the calculation of both the funding and the surplus position of the Group’s pension scheme include the expected rate of return on plan assets, inflation and longevity. Changes to these factors may increase the Group’s funding obligations materially, or result in a material deterioration in the scheme’s funding position. The Group cannot predict whether changing conditions, including asset performance, government regulation or other factors, will require it to make contributions in excess of its expectations.

In addition, accounting standards which impact treatment and disclosure regarding pension scheme assets and liabilities of the Group may change in ways which may have an adverse effect on the Group’s business, financial condition or results of operations. Pension schemes are also subject to statutory requirements with regards to funding and other matters relating to the administration of the schemes. A determination that the Group has failed to comply with applicable regulations could have an adverse impact on its results of operations and adverse publicity.

Legal, regulatory and arbitration proceedings could cause the Group to incur significant expenses and losses, which could have a material adverse effect on the Group

It is possible that the Group may be subject to legal and/or regulatory action from time to time. This may or may not arise during the ordinary course of business and could potentially have a significant impact on the Group’s business. It is not possible to predict the significance of any proceedings that may be brought against, or any investigations that may be conducted into, the Group nor is it possible to predict the financial impact of a successful claim, fine or penalty to which the Group may become subject. The Group may incur substantial expense in pursuing or defending these proceedings. Potential liabilities may not be covered by insurance, the Group’s insurers may dispute coverage or may be unable to meet their obligations, or the amount of the Group’s insurance coverage may be inadequate. Moreover, even if claims brought against the Group are unsuccessful or without merit, the Group would have to defend itself against such claims. The defence of any such actions may be time consuming and costly, may distract the attention of management and potentially result in reputational damage. As a result, the Group may incur significant expenses and may be unable to effectively operate its business. Any of the above and any adverse outcomes and reputational damage arising out of such litigation could have a material adverse effect on the Group’s business, results of operations, financial condition and prospects.

Changes in taxation laws may negatively impact the Group and/or the decisions of customers

Changes in corporate and other tax rules could have both a prospective and retrospective impact on the Group’s business, prospects, results of operations or financial position. In general, changes to, or in the interpretation of, existing tax laws, or amendments to existing tax rates (corporate or personal), or the introduction of new tax legislation may adversely affect the business, prospects, results of operations and financial position of the Group, either directly or indirectly or as a result of changes in the insurance purchasing decisions of customers. Changes to legislation that specifically governs the taxation of insurance companies might adversely affect the Group’s business. While changes in taxation laws would affect the insurance sector as a whole, changes may be more detrimental to particular operators in the industry. The relative impact on the Group will depend on the areas impacted by the changes, the mix of business within the Group’s portfolio and other relevant circumstances at the time of the change.

Further, there is currently uncertainty in the UK around the long-term approach to taxation. Should there be a change in government, or a weakening of the existing government’s position, this may create uncertain economic conditions, which could have a material adverse effect on economic conditions within the UK including the UK property market and could, among other things, lead to an increase in UK tax rates, which could in turn have a material adverse effect on the Group’s business, results of operations, financial condition and prospects.

Changes to IFRS generally or specifically for insurance companies may adversely affect the Group’s financial results

Changes to the IFRS for insurance companies have been proposed in recent years and further changes may be proposed in the future. IFRS 16 Leases (“IFRS 16”) took effect on 1 January 2019, replacing the existing IAS 17. Following the transition, the Group recognises a lease liability that corresponds to the present value of the remaining lease payments for the leases

that were previously subject to IAS 17, discounted by an estimated incremental borrowing rate as of the date of initial application. A corresponding amount is recognised as a right of use asset in the balance sheet.

The Group has also adopted the following Amendments to IFRS 4: ‘Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts’. This was issued on 12 September 2016 and endorsed by the EU on 3 November 2017. These amendments permitted insurers who satisfied certain criteria to defer the effective date of IFRS 9 ‘Financial Instruments’, to coincide with the expected effective date of IFRS 17 ‘Insurance Contracts’. The IASB permitted this option having considered potential asset and liability mismatching and temporary profit and loss volatility caused by introducing these new standards in different periods within a short period of time.

A new insurance contract standard, IFRS 17, was published on 18 May 2017 and originally expected to take effect on of 1 January 2021. In November 2018, the IASB proposed that the standard take effect one year later and the initial mandatory application of IFRS 9 also be delayed. In March 2020, the IASB decided to defer the effective date of IFRS 17, and extended the fixed expiry date of the temporary exemption in IFRS 4 from applying IFRS 9, to annual reporting periods beginning on or after 1 January 2023. Replacing IFRS 4, IFRS 17 will change the presentation of insurance contracts in the financial statements and the recognition and measurement criteria thereof.

These and any other changes to IFRS that may be proposed in the future, whether or not specifically targeted at insurance companies, could adversely affect the Group’s business, prospects, results of operations and financial position.

Risks related to the structure of the Notes

The Issuer’s obligations under the Notes are unsecured and subordinated. On a winding- up of the Issuer, investors in the Notes may lose their entire investment in the Notes

The Issuer’s obligations under the Notes will constitute direct, unsecured and subordinated obligations of the Issuer and will rank pari passu and without any preference among themselves.

If (i) an order is made, or an effective resolution is passed, for the winding-up or liquidation of the Issuer (other than an Approved Winding-up) or (ii) an administrator is appointed to the Issuer and such administrator declares, or gives notice that it intends to declare and distribute, a dividend, (the events in (i) and (ii), each an “Issuer Winding-Up”), the payment obligations of the Issuer under the Notes will be subordinated to the claims of all Senior Creditors of the Issuer (which includes, inter alia, any policyholders or beneficiaries under contracts of insurance or reinsurance of the Issuer and all creditors whose claims are in respect of unsubordinated liabilities and obligations which constitute Tier 3 Capital) but will rank at least pari passu with all other subordinated obligations of the Issuer which constitute, or would but for any applicable limitation on the amount of such capital constitute, Tier 2 Capital (and all obligations which rank, or are expressed to rank, pari passu therewith) and will rank in priority to the claims of holders of all obligations of the Issuer which constitute, or would but for any applicable limitation on the amount of such capital constitute, Tier 1 Capital (and all obligations which rank, or are expressed to rank, pari passu therewith), all other obligations of the Issuer which rank, or are

expressed to rank, junior to the Notes and all claims of holders of all classes of share capital of the Issuer.

Accordingly, the assets of the Issuer would be applied first in satisfying all senior-ranking claims in full, and payments would be made to Noteholders, pro rata and proportionately with payments made to holders of any other pari passu instruments (if any), only if and to the extent that there are any assets remaining after satisfaction in full of all such senior-ranking claims. If the Issuer’s assets are insufficient to meet all its obligations to senior-ranking and pari passu creditors, the Noteholders will lose all or some of their investment in the Notes.

There is no restriction on the amount of securities which the Issuer may issue and which rank senior to, or pari passu with, the Notes and, accordingly, the Issuer may at any time incur further obligations (including by issue of further debt securities) which rank senior to, or pari passu with, the Notes. Consequently, there can be no assurance that the current level of senior or pari passu debt of the Issuer will not change. The issue of any such securities may reduce the amount (if any) recoverable by Noteholders on a winding-up of the Issuer.

If the Issuer’s financial condition deteriorates such that there is an increased risk that the Issuer may be wound-up or enter into administration, such circumstances can be expected to have a material adverse effect on the market price of the Notes. Investors in the Notes may find it difficult to sell their Notes in such circumstances, or may only be able to sell their Notes at a price which may be significantly lower than the price at which they purchased their Notes. In such a sale, investors may lose some or substantially all of their investment in the Notes, whether or not the Issuer is wound up or enters into administration.

In addition, by acceptance of the Notes, subject to applicable law, each Noteholder will be deemed to have waived any right of set-off or counterclaim that such Noteholder might otherwise have against the Issuer in respect of or arising under the Notes or the Trust Deed.

Although the Notes may potentially pay a higher rate of interest than comparable notes which are not subordinated (subject to the mandatory deferral of interest payments in the circumstances described herein), there is a significant risk that an investor in the Notes will lose all or some of its investment should the Issuer become insolvent.

As the Issuer is a holding company, Noteholders are structurally subordinated to the creditors of the Issuer’s Subsidiaries

The Notes are the obligations of the Issuer alone. The Issuer is a holding company and the Issuer’s Subsidiaries are separate and distinct legal entities with no obligation to pay, or provide funds in respect of, any amounts due and payable in respect of the Issuer’s payment obligations under the Notes.

Payments on the Notes are structurally subordinated to all existing and future liabilities and obligations of the Issuer’s Subsidiaries. Claims of creditors of such Subsidiaries will have priority as to the assets of such Subsidiaries over the Issuer and its creditors, including the Noteholders. Neither the Conditions nor the Trust Deed contain any restrictions on the ability of the Issuer or its Subsidiaries or associates to incur additional unsecured or secured indebtedness.

As a holding company, the Issuer is dependent upon dividends and other distributions from its operating Subsidiaries

Furthermore, as a holding company, the Issuer’s ability to make payments in respect of its obligations, including those under the Notes, is largely dependent upon its ability to receive funds, directly or indirectly, from its operating subsidiaries, including through the payment of dividends and payments of interest on intra-group financing arrangements. Consequently, the Issuer’s ability to make payments in respect of the Notes will depend upon the Group’s profitability and performance and the ability to distribute or dividend profits from the Issuer’s operating Subsidiaries up the Group structure to the Issuer.

The ability of the Issuer’s operating Subsidiaries to pay dividends and the Issuer’s ability to receive distributions and other payments from the Issuer’s investments in other entities is subject to applicable local laws and other restrictions, including their respective regulatory, capital and leverage requirements, statutory reserves, financial and operating performance and applicable tax laws, and any changes thereto. These laws and restrictions could limit the payment of dividends, distributions and other payments to the Issuer by the Issuer’s operating Subsidiaries, which could in time restrict the Issuer’s ability to make payments in respect of the Notes.

The Notes are long-dated and Noteholders only have a limited ability to exit their investment in the Notes

The Notes have a maturity date in 2032, and repayment of the Notes upon maturity may be postponed if payment cannot be made in accordance with the Redemption and Purchase Conditions. Although the Issuer may, under certain circumstances described in Condition 7 (Redemption, Substitution, Variation and Purchase), redeem or purchase the Notes prior to the maturity date, the Issuer is under no obligation to do so and Noteholders have no right to call for the Issuer to exercise any right it may have to redeem or purchase the Notes.

Therefore, Noteholders have no ability to exit their investment prior to the maturity date (subject to postponement of maturity), except (i) in the event of the Issuer exercising its right to redeem or purchase the Notes in accordance with the Conditions, (ii) by selling their Notes to other market participants, or (iii) in a winding-up or administration of the Issuer, in which circumstance the Noteholders may receive some of any resulting liquidation proceeds only following payment being made in full to all creditors ranking in priority to the Noteholders. The proceeds, if any, realised by the actions described in (ii) or (iii) above may be substantially less than the principal amount of the Notes or the amount of the investor’s original investment in the Notes.

See also “Absence of public markets for the Notes” below.

Payments by the Issuer are conditional upon the satisfaction of the Solvency Condition

Other than in an Issuer Winding-Up, all payments in respect of or arising from (including any damages for breach of any obligations under) the Notes and (except for fees and other amounts owing to the Trustee in its personal capacity) the Trust Deed shall be conditional upon the Issuer being solvent at the time for payment by the Issuer and no amount shall be due and payable by the Issuer in respect of or arising from (including any damages for breach of any

obligations under) the Notes and the Trust Deed except to the extent that the Issuer could make such payment and still be solvent immediately thereafter. For these purposes, the Issuer will be solvent if (i) it is able to pay its debts owed to Senior Creditors and Pari Passu Creditors as they fall due and (ii) its Assets exceed its Liabilities (other than Liabilities to persons who are Junior Creditors). Any payment of interest that would have been due and payable but for the inability to comply with the Solvency Condition shall be deferred and shall be paid only as provided in Condition 6.4 (Payment of Arrears of Interest).

Interest payments on the Notes must, in certain circumstances, be deferred

The Issuer is required to defer any payment of interest on the Notes in full on each Mandatory Interest Deferral Date (being an Interest Payment Date in respect of which a Regulatory Deficiency Interest Deferral Event has occurred and is continuing or would occur if payment of interest were to be made by the Issuer on such Interest Payment Date).

The deferral of interest as described above does not constitute a default under the Notes for any purpose. Any interest so deferred shall, for so long as the same remains unpaid, constitute Arrears of Interest. Arrears of Interest do not themselves bear interest. Arrears of Interest may, subject to certain conditions, be paid by the Issuer, in whole or in part, at any time (provided that at such time a Regulatory Deficiency Interest Deferral Event is not subsisting and would not occur if payment of such Arrears of Interest were made and provided further that such payment can be made in compliance with the Solvency Condition and the Regulatory Clearance Condition) upon notice to Noteholders, but in any event shall be payable, subject to satisfaction of the Solvency Condition (except on an Issuer Winding-Up) and the Regulatory Clearance Condition, in whole or in part by the Issuer on the earliest to occur of (a) the next Interest Payment Date which is not a Mandatory Interest Deferral Date, (b) an Issuer Winding-Up or (c) any redemption of the Notes pursuant to, or purchase of the Notes in accordance with, Condition 7 (Redemption, Substitution, Variation and Purchase) (subject to any suspension of such redemption).

Any actual or anticipated deferral of interest payments will likely have a material adverse effect on the market price of the Notes. Investors in the Notes may find it difficult to sell their Notes in such circumstances, or may only be able to sell their Notes at a price which may be significantly lower than the price at which they purchased their Notes. In such a sale, investors may lose some or substantially all of their investment in the Notes. In addition, as a result of the interest deferral provision of the Notes, the market price of the Notes may be more volatile than the market prices of other debt securities on which interest accrues that are not subject to such deferral and may be more sensitive generally to adverse changes in the Issuer’s financial condition.

The actual or anticipated deferral of any interest payment may also affect the market value of an investment in the Notes.

The Notes bear a fixed rate of interest

As the Notes bear interest at a fixed rate, an investment in the Notes involves the risk that subsequent changes in market interest rates may adversely affect the value of the Notes.

Redemption payments under, and purchases of, the Notes must, under certain circumstances, be suspended

Notwithstanding the expected maturity of the Notes on the Maturity Date, the Issuer must defer redemption of the Notes or cancel any repurchase, as the case may be, on any date set for redemption or repurchase (as applicable) of the Notes pursuant to Condition 7 (Redemption, Substitution, Variation and Purchase) in the event that, inter alia, the Issuer cannot make the redemption payments in compliance with the Solvency Condition, the Solvency Capital Requirement, the Minimum Capital Requirement or the Regulatory Clearance Condition, or an Insolvent Insurer Winding-up has occurred and is continuing.

The deferral of redemption or cancellation of repurchase, as the case may be, of the Notes will not constitute a default under the Notes for any purpose and will not give Noteholders or the Trustee any right to take any enforcement action under the Notes or the Trust Deed. Where redemption of the Notes is deferred, the Notes will be redeemed by the Issuer on the earlier of (a) the date falling 10 Business Days after the date on which the Redemption and Purchase Conditions are (and provided that they continue to be) met or (where capable of waiver) waived pursuant to Condition 7.3 (Waiver of Redemption and Purchase Condition relating to Solvency Capital Requirement by Relevant Regulator) or (b) the date on which an Issuer Winding-Up occurs.

Any actual or anticipated deferral of redemption of the Notes will likely have an adverse effect on the market price of the Notes. In addition, as a result of the redemption deferral provision of the Notes, the market price of the Notes may be more volatile than the market prices of other debt securities without such deferral feature, including dated securities where redemption on the scheduled maturity date cannot be deferred, and the Notes may accordingly be more sensitive generally to adverse changes in the Issuer’s financial condition.

Subject to certain conditions, the Issuer may redeem the Notes at the Issuer’s option on certain dates

Subject, inter alia, to compliance with the Redemption and Purchase Conditions, the Issuer may at its option elect to redeem all (but not some only) of the Notes at their principal amount outstanding together with any Arrears of Interest and any other accrued and unpaid interest to (but excluding) the date of redemption (i) on any date from (and including) 5 December 2031 to (but excluding) the Maturity Date, (ii) at any time in the event of certain changes in the tax treatment of the Notes or payments thereunder due to a Tax Event, (iii) at any time following the occurrence of (or if there will occur within six months) a Capital Disqualification Event or (iv) at any time following a Clean-up Call Event.

The Issuer shall only be entitled to redeem the Notes upon the occurrence of certain changes in the tax treatment of the Notes or payments thereunder due to a Tax Event or a Capital Disqualification Event, if (amongst other conditions) it was reasonable for the Issuer to conclude, judged at the Issue Date, that such event was unlikely to occur.

The Issuer currently expects the Notes to qualify (subject to any applicable limitations on the amount of such capital) as Tier 2 Capital for the Issuer and the Group. However, there is a risk that, following any future change to the Relevant Rules, the Notes will cease to qualify as Tier 2

Capital of the Issuer or all or any part of the Group, which would entitle the Issuer to redeem the Notes early at their principal amount, together with interest accrued but unpaid to (but excluding) the date of redemption and any Arrears of Interest.

The right of the Issuer to redeem the Notes in certain circumstances may limit the market value of the Notes. During any period when the Issuer may elect to redeem the Notes, the market value of the Notes generally will not rise above the price at which they can be redeemed.

An investor may not be able to reinvest the redemption proceeds at an effective interest rate as high as the interest rate payable on the Notes being redeemed and may only be able to do so at a significantly lower rate. Potential investors should consider reinvestment risk in light of other investments available at that time.

Restricted remedy for non-payment when due

The sole remedy against the Issuer available to the Trustee or (where the Trustee has failed to proceed against the Issuer as provided in the Conditions) any Noteholder for recovery of amounts which have become due and payable in respect of the Notes will be the institution of proceedings for the winding-up in England and Wales (but not elsewhere) of the Issuer and/or proving in any winding-up of the Issuer and/or claiming in the liquidation or administration of the Issuer (and any such claims in a winding-up, liquidation or administration of the Issuer shall be subordinated as provided under “The Issuer’s obligations under the Notes are unsecured and subordinated. On a winding-up of the Issuer, investors in the Notes may lose their entire investment in the Notes”). In particular, any suspension of redemption, cancellation of purchase or deferral of interest shall not constitute a default on the part of the Issuer for any purpose, including enforcement action against the Issuer.

Variation or substitution of the Notes without Noteholder consent

Subject as provided in Condition 7 (Redemption, Substitution, Variation and Purchase), the Issuer may, at its option and without the consent or approval of Noteholders, elect to substitute all (but not some only) of the Notes for, or vary the terms of the Notes so that they become or remain, Qualifying Tier 2 Notes (i) in the event of certain changes in the tax treatment of the Notes or payments thereunder due to a Tax Event, or (ii) following the occurrence of (or where there will occur within six months) a Capital Disqualification Event.

Whilst the Qualifying Tier 2 Notes must have terms that are not materially less favourable to the Noteholders than the terms of the Notes, there can be no assurance that the terms of the Qualifying Tier 2 Notes will be as favourable in all respects to each investor as the terms of the Notes in all respects or that, if it were entitled to do so, a particular investor would make the same determination as the Issuer as to whether the terms of the Qualifying Tier 2 Notes are not materially less favourable to holders than the terms of the Notes.

Modification and waivers; Issuer Substitution

The Conditions contain provisions for calling meetings of Noteholders to consider matters affecting their interests generally. They also provide for resolutions to be passed with the consent of Noteholders given by way of written resolutions or electronic consents. These

provisions permit defined majorities to bind all Noteholders, including Noteholders who did not attend and vote at the relevant meeting or, as the case may be, who did not execute the written resolution or give electronic consent, and Noteholders who voted in a manner contrary to the majority. The Conditions also provide that, subject to the satisfaction of the Regulatory Clearance Condition, the Trustee may, without the consent of Noteholders, agree to any modification of, or to the waiver or authorisation of any breach or proposed breach of, any of the Conditions or any of the provisions of the Trust Deed in the circumstances described in Condition 14 (Meetings of Noteholders, Modification, Waiver, Authorisation and Issuer Substitution).

In addition, subject to the satisfaction of the Regulatory Clearance Condition and certain other conditions, the Trustee may agree with the Issuer, without the consent of the Noteholders and subject to the Notes being (other than where the Substitute Obligor is the successor in business to the Issuer) unconditionally and irrevocably guaranteed by the Issuer on a subordinated basis equivalent to Condition 4 (Subordination), to the substitution of a subsidiary or parent company of the Issuer or the successor in business to the Issuer, in any such case, in place of the Issuer as principal debtor under the Trust Deed and the Notes.

No limitation on issuing senior or pari passu securities

There is no restriction on the amount of securities which the Issuer may issue, which securities rank senior to, or pari passu with, the Notes. The issue of any such securities may reduce the amount recoverable by Noteholders on a winding-up of the Issuer and/or may increase the likelihood of a deferral of interest payments under the Notes. Accordingly, in the winding-up of the Issuer, after payment of the claims of senior ranking creditors, there may not be a sufficient amount to satisfy the amounts owing to Noteholders.

While the Existing Tier 2 Notes issued by the Issuer benefit from a guarantee from U K Insurance Limited, the Notes are not guaranteed and will be structurally subordinated to the Existing Tier 2 Notes (and any future notes which benefit from an operating company guarantee, if any)

The Issuer’s Sterling-denominated Fixed/Floating Rate Guaranteed Subordinated Notes due 2042, with ISIN: XS0773947618 (the “Existing Tier 2 Notes”, of which £250,000,000 remain outstanding as at the date of these Listing Particulars) benefit from a guarantee from U K Insurance Limited (“UKIL”), a main operating subsidiary of the Issuer, whereas the Notes are being issued on an unguaranteed basis. Accordingly, if in the future UKIL becomes insolvent, liquidates or otherwise reorganises, and the Existing Tier 2 Notes remain outstanding, the Noteholders will have no right to proceed against UKIL’s assets, whereas the holders of the Existing Tier 2 Notes (to the extent any of the same are then outstanding), together with any other creditors of UKIL, including trade creditors, will generally be entitled to payment in full from the sale or other disposal of the assets of UKIL before any direct or indirect shareholder, including the Issuer, will be entitled to any distribution from UKIL. The Noteholders will therefore be structurally subordinated to holders of the Existing Tier 2 Notes (to the extent any of them remain outstanding), notwithstanding that the Notes also constitute Tier 2 Capital of the Issuer.

There is also no restriction on the amount of debt that the Issuer may issue on a guaranteed basis (by UKIL or any other operating company of the Group) at any time in the future. The

issue of any such securities may increase the level of structural subordination to which the Notes are subject.

Change of law

The Conditions are based on English law in effect as at the date of issue of the Notes. No assurance can be given as to the impact of any possible judicial decision or change to English law or administrative practice after the date of issue of the Notes.

Limitation on gross-up obligation under the Notes

The Issuer’s obligation, if any, to pay Additional Amounts in respect of any withholding or deduction in respect of taxes imposed in a Relevant Jurisdiction under the terms of the Notes applies only to payments of interest (including, without limitation, any Arrears of Interest) and not to payments of principal.

As such, the Issuer would not be required to pay any Additional Amounts under the terms of the Notes to the extent any withholding or deduction applied to payments of principal. Accordingly, if any such withholding or deduction were to apply to any payments of principal under the Notes, Noteholders would receive less than the full amount that would otherwise be due to them under the Notes, and the market value of the Notes may be adversely affected as a result.

Integral multiples of less than £200,000

The Notes will be issued in amounts of £200,000 and integral multiples of £1,000 in excess thereof. Accordingly, it is possible that the Notes may be traded in the clearing systems in amounts in excess of £200,000 that are not integral multiples of £200,000. Should definitive Certificates be required to be issued, they will be issued in principal amounts of £200,000 and higher integral multiples of £1,000 but will in no circumstances be issued to Noteholders who hold Notes in the relevant clearing system in amounts that are less than £200,000.

If definitive Certificates are issued, Noteholders should be aware that definitive Certificates which have a denomination that is not an integral multiple of £200,000 may be illiquid and difficult to trade.

Risks related to the market generally

Absence of public markets for the Notes

The Notes constitute a new issue of securities by the Issuer. Prior to this issue, there will have been no public market for the Notes. Although application has been made for the Notes to be admitted to the Official List and to trading on the GEM, there can be no assurance that an active public market for the Notes will develop and, if such a market were to develop, the Joint Lead Managers are under no obligation to maintain such a market. Further, if such a market were to develop, it may not be liquid. Illiquidity may have a materially adverse effect on the market value of the Notes. The liquidity and the market prices for the Notes can be expected to vary with changes in market and economic conditions, the financial condition and prospects of the Issuer and other factors that generally influence the market prices of securities. In particular, given the

interest deferral provisions of the Notes, if any market develops in the Notes it may be illiquid and volatile, especially if the Issuer is required to defer any interest payment (or if the market anticipates such a deferral) or if the Issuer’s financial condition deteriorates such that there is an increased risk that the Issuer may be wound up or put into administration. There can be no assurance that an investor in the Notes will be able to sell their Notes at any given time, or that any sale of Notes would be at a price which enables such holder to recover its original investment in the Notes or at prices that will provide them with a yield comparable to similar investments that have a developed secondary market. Publicly traded securities from time to time experience significant price and volume fluctuations that may be unrelated to the operating performance of the companies that have issued them, and such volatility may be increased in an illiquid market.

See also “The market value of the Notes may be influenced by factors beyond the Issuer’s control” below.

Exchange rate risks and exchange controls

Payments of principal and interest (including any Arrears of Interest) on the Notes will be made in Sterling. This presents certain risks relating to currency conversions if an investor’s financial activities are denominated principally in a currency or currency unit (the “Investor’s Currency”) other than Sterling. These include the risk that exchange rates may significantly change (including changes due to devaluation of Sterling or revaluation of the Investor’s Currency) and the risk that authorities with jurisdiction over the Investor’s Currency may impose or modify exchange controls. An appreciation in the value of the Investor’s Currency relative to Sterling would, all else being constant, decrease (i) the Investor’s Currency equivalent yield on the Notes, (ii) the Investor’s Currency equivalent value of the principal payable on the Notes and (iii) the Investor’s Currency equivalent market value of the Notes.

Governments and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate or the transferability or convertibility of any payment. As a result, investors may receive less interest or principal than expected, or no interest or principal.

Credit ratings assigned to the Issuer or the Notes may not reflect all risks

Any credit ratings assigned to the Notes may not reflect the potential impact of all risks related to structure, market, additional factors discussed above, and other factors that may affect the value of the Notes. A credit rating is not a recommendation to buy, sell or hold securities and may be revised or withdrawn by the rating agency at any time.

Any rating assigned to the Issuer and/or the Notes may be withdrawn entirely by a credit rating agency, may be suspended or may be lowered, if, in that credit rating agency’s judgment, circumstances relating to the basis of the rating so warrant. The credit rating agencies may also revise the ratings methodologies applicable to issuers within a particular industry or political or economic region. If credit rating agencies perceive there to be adverse changes in the factors affecting the Issuer’s credit rating, including by virtue of change to applicable ratings methodologies, the credit rating agencies may downgrade, suspend or withdraw the ratings

assigned to the Issuer and/or its securities, which in turn could reduce the liquidity or market value of the Notes.

In addition, rating agencies other than Moody’s could seek to rate the Issuer or the Notes. This may include unsolicited ratings which are lower than the comparable ratings assigned to the Notes by Moody’s. Any adverse change in the credit rating assigned to the Notes by Moody’s or the assignment of an unfavourable rating (whether solicited or unsolicited) by another rating agency may adversely affect the market value of the Notes.

The market value of the Notes may be influenced by factors beyond the Issuer’s control

Many factors, most of which are beyond the Issuer’s control, will influence the market value of the Notes and the price, if any, at which securities dealers may be willing to purchase or sell the Notes in the secondary market. Such factors include any credit ratings assigned to the Issuer and the Notes (and any subsequent downgrading thereof), the creditworthiness of the Issuer and in particular the Issuer and the Group’s compliance with the Solvency Capital Requirement and the Minimum Capital Requirement, supply and demand for the Notes, the interest rate applicable to the Notes, exchange rates and macro-economic, political, regulatory or judicial events which affect the Issuer or the markets in which it operates.

Interest rate risks

Investment in the Notes, which bear a fixed rate of interest, involves the risk that subsequent increases in market interest rates may adversely affect the market value of the Notes.

Legal investment considerations may restrict certain investments

The investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent (i) the Notes are legal investments for it, (ii) the Notes can be used as collateral for various types of borrowing and (iii) other restrictions apply to its purchase or pledge of the Notes. Financial institutions should consult their legal advisers or the appropriate regulators to determine the appropriate treatment of the Notes under any applicable risk-based capital or similar rules.

The Notes are complex financial instruments and are not a suitable or appropriate investment for all investors

The Notes are complex financial instruments and are not a suitable or appropriate investment for all investors. Each potential investor in the Notes should determine the suitability of such investment in light of its own circumstances. In particular, each potential investor should:

(iii) understand thoroughly the terms of the Notes, including (without limitation) the situations in which interest payments may be deferred and/or payments of principal may be suspended; and

(iv) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.

Investors must rely on the procedures of Euroclear and Clearstream, Luxembourg for transfer, payment and communication with the Issuer

The Notes will be represented by the Global Certificate upon issue. The Global Certificate will be registered in the name of a nominee for the Common Depositary for Euroclear and Clearstream, Luxembourg. Except in the circumstances described in the Global Certificate, investors will not be entitled to receive definitive Notes. Euroclear and Clearstream, Luxembourg will maintain records of the beneficial interests in the Global Certificate. While the Notes are represented by the Global Certificate, investors will be able to trade their beneficial interests only through Euroclear or Clearstream, Luxembourg and will receive and provide any notices only through Euroclear or Clearstream, Luxembourg.

While the Notes are represented by the Global Certificate, the Issuer will discharge its payment obligations under the Notes by making payments to or to the order of the registered holder as nominee for the Common Depositary for Euroclear or Clearstream, Luxembourg for distribution to their accountholders. A holder of a beneficial interest in the Global Certificate must rely on the procedures of Euroclear and Clearstream, Luxembourg to receive payments under the Notes. The Issuer has no responsibility or liability for the records relating to, or payments made in respect of, beneficial interests in the Global Certificate.

Yield

Investors should note that the indication of the yield of the Notes provided at page 146 below applies only to investments made at the issue price and not to investments made above or below the issue price. If an investor invests in the Notes at a price above or below the issue price, the yield on that investment will be different from that provided below. In addition, the

indication of the yield is calculated as at the date of issue of the Notes and is not an indication of future yield.

DOCUMENTS INCORPORATED BY REFERENCE

These Listing Particulars should be read and construed in conjunction with the following documents:

(A) the audited consolidated and non-consolidated financial statements (including the notes thereto) of the Issuer for the financial year ended 31 December 2018, together with the audit reports thereon, as set out on pages 122-189 of the Issuer’s Annual Report and Accounts 2018 (the “Issuer’s 2018 Annual Financial Statements”);

(B) the audited consolidated and non-consolidated financial statements (including the notes thereto) of the Issuer for the financial year ended 31 December 2019, together with the audit report thereon, as set out on pages 143-219 of the Issuer’s Annual Report and Accounts 2019 (the “Issuer’s 2019 Annual Financial Statements” and together with the Issuer’s 2018 Annual Financial Statements, the “Issuer’s Annual Financial Statements”);

(C) pages 39 to 49 (Valuation for solvency purposes), 50 to 61 (Capital management) and 64 to 68 (Report of the external independent Auditor) of the solvency and financial condition report of the Issuer for the financial year ended 31 December 2019 (the “Issuer’s 2019 SFCR”); and

(D) the unaudited trading update of the Issuer for the three months ended 31 March 2020 published on 6 May 2020 (the “Issuer’s Q1 2020 Trading Update”), all of which have been previously published or are published simultaneously with these Listing Particulars and which have been approved by Euronext Dublin or filed with it. Such documents shall be incorporated in, and form part of, these Listing Particulars, save that any statement contained in a document which is incorporated by reference herein shall be modified or superseded for the purpose of these Listing Particulars to the extent that a statement contained herein modifies or supersedes such earlier statement (whether expressly, by implication or otherwise). Any statement so modified or superseded shall not, except as so modified or superseded, constitute a part of these Listing Particulars. Those parts of the documents incorporated by reference in these Listing Particulars which are not specifically incorporated by reference in these Listing Particulars are either not relevant for prospective investors in the Notes or the relevant information is included elsewhere in these Listing Particulars. Any documents themselves incorporated by reference in the documents incorporated by reference in these Listing Particulars shall not form part of these Listing Particulars.

Copies of documents incorporated by reference in these Listing Particulars may be obtained (without charge) from www.directlinegroup.com/investors.

TERMS AND CONDITIONS OF THE NOTES

The following is the text of the terms and conditions of the Notes (as defined below) that, save for the text in italics, shall be applicable to the Certificates (as defined below) in definitive form (if any) issued in exchange for the Global Certificate representing the Notes. The full text of these terms and conditions shall be endorsed on the Certificates relating to such Notes. Provisions in italics do not form part of the Conditions (as defined below).

The £260,000,000 4.000 per cent. Subordinated Tier 2 Notes due 2032 (the “Notes”, which expression shall in these Conditions, unless the context otherwise requires, include any Further Notes issued pursuant to Condition 16 (Further Issues)) of Direct Line Insurance Group plc (the “Issuer”) are constituted by a trust deed dated 5 June 2020 (as modified and/or supplemented from time to time, the “Trust Deed”) between the Issuer and BNY Mellon Corporate Trustee Services Limited (the “Trustee”, which expression shall include all persons for the time being the trustee or trustees under the Trust Deed) as trustee for the holders of the Notes.

These terms and conditions (the “Conditions”) include summaries of, and are subject to, the detailed provisions of the Trust Deed, which includes the forms of the Certificates referred to below. An agency agreement dated 5 June 2020 (as modified and/or supplemented from time to time, the “Agency Agreement”) has been entered into in relation to the Notes between the Issuer, the Trustee, The Bank of New York Mellon SA/NV, Luxembourg Branch as registrar, The Bank of New York Mellon, London Branch as principal paying agent and as transfer agent and the other paying agents named in it. The principal paying agent, the paying agents, the registrar and the transfer agent for the time being are referred to below respectively as the “Principal Paying Agent”, the “Paying Agents” (which expression shall include the Principal Paying Agent), the “Registrar” and the “Transfer Agent”.

Copies of the Trust Deed and the Agency Agreement are available for inspection during normal business hours by the Noteholders at the specified offices of the Paying Agents and the Transfer Agent.

The Noteholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and are deemed to have notice of each of the provisions of the Agency Agreement applicable to them.

The owners shown in the records of each of Euroclear Bank SA/NV and Clearstream Banking S.A. (together, the “Clearing Systems”) of book-entry interests in Notes are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and are deemed to have notice of each of the provisions of the Agency Agreement applicable to them.

Capitalised terms and expressions used in these Conditions but not otherwise defined herein shall, unless the context requires otherwise, have the meanings given to them in the Trust Deed.

1. Form, Denomination and Title

1.1 Form and Denomination

The Notes are issued in registered form in amounts of £200,000 and integral multiples of £1,000 in excess thereof. A note certificate (each a “Certificate”) will be issued to each Noteholder in respect of its registered holding of Notes. Each Certificate will be numbered serially with an identifying number which will be recorded on the relevant Certificate and in the register of Noteholders which the Issuer will procure to be kept by the Registrar (the “Register”).

1.2 Title

Title to the Notes passes only by registration in the Register. The holder of any Note will (except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any interest or any writing on, or the theft or loss of, the Certificate issued in respect of it) and no person will be liable for so treating the holder. In these Conditions, “Noteholder” and (in relation to a Note) “holder” means the person in whose name a Note is registered in the Register.

2. Transfers of Notes and Issue of Certificates

2.1 Transfers

A Note may be transferred by depositing the Certificate issued in respect of that Note, with the form of transfer on the back duly completed and signed, at the specified office of the Transfer Agent.

2.2 Delivery of new Certificates

Each new Certificate to be issued upon a transfer of Notes will, within five (5) Business Days of receipt by the Transfer Agent of the duly completed form of transfer endorsed on the relevant Certificate, be mailed by uninsured mail at the risk of the holder entitled to the Note to the address specified in the form of transfer.

Where some but not all of the Notes in respect of which a Certificate is issued are to be transferred, a new Certificate in respect of the balance of Notes not so transferred will, within five (5) Business Days of receipt by the Transfer Agent of the original Certificate, be mailed by uninsured mail at the risk of the holder entitled to such balance of Notes not transferred to the address of such holder appearing on the Register or as specified in the form of transfer.

2.3 Formalities free of charge

Registration of transfer of any Notes will be effected without charge by or on behalf of the Issuer or the Transfer Agent but upon payment (or the giving of such indemnity as the Issuer or the Transfer Agent may reasonably require) in respect of any tax or other governmental charges which may be imposed in relation to such transfer.

2.4 Closed periods

No Noteholder may require the transfer of a Note to be registered during the period of fifteen (15) days ending on the due date for any payment of principal, interest or Arrears of Interest on that Note.

2.5 Regulations

All transfers of Notes and entries on the Register will be made subject to the detailed regulations concerning transfer of Notes scheduled to the Agency Agreement. The regulations may be changed by the Issuer with the prior written approval of the Registrar and the Trustee. A copy of the current regulations will be mailed (free of charge) by the Registrar to any Noteholder who requests one.

3. Status of the Notes

The Notes constitute direct, unsecured and subordinated obligations of the Issuer and rank pari passu and without any preference among themselves. The rights and claims of the Noteholders are subordinated as described in Condition 4 (Subordination).

4. Subordination

4.1 Solvency Condition

Other than in an Issuer Winding-Up, all payments in respect of or arising from (including any damages for breach of any obligations under) the Notes and the Trust Deed (other than payments made to the Trustee acting on its own account under the Trust Deed) shall be conditional upon the Issuer being solvent at the time for payment by the Issuer and no amount shall be due and payable by the Issuer in respect of or arising from (including any damages for breach of any obligations under) the Notes and the Trust Deed (other than aforesaid) except to the extent that the Issuer could make such payment and still be solvent immediately thereafter (the “Solvency Condition”).

For the purposes of this Condition 4.1, the Issuer will be “solvent” if:

(A) it is able to pay its debts owed to Senior Creditors and Pari Passu Creditors as they fall due; and

(B) its Assets exceed its Liabilities (other than Liabilities to persons who are Junior Creditors).

A certificate as to solvency of the Issuer signed by two (2) Directors or, if there is a winding-up or administration of the Issuer, the liquidator or, as the case may be, the administrator of the Issuer shall, in the absence of manifest error, be treated and accepted by the Issuer, the Trustee, the Noteholders and all other interested parties as correct and sufficient evidence thereof, shall be binding on all such persons and the Trustee shall be entitled to rely on such certificate without liability or enquiry to any person.

Any payment of interest that would have been due and payable but for the operation of this Condition 4.1 shall be deferred and shall be paid only as provided in Condition 6 (Deferral of Interest). The Issuer shall notify the Noteholders, the Trustee and the Principal Paying Agent of any such deferral of any payment of interest as provided in Condition 6.5 (Notice of Deferral) (provided that failure to make such notification shall not oblige the Issuer to make payment of such interest, or cause the same to become due and payable, on such date).

4.2 Ranking on an Issuer Winding-Up

If, at any time:

(A) an order is made, or an effective resolution is passed, for the winding-up or liquidation of the Issuer (other than an Approved Winding-up); or

(B) an administrator of the Issuer is appointed and such administrator declares, or gives notice that it intends to declare and distribute, a dividend,

(the events in (A) and (B) each being an “Issuer Winding-Up”) the rights and claims of the Trustee (on behalf of the Noteholders but not the rights and claims of the Trustee acting on its own account under the Trust Deed) and the Noteholders against the Issuer in respect of or arising under the Notes and the Trust Deed (including any damages awarded for breach of any obligations thereunder) will be subordinated in the manner provided in the Trust Deed to the claims of all Senior Creditors and shall rank:

(i) at least pari passu with all claims of holders of all other subordinated obligations of the Issuer which constitute, and all claims relating to a guarantee or other like or similar undertaking or arrangement given or undertaken by the Issuer in respect of any obligations of any other person which constitute, or (in either case) would but for any applicable limitation on the amount of such capital constitute, Tier 2 Capital (including, without limitation and for so long as any of the same remain outstanding, the Issuer’s £250,000,000 Fixed/Floating Rate Guaranteed Subordinated Notes due 2042, with ISIN: XS0773947618) and all obligations which rank, or are expressed to rank, pari passu therewith (“Pari Passu Obligations”); and

(ii) in priority to the claims of holders of (i) all obligations of the Issuer which constitute, and all claims relating to a guarantee or other like or similar undertaking or arrangement given or undertaken by the Issuer in respect of any obligations of any other person which constitute, or (in either case) would but for any applicable limitation on the amount of such capital constitute, Tier 1 Capital (including, without limitation and for so long as any of the same remain outstanding, the Issuer’s £350,000,000 Fixed Rate Reset Perpetual Restricted Tier 1 Contingent Convertible Notes, with ISIN: XS1728036366); (ii) all other obligations of the Issuer which rank, or are expressed to rank, junior to the Notes; and (iii) all classes of share capital of the Issuer (together, the “Junior Obligations”).

4.3 Set-off and counterclaim

By the holding, acquisition or acceptance of any Note, each Noteholder and the Trustee, on behalf of each Noteholder, will be deemed to have waived any right of set- off or counterclaim that such Noteholder (or the Trustee on its behalf) might otherwise have against the Issuer in respect of or arising under the Notes whether prior to or in bankruptcy, winding-up or administration. Notwithstanding the preceding sentence, if any of the rights and claims of any Noteholder in respect of or arising under or in connection with the Notes are discharged by set-off, such Noteholder will, subject to applicable law, immediately pay an amount equal to the amount of such discharge to the Issuer or, if applicable, the liquidator, trustee, receiver or administrator of the Issuer and, until such time as payment is made, will hold a sum equal to such amount on trust for the Issuer or, if applicable, the liquidator, trustee, receiver or administrator in the Issuer’s bankruptcy, winding-up or administration. Accordingly, any such discharge will be deemed not to have taken place.

4.4 Trustee

The provisions of this Condition 4 apply only to the principal, interest and other amounts payable in respect of or arising from (including any damages for breach of any obligations under) the Notes and (save as expressly provided in the remainder of this sentence) the Trust Deed, provided that nothing in this Condition 4 or Condition 11 (Events of Default) shall affect or prejudice the payment of the costs, charges, expenses, liabilities or remuneration of the Trustee or the rights and remedies of the Trustee in respect thereof.

The Trustee shall have no responsibility for, or liability or obligation in respect of, any loss, claim or demand incurred as a result of or in connection with any deferral or suspension of payment of interest or other amounts by reason of Condition 4.1 (Solvency Condition), Condition 6 (Deferral of Interest) or Condition 7 (Redemption, Substitution, Variation and Purchase). Furthermore, the Trustee shall not be responsible for any calculation or the verification of any calculation in connection with the foregoing.

5. Interest

5.1 Interest Rate

(A) Each Note bears interest on its principal amount outstanding at the rate of 4.000 per cent. per annum from (and including) the Issue Date in accordance with the provisions of this Condition 5.

Subject to Condition 4.1 (Solvency Condition) and Condition 6 (Deferral of Interest), interest shall be payable on the Notes in equal instalments semi- annually in arrear on each Interest Payment Date, in each case as provided in this Condition 5.

Interest in respect of the Notes shall be calculated per £1,000 in principal amount outstanding of the Notes (the “Calculation Amount”). Accordingly, the

amount of interest which will, subject to Condition 4.1 (Solvency Condition) and Condition 6 (Deferral of Interest), be payable on each Interest Payment Date will be £20.00 per Calculation Amount.

(B) Where it is necessary to compute an amount of interest in respect of any Note in respect of a payment date other than an Interest Payment Date, the amount of interest payable (subject as aforesaid) per Calculation Amount shall be equal to the product of the Calculation Amount and the rate of interest referred to in Condition 5.1(A) and the Day Count Fraction, rounding the resulting figure to the nearest pence (half a pence being rounded upwards).

In these Conditions, “Day Count Fraction” means, in respect of any relevant period, (a) the actual number of days in the period from and including the date from which interest begins to accrue (the “Accrual Date”) to but excluding the date on which it falls due divided by (b) twice the actual number of days from and including the Accrual Date to but excluding the next following Interest Payment Date.

5.2 Interest Accrual

Without prejudice to Condition 4.1 (Solvency Condition) and Condition 6 (Deferral of Interest), interest shall cease to accrue on each Note from (and including) the date of redemption thereof pursuant to Condition 7 (Redemption, Substitution, Variation and Purchase) (which shall, in the case of deferral of a redemption date in accordance with Condition 7.2 (Conditions to Redemption and Purchase) or Condition 7.4 (Suspension of Redemption), be the latest date to which redemption of the Notes is so deferred) unless payment is improperly withheld or refused, in which event interest shall continue to accrue (in each case, both before and after judgment) as provided in the Trust Deed.

6. Deferral of Interest

6.1 Mandatory Deferral of Interest

Payment of interest on the Notes by the Issuer will be mandatorily deferred in full on each Mandatory Interest Deferral Date. The Issuer shall notify the Noteholders, the Trustee and the Principal Paying Agent of any Mandatory Interest Deferral Date as provided in Condition 6.5 (Notice of Deferral) (provided that failure to make such notification shall not oblige the Issuer to make payment of such interest, or cause the same to become due and payable, on such date).

A certificate signed by two (2) Directors confirming that (a) a Regulatory Deficiency Interest Deferral Event has occurred and is continuing, or would occur if payment of interest on the Notes were to be made or (b) a Regulatory Deficiency Interest Deferral Event has ceased to occur and/or payment of interest on the Notes would not result in a Regulatory Deficiency Interest Deferral Event occurring, shall, in the absence of manifest error, be treated and accepted by the Issuer, the Trustee, the Noteholders and all other interested parties as correct and sufficient evidence thereof, shall be binding on all such persons and the Trustee shall be entitled to rely on such certificate without liability or enquiry to any person.

6.2 No default

Notwithstanding any other provision in these Conditions or in the Trust Deed, the deferral by the Issuer of any payment of interest (i) on a Mandatory Interest Deferral Date in accordance with Condition 6.1 (Mandatory Deferral of Interest) or (ii) as a result of the non-satisfaction of the Solvency Condition in Condition 4.1 (Solvency Condition) will not constitute a default by the Issuer and will not give Noteholders or the Trustee any right to accelerate repayment of the Notes or take any enforcement action under the Notes or the Trust Deed.

6.3 Arrears of Interest

Any interest on the Notes not paid on an Interest Payment Date as a result of the obligation of the Issuer to defer such payment of interest pursuant to Condition 6.1 (Mandatory Deferral of Interest) or the operation of the Solvency Condition in Condition 4.1 (Solvency Condition) shall, together with any other interest not paid on any earlier Interest Payment Dates (without double counting), to the extent and so long as the same remains unpaid, constitute “Arrears of Interest”. Arrears of Interest shall not themselves bear interest.

6.4 Payment of Arrears of Interest

Any Arrears of Interest may, subject to Condition 4.1 (Solvency Condition) and to satisfaction of the Regulatory Clearance Condition, be paid by the Issuer in its sole discretion, in whole or in part, at any time (provided that at such time a Regulatory Deficiency Interest Deferral Event is not subsisting and would not occur if payment of such Arrears of Interest were made) upon the expiry of not less than 14 days’ notice to such effect given by the Issuer to the Trustee, the Principal Paying Agent and the Noteholders in accordance with Condition 13 (Notices) and in any event will become due and payable by the Issuer (subject, in the case of (A) and (C) below, to Condition 4.1 (Solvency Condition) and to satisfaction of the Regulatory Clearance Condition) in whole (and not in part) upon the earliest of the following dates:

(A) the next Interest Payment Date which is not a Mandatory Interest Deferral Date; or

(B) the date on which an Issuer Winding-Up occurs; or

(C) the date fixed for any redemption of Notes pursuant to, or purchase of Notes in accordance with, Condition 7 (Redemption, Substitution, Variation and Purchase) (subject to any deferral of such redemption date pursuant to Condition 7.2 (Conditions to Redemption and Purchase) or Condition 7.4 (Suspension of Redemption)).

6.5 Notice of Deferral

The Issuer shall notify the Trustee (which may, for the avoidance of doubt, be delivered in a certificate signed by two (2) Directors), the Principal Paying Agent and the

Noteholders in accordance with Condition 13 (Notices) not less than five (5) Business Days prior to an Interest Payment Date:

(A) if that Interest Payment Date is a Mandatory Interest Deferral Date and specifying that interest will not be paid because a Regulatory Deficiency Interest Deferral Event has occurred and is continuing or would occur if payment of interest was made on such Interest Payment Date, provided that if a Regulatory Deficiency Interest Deferral Event occurs (or is determined) less than five (5) Business Days prior to an Interest Payment Date, the Issuer shall give notice of the interest deferral as described above as soon as reasonably practicable following the occurrence (or determination) of such event; or

(B) if payment of interest is to be deferred on that Interest Payment Date only as a result of the non-satisfaction of the Solvency Condition and specifying the same, provided that if the Issuer becomes aware of such non-satisfaction of the Solvency Condition less than five (5) Business Days prior to an Interest Payment Date, the Issuer shall give notice of the interest deferral as described above as soon as reasonably practicable following it becoming so aware.

7. Redemption, Substitution, Variation and Purchase

7.1 Redemption at Maturity

Subject to Condition 7.2 (Conditions to Redemption and Purchase), unless previously redeemed or purchased and cancelled as provided below, the Issuer will redeem the Notes at their principal amount on the Maturity Date together with any Arrears of Interest and any other accrued and unpaid interest to (but excluding) the Maturity Date.

7.2 Conditions to Redemption and Purchase

To the extent required pursuant to the Relevant Rules at the relevant time, and save as otherwise permitted pursuant to Condition 7.3 (Waiver of Redemption and Purchase Condition relating to Solvency Capital Requirement by Relevant Regulator), the Issuer may not redeem or purchase any Notes unless each of the following conditions is satisfied:

(A) the relevant date of any redemption or purchase of the Notes is on or after the fifth (5th) anniversary of the Reference Date unless:

(ii) in the case of a redemption pursuant to Condition 7.7 (Redemption, substitution or variation at the option of the Issuer for taxation reasons) or Condition 7.8 (Redemption, substitution or variation at the option of the Issuer due to a Capital Disqualification Event), the Issuer has demonstrated to the satisfaction of the Relevant Regulator (such

satisfaction to be conclusively evidenced by satisfaction of the Regulatory Clearance Condition in respect of such redemption) that:

(2) either (a) (in the case of a redemption pursuant to Condition 7.7 (Redemption, substitution or variation at the option of the Issuer for taxation reasons)) the applicable change in tax treatment is material and was not reasonably foreseeable as at the Issue Date (and, if any Further Notes are issued, as at the issue date of such Further Notes), or (b) (in the case of a redemption pursuant to Condition 7.8 (Redemption, substitution or variation at the option of the Issuer due to a Capital Disqualification Event)) the relevant change in the regulatory classification of the Notes is sufficiently certain and was not reasonably foreseeable as at the Issue Date (and, if any Further Notes are issued, as at the issue date of such Further Notes);

(E) no Insolvent Insurer Winding-up has occurred and is continuing;

(F) the Regulatory Clearance Condition is satisfied; and/or

(G) any other additional or alternative requirements or pre-conditions to which the Issuer is otherwise subject and which may be imposed by the Relevant Regulator or the Relevant Rules have (in addition or in the alternative to the foregoing subparagraphs, as the case may be) been complied with (and shall continue to be complied with following the proposed redemption or purchase), the conditions set out in paragraphs (A) to (G) (inclusive) above (to the extent required pursuant to the Relevant Rules at the relevant time as aforesaid) being the “Redemption and Purchase Conditions”.

If on the proposed date for redemption of the Notes the Redemption and Purchase Conditions are not met, redemption of the Notes shall instead be suspended and such

redemption shall occur only in accordance with Condition 7.4 (Suspension of Redemption).

If on the proposed date for any purchase by the Issuer of the Notes, the Redemption and Purchase Conditions are not met, such purchase of the Notes shall be cancelled.

A certificate signed by two (2) Directors confirming compliance with the Redemption and Purchase Conditions in respect of any redemption or purchase shall, in the absence of manifest error, be treated and accepted by the Issuer, the Trustee, the Noteholders and all other interested parties as correct and sufficient evidence thereof, shall be binding on all such persons and the Trustee shall be entitled to rely on such certificate without liability or enquiry to any person.

7.3 Waiver of Redemption and Purchase Condition relating to Solvency Capital Requirement by Relevant Regulator

Notwithstanding Condition 7.2 (Conditions to Redemption and Purchase), the Issuer shall be entitled to redeem or purchase Notes (to the extent permitted by the Relevant Rules) where:

(A) all Redemption and Purchase Conditions are met other than that described in paragraph (C) of Condition 7.2 (Conditions to Redemption and Purchase);

(B) the Relevant Regulator has exceptionally waived the suspension of redemption or, as the case may be, purchase of the Notes;

(C) all (but not some only) of the Notes being redeemed or purchased at such time are exchanged for a new issue of Tier 1 Own Funds or Tier 2 Own Funds of the same or higher quality than the Notes; and

(D) the Minimum Capital Requirement will be complied with immediately following such redemption or purchase, if made.

A certificate signed by two (2) Directors confirming that the conditions set out in this Condition 7.3 are met, shall, in the absence of manifest error, be treated and accepted by the Issuer, the Trustee, the Noteholders and all other interested parties as correct and sufficient evidence thereof, shall be binding on all such persons and the Trustee shall be entitled to rely on such certificate without liability or enquiry to any person.

7.4 Suspension of Redemption

(A) The Issuer shall notify the Trustee (which may, for the avoidance of doubt, be delivered in a certificate signed by two (2) Directors), the Principal Paying Agent and the Noteholders in accordance with Condition 13 (Notices) no later than five (5) Business Days prior to the Maturity Date or any other date set for redemption of the Notes if such redemption is to be suspended in accordance with this Condition 7, provided that if an event occurs or is determined less than five (5) Business Days prior to the date set for redemption that results in the Redemption and Purchase Conditions ceasing to be met, the Issuer shall notify

the Trustee, the Principal Paying Agent and the Noteholders in accordance with Condition 13 (Notices) as soon as reasonably practicable following the occurrence of such event or such determination, as the case may be.

(B) If redemption of the Notes does not occur on the Maturity Date or, as applicable, the date specified in the notice of redemption by the Issuer under Conditions 7.6 (Redemption at the Option of the Issuer), 7.7 (Redemption, substitution or variation at the option of the Issuer for taxation reasons), 7.8 (Redemption, substitution or variation at the option of the Issuer due to a Capital Disqualification Event) or 7.9 (Clean-up redemption at the option of the Issuer) as a result of the operation of Condition 7.2 (Conditions to Redemption and Purchase), the Issuer shall redeem such Notes at their principal amount outstanding together with any Arrears of Interest and any other accrued and unpaid interest to (but excluding) the date of redemption, upon the earlier of:

(i) the date falling ten (10) Business Days after the date on which the Redemption and Purchase Conditions are met or redemption of the Notes is otherwise permitted pursuant to Condition 7.3 (Waiver of Redemption and Purchase Condition relating to Solvency Capital Requirement by Relevant Regulator) (unless on such tenth (10th) Business Day the Redemption and Purchase Conditions are again not met or the redemption of the Notes on such date would result in the Redemption and Purchase Conditions ceasing to be met (in each case save for the Redemption and Purchase Condition at paragraph (C) of Condition 7.2 to the extent waived under Condition 7.3), in which case the provisions of Condition 7.2 (Conditions to Redemption and Purchase) and this paragraph (i) of this Condition 7.4(B) will apply mutatis mutandis to determine the rescheduled due date for redemption of the Notes); or

(ii) the date on which an Issuer Winding-Up occurs.

The Issuer shall notify the Trustee (which may, for the avoidance of doubt, be delivered in a certificate signed by two (2) Directors), the Principal Paying Agent and the Noteholders in accordance with Condition 13 (Notices) no later than five (5) Business Days prior to any such date set for redemption pursuant to (i) or (if reasonably practicable in the circumstances) (ii) above.

(C) A certificate signed by two (2) Directors confirming that: (i) the Redemption and Purchase Conditions are not met or would cease to be met if the proposed redemption or purchase were to be made; or (ii) the Redemption and Purchase Conditions are met and would continue to be met if the proposed redemption or purchase were to be made, shall, in the absence of manifest error, be treated and accepted by the Issuer, the Trustee, the Noteholders and all other interested parties as correct and sufficient evidence thereof, shall be binding on all such persons and the Trustee shall be entitled to rely on such certificate without liability or enquiry to any person.

7.5 Suspension of Redemption and Cancellation of Purchases Not a Default

Notwithstanding any other provision in these Conditions or in the Trust Deed, the suspension of redemption of the Notes and any cancellation of any purchases of any Notes in accordance with this Condition 7 will not constitute a default by the Issuer and will not give Noteholders or the Trustee any right to accelerate the Notes or take any enforcement action under the Notes or the Trust Deed.

7.6 Redemption at the Option of the Issuer

Provided that the Redemption and Purchase Conditions are met, the Issuer may, having given:

(A) not less than fifteen (15) nor more than thirty (30) days’ notice to the Noteholders in accordance with Condition 13 (Notices) (which notice shall (save as provided in Condition 7.14 (Notices Final) below) be irrevocable and shall specify the date fixed for redemption); and

(B) notice to the Registrar, the Principal Paying Agent and the Trustee not less than three (3) days before the giving of the notice referred to in (A),

redeem all (but not some only) of the Notes, on any day falling in the period commencing on (and including) 5 December 2031 to and ending on (but excluding) the Maturity Date at their principal amount outstanding together with any Arrears of Interest and any other accrued and unpaid interest to (but excluding) the date of redemption.

7.7 Redemption, substitution or variation at the option of the Issuer for taxation reasons

(i) the Issuer would (if it were to make a payment of interest on such date) be required to pay Additional Amounts; or

(ii) the payment of interest would no longer be deductible for United Kingdom tax purposes; or

(whether under the group relief system current as at the Issue Date or any similar system or systems having like effect as may from time to time exist); and

(B) the effect of the foregoing cannot be avoided by the Issuer taking reasonable measures available to it,

the Issuer may at its option (without any requirement for the consent or approval of the Noteholders) and having given not less than thirty (30) nor more than sixty (60) days’ notice in writing to the Trustee, the Principal Paying Agent and, in accordance with Condition 13 (Notices), the Noteholders (which notice shall (save as provided in Condition 7.14 (Notices Final) below) be irrevocable and shall specify the date fixed for redemption, substitution or variation, as applicable) either (at its sole discretion):

(i) redeem all (but not some only) of the Notes, at any time at their principal amount outstanding together with any Arrears of Interest and any other accrued and unpaid interest to (but excluding) the date of redemption, provided that no such notice of redemption shall be given earlier than ninety (90) days prior to the earliest date on which: (i) with respect to (A)(i), the Issuer would be obliged to pay such Additional Amounts; (ii) with respect to (A)(ii), the payment of interest would no longer be deductible for United Kingdom tax purposes; or (iii) with respect to (A)(iii), the Issuer would not to any material extent be entitled to have the loss or non-trading deficit set against the profits as provided in (A)(iii), in each case were a payment in respect of the Notes then due; or

(ii) substitute at any time all (but not some only) of the Notes for, or vary the terms of the Notes so that they become or remain, Qualifying Tier 2 Notes, and the Trustee shall (subject as provided in Condition 7.10 (Trustee role on redemption, variation or substitution; Trustee not obliged to monitor) and to the receipt by it of the certificates of the Directors referred to in Condition 7.11 (Preconditions to redemption, variation or substitution for taxation reasons, Capital Disqualification Event or Clean-up Call Event) below and in the definition of “Qualifying Tier 2 Notes”) agree to such substitution or variation.

7.8 Redemption, substitution or variation at the option of the Issuer due to a Capital Disqualification Event

(A) Provided that the Redemption and Purchase Conditions are met, and subject to Condition 7.11 (Preconditions to redemption, variation or substitution for taxation reasons, Capital Disqualification Event or Clean-up Call Event), if at any time a Capital Disqualification Event has occurred and is continuing, or, as a result of any change in, or amendment to, or any change in the application or official interpretation of, any applicable law, regulation or other official publication, a Capital Disqualification Event will occur within the forthcoming period of six (6) months, then the Issuer may, having given not less than thirty (30) nor more than sixty (60) days’ notice to the Noteholders in accordance with Condition 13 (Notices), the Trustee and the Principal Paying Agent in writing, which notice must be given during the Notice Period and shall (subject as provided in Condition 7.14 (Notices Final) below) be irrevocable and shall

specify the date fixed for redemption, substitution or variation, as applicable, either (at its sole discretion):

(i) redeem all (but not some only) of the Notes at any time at their principal amount outstanding together with any Arrears of Interest and any other accrued and unpaid interest to (but excluding) the date of redemption; or

(B) For the purposes of this Condition 7.8, “Notice Period” means the six-month period commencing on the date on which the relevant Capital Disqualification Event first occurs (or, as applicable, the date on which the Issuer certifies to the Trustee (in a certificate signed by two (2) Directors (or other officers acceptable to the Trustee)) that the same will occur within a period of six (6) months), provided that if the Issuer has, during such six-month period, made such application or notification to the Relevant Regulator as is then required under the Relevant Rules for the purposes of initiating the process for satisfying the Regulatory Clearance Condition, the Notice Period shall extend to the thirtieth (30th) calendar day following satisfaction of the Regulatory Clearance Condition in respect of the redemption, substitution or variation which is the subject of the notice to which the Notice Period relates.

7.9 Clean-up redemption at the option of the Issuer

Provided that the Redemption and Purchase Conditions are met, and subject to Condition 7.11 (Preconditions to redemption, variation or substitution for taxation reasons, Capital Disqualification Event or Clean-up Call Event), if, at any time after the Issue Date, eighty (80) per cent. or more of the aggregate principal amount of the Notes originally issued (and, for these purposes, any Further Notes issued pursuant to Condition 16 (Further Issues) will be deemed to have been originally issued) has been purchased and cancelled (a “Clean-up Call Event”), then the Issuer may, at its option, having given not less than thirty (30) nor more than sixty (60) days’ notice to the Noteholders in accordance with Condition 13 (Notices), the Trustee and the Principal Paying Agent in writing, which notice shall (subject as provided in Condition 7.14 (Notices Final) below) be irrevocable and shall specify the date fixed for redemption, redeem all (but not some only) of the Notes at any time at their principal amount, together with any Arrears of Interest and any other accrued and unpaid interest to (but excluding) the date of redemption.

7.10 Trustee role on redemption, variation or substitution; Trustee not obliged to monitor

Subject to receipt by it of the certificates referred to in Condition 7.11 (Preconditions to redemption, variation or substitution for taxation reasons, Capital Disqualification Event or Clean-up Call Event) and in the definition of Qualifying Tier 2 Notes, the Trustee shall (at the expense of the Issuer) use its reasonable endeavours to co-operate with the Issuer (including, but not limited to, entering into such documents or deeds as may be necessary) to give effect to substitution or variation of the Notes for or into Qualifying Tier 2 Notes pursuant to Condition 7.7 (Redemption, substitution or variation at the option of the Issuer for taxation reasons) or Condition 7.8 (Redemption, substitution or variation at the option of the Issuer due to a Capital Disqualification Event) provided that the Trustee shall not be obliged to co-operate in or agree to any such substitution or variation of the terms if the securities into which the Notes are to be substituted or are to be varied or the co-operation in such substitution or variation imposes, in the Trustee’s opinion, more onerous obligations upon it or exposes it to additional duties or liabilities or reduces its protections and/or amends its rights. If the Trustee does not so co- operate or agree as provided above, the Issuer may, subject as provided above, redeem the Notes as provided above.

The Trustee shall not be under any duty to monitor whether any event or circumstance has happened or exists for the purposes of this Condition 7 and will not be responsible to Noteholders for any loss arising from any failure by it to do so. Unless and until the Trustee has express notice of the occurrence of any event or circumstance within this Condition 7, it shall be entitled to assume that no such event or circumstance exists.

7.11 Preconditions to redemption, variation or substitution for taxation reasons, Capital Disqualification Event or Clean-up Call Event

(A) Prior to the publication of any notice of redemption, variation or substitution pursuant to Condition 7.7 (Redemption, substitution or variation at the option of the Issuer for taxation reasons), Condition 7.8 (Redemption, substitution or variation at the option of the Issuer due to a Capital Disqualification Event) or Condition 7.9 (Clean-up redemption at the option of the Issuer), the Issuer shall deliver to the Trustee a certificate signed by two (2) Directors stating that (i) as the case may be, the Issuer is entitled to redeem, vary or substitute (as applicable) the Notes on the grounds that a Tax Event, a Capital Disqualification Event or a Clean-up Call Event has occurred and is continuing as at the date of the certificate or, as the case may be (in the case of a Capital Disqualification Event), will occur within a period of six (6) months and (in the case of a Tax Event or a Capital Disqualification Event) that it would have been reasonable for the Issuer to conclude, judged at the Issue Date, that such Tax Event or Capital Disqualification Event was unlikely to occur and (in the case of a Tax Event) the effect of the same cannot be avoided by the Issuer taking reasonable measures available to it, and (ii) the conditions specified in Condition 7.2 (Conditions to Redemption and Purchase) have been met.

(B) The Issuer shall not be entitled to amend or otherwise vary the terms of the Notes or substitute the Notes unless:

(i) it has notified the Relevant Regulator in writing of its intention to do so not less than one (1) month (or such other period as may be required by the Relevant Regulator or the Relevant Rules at the relevant time) prior to the date on which such amendment, variation or substitution is to become effective; and

(ii) the Regulatory Clearance Condition has been satisfied in respect of such proposed amendment, variation or substitution.

A certificate signed by two (2) Directors confirming the requirements set out above are met shall, in the absence of manifest error, be treated and accepted by the Issuer, the Trustee, the Noteholders and all other interested parties as correct and sufficient evidence thereof, shall be binding on all such persons and the Trustee shall be entitled to rely on such certificate without liability or enquiry to any person.

7.12 Purchases

The Issuer or any of its Subsidiaries may at any time purchase Notes in any manner and at any price subject to the Redemption and Purchase Conditions being met prior to, and at the time of, such purchase. All Notes purchased by or on behalf of the Issuer or of any Subsidiary of the Issuer may be held, reissued, resold or, at the option of the Issuer and the relevant purchaser, surrendered for cancellation to the Principal Paying Agent but whilst held may not be treated as outstanding for various purposes set out in the Trust Deed.

7.13 Cancellations

All Notes redeemed or substituted by the Issuer pursuant to this Condition 7, and all Notes purchased and surrendered for cancellation pursuant to Condition 7.12 (Purchases), will forthwith be cancelled. Any Notes so surrendered for cancellation may not be reissued or resold and the obligations of the Issuer in respect of any such Notes shall be discharged.

7.14 Notices Final

Subject and without prejudice to Conditions 4.1 (Solvency Condition), 7.2 (Conditions to Redemption and Purchase) and 7.4 (Suspension of Redemption), any notice of redemption as is referred to in Condition 7.6 (Redemption at the Option of the Issuer) or Condition 7.9 (Clean-up redemption at the option of the Issuer) and any notice of redemption, variation or substitution as is referred to in Condition 7.7 (Redemption, substitution or variation at the option of the Issuer for taxation reasons) or Condition 7.8 (Redemption, substitution or variation at the option of the Issuer due to a Capital Disqualification Event) above shall be irrevocable and on the redemption, variation or (as the case may be) substitution date specified in such notice, the Issuer shall be bound to redeem or, as the case may be, vary or substitute the Notes in accordance with the terms of the relevant Condition.

8. Payments

8.1 Payments in respect of Notes

Payment of principal and interest will be made by transfer to the registered account of the relevant Noteholder. Payments of principal, and payments of interest and Arrears of Interest due at the time of redemption of the Notes, will only be made against surrender of the relevant Certificate at the specified office of any of the Paying Agents. Save as provided in the previous sentence, interest and Arrears of Interest due for payment on the Notes will be paid to the holder shown on the Register at the close of business on the date (the “record date”) being the second day before the due date for the relevant payment.

For the purposes of this Condition 8.1, a Noteholder’s “registered account” means the Sterling account maintained by or on behalf of it with a bank that processes payments in Sterling, details of which appear on the Register at the close of business, in the case of principal, and of interest and Arrears of Interest due at the time of redemption of the Notes, on the second Business Day before the due date for payment and, in the case of any other payment of interest and Arrears of Interest, on the relevant record date.

8.2 Payments subject to applicable laws

Payments will be subject in all cases to:

(i) without prejudice to Condition 9 (Taxation), any other applicable fiscal or other laws and regulations in the place of payment or other laws and regulations to which the Issuer or its respective Paying Agents agree to be subject and the Issuer will not be liable for any taxes or duties of whatever nature imposed or levied by such laws, regulations or agreements; and

(ii) any withholding or deduction imposed or required pursuant to Sections 1471 through 1474 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), any current or future regulations or official interpretations thereof, any agreements entered into pursuant to Section 1471(b) of the Code, or any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement entered into in connection with the implementation of such Sections of the Code (or any law implementing such an intergovernmental agreement) (a “FATCA Withholding Tax”), and the Issuer will not be required to pay Additional Amounts on account of any FATCA Withholding Tax.

8.3 No commissions

No commissions or expenses shall be charged to the Noteholders in respect of any payments made in accordance with this Condition 8.

8.4 Payment on Business Days

Where payment is to be made by transfer to a registered account, payment instructions (for value the due date or, if that is not a Business Day, for value the first following day which is a Business Day) will be initiated on the Business Day preceding the due date for payment or, in the case of a payment of principal, or of a payment of interest or Arrears of Interest due at the time of redemption of the Notes, if later, on the Business Day on which the relevant Certificate is surrendered at the specified office of a Paying Agent.

Noteholders will not be entitled to any interest or other payment for any delay after the due date in receiving the amount due if the due date is not a Business Day or if the Noteholder is late in surrendering its Certificate (in circumstances where it is required to do so).

8.5 Partial payments

If the amount of principal or interest which is due on the Notes is not paid in full, the Registrar will annotate the Register with a record of the amount of principal or interest in fact paid.

8.6 Agents

The names of the initial Paying Agents and their initial specified offices are set out at the end of these Conditions. The Issuer reserves the right, subject to the prior written approval of the Trustee, at any time to vary or terminate the appointment of any Agent and to appoint additional or other Agents, provided that they will at all times maintain:

(A) a Principal Paying Agent; and

(B) a Registrar.

Notice of any termination or appointment and of any changes in specified offices of any of the Agents will be given to the Noteholders promptly by the Issuer in accordance with Condition 13 (Notices).

9. Taxation

9.1 Payment without withholding

All payments in respect of the Notes by or on behalf of the Issuer shall be made without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature (“Taxes”) imposed or levied by or on behalf of the Relevant Jurisdiction unless the withholding or deduction of the Taxes is required by law. In any such event, the Issuer will pay such additional amounts in respect of interest (including, for the avoidance of doubt, any Arrears of Interest) but not in respect of any payments of principal (“Additional Amounts”) as may be necessary in order that the net amounts received by the Noteholders after the withholding or deduction shall equal the respective amounts which would have been

received in respect of the Notes in the absence of the withholding or deduction; except that no Additional Amounts shall be payable in relation to any payment in respect of any Note:

(A) the holder of which is liable to the Taxes in respect of the Note by reason of his having some connection with the Relevant Jurisdiction other than the mere holding of the Note; or

(B) surrendered for payment (where surrender is required) in the United Kingdom in circumstances where the holder would have been able to avoid such withholding or deduction by surrendering the relevant Note to another Paying Agent having a specified office in continental Europe (provided that there is such a Paying Agent appointed at the relevant time); or

(C) in circumstances where such withholding or deduction would not be required if the holder or any person acting on his behalf had obtained and/or presented any form or certificate or had made a declaration of non-residence or similar claim for exemption to the relevant tax authority upon the making of which the holder would have been able to avoid such withholding or deduction; or

(D) surrendered for payment (where surrender is required) more than thirty (30) days after the Relevant Date except to the extent that a holder would have been entitled to Additional Amounts on surrendering the same for payment on the last day of the period of thirty (30) days assuming (whether or not such is in fact the case) that day to have been a Business Day.

Notwithstanding the above, any amounts to be paid by the Issuer on the Notes will be paid net of any deduction or withholding imposed or required pursuant to any FATCA Withholding Tax, and the Issuer will not be required to pay any Additional Amounts on account of any FATCA Withholding Tax.

9.2 Additional Amounts

Any reference in these Conditions to any amounts payable in respect of the Notes shall be deemed also to refer to any Additional Amounts which may be payable under this Condition or under any undertakings given in addition to, or in substitution for, this Condition pursuant to the Trust Deed.

10. Prescription

Claims in respect of principal and interest will become prescribed unless made within ten (10) years (in the case of principal) and five (5) years (in the case of interest, including, without limitation, Arrears of Interest) from the Relevant Date.

11. Events of Default

11.1 Proceedings for Winding-up

The right to institute winding-up proceedings in respect of the Issuer is limited to circumstances where a payment in respect of the Notes by the Issuer under the Notes or the Trust Deed has become due and is not duly paid. For the avoidance of doubt, and without prejudice to this Condition 11.1, no amount shall be due from the Issuer in circumstances where payment of such amount could not be made in compliance with the Solvency Condition, where payment is deferred by the Issuer in compliance with Condition 6.1 (Mandatory Deferral of Interest) or Condition 7.2 (Conditions to Redemption and Purchase) or where redemption is suspended pursuant to Condition 7.4 (Suspension of Redemption).

If default is made by the Issuer in the payment of principal or any interest (including, without limitation, any Arrears of Interest) in respect of the Notes and such default continues for a period of seven (7) days or more, the Trustee may at its discretion, and if so requested by Noteholders of at least one-fifth in principal amount of the Notes then outstanding or if so directed by Extraordinary Resolution shall (but in each case subject to it having been indemnified and/or secured and/or prefunded to its satisfaction), institute proceedings for the winding-up of the Issuer in England and Wales (but not elsewhere).

11.2 Amount payable on an Issuer Winding-Up

Upon the occurrence of an Issuer Winding-Up (including, for the avoidance of doubt, a winding-up initiated pursuant to Condition 11.1 (Proceedings for Winding-up)), the Trustee at its discretion may, and if so requested by Noteholders of at least one-fifth in principal amount of the Notes then outstanding or if so directed by an Extraordinary Resolution shall (but in each case subject to it having been indemnified and/or secured and/or prefunded to its satisfaction), give notice to the Issuer that the Notes are, and they shall accordingly forthwith become, immediately due and payable at the amount equal to their principal amount together with any Arrears of Interest and any other accrued and unpaid interest thereon and, if applicable, any damages awarded in respect thereof for breach of any obligations under the Notes or the Trust Deed.

Claims against the Issuer in respect of such amounts will be subordinated in accordance with Condition 4.2 (Ranking on an Issuer Winding-Up) and the Trust Deed.

11.3 Enforcement

Without prejudice to Conditions 11.1 (Proceedings for Winding-up) or 11.2 (Amount payable on an Issuer Winding-Up), the Trustee may at its discretion and without further notice institute such proceedings and/or take any other action against the Issuer as it may think fit to enforce any term or Condition binding on the Issuer under the Trust Deed or the Notes (other than any payment obligation of the Issuer under or arising from the Notes or the Trust Deed, or in respect of any damages awarded for breach of any obligations thereunder, but excluding any payments made to the Trustee acting on its own account under the Trust Deed) but in no event shall the Issuer, by virtue of the institution of any such proceedings or the taking of any such other action, be obliged to pay any sum or sums, in cash or otherwise, sooner than the same would otherwise have been payable by it.

Nothing in this Condition 11.3 shall, however, prevent the Trustee, subject to Condition 11.1 (Proceedings for Winding-up), from instituting proceedings for the winding-up of the Issuer in England and Wales and/or proving in any winding-up or administration of the Issuer (whether in England and Wales or elsewhere) and/or claiming in any liquidation of the Issuer in respect of any payment obligation of the Issuer (whether in England and Wales or elsewhere) (such claim being as provided in Condition 11.2 (Amount payable on an Issuer Winding-Up) and subordinated in the manner described in Condition 4.2 (Ranking on an Issuer Winding-Up)) where such payment obligation arises from the Notes or the Trust Deed (including, without limitation, payment of any principal, interest or Arrears of Interest or other amounts due in respect of the Notes or any damages awarded for breach of any obligations under the Notes or the Trust Deed).

11.4 Entitlement of Trustee

The Trustee shall not be bound to take any of the actions referred to in Condition 11.1 (Proceedings for Winding-up) or Condition 11.2 (Amount payable on an Issuer Winding- Up) or Condition 11.3 (Enforcement) above against the Issuer to enforce the terms of the Trust Deed, the Notes or any other action under or pursuant to the Trust Deed unless:

(A) it shall have been so directed by an Extraordinary Resolution of the Noteholders or requested in writing by the holders of at least one-fifth in principal amount of the Notes then outstanding; and

(B) it shall have been indemnified and/or secured and/or prefunded to its satisfaction.

11.5 Right of Noteholders

No Noteholder shall be entitled to proceed directly against the Issuer or to institute proceedings for the winding-up or claim in the liquidation or administration of the Issuer or to prove in such winding-up unless the Trustee, having become so bound to proceed or being able to prove in such winding-up or claim in such liquidation or administration, fails or is unable to do so within sixty (60) days and such failure or inability shall be

continuing, in which case the Noteholder shall have only such rights against the Issuer as those which the Trustee is entitled to exercise as set out in this Condition 11.

11.6 Extent of Noteholders’ remedy

No remedy against the Issuer, other than as referred to in this Condition 11, shall be available to the Trustee or the Noteholders, whether for the recovery of amounts owing in respect of the Notes or under the Trust Deed or in respect of any breach by the Issuer of any of its other obligations under or in respect of the Notes or under the Trust Deed.

12. Replacement of Certificates

If any Certificate is lost, stolen, mutilated, defaced or destroyed it may be replaced at the specified office of the Registrar upon payment by the claimant of the expenses incurred in connection with the replacement and on such terms as to evidence and indemnity as the Issuer or the Registrar may reasonably require. Mutilated or defaced Certificates must be surrendered before replacements will be issued.

13. Notices

All notices to the Noteholders will be valid if mailed to them at their respective addresses in the Register maintained by the Registrar. The Issuer shall also ensure that notices are duly given or published in a manner which complies with the rules and regulations of any stock exchange or other relevant authority on which the Notes are for the time being listed. Any notice shall be deemed to have been given on the second day after being so mailed or on the date of publication or, if so published more than once or on different dates, on the date of the first publication.

14. Meetings of Noteholders, Modification, Waiver, Authorisation and Issuer Substitution

14.1 Meetings of Noteholders

Except as provided herein, any modification to, or waiver in respect of, these Conditions or any provisions of the Trust Deed will be subject to satisfaction of the Regulatory Clearance Condition.

The Trust Deed contains provisions for convening meetings of the Noteholders to consider any matter affecting their interests, including the modification or abrogation by Extraordinary Resolution of any of these Conditions or any of the provisions of the Trust Deed. Such a meeting may be convened by the Issuer, the Trustee or Noteholders holding not less than ten (10) per cent., in principal amount of the Notes for the time being outstanding. The quorum at any meeting for passing an Extraordinary Resolution will be one (1) or more persons present holding or representing more than fifty (50) per cent. in principal amount of the Notes for the time being outstanding, or at any adjourned such meeting one (1) or more persons present whatever the principal amount of the Notes held or represented by him or them, except that, at any meeting the business of which includes the modification or abrogation of certain of the provisions of

these Conditions and certain of the provisions of the Trust Deed, the necessary quorum for passing an Extraordinary Resolution will be one (1) or more persons present holding or representing not less than two-thirds, or at any adjourned such meeting not less than one-third, of the principal amount of the Notes for the time being outstanding. An Extraordinary Resolution passed at any meeting of the Noteholders will be binding on all Noteholders, whether or not they are present at the meeting.

The Trust Deed also provides that (i) a written resolution executed, or (ii) consent given by way of electronic consents through the relevant clearing system(s) (in a form satisfactory to the Trustee), in each case by or on behalf of the holders of ninety (90) per cent. in principal amount of the Notes outstanding who would have been entitled to vote upon it if it had been proposed at a meeting at which they were present shall take effect as if it were an Extraordinary Resolution.

The agreement or approval of the Noteholders shall not be required in the case of any variation of these Conditions and/or the Trust Deed required to be made in connection with the substitution or variation of the Notes pursuant to Condition 7.7 (Redemption, substitution or variation at the option of the Issuer for taxation reasons) or Condition 7.8 (Redemption, substitution or variation at the option of the Issuer due to a Capital Disqualification Event) or any consequential amendments to these Conditions and/or the Trust Deed approved by the Trustee in connection with a substitution of the Issuer pursuant to Condition 14.5 (Issuer Substitution).

14.2 Modification, waiver, authorisation and determination

The Trustee may agree, without the consent of the Noteholders, to any modification (except as mentioned in the Trust Deed) of, or to the waiver or authorisation of any breach or proposed breach of, any of these Conditions or any of the provisions of the Trust Deed (provided that, in any such case, it is not, in the opinion of the Trustee, materially prejudicial to the interests of the Noteholders) or may agree, without any such consent as aforesaid, to any modification which, in its opinion, is of a formal, minor or technical nature or to correct a manifest error or to comply with mandatory provisions of the law of the jurisdiction in which the Issuer is incorporated.

The Issuer shall not be entitled to amend or otherwise vary the terms of the Notes unless:

(A) it has notified the Relevant Regulator in writing of its intention to do so not less than one (1) month (or such other period as may be required by the Relevant Regulator or the Relevant Rules at the relevant time) prior to the date on which such proposed amendment or variation is to become effective; and

(B) the Regulatory Clearance Condition has been satisfied in respect of such proposed amendment or variation,

in each case only if and to the extent required by the Relevant Regulator or any Relevant Rules at the relevant time.

A certificate signed by two (2) Directors confirming the requirements set out in (A) and/or (B) above are met, shall, in the absence of manifest error, be treated and accepted by the Issuer, the Trustee, the Noteholders and all other interested parties as correct and sufficient evidence thereof, shall be binding on all such persons and the Trustee shall be entitled to rely on such certificate without liability or enquiry to any person.

14.3 Trustee to have regard to interests of Noteholders as a class

In connection with the exercise by it of any of its trusts, powers, authorities and discretions (including, without limitation, any modification, waiver, authorisation, determination or substitution of obligor), the Trustee shall have regard to the general interests of the Noteholders as a class but shall not have regard to any interests arising from circumstances particular to individual Noteholders (whatever their number) and, in particular but without limitation, shall not have regard to the consequences of any such exercise for individual Noteholders (whatever their number) resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory or any political sub-division thereof and the Trustee shall not be entitled to require, nor shall any Noteholder be entitled to claim, from the Issuer, the Trustee or any other person any indemnification or payment in respect of any tax consequence of any such exercise upon individual Noteholders except to the extent already provided for in Condition 9 (Taxation) and/or any undertaking given in addition to, or in substitution for, Condition 9 (Taxation) pursuant to the Trust Deed.

14.4 Notification to the Noteholders

Any modification, abrogation, waiver, authorisation, determination or substitution effected in accordance with these Conditions shall be binding on the Noteholders and, unless the Trustee agrees otherwise, shall be notified by the Issuer to the Noteholders as soon as practicable thereafter in accordance with Condition 13 (Notices).

14.5 Issuer Substitution

Subject to the satisfaction of the Regulatory Clearance Condition, the Trustee may agree with the Issuer, without the consent of the Noteholders and subject to the Notes being (other than where the Substitute Obligor (as defined below) is the successor in business to the Issuer) unconditionally and irrevocably guaranteed by the Issuer on a subordinated basis equivalent to Condition 4 (Subordination), to the substitution of a Subsidiary or parent company of the Issuer or the successor in business to the Issuer, in any such case, in place of the Issuer as principal debtor under the Trust Deed and the Notes (each such substitute being hereinafter referred to as the “Substitute Obligor”) provided that in each case:

(A) a trust deed or some other form of undertaking, supported by one or more legal opinions, is executed by the Substitute Obligor in a form and manner satisfactory to the Trustee, agreeing to be bound by the terms of the Trust Deed and the Notes, with any consequential amendments which the Trustee may deem appropriate, as fully as if the Substitute Obligor has been named in the

Trust Deed and the Notes, as the principal debtor in place of the Issuer (or of any previous Substitute Obligor, as the case may be) (and such consequential amendments may include, without limitation, amending those references to “England and Wales” in Condition 11 (Events of Default) which are applicable to such Substitute Obligor to refer instead to the jurisdiction of incorporation of such Substitute Obligor);

(B) the Substitute Obligor certifies to the Trustee (in a certificate signed by two (2) Directors (or other officers acceptable to the Trustee) of the Substitute Obligor) that (i) it has obtained all necessary governmental and regulatory approvals and consents necessary for its assumptions of the duties and liabilities as Substitute Obligor under the Trust Deed and the Notes in place of the Issuer or, as the case may be, any previous Substitute Obligor and (ii) such approvals and consents are at the time of substitution in full force and effect (it being declared that the Trustee may rely absolutely on such certification without liability or enquiry to any person);

(C) two Directors (or other officers acceptable to the Trustee) of the Substitute Obligor certify that the Substitute Obligor is solvent at the time at which the substitution is proposed to be in effect, and immediately thereafter (it being declared that the Trustee may rely absolutely on such certification and shall not be bound to have regard to the financial condition, profits or prospects of the Substitute Obligor or to compare the same with those of the Issuer or (as the case may be) any previous Substitute Obligor);

(D) (without prejudice to the generality of sub-paragraph (A) above) the Trustee may, in the event of such substitution agree, without the consent of the Noteholders, to a change in the law governing the Trust Deed and/or the Notes if in the opinion of the Trustee such change would not be materially prejudicial to the interests of the Noteholders;

(E) if the Substitute Obligor is, or becomes, subject in respect of payments made by it of principal and/or interest (including, without limitation, Arrears of Interest) in respect of the Notes to the taxing jurisdiction of a territory or any authority of or in that territory with power to tax (the “Substituted Territory”) other than the territory of the taxing jurisdiction of which (or to any such authority of or in which) the Issuer (or any previous Substitute Obligor) is subject in respect of such payments (the “Original Territory”), the Substitute Obligor will (unless the Trustee otherwise agrees) give to the Trustee an undertaking satisfactory to the Trustee in terms corresponding to Condition 9 (Taxation) with the substitution in the definition of “Relevant Jurisdiction” (for the purposes of both Condition 9 (Taxation) Condition 7.7 (Redemption, substitution or variation at the option of the Issuer for taxation reasons)) of references to the Original Territory with references to the Substituted Territory whereupon the Trust Deed and the Notes will be read accordingly;

(F) if the Notes are rated (where such rating was assigned at the request of the Issuer) by one or more credit rating agencies of international standing immediately prior to such substitution, the Notes shall continue to be rated by

each such rating agency immediately following such substitution, and each credit rating agency shall have confirmed that the credit ratings assigned to the Notes by each such credit rating agency immediately following such substitution are expected to be no less than those assigned to the Notes immediately prior thereto; and

(G) without prejudice to the rights of reliance of the Trustee under sub-paragraphs (B) and (C) above, the Trustee shall be satisfied that the interests of the Noteholders will not be materially prejudiced by the substitution proposed pursuant to this Condition 14.5 (Issuer Substitution).

Any substitution effected in accordance with this Condition 14.5 (Issuer Substitution) shall be binding on the Noteholders and (unless the Trustee otherwise agrees) shall be notified promptly by the Issuer to the Noteholders in accordance with Condition 13 (Notices).

15. Indemnification of the Trustee and its contracting with the Issuer

15.1 Indemnification of the Trustee

The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility, including provisions relieving it from taking action unless indemnified and/or secured and/or prefunded to its satisfaction.

The Trust Deed provides that, when determining whether an indemnity or any security or pre-funding is satisfactory to it, the Trustee shall be entitled (i) to evaluate its risk in any given circumstance by considering the worst-case scenario and (ii) to require that any indemnity or security given to it by the Noteholders or any of them be given on a joint and several basis and be supported by evidence satisfactory to it as to the financial standing and creditworthiness of each counterparty and/or as to the value of the security and an opinion as to the capacity, power and authority of each counterparty and/or the validity and effectiveness of the security.

The Trustee may rely without enquiry or liability to Noteholders on a report, confirmation or certificate or opinion or any advice of any accountants, financial advisers, financial institution or other expert, whether or not addressed to it and whether their liability in relation thereto is limited (by its terms or by any engagement letter relating thereto entered into by the Trustee or in any other manner) by reference to a monetary cap, methodology or otherwise. The Trustee may accept and shall be entitled to rely on any such report, opinion, confirmation or certificate or advice and, if it does so, such report, opinion, confirmation, or certificate or advice shall be binding on the Issuer, the Trustee and the Noteholders.

15.2 Limitation on Trustee actions

The Trustee may refrain from taking any action in any jurisdiction if the taking of such action in that jurisdiction would, in its opinion based upon legal advice in the relevant jurisdiction, be contrary to any law of that jurisdiction. Furthermore, the Trustee may also refrain from taking such action if it would otherwise render it liable to any person in

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that jurisdiction or if, in its opinion based upon such legal advice, it would not have the power to do the relevant thing in that jurisdiction by virtue of any applicable law in that jurisdiction or if it is determined by any court or other competent authority in that jurisdiction that it does not have such power.

15.3 Trustee contracting with the Issuer

The Trust Deed also contains provisions pursuant to which the Trustee is entitled, inter alia: (i) to enter into business transactions with the Issuer and/or any of the Issuer’s Subsidiaries and to act as trustee for the holders of any other securities issued by, or relating to, the Issuer and/or any of the Issuer’s Subsidiaries; (ii) to exercise and enforce its rights, comply with its obligations and perform its duties under or in relation to any such transactions or, as the case may be, any such trusteeship without regard to the interests of, or consequences for, the Noteholders; and (iii) to retain and not be liable to account for any profit made or any other amount or benefit received thereby or in connection therewith.

15.4 Regulatory Clearance Condition

Wherever in these Conditions and/or the Trust Deed there is a requirement for the Regulatory Clearance Condition to be satisfied, the Trustee shall be entitled to assume without enquiry that the Regulatory Clearance Condition has been satisfied unless notified in writing to the contrary by the Issuer.

16. Further Issues

The Issuer may from time to time, without the consent of the Noteholders, create and issue further notes ranking pari passu in all respects (or in all respects save for the first payment of interest thereon) and so that the same shall be consolidated and form a single series with the outstanding Notes (“Further Notes”). Any such Further Notes shall be constituted by a deed supplemental to the Trust Deed.

17. Governing Law

The Trust Deed and the Notes, and any non-contractual obligations arising out of or in connection with the Trust Deed and/or the Notes are governed by, and shall be construed in accordance with, English law.

18. Rights of Third Parties

No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 to enforce any term or Condition of the Notes, but this does not affect any right or remedy of any person which exists or is available apart from that Act.

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19. Defined Terms

In these Conditions:

“Additional Amounts” has the meaning given to such term in Condition 9.1 (Payment without withholding);

“Agency Agreement” has the meaning given to such term in the preamble to these Conditions;

“Agents” means the Registrar, the Principal Paying Agent, the Transfer Agent and the other Paying Agents appointed from time to time under the Agency Agreement;

“Approved Winding-up” means a solvent winding-up of the Issuer solely for the purpose of a reconstruction or amalgamation or the substitution in place of the Issuer of a successor in business of the Issuer (A) the terms of which reconstruction, amalgamation or substitution: (i) have previously been approved in writing by the Trustee or by an Extraordinary Resolution or which is effected in accordance with Condition 14.5 (Issuer Substitution); and (ii) do not provide that the Notes or any amount in respect thereof shall thereby become payable; or (B) in the case of a substitution, takes effect in accordance with Condition 14.5 (Issuer Substitution) and clause 13 of the Trust Deed;

“Arrears of Interest” has the meaning given in Condition 6.3 (Arrears of Interest);

“Assets” means the unconsolidated gross assets of the Issuer as shown in the latest published audited balance sheet of the Issuer, but adjusted for subsequent events, all in such manner as the Directors may determine;

“Business Day” means:

(a) except for the purposes of Conditions 2 (Transfers of Notes and Issue of Certificates), 8.4 (Payment on Business Days) and 9.1(D) (Payment without withholding) a day (other than a Saturday, Sunday or public holiday) on which commercial banks and foreign exchange markets are open for general business in London;

(b) for the purposes of Condition 2 (Transfers of Notes and Issue of Certificates), a day (other than a Saturday, Sunday or public holiday) on which commercial banks are open for business in the city in which the specified office of the Transfer Agent with whom a Certificate is deposited in connection with a transfer is located; and

(c) for the purposes of Conditions 8.4 (Payment on Business Days) and 9.1(D) (Payment without withholding), a day (other than a Saturday, Sunday or public holiday) on which commercial banks are open for business in London and, in the case of surrender of a Certificate, in the place in which the Certificate is surrendered;

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“Calculation Amount” has the meaning given to such term in Condition 5.1 (Interest Rate); a “Capital Disqualification Event” is deemed to have occurred if, as a result of any replacement of or change to (or change to the interpretation by the Relevant Regulator or any court or authority entitled to do so of) the Relevant Rules:

(i) the whole or any part of the Notes are no longer capable of counting as Tier 2 Capital for the purposes of the Issuer; and/or

(ii) the whole or any part of the Notes are no longer capable of counting as Tier 2 Capital for the purposes of the Group, in each case whether on a solo, group or consolidated basis, and except where such non-qualification is only as a result of any applicable limitation on the amount of such capital (other than a limitation derived from any transitional or grandfathering provisions under the Relevant Rules);

“Certificate” has the meaning given to such term in Condition 1 (Form, Denomination and Title);

“Clean-up Call Event” has the meaning given to such term in Condition 7.9 (Clean-up redemption at the option of the Issuer);

“Companies Act” means the Companies Act 2006 (as amended or re-enacted from time to time);

“Conditions” has the meaning given to such term in the preamble to these Conditions;

“Day Count Fraction” has the meaning given to such term in Condition 5.1 (Interest Rate);

“Director” means any member of the board of directors of the Issuer from time to time;

“Extraordinary Resolution” has the meaning given to such term in the Trust Deed;

“FATCA Withholding Tax” has the meaning given to such term in Condition 8.2(ii) (Payments subject to applicable laws);

“Further Notes” has the meaning given to such term in Condition 16 (Further Issues);

“Group” means the Issuer and its Subsidiaries taken together;

“Group Insurance Undertaking” means an insurance undertaking or a reinsurance undertaking whose data is included for the purposes of the calculation of the Solvency Capital Requirement of the Group pursuant to the Relevant Rules;

“holder” (in relation to a Note) has the meaning given to such term in Condition 1.2 (Title);

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“Insolvent Insurer Winding-up” means:

(a) the winding-up of any Group Insurance Undertaking; or

(b) the appointment of an administrator of any Group Insurance Undertaking, in each case where the Issuer has determined, acting reasonably, that all Policyholder Claims of the policyholders or beneficiaries under contracts of insurance or reinsurance of that Group Insurance Undertaking may or will not be met in full;

“insurance undertaking” has the meaning given to it in the Relevant Rules;

“Interest Payment Date” means 5 June and 5 December in each year, commencing on 5 December 2020 up to, and including, the Maturity Date;

“Interest Period” means the period from (and including) one Interest Payment Date (or in the case of the first Interest Period, from the Issue Date) to (but excluding) the next (or in the case of the first Interest Period, the first) Interest Payment Date (or, if earlier, the date on which accrued interest otherwise becomes due and payable pursuant to these Conditions);

“Issue Date” means 5 June 2020;

“Issuer” has the meaning given to such term in the preamble to these Conditions;

“Issuer Winding-Up” has the meaning given to such term in Condition 4.2 (Ranking on an Issuer Winding-Up);

“Junior Creditors” means creditors of the Issuer whose claims rank, or are expressed to rank, junior to the claims of the Noteholders, including holders of securities which are Junior Obligations;

“Junior Obligations” has the meaning given in Condition 4.2 (Ranking on an Issuer Winding-Up);

“Liabilities” means the unconsolidated gross liabilities of the Issuer as shown in the latest published audited balance sheet of the Issuer but adjusted for contingent liabilities and for subsequent events, all in such manner as the Directors may determine;

“Maturity Date” means 5 June 2032;

“Minimum Capital Requirement” means any of the Minimum Capital Requirement of the Issuer, the Minimum Capital Requirement of the Group or the Group minimum Solvency Capital Requirement (as applicable) referred to in the Relevant Rules;

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“Noteholder” has the meaning given to such term in Condition 1.2 (Title);

“Notes” has the meaning given to such term in the preamble to these Conditions;

“Notice Period” has the meaning given to such term in Condition 7.8 (Redemption, substitution or variation at the option of the Issuer due to a Capital Disqualification Event);

“Original Territory” has the meaning given to such term in Condition 14.5 (Issuer Substitution);

“Pari Passu Creditors” means creditors of the Issuer whose claims rank, or are expressed to rank, pari passu with the claims of the Noteholders, including holders of securities which are Pari Passu Obligations;

“Pari Passu Obligations” has the meaning given in Condition 4.2 (Ranking on an Issuer Winding-Up);

“Paying Agents” has the meaning given to such term in the preamble to these Conditions;

“Policyholder Claims” means claims of policyholders or beneficiaries under contracts of insurance or reinsurance in a winding-up, liquidation or administration of a Group Insurance Undertaking to the extent that those claims relate to any debt to which the Group Insurance Undertaking is, or may become, liable to a policyholder or such a beneficiary pursuant to a contract of insurance or reinsurance, including all amounts to which policyholders or such beneficiaries are entitled under applicable legislation or rules relating to the winding-up or administration of insurance companies to reflect any right to receive, or expectation of receiving, benefits which such policyholders or such beneficiaries may have;

“Principal Paying Agent” has the meaning given to such term in the preamble to these Conditions;

“Prudential Regulation Authority” or “PRA” means the Bank of England acting as the Prudential Regulation Authority through its Prudential Regulation Committee, or such successor or other authority having primary supervisory authority with respect to prudential matters in relation to the Issuer and/or the Group;

“Qualifying Tier 2 Notes” means securities issued directly or indirectly by the Issuer that:

(a) have terms not materially less favourable to an investor than the terms of the Notes (as reasonably determined by the Issuer in consultation with an independent adviser of recognised standing, and provided that a certification to such effect (including as to the consultation with the independent adviser and in respect of the matters specified in (b)(i) to (vii) below) signed by two (2) Directors shall have been delivered to the Trustee (upon which the Trustee

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shall be entitled to rely without liability or enquiry to any person) prior to the issue of the relevant securities);

(b) subject to (a) above:

(i) contain terms which comply with the then-current requirements of the Relevant Regulator in relation to Tier 2 Capital;

(ii) bear the same rate of interest as the Notes and preserve the Interest Payment Dates;

(iii) contain terms providing for the deferral and/or suspension of payments of interest or principal only if such terms are not materially less favourable to an investor than the equivalent terms contained in the terms of the Notes (and do not contain terms providing for the cancellation of payments of interest or principal);

(iv) rank senior to, or pari passu with, the ranking of the Notes;

(v) preserve the obligations (including the obligations arising from the exercise of any right) of the Issuer as to redemption of the Notes, including (without limitation) as to timing of, and amounts payable upon, such redemption;

(vi) do not contain terms providing for or requiring the Issuer to effect principal loss absorption, whether through conversion to ordinary shares or by way of principal write-down or otherwise; and

(vii) preserve in full any rights to Arrears of Interest and accrued and unpaid interest on the Notes immediately prior to substitution or variation; and

(c) are listed or admitted to trading on Global Exchange Market of the Irish Stock Exchange plc trading as Euronext Dublin or such other stock exchange as is a Recognised Stock Exchange at that time as selected by the Issuer and approved by the Trustee;

“Recognised Stock Exchange” means a recognised stock exchange as defined in section 1005 of the Income Tax Act 2007 as amended or re-enacted from time to time, and any provision, statute or statutory instrument replacing the same from time to time;

“record date” has the meaning given to such term in Condition 8.1 (Payments in respect of Notes);

“Redemption and Purchase Conditions” has the meaning given to such term in Condition 7.2 (Conditions to Redemption and Purchase);

“Register” has the meaning given to such term in Condition 1.1 (Form and Denomination);

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“Registrar” has the meaning given to such term in the preamble to these Conditions;

“Regulatory Clearance Condition” means, in respect of any proposed act on the part of the Issuer, the Relevant Regulator having approved or consented to, or otherwise having confirmed that it does not object to, such act (in any case only if and to the extent required by the Relevant Regulator or the Relevant Rules at the relevant time);

“Regulatory Deficiency Interest Deferral Event” means any event (including, without limitation, where an Insolvent Insurer Winding-up has occurred and is continuing and any event which causes any Solvency Capital Requirement or Minimum Capital Requirement applicable to the Issuer or the Group to be breached and where the occurrence and continuation of such Insolvent Insurer Winding-up is, or as the case may be, such breach is, an event) which under the Relevant Rules would require the Issuer to defer payment of interest (including Arrears of Interest) in respect of the Notes (on the basis that the Notes are intended to qualify as Tier 2 Capital under the Relevant Rules);

“reinsurance undertaking” has the meaning given to it in the Relevant Rules;

“Reference Date” means the later of (i) the Issue Date and (ii) the latest date (if any) on which any Further Notes have been issued pursuant to Condition 16 (Further Issues);

“Relevant Date” means the date on which the payment first becomes due but, if the full amount of the money payable has not been received by an Agent or the Trustee on or before the due date, it means the date on which, the full amount of the money having been so received, notice to that effect has been duly given to the Noteholders by the Issuer in accordance with Condition 13 (Notices);

“Relevant Jurisdiction” means the United Kingdom or any political subdivision or any authority thereof or therein having power to tax or any other jurisdiction or any political subdivision or any authority thereof or therein having power to tax to which the Issuer becomes subject in respect of payments made by it of principal and interest (including Arrears of Interest) on the Notes;

“Relevant Regulator” means the PRA or any other regulatory authority exercising group supervision over the Group in accordance with the Relevant Rules;

“Relevant Rules” means, at any time, any legislation, rules or regulations (whether having the force of law or otherwise) then applying to the Issuer or the Group relating to own funds, capital resources, capital requirements, financial adequacy requirements or other prudential matters (including, but not limited to, the characteristics, features or criteria of any of the foregoing) and without limitation to the foregoing, includes (to the extent then applying as aforesaid) Solvency II and any legislation, rules or regulations of the Relevant Regulator relating to such matters; and references in these Conditions to any matter, action or condition being required or permitted by, or in accordance with, the Relevant Rules shall be construed in the context of the Relevant Rules as they apply to Tier 2 Capital;

“Senior Creditors” means creditors of the Issuer:

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(a) who are unsubordinated creditors including all policyholders (if any) or beneficiaries under contracts of insurance or reinsurance of the Issuer (if any) (and, for the avoidance of doubt, the claims of Senior Creditors who are policyholders or such beneficiaries (if any) shall include all amounts to which they would be entitled under applicable legislation or rules relating to the winding-up of insurance companies to reflect any right to receive, or expectation of receiving, benefits which policyholders or such beneficiaries may have);

(b) whose claims constitute or would, but for any applicable limitation on the amount of such capital, constitute, Tier 3 Capital of the Issuer; or

(c) whose claims otherwise are, or are expressed to be, junior to the claims of other creditors of the Issuer, whether subordinated or unsubordinated, other than claims of Pari Passu Creditors or Junior Creditors;

“Solvency Capital Requirement” means any of the Solvency Capital Requirement of the Issuer or the Group Solvency Capital Requirement (as applicable) referred to in, or any other capital requirement relating to the Issuer or the Group (other than the Minimum Capital Requirement) howsoever described in, the Relevant Rules;

“Solvency Condition” has the meaning set forth in Condition 4.1 (Solvency Condition);

“Solvency II” means the Solvency II Directive and any implementing measures adopted pursuant to the Solvency II Directive (for the avoidance of doubt, whether implemented by way of statute, regulation, implementing technical standards or by further directives, guidelines published by the European Insurance and Occupational Pensions Authority (or any successor entity) or otherwise) including, without limitation, the Solvency II Regulation;

“Solvency II Directive” means Directive 2009/138/EC of the European Union of 25 November, 2009 on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II) (as amended);

“Solvency II Regulation” means Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking up and pursuit of the business of Insurance and Reinsurance (Solvency II), as amended (including, without limitation, by Commission Delegated Regulation (EU) 2019/981);

“Sterling” or “£” means the lawful currency of the United Kingdom and “pence” shall be construed accordingly;

“Subsidiary” has the meaning given to such term under section 1162 of the Companies Act;

“Substitute Obligor” has the meaning given to such term in Condition 14.5 (Issuer Substitution);

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“Substituted Territory” has the meaning given to such term in Condition 14.5 (Issuer Substitution);

“Taxes” has the meaning given to such term in Condition 9.1 (Payment without withholding);

“Tax Event” has the meaning given to such term in Condition 7.7 (Redemption, substitution or variation at the option of the Issuer for taxation reasons);

“Tier 1 Capital” has the meaning given to such term by the Relevant Rules from time to time;

“Tier 2 Capital” has the meaning given to such term by the Relevant Rules from time to time;

“Tier 3 Capital” has the meaning given to such term by the Relevant Rules from time to time;

“Tier 1 Own Funds” means subordinated notes, ordinary shares or any other share capital of any class which constitute Tier 1 Capital for the purposes of the Issuer or the Group, whether on a solo, group or consolidated basis;

“Tier 2 Own Funds” means subordinated notes or any other obligations or share capital of any class which constitute Tier 2 Capital for the purposes of the Issuer or the Group, whether on a solo, group or consolidated basis;

“Transfer Agent” has the meaning give in the preamble to these Conditions;

“Trust Deed” has the meaning given to such term in the preamble to these Conditions; and

“Trustee” has the meaning given to such term in the preamble to these Conditions.

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SUMMARY OF PROVISIONS RELATING TO THE NOTES WHILE IN GLOBAL FORM

Initial Issue of Certificates

The Global Certificate will be registered in the name of a nominee (the “Registered Holder”) for the Common Depositary for Euroclear and Clearstream, Luxembourg and may be delivered on or prior to the original issue date of the Notes.

Upon the registration of the Global Certificate in the name of any nominee for Euroclear and Clearstream, Luxembourg and delivery of the Global Certificate to the Common Depositary, Euroclear or Clearstream, Luxembourg will credit each subscriber with a beneficial interest in a nominal amount of Notes equal to the nominal amount thereof for which it has subscribed and paid.

Relationship of Accountholders with Clearing Systems

Each of the persons shown in the records of Euroclear, Clearstream, Luxembourg or any other clearing system (an “Alternative Clearing System”) as the holder of a Note represented by a Global Certificate must look solely to Euroclear, Clearstream, Luxembourg or such Alternative Clearing System (as the case may be) for his share of each payment made by the Issuer to the holder of the Global Certificate and in relation to all other rights arising under the Global Certificate, subject to and in accordance with the respective rules and procedures of Euroclear, Clearstream, Luxembourg or such Alternative Clearing System (as the case may be). Such persons shall have no claim directly against the Issuer in respect of payments due on the Notes for so long as the Notes are represented by the Global Certificate and such obligations of the Issuer will be discharged by payment to the registered holder of the Global Certificate in respect of each amount so paid.

Exchange

The following will apply in respect of transfers of Notes held in Euroclear or Clearstream, Luxembourg or an Alternative Clearing System. These provisions will not prevent the trading of interests in the Notes within a clearing system whilst they are held on behalf of such clearing system, but will limit the circumstances in which the Notes may be withdrawn from the relevant clearing system.

Transfers of the holding of Notes represented by the Global Certificate pursuant to Condition 2.1 (Transfers) may only be made in part if the relevant clearing system is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so, provided that, in the case of the first transfer of part of a holding, the Registered Holder has given the Registrar not less than 30 days’ notice at its specified office of the Registered Holder’s intention to effect such transfer.

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Amendment to Conditions

The Global Certificate contains provisions that apply to the Notes that it represents, some of which modify the effect of the Conditions set out in these Listing Particulars. The following is a summary of certain of those provisions:

Payments

All payments in respect of Notes represented by a Global Certificate will be made to, or to the order of, the person whose name is entered on the Register at the close of business on the record date which shall be on the Clearing System Business Day immediately prior to the date for payment, where “Clearing System Business Day” means Monday to Friday inclusive except 25 December and 1 January.

Calculation of Interest

For so long as all of the Notes are represented by the Global Certificate and such Global Certificate is held on behalf of Euroclear and Clearstream, Luxembourg, interest shall be calculated on the basis of the aggregate principal amount of the Notes represented by the Global Certificate, and not per Calculation Amount as provided in Condition 5 (Interest).

Meetings

For the purposes of any meeting of Noteholders, the holder of the Notes represented by the Global Certificate shall be treated as being entitled to one vote in respect of each £1,000 in principal amount of the Notes.

Trustee’s Powers

In considering the interests of Noteholders while the Global Certificate is held on behalf of, or registered in the name of any nominee for, a clearing system, the Trustee may have regard to any information provided to it by such clearing system or its operator as to the identity (either individually or by category) of its accountholders with entitlements to the Global Certificate and may consider such interests as if such accountholders were the holders of the Notes represented by the Global Certificate.

Electronic Consent and Written Resolution

While any Global Certificate is registered in the name of any nominee for a clearing system, then:

(i) approval of a resolution proposed by the Issuer or the Trustee (as the case may be) given by way of electronic consents communicated through the electronic communications systems of the relevant clearing system(s) in accordance with their operating rules and procedures by or on behalf of the holders of not less than 90 per cent. in nominal amount of the Notes outstanding (an “Electronic Consent” as defined in the Trust Deed) shall, for all purposes (including matters that would otherwise require an Extraordinary Resolution (as defined in the Trust Deed) to be passed at a meeting for which the Special Quorum (as defined in the Trust Deed) was satisfied), take effect

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as an Extraordinary Resolution passed at a meeting of Noteholders duly convened and held, and shall be binding on all Noteholders whether or not they participated in such Electronic Consent; and

(ii) where Electronic Consent is not being sought, for the purpose of determining whether a Written Resolution (as defined in the Trust Deed) has been validly passed, the Issuer and the Trustee shall be entitled to rely on consent or instructions given in writing directly to the Issuer and/or the Trustee, as the case may be, by accountholders in the clearing system with entitlements to such Global Certificate or, where the accountholders hold any such entitlement on behalf of another person, on written consent from or written instruction by the person for whom such entitlement is ultimately beneficially held, whether such beneficiary holds directly with the accountholder or via one or more intermediaries and provided that, in each case, the Issuer and the Trustee have obtained commercially reasonable evidence to ascertain the validity of such holding and have taken reasonable steps to ensure that such holding does not alter following the giving of such consent or instruction and prior to the effecting of such amendment. Any resolution passed in such manner shall be binding on all Noteholders, even if the relevant consent or instruction proves to be defective. As used in this paragraph, “commercially reasonable evidence” includes any certificate or other document issued by Euroclear, Clearstream, Luxembourg or any other relevant clearing system, or issued by an accountholder of them or an intermediary in a holding chain, in relation to the holding of interests in the Notes. Any such certificate or other document shall, in the absence of manifest error, be conclusive and binding for all purposes. Any such certificate or other document may comprise any form of statement or print out of electronic records provided by the relevant clearing system (including Euroclear’s EUCLID or Clearstream, Luxembourg’s Creation Online system) in accordance with its usual procedures and in which the accountholder of a particular principal or nominal amount of the Notes is clearly identified together with the amount of such holding. None of the Issuer or the Trustee shall be liable to any person by reason of having accepted as valid or not having rejected any certificate or other document to such effect purporting to be issued by any such person and subsequently found to be forged or not authentic.

Notices

For so long as all of the Notes are represented by the Global Certificate and the same is held on behalf of Euroclear and Clearstream, Luxembourg, notices to Noteholders may be given by delivery of the relevant notice to Euroclear and Clearstream, Luxembourg for communication to the relevant accountholders rather than by publication as required by Condition 13 (Notices). Any such notice shall be deemed to have been given to the Noteholders on the second day after such notice is delivered to Euroclear and Clearstream, Luxembourg as aforesaid.

The Issuer shall also ensure that notices are duly given or published in a manner which complies with the rules and regulations of any stock exchange or other relevant authority on which the Notes are for the time being listed or admitted to trading.

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Prescription

Claims against the Issuer for payment in respect of principal and interest on the Notes represented by a Global Certificate will become prescribed unless made ten (10) years (in the case of principal) and five (5) years (in the case of interest, including (without limitation) Arrears of Interest) from the Relevant Date.

Clearing Systems

References herein to Euroclear and/or Clearstream, Luxembourg shall, where the context admits, be deemed to include references to any other Alternative Clearing System(s) approved by the Trustee in which the Notes are, for the time being, cleared.

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USE OF PROCEEDS

The net proceeds of the issue of the Notes will be used for general corporate purposes of Direct Line Insurance Group plc (the “Issuer”) and its subsidiaries (together, the “Group”).

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INFORMATION ON THE ISSUER AND THE GROUP

Direct Line Insurance Group plc (the “Issuer”) and its subsidiaries (together, the “Group”) comprise one of the United Kingdom’s leading personal motor insurer measured by number of in-force policies. The Group is among the leading providers of personal home and other personal lines insurance in the UK and operates in the UK commercial market.

Through its multiple brands and distribution channels, the Group offers a broad range of personal and commercial insurance products. The Group’s products for personal customers include personal motor, home and rescue and other personal lines, including travel and pet insurance. The Group’s products for commercial customers include business, landlord and van insurance.

The Issuer is a public limited company of indefinite duration domiciled in England and Wales. The Issuer was incorporated on 26 July 1988 as a private company limited by shares with registered number 02280426. On 3 February 2012, the Issuer re-registered as a public limited company and changed its name from RBS Insurance Group Limited to Direct Line Insurance Group plc. The principal legislation under which the Issuer operates is the Companies Act 2006 (the “Companies Act”).

The Issuer’s registered office is at Churchill Court, Westmoreland Road, Bromley, Kent, BR1 1DP.

HISTORY OF THE BUSINESS

The Direct Line brand was launched in 1985 primarily to provide motor insurance in partnership with The Royal Bank of Scotland plc (“RBS”) and was wholly acquired by RBS in 1988. Direct Line began to offer home insurance in late 1988, with pet and travel products being introduced in 1997.

During the period from 1995 to 2003, the Group expanded, acquiring Privilege Insurance Company Limited, Green Flag Holdings Limited and Churchill Insurance Group plc and entering into joint ventures with each of Bankinter in Spain and Tesco plc.

In 2008, HM Treasury became the majority shareholder in RBS and the Issuer’s joint ventures with Bankinter and Tesco plc terminated. As a condition of its receipt of state aid, RBS committed to the European Commission and HM Treasury to sell its insurance business by the end of 2014.

By September 2012, the Group had substantially completed its separation from RBS and rebranded as Direct Line Group, received a financial strength rating of ‘A’ with a stable outlook by Standard and Poor’s and ‘A2’ with a stable outlook by Moody’s, and in April 2012 issued £500 million fixed / floating rate guaranteed subordinated notes due 2042.

On 16 October 2012, the Issuer’s shares were admitted to the Official List of the UK Listing Authority and to trading on the London Stock Exchange’s main market for listed securities. RBS completed the sale of its remaining interest in the Group in February 2014. The Group

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completed the divestment of its international operations, comprising its Italian and German subsidiaries, in May 2015.

THE BUSINESS OF THE GROUP

The following table sets out the key performance measures of the Group during financial years ended 31 December 2019 (“FY 2019”) and 31 December 2018 (“FY 2018”).

* FY 2019 FY 2018

In-force policies (thousands) 14,789 15,073

Gross written premium (£m) 3,203.1 3,211.9

Underwriting profit (£m) 232.1 259.8

Operating profit (£m) 546.9 606.4

Profit after tax (£m) 419.9 472.0

Return on tangible equity (“RoTE”) (%) 20.8 21.6

Combined operating ratio (“COR”) (%) 92.2 91.6

Basic earnings per share (pence) 29.5 33.3

Note: 1. The FY 2018 results have been restated for the retrospective impact of IFRS16. 2. In-force policies as at 31 December 2018 have been restated to include 41,000 policies previously omitted from previously reported amounts. 3. Deferred tax assets and liabilities have been recognised at the tax rates expected to apply on the expected settlement date of the related asset or liability, using tax legislation in place on 31 December 2019. No adjustments have been made to reflect legislative changes after this date, including those announced in the UK Government’s budget announcement on 11 March 2020.

The Group’s gross written premium decreased from £3,211.9 million in FY 2018 to £3,203.1 million in FY 2019, down 0.3 per cent.

The Group’s net earned premium decreased from £3,089.5 million in FY 2018 to £2,984.9 million in FY 2019, down 3.4 per cent.

The Group’s investment return decreased from £154.6 million in FY 2018 to £134.6 million in FY 2019, down 12.9 per cent.

The Group recognised a profit before tax of £580.5 million in FY 2018 and £509.7 million in FY 2019. The Group recognised a profit after tax of £472.0 million in FY 2018 and £419.9 million in FY 2019.

As at 31 December 2019, the Group had total assets of £9,434.2 million (31 December 2018: £9,535.4 million) and net assets of £2,643.6 million (31 December 2018: £2,558.2 million).

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As at 31 December 2019, the Group reported total financial investments of £4,673.4 million (FY 2018: £4,737.8 million), total cash and cash equivalents of £948.6 million (FY 2018: £1,154.4 million), total borrowings of £52.3 million (FY 2018: £62.0 million) and total subordinated liabilities of £259.0 million (FY 2018: £259.5 million). The financial leverage ratio decreased from 19.2 per cent. as at 31 December 2018 to 18.6 per cent. as at 31 December 2019 due primarily to the increase in shareholders’ equity as a result of improvements to the valuation of the Group’s AFS investments.

The following tables set forth a segmental breakdown of the key measures in the Group’s results of operations for FY 2019 and FY 2018. The segmental analysis is produced on the basis of product type, which is consistent with how the Group is managed:

FY 2019 FY 2018 Gross written premium (£m)

Motor 1,651.6 1,671.2

Home 586.6 606.9

Rescue and other personal lines 436.0 422.8

Commercial 528.9 511.0

Total 3,203.1 3,211.9

FY 2019 FY 2018

Underwriting profit (£m)

Motor 78.9 174.7

Home 112.8 43.4

Rescue and other personal lines 19.6 20.5

Commercial 20.8 21.2

Total 232.1 259.8

FY 2019 FY 2018

COR (%)

Motor 94.8 88.6

Home 80.3 93.5

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Rescue and other personal lines 95.4 95.0

Commercial 95.7 95.4

Group 92.2 91.6

The following table sets forth a trading summary of the Group as at and for the three months ended 31 March 2020:1

Q1 2020 Q1 2019 Change £m £m

Gross written premium Motor 410.9 386.9 6.2%

Home 137.8 141.2 (2.4%)

Rescue and other personal lines 108.3 105.4 2.8%

Commercial 132.6 120.4 10.1%

Total 789.6 753.9 4.7%

31 Mar 2020 31 Dec 2019 Change £m £m

In-force policies 14,696 14,789 (0.6%)

Note: 1. Commercial direct own brands include Direct Line for Business and commercial products sold under the Churchill brand that were previously reported within NIG and other. Prior periods have been re-presented accordingly.

BRANDS

The Group provides general insurance products to personal and commercial customers through the following key brands:

• Direct Line – motor, home and other personal lines insurance policies are sold by Direct Line direct to customers exclusively by phone and internet, targeting customers with high brand affinity and focussing on providing a fast and straightforward service to customers. Direct Line for Business provides commercial insurance for small businesses with straightforward commercial insurance requirements (see further below: “Direct Line for Business”);

1 Sourced from the Issuer’s Q1 2020 Trading Update; this data is unaudited. 118

• Churchill – motor, home and other personal lines insurance policies are sold by Churchill by phone, internet, and PCWs, targeting customers with high brand affinity and who have a greater need for support and advice. Churchill also sells business, landlord and van insurance products;

• Privilege - motor, home and other personal lines insurance policies are sold by Privilege mainly through PCWs, targeting customers who predominantly buy through PCWs, focussing on providing a quick customer experience at the best price;

• Green Flag – roadside rescue and recovery insurance policies are sold by Green Flag, both as a standalone service and an additional optional product alongside motor insurance;

• NIG – commercial insurance policies for small and medium enterprises (“SMEs”) are sold through brokers;

• Direct Line for Business – provides a range of business insurance products to landlords and the small business sector, over the phone or online;

• DLG Auto Services (previously UK Assistance Accident Repair Centres or UK AARC) – a repair services business for accidentally-damaged cars, which has been operating since 1995, repairing around 90,000 cars every year;

• DLG Legal Services – a law firm that provides affordable access to justice over a broad range of legal services;

• Darwin – motor insurance policies are sold by the Group’s latest brand Darwin (launched in April 2019) targeting customers who mainly buy through PCWs using a smart pricing system to provide a price based on the individual; and

• Partnerships – many of the Group’s core products, including motor, home, rescue and other personal lines insurance policies are sold through NatWest, RBS and brands under distribution agreements.

PRODUCTS

The Group’s principal products for personal customers include:

• Personal motor – insurance typically covers against liability for both bodily injury and property damage and for physical damage to an insured’s vehicle from collision and various other risks. The Issuer is one of Britain’s leading personal motor insurer measured by number of in-force policies2, which decreased (in respect of the Group’s own brands) by 0.7 per cent. during 2019 as the Group continues to focus on maintaining target loss ratios in a highly competitive market. Personal motor insurance, along with the associated legal protection cover, is mainly represented through the Group’s own brands

2 Includes Direct Line, Churchill, Privilege, Darwin and partner brands: RBS, NatWest, © Ipsos MORI Financial Research Survey (FRS) six months ended January 2020, 13,999 adults interviewed for motor insurance and 12,749 for home insurance 119

Direct Line, Churchill, Privilege, Darwin and through partnership brands;

• Home – insurance covers against loss of or damage to the buildings and contents of private residences. The Issuer is one of the UK’s leading home insurers measured by number of in-force policies2, which decreased (in respect of the Group’s own brands) by 1.3 per cent. during 2019 due to a reduction in new business volumes. Home insurance along with the associated legal protection cover, is sold through the Group’s own brands, Direct Line, Churchill, and Privilege, and through partnership brands;

• Rescue – insurance covers the cost of roadside rescue and recovery. The Issuer is one of the leading providers of rescue insurance in the UK, although the number of in-force policies for rescue decreased by 2.3 per cent. in 2019 driven primarily by reductions in packaged bank accounts volumes. Rescue insurance is sold through the Group’s own brand, Green Flag, which is the third largest roadside recovery provider3, and through partnership brands; and

• Other personal lines, including travel, pet and creditor – pet insurance provides benefits in the event of veterinary treatment fees, death or loss of pet and third party liability; travel insurance provides benefits in the event of cancellation or curtailment, travel delays, loss of personal baggage or money, emergency medical and travel expenses and legal expenses; and creditor insurance covers payments on secured or unsecured lending where the borrower is no longer able to pay, for example, by reason of loss of income through accident, sickness unemployment or, for some coverage, death. The Issuer is one of the leading providers of other personal lines insurance products in the UK, and is the second largest travel and fourth largest4 pet insurer in the UK, although the number of in-force policies for these other personal lines insurance products reduced by 2.8 per cent. in 2019 primarily as a result of lower packaged bank account volumes in Travel. Other personal lines insurance products are sold through the Group’s own brands, Direct Line, Churchill and Privilege, and through partnership brands.

The Group’s principal products for commercial customers include:

• Motor - insurance typically covers against liability for both bodily injury and property damage and for physical damage to an insured’s vehicle from collision and various other risks, resulting from the ownership, maintenance or use of cars and trucks in a business;

• Property – insurance covers against loss or damage to buildings, inventory and equipment from natural disasters, including hurricanes, windstorms, earthquakes, floods, hail, explosions, severe winter weather and other events such as theft and vandalism and fires, and equipment insurance;

• Liability – insurance covers against employers’ liability, public liability, professional indemnity and directors’ and officers’ liability; and

• Business interruption and other commercial lines, including cyber – business interruption insurance covers financial loss due to business interruption resulting from

3 Based on Mintel Vehicle Recovery – UK, September 2019 4 Based on Mintel Pet Insurance August 2019 & Mintel Travel Insurance February 2020 120

covered losses; cyber insurance covers loss due to cyber-crime.

The Issuer offers commercial insurance to SMEs and number of in-force policies grew by 2.6 per cent. in 2019, with Commercial direct own brand growth of 5.2 per cent. Commercial direct own brands includes Direct Line for Business and commercial products sold under the Churchill brand. Commercial insurance is sold direct via phone and online through the Group’s own brands, Direct Line and Churchill, and exclusively through brokers for NIG.

The Group also provides Business Interruption (BI) cover to SME customers across NIG and DL4B. The Group believes, having taken legal advice, that the correct interpretation of the standard business interruption policy wordings, on which over 99.5% of policies are written, is such that they provide cover only for certain specified diseases and do not provide cover for losses due to the COVID-19 pandemic. For those policies not on the Group’s standard wordings, the Group currently estimates claims costs of approximately £10 million.5

DISTRIBUTION

The Group employs a wide range of distribution strategies with the aim of making its products easy to access. To adapt to changing consumer buying behaviour, the Group offers its products through four main routes to market:

• Direct - the Group has developed direct distribution businesses where customers purchase policies over the phone, or increasingly, online;

• PCWs - the Group’s products are also available indirectly online via PCWs;

• Partnerships – the Group partners with big brands to offer insurance to their customers; and,

• Broker - in respect of commercial products, the Group has an extensive broker network to offer their NIG insurance products to small and medium-sized commercial enterprises who choose to arrange their insurance via brokers.

Each of the Group’s brands provides products targeted at one or more insurance segments, as described more fully in ‘Products’ above. The Board believes that by tailoring the mix of distribution channel for each product, the Group can offer its customers a combination of brands, products and services that best suits their needs and buying behaviour.

INVESTMENT STRATEGY

The Issuer’s investment strategy, which is conservative in approach, is designed to deliver several objectives:

• to ensure there is sufficient liquidity available within the investment portfolio to meet stressed liquidity scenarios determined by the actuarial function;

• to match assets against PPO and non-PPO liabilities in an optimal manner; and,

5 Sourced from the Issuer’s Q1 2020 Trading Update; this data is unaudited. 121

• to deliver a suitable risk-adjusted investment return commensurate with the Group’s risk appetite.

As at 31 December 2019, total investment holdings were £5,943.2 million (3.6 per cent. lower than at 31 December 2018) and total debt securities held, including investment portfolio derivatives, were £4,271.4 million (£4,258.4 million as at 31 December 2018). In 2019, 71.9 per cent. of the Group’s investments were held in debt securities, of which 2.8 per cent. were rated as ‘AAA’ and a further 58.6 per cent. were rated as ‘AA’ or ‘A’, with the average duration of the total debt securities being 2.5 years. The Group’s average yield on such debt securities was 2.5 per cent. (FY 2018: 2.8 per cent.); and 2.4 per cent. on its investments overall (FY 2018: 2.5 per cent.).

The Group’s investment portfolio remains high quality and well diversified. Widening of credit spreads has impacted the Group’s available-for-sale (AFS) asset valuations. As at 31 March 2020 the AFS reserve was £(138) million net of tax, having moved in line with disclosed sensitivities. Since the end of Q1 2020, credit spreads have tightened and at 1 May 2020 the AFS reserve was approximately £(55) million, net of tax.6

At 31 March 2020 the Group held £3,814 million of debt securities with £3,436 million of these investment grade quality.6 The residual £378 million of debt securities were high yield debt securities with a benchmark duration of 2.5 years, less than 10 per cent. of which are exposed to sectors most impacted by COVID-19.6

STRATEGY AND RECENT DEVELOPMENTS

The Group’s vision is to create a world where insurance is personal, inclusive and a force for good. The Group believes in transforming its business to drive competitiveness, including to deliver a step change in technology and organisational change to improve the quality of the earnings of the Group. The aim of the Group is to achieve at least a 15 per cent. return on tangible equity per annum over the long term. The Group vision, purpose and strategy is underpinned by deeply embedded and fundamental principles which are central to how the Group makes decisions and enables it to build its business for the long-term.

The Group has therefore been putting in place an ambitious and complex technology-driven transformation programme, which is designed around three overlapping phases with different parts of the business moving through the phases at different pace: technology transformation, business transformation and business growth.

The technology transformation phase has included operational progress in launching three major new IT platforms. Building these key technology blocks is characterised by high investment expenditure, with run costs being managed alongside expenditure on organisational change and on existing systems set to be phased out. This technology-driven transformation programme is now moving into the business transformation phase, where the Group plans to improve its cost position by reducing double run-costs and improving efficiency. The Group also aims to further increase the accuracy and speed of pricing and underwriting; improve competitiveness and responsiveness to change; and enhance customer experience.

6 Sourced from the Issuer’s Q1 2020 Trading Update; this data is unaudited. 122

Through increased competitiveness and by increasingly adopting more agile working practices, particularly in the areas of the Group’s business that are at the forefront of delivering change, the Group believes it can realise more of the potential of the business to innovate faster and grow. This is the third phase of the transformation.

The Group’s strategy recognises its strengths as a UK insurance expert with diversification of distribution and product and is defined by six strategic objectives set out below.

The first three aim to ensure that the Group’s products are easy to use and available everywhere:

• Best at direct: to be the UK’s leading direct player because the Group anticipates its customers’ needs and develop services and products they want to buy.

• Win on price comparison websites: to deliver a step change in the Group’s pricing and trading capability so that its leading PCW brands win customers from competitors.

• Extend the Group’s reach: to utilise the Group’s investments to win more customers through acquisitions and partnerships.

The second three are underlying skills which are designed to help the Group deliver great value and an excellent customer experience:

• Technical edge: to use its data, scale, skill and insight across claims, pricing and underwriting to deliver value to customers.

• Nimble and cost efficient: to transform into an agile, cost effective business to drive efficiency and simplicity for the Group and its customers.

• Great people: a home for empowered people who celebrate difference and challenge the status quo to deliver for the Group’s customers.

GROUP CAPITAL

Capital metrics

Group Solvency Capital Requirement (the “Group SCR”)

The Group SCR is a risk responsive capital measure calibrated to ensure that the Group will be able to meet its obligations over the next 12 months with a probability of at least 99.5 per cent. This considers business written to date and one year of future written business over a one-year time horizon, in line with Solvency II requirements.

Minimum Consolidated Group Solvency Capital Requirement (the “MSCR”)

The MSCR is the sum of all minimum capital requirements (“MCR”) for regulated insurance entities across the Group.

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Group capital and solvency position

Group SCR

From 1 July 2016, the Group gained approval to assess its solvency capital requirement (“SCR”) using a partial internal model, including a full internal economic capital model (“IECM”) to calculate UKI’s SCR and this, alongside standard formula calculations for Churchill Insurance Company Limited (“CIC”) and other entities, forms part of a Group PIM to determine the Group SCR.

The Issuer considers the appropriate Group risk appetite range to be 140 per cent. to 180 per cent. of its Group SCR. Under normal circumstances, the Group targets the middle of the range (160 per cent) and expects this level of solvency to be sufficient to enable the Group to meet its operational, regulatory and rating agency requirements. For UKI and CIC, the Board has approved a minimum threshold of 125 per cent. of their respective SCRs.

As at 31 December 2019 the Group had a Solvency II capital surplus, after proposed capital distributions, of approximately £0.85 billion above its regulatory capital requirements (at 31 December 2018 the Group had a Solvency II capital surplus of approximately £0.89 billion after distributions), equivalent to a solvency capital coverage ratio of 165 per cent. (31 December 2018: 170 per cent.) post capital distributions of the previously proposed final dividends and share buyback.7

As a result of the volatile conditions arising from the COVID-19 pandemic, and noting the guidance from the PRA letter of 31 March 2020 requesting insurance companies to remain prudent in their approach to dividends, and the EIOPA statement of 2 April 2020 urging insurers to temporarily suspend all discretionary dividends until the economic impact of COVID-19 becomes clearer, the full year dividend for 31 December 2019 has been cancelled and the share buyback programme has been suspended until it is possible to better understand the impact of COVID-19 on customers and the business. However, the Issuer has maintained a strong solvency position, and will keep the position regarding the final dividend and share buyback exercises under review, subject to prevailing market conditions.

The Group SCR as at 31 December 2019 was £1.32 billion (31 December 2018: £1.26 billion), and UKI represented 97.6 per cent. of the Group SCR as at 31 December 2019 (as at 31 December 2018: 97.4 per cent.).7 There are no restrictions on eligible own funds to meet the Group SCR. Total eligible own funds to meet the consolidated Group SCR as at 31 December 2019 were £2.17 billion (31 December 2018: £2.15 billion), consisting of:

• unrestricted tier 1 of £1.46 billion (31 December 2018: £1.45 billion);

• restricted tier 1 of £0.36 billion (31 December 2018: £0.35 billion);

• tier 2 (subordinated debt) of £0.26 billion (31 December 2018: £0.26 billion); and

• tier 3 (deferred tax asset) of £0.09 billion (31 December 2018: £0.09 billion).

7 Sourced from the Issuer’s 2019 SFCR; this data is unaudited. 124

MSCR

As at 31 December 2019, the MSCR was £0.54 billion (at 31 December 2018: £0.56 billion). Solvency II contains the following restrictions on eligible own funds to meet the MSCR:

• Tier 3 own funds are not eligible to cover the MSCR (Article 98 of Solvency II); and

• Tier 2 own funds shall not exceed 20 per cent. of the MSCR (Article 82 of the Solvency II).

The total eligible own funds to meet the MSCR as at 31 December 2019 were £1.93 billion (at 31 December 2018: £1.92 billion), consisting of:

• unrestricted tier 1 of £1.46 billion (31 December 2018: £1.45 billion);

• restricted tier 1 of £0.36 billion (31 December 2018: £0.35 billion); and

• restricted tier 2 of £0.11 billion (31 December 2018: £0.11 billion).

As at 31 December 2019, £1.9 million of the Group’s restricted Tier 1 capital was reclassified as Tier 2 due to tiering restrictions (2018: £nil).

The following tables show the ratios and absolute surplus of the own fund items eligible to cover the Group SCR and the MSCR, respectively, as at 31 December 2018 and 31 December 2019 (where published).

Group SCR and MSCR requirements as at 31 December 2018 and 31 December 2019

31 Dec 2019 31 Dec 2018 £m £m

Direct Line Insurance Group SCR8 1,316.0 1,264.3

U K Insurance Limited SCR8 1,284.4 1,231.6

Other entities SCR8 31.6 32.7

Churchill Insurance Company Limited SCR 0.8 0.9

Direct Line Insurance Group MCR 542.3 557.5

U K Insurance Limited MCR 539.1 554.2

Churchill Insurance Company Limited MCR 3.2 3.3

Other entities MCR 0 0

8 Sourced from the Issuer’s 2019 SFCR; this data is unaudited. 125

Group eligible own funds

31 Dec 2019 31 Dec 2018

Availab SCR Availa MCR Availab SCR Availa MCR le own coverag ble coverage le own covera ble coverage funds e ratio9 own ratio funds ge own ratio to meet funds to meet ratio9 funds SCR to SCR to meet meet MCR MCR

£bn % £bn % £bn % £bn %

Total 2.17 165 1.93 356 2.15 170 1.91 343

Tier 1 1.82 - 1.82 - 1.80 - 1.80 -

Tier 2 0.26 - 0.11 - 0.26 - 0.11 -

Tier 3 0.09 - - - 0.09 - - -

Notwithstanding the Group’s strong capital position, in recognition of the regulatory guidance and heightened uncertainty in the macroeconomic environment, on 8 April 2020, the Group announced it will no longer be recommending to shareholders the final dividend for the year ended 31 December 2019.

The Group’s estimated solvency capital ratio at 31 March 2020 was 174 per cent., increasing to an estimated 177 per cent. on 1 May 2020, towards the top of the Group’s 140 per cent. to 180 per cent. risk appetite range.10

Own funds

At the Group level there were anticipated restrictions on the fungibility of own funds within the Group and no items of own funds are dedicated to absorb specific potential losses.

As at 31 December 2019, eligible Tier 1 capital after foreseeable dividends and capital distributions represented approximately 84 per cent. (31 December 2018: 84 per cent.) of own funds and 138 per cent.9 (31 December 2018: 143 per cent.9) of the Group SCR. The Group issued Restricted Tier 1 notes in 2017 with a value of £0.37 billion as at 31 December 2019 (31 December 2018: £0.35 billion), which is included as part of the total Tier 1 capital. Tier 2 capital relates primarily to the Group’s subordinated debt issued in 2012, which had a market value as at 31 December 2019 of £0.26 billion (31 December 2018: £0.26 billion) (excluding movement in own credit risk since initial recognition). The Group also recognised a deferred tax asset of £0.09 billion (31 December 2018: £0.09 billion) as Tier 3 capital as at 31 December 2019. The amount

9 Sourced from the Issuer’s 2019 SFCR; this data is unaudited. 10 Sourced from the Issuer’s Q1 2020 Trading Update; this data is unaudited. 126

of Tier 2 and Tier 3 capital permitted under the Solvency II regulations is 50 per cent. of the Group’s SCR and of Tier 3 alone it is less than 15 per cent. Therefore, the Group currently has no ineligible capital. The maximum amount of Restricted Tier 1 capital permitted as a proportion of total Tier 1 capital under the Solvency II regulations is 20 per cent. As at 31 December 2019 the Group had £0.0 billion restricted Tier 1 capacity, and £0.31 billion combined Tier 2 and Tier 3 capacity.

During the period ended 31 December 2019, the Group generated approximately £0.66 billion in Solvency II capital offset by £0.19 billion of capital expenditure, £0.06 billion11 change in SCR and £0.45 billion for the proposed 2019 dividend and share buyback, as shown in the following table:

Movement in own funds between 31 December 2018 and 31 December 2019

2019 £bn

Capital Surplus at 1 January 201911 0.89

Market movements 0.06

Capital generation excluding market movements 0.60

Change in SCR11 (0.06)

Capital expenditure (0.19)

Capital distribution – ordinary dividends (0.30)

Capital distribution – special dividends -

Capital distribution – share buyback (0.15)

Capital surplus at 31 December 201911 0.85

Note:

1. The full year dividend for 31 December 2019 has been cancelled and the share buyback programme has been suspended until it is possible to better understand the impact of COVID-19 on customers and the business. However, the Issuer has maintained a strong solvency position, and will keep the position regarding the final dividend and share buyback exercises under review, subject to prevailing market conditions.

The increased capital expenditure reflects the significant investment the Group is making in building future capability including the development of the next generation core personal lines IT systems.

11 Sourced from the Issuer’s 2019 SFCR; this data is unaudited. 127

The Group’s shareholders’ equity under IFRS as at 31 December 2019 was £2.64 billion, which compared to £2.17 billion eligible own funds under the Solvency II regime at the same date. The rules for calculating the two values are different; in particular, the valuation of technical provisions is fundamentally different, albeit the net adjustment is small as at 31 December 2019. The major net adjustments to bridge from shareholders’ equity to eligible own funds were the removal of goodwill and intangible assets, the removal of foreseeable distributions and the addition of Restricted Tier 1, Tier 2 and Tier 3 capital.

Capital sensitivity

The following table shows the Group’s estimated solvency ratio sensitivities in the event of the following scenarios as at 31 December 2019:12

Impact on solvency Scenario ratio

Motor bodily injury deterioration equivalent to accident years 2008 (7 pts) and 2009

One-off catastrophe loss equivalent to 1990 storm (9 pts)

One-off catastrophe loss based on extensive flooding of the River (9 pts) Thames

Change in the reserving basis of PPOs to use a real discount rate of (8 pts) minus 1% instead of 0%

100 bps increase in credit spreads (9 pts)

100 bps decrease in interest rates 1 pt

Notes: 1. The PPO real discount rate used is an actuarial judgement which is reviewed annually based on the economic outlook for wage inflation relative to the EIOPA discount rate curve. 2. These sensitivities only include the assessed impact of the above scenarios in relation to available for sale investments (excludes illiquid assets such as infrastructure debt) and assumes no change to the SCR. 3. The net impact of a one-off catastrophe loss equivalent to the 1990 storm is a good estimate for the impact of a single catastrophe event with a 1:20 return period, due to the excess of loss catastrophe reinsurance limiting the impact of such events.

Capital management and dividend strategy

The Group aims to manage its capital efficiently and generate long-term sustainable value for shareholders, while balancing operational, regulatory, rating agency and policyholder requirements. The Group aims to grow its regular dividend in line with business growth.

12 Sourced from the Issuer’s 2019 SFCR; this data is unaudited. 128

Where the Board believes that the Group has capital which is expected to be surplus to the Group’s requirements for a prolonged period, it would intend to return any surplus to shareholders. In normal circumstances, the Board expects that a solvency capital ratio around the middle of its risk appetite range of 140 per cent. to 180 per cent. of the Group’s SCR would be appropriate and it will therefore take this into account when considering the potential for special distributions. In the normal course of events the Board will consider whether or not it is appropriate to distribute any surplus capital to shareholders once a year, alongside the full year results. The Group expects that one-third of the regular annual dividend will generally be paid in the third quarter as an interim dividend, and two- thirds will be paid as a final dividend in the second quarter of the following year. The Board may revise the dividend policy from time to time. The Issuer may consider a special dividend and/or a repurchase of its own shares to distribute surplus capital to shareholders.

Following the suspension of the share buyback and the cancellation of the final 2019 dividend, the Board acknowledged the importance of dividends to shareholders and will review the dividend position alongside half year results and on an ongoing basis once it is possible to have a better understanding of the impacts of COVID-19 including on customers and the business.

Solvency II

Under Solvency II requirements, in order for the ordinary shares of the Issuer (“Ordinary Shares”) to be counted towards the Group’s own funds available to meet its capital requirements, any dividends declared by the Issuer must be fully discretionary and capable of being cancelled, withheld or deferred at any time prior to payment if the relevant capital requirements have been breached or payment of the dividend would lead to non-compliance with those requirements. Accordingly, any dividend will be declared on a conditional basis and the Board reserves the right to cancel or defer the recommended dividend.

Reinsurance

Reinsurance is used to mitigate risks within the underwriting portfolio and transfer risks that are outside current risk appetite. The IECM is used to inform the efficient use of reinsurance.

Rating

Stress testing

The Group runs regular stress testing exercises which assesses the capital impact of underwriting, reserving, market, credit and operational risks, and maintains a register of contingent management actions that could be applied to restore the Group’s capital position if necessary.

Solvency position following issuance

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The issue of the Notes will improve the solvency position of the Issuer whilst the Existing Tier 2 Notes are outstanding. The issue of the Notes is intended to reduce the debt refinancing risk of the Issuer.

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MANAGEMENT

The following is a list of Directors and their principal directorships (if any) performed outside the Group which are, or may be, significant with respect to the Issuer, as at the date of these Listing Particulars. The business address of each of the Directors referred to below is at Churchill Court, Westmoreland Road, Bromley, Kent, BR1 1DP.

Name Position at the Issuer Other significant directorships

Michael Nicholas Biggs Chairman Close Brothers Group plc Close Brothers Limited

Danuta Gray Independent Non-Executive Aldermore Group plc Director and Chairman- Defence Board, Ministry of Designate Defence St. Modwen Properties plc

Mark Julian Gregory Independent Non-Executive Merian Global Investors Director Holdings Limited Merian Global Investors Limited Merian Global Investors (UK) Limited

Jane Carolyn Hanson Independent Non-Executive Admin Re - ReAssure Ltd Director (Independent member of fairness committee) Reclaim Fund Ltd William Hill plc JCH Associates (UK) Limited

Tim Walter Harris Chief Financial Officer Association of British Insurers (Member) PRA Practitioner Panel (Member)

Sebastian Richard Independent Non-Executive Boots Hearingcare Limited Edward Cuthbert James Director Boots Optical Investment Holdings Limited Boots UK Limited Museum of Modern Art Limited Betteshanger Investments Limited Save the Children Fund

Penelope Jane James Chief Executive Officer -

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Fiona Catherine McBain Independent Non-Executive Dixons Carphone plc Director Scottish Mortgage Investment Trust plc Monzo Bank Limited

Gregor Ninian Stewart Independent Non-Executive Quilter Financial Planning Director Limited International Alert Alliance Trust plc FNZ Group FNZ UK Limited

Dr Richard Churchill Ward Independent Non-Executive Ardonagh Specialty Holdings Director Limited Bank of England (Member of PRA Practitioner Panel) Bishopsgate Energy Limited Bishopsgate North American Binders Limited Bishopsgate Insurance Brokers Limited

A number of the Directors hold directorships in other insurance companies. Occasionally, a matter may arise where there is a potential conflict of interest. In these circumstances, the relevant Director may be excluded from the relevant discussion and decision-making.

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REGULATORY OVERVIEW

The Issuer is the ultimate parent company of the Group. Its principal activity is managing its investments in its subsidiaries, providing loans to its subsidiaries, raising funds for the Group and the receipt and payment of dividends. The UK domiciled insurers within the Group are subject to the Financial Services and Markets Act 2000 (the “FSMA”), and are dual-regulated, i.e. they are subject to regulation and supervision by both the PRA (as regards prudential and organisational requirements) and the Financial Conduct Authority (“FCA”) (as regards conduct of business requirements). As well as regulating the UK insurance companies within the Group, the PRA has direction over the parent undertaking and, as all other subsidiaries in the Group sit directly or indirectly under the Issuer, the PRA acts as the group supervisor of the Group. The FCA has responsibility for regulating conduct of business activities carried out in the UK only.

In addition to FSMA, UK domiciled insurers must also comply with the rules and guidance of the PRA and the FCA under FSMA. Important sources of these rules and guidance are set out in the PRA Rulebook (the “PRA Rulebook”) and the FCA Handbook of Rules and Guidance (the “FCA Handbook”).

The Group’s principal insurance operations are in the UK. Companies within the Group may be subject to regulation by government agencies in the jurisdictions in which they operate. The nature and extent of such regulation varies from jurisdiction to jurisdiction.

UK Regulatory Environment

Insurance companies in the UK are dual-regulated, which means that they are authorised, prudentially regulated and supervised by the PRA, and regulated for conduct of business purposes by the FCA.

The PRA and the FCA have extensive powers to supervise and intervene in the affairs of the firms they are responsible for regulating, 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 informal and formal disciplinary or enforcement actions in relation to a breach by a firm of FSMA or the rules in the PRA Rulebook or FCA Handbook, including private censure, public censure, restitution, fines or sanctions and the award of compensation or other consumer redress. The PRA (or FCA where relevant) may

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also cancel or vary (including by imposing limitations on) a firm’s authorisation including, in the case of an insurer, cancelling that insurer’s permission to write new policies, thereby putting the firm into run-off.

The Financial Services Act 2012 also conferred new powers on the PRA and FCA. For example, the PRA has the following powers that can, in certain circumstances, be applied directly to qualifying parent undertakings where those parent undertakings are not themselves regulated:

(A) power of direction;

(B) a rule-making power for information gathering; and,

(C) a supporting disciplinary power to fine or censure a qualifying parent undertaking for breaches of a direction or an information rule.

Permission to Transact Business

Subject to the exemptions provided in FSMA, under section 19 of FSMA, no person may effect or carry out contracts of insurance (referred to below as carrying on “insurance business”) in the United Kingdom unless authorised to do so under FSMA by the PRA (a “Part 4A Permission”). The FCA must also consent to the granting of the permission.

The PRA has authority to grant a Part 4A Permission to provide insurance for one or more of the classes of business recognised by the European Union (the “EU”) insurance directives. In deciding whether to grant authorisation, both the PRA and the FCA are required to determine whether the applicant satisfies the requirements of FSMA, including the applicant’s ability to meet a set of “Threshold Conditions”. These are the minimum conditions that must be satisfied (both at authorisation and on an ongoing basis) in order for a firm to gain and to continue to have permission to undertake regulated activities in the United Kingdom. The PRA and FCA are each responsible for assessing a set of Threshold Conditions. At a high level, the PRA Threshold Conditions require an insurer’s head office to be in the UK, for its business to be conducted in a prudent manner (and in particular for it to maintain appropriate financial and non- financial resources), that the insurer is fit and proper and appropriately staffed and that its group is capable of being effectively supervised.

There is a degree of cross-over between the PRA’s Threshold Conditions and the FCA’s Threshold Conditions for PRA-authorised persons, although the FCA Threshold Conditions focus on matters relevant to the FCA’s operational objectives and also include a condition relating to the insurer’s business model and the need for this to be suitable for its regulated activities. As dual-regulated firms, insurance companies are required to satisfy both the PRA’s as well as the FCA’s Threshold Conditions.

Once authorised, in addition to continuing to meet the Threshold Conditions for authorisation, firms are also required to comply with the high level Fundamental Rules (for the PRA) and Principles for Businesses (for the FCA) and the requirements of the PRA Rulebook and FCA Handbook (see further below).

FCA Handbook and PRA Rulebook

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The FCA’s approach to regulation and the standards it requires firms to maintain are set out in the FCA Handbook. Similarly, the PRA Rulebook sets out the PRA’s rules and other provisions. It is supplemented by PRA Supervisory Statements, which set out guidance on the application of the rules. FSMA, the FCA Handbook and the PRA Rulebook and secondary legislation made under FSMA are also used to implement the requirements contained in a number of EU Directives (applicable in the United Kingdom and throughout the EEA) relating to financial services and to insurance business in particular.

Solvency II

Solvency II sets out an EU-wide regime for the prudential regulation of insurance and reinsurance undertakings. Originally adopted by the European Parliament and Council in 2009, Solvency II became effective on 1 January 2016. Solvency II is a framework directive; most of the details of the rules are set out in Commission Delegated Regulation (EU) 2015/35 (as amended) (the “Solvency II Regulation”). Solvency II has been transposed into national law; in the UK, this has been done primarily through the PRA Rulebook. The European Insurance and Occupational Pensions Authority (“EIOPA”) has issued supervisory standards, recommendations and guidelines intended to enhance convergent and effective application of Solvency II and to facilitate cooperation between national supervisors. EIOPA guidance is not binding on supervisory authorities although there is a ‘comply or explain’ requirement in relation to the guidance. The PRA has generally confirmed that it intends to comply with this guidance.

One of the key aims of Solvency II was to introduce a harmonised prudential framework for insurers promoting transparency, comparability and competitiveness amongst European and United Kingdom insurers.

Solvency II has three pillars that have guided how the Group manages risk and how it reports to regulators, policyholders and shareholders:

• Pillar I relates to the quantitative requirements and introduces a risk based methodology to calculating the Group’s solvency capital requirement (“SCR”). Insurers are required to calculate the level of capital required based on their unique risk profile. For the Group, this is calculated using the Group’s PIM that was approved by the PRA in June 2016.

• Pillar II incorporates qualitative governance requirements, including the way the risk management function operates within the business and how key systems and controls are documented and reviewed.

• Pillar III relates to enhanced and standardised disclosure requirements, including increased transparency of the risk strategy and risk appetite of the business.

Solvency II classifies different forms of capital into three ‘tiers’ which distinguish between forms of capital based on its ability to absorb losses. Tier 1 capital, such as common equity and retained earnings, is the highest quality of capital and must be able to absorb losses on a day- to-day, ‘going-concern’ basis. Tier 2 capital, such as subordinated debt, is of a lower quality and only needs to absorb losses on insolvency. Tier 3 capital is the lowest quality of capital permitted and has only limited loss-absorbing capacity.

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Under Solvency II, firms must hold eligible own funds covering both the SCR and MCR (as defined below). The ‘Own Funds’ Part of the PRA Rulebook, supplemented by the Solvency II Regulation, sets out the capital resources that are deemed to be eligible for these purposes, while provisions relating to the SCR and MCR are set out in the ‘Solvency Capital Requirement’ and ‘Minimum Capital Requirement’ Parts of the PRA Rulebook. The ‘Technical Provisions’ Part of the PRA Rulebook requires firms to establish adequate technical provisions with respect to all of their insurance and reinsurance obligations towards policyholders. The ‘Investments’ Part sets out the risk-management requirements that insurers must follow when investing their assets, including those held to cover technical provisions, while the ‘Valuation’ Part sets out overriding standards that firms must comply with when valuing assets and liabilities.

As well as calculating the SCR, insurers must also calculate the minimum capital requirement (“MCR”). The MCR is the quantity of capital below which policyholders would be exposed to an unacceptable level of risk which would result in withdrawal of the insurer’s authorisation by the regulator. Together, the SCR and MCR act as trigger points in the ‘supervisory ladder of intervention’ introduced by Solvency II.

During the implementation period prescribed by the Withdrawal Agreement agreed between the EU and the UK, Solvency II continues to apply to UK insurers as it did before the UK’s withdrawal from the EU. At the end of the implementation period, the European Union (Withdrawal) Act 2018 (as amended) will preserve directly applicable EU legislation (including the Solvency II Regulation) in UK domestic law, and UK measures implementing Solvency II will continue to have effect, but the UK will in each case be free to amend or repeal them. Subject to any such changes following the end of the implementation period (the nature and extent of which remain unclear), Solvency II will continue to develop the way the Group manages risk and capital.

The Issuer is subject to certain ongoing reporting requirements set out in the ‘Reporting’ Part of the PRA Rulebook, which implements Pillar 3 of Solvency II. Firms are under a general requirement to submit to the PRA information necessary for the PRA’s supervision of the firm. In practice, this involves the submission of an annual report on a firm’s solvency and financial condition, known as a solvency and financial condition report (“SFCR”). The required content includes details of the firm’s SCR and MCR. In addition to the annual SFCR, an insurance or reinsurance undertaking must disclose on an ongoing basis the nature and effects of any major developments that significantly affect its prior disclosures. In 2019, the Group submitted its Solvency and Financial Condition Report to the PRA, which provides a standardised disclosure of performance, risk management and capital position.

Senior Management, Systems and Controls

Solvency II requires insurers to ensure that all persons who effectively run a firm, or otherwise hold key functions, have adequate professional qualifications, knowledge and experience to enable sound and prudent management and are of good repute and integrity. The Senior Managers and Certification Regime (“SMCR”) implements this requirement, and other requirements under Solvency II relating to the fitness and propriety of key employees.

Under the SMCR, an authorised insurer is required to obtain the PRA or FCA’s approval for any individual who carries on a specific “senior management function” (“SMF”) in relation to that insurer. SMFs are specified by the PRA or the FCA; SMFs specified by the PRA (including chief

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executive officers and persons responsible for a firm’s risk, audit or actuarial functions) require PRA approval, and SMFs specified by the FCA (including the chair of the nomination committee and the compliance oversight function) require FCA approval. In addition to this, firms must notify the PRA of all individuals who are not SMF holders (“Senior Managers”), but are nevertheless responsible for certain key functions (“key function holders”).

The SMCR also contains a certification regime for staff employed in roles that do not entail the performance of SMFs but could nonetheless pose a significant risk of harm to their firm or its customers (“certification roles”). This includes all key function holders. A firm is responsible for ensuring that no employee performs a certification role without having been certified as fit and proper by the firm (on recruitment and then on an annual basis). Since 10 December 2019, all employees performing certification roles in relation to insurers have required certification.

Finally, the SMCR contains a conduct regime for senior managers and other employees. There are two tiers of conduct rules, contained in both the PRA Rulebook and the FCA Handbook. Some of these rules apply only to senior managers; some apply to Senior Managers and non- executive directors; and others apply to the majority of employees within the firm.

Senior Managers are also subject to a statutory duty of responsibility, which enables the PRA and the FCA to hold them accountable if a breach of a regulatory requirement takes place in their area of responsibility and the senior manager fails to take reasonable steps to prevent or stop the breach.

The FCA’s Senior Management Arrangements, Systems and Controls Sourcebook in the FCA Handbook also contains rules on the apportionment of significant responsibilities among an insurer’s directors and other senior managers and, more generally, the systems and controls that insurers are required to have in place. In particular, firms must take reasonable care to establish and maintain effective systems and controls for compliance with applicable regulatory requirements and for countering the risk that they might be used to further financial crime.

Conduct of Business requirements

The FCA regulates, through its Insurance Conduct of Business Sourcebook (“ICOBS”), the distribution and sale of general insurance products.

Broadly, the rules in ICOBS require firms to provide clients with information about the firm, meet certain standards of product disclosure, assess suitability when advising on certain products, report appropriately to clients and provide certain protections in relation to client assets.

Change of control of insurance companies

Section 178 of FSMA requires any person who intends to acquire or increase its “control” over a UK authorised insurance company to notify the PRA of its decision and to receive approval from the PRA before becoming a “controller” or increasing its interest in such a firm to or above certain thresholds.

The PRA must, within 60 working days from the date on which it receives a notification (provided it has received all the necessary information) either approve, or notify the applicant that it does not approve, the acquisition of or increase in control. In reaching its decision, the

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PRA is required to consult with the FCA and the FCA may require the PRA to reject the application or impose conditions on the approval of the application in certain circumstances. The FCA or PRA will not approve any new controller or any increase of control without being satisfied that the controller is financially sound and suitable to be a controller of, or acquire increased control of, the insurance company or insurance intermediary.

Broadly, acquiring control for the purposes of the FSMA includes where a person first holds 10 per cent. or more of the shares or voting power in an insurance company or any of its parent undertakings 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 parent undertaking.

A person will be treated as increasing his or her control over an insurance company, and therefore require further approval from the PRA, if the level of his or her shareholding or entitlement to voting power increases to or above certain thresholds. Increases in control of an insurance company require the prior consent of the PRA where they reach thresholds of 20, 30 and 50 per cent. of the shares or voting power in the regulated firm or its parent undertaking.

Breach of the requirements to notify the PRA of a decision to acquire or increase control or to obtain approval before effecting the transaction in question is a criminal offence attracting potentially unlimited fines.

Consumer complaints

UK insurance companies, along with other regulated firms and certain other unregulated businesses, fall under the compulsory jurisdiction of the Financial Ombudsman Service (“FOS”), which is a body established under FSMA. Authorised firms are required to have adequate complaints handling procedures in place but, where these are exhausted and the complaint or dispute has not been resolved, the FOS provides for dispute resolution in respect of certain categories of customer complaints brought by individuals and small business customers. The FOS has extensive powers to determine complaints by reference to what is, in the opinion of the Ombudsman, fair and reasonable in all the circumstances of the case. This may result in additional liabilities beyond what is considered to be covered under the terms and conditions of the relevant policy.

The Financial Services Compensation Scheme (“FSCS”), established under FSMA, seeks to protect policyholders when a UK authorised insurer is unable or unlikely to be able to meet its financial obligations to policyholders. The FSCS provides compensation to certain categories of customer who suffer loss as a consequence of the failure by a regulated firm to meet its liabilities arising from claims made in connection with regulated activities.

Anti-money laundering and financial crime

The FCA has a duty to consider the importance of minimising the risk of the firms it regulates being used for financial crime. It therefore looks at measures a firm takes to monitor, detect, and prevent financial crime. This includes measures in respect of money laundering, terrorist financing, data security, bribery and corruption, fraud and sanctions breaches.

Data protection

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The data protection regime in the United Kingdom consists of the GDPR and the Data Protection Act 2018 (“DPA”), each of which came into force in the UK on 25 May 2018. This regime regulates the manner in which natural persons’ personal data is obtained, maintained and used by organisations, including the Issuer. Personal data includes any information relating to natural persons who (i) can be identified, or who are identifiable, directly from the information in question or (ii) who can be indirectly identified from that information in combination with other information.

The Issuer is required to comply with the GDPR and DPA and any breach could give rise to criminal or civil liability and other enforcement action by the Information Commissioner’s Office, the body responsible for enforcement of each of the GDPR and DPA.

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TAXATION General

The comments below are of a general nature and are not intended to be exhaustive. They assume that there will be no substitution of the Issuer and do not address the consequences of any such substitution (notwithstanding that such substitution may be permitted by the Conditions). Any Noteholders who are in any doubt as to their own tax position or who may be subject to tax in a jurisdiction other than the United Kingdom should consult their professional advisers.

United Kingdom Taxation

The comments in this part are based on United Kingdom tax law as applied in England and Wales and HM Revenue & Customs published practice (which may not be binding on HM Revenue & Customs) as at the date of these Listing Particulars and relate only to the United Kingdom withholding tax treatment of payments of interest in respect of the Notes. It does not deal with any other United Kingdom tax implications of acquiring, holding or disposing of Notes. The comments in this part relate only to the position of persons who are the absolute beneficial owners of the Notes.

References in this part to “interest” shall mean amounts that are treated as interest for the purposes of United Kingdom taxation. The statements below do not take account of any different definitions of “interest” or “principal” which may prevail under any other law or which may be created by the Conditions or any related documentation.

Withholding of tax on interest

The Notes issued will constitute “quoted Eurobonds” provided they are and continue to be listed on a recognised stock exchange, within the meaning of Section 1005 Income Tax Act 2007. The GEM is a recognised stock exchange for these purposes. The Notes will be treated as listed on a recognised stock exchange if they are officially listed in Ireland and are admitted to trading on Euronext Dublin. Whilst the Notes are and continue to be quoted Eurobonds, payments of interest by the Issuer on the Notes may be made without withholding or deduction for or on account of United Kingdom income tax.

In other cases, absent any other relief or exemption (such as a direction by HM Revenue & Customs that interest may be paid without withholding or deduction for or on account of United Kingdom income tax to a specified Noteholder following an application by that Noteholder under an applicable double tax treaty), an amount must generally be withheld on account of United Kingdom income tax at the basic rate (currently 20 per cent.) from payments of interest on the Notes.

Where Notes are issued at an issue price of less than 100 per cent. of their principal amount, any payments in respect of the accrued discount element on any such Notes should not generally be subject to any withholding or deduction for or on account of UK income tax.

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FATCA Withholding

Pursuant to certain provisions of the U.S. Internal Revenue Code of 1986, commonly known as FATCA, a “foreign financial institution” may be required to withhold on certain payments it makes (“foreign passthru payments”) to persons that fail to meet certain certification, reporting, or related requirements. A number of jurisdictions (including the UK) have entered into intergovernmental agreements with the United States to implement FATCA (“IGAs”), which modify the way in which FATCA applies in their jurisdictions. Under the provisions of the UK IGA as currently in effect, a foreign financial institution would generally not be required to withhold from payments that it makes. Certain aspects of the application of the FATCA provisions and IGAs to certain instruments, including whether withholding would ever be required with respect to payments on such instruments, are uncertain and may be subject to change. Even if withholding would be required pursuant to FATCA or an IGA with respect to foreign passthru payments, such withholding would not apply prior to the date that is two years after the date on which final regulations defining foreign passthru payments are published in the U.S. Federal Register. Under the provisions of the UK IGA as at the date of these Listing Particulars, a foreign financial institution based in the UK would generally not be required to withhold under FATCA or the UK IGA from payments it makes under the Notes. Nonetheless, Noteholders should consult their own tax advisers if they are in any doubt as to how these rules may apply to their investment in the Notes.

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SUBSCRIPTION AND SALE

Goldman Sachs International, Morgan Stanley & Co. International plc and NatWest Markets Plc (together, the “Joint Lead Managers”) have, pursuant to a Subscription Agreement dated 3 June 2020, jointly and severally agreed with the Issuer, subject to the satisfaction of certain conditions, to subscribe (or procure the subscription) for the Notes at 99.604 per cent. of their principal amount less commissions. In addition, the Issuer has agreed to reimburse the Joint Lead Managers for certain of their expenses in connection with the issue of the Notes. The Subscription Agreement entitles the Joint Lead Managers to terminate it in certain circumstances prior to payment being made to the Issuer.

United States

The Notes have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act.

Each Joint Lead Manager has represented and agreed that, except as permitted by the Subscription Agreement, it has not offered, sold or delivered and will not offer, sell or deliver the Notes, (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the Issue Date within the United States or to, or for the account or benefit of, U.S. persons, and it will have sent to each dealer to which it sells the Notes during the distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes within the United States or to, or for the account or benefit of, U.S. persons.

In addition, until 40 days after the commencement of the offering, an offer or sale of the Notes within the United States by a dealer that is not participating in the offering may violate the registration requirements of the Securities Act.

Terms used in these paragraphs have the meanings given to them by Regulation S under the Securities Act.

Prohibition of Sales to EEA and UK Retail Investors

The Joint Lead Managers have represented and agreed that they have not offered, sold or otherwise made available and will not offer, sell or otherwise make available any Notes to any retail investor in the European Economic Area or the United Kingdom. For the purposes of this provision, the expression “retail investor” means a person who is one (or more) of the following:

(i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, “MiFID II”); or

(ii) a customer within the meaning of Directive (EU) 2016/97, where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II.

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United Kingdom

Each Joint Lead Manager has represented and agreed that:

(A) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of the Notes in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and

(B) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom.

Hong Kong

Each Joint Lead Manager has represented and agreed that:

(i) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Notes other than (i) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong (the “SFO”) and any rules made under the SFO; or (ii) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong (the “C(WUMP)O”) or which do not constitute an offer to the public within the meaning of the C(WUMP)O; and

(ii) it has not issued or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Notes, 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 Notes which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the SFO and any rules made under the SFO.

Singapore

Each Joint Lead Manager has acknowledged that these Listing Particulars have not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, each Joint Lead Manager has represented, warranted and agreed that it has not offered or sold any Notes or caused the Notes to be made the subject of an invitation for subscription or purchase and will not offer or sell any Notes or cause the Notes to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, these Listing Particulars or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Notes, whether directly or indirectly, to any person in Singapore other than (i) to an institutional investor (as defined in Section 4A of the Securities and Futures Act (Chapter 289 of Singapore), as modified or amended from time to time (the “SFA”)) pursuant to Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to

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Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the Notes are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

(a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities or securities-based derivatives contracts (each term as defined in Section 2(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Notes pursuant to an offer made under Section 275 of the SFA except:

(1) to an institutional investor or to a relevant person, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;

(2) where no consideration is or will be given for the transfer;

(3) where the transfer is by operation of law; or

(4) as specified in Section 276(7) of the SFA.

Notification under Section 309B(1)(c) of the SFA - In connection with Section 309B of the SFA and the CMP Regulations 2018, the Issuer has determined the classification of the Notes as prescribed capital markets products (as defined in the CMP Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).

General

None of the Issuer or any Joint Lead Manager has made any representation that any action will be taken in any jurisdiction by the Joint Lead Managers or the Issuer that would permit a public offering of the Notes, or possession or distribution of these Listing Particulars (in preliminary, proof or final form) or any other offering or publicity material relating to the Notes (including roadshow materials and investor presentations), in any country or jurisdiction where action for that purpose is required. Each Joint Lead Manager has agreed that it will comply, to the best of its knowledge and belief, with all applicable laws and regulations in each jurisdiction in which it acquires, offers, sells or delivers Notes or has in its possession or distributes these Listing Particulars (in preliminary, proof or final form) or any such other material, in all cases at its own expense. No Joint Lead Manager has been authorised to make any representation or use any information in connection with the issue, subscription and sale of the Notes other than as contained in these Listing Particulars or any amendment or supplement to them.

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GENERAL INFORMATION

Listing

This document has been approved by Euronext Dublin as Listing Particulars. Application has been made to Euronext Dublin for the Notes to be admitted to the Official List and trading on the GEM which is the exchange regulated market of Euronext Dublin. The GEM is not a regulated market for the purposes of MiFID II.

Arthur Cox Listing Services Limited is acting solely in its capacity as listing agent for the Issuer in connection with the Notes and is not itself seeking admission of the Notes to trading on the GEM.

Authorisations

The Issuer has obtained all necessary consents, approvals and authorisations in connection with the issue and performance of the Notes. The issue of the Notes was authorised by a resolution of the board of directors of the Issuer passed on 27 February 2020 and resolutions of a committee of the board of directors of the Issuer passed on 22 May 2020 and 28 May 2020.

Significant / material changes

Other than as disclosed in the Group’s announcement of its trading update for the first three months ended 31 March 2020, incorporated by reference in these Listing Particulars, there has been no significant change in the financial or trading position of the Issuer or the Group since 31 December 2019.

There has been no material adverse change in the financial position or prospects of the Issuer or the Group since 31 December 2019.

Litigation

There are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Issuer is aware) during the 12 months preceding the date of these Listing Particulars which may have, or have had in the recent past, a significant effect on the financial position or profitability of the Issuer or the Group.

Clearing

The Notes have been accepted for clearance through the Euroclear and Clearstream, Luxembourg systems (which are the entities in charge of keeping the records). The Common Code is 218381740 and the International Securities Identification Number (ISIN) is XS2183817407. The CFI and FISN for the Notes can be obtained from the website of the Association of National Numbering Agencies or alternatively sourced from the responsible National Numbering Agency that assigned the ISIN.

The address of Euroclear is Euroclear Bank SA/NV, 1 Boulevard du Roi Albert II, B-1210 Brussels, Belgium and the address of Clearstream, Luxembourg is Clearstream Banking S.A., 42 Avenue JF Kennedy, L-1855 Luxembourg.

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Material contracts

There are no material contracts entered into other than in the ordinary course of the Issuer’s business, which could result in any member of the Group being under an obligation or entitlement that is material to the Issuer’s ability to meet its obligations to Noteholders in respect of the Notes being issued. Yield

The yield to maturity of the Notes (assuming, solely for these purposes, that no payments of interest or principal are deferred and that the Notes are redeemed on the Maturity Date) will be 4.042 per cent. per annum on a semi-annual basis. The yield is calculated at the Issue Date on the basis of the re-offer price and is not an indication of future yield.

Auditors

The Issuer’s 2018 Annual Financial Statements and the Issuer’s 2019 Annual Financial Statements have in each case been audited by Deloitte LLP of Hill House, 1 Little New Street, London EC4A 3TR, United Kingdom (“Deloitte”), chartered accountants as registered auditor of the Issuer for such financial year and an unqualified opinion has been given thereon. Deloitte LLP is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales.

Documents available

Paper copies of the following documents will be available, during usual business hours on any weekday (public holidays excepted), for physical inspection at the office of the Principal Paying Agent while the Notes remain outstanding and admitted to the Official List and to trading on GEM:

(i) the Articles of Association of the Issuer;

(ii) the Issuer’s 2018 Annual Financial Statements and the Issuer’s 2019 Annual Financial Statements;

(iii) the Issuer’s 2019 SFCR;

(iv) the Issuer’s Q1 2020 Trading Update;

(v) the Trust Deed;

(vi) the Agency Agreement; and

(vii) a copy of these Listing Particulars together with any supplement to these Listing Particulars or further Listing Particulars.

These Listing Particulars will be published on the website of the Regulatory News Service operated by the London Stock Exchange at: http://www.londonstockexchange.com/exchange/news/market-news/market-news-home.html

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and on the website of Euronext Dublin (www.ise.ie).

Joint Lead Managers transacting with the Issuer

Certain of the Joint Lead Managers and their affiliates have engaged, and may in the future engage, in investment banking, hedging and/or commercial banking transactions with, and may perform services for the Issuer and its affiliates in the ordinary course of business. Certain of the Joint Lead Managers and their affiliates may have positions, deal or make markets in the Notes, related derivatives and reference obligations, including (but not limited to) entering into hedging strategies on behalf of the Issuer and its affiliates, investor clients, or as principal in order to manage their exposure, their general market risk, or other trading activities.

In addition, in the ordinary course of their business activities, the Joint Lead Managers and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of the Issuer or its affiliates. Certain of the Joint Lead Managers or their affiliates that have a lending relationship with the Issuer routinely hedge their credit exposure to the Issuer consistent with their customary risk management policies. Typically, such Joint Lead Managers and their affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in securities, including potentially the Notes. Any such positions could adversely affect future trading prices of Notes. The Joint Lead Managers and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

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THE ISSUER

Direct Line Insurance Group plc Churchill Court Westmoreland Road Bromley Kent BR1 1DP United Kingdom

JOINT LEAD MANAGERS

Goldman Sachs International Morgan Stanley & Co. International plc Plumtree Court 25 Cabot Square 25 Shoe Lane Canary Wharf London EC4A 4AU London E14 4QA United Kingdom United Kingdom

NatWest Markets Plc 250 Bishopsgate London EC2M 4AA United Kingdom

AUDITOR TO THE ISSUER

Deloitte LLP Hill House 1 Little New Street London EC4A 3TR United Kingdom

TRUSTEE

BNY Mellon Corporate Trustee Services Limited One Canada Square London E14 5AL United Kingdom

PRINCIPAL PAYING AGENT AND REGISTRAR TRANSFER AGENT

The Bank of New York Mellon, London The Bank of New York Mellon SA/NV, Luxembourg Branch Branch Vertigo Building - Polaris – 2-4 rue Eugène One Canada Square Ruppert London E14 5AL L-2453 – Luxembourg United Kingdom

LEGAL ADVISERS

To the Issuer To the Joint Lead Managers and the Trustee Slaughter and May One Bunhill Row Allen & Overy LLP London EC1Y 8YY One Bishops Square United Kingdom London E1 6AD United Kingdom

IRISH LISTING AGENT

Arthur Cox Listing Services Limited Ten Earlsfort Terrace Dublin 2, Ireland